Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 128705 June 29, 2001

CONRADO AGUILAR, SR., petitioner, vs. COMMERCIAL SAVINGS BANK and FERDINAND BORJA, respondents. QUISUMBING, J.: This petition1 seeks to annul and set aside the decision dated October 16, 1996, of the Court of Appeals in CA-G.R. CV No. 48793, reversing the decision of the Regional Trial Court of Makati, Branch 59, and dismissing the complaint insofar as respondent Commercial Savings Bank is concerned. The facts in this case are uncomplicated. Petitioner Conrado Aguilar, Sr. is the father of Conrado Aguilar, Jr., the victim in a vehicular accident involving a Lancer car registered in the name of respondent bank, but driven by co-respondent Ferdinand G. Borja. On September 8, 1984, at around 11:15 P.M., Aguilar, Jr. and his companions, among them Nestor Semella, had just finished their snack at the Uncle Watts Bakery along Zapote-Alabang Road. As they crossed the road, a Lancer with plate no. NNP 349 and driven by Ferdinand Borja, overtook a passenger jeepney. In so doing, the Lancer hit Aguilar and Semella. Aguilar was thrown upwards and smashed against the windshield of the Lancer, which did not stop. Aguilar and Semella were then brought to the Perpetual Help Hospital at Pamplona, Las Pias, where Aguilar was pronounced dead on arrival. On July 29, 1985, petitioner filed a complaint for damages against respondents in the Regional Trial Court of Makati, Branch 59. Borja did not file his answer within the reglementary period, hence, he was declared in default by the trial court. At the trial, respondent bank admitted that the Lancer was registered in its name at the time of the incident. Petitioners c ounsel also showed that Borja was negligent in driving the car. On June 14, 1991, the trial court held defendants (herein respondents) liable for Aguilars death, in its decision that reads: Premises considered, judgment is hereby rendered ordering the defendants, jointly and severally, to pay to the plaintiff the following: 1. The amount of P18,900.00 representing actual expenses incurred by the plaintiff; 2. The amount of P50,000.00 representing moral damages; 3. The amount of P100,000.00 representing loss of earning capacity of the deceased victim, Conrado Aguilar, Jr. 4. The sum of P20,000.00 representing attorneys fees; and 5. With costs against the defendants. Defendant banks counterclaim is ordered DISMISSED for lack of merit. On the cross-claim of the defendant bank, the cross-defendant Ferdinand Borja is hereby ordered to pay the cross-claimant Comsavings Bank whatever amount the latter may have paid or is required to pay to the plaintiff by virtue of this decision. SO ORDERED.2

The trial court declared that Borjas negligence, carelessness and imprudence caused the victims death. It also found that Bo rja was an assistant vice president of respondent bank at the time of the incident. It held that under Art. 21803 of the Civil Code, the negligence of the employee is presumed to be that of the employer, whose liability is primary and direct; and that respondent bank failed to exercise due diligence in the selection of its employees. Respondent bank appealed to the Court of Appeals. The Court of Appeals found the appeal meritorious. It said that before it can apply Art. 2180 on which private respondent anchored its claim of the banks negligence, petitioner must first establish that Borja acted on the occasion or by reason of the functions entrusted to him by his employer. The appellate court found no evidence that Borja had acted as respondent banks assistant vice-president at the time of the mishap. The Court of Appeals reversed the trial courts decision, thus: WHEREFORE, the appealed decision is reversed only insofar as defendant-appellant bank is concerned. The complaint against it is DISMISSED. No award of damages on said appellants counterclaim. No costs.1wphi1.nt SO ORDERED.4 Petitioners motion for reconsideration was denied. Hence, this petition where petitioner avers that: THE COURT OF APPEALS ERRED IN FINDING THAT RESPONDENT COMSAVINGS IS NOT LIABLE FOR DAMAGES DESPITE THE ESTABLISHED FACT THAT RESPONDENT COMSAVINGS IS THE REGISTERED OWNER OF THE CAR THAT HIT AND KILLED PETITIONERS SON WHICH FINDING, COUPLED WITH THE DISMISSAL OF THE COMPLAINT AGAINST RESPONDENT COMSAVINGS, IS CONTRARY TO LAW AND EXISTING JURISPRUDENCE.5 The sole issue is whether or not respondent bank, as the Lancers registered owner, is liable for damages. Petitioner states that the Court of Appeals erred when it disregarded the fact that respondent bank was the registered owner of the car and concluded that the bank was not liable since there was "no iota of evidence that Borja was performing his assigned task at the time of the incident."6 He insists that the existence or absence of employer-employee relationship between the bank and Borja is immaterial in this case for the registered owner of a motor vehicle is legally liable for the damages incurred by third persons for injuries sustained in the operation of said vehicle. Respondent bank counters that the appellate courts decision is well supported by law and jurisprudence. According to respond ent bank, under Article 2180 of the Civil Code, when the negligent employee commits the act outside the actual performance of his assigned tasks or duties, the employer has no vicarious liability. Further, the bank insists that it is not liable since at the time of the accident, Borja was driving the Lancer in his private capacity and was not performing functions in furtherance of the interest of Comsavings Bank. Additionally, according to the bank, Borja already bought the car on installment basis. Hence, at the time of the incident, the bank concluded it was no longer the owner of the car.7 We are, however, unimpressed by respondent banks disquisition. It goes against established jurisprudence. In BA Finance Corporation vs. Court of Appeals, 215 SCRA 715, we had already held that the registered owner of any vehicle, even if not for public service, is primarily responsible to third persons for deaths, injuries and damages it caused. This is true even if the vehicle is leased to third persons. In that case, petitioners Isuzu ten-wheeler truck driven by an employee of a certain Lino Castro met an accident. Neither the driver nor Lino Castro was connected to petitioner, for at the time of the incident, the truck was on lease to Rock Component Philippines, Inc. The Court held petitioner liable as the trucks registered owner, despite the absence of employer-employee relationship between petitioner and the driver. Though petitioner in said case had a right of reimbursement against Rock Component for the total amount of its liability, the Court per Melo, J. made clear petitioner remained legally responsible to the victim of vehicular mishap on the basis of jurisprudential dogmas. As early as Erezo vs. Jepte, 102 Phil. 103, the Court through Labrador, J. had synthesized the rationale for holding the registered owner of a vehicle directly liable. There we said: Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended.) The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways.

"One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the displayed number becomes a snare and delusion, if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to place a middleman between them and the public, and escape liability by the manner in which they recompense their servants." (King vs. Brenham Automobile Co., 145 S.W. 278, 279.) With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person. The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires. In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant.8 The rationale well postulated in Erezo applies in the present case. Thus far no change in jurisprudence has been brought to our attention. In our view, respondent bank, as the registered owner of the vehicle, is primarily liable for Aguilar, Jr.s death. The Court of Appeals erred when it concluded that the bank was not liable simply because (a) petitioner did not prove that Borja was acting as the banks vic e president at the time of the accident; and (b) Borja had, according to respondent bank, already bought the car at the time of the mishap. For as long as the respondent bank remained the registered owner of the car involved in the vehicular accident, it could not escape primary liability for the death of petitioners son. WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals dated October 16, 1996 in CA-G.R. CV No. 48793 is REVERSED. The judgment of the Regional Trial Court of Makati, Branch 59 in Civil Case No. 11231 is UPHELD. Costs against respondent bank. SO ORDERED. Bellosillo Mendoza, Buena, De Leon, Jr., JJ., concur. Footnote1 Rollo, pp. 3-15.
2

Id. at 23-24.

Art. 2180, Civil Code: The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. 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 industry. xxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

Republic of the Philippines

SUPREME COURT Manila EN BANC G.R. No. L-47745 April 15, 1988 JOSE S. AMADORA, LORETA A. AMADORA, JOSE A. AMADORA JR., NORMA A. YLAYA PANTALEON A. AMADORA, JOSE A. AMADORA III, LUCY A. AMADORA, ROSALINDA A. AMADORA, PERFECTO A. AMADORA, SERREC A. AMADORA, VICENTE A. AMADORA and MARIA TISCALINA A. AMADORA, petitioners vs. HONORABLE COURT OF APPEALS, COLEGIO DE SAN JOSE-RECOLETOS, VICTOR LLUCH SERGIO P. DLMASO JR., CELESTINO DICON, ANIANO ABELLANA, PABLITO DAFFON thru his parents and natural guardians, MR. and MRS. NICANOR GUMBAN, and ROLANDO VALENCIA, thru his guardian, A. FRANCISCO ALONSO, respondents. Jose S. Amadora & Associates for petitioners. Padilla Law Office for respondents. CRUZ, J.: Like any prospective graduate, Alfredo Amadora was looking forward to the commencement exercises where he would ascend the stage and in the presence of his relatives and friends receive his high school diploma. These ceremonies were scheduled on April 16, 1972. As it turned out, though, fate would intervene and deny him that awaited experience. On April 13, 1972, while they were in the auditorium of their school, the Colegio de San JoseRecoletos, a classmate, Pablito Damon, fired a gun that mortally hit Alfredo, ending all his expectations and his life as well. The victim was only seventeen years old. 1 Daffon was convicted of homicide thru reckless imprudence . 2 Additionally, the herein petitioners, as the victim's parents, filed a civil action for damages under Article 2180 of the Civil Code against the Colegio de San JoseRecoletos, its rector the high school principal, the dean of boys, and the physics teacher, together with Daffon and two other students, through their respective parents. The complaint against the students was later dropped. After trial, the Court of First Instance of Cebu held the remaining defendants liable to the plaintiffs in the sum of P294,984.00, representing death compensation, loss of earning capacity, costs of litigation, funeral expenses, moral damages, exemplary damages, and attorney's fees . 3 On appeal to the respondent court, however, the decision was reversed and all the defendants were completely absolved . 4 In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules of Court, the respondent court found that Article 2180 was not applicable as the Colegio de San Jose-Recoletos was not a school of arts and trades but an academic institution of learning. It also held that the students were not in the custody of the school at the time of the incident as the semester had already ended, that there was no clear identification of the fatal gun and that in any event the defendant, had exercised the necessary diligence in preventing the injury. 5 The basic undisputed facts are that Alfredo Amadora went to the San Jose-Recoletos on April 13, 1972, and while in its auditorium was shot to death by Pablito Daffon, a classmate. On the implications and consequences of these facts, the parties sharply disagree. The petitioners contend that their son was in the school to show his physics experiment as a prerequisite to his graduation; hence, he was then under the custody of the private respondents. The private respondents submit that Alfredo Amadora had gone to the school only for the purpose of submitting his physics report and that he was no longer in their custody because the semester had already ended.

There is also the question of the identity of the gun used which the petitioners consider important because of an earlier incident which they claim underscores the negligence of the school and at least one of the private respondents. It is not denied by the respondents that on April 7, 1972, Sergio Damaso, Jr., the dean of boys, confiscated from Jose Gumban an unlicensed pistol but later returned it to him without making a report to the principal or taking any further action . 6 As Gumban was one of the companions of Daffon when the latter fired the gun that killed Alfredo, the petitioners contend that this was the same pistol that had been confiscated from Gumban and that their son would not have been killed if it had not been returned by Damaso. The respondents say, however, that there is no proof that the gun was the same firearm that killed Alfredo. Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as it happens, is invoked by both parties in support of their conflicting positions. The pertinent part of this article reads as follows: Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices so long as they remain in their custody. Three cases have so far been decided by the Court in connection with the above-quoted provision, to wit: Exconde v. Capuno 7 Mercado v. Court of Appeals, 8 and Palisoc v. Brillantes. 9 These will be briefly reviewed in this opinion for a better resolution of the case at bar. In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy Scout, attended a Rizal Day parade on instructions of the city school supervisor. After the parade, the boy boarded a jeep, took over its wheel and drove it so recklessly that it turned turtle, resulting in the death of two of its passengers. Dante was found guilty of double homicide with reckless imprudence. In the separate civil action flied against them, his father was held solidarily liable with him in damages under Article 1903 (now Article 2180) of the Civil Code for the tort committed by the 15-year old boy. This decision, which was penned by Justice Bautista Angelo on June 29,1957, exculpated the school in an obiter dictum (as it was not a party to the case) on the ground that it was riot a school of arts and trades. Justice J.B.L. Reyes, with whom Justices Sabino Padilla and Alex Reyes concurred, dissented, arguing that it was the school authorities who should be held liable Liability under this rule, he said, was imposed on (1) teachers in general; and (2) heads of schools of arts and trades in particular. The modifying clause "of establishments of arts and trades" should apply only to "heads" and not "teachers." Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate with a razor blade during recess time at the Lourdes Catholic School in Quezon City, and the parents of the victim sued the culprits parents for damages. Through Justice Labrador, the Court declared in another obiter (as the school itself had also not been sued that the school was not liable because it was not an establishment of arts and trades. Moreover, the custody requirement had not been proved as this "contemplates a situation where the student lives and boards with the teacher, such that the control, direction and influences on the pupil supersede those of the parents." Justice J.B.L. Reyes did not take part but the other members of the court concurred in this decision promulgated on May 30, 1960. In Palisoc vs. Brillantes, decided on October 4, 1971, a 16-year old student was killed by a classmate with fist blows in the laboratory of the Manila Technical Institute. Although the wrongdoer who was already of age was not boarding in the school, the head thereof and the teacher in charge were held solidarily liable with him. The Court declared through Justice Teehankee: The phrase used in the cited article "so long as (the students) remain in their custody" means the protective and supervisory custody that the school and its heads and teachers exercise over the pupils and students for as long as they are at attendance in the school, including recess time. There is nothing in the law that requires that for such liability to attach, the pupil or student who commits the tortious act must live and board in the school, as erroneously held by the lower court, and the dicta in Mercado (as well as in Exconde) on which it relied, must now be deemed to have been set aside by the present decision.

This decision was concurred in by five other members, 10 including Justice J.B.L. Reyes, who stressed, in answer to the dissenting opinion, that even students already of age were covered by the provision since they were equally in the custody of the school and subject to its discipline. Dissenting with three others, 11 Justice Makalintal was for retaining the custody interpretation in Mercado and submitted that the rule should apply only to torts committed by students not yet of age as the school would be acting only in loco parentis. In a footnote, Justice Teehankee said he agreed with Justice Reyes' dissent in the Exconde Case but added that "since the school involved at bar is a non-academic school, the question as to the applicability of the cited codal provision to academic institutions will have to await another case wherein it may properly be raised." This is the case. Unlike in Exconde and Mercado, the Colegio de San Jose-Recoletos has been directly impleaded and is sought to be held liable under Article 2180; and unlike in Palisoc, it is not a school of arts and trades but an academic institution of learning. The parties herein have also directly raised the question of whether or not Article 2180 covers even establishments which are technically not schools of arts and trades, and, if so, when the offending student is supposed to be "in its custody." After an exhaustive examination of the problem, the Court has come to the conclusion that the provision in question should apply to all schools, academic as well as non-academic. Where the school is academic rather than technical or vocational in nature, responsibility for the tort committed by the student will attach to the teacher in charge of such student, following the first part of the provision. This is the general rule. In the case of establishments of arts and trades, it is the head thereof, and only he, who shall be held liable as an exception to the general rule. In other words, teachers in general shall be liable for the acts of their students except where the school is technical in nature, in which case it is the head thereof who shall be answerable. Following the canon of reddendo singula singulis "teachers" should apply to the words "pupils and students" and "heads of establishments of arts and trades" to the word "apprentices." The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde where he said in part: I can see no sound reason for limiting Art. 1903 of the Old Civil Code to teachers of arts and trades and not to academic ones. What substantial difference is there between them insofar as concerns the proper supervision and vice over their pupils? It cannot be seriously contended that an academic teacher is exempt from the duty of watching that his pupils do not commit a tort to the detriment of third Persons, so long as they are in a position to exercise authority and Supervision over the pupil. In my opinion, in the phrase "teachers or heads of establishments of arts and trades" used in Art. 1903 of the old Civil Code, the words "arts and trades" does not qualify "teachers" but only "heads of establishments." The phrase is only an updated version of the equivalent terms "preceptores y artesanos" used in the Italian and French Civil Codes. If, as conceded by all commentators, the basis of the presumption of negligence of Art. 1903 in some culpa in vigilando that the parents, teachers, etc. are supposed to have incurred in the exercise of their authority, it would seem clear that where the parent places the child under the effective authority of the teacher, the latter, and not the parent, should be the one answerable for the torts committed while under his custody, for the very reason/that the parent is not supposed to interfere with the discipline of the school nor with the authority and supervision of the teacher while the child is under instruction. And if there is no authority, there can be no responsibility. There is really no substantial distinction between the academic and the non-academic schools insofar as torts committed by their students are concerned. The same vigilance is expected from the teacher over the students under his control and supervision, whatever the nature of the school where he is teaching. The suggestion in the Exconde and Mercado Cases is that the provision would make the teacher or even the head of the school of arts and trades liable for an injury caused by any student in its custody but if that same tort were committed in an academic school,

no liability would attach to the teacher or the school head. All other circumstances being the same, the teacher or the head of the academic school would be absolved whereas the teacher and the head of the non-academic school would be held liable, and simply because the latter is a school of arts and trades. The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the basis only of the nature of their respective schools. There does not seem to be any plausible reason for relaxing that vigilance simply because the school is academic in nature and for increasing such vigilance where the school is nonacademic. Notably, the injury subject of liability is caused by the student and not by the school itself nor is it a result of the operations of the school or its equipment. The injury contemplated may be caused by any student regardless of the school where he is registered. The teacher certainly should not be able to excuse himself by simply showing that he is teaching in an academic school where, on the other hand, the head would be held liable if the school were non-academic. These questions, though, may be asked: If the teacher of the academic school is to be held answerable for the torts committed by his students, why is it the head of the school only who is held liable where the injury is caused in a school of arts and trades? And in the case of the academic or non- technical school, why not apply the rule also to the head thereof instead of imposing the liability only on the teacher? The reason for the disparity can be traced to the fact that historically the head of the school of arts and trades exercised a closer tutelage over his pupils than the head of the academic school. The old schools of arts and trades were engaged in the training of artisans apprenticed to their master who personally and directly instructed them on the technique and secrets of their craft. The head of the school of arts and trades was such a master and so was personally involved in the task of teaching his students, who usually even boarded with him and so came under his constant control, supervision and influence. By contrast, the head of the academic school was not as involved with his students and exercised only administrative duties over the teachers who were the persons directly dealing with the students. The head of the academic school had then (as now) only a vicarious relationship with the students. Consequently, while he could not be directly faulted for the acts of the students, the head of the school of arts and trades, because of his closer ties with them, could be so blamed. It is conceded that the distinction no longer obtains at present in view of the expansion of the schools of arts and trades, the consequent increase in their enrollment, and the corresponding diminution of the direct and personal contract of their heads with the students. Article 2180, however, remains unchanged. In its present state, the provision must be interpreted by the Court according to its clear and original mandate until the legislature, taking into account the charges in the situation subject to be regulated, sees fit to enact the necessary amendment. The other matter to be resolved is the duration of the responsibility of the teacher or the head of the school of arts and trades over the students. Is such responsibility co-extensive with the period when the student is actually undergoing studies during the school term, as contended by the respondents and impliedly admitted by the petitioners themselves? From a reading of the provision under examination, it is clear that while the custody requirement, to repeat Palisoc v. Brillantes, does not mean that the student must be boarding with the school authorities, it does signify that the student should be within the control and under the influence of the school authorities at the time of the occurrence of the injury. This does not necessarily mean that such, custody be co-terminous with the semester, beginning with the start of classes and ending upon the close thereof, and excluding the time before or after such period, such as the period of registration, and in the case of graduating students, the period before the commencement exercises. In the view of the Court, the student is in the custody of the school authorities as long as he is under the control and influence of the school and within its premises, whether the semester has not yet begun or has already ended. It is too tenuous to argue that the student comes under the discipline of the school only upon the start of classes notwithstanding that before that day he has already registered and thus placed himself under its rules. Neither should such discipline be deemed ended upon the last day of classes notwithstanding that there may still be certain requisites to be satisfied for completion of the course, such as submission of reports, term papers, clearances and the

like. During such periods, the student is still subject to the disciplinary authority of the school and cannot consider himself released altogether from observance of its rules. As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective, in the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues. Indeed, even if the student should be doing nothing more than relaxing in the campus in the company of his classmates and friends and enjoying the ambience and atmosphere of the school, he is still within the custody and subject to the discipline of the school authorities under the provisions of Article 2180. During all these occasions, it is obviously the teacher-in-charge who must answer for his students' torts, in practically the same way that the parents are responsible for the child when he is in their custody. The teacher-incharge is the one designated by the dean, principal, or other administrative superior to exercise supervision over the pupils in the specific classes or sections to which they are assigned. It is not necessary that at the time of the injury, the teacher be physically present and in a position to prevent it. Custody does not connote immediate and actual physical control but refers more to the influence exerted on the child and the discipline instilled in him as a result of such influence. Thus, for the injuries caused by the student, the teacher and not the parent shag be held responsible if the tort was committed within the premises of the school at any time when its authority could be validly exercised over him. In any event, it should be noted that the liability imposed by this article is supposed to fall directly on the teacher or the head of the school of arts and trades and not on the school itself. If at all, the school, whatever its nature, may be held to answer for the acts of its teachers or even of the head thereof under the general principle of respondeat superior, but then it may exculpate itself from liability by proof that it had exercised the diligence of a bonus paterfamilias. Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly held to answer for the tort committed by the student. As long as the defendant can show that he had taken the necessary precautions to prevent the injury complained of, he can exonerate himself from the liability imposed by Article 2180, which also states that: The responsibility treated of in this article shall cease when the Persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damages. In this connection, it should be observed that the teacher will be held liable not only when he is acting in loco parentis for the law does not require that the offending student be of minority age. Unlike the parent, who wig be liable only if his child is still a minor, the teacher is held answerable by the law for the act of the student under him regardless of the student's age. Thus, in the Palisoc Case, liability attached to the teacher and the head of the technical school although the wrongdoer was already of age. In this sense, Article 2180 treats the parent more favorably than the teacher. The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his dissenting opinion in Palisoc that the school may be unduly exposed to liability under this article in view of the increasing activism among the students that is likely to cause violence and resulting injuries in the school premises. That is a valid fear, to be sure. Nevertheless, it should be repeated that, under the present ruling, it is not the school that will be held directly liable. Moreover, the defense of due diligence is available to it in case it is sought to be held answerable as principal for the acts or omission of its head or the teacher in its employ. The school can show that it exercised proper measures in selecting the head or its teachers and the appropriate supervision over them in the custody and instruction of the pupils pursuant to its rules and regulations for the maintenance of discipline among them. In almost all cases now, in fact, these measures are effected through the assistance of an adequate security force to help the teacher physically enforce those rules upon the students. Ms should bolster the claim of the school that it has taken adequate steps to prevent any injury that may be committed by its students.

A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold him directly answerable for the damage caused by his students as long as they are in the school premises and presumably under his influence. In this respect, the Court is disposed not to expect from the teacher the same measure of responsibility imposed on the parent for their influence over the child is not equal in degree. Obviously, the parent can expect more obedience from the child because the latter's dependence on him is greater than on the teacher. It need not be stressed that such dependence includes the child's support and sustenance whereas submission to the teacher's influence, besides being coterminous with the period of custody is usually enforced only because of the students' desire to pass the course. The parent can instill more las discipline on the child than the teacher and so should be held to a greater accountability than the teacher for the tort committed by the child. And if it is also considered that under the article in question, the teacher or the head of the school of arts and trades is responsible for the damage caused by the student or apprentice even if he is already of age and therefore less tractable than the minor then there should all the more be justification to require from the school authorities less accountability as long as they can prove reasonable diligence in preventing the injury. After all, if the parent himself is no longer liable for the student's acts because he has reached majority age and so is no longer under the former's control, there is then all the more reason for leniency in assessing the teacher's responsibility for the acts of the student. Applying the foregoing considerations, the Court has arrived at the following conclusions: 1. At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of Colegio de San Jose-Recoletos notwithstanding that the fourth year classes had formally ended. It was immaterial if he was in the school auditorium to finish his physics experiment or merely to submit his physics report for what is important is that he was there for a legitimate purpose. As previously observed, even the mere savoring of the company of his friends in the premises of the school is a legitimate purpose that would have also brought him in the custody of the school authorities. 2. The rector, the high school principal and the dean of boys cannot be held liable because none of them was the teacher-in-charge as previously defined. Each of them was exercising only a general authority over the student body and not the direct control and influence exerted by the teacher placed in charge of particular classes or sections and thus immediately involved in its discipline. The evidence of the parties does not disclose who the teacher-in-charge of the offending student was. The mere fact that Alfredo Amadora had gone to school that day in connection with his physics report did not necessarily make the physics teacher, respondent Celestino Dicon, the teacher-in-charge of Alfredo's killer. 3. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was negligent in enforcing discipline upon Daffon or that he had waived observance of the rules and regulations of the school or condoned their non-observance. His absence when the tragedy happened cannot be considered against him because he was not supposed or required to report to school on that day. And while it is true that the offending student was still in the custody of the teacher-in-charge even if the latter was physically absent when the tort was committed, it has not been established that it was caused by his laxness in enforcing discipline upon the student. On the contrary, the private respondents have proved that they had exercised due diligence, through the enforcement of the school regulations, in maintaining that discipline. 4. In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable especially in view of the unrefuted evidence that he had earlier confiscated an unlicensed gun from one of the students and returned the same later to him without taking disciplinary action or reporting the matter to higher authorities. While this was clearly negligence on his part, for which he deserves sanctions from the school, it does not necessarily link him to the shooting of Amador as it has not been shown that he confiscated and returned pistol was the gun that killed the petitioners' son. 5. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly liable under the article because only the teacher or the head of the school of arts and trades is made responsible for the damage caused by the student or apprentice. Neither can it be held to answer for the tort committed by any of the other private

respondents for none of them has been found to have been charged with the custody of the offending student or has been remiss in the discharge of his duties in connection with such custody. In sum, the Court finds under the facts as disclosed by the record and in the light of the principles herein announced that none of the respondents is liable for the injury inflicted by Pablito Damon on Alfredo Amadora that resulted in the latter's death at the auditorium of the Colegio de San Jose-Recoletos on April 13, 1972. While we deeply sympathize with the petitioners over the loss of their son under the tragic circumstances here related, we nevertheless are unable to extend them the material relief they seek, as a balm to their grief, under the law they have invoked. WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It is so ordered. Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur. Fernan, Padilla and Teehankee, C.J., JJ, took no part. Separate Opinions MELENCIO-HERRERA, J., concurring and dissenting: I concur, except with respect to the restricted meaning given the term "teacher" in Article 2180 of the Civil Code as "teacher-in-charge." This would limit liability to occasions where there are classes under the immediate charge of a teacher, which does not seem to be the intendment of the law. As I understand it, the philosophy of the law is that whoever stands in loco parentis will have the same duties and obligations as parents whenever in such a standing. Those persons are mandatorily held liable for the tortious acts of pupils and students so long as the latter remain in their custody, meaning their protective and supervisory custody. Thus Article 349 of the Civil Code enumerates the persons who stand in loco parentis and thereby exercise substitute parental authority: Art. 349 The following persons shall exercise substitute parental authority: 2) Teachers and professors 4) Directors of trade establishments, with regard to apprentices;' Article 352 of the Civil Code further provides: Art. 362. The relations between teacher and pupil, professor and student, are fixed by government regulations and those of each school or institution.... But even such rules and regulations as may be fixed can not contravene the concept of substitute parental authority. The rationale of liability of school heads and teachers for the tortious acts of their pupils was explained in Palisoc vs. Brillantes (41 SCRA 548), thus: The protective custody of the school heads and teachers is mandatorily substituted for that of the parents, and hence, it becomes their obligation as well as that of the school itself to provide proper supervision of the students' activities during the whole time that they are at attendance in the school, including recess time, as well as to take the necessary precautions to protect the students in their custody from dangers and hazards that would reasonably be anticipated, including injuries

that some students themselves may inflict wilfully or through negligence on their fellow students. (Emphasis supplied) Of course, as provided for in the same Article 2180, the responsibility treated of shall cease when the persons mentioned prove that they observed all the diligence of a good father of a family to prevent damage. And while a school is, admittedly, not directly liable since Article 2180 speaks only of teachers and schools heads, yet, by virtue of the same provision, the school, as their employer, may be held liable for the failure of its teachers or school heads to perform their mandatory legal duties as substitute parents (Sangco, Philippine Law on Torts & Damages, 1978 ed., p. 201). Again, the school may exculpate itself from liability by proving that it had exercised the diligence of a good father of the family. Art. 2180. x x x 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 industry. xxx xxx xxx Parenthetically, from the enumeration in Article 349 of the Civil Code, supra, it is apparent that the Code Commission had already segregated the classification of "teachers and professors" vis-a-vis their pupils, from "directors of trade establishments, with regard to their apprentices." GUTIERREZ, JR., J., concurring: I concur in the Court's opinion so carefully analyzed and crafted by Justice Isagani A. Cruz. However, I would like to stress the need for a major amendment to, if not a complete scrapping of, Article 2180 of the Civil Code insofar as it refers to teachers or heads of establishments of arts and trades in relation to pupils and students or apprentices. The seventh paragraph of Art. 2180 is a relic of the past and contemplates a situation long gone and out of date. In a Palisoc v. Brillantes (41 SCRA 548) situation, it is bound to result in mischief and injustice. First, we no longer have masters and apprentices toiling in schools of arts and trades. Students in "technological" colleges and universities are no different from students in liberal arts or professional schools. Apprentices now work in regular shops and factories and their relationship to the employer is covered by laws governing the employment relationship and not by laws governing the teacherstudent relationship. Second, except for kindergarten, elementary, and perhaps early high school students, teachers are often no longer objects of veneration who are given the respect due to substitute parents. Many students in their late teens or early adult years view some teachers as part of a bourgeois or reactionary group whose advice on behaviour, deportment, and other non-academic matters is not only resented but actively rejected. It ,seems most unfair to hold teachers liable on a presumption juris tantum of negligence for acts of students even under circumstances where strictly speaking there could be no in loco parentis relationship. Why do teachers have to prove the contrary of negligence to be freed from solidary liability for the acts f bomb-throwing or pistol packing students who would just as soon hurt them as they would other members of the so-called-establishment. The ordinary rules on quasi-delicta should apply to teachers and schools of whatever nature insofar as grown up students are concerned. The provision of Art. 2180 of the Civil Code involved in this case has outlived its purpose. The Court cannot make law. It can only apply the law with its imperfections. However, the Court can suggest that such a law should be amended or repealed. Separate Opinions

MELENCIO-HERRERA, J., concurring and dissenting: I concur, except with respect to the restricted meaning given the term "teacher" in Article 2180 of the Civil Code as "teacher-in-charge." This would limit liability to occasions where there are classes under the immediate charge of a teacher, which does not seem to be the intendment of the law. As I understand it, the philosophy of the law is that whoever stands in loco parentis will have the same duties and obligations as parents whenever in such a standing. Those persons are mandatorily held liable for the tortious acts of pupils and students so long as the latter remain in their custody, meaning their protective and supervisory custody. Thus Article 349 of the Civil Code enumerates the persons who stand in loco parentis and thereby exercise substitute parental authority: Art. 349 The following persons shall exercise substitute parental authority: 2) Teachers and professors 4) Directors of trade establishments, with regard to apprentices;' Article 352 of the Civil Code further provides: Art. 362. The relations between teacher and pupil, professor and student, are fixed by government regulations and those of each school or institution.... But even such rules and regulations as may be fixed can not contravene the concept of substitute parental authority. The rationale of liability of school heads and teachers for the tortious acts of their pupils was explained in Palisoc vs. Brillantes (41 SCRA 548), thus: The protective custody of the school heads and teachers is mandatorily substituted for that of the parents, and hence, it becomes their obligation as well as that of the school itself to provide proper supervision of the students' activities during the whole time that they are at attendance in the school, including recess time, as well as to take the necessary precautions to protect the students in their custody from dangers and hazards that would reasonably be anticipated, including injuries that some students themselves may inflict wilfully or through negligence on their fellow students. (Emphasis supplied) Of course, as provided for in the same Article 2180, the responsibility treated of shall cease when the persons mentioned prove that they observed all the diligence of a good father of a family to prevent damage. And while a school is, admittedly, not directly liable since Article 2180 speaks only of teachers and schools heads, yet, by virtue of the same provision, the school, as their employer, may be held liable for the failure of its teachers or school heads to perform their mandatory legal duties as substitute parents (Sangco, Philippine Law on Torts & Damages, 1978 ed., p. 201). Again, the school may exculpate itself from liability by proving that it had exercised the diligence of a good father of the family. Art. 2180. x x x 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 industry.

Parenthetically, from the enumeration in Article 349 of the Civil Code, supra, it is apparent that the Code Commission had already segregated the classification of "teachers and professors" vis-a-vis their pupils, from "directors of trade establishments, with regard to their apprentices." GUTIERREZ, JR., J., concurring: I concur in the Court's opinion so carefully analyzed and crafted by Justice Isagani A. Cruz. However, I would like to stress the need for a major amendment to, if not a complete scrapping of, Article 2180 of the Civil Code insofar as it refers to teachers or heads of establishments of arts and trades in relation to pupils and students or apprentices. The seventh paragraph of Art. 2180 is a relic of the past and contemplates a situation long gone and out of date. In a Palisoc v. Brillantes (41 SCRA 548) situation, it is bound to result in mischief and injustice. First, we no longer have masters and apprentices toiling in schools of arts and trades. Students in "technological" colleges and universities are no different from students in liberal arts or professional schools. Apprentices now work in regular shops and factories and their relationship to the employer is covered by laws governing the employment relationship and not by laws governing the teacherstudent relationship. Second, except for kindergarten, elementary, and perhaps early high school students, teachers are often no longer objects of veneration who are given the respect due to substitute parents. Many students in their late teens or early adult years view some teachers as part of a bourgeois or reactionary group whose advice on behaviour, deportment, and other non-academic matters is not only resented but actively rejected. It ,seems most unfair to hold teachers liable on a presumption juris tantum of negligence for acts of students even under circumstances where strictly speaking there could be no in loco parentis relationship. Why do teachers have to prove the contrary of negligence to be freed from solidary liability for the acts f bomb-throwing or pistol packing students who would just as soon hurt them as they would other members of the so-called-establishment. The ordinary rules on quasi-delicta should apply to teachers and schools of whatever nature insofar as grown up students are concerned. The provision of Art. 2180 of the Civil Code involved in this case has outlived its purpose. The Court cannot make law. It can only apply the law with its imperfections. However, the Court can suggest that such a law should be amended or repealed. Footnotes: 1 Rollo, pp. 63,157. 2 lbid., p. 38. 3 Id., p. 23. 4 Id p. 31. Climaco, J., ponente, with Pascual and Agcaoili, JJ. 5 Id., pp. 30-31, 6 Id., pp. 23, 272. 7 101 Phil, 843. 8 108 Phil, 414, 9 41 SCRA 548. 10 Concepcion, C.J., Reyes, Barredo, Villamor, and Makasiar, JJ. 11 Castro, Fernando, and Zaldivar, JJ.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 142625 December 19, 2006

ROGELIO P. NOGALES, for himself and on behalf of the minors, ROGER ANTHONY, ANGELICA, NANCY, and MICHAEL CHRISTOPHER, all surnamed NOGALES, petitioners, vs. CAPITOL MEDICAL CENTER, DR. OSCAR ESTRADA, DR. ELY VILLAFLOR, DR. ROSA UY, DR. JOEL ENRIQUEZ, DR. PERPETUA LACSON, DR. NOE ESPINOLA, and NURSE J. DUMLAO, respondents. DECISION CARPIO, J.: The Case This petition for review1 assails the 6 February 1998 Decision2 and 21 March 2000 Resolution3 of the Court of Appeals in CA-G.R. CV No. 45641. The Court of Appeals affirmed in toto the 22 November 1993 Decision4 of the Regional Trial Court of Manila, Branch 33, finding Dr. Oscar Estrada solely liable for damages for the death of his patient, Corazon Nogales, while absolving the remaining respondents of any liability. The Court of Appeals denied petitioners' motion for reconsideration. The Facts Pregnant with her fourth child, Corazon Nogales ("Corazon"), who was then 37 years old, was under the exclusive prenatal care of Dr. Oscar Estrada ("Dr. Estrada") beginning on her fourth month of pregnancy or as early as December 1975. While Corazon was on her last trimester of pregnancy, Dr. Estrada noted an increase in her blood pressure and development of leg edema5 indicating preeclampsia,6 which is a dangerous complication of pregnancy.7 Around midnight of 25 May 1976, Corazon started to experience mild labor pains prompting Corazon and Rogelio Nogales ("Spouses Nogales") to see Dr. Estrada at his home. After examining Corazon, Dr. Estrada advised her immediate admission to the Capitol Medical Center ("CMC"). On 26 May 1976, Corazon was admitted at 2:30 a.m. at the CMC after the staff nurse noted the written admission request8 of Dr. Estrada. Upon Corazon's admission at the CMC, Rogelio Nogales ("Rogelio") executed and signed the "Consent on Admission and Agreement"9 and "Admission Agreement."10 Corazon was then brought to the labor room of the CMC. Dr. Rosa Uy ("Dr. Uy"), who was then a resident physician of CMC, conducted an internal examination of Corazon. Dr. Uy then called up Dr. Estrada to notify him of her findings. Based on the Doctor's Order Sheet,11 around 3:00 a.m., Dr. Estrada ordered for 10 mg. of valium to be administered immediately by intramuscular injection. Dr. Estrada later ordered the start of

intravenous administration of syntocinon admixed with dextrose, 5%, in lactated Ringers' solution, at the rate of eight to ten micro-drops per minute. According to the Nurse's Observation Notes,12 Dr. Joel Enriquez ("Dr. Enriquez"), an anesthesiologist at CMC, was notified at 4:15 a.m. of Corazon's admission. Subsequently, when asked if he needed the services of an anesthesiologist, Dr. Estrada refused. Despite Dr. Estrada's refusal, Dr. Enriquez stayed to observe Corazon's condition. At 6:00 a.m., Corazon was transferred to Delivery Room No. 1 of the CMC. At 6:10 a.m., Corazon's bag of water ruptured spontaneously. At 6:12 a.m., Corazon's cervix was fully dilated. At 6:13 a.m., Corazon started to experience convulsions. At 6:15 a.m., Dr. Estrada ordered the injection of ten grams of magnesium sulfate. However, Dr. Ely Villaflor ("Dr. Villaflor"), who was assisting Dr. Estrada, administered only 2.5 grams of magnesium sulfate.

At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor, applied low forceps to extract Corazon's baby. In the process, a 1.0 x 2.5 cm. piece of cervical tissue was allegedly torn. The baby came out in an apnic, cyanotic, weak and injured condition. Consequently, the baby had to be intubated and resuscitated by Dr. Enriquez and Dr. Payumo. At 6:27 a.m., Corazon began to manifest moderate vaginal bleeding which rapidly became profuse. Corazon's blood pressure dropped from 130/80 to 60/40 within five minutes. There was continuous profuse vaginal bleeding. The assisting nurse administered hemacel through a gauge 19 needle as a side drip to the ongoing intravenous injection of dextrose. At 7:45 a.m., Dr. Estrada ordered blood typing and cross matching with bottled blood. It took approximately 30 minutes for the CMC laboratory, headed by Dr. Perpetua Lacson ("Dr. Lacson"), to comply with Dr. Estrada's order and deliver the blood. At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head of the Obstetrics-Gynecology Department of the CMC, was apprised of Corazon's condition by telephone. Upon being informed that Corazon was bleeding profusely, Dr. Espinola ordered immediate hysterectomy. Rogelio was made to sign a "Consent to Operation."13 Due to the inclement weather then, Dr. Espinola, who was fetched from his residence by an ambulance, arrived at the CMC about an hour later or at 9:00 a.m. He examined the patient and ordered some resuscitative measures to be administered. Despite Dr. Espinola's efforts, Corazon died at 9:15 a.m. The cause of death was "hemorrhage, post partum."14 On 14 May 1980, petitioners filed a complaint for damages15 with the Regional Trial Court16 of Manila against CMC, Dr. Estrada, Dr. Villaflor, Dr. Uy, Dr. Enriquez, Dr. Lacson, Dr. Espinola, and a certain Nurse J. Dumlao for the death of Corazon. Petitioners mainly contended that defendant physicians and CMC personnel were negligent in the treatment and management of Corazon's condition. Petitioners charged CMC with negligence in the selection and supervision of defendant physicians and hospital staff. For failing to file their answer to the complaint despite service of summons, the trial court declared Dr. Estrada, Dr. Enriquez, and Nurse Dumlao in default.17 CMC, Dr. Villaflor, Dr. Uy, Dr. Espinola, and Dr. Lacson filed their respective answers denying and opposing the allegations in the complaint. Subsequently, trial ensued.

After more than 11 years of trial, the trial court rendered judgment on 22 November 1993 finding Dr. Estrada solely liable for damages. The trial court ruled as follows:

The victim was under his pre-natal care, apparently, his fault began from his incorrect and inadequate management and lack of treatment of the pre-eclamptic condition of his patient. It is not disputed that he misapplied the forceps in causing the delivery because it resulted in a large cervical tear which had caused the profuse bleeding which he also failed to control with the application of inadequate injection of magnesium sulfate by his assistant Dra. Ely Villaflor. Dr. Estrada even failed to notice the erroneous administration by nurse Dumlao of hemacel by way of side drip, instead of direct intravenous injection, and his failure to consult a senior obstetrician at an early stage of the problem. On the part however of Dra. Ely Villaflor, Dra. Rosa Uy, Dr. Joel Enriquez, Dr. Lacson, Dr. Espinola, nurse J. Dumlao and CMC, the Court finds no legal justification to find them civilly liable. On the part of Dra. Ely Villaflor, she was only taking orders from Dr. Estrada, the principal physician of Corazon Nogales. She can only make suggestions in the manner the patient maybe treated but she cannot impose her will as to do so would be to substitute her good judgment to that of Dr. Estrada. If she failed to correctly diagnose the true cause of the bleeding which in this case appears to be a cervical laceration, it cannot be safely concluded by the Court that Dra. Villaflor had the correct diagnosis and she failed to inform Dr. Estrada. No evidence was introduced to show that indeed Dra. Villaflor had discovered that there was laceration at the cervical area of the patient's internal organ. On the part of nurse Dumlao, there is no showing that when she administered the hemacel as a side drip, she did it on her own. If the correct procedure was directly thru the veins, it could only be because this was what was probably the orders of Dr. Estrada. While the evidence of the plaintiffs shows that Dr. Noe Espinola, who was the Chief of the Department of Obstetrics and Gynecology who attended to the patient Mrs. Nogales, it was only at 9:00 a.m. That he was able to reach the hospital because of typhoon Didang (Exhibit 2). While he was able to give prescription in the manner Corazon Nogales may be treated, the prescription was based on the information given to him by phone and he acted on the basis of facts as presented to him, believing in good faith that such is the correct remedy. He was not with Dr. Estrada when the patient was brought to the hospital at 2:30 o'clock a.m. So, whatever errors that Dr. Estrada committed on the patient before 9:00 o'clock a.m. are certainly the errors of Dr. Estrada and cannot be the mistake of Dr. Noe Espinola. His failure to come to the hospital on time was due to fortuitous event. On the part of Dr. Joel Enriquez, while he was present in the delivery room, it is not incumbent upon him to call the attention of Dr. Estrada, Dra. Villaflor and also of Nurse Dumlao on the alleged errors committed by them. Besides, as anesthesiologist, he has no authority to control the actuations of Dr. Estrada and Dra. Villaflor. For the Court to assume that there were errors being committed in the presence of Dr. Enriquez would be to dwell on conjectures and speculations. On the civil liability of Dr. Perpetua Lacson, [s]he is a hematologist and in-charge of the blood bank of the CMC. The Court cannot accept the theory of the plaintiffs that there was delay in delivering the blood needed by the patient. It was testified, that in order that this blood will be made available, a laboratory test has to be conducted to determine the type of blood, cross matching and other matters consistent with medical science so, the lapse of 30 minutes maybe

considered a reasonable time to do all of these things, and not a delay as the plaintiffs would want the Court to believe. Admittedly, Dra. Rosa Uy is a resident physician of the Capitol Medical Center. She was sued because of her alleged failure to notice the incompetence and negligence of Dr. Estrada. However, there is no evidence to support such theory. No evidence was adduced to show that Dra. Rosa Uy as a resident physician of Capitol Medical Center, had knowledge of the mismanagement of the patient Corazon Nogales, and that notwithstanding such knowledge, she tolerated the same to happen. In the pre-trial order, plaintiffs and CMC agreed that defendant CMC did not have any hand or participation in the selection or hiring of Dr. Estrada or his assistant Dra. Ely Villaflor as attending physician[s] of the deceased. In other words, the two (2) doctors were not employees of the hospital and therefore the hospital did not have control over their professional conduct. When Mrs. Nogales was brought to the hospital, it was an emergency case and defendant CMC had no choice but to admit her. Such being the case, there is therefore no legal ground to apply the provisions of Article 2176 and 2180 of the New Civil Code referring to the vicarious liability of an employer for the negligence of its employees. If ever in this case there is fault or negligence in the treatment of the deceased on the part of the attending physicians who were employed by the family of the deceased, such civil liability should be borne by the attending physicians under the principle of "respondeat superior". WHEREFORE, premises considered, judgment is hereby rendered finding defendant Dr. Estrada of Number 13 Pitimini St. San Francisco del Monte, Quezon City civilly liable to pay plaintiffs: 1) By way of actual damages in the amount of P105,000.00; 2) By way of moral damages in the amount of P700,000.00; 3) Attorney's fees in the amount of P100,000.00 and to pay the costs of suit. For failure of the plaintiffs to adduce evidence to support its [sic] allegations against the other defendants, the complaint is hereby ordered dismissed. While the Court looks with disfavor the filing of the present complaint against the other defendants by the herein plaintiffs, as in a way it has caused them personal inconvenience and slight damage on their name and reputation, the Court cannot accepts [sic] however, the theory of the remaining defendants that plaintiffs were motivated in bad faith in the filing of this complaint. For this reason defendants' counterclaims are hereby ordered dismissed. SO ORDERED.18 Petitioners appealed the trial court's decision. Petitioners claimed that aside from Dr. Estrada, the remaining respondents should be held equally liable for negligence. Petitioners pointed out the extent of each respondent's alleged liability. On 6 February 1998, the Court of Appeals affirmed the decision of the trial court.19 Petitioners filed a motion for reconsideration which the Court of Appeals denied in its Resolution of 21 March 2000.20 Hence, this petition. Meanwhile, petitioners filed a Manifestation dated 12 April 200221 stating that respondents Dr. Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao "need no longer be notified of the petition because they are absolutely not involved in the issue raised before the [Court], regarding the liability of [CMC]."22 Petitioners stressed that the subject matter of this petition is the liability of CMC for the negligence of Dr. Estrada.23

The Court issued a Resolution dated 9 September 200224 dispensing with the requirement to submit the correct and present addresses of respondents Dr. Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao. The Court stated that with the filing of petitioners' Manifestation, it should be understood that they are claiming only against respondents CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy who have filed their respective comments. Petitioners are foregoing further claims against respondents Dr. Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao. The Court noted that Dr. Estrada did not appeal the decision of the Court of Appeals affirming the decision of the Regional Trial Court. Accordingly, the decision of the Court of Appeals, affirming the trial court's judgment, is already final as against Dr. Oscar Estrada. Petitioners filed a motion for reconsideration25 of the Court's 9 September 2002 Resolution claiming that Dr. Enriquez, Dr. Villaflor and Nurse Dumlao were notified of the petition at their counsels' last known addresses. Petitioners reiterated their imputation of negligence on these respondents. The Court denied petitioners' Motion for Reconsideration in its 18 February 2004 Resolution.26 The Court of Appeals' Ruling In its Decision of 6 February 1998, the Court of Appeals upheld the trial court's ruling. The Court of Appeals rejected petitioners' view that the doctrine in Darling v. Charleston Community Memorial Hospital27 applies to this case. According to the Court of Appeals, the present case differs from the Darling case since Dr. Estrada is an independent contractor-physician whereas the Darling case involved a physician and a nurse who were employees of the hospital. Citing other American cases, the Court of Appeals further held that the mere fact that a hospital permitted a physician to practice medicine and use its facilities is not sufficient to render the hospital liable for the physician's negligence.28 A hospital is not responsible for the negligence of a physician who is an independent contractor.29 The Court of Appeals found the cases of Davidson v. Conole30 and Campbell v. Emma Laing Stevens Hospital31 applicable to this case. Quoting Campbell, the Court of Appeals stated that where there is no proof that defendant physician was an employee of defendant hospital or that defendant hospital had reason to know that any acts of malpractice would take place, defendant hospital could not be held liable for its failure to intervene in the relationship of physician-patient between defendant physician and plaintiff. On the liability of the other respondents, the Court of Appeals applied the "borrowed servant" doctrine considering that Dr. Estrada was an independent contractor who was merely exercising hospital privileges. This doctrine provides that once the surgeon enters the operating room and takes charge of the proceedings, the acts or omissions of operating room personnel, and any negligence associated with such acts or omissions, are imputable to the surgeon.32 While the assisting physicians and nurses may be employed by the hospital, or engaged by the patient, they normally become the temporary servants or agents of the surgeon in charge while the operation is in progress, and liability may be imposed upon the surgeon for their negligent acts under the doctrine of respondeat superior.33 The Court of Appeals concluded that since Rogelio engaged Dr. Estrada as the attending physician of his wife, any liability for malpractice must be Dr. Estrada's sole responsibility. While it found the amount of damages fair and reasonable, the Court of Appeals held that no interest could be imposed on unliquidated claims or damages. The Issue

Basically, the issue in this case is whether CMC is vicariously liable for the negligence of Dr. Estrada. The resolution of this issue rests, on the other hand, on the ascertainment of the relationship between Dr. Estrada and CMC. The Court also believes that a determination of the extent of liability of the other respondents is inevitable to finally and completely dispose of the present controversy. The Ruling of the Court The petition is partly meritorious. On the Liability of CMC Dr. Estrada's negligence in handling the treatment and management of Corazon's condition which ultimately resulted in Corazon's death is no longer in issue. Dr. Estrada did not appeal the decision of the Court of Appeals which affirmed the ruling of the trial court finding Dr. Estrada solely liable for damages. Accordingly, the finding of the trial court on Dr. Estrada's negligence is already final. Petitioners maintain that CMC is vicariously liable for Dr. Estrada's negligence based on Article 2180 in relation to Article 2176 of the Civil Code. These provisions pertinently state: 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. 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 industry. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. 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. Similarly, in the United States, a hospital which is the employer, master, or principal of a physician employee, servant, or agent, may be held liable for the physician's negligence under the doctrine of respondeat superior.34 In the present case, petitioners maintain that CMC, in allowing Dr. Estrada to practice and admit patients at CMC, should be liable for Dr. Estrada's malpractice. Rogelio claims that he knew Dr. Estrada as an accredited physician of CMC, though he discovered later that Dr. Estrada was not a salaried employee of the CMC.35 Rogelio further claims that he was dealing with CMC, whose primary concern was the treatment and management of his wife's condition. Dr. Estrada just happened to be the specific person he talked to representing CMC.36 Moreover, the fact that CMC made Rogelio sign a Consent on Admission and Admission Agreement37 and a Consent to Operation printed on the letterhead of CMC indicates that CMC considered Dr. Estrada as a member of its medical staff. On the other hand, CMC disclaims liability by asserting that Dr. Estrada was a mere visiting physician and that it admitted Corazon because her physical condition then was classified an emergency obstetrics case.38

CMC alleges that Dr. Estrada is an independent contractor "for whose actuations CMC would be a total stranger." CMC maintains that it had no control or supervision over Dr. Estrada in the exercise of his medical profession. The Court had the occasion to determine the relationship between a hospital and a consultant or visiting physician and the liability of such hospital for that physician's negligence in Ramos v. Court of Appeals,39 to wit: In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work within the hospital premises. Doctors who apply for "consultant" slots, visiting or attending, are required to submit proof of completion of residency, their educational qualifications; generally, evidence of accreditation by the appropriate board (diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized by members of the hospital administration or by a review committee set up by the hospital who either accept or reject the application. This is particularly true with respondent hospital. After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinico-pathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or for the privilege of admitting patients into the hospital. In addition to these, the physician's performance as a specialist is generally evaluated by a peer review committee on the basis of mortality and morbidity statistics, and feedback from patients, nurses, interns and residents. A consultant remiss in his duties, or a consultant who regularly falls short of the minimum standards acceptable to the hospital or its peer review committee, is normally politely terminated. In other words, private hospitals, hire, fire and exercise real control over their attending and visiting "consultant" staff. While "consultants" are not, technically employees, a point which respondent hospital asserts in denying all responsibility for the patient's condition, the control exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. This being the case, the question now arises as to whether or not respondent hospital is solidarily liable with respondent doctors for petitioner's condition. The basis for holding an employer solidarily responsible for the negligence of its employee is found in Article 2180 of the Civil Code which considers a person accountable not only for his own acts but also for those of others based on the former's responsibility under a relationship of patria potestas. x x x40 (Emphasis supplied) While the Court in Ramos did not expound on the control test, such test essentially determines whether an employment relationship exists between a physician and a hospital based on the exercise of control over the physician as to details. Specifically, the employer (or the hospital) must have the right to control both the means and the details of the process by which the employee (or the physician) is to accomplish his task.41 After a thorough examination of the voluminous records of this case, the Court finds no single evidence pointing to CMC's exercise of control over Dr. Estrada's treatment and management of Corazon's condition. It is undisputed that throughout Corazon's pregnancy, she was under the exclusive prenatal care of Dr. Estrada. At the time of Corazon's admission at CMC and during her delivery, it was Dr. Estrada, assisted by Dr. Villaflor, who attended to Corazon. There was no showing that CMC had a part in diagnosing Corazon's condition. While Dr. Estrada enjoyed staff

privileges at CMC, such fact alone did not make him an employee of CMC.42 CMC merely allowed Dr. Estrada to use its facilities43 when Corazon was about to give birth, which CMC considered an emergency. Considering these circumstances, Dr. Estrada is not an employee of CMC, but an independent contractor. The question now is whether CMC is automatically exempt from liability considering that Dr. Estrada is an independent contractor-physician. In general, a hospital is not liable for the negligence of an independent contractor-physician. There is, however, an exception to this principle. The hospital may be liable if the physician is the "ostensible" agent of the hospital.44 This exception is also known as the "doctrine of apparent authority."45 In Gilbert v. Sycamore Municipal Hospital,46 the Illinois Supreme Court explained the doctrine of apparent authority in this wise: [U]nder the doctrine of apparent authority a hospital can be held vicariously liable for the negligent acts of a physician providing care at the hospital, regardless of whether the physician is an independent contractor, unless the patient knows, or should have known, that the physician is an independent contractor. The elements of the action have been set out as follows: "For a hospital to be liable under the doctrine of apparent authority, a plaintiff must show that: (1) the hospital, or its agent, acted in a manner that would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital; (2) where the acts of the agent create the appearance of authority, the plaintiff must also prove that the hospital had knowledge of and acquiesced in them; and (3) the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence." The element of "holding out" on the part of the hospital does not require an express representation by the hospital that the person alleged to be negligent is an employee. Rather, the element is satisfied if the hospital holds itself out as a provider of emergency room care without informing the patient that the care is provided by independent contractors. The element of justifiable reliance on the part of the plaintiff is satisfied if the plaintiff relies upon the hospital to provide complete emergency room care, rather than upon a specific physician. The doctrine of apparent authority essentially involves two factors to determine the liability of an independent-contractor physician. The first factor focuses on the hospital's manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital.47 In this regard, the hospital need not make express representations to the patient that the treating physician is an employee of the hospital; rather a representation may be general and implied.48 The doctrine of apparent authority is a species of the doctrine of estoppel. Article 1431 of the Civil Code provides that "[t]hrough estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon." Estoppel rests on this rule: "Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it."49 In the instant case, CMC impliedly held out Dr. Estrada as a member of its medical staff. Through CMC's acts, CMC clothed Dr. Estrada with apparent authority thereby leading the Spouses

Nogales to believe that Dr. Estrada was an employee or agent of CMC. CMC cannot now repudiate such authority. First, CMC granted staff privileges to Dr. Estrada. CMC extended its medical staff and facilities to Dr. Estrada. Upon Dr. Estrada's request for Corazon's admission, CMC, through its personnel, readily accommodated Corazon and updated Dr. Estrada of her condition. Second, CMC made Rogelio sign consent forms printed on CMC letterhead. Prior to Corazon's admission and supposed hysterectomy, CMC asked Rogelio to sign release forms, the contents of which reinforced Rogelio's belief that Dr. Estrada was a member of CMC's medical staff.50 The Consent on Admission and Agreement explicitly provides: KNOW ALL MEN BY THESE PRESENTS: I, Rogelio Nogales, of legal age, a resident of 1974 M. H. Del Pilar St., Malate Mla., being the father/mother/brother/sister/spouse/relative/ guardian/or person in custody of Ma. Corazon, and representing his/her family, of my own volition and free will, do consent and submit said Ma. Corazon to Dr. Oscar Estrada (hereinafter referred to as Physician) for cure, treatment, retreatment, or emergency measures, that the Physician, personally or by and through the Capitol Medical Center and/or its staff, may use, adapt, or employ such means, forms or methods of cure, treatment, retreatment, or emergency measures as he may see best and most expedient; that Ma. Corazon and I will comply with any and all rules, regulations, directions, and instructions of the Physician, the Capitol Medical Center and/or its staff; and, that I will not hold liable or responsible and hereby waive and forever discharge and hold free the Physician, the Capitol Medical Center and/or its staff, from any and all claims of whatever kind of nature, arising from directly or indirectly, or by reason of said cure, treatment, or retreatment, or emergency measures or intervention of said physician, the Capitol Medical Center and/or its staff. x x x x51 (Emphasis supplied) While the Consent to Operation pertinently reads, thus: I, ROGELIO NOGALES, x x x, of my own volition and free will, do consent and submit said CORAZON NOGALES to Hysterectomy, by the Surgical Staff and Anesthesiologists of Capitol Medical Center and/or whatever succeeding operations, treatment, or emergency measures as may be necessary and most expedient; and, that I will not hold liable or responsible and hereby waive and forever discharge and hold free the Surgeon, his assistants, anesthesiologists, the Capitol Medical Center and/or its staff, from any and all claims of whatever kind of nature, arising from directly or indirectly, or by reason of said operation or operations, treatment, or emergency measures, or intervention of the Surgeon, his assistants, anesthesiologists, the Capitol Medical Center and/or its staff.52 (Emphasis supplied) Without any indication in these consent forms that Dr. Estrada was an independent contractorphysician, the Spouses Nogales could not have known that Dr. Estrada was an independent contractor. Significantly, no one from CMC informed the Spouses Nogales that Dr. Estrada was an independent contractor. On the contrary, Dr. Atencio, who was then a member of CMC Board of Directors, testified that Dr. Estrada was part of CMC's surgical staff.53 Third, Dr. Estrada's referral of Corazon's profuse vaginal bleeding to Dr. Espinola, who was then the Head of the Obstetrics and Gynecology Department of CMC, gave the impression that Dr. Estrada as a member of CMC's medical staff was collaborating with other CMC-employed specialists in treating Corazon.

The second factor focuses on the patient's reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence.54 The records show that the Spouses Nogales relied upon a perceived employment relationship with CMC in accepting Dr. Estrada's services. Rogelio testified that he and his wife specifically chose Dr. Estrada to handle Corazon's delivery not only because of their friend's recommendation, but more importantly because of Dr. Estrada's "connection with a reputable hospital, the [CMC]."55 In other words, Dr. Estrada's relationship with CMC played a significant role in the Spouses Nogales' decision in accepting Dr. Estrada's services as the obstetrician-gynecologist for Corazon's delivery. Moreover, as earlier stated, there is no showing that before and during Corazon's confinement at CMC, the Spouses Nogales knew or should have known that Dr. Estrada was not an employee of CMC. Further, the Spouses Nogales looked to CMC to provide the best medical care and support services for Corazon's delivery. The Court notes that prior to Corazon's fourth pregnancy, she used to give birth inside a clinic. Considering Corazon's age then, the Spouses Nogales decided to have their fourth child delivered at CMC, which Rogelio regarded one of the best hospitals at the time.56 This is precisely because the Spouses Nogales feared that Corazon might experience complications during her delivery which would be better addressed and treated in a modern and big hospital such as CMC. Moreover, Rogelio's consent in Corazon's hysterectomy to be performed by a different physician, namely Dr. Espinola, is a clear indication of Rogelio's confidence in CMC's surgical staff. CMC's defense that all it did was "to extend to [Corazon] its facilities" is untenable. The Court cannot close its eyes to the reality that hospitals, such as CMC, are in the business of treatment. In this regard, the Court agrees with the observation made by the Court of Appeals of North Carolina in Diggs v. Novant Health, Inc.,57 to wit: "The conception that the hospital does not undertake to treat the patient, does not undertake to act through its doctors and nurses, but undertakes instead simply to procure them to act upon their own responsibility, no longer reflects the fact. Present day hospitals, as their manner of operation plainly demonstrates, do far more than furnish facilities for treatment. They regularly employ on a salary basis a large staff of physicians, nurses and internes [sic], as well as administrative and manual workers, and they charge patients for medical care and treatment, collecting for such services, if necessary, by legal action. Certainly, the person who avails himself of 'hospital facilities' expects that the hospital will attempt to cure him, not that its nurses or other employees will act on their own responsibility." x x x (Emphasis supplied) Likewise unconvincing is CMC's argument that petitioners are estopped from claiming damages based on the Consent on Admission and Consent to Operation. Both release forms consist of two parts. The first part gave CMC permission to administer to Corazon any form of recognized medical treatment which the CMC medical staff deemed advisable. The second part of the documents, which may properly be described as the releasing part, releases CMC and its employees "from any and all claims" arising from or by reason of the treatment and operation. The documents do not expressly release CMC from liability for injury to Corazon due to negligence during her treatment or operation. Neither do the consent forms expressly exempt CMC from liability for Corazon's death due to negligence during such treatment or operation. Such release forms, being in the nature of contracts of adhesion, are construed strictly against hospitals. Besides, a blanket release in favor of hospitals "from any and all claims," which includes claims due to bad faith or gross negligence, would be contrary to public policy and thus void.

Even simple negligence is not subject to blanket release in favor of establishments like hospitals but may only mitigate liability depending on the circumstances.58 When a person needing urgent medical attention rushes to a hospital, he cannot bargain on equal footing with the hospital on the terms of admission and operation. Such a person is literally at the mercy of the hospital. There can be no clearer example of a contract of adhesion than one arising from such a dire situation. Thus, the release forms of CMC cannot relieve CMC from liability for the negligent medical treatment of Corazon. On the Liability of the Other Respondents Despite this Court's pronouncement in its 9 September 200259 Resolution that the filing of petitioners' Manifestation confined petitioners' claim only against CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy, who have filed their comments, the Court deems it proper to resolve the individual liability of the remaining respondents to put an end finally to this more than two-decade old controversy. a) Dr. Ely Villaflor Petitioners blame Dr. Ely Villaflor for failing to diagnose the cause of Corazon's bleeding and to suggest the correct remedy to Dr. Estrada.60 Petitioners assert that it was Dr. Villaflor's duty to correct the error of Nurse Dumlao in the administration of hemacel. The Court is not persuaded. Dr. Villaflor admitted administering a lower dosage of magnesium sulfate. However, this was after informing Dr. Estrada that Corazon was no longer in convulsion and that her blood pressure went down to a dangerous level.61 At that moment, Dr. Estrada instructed Dr. Villaflor to reduce the dosage of magnesium sulfate from 10 to 2.5 grams. Since petitioners did not dispute Dr. Villaflor's allegation, Dr. Villaflor's defense remains uncontroverted. Dr. Villaflor's act of administering a lower dosage of magnesium sulfate was not out of her own volition or was in contravention of Dr. Estrada's order. b) Dr. Rosa Uy Dr. Rosa Uy's alleged negligence consisted of her failure (1) to call the attention of Dr. Estrada on the incorrect dosage of magnesium sulfate administered by Dr. Villaflor; (2) to take corrective measures; and (3) to correct Nurse Dumlao's wrong method of hemacel administration. The Court believes Dr. Uy's claim that as a second year resident physician then at CMC, she was merely authorized to take the clinical history and physical examination of Corazon.62 However, that routine internal examination did not ipso facto make Dr. Uy liable for the errors committed by Dr. Estrada. Further, petitioners' imputation of negligence rests on their baseless assumption that Dr. Uy was present at the delivery room. Nothing shows that Dr. Uy participated in delivering Corazon's baby. Further, it is unexpected from Dr. Uy, a mere resident physician at that time, to call the attention of a more experienced specialist, if ever she was present at the delivery room. c) Dr. Joel Enriquez Petitioners fault Dr. Joel Enriquez also for not calling the attention of Dr. Estrada, Dr. Villaflor, and Nurse Dumlao about their errors.63 Petitioners insist that Dr. Enriquez should have taken, or at least suggested, corrective measures to rectify such errors.

The Court is not convinced. Dr. Enriquez is an anesthesiologist whose field of expertise is definitely not obstetrics and gynecology. As such, Dr. Enriquez was not expected to correct Dr. Estrada's errors. Besides, there was no evidence of Dr. Enriquez's knowledge of any error committed by Dr. Estrada and his failure to act upon such observation. d) Dr. Perpetua Lacson Petitioners fault Dr. Perpetua Lacson for her purported delay in the delivery of blood Corazon needed.64 Petitioners claim that Dr. Lacson was remiss in her duty of supervising the blood bank staff. As found by the trial court, there was no unreasonable delay in the delivery of blood from the time of the request until the transfusion to Corazon. Dr. Lacson competently explained the procedure before blood could be given to the patient.65 Taking into account the bleeding time, clotting time and cross-matching, Dr. Lacson stated that it would take approximately 45-60 minutes before blood could be ready for transfusion.66 Further, no evidence exists that Dr. Lacson neglected her duties as head of the blood bank. e) Dr. Noe Espinola Petitioners argue that Dr. Espinola should not have ordered immediate hysterectomy without determining the underlying cause of Corazon's bleeding. Dr. Espinola should have first considered the possibility of cervical injury, and advised a thorough examination of the cervix, instead of believing outright Dr. Estrada's diagnosis that the cause of bleeding was uterine atony. Dr. Espinola's order to do hysterectomy which was based on the information he received by phone is not negligence. The Court agrees with the trial court's observation that Dr. Espinola, upon hearing such information about Corazon's condition, believed in good faith that hysterectomy was the correct remedy. At any rate, the hysterectomy did not push through because upon Dr. Espinola's arrival, it was already too late. At the time, Corazon was practically dead. f) Nurse J. Dumlao In Moore v. Guthrie Hospital Inc.,67 the US Court of Appeals, Fourth Circuit, held that to recover, a patient complaining of injuries allegedly resulting when the nurse negligently injected medicine to him intravenously instead of intramuscularly had to show that (1) an intravenous injection constituted a lack of reasonable and ordinary care; (2) the nurse injected medicine intravenously; and (3) such injection was the proximate cause of his injury. In the present case, there is no evidence of Nurse Dumlao's alleged failure to follow Dr. Estrada's specific instructions. Even assuming Nurse Dumlao defied Dr. Estrada's order, there is no showing that side-drip administration of hemacel proximately caused Corazon's death. No evidence linking Corazon's death and the alleged wrongful hemacel administration was introduced. Therefore, there is no basis to hold Nurse Dumlao liable for negligence. On the Award of Interest on Damages The award of interest on damages is proper and allowed under Article 2211 of the Civil Code, which states that in crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court.68 WHEREFORE, the Court PARTLY GRANTS the petition. The Court finds respondent Capitol Medical Center vicariously liable for the negligence of Dr. Oscar Estrada. The amounts of

P105,000 as actual damages and P700,000 as moral damages should each earn legal interest at the rate of six percent (6%) per annum computed from the date of the judgment of the trial court. The Court affirms the rest of the Decision dated 6 February 1998 and Resolution dated 21 March 2000 of the Court of Appeals in CA-G.R. CV No. 45641.

SO ORDERED. Quisumbing, J., Chairperson, Carpio Morales, Tinga, and Velasco, Jr., JJ., concur. Footnotes 1 Under Rule 45 of the Rules of Court. 2 Penned by Associate Justice Artemio G. Tuquero, with Associate Justices Jorge S. Imperial and Eubulo G. Verzola, concurring. Rollo, pp. 42-48. 3 Penned by Associate Justice Eubulo G. Verzola, with Associate Justices Roberto A. Barrios and Eriberto U. Rosario, Jr., concurring. Id. at 49. 4 Penned by Judge Rodolfo G. Palattao. 5 Edema is the accumulation of excess fluid. It is manifested by the swelling of the extremities. (http://www.preeclampsia.org/symptoms.asp) 6 A syndrome occurring in late pregnancy marked by an increase in blood pressure, swelling of the ankles by fluid, and the appearance of albumin in the urine, associated with reduced blood flow to the placenta, therefore putting the fetus at risk of death, or stillbirth, and putting the mother at risk of complications from high blood pressure, convulsions (eclampsia), kidney failure, liver failure and death. Treated with drugs to lower the blood pressure and to prevent convulsions, while expediting the delivery of the baby. (http://www.jansen.com.au/Dictionary_PR.html) 7 Rollo, p. 42. 8 Exh. "A-4," Folder of Exhibits. 9 Exh. "A-1," Folder of Exhibits. 10 Exh. "A-2," Folder of Exhibits. 11 Exh. "A-5," Folder of Exhibits. 12 Exh. "A-8," Folder of Exhibits. 13 Exh. "A-20," Folder of Exhibits. 14 Rollo, p. 43. 15 Docketed as Civil Case No. 131873. 16 Then Court of First Instance.

17 Records, pp. 92, 93. 18 Records, pp. 639-644. 19 Rollo, pp. 42-48. 20 Id. at 49. 21 Id. at 237-240. 22 Id. at 238. 23 Id. at 207. 24 Id. at 258. 25 Id. at 283-285. 26 Id. at 312. 27 33 Ill.2d 326, 211 N.E.2d 253 (1965). 28 Citing Clary v. Hospital Authority of City of Marietta, 106 Ga.App. 134, 126 S.E.2d 470 (1962). 29 Citing Cramer v. Hoffman, 390 F.2d 19, 23 (1968); Holzberg v. Flower and Fifth Ave. Hospitals, 39 A.D.2d 526, 330 N.Y.S.2d 682, 684 (1972); Snelson v. Margaretville Hospital, 49 A.D.2d 991, 374 N.Y.S.2d 579, 581 (1975). 30 79 A.D.2d 43, 436 N.Y.S.2d 109 (1981). 31 118 A.D.2d 988, 499 N.Y.S.2d 993 (1986). 32 Citing Davis v. Glaze, 182 Ga.App. 18, 354 S.E.2d 845, 849 (1987). 33 Citing Ybarra v. Spangard, 25 Cal.2d 486, 154 P.2d 687 (1944). 34 40A Am.Jur.2d Hospitals and Asylums 46, 40A Am.Jur.2d Hospitals and Asylums 44. 35 TSN, 26 July 1984, pp. 31-32 (Rogelio Nogales). 36 Id. at 43-44. 37 TSN, 4 April 1983, pp. 48-49 (Rogelio Nogales). 38 Records, pp. 43-44. 39 378 Phil. 1198 (1999). 40 Id. at 1240-1241.

41 See Diggs v. Novant Health, Inc., 628 S.E.2d 851 (2006) citing Hylton v. Koontz, 138 N.C.App. 629 (2000). 42 See Jones v. Tallahassee Memorial Regional Healthcare, Inc., 923 So.2d 1245 (2006). 43 See Hale v. Sheikholeslam, 724 F.2d 1205 (1984) where the US Court of Appeals, Fifth Circuit, found the physician an independent contractor since there is no evidence or pleading that the doctor received compensation from the hospital or that the hospital exercised any control over his treatment of patients. The doctor was merely allowed to use the facilities of the hospital when, in the doctor's judgment, hospital care was necessary. 44 Jones v. Philpott, 702 F.Supp. 1210 (1988). 45 Sometimes referred to as the apparent, or ostensible, agency theory. (King v. Mitchell, 31 A.D.3d 958, 819 N.Y.S.2d 169 [2006]). 46 156 Ill.2d 511, 622 N.E.2d 788 (1993). 47 Diggs v. Novant Health, Inc., supra note 41. 48 Id. 49 De Castro v. Ginete, 137 Phil. 453 (1969), citing Sec. 3, par. a, Rule 131 of the Rules of Court. See also King v. Mitchell, 31 A.D.3d 958, 819 N.Y.S.2d 169 (2006) where the New York Supreme Court, Appellate Division, Third Department, stated as follows: As a general proposition, "[a] hospital may not be held for the acts of an anesthetist who was not an employee of the hospital, but one of a group of independent contractors." Vicarious liability for medical malpractice may be imposed, however, under an apparent, or ostensible, agency theory, "or, as it is sometimes called, agency by estoppel or by holding out." "Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to act on behalf of the principal." Also, the third party must reasonably rely upon the appearance of authority created by the principal. Finally, the third party must accept the services of the agent in reliance upon the perceived relationship between the agent and the principal. (emphasis supplied and internal citations omitted) 50 In Gilbert v. Sycamore Municipal Hospital, supra note 46, cited in York v. Rush-PresbyterianSt. Luke's Medical Center (222 Ill.2d 147, 854 N.E.2d 635 [2006]), the Illinois Supreme Court made a similar observation, thus x x x the language employed in the hospital's treatment consent form could have led plaintiff to reasonably believe that he would be treated by physicians and employees of the hospital. We concluded that, upon the record before us, the plaintiff adduced sufficient evidence to create a genuine issue of material fact with respect to the reliance element of the plaintiffs apparent agency claim against the hospital.

51 Exh. "A-1," Folder of Exhibits. 52 Exh. "A-20," Folder of Exhibits.

53 TSN, 17 February 1992, p. 69 (Dr. Franklin Atencio). 54 Diggs v. Novant Health, Inc., supra note 41. 55 TSN, 26 July 1984, pp. 12-13 (Rogelio Nogales). 56 Id. at 37. 57 Supra note 41, citing Rabon v. Rowan Memorial Hospital, Inc., 269 N.C.1, 152 S.E.2d 485 (1967). 58 Article 1172 of the Civil Code provides: "Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances." 59 Rollo, p. 258. 60 CA rollo, pp. 78-79. 61 Records, p. 76. 62 Id. at 59. 63 CA rollo, p. 89. 64 Id. at 90. 65 TSN, 11 November 1991, pp. 9-12. 66 Id. at 14 67 403 F.2d 366 (1968). 68 People v. Ocampo, G.R. No. 171731, 11 August 2006, citing People v. Torellos, 448 Phil. 287, 301 (2003). See also People v. Duban, G.R. No. 141217, 26 September 2003, 412 SCRA 131 and People v. De Vera, 371 Phil. 563 (1999).

FIRST DIVISION PROFESSIONAL SERVICES, INC., G.R. No. 126297

Petitioner, - versus NATIVIDAD and ENRIQUE AGANA, Respondents. x-----------------------x NATIVIDAD (Substituted by her children

MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND AGANA) and ENRIQUE G.R. No. 126467 Petitioners, - versus -

AGANA,

JUAN FUENTES, Respondent. x- - - - - - - - - - - - - - - - - - - -- - - - x MIGUEL AMPIL, Petitioner, - versus G.R. No. 127590 NATIVIDAD AGANA and ENRIQUE AGANA, Respondents. Present:

PUNO, C.J., Chairperson SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and *GARCIA, JJ.

Promulgated:

January 31, 2007

DECISION SANDOVAL-GUTIERREZ, J.:

Hospitals, having undertaken one of mankinds most important and delicate endeavors, must assume the grave responsibility of pursuing it with appropriate care. The care and service dispensed through this high trust, however technical, complex and esoteric its character may be, must meet standards of responsibility commensurate with the undertaking to preserve and protect the health, and indeed, the very lives of those placed in the hospitals keeping.

Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals Decision dated September 6, 1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198 affirming with modification the Decision dated March 17, 1993 of the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated September 21, 1993.

The facts, as culled from the records, are:

On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital) because of difficulty of bowel movement and bloody anal discharge. After a series of medical examinations, Dr. Miguel Ampil, petitioner in G.R. No. 127590, diagnosed her to be suffering from cancer of the sigmoid.

On April 11, 1984, Dr. Ampil, assisted by the medical staff of the Medical City Hospital, performed an anterior resection surgery on Natividad. He found that the malignancy in her sigmoid area had spread on her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividads husband, Enrique Agana, to permit Dr. Juan Fuentes, respondent in G.R. No. 126467, to perform hysterectomy on her.

After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation and closed the incision.

However, the operation appeared to be flawed. In the corresponding Record of Operation dated April 11, 1984, the attending nurses entered these remarks:

sponge count lacking 2 announced to surgeon searched (sic) done but to no avail continue for closure.

On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors fees, amounted to P60,000.00.

After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes about it. They told her that the pain was the natural consequence of the surgery. Dr.

Ampil then recommended that she consult an oncologist to examine the cancerous nodes which were not removed during the operation.

On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment. After four months of consultations and laboratory examinations, Natividad was told she was free of cancer. Hence, she was advised to return to the Philippines.

On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her daughter found a piece of gauze protruding from her vagina. Upon being informed about it, Dr. Ampil proceeded to her house where he managed to extract by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the pains would soon vanish.

Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting Natividad to seek treatment at the Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez detected the presence of another foreign object in her vagina -- a foul-smelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organs which forced stool to excrete through the vagina. Another surgical operation was needed to remedy the damage. Thus, in October 1984, Natividad underwent another surgery.

On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for damages against the Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil,

and Dr. Fuentes, docketed as Civil Case No. Q-43322. They alleged that the latter are liable for negligence for leaving two pieces of gauze inside Natividads body and malpractice for concealing their acts of negligence.

Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative complaint for gross negligence and malpractice against Dr. Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The PRC Board of Medicine heard the case only with respect to Dr. Fuentes because it failed to acquire

jurisdiction over Dr. Ampil who was then in the United States.

On February 16, 1986, pending the outcome of the above cases, her above-named children (the Aganas).

Natividad died and was duly substituted by

On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable for negligence and malpractice, the decretal part of which reads:

WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants PROFESSIONAL SERVICES, INC., DR. MIGUEL AMPIL and DR. JUAN FUENTES to pay to the plaintiffs, jointly and severally, except in respect of the award for exemplary damages and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr. Fuentes only, as follows:

1.

As actual damages, the following amounts: a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of P21.60-US$1.00, as reimbursement of actual expenses incurred in the United States of America; The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter; The total sum of P45,802.50, representing the cost of hospitalization at Polymedic Hospital, medical fees, and cost of the saline solution;

b. c.

2. 3. 4. 5.

As moral damages, the sum of P2,000,000.00; As exemplary damages, the sum of P300,000.00; As attorneys fees, the sum of P250,000.00; Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of the complaint until full payment; and Costs of suit.

6.

SO ORDERED. Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals, docketed as CAG.R. CV No. 42062.

Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution of its Decision, which was granted in an Order dated May 11, 1993. Thereafter, the sheriff levied upon certain properties of Dr. Ampil and sold them for P451,275.00 and delivered the amount to the Aganas.

Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr. Fuentes to indefinitely suspend any further execution of the RTC Decision. However, not long thereafter, the Aganas again filed a motion for an alias writ of execution against the properties of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the motion and issued the corresponding writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for certiorari and prohibition, with prayer for preliminary injunction, docketed as CA-G.R. SP No. 32198. During its pendency, the Court of Appeals issued a Resolution dated October 29, 1993 granting Dr. Fuentes prayer for injunctive relief.

On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.

Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision in Administrative Case No. 1690 dismissing the case against Dr. Fuentes. The Board held that the prosecution failed to show that Dr. Fuentes was the one who left the two pieces of gauze inside Natividads body; and that he concealed such fact from Natividad.

On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198, thus:

WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan Fuentes is hereby DISMISSED, and with the pronouncement that defendant-appellant Dr. Miguel Ampil is liable to reimburse defendant-appellant Professional Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees, the decision appealed from is hereby AFFIRMED and the instant appeal DISMISSED. Concomitant with the above, the petition for certiorari and prohibition filed by herein defendant-appellant Dr. Juan Fuentes in CA-G.R. SP No. 32198 is hereby GRANTED and the challenged order of the respondent judge dated September 21, 1993, as well as the alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET ASIDE. The bond posted by the petitioner in connection with the writ of preliminary injunction issued by this Court on November 29, 1993 is hereby cancelled. Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc. SO ORDERED.

Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution dated December 19, 1996.

Hence, the instant consolidated petitions.

In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped from raising the defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled to its counterclaim against the Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or independent contractor. As such, he alone should answer for his negligence.

In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr. Fuentes is not guilty of negligence or medical malpractice, invoking the doctrine of res ipsa loquitur. They contend that the pieces of gauze are prima facie proofs that the operating surgeons have been negligent.

Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him liable for negligence and malpractice sans evidence that he left the two pieces of gauze in Natividads vagina. He pointed to other probable causes, such as: (1) it was Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the attending nurses failure to properly count the gauzes used during surgery; and (3) the medical intervention of the American doctors who examined Natividad in the United States of America.

For our resolution are these three vital issues: first, whether the Court of Appeals erred in holding Dr. Ampil liable for negligence and malpractice; second, whether the Court of Appeals erred in absolving Dr. Fuentes of any liability; and third, whether PSI may be held solidarily liable for the negligence of Dr. Ampil.

I - G.R. No. 127590 Whether the Court of Appeals Erred in Holding Dr. Ampil Liable for Negligence and Malpractice.

Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible causes of Natividads detriment. He argues that the Court should not discount either of the following possibilities: first, Dr. Fuentes

left the gauzes in Natividads body after performing hysterectomy; second, the attending nurses erred in counting the gauzes; and third, the American doctors were the ones who placed the gauzes in Natividads body.

Dr. Ampils arguments are purely conjectural and without basis. Records show that he did not present any evidence to prove that the American doctors were the ones who put or left the gauzes in Natividads body. Neither did he submit evidence to rebut the correctness of the record of operation, particularly the number of gauzes used. As to the alleged negligence of Dr. Fuentes, we are mindful that Dr. Ampil examined his found it in order. (Dr. Fuentes) work and

The glaring truth is that all the major circumstances, taken together, as specified by the Court of Appeals, directly point to Dr. Ampil as the negligent party, thus:

First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding of the patient during the surgical operation. Second, immediately after the operation, the nurses who assisted in the surgery noted in their report that the sponge count (was) lacking 2; that such anomaly was announced to surgeon and that a search was done but to no avail prompting Dr. Ampil to c ontinue for closure x x x. Third, after the operation, two (2) gauzes were extracted from the same spot of the body of Mrs. Agana where the surgery was performed.

An operation requiring the placing of sponges in the incision is not complete until the sponges are properly removed, and it is settled that the leaving of sponges or other foreign substances in the wound after the incision has been closed is at least prima facie negligence by the operating surgeon. To put it simply, such act is considered so inconsistent with due care as to raise an inference of negligence. There are even legions of authorities to the effect that such act is negligence per se.

Of course, the Court is not blind to the reality that there are times when danger to a patients life precludes a surgeon from further searching missing sponges or foreign objects left in the body. But this does not leave him free from any obligation. Even if it has been shown that a surgeon was required by the urgent necessities of the case to leave a sponge in his patients abdomen, because of the dangers attendant upon delay, still, it is his legal duty to so inform his patient within a reasonable time thereafter by advising her of what he had been compelled to do. This is in order that she might seek relief from the effects of the foreign object left in her body as her condition might permit. The ruling in Smith v. Zeagler is explicit, thus:

The removal of all sponges used is part of a surgical operation, and when a physician or surgeon fails to remove a sponge he has placed in his patients body that should be removed as part of the operation, he thereby leaves his operation uncompleted and creates a new condition which imposes upon him the legal duty of calling the new condition to his pat ients attention, and endeavoring with the means he has at hand to minimize and avoid untoward results likely to ensue therefrom.

Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he even misled her that the pain she was experiencing was the ordinary consequence of her operation. Had he been more candid, Natividad could have taken the immediate and appropriate medical remedy to remove the gauzes from her body. To our mind, what was initially an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of deceiving his patient.

This is a clear case of medical malpractice or more appropriately, medical negligence. To successfully pursue this kind of case, a patient must only prove that a health care provider either failed to do something which a reasonably prudent health care provider would have done, or that he did something that a reasonably prudent provider would not have done; and that failure or action caused injury to the patient. Simply put, the elements are duty, breach, injury and proximate causation. Dr, Ampil, as the lead surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividads body before closure of the incision. When he failed to do so, it was his duty to inform Natividad about it. Dr. Ampil breached both duties. Such breach caused injury to Natividad, necessitating her further examination by American doctors and another surgery. That Dr. Ampils negligence is the proximate cause of Natividads injury could be traced from his act of closing the incision despite the information given by the attending nurses that two pieces of gauze were still missing . That they were later on extracted from Natividads vagina established the causal link between Dr. Ampils negligence and the injury. And what further aggravated such injury was his deliberate concealment of the missing gauzes from the knowledge of Natividad and her family.

II - G.R. No. 126467 Whether the Court of Appeals Erred in Absolving Dr. Fuentes of any Liability

The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground that it is contrary to the doctrine of res ipsa loquitur. According to them, the fact that the two pieces of gauze were left inside Natividads body is a prima facie evidence of Dr. Fuentes negligence.

We are not convinced.

Literally, res ipsa loquitur means the thing speaks for itself. It is the rule that the fact of the occurrence of an injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiffs prima facie case, and present a question of fact for defendant to meet with an explanation. Stated differently, where the thing which caused the injury, without the fault of the injured, is under the exclusive control of the defendant and the injury is such that it should not have occurred if he, having such control used proper care, it affords reasonable evidence, in the absence of explanation that the injury arose from the defendants want of care, and the burden of proof is shifted to him to establish that he has observed due care and diligence.

From the foregoing statements of the rule, the requisites for the applicability of the doctrine of res ipsa loquitur are: (1) the occurrence of an injury; (2) the thing which caused the injury was under the control and management of the defendant; (3) the occurrence was such that in the ordinary course of things, would not have happened if those who had control or management used proper care; and (4) the absence of explanation by the defendant. Of the foregoing requisites, the most instrumental is the control and management of the thing which caused the injury.

We find the element of control and management of the thing which caused the injury to be wanting. Hence, the doctrine of res ipsa loquitur will not lie.

It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr. Fuentes to

leave the operating room. Dr. Ampil then resumed operating on Natividad. He was about to finish the procedure when the attending nurses informed him that two pieces of gauze were missing. A diligent search was conducted, but the misplaced gauzes were not found. Dr. Ampil then directed that the incision be closed. During this entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital.

Under the Captain of the Ship rule, the operating surgeon is the person in complete charge of the surgery room and all personnel connected with the operation. Their duty is to obey his orders. As stated before, Dr. Ampil was the lead surgeon. In other words, he was the Captain of the Ship. That he discharged such role is evident from his following conduct: (1) calling Dr. Fuentes to perform a hysterectomy; (2) examining the work of Dr. Fuentes and finding it in order; (3) granting Dr. Fuentes permission to leave; and (4) ordering the closure of the incision. To our mind, it was this act of ordering the closure of the incision notwithstanding that two pieces of gauze remained unaccounted for, that caused injury to Nativ idads body. Clearly, the control and management of the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.

In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or constitute an independent or separate ground of liability, being a mere evidentiary rule. In other words, mere invocation and application of the doctrine does not dispense with the requirement of proof of negligence. Here, the negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes.

III - G.R. No. 126297 Whether PSI Is Liable for the Negligence of Dr. Ampil

The third issue necessitates a glimpse at the historical development of hospitals and the resulting theories concerning their liability for the negligence of physicians.

Until the mid-nineteenth century, hospitals were generally charitable institutions, providing medical services to the lowest classes of society, without regard for a patients ability to pay. Those who could afford medical treatment were usually treated at home by their doctors. However, the days of house calls and philanthropic health care are over. The modern health care industry continues to distance itself from its charitable past and has experienced a significant conversion from a not-for-profit health care to for-profit hospital businesses. Consequently, significant changes in health law have accompanied the business-related changes in the hospital industry. One important legal change is an increase in hospital liability for medical malpractice. Many courts now allow claims for hospital vicarious liability under the theories of respondeat superior, apparent authority, ostensible authority, or agency by estoppel.

In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads:

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 preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat superior, thus:

ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. x x x x x x

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions.

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 industry. x x x x x x

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

A prominent civilist commented that professionals engaged by an employer, such as physicians, dentists, and pharmacists, are not employees under this article because the manner in which they perform their work is not within the control of the latter (employer). In other words, professionals are considered personally liable for the fault or negligence they commit in the discharge of their duties, and their employer cannot be held liable for such fault or negligence. In the context of the present case, a hospital cannot be held liable for the fault or negligence of a physician or surgeon in the treatment or operation of patients.

The foregoing view is grounded on the traditional notion that the professional status and the very nature of the physicians calling preclude him from being classed as an agent or employ ee of a hospital, whenever he acts in a professional capacity. It has been said that medical practice strictly involves highly developed and specialized knowledge, such that physicians are generally free to exercise their own skill and judgment in rendering medical

services sans interference. Hence, when a doctor practices medicine in a hospital setting, the hospital and its employees are deemed to subserve him in his ministrations to the patient and his actions are of his own responsibility.

The case of Schloendorff v. Society of New York Hospital was then considered an authority for this view. The Schloendorff doctrine regards a physician, even if employed by a hospital, as an independent contractor because of the skill he exercises and the lack of control exerted over his work. Under this doctrine, hospitals are exempt from the application of the respondeat superior principle for fault or negligence committed by physicians in the discharge of their profession.

However, the efficacy of the foregoing doctrine has weakened with the significant developments in medical care. Courts came to realize that modern hospitals are increasingly taking active role in supplying and regulating medical care to patients. No longer were a hospitals functions limited to furnishing room, food, facilities for treatment and operation, and attendants for its patients. Thus, in Bing v. Thunig, the New York Court of Appeals deviated from the Schloendorff doctrine, noting that modern hospitals actually do far more than provide facilities for treatment. Rather, they regularly employ, on a salaried basis, a large staff of physicians, interns, nurses, administrative and manual workers. They charge patients for medical care and treatment, even collecting for such services through legal action, if necessary. The court then concluded that there is no reason to exempt hospitals from the universal rule of respondeat superior.

In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential in view of our categorical pronouncement in Ramos v. Court of Appeals that for purposes of apportioning responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. This Court held:

We now discuss the responsibility of the hospital in this particular incident. The unique practice (among private hospitals) of filling up specialist staff with attending and visiting consultants, who are allegedly not hospital employees, presents problems in apportioning responsibility for negligence in medical malpractice cases. However, the difficulty is more apparent than real. In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work within the hospital premises. Doctors who apply for consultant slots, visiting or attending, are required to submit proof of completion of residency, their educational qualifications, generally, evidence of accreditation by the appropriate board (diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized by members of the hospital administration or by a review committee set up by the hospital who either accept or reject the application. x x x.

After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinico-pathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or for the privilege of admitting patients into the hospital. In addition to these, the physicians performance as a specialist is generally evaluated by a peer review committee on the basis of mortality and morbidity statistics, and feedback from patients, nurses, interns and residents. A consultant remiss in his duties, or a consultant who regularly falls short of the minimum standards acceptable to the hospital or its peer review committee, is normally politely terminated. In other words, private hospitals, hire, fire and exercise real control over their attending and visiting consultant staff. While consultants are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians.

But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its liability is also anchored upon the agency principle of apparent authority or agency by estoppel and the doctrine of corporate negligence which have gained acceptance in the determina tion of a hospitals liability for negligent acts of health professionals. The present case serves as a perfect platform to test the applicability of these doctrines, thus, enriching our jurisprudence.

Apparent authority, or what is sometimes referred to as the holding out theory, or doctrine of ostensible agency or agency by estoppel, has its origin from the law of agency. It imposes liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority exists. The concept is essentially one of estoppel and has been explained in this manner:

The principal is bound by the acts of his agent with the apparent authority which he knowingly permits the agent to assume, or which he holds the agent out to the public as possessing. The question in every case is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question.

The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v. Doctor Hospital of Lake Worth, Inc. There, it was explicitly stated that there does not appear to be any rational basis for excluding the concept of apparent authority from the field of hospital liability. Thus, in cases where it can be shown that a hospital, by its actions, has held out a particular physician as its agent and/or employee and that a patient has accepted treatment from that physician in the reasonable belief that it is being rendered in behalf of the hospital, then the hospital will be liable for the physicians negligence.

Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869 of the Civil Code reads:

ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and specializations of the physicians associated or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the Court of Appeals conclusion that it is now estopped from passing all the blame to the physicians whose names it proudly paraded in the public directory leading the public to believe that it vouched for their skill and competence. Indeed, PSIs act is tantamount to holding out to the public that Medical C ity Hospital, through its accredited physicians, offers quality health care services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their qualifications, the hospital created the impression that they were its agents, authorized to perform medical or surgical services for its patients. As expected, these patients, Natividad being one of them, accepted the services on the reasonable belief that such were being rendered by the hospital or its employees, agents, or servants. The trial court correctly pointed out:

x x x regardless of the education and status in life of the patient, he ought not be burdened with the defense of absence of employer-employee relationship between the hospital and the independent physician whose name and competence are certainly certified to the general public by the hospitals act of listing him and his specialty in its lobby directory, as in the case herein. The high costs of todays medical and health care should at least exact on the hospital greater, if not broader, legal responsibility for the conduct of treatment and surgery within its facility by its accredited physician or surgeon, regardless of whether he is independent or employed.

The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable of acting only through other individuals, such as physicians. If these accredited physicians do their job well, the hospital succeeds in its mission of offering quality medical services and thus profits financially. Logically, where negligence mars the quality of its services, the hospital should not be allowed to escape liability for the acts of its ostensible agents.

We now proceed to the doctrine of corporate negligence or corporate responsibility.

One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner, operator and manager of Medical City Hospital, did not perform the necessary supervision nor exercise diligent efforts in the supervision of Drs. Ampil and Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs. Ampil and Fuentes in the performance of their duties as surgeons . Premised on the doctrine of corporate negligence, the trial court held that PSI is directly liable for such breach of duty.

We agree with the trial court.

Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating hospitals liability for the negligent acts of health practitioners, absent facts to support the application of respondeat superior or apparent authority. Its formulation proceeds from the judiciarys acknowledgment that in these modern times, the duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician. The modern hospitals have changed structure. Hospitals now tend to organize a highly professional medical staff whose competence and performance need to be monitored by the hospitals commensurate with their inherent responsibility to provide quality medical care.

The doctrine has its genesis in Darling v. Charleston Community Hospital. There, the Supreme Court of Illinois held that the jury could have found a hospital negligent, inter alia, in failing to have a sufficient number of trained nurses attending the patient; failing to require a consultation with or examination by members of the hospital staff; and failing to review the treatment rendered to the patient. On the basis of Darling, other jurisdictions held that a hospitals corporate negligence extends to permitting a physician known to be incompetent to practice at the hospital. With the passage of time, more duties were expected from hospitals, among them: (1) the use of reasonable care in the maintenance of safe and adequate facilities and equipment; (2) the selection and retention of competent physicians; (3) the overseeing or supervision of all persons who practice medicine within its walls; and (4) the formulation, adoption and enforcement of adequate

rules and policies that ensure quality care for its patients. Thus, in Tucson Medical Center, Inc. v. Misevich, it was held that a hospital, following the doctrine of corporate responsibility, has the duty to see that it meets the standards of responsibilities for the care of patients. Such duty includes the proper supervision of the members of its medical staff. And in Bost v. Riley, the court concluded that a patient who enters a hospital does so with the reasonable expectation that it will attempt to cure him. The hospital accordingly has the duty to make a reasonable effort to monitor and oversee the treatment prescribed and administered by the physicians practicing in its premises.

In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and under the concept of providing comprehensive medical services to the public. Accordingly, it has the duty to exercise reasonable care to protect from harm all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to perform such duty. The findings of the trial court are convincing, thus:

x x x PSIs liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene of the count nurse. Such failure established PSIs part in the dark conspiracy of silence and concealment about the gauzes. Ethical considerations, if not also legal, dictated the holding of an immediate inquiry into the events, if not for the benefit of the patient to whom the duty is primarily owed, then in the interest of arriving at the truth. The Court cannot accept that the medical and the healing professions, through their members like defendant surgeons, and their institutions like PSIs hospital facility, can callously turn their backs on and disregard even a mere probability of mistake or negligence by refusing or failing to investigate a report of such seriousness as the one in Natividads case. It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the Medical City Hospitals staff, composed of resident doctors, nurses, and interns. As such, it is reasonable to

conclude that PSI, as the operator of the hospital, has actual or constructive knowledge of the procedures carried out, particularly the report of the attending nurses that the two pieces of gauze were missing . In Fridena v. Evans, it was held that a corporation is bound by the knowledge acquired by or notice given to its agents or officers within the scope of their authority and in reference to a matter to which their authority extends. This means that the knowledge of any of the staff of Medical City Hospital constitutes knowledge of PSI. Now, the failure of PSI, despite the attending nurses report, to investigate and inform Natividad regarding the missing gauzes amounts to callous negligence. Not only did PSI breach its duties to oversee or supervise all persons who practice medicine within its walls, it also failed to take an active step in fixing the negligence committed. This renders PSI, not only vicariously liable for the negligence of Dr. Ampil under Article 2180 of the Civil Code, but also directly liable for its own negligence under Article 2176. In Fridena, the Supreme Court of Arizona held:

x x x In recent years, however, the duty of care owed to the patient by the hospital has expanded. The emerging trend is to hold the hospital responsible where the hospital has

failed to monitor and review medical services being provided within its walls. See Kahn Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977). Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In Purcell, the hospital argued that it could not be held liable for the malpractice of a medical practitioner because he was an independent contractor within the hospital. The Court of Appeals pointed out that the hospital had created a professional staff whose competence and performance was to be monitored and reviewed by the governing body of the hospital, and the court held that a hospital would be negligent where it had knowledge or reason to believe that a doctor using the facilities was employing a method of treatment or care which fell below the recognized standard of care. Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has certain inherent responsibilities regarding the quality of medical care furnished to patients within its walls and it must meet the standards of responsibility commensurate with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972). This court has confirmed the rulings of the Court of Appeals that a hospital has the duty of supervising the competence of the doctors on its staff. x x x. x x x x x x

In the amended complaint, the plaintiffs did plead that the operation was performed at the hospital with its knowledge, aid, and assistance, and that the negligence of the defendants was the proximate cause of the patients injuries. We find that such general allegations of negligence, along with the evidence produced at the trial of this case, are sufficient to support the hospitals liability based on the theory of negligent supervision. Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be

emphasized that PSI, apart from a general denial of its responsibility, failed to adduce evidence showing that it exercised the diligence of a good father of a family in the accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to discharge its burden under the last paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily liable with Dr. Ampil. Moreover, as we have discussed, PSI is also directly liable to the Aganas.

One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on him certain obligations. In order to escape liability, he must possess that reasonable degree of learning, skill and experience required by his profession. At the same time, he must apply reasonable care and diligence in the exercise of his skill and the application of his knowledge, and exert his best judgment.

WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198.

Costs against petitioners PSI and Dr. Miguel Ampil.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ Associate Justice WE CONCUR:

REYNATO S. PUNO Chief Justice Chairperson

RENATO C. CORONA Associate Justice

ADOLFO S. AZCUNA Associate Justice

(No Part) CANCIO C. GARCIA Associate Justice

CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

No part. Ponente of the assailed Decision in the Court of Appeals. Beeck v. Tucson General Hospital, 500 P. 2d 1153 (1972), citing Darling v. Charleston Community Memorial Hospital, 33 Ill. 2d 326, 211 N.E. 2d 253.

Penned by Associate Justice Cancio C. Garcia (now a member of the Supreme Court) and concurred in by Associate Justices Eugenio S. Labitoria and Artemio G. Tuquero (both retired), Rollo, G.R. Nos. 126297, pp. 36-51; 126467, pp. 27-42; 127590, pp. 23-38. Penned by Judge Lucas P. Bersamin (now Justice of the Court of Appeals), Rollo, G.R. No. 126647, pp. 69-83. The medical staff was composed of physicians, both residents and interns, as well as nurses. The dispositive portion reads: WHEREFORE, let a writ of preliminary injunction be issued upon petitioners posting of bond in the amount of P20,000.00, ENJOINING public respondents from implementing the questioned order dated September 21, 1993 and from further taking any action in Civil Case No. Q-43322 entitled Natividad G. Agana, et al., plaintiffs, versus Professional Services, Inc., et al., defendants pending resolution of the instant petition. SO ORDERED. See Rollo, G.R. No. 126297, p. 42.

Rollo of G.R. No. 126467, pp. 84-89. Rollo of G.R. No. 127590, p. 40. Rule v. Cheeseman, 317 P. 2d 472 (1957), citing Russel v. Newman, 116 Kan. 268 P. 752; Bernsden v. Johnson, 174 Kan. 230, 255 P. 2d 1033. Smith v. Zeagler, 157 So. 328 Fla. (1934), citing Ruth v. Johnson, (C.C.A.) 172 F. 191; Reeves v. Lutz, 179 Mo. App. 61, 162 S.W. 280; Rayburn v. Day, 126 Or. 135,268 P. 1002, 59 A.L.R. 1062; Wynne v. Harvey, 96 Wash. 379, 165 P. 67; Harris v. Fall (C.C.A.) 177 F. 79, 27 L.R.A. (N.S.) 1174; Moore v. Ivey, (Tex. Civ. App.) 264 S.W. 283; 21 R.C. L. 388. 157 So. 328 Fla. (1934) Garcia-Rueda v. Pascasio, G.R. No. 118141, September 5, 1997, 278 SCRA 769. In the leading case of Vda. de Bataclan v. Medina, (102 Phil. 181 [1957]), this Court laid down the following definition of proximate cause in this jurisdiction as follows: [T]hat cause, which, in natural and continuous sequence unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. And more comprehensively, the proximate cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with the immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under which circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom. Ramos v. Court of Appeals, G.R. No. 124354, December 29, 1999, 321 SCRA 584. Africa v. Caltex (Phils.) Inc., 123 Phil. 280 (1966). Ranos v. Court of Appeals, supra. In Ramos, the phrase used is control of the instrumentality which caused the damage, citing St. Johns Hospital and School of Nursing v. Chapman , 434 P2d 160 (1967). Rural Educational Assn v. Bush, 42 Tenn. App. 34, 298 S.W. 2d 761 (1956). Ramos v. Court of Appeals, supra at footnote 13. Levin, Hospital Vicarious Liability for Negligence by Independent Contractor Physicians: A New Rule for New Times, October 17, 2005. Tolentino, The Civil Code of the Philippines, Volume V, 1992 Ed., p. 616. Arkansas M.R. Co. v. Pearson, 98 Ark. 442, 153 SW 595 (1911); Runyan v. Goodrum, 147 Ark. 281, 228 SW 397, 13 ALR 1403 (1921); Rosane v. Senger, 112 Colo. 363, 149 P. 2d 372 (superseded by statute on other

grounds); Moon v. Mercy Hosp., 150 Col. 430, 373 P. 2d 944 (1962); Austin v. Litvak, 682 P. 2d 41, 50 ALR 4th 225 (1984); Western Ins. Co. v. Brochner, 682 P. 2d 1213 (1983); Rodriguez v. Denver, 702 P. 2d 1349 (1984). Arkansas M.R. Co. v. Pearson, id.; Nieto v. State, 952 P. 2d 834 (1997). But see Beeck v. Tucson General Hosp., 18 Ariz. App. 165, 500 P. 2d 1153 (1972); Paintsville Hosp. Co., 683 SW 2d 255 (1985); Kelley v. Rossi, 395 Mass. 659, 481 NE 2d 1340 (1985) which held that a physicians professional status does not prevent him or her from being a servant or agent of the hospital. Fridena v. Evans, 127 Ariz. 516, 522 P. 2d 463 (1980). Kitto v. Gilbert, 39 Colo App 374, 570 P. 2d 544 (1977). 211 N.Y. 125, 105 N.E. 92, 52 L.R.A., N.S., 505 (1914). The court in Schloendorff opined that a hospital does not act through physicians but merely procures them to act on their own initiative and responsibility. For subsequent application of the doctrine, see for instance, Hendrickson v. Hodkin, 250 App. Div 649, 294 NYS 982, revd on other grounds, 276 NY 252, 11 NE 2d 899 (1937); Necolayff v. Genesee Hosp., 270 App. Div. 648, 61 NYS 2d 832, affd 296 NY 936, 73 NE2d 117 (1946); Davie v. Lenox Hill Hosp., Inc., 81 NYS 2d 583 (1948); Roth v. Beth El Hosp., Inc., 279 App. Div 917, 110 NYS 2d 583 (1952); Rufino v. US, 126 F. Supp. 132 (1954); Mrachek v. Sunshine Biscuit, Inc., 308 NY 116, 123 N.E. 2d 801 (1954). 2 NY 2d 656, 163 NYS 2d 3, 143 N.E. 2d 3 (1957). Supra at footnote 13. BLACKS LAW DICTIONARY (6th Ed. 1990) 1100. The terms ostensible agency, agency by estoppel, apparent authority, and holding out tend to be used interchangeably by the courts to refer to this theory of liability. See for instance, Baker v. Werner, 654 P2d 263 (1982) and Adamski v. Tacoma Gen. Hosp., 20 Wash App. 98, 579 P2d 970 (1978). Agency by estoppel is defined as one created by operation of law and established by proof of such acts of the principal as reasonably lead third persons to the conclusion of its existence. Arises where principal by negligence in failing to supervise agents affairs, allows agent to exercise powers not granted to him, thus justifying others in believing the agent possesses requisite authority. BLACKs, supra, p. 62. An ostensible agency is an implied or presumptive agency which exists where one, either intentionally or from want of ordinary care, induces another to believe that a third person is his agent, though he never in fact, employed him. It is, strictly speaking, no agency at all, but is in reality based entirely upon estoppel. Apparent authority refers to the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the others manifestations to such third persons. Supra, p. 96. Irving v. Doctors Hospital of Lake Worth, Inc. , 415 So. 2d 55 (1982), quoting Arthur v. St. Peters Hospital, 169 N.J. 575, 405 A. 2d 443 (1979). Id., citing Hudson v. C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608, 186 A 437 (Sup. Ct. 1936). Supra. RTC Decision, p. 9, Rollo of G.R. No. 126467, p. 127. RTC Decision, p. 2, Rollo of G.R. No. 126467, p. 120. Purcell v. Zimbelman, 18 Ariz. App. 75, 500 P2d 335 (1972). Supra at footnote 1. Corleto v. Hospital, 138 N.J. Super. 302, 350 A. 2d 534 (Super. Ct. Law Div.1975); Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972); Hospital Authority v. Joiner, 229 Ga. 140,189 S.E. 2d 412 (1972). Welsh v. Bulger, 548 Pa. 504, 698 A.2d 581 (1997). 115 Ariz. 34, 545 P2d 958 (1976). 262 S.E. 2d 391, cert denied 300 NC 194, 269 S.E. 2d 621 (1980). 127 Ariz. 516, 622 P. 2d 463 (1980).

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 118889 March 23, 1998 FGU INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, FILCAR TRANSPORT, INC., and FORTUNE INSURANCE CORPORATION, respondents. BELLOSILLO, J.: For damages suffered by a third party, may an action based on quasi-delict prosper against a rent-a-car company and, consequently, its insurer for fault or negligence of the car lessee in driving the rented vehicle? This was a two-car collision at dawn. At around 3 o'clock of 21 April 1987, two (2) vehicles, both Mitsubishi Colt Lancers, cruising northward along Epifanio de los Santos Avenue, Mandaluyong City, figured in a traffic accident. The car bearing Plate No. PDG 435 owned by Lydia F. Soriano was being driven at the outer lane of the highway by Benjamin Jacildone, while the other car, with Plate No. PCT 792, owned by respondent FILCAR Transport, Inc. (FILCAR), and driven by Peter Dahl-Jensen as lessee, was at the center lane, left of the other vehicle. Upon approaching the corner of Pioneer Street, the car owned by FILCAR swerved to the right hitting the left side of the car of Soriano. At that time Dahl-Jensen, a Danish tourist, did not possess a Philippine driver's license.
1

As a consequence, petitioner FGU Insurance Corporation, in view of its insurance contract with Soriano, paid the latter P25,382.20. By way of subrogation, 2 it sued DahlJensen and respondent FILCAR as well as respondent Fortune Insurance Corporation (FORTUNE) as insurer of FILCAR for quasi-delict before the Regional Trial Court of Makati City. Unfortunately, summons was not served on Dahl-Jensen since he was no longer staying at his given address; in fact, upon motion of petitioner, he was dropped from the complaint. On 30 July 1991 the trial court dismissed the case for failure of petitioner to substantiate its claim of subrogation. 3 On 31 January 1995 respondent Court of Appeals affirmed the ruling of the trial court although based on another ground, i.e., only the fault or negligence of Dahl-Jensen was sufficiently proved but not that of respondent FILCAR. 4 In other words, petitioner failed to establish its cause of action for sum of money based on quasi-delict.

In this appeal, petitioner insists that respondents are liable on the strength of the ruling in MYC-Agro-Industrial Corporation v. Vda. de Caldo 5 that the registered owner of a vehicle is liable for damages suffered by third persons although the vehicle is leased to another. We find no reversible error committed by respondent court in upholding the dismissal of petitioner's complaint. The pertinent provision is Art. 2176 of the Civil Code which states: "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 . . . . " To sustain a claim based thereon, the following requisites must concur: (a) damage suffered by the plaintiff; (b) fault or negligence of the defendant; and, (c) connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. 6 We agree with respondent court that petitioner failed to prove the existence of the second requisite, i.e., fault or negligence of defendant FILCAR, because only the fault or negligence of Dahl-Jensen was sufficiently established, not that of FILCAR. It should be noted that the damage caused on the vehicle of Soriano was brought about by the circumstance that Dahl-Jensen swerved to the right while the vehicle that he was driving was at the center lane. It is plain that the negligence was solely attributable to DahlJensen thus making the damage suffered by the other vehicle his personal liability. Respondent FILCAR did not have any participation therein. Article 2180 of the same Code which deals also with quasi-delict provides:
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. The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company. Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their company. The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. 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 industry. The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in article 2176 shall be applicable.

Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

The liability imposed by Art. 2180 arises by virtue of a presumption juris tantum of negligence on the part of the persons made responsible thereunder, derived from their failure to exercise due care and vigilance over the acts of subordinates to prevent them from causing damage. 7 Yet, as correctly observed by respondent court, Art. 2180 is hardly applicable because none of the circumstances mentioned therein obtains in the case under consideration. Respondent FILCAR being engaged in a rent-a-car business was only the owner of the car leased to Dahl-Jensen. As such, there was no vinculum juris between them as employer and employee. Respondent FILCAR cannot in any way be responsible for the negligent act of Dahl-Jensen, the former not being an employer of the latter. We now correlate par. 5 of Art. 2180 with Art. 2184 of the same Code which provides: "In motor vehicle mishap, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have by the use of due diligence, prevented the misfortune . . . . If the owner was not in the motor vehicle, the provisions of article 2180 are applicable." Obviously, this provision of Art. 2184 is neither applicable because of the absence of master-driver relationship between respondent FILCAR and Dahl-Jensen. Clearly, petitioner has no cause of action against respondent FILCAR on the basis of quasidelict; logically, its claim against respondent FORTUNE can neither prosper. Petitioner's insistence on MYC-Agro-Industrial Corporation is rooted in a misapprehension of our ruling therein. In that case, the negligent and reckless operation of the truck owned by petitioner corporation caused injuries to several persons and damage to property. Intending to exculpate itself from liability, the corporation raised the defense that at the time of the collision it had no more control over the vehicle as it was leased to another; and, that the driver was not its employee but of the lessee. The trial court was not persuaded as it found that the true nature of the alleged lease contract was nothing more than a disguise effected by the corporation to relieve itself of the burdens and responsibilities of an employer. We upheld this finding and affirmed the declaration of joint and several liability of the corporation with its driver. WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 31 January 1995 sustaining the dismissal of petitioner's complaint by the trial court is AFFIRMED. Costs against petitioner. SO ORDERED. Davide, Jr., Vitug, Panganiban and Quisumbing, JJ., concur. Footnotes

1 Traffic Accident Investigation Report; Records, p. 130. 2 Subrogation is the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities (Gerken v. Davidson Grocery Co., 57 Idaho 670, 69 P. 2d 122, 126). Subrogation denotes the exchange of a third person who has paid a debt in the place of the creditor to whom he has paid it, so that he may exercise against the debtor all the rights which the creditor, if unpaid, might have done. . . . Insurance companies, guarantors and bonding companies generally have the right to step into the shoes of the party whom they compensate and sue any party whom the compensated party could have sued (Black's Law Dictionary, 6th Ed., St. Paul, Minn., West Publishing Co., p. 1427). 3 Decision penned by Judge Salvador S. Abad Santos, RTC-Br. 65, Makati City, Records, pp. 204-205. 4 Decision penned by Justice Jaime M. Lantin with the concurrence of Justices Alicia Austria-Martinez and Conrado M. Vasquez Jr.; Rollo, p. 18. 5 G.R. No. 57298, 7 September 1984, 132 SCRA 10. 6 Andamo v. Intermediate Appellate Court, G.R. No. 74761, 6 November 1990, 191 SCRA 195. 7 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1992, Ed., Vol. V, p. 611.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 122039 May 31, 2000 VICENTE CALALAS, petitioner, vs. COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCO SALVA, respondents. MENDOZA, J.: This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated March 31, 1991, reversing the contrary decision of the Regional Trial Court, Branch 36, Dumaguete City, and awarding damages instead to private respondent Eliza Jujeurche Sunga as plaintiff in an action for breach of contract of carriage. The facts, as found by the Court of Appeals, are as follows: At 10 o'clock in the morning of August 23, 1989, private respondent Eliza Jujeurche G. Sunga, then a college freshman majoring in Physical Education at the Siliman University, took a passenger jeepney owned and operated by petitioner Vicente Calalas. As the jeepney was filled to capacity of about 24 passengers, Sunga was given by the conductor an "extension seat," a wooden stool at the back of the door at the rear end of the vehicle. On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to let a passenger off. As she was seated at the rear of the vehicle, Sunga gave way to the outgoing passenger. Just as she was doing so, an Isuzu truck driven by Iglecerio Verena and owned by Francisco Salva bumped the left rear portion of the jeepney. As a result, Sunga was injured. She sustained a fracture of the "distal third of the left tibiafibula with severe necrosis of the underlying skin." Closed reduction of the fracture, long leg circular casting, and case wedging were done under sedation. Her confinement in the hospital lasted from August 23 to September 7, 1989. Her attending physician, Dr. Danilo V. Oligario, an orthopedic surgeon, certified she would remain on a cast for a period of three months and would have to ambulate in crutches during said period.1wphi1.nt On October 9, 1989, Sunga filed a complaint for damages against Calalas, alleging violation of the contract of carriage by the former in failing to exercise the diligence required of him as a common carrier. Calalas, on the other hand, filed a third-party complaint against Francisco Salva, the owner of the Isuzu truck.

The lower court rendered judgment against Salva as third-party defendant and absolved Calalas of liability, holding that it was the driver of the Isuzu truck who was responsible for the accident. It took cognizance of another case (Civil Case No. 3490), filed by Calalas against Salva and Verena, for quasi-delict, in which Branch 37 of the same court held Salva and his driver Verena jointly liable to Calalas for the damage to his jeepney. On appeal to the Court of Appeals, the ruling of the lower court was reversed on the ground that Sunga's cause of action was based on a contract of carriage, not quasidelict, and that the common carrier failed to exercise the diligence required under the Civil Code. The appellate court dismissed the third-party complaint against Salva and adjudged Calalas liable for damages to Sunga. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is entered ordering defendant-appellee Vicente Calalas to pay plaintiffappellant: (1) P50,000.00 as actual and compensatory damages; (2) P50,000.00 as moral damages; (3) P10,000.00 as attorney's fees; and (4) P1,000.00 as expenses of litigation; and (5) to pay the costs. SO ORDERED.

Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490 that the negligence of Verena was the proximate cause of the accident negates his liability and that to rule otherwise would be to make the common carrier an insurer of the safety of its passengers. He contends that the bumping of the jeepney by the truck owned by Salva was a caso fortuito. Petitioner further assails the award of moral damages to Sunga on the ground that it is not supported by evidence. The petition has no merit. The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding the driver and the owner of the truck liable for quasi-delict ignores the fact that she was never a party to that case and, therefore, the principle of res judicata does not apply. Nor are the issues in Civil Case No. 3490 and in the present case the same. The issue in Civil Case No. 3490 was whether Salva and his driver Verena were liable for quasidelict for the damage caused to petitioner's jeepney. On the other hand, the issue in this case is whether petitioner is liable on his contract of carriage. The first, quasi-delict, also known as culpa aquiliana or culpa extra contractual, has as its source the negligence of

the tortfeasor. The second, breach of contract or culpa contractual, is premised upon the negligence in the performance of a contractual obligation. Consequently, in quasi-delict, the negligence or fault should be clearly established because it is the basis of the action, whereas in breach of contract, the action can be prosecuted merely by proving the existence of the contract and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his destination. 2 In case of death or injuries to passengers, Art. 1756 of the Civil Code provides that common carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the burden of proof. There is, thus, no basis for the contention that the ruling in Civil Case No. 3490, finding Salva and his driver Verena liable for the damage to petitioner's jeepney, should be binding on Sunga. It is immaterial that the proximate cause of the collision between the jeepney and the truck was the negligence of the truck driver. The doctrine of proximate cause is applicable only in actions for quasi-delict, not in actions involving breach of contract. The doctrine is a device for imputing liability to a person where there is no relation between him and another party. In such a case, the obligation is created by law itself. But, where there is a pre-existing contractual relation between the parties, it is the parties themselves who create the obligation, and the function of the law is merely to regulate the relation thus created. Insofar as contracts of carriage are concerned, some aspects regulated by the Civil Code are those respecting the diligence required of common carriers with regard to the safety of passengers as well as the presumption of negligence in cases of death or injury to passengers. It provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1746, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756. Art. 1755. 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 due regard for all the circumstances. Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed by articles 1733 and 1755.

In the case at bar, upon the happening of the accident, the presumption of negligence at once arose, and it became the duty of petitioner to prove that he had to observe extraordinary diligence in the care of his passengers.

Now, did the driver of jeepney carry Sunga "safely as far as human care and foresight could provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances" as required by Art. 1755? We do not think so. Several factors militate against petitioner's contention. First, as found by the Court of Appeals, the jeepney was not properly parked, its rear portion being exposed about two meters from the broad shoulders of the highway, and facing the middle of the highway in a diagonal angle. This is a violation of the R.A. No. 4136, as amended, or the Land Transportation and Traffic Code, which provides:
Sec. 54. Obstruction of Traffic. No person shall drive his motor vehicle in such a manner as to obstruct or impede the passage of any vehicle, nor, while discharging or taking on passengers or loading or unloading freight, obstruct the free passage of other vehicles on the highway.

Second, it is undisputed that petitioner's driver took in more passengers than the allowed seating capacity of the jeepney, a violation of 32(a) of the same law. It provides:
Exceeding registered capacity. No person operating any motor vehicle shall allow more passengers or more freight or cargo in his vehicle than its registered capacity.

The fact that Sunga was seated in an "extension seat" placed her in a peril greater than that to which the other passengers were exposed. Therefore, not only was petitioner unable to overcome the presumption of negligence imposed on him for the injury sustained by Sunga, but also, the evidence shows he was actually negligent in transporting passengers. We find it hard to give serious thought to petitioner's contention that Sunga's taking an "extension seat" amounted to an implied assumption of risk. It is akin to arguing that the injuries to the many victims of the tragedies in our seas should not be compensated merely because those passengers assumed a greater risk of drowning by boarding an overloaded ferry. This is also true of petitioner's contention that the jeepney being bumped while it was improperly parked constitutes caso fortuito. A caso fortuito is an event which could not be foreseen, or which, though foreseen, was inevitable. 3 This requires that the following requirements be present: (a) the cause of the breach is independent of the debtor's will; (b) the event is unforeseeable or unavoidable; (c) the event is such as to render it impossible for the debtor to fulfill his obligation in a normal manner, and (d) the debtor did not take part in causing the injury to the creditor. 4 Petitioner should have foreseen the danger of parking his jeepney with its body protruding two meters into the highway. Finally, petitioner challenges the award of moral damages alleging that it is excessive and without basis in law. We find this contention well taken. In awarding moral damages, the Court of Appeals stated:

Plaintiff-appellant at the time of the accident was a first-year college student in that school year 1989-1990 at the Silliman University, majoring in Physical Education. Because of the injury, she was not able to enroll in the second semester of that school year. She testified that she had no more intention of continuing with her schooling, because she could not walk and decided not to pursue her degree, major in Physical Education "because of my leg which has a defect already." Plaintiff-appellant likewise testified that even while she was under confinement, she cried in pain because of her injured left foot. As a result of her injury, the Orthopedic Surgeon also certified that she has "residual bowing of the fracture side." She likewise decided not to further pursue Physical Education as her major subject, because "my left leg . . . has a defect already." Those are her physical pains and moral sufferings, the inevitable bedfellows of the injuries that she suffered. Under Article 2219 of the Civil Code, she is entitled to recover moral damages in the sum of P50,000.00, which is fair, just and reasonable.

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 Art. 2219 of the Civil Code. 5 As an exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as provided in Art. 1764, in relation to Art. 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 Art. 2220. 6 In this case, there is no legal basis for awarding moral damages since there was no factual finding by the appellate court that petitioner acted in bad faith in the performance of the contract of carriage. Sunga's contention that petitioner's admission in open court that the driver of the jeepney failed to assist her in going to a nearby hospital cannot be construed as an admission of bad faith. The fact that it was the driver of the Isuzu truck who took her to the hospital does not imply that petitioner was utterly indifferent to the plight of his injured passenger. If at all, it is merely implied recognition by Verena that he was the one at fault for the accident. WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995, and its resolution, dated September 11, 1995, are AFFIRMED, with the MODIFICATION that the award of moral damages is DELETED. SO ORDERED.1wphi1.nt Bellosillo and Buena, JJ., concur. Quisumbing and De Leon, Jr., JJ., are on leave. Footnotes
1 Per Justice Artemon D. Luna and concurred in by Justices Hector L. Hofilena and B.A. Adefuin-dela Cruz.

2 See B. BALDERRAMA, THE PHILIPPINE LAW ON TROTS AND DAMAGES 20 (1953). 3 CIVIL CODE, ART. 1174. 4 Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 (1986); Vasquez v. Court of Appeals, 138 SCRA 553 (1985); Republic v. Luzon Stevedoring Corp., 128 Phil. 313 (1967). 5 Fores v. Miranda, 67 105 Phil. 267 (1959); Mercado v. Lira, 3 SCRA 124 (1961). 6 Philippine Rabbit Bus Lines, Inc. v. Esguerra, 117 SCRA 741 (1982); Sabena Belgian World Airlines v. Court of Appeals, 171 SCRA 620 (1989); China Airlines, Ltd. v. Intermediate Appellate Court, 169 SCRA 226 (1989).

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 108395 March 7, 1997 HEIRS OF THE LATE TEODORO GUARING, JR., petitioners, vs. COURT OF APPEALS, PHILIPPINE RABBIT BUS LINES, INC., and ANGELES CUEVAS, respondents. MENDOZA, J.: This is a petition for review of the decision of the Court of Appeals, reversing the decision of the Regional Trial Court of Manila, Branch 20, which ordered respondent Philippine Rabbit Bus Lines, Inc. and its driver, Angeles Cuevas, to pay various amounts in damages to petitioners, the heirs of the late Teodoro Guaring, Jr. This case arose from an unfortunate vehicular accident which happened on November 7, 1987, along the North Expressway in San Rafael, Mexico, Pampanga. Involved in the accident were a Mitsubishi Lancer car driven by Teodoro Guaring, Jr., who died as a result of the mishap, Philippine Rabbit Bus No. 415, driven by Angeles Cuevas, and a Toyota Cressida car, driven by Eligio Enriquez. The Mitsubishi Lancer was heading north, at the speed of 80 to 90 kilometers per hour. Following it was the Philippine Rabbit Bus No. 415, with Plate No. CVD-584. On the other hand, the Toyota Cressida was cruising on the opposite lane, bound for Manila.

Petitioners, heirs of Teodoro Guaring, Jr., brought this action for damages, based on quasi delict, in the Regional Trial Court of Manila. Their evidence tended to show that the Rabbit bus tried to overtake Guaring's car by passing on the right shoulder of the road and that in so doing it hit the right rear portion of Guaring's Mitsubishi Lancer. The impact caused the Lancer to swerve to the south-bound lane, as a result of which it collided with the Toyota Cressida car coming from the opposite direction. With Teodoro Guaring, Jr. in the Lancer, seated beside him in front, was Bonifacio Clemente. Riding in the Toyota Cressida driven by Sgt. Eligio Enriquez was his mother, Dolores Enriquez, who was seated beside him. Seated at the back were his daughter Katherine (who was directly behind him), his wife Lilian, and his nephew Felix Candelaria. Killed in the collision were Teodoro Guaring, Jr., who was driving the Lancer, and Dolores Enriquez, who was riding in the Cressida, while injured were Bonifacio Clemente and the occupants of the Toyota Cressida. Private respondents, on the other hand, presented evidence tending to show that the accident was due to the negligence of the deceased Guaring. They claimed that it was Guaring who tried to overtake the vehicle ahead of him on the highway and that in doing so he encroached on the south-bound lane and collided with the oncoming Cressida of U.S. Air Force Sgt. Enriquez. Private respondents claim that as a result of the collision the Lancer was thrown back to its lane where it crashed into the Rabbit bus. On May 16, 1990, the Regional Trial Court rendered judgment finding Philippine Rabbit Bus Lines, Inc. and its driver, Angeles Cuevas, at fault, and holding them solidarily liable for damages to petitioners. The dispositive portion of its decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the latter to pay the former, jointly and severally, the sum of: 1. P500,000.00 for loss of earning capacity of the deceased Teodoro Guaring, Jr.; 2. P1,000,000.00 as moral damages; 3. P50,000.00 as and for attorney's fees; and 4. Costs of suit.

From this judgment, private respondent Philippine Rabbit Bus Lines, Inc. appealed, contending:
1. The lower court erred in not finding that the proximate cause of the collision was Guaring's negligence in attempting to overtake the car in front of him. 2. The lower court erred in not holding that PRBL exercised due diligence in the supervision of its employees.

3. The lower court erred in awarding the amount of P500,000.00 in favor of plaintiffsappellees representing Guaring's loss of earning capacity. 4. The lower court erred in awarding moral damages in favor of plaintiffs-appellees. 5. The lower court erred in awarding attorney's fees in favor of plaintiffs-appellees.

On December 16, 1992, the Court of Appeals rendered a decision, setting aside the decision of the Regional Trial Court of Manila in the civil action for damages and dismissing the complaint against private respondents Philippine Rabbit Bus Lines, Inc. and Cuevas, on the strength of a decision rendered by the Regional Trial Court at San Fernando, Pampanga, in the criminal case, acquitting the bus driver Angeles Cuevas of reckless imprudence resulting in damage to property and double homicide. The appellate court held that since the basis of petitioners' action was the alleged negligence of the bus driver, the latter's acquittal in the criminal case rendered the civil case based on quasi delict untenable. Hence, this petition. Petitioners contend that
[1] EVIDENCE IN ONE CASE IS INADMISSIBLE IN ANOTHER CASE AGAINST A PERSON NOT A PARTY IN THE FIRST CASE AND TO HOLD OTHERWISE IS VIOLATIVE OF PROCEDURAL DUE PROCESS. [2] THE DECISION OF THE COURT OF APPEALS WAS WITHOUT FACTUAL FINDINGS AND DID NOT RESOLVE SQUARELY THE ASSIGNED ERRORS AND IS THEREFORE A VOID JUDGMENT. [3] ACQUITTAL OF THE ACCUSED IN THE CRIMINAL CASE, WHETHER ON REASONABLE DOUBT OR NOT, IS NO BAR TO THE PROSECUTION FOR DAMAGES BASED ON QUASI-DELICT.

The question is whether the judgment in the criminal case extinguished the liability of private respondent Philippine Rabbit Bus Lines, Inc. and its driver, Angeles Cuevas, for damages for the death of Teodoro Guaring, Jr. In absolving private respondents from liability, the Court of Appeals reasoned: 1
Since the appellee's civil action is predicated upon the negligence of the accused which does not exist as found by the trial court in the said criminal case, it necessarily follows that the acquittal of the accused in the criminal case carries with it the extinction of the civil responsibility arising therefrom. Otherwise stated, the fact from which the civil action might arise, that is, the negligence of the accused, did not exist. The finding in the criminal case that accused Cuevas was not negligent and the proximate cause of the accident was the act of deceased Guaring in overtaking another vehicle ahead of him likewise exonerates PRB from any civil liability.

Although it did not say so expressly, the appellate court appears to have based its ruling on Rule 111, 2(b) of the Rules of Criminal Procedure, which provides:

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.

This provision contemplates, however, a civil action arising from crime, whereas the present action was instituted pursuant to Art. 2176 of the Civil Code, which 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.

It is now settled that acquittal of the accused, even if based on a finding that he is not guilty, does not carry with it the extinction of the civil liability based on quasi delict. Thus, in Tayag v. Alcantara, 2 it was held:
. . . a separate civil action lies 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. (c), Section 3, Rule 111 [now Rule 111, 2(b)], refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same act considered as a 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. . . .

It is noteworthy that the accident in that case also involved a Philippine Rabbit bus and that, as in this case, the acquittal of the bus driver was based on reasonable doubt. We held that the civil case for damages was not barred since the cause of action of the heirs was based on quasi delict. Again, in Gula v. Dianala it was held: 3
Since the cause of action of plaintiffs-appellants is based on culpa aquiliana and not culpa criminal, thus precluding the application of the exception in Sec. 3(c) of Rule 111 [now Rule 111, 2(b)], and the fact that it can be inferred from the criminal case that defendant-accused, Pedro Dianala, was acquitted on reasonable doubt because of dearth of evidence and lack of veracity of the two principal witnesses, the doctrine in Mendoza vs. Arrieta, 91 SCRA 113, will not find application. In that case, the acquittal was not based on reasonable doubt and the cause of action was based on culpa criminal, for which reason we held the suit for damages barred.

Even if damages are sought on the basis of crime and not quasi delict, the acquittal of the bus driver will not bar recovery of damages because the acquittal was based not on a finding that he was not guilty but only on reasonable doubt. Thus, it has been held: 4
The judgment of acquittal extinguishes the liability of the accused for damages only when it includes a declaration that the facts from which the civil might arise did not exist. Thus, the civil liability is not extinguished by acquittal where the acquittal is based on reasonable doubt (PNB v. Catipon, 98 Phil. 286) as only preponderance of evidence is

required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature (De Guzman v. Alvia, 96 Phil. 558; People v. Pantig, supra) as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted (Castro v. Collector of Internal Revenue, 4 SCRA 1093; See Regalado, Remedial Law Compendium, 1983 ed., p. 623).

In the present case, the dispositive portion of the decision of the RTC in the criminal case reads:
WHEREFORE, the Court, entertaining reasonable doubt as to his guilt, the accused is hereby acquitted, of the offense of reckless imprudence resulting to double homicide and damage to property as charged in the Information, without pronouncement as to costs.

SO ORDERED. 5 It was thus error for the appellate court to skip the review of the evidence in this case and instead base its decision on the findings of the trial court in the criminal case. In so doing, the appellate court disregarded the fact that this case had been instituted independently of the criminal case and that petitioners herein took no part in the criminal prosecution. In fact this action was filed below before the prosecution presented evidence in the criminal action. The attention of the Court of Appeals was called to the decision in the criminal case, which was decided on September 7, 1990, only when the decision of the trial court in this case was already pending review before it (the Court of Appeals). The appellate court did not even have before it the evidence in the criminal case. What it did was simply to cite findings contained in the decision of the criminal court. Worse, what the criminal court considered was reasonable doubt concerning the liability of the bus driver the appellate court regarded as a categorical finding that the driver was not negligent and, on that basis, declared in this case that "the proximate cause of the accident was the act of deceased Guaring in overtaking another vehicle ahead of him." The notion that an action for quasi delict is separate and distinct from the criminal action was thus set aside. This case must be decided on the basis of the evidence in the civil case. This is important because the criminal court appears to have based its decision, acquitting the bus driver on the ground of reasonable doubt, solely on what it perceived to be the relative capacity for observation of the prosecution and defense witnesses. 6 The prosecution did not call Bonifacio Clemente to testify despite the fact that shortly after the accident he gave a statement to the police, pinning the blame for the accident on the Philippine Rabbit bus driver. Indeed, the civil case involved a different set of witnesses. Petitioners presented Eligio Enriquez who was driving the Cressida, and Bonifacio Clemente, who was a passenger in Guaring's car. Thus, both had full view of the accident

It is unfair to bind petitioners to the result of the criminal action when the fact is that they did not take part therein. That the witnesses presented on behalf of the petitioners are different from those presented by the prosecution should have brought home to the appellate court the fundamental unfairness of considering the decision in the criminal case conclusive of the civil case. Because the Court of Appeals did not consider the evidence in the civil case, this case should be remanded to it so that it may render another decision in accordance with the law and the evidence. The issues raised by the petitioners are essentially factual and require the evaluation of evidence, which is the function of the Court of Appeals in the exercise of its exclusive appellate jurisdiction. They cannot be decided in this Court. WHEREFORE, the decision of the Court of Appeals is REVERSED and this case is REMANDED to the Court of Appeals with instruction to render judgment with reasonable dispatch in accordance with law and the evidence presented in Civil Case No. 88-43860. SO ORDERED. Regalado, Romero, Puno and Torres, Jr., JJ., concur. Footnotes
1 Rollo, p. 60. 2 98 SCRA 723, 728 (1980) (emphasis added). 3 132 SCRA 245, 248-249 (1984). 4 Padilla v. Court of Appeals, 129 SCRA 558, 565-566 (1984). 5 RTC decision, p. 31; Rollo, p. 46 (emphasis added). 6 This is apparent from the following excerpt from the decision in the criminal case which the Court of Appeals quoted: While Edgardo Sobrevilla was seated in the conductor's seat in the front portion of the Philippine Rabbit Bus, Mrs. Lilian Enriquez was at the back seat of the Cressida car. As between them, it is in accord with ordinary human experience that Edgardo Sobrevilla was in a better position to see the actual occur[r]ence of the incident. Confirmatory to the testimony of Edgardo Sobrevilla are the sketches (Exhs. "A" and "A1") drawn by Pat. Danilo Gonzales, the investigating Policeman, which reveal no fallen debris on the North bound lane. Fallen debris could have surely occur[r]ed in the Northbound lane if there was a violent contact between the Mitsubishi Lancer car and the Philippine Rabbit bus in the North bound lane before the Lancer car left its lane to encroach on the South bound lane. The sketches (Exh. "A"' and "A-1") reveal very clearly that fallen debris are on the concrete pavement and asphalt shoulder of the South-bound lane, clearly indicative that the collision between the Lancer and the Cressida occur[r]ed in the lane of the latter.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 141538 March 23, 2004

HERMANA R. CEREZO, petitioner, vs. DAVID TUAZON, respondent. DECISION CARPIO, J.: The Case This is a petition for review on certiorari1 to annul the Resolution2 dated 21 October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its Resolution dated 20 January 2000 denying the motion for reconsideration. The Court of Appeals denied the petition for annulment of the Decision3 dated 30 May 1995 rendered by the Regional Trial Court of Angeles City, Branch 56 ("trial court"), in Civil Case No. 7415. The trial court ordered petitioner Hermana R. Cerezo ("Mrs. Cerezo") to pay respondent David Tuazon ("Tuazon") actual damages, loss of earnings, moral damages, and costs of suit. Antecedent Facts Around noontime of 26 June 1993, a Country Bus Lines passenger bus with plate number NYA 241 collided with a tricycle bearing plate number TC RV 126 along Captain M. Palo Street, Sta. Ines, Mabalacat, Pampanga. On 1 October 1993, tricycle driver Tuazon filed a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband Attorney Juan Cerezo ("Atty. Cerezo"), and bus driver Danilo A. Foronda ("Foronda"). The complaint alleged that: 7. At the time of the incident, plaintiff [Tuazon] was in his proper lane when the secondnamed defendant [Foronda], being then the driver and person in charge of the Country Bus with plate number NYA 241, did then and there willfully, unlawfully, and feloniously operate the said motor vehicle in a negligent, careless, and imprudent manner without due regard to traffic rules and regulations, there being a "Slow Down" sign near the scene of the incident, and without taking the necessary precaution to prevent loss of lives or injuries, his negligence, carelessness and imprudence resulted to severe damage to the tricycle and serious physical injuries to plaintiff thus making him unable to walk and becoming disabled, with his thumb and middle finger on the left hand being cut[.]4 On 1 October 1993, Tuazon filed a motion to litigate as a pauper. Subsequently, the trial court issued summons against Atty. Cerezo and Mrs. Cerezo ("the Cerezo spouses") at the Makati

address stated in the complaint. However, the summons was returned unserved on 10 November 1993 as the Cerezo spouses no longer held office nor resided in Makati. On 18 April 1994, the trial court issued alias summons against the Cerezo spouses at their address in Barangay Sta. Maria, Camiling, Tarlac. The alias summons and a copy of the complaint were finally served on 20 April 1994 at the office of Atty. Cerezo, who was then working as Tarlac Provincial Prosecutor. Atty. Cerezo reacted angrily on learning of the service of summons upon his person. Atty. Cerezo allegedly told Sheriff William Canlas: "Punyeta, ano ang gusto mong mangyari? Gusto mong hindi ka makalabas ng buhay dito? Teritoryo ko ito. Wala ka sa teritoryo mo."5 The records show that the Cerezo spouses participated in the proceedings before the trial court. The Cerezo spouses filed a comment with motion for bill of particulars dated 29 April 1994 and a reply to opposition to comment with motion dated 13 June 1994.6 On 1 August 1994, the trial court issued an order directing the Cerezo spouses to file a comment to the opposition to the bill of particulars. Atty. Elpidio B. Valera ("Atty. Valera") of Valera and Valera Law Offices appeared on behalf of the Cerezo spouses. On 29 August 1994, Atty. Valera filed an urgent exparte motion praying for the resolution of Tuazons motion to litigate as a pauper and for the issuance of new summons on the Cerezo spouses to satisfy proper service in accordance with the Rules of Court.7 On 30 August 1994, the trial court issued an order resolving Tuazons motion to litigate as a pauper and the Cerezo spouses urgent ex-parte motion. The order reads: At the hearing on August 30, 1994, the plaintiff [Tuazon] testified that he is presently jobless; that at the time of the filing of this case, his son who is working in Malaysia helps him and sends him once in a while P300.00 a month, and that he does not have any real property. Attached to the Motion to Litigate as Pauper are his Affidavit that he is unemployed; a Certification by the Barangay Captain of his poblacion that his income is not enough for his familys subsistence; and a Certification by the Office of the Municipal Assessor that he has no landholding in the Municipality of Mabalacat, Province of Pampanga. The Court is satisfied from the unrebutted testimony of the plaintiff that he is entitled to prosecute his complaint in this case as a pauper under existing rules. On the other hand, the Court denies the prayer in the Appearance and Urgent Ex-Parte Motion requiring new summons to be served to the defendants. The Court is of the opinion that any infirmity in the service of the summons to the defendant before plaintiff was allowed to prosecute his complaint in this case as a pauper has been cured by this Order. If within 15 days from receipt of this Order, the defendants do not question on appeal this Order of this Court, the Court shall proceed to resolve the Motion for Bill of Particulars.8 On 27 September 1994, the Cerezo spouses filed an urgent ex-parte motion for reconsideration. The trial court denied the motion for reconsideration.

On 14 November 1994, the trial court issued an order directing the Cerezo spouses to file their answer within fifteen days from receipt of the order. The Cerezo spouses did not file an answer. On 27 January 1995, Tuazon filed a motion to declare the Cerezo spouses in default. On 6 February 1995, the trial court issued an order declaring the Cerezo spouses in default and authorizing Tuazon to present his evidence. 9 On 30 May 1995, after considering Tuazons testimonial and documentary evidence, the trial court ruled in Tuazons favor. The trial court made no pronouncement on Forondas liability because there was no service of summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show that Mrs. Cerezos business benefited the family, pursuant to Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely liable for the damages sustained by Tuazon arising from the negligence of Mrs. Cerezos employee, pursuant to Article 2180 of the Civil Code. The dispositive portion of the trial courts decision reads: WHEREFORE, judgment is hereby rendered ordering the defendant Hermana Cerezo to pay the plaintiff: a) For Actual Damages 1) Expenses for operation and medical Treatment 2) Cost of repair of the tricycle b) For loss of earnings c) For moral damages d) And to pay the cost of the suit. - 39,921.00 - 43,300.00 - 20,000.00 - P69,485.35

The docket fees and other expenses in the filing of this suit shall be lien on whatever judgment may be rendered in favor of the plaintiff. SO ORDERED.10 Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10 July 1995, Mrs. Cerezo filed before the trial court a petition for relief from judgment on the grounds of "fraud, mistake or excusable negligence." Testifying before the trial court, both Mrs. Cerezo and Atty. Valera denied receipt of notices of hearings and of orders of the court. Atty. Valera added that he received no notice before or during the 8 May 1995 elections, "when he was a senatorial candidate for the KBL Party, and very busy, using his office and residence as Party National Headquarters." Atty. Valera claimed that he was able to read the decision of the trial court only after Mrs. Cerezo sent him a copy.11 Tuazon did not testify but presented documentary evidence to prove the participation of the Cerezo spouses in the case. Tuazon presented the following exhibits: Exhibit 1 Exhibit 1-A - Sheriffs return and summons; - Alias summons dated April 20, 1994;

Exhibit 2 Exhibit 3 Exhibit 3-A Exhibit 4 Exhibit 4-A Exhibit 5 Exhibit 6 Exhibit 6-A Exhibit 7 Exhibit 7-A Exhibit 7-B Exhibit 8 Exhibit 8-A Exhibit 8-B Exhibit 9 Exhibit 9-A Exhibit 9-B Exhibit 9-C Exhibit 9-D and Exhibit 9-E

Comment with Motion; Minutes of the hearing held on August 1, 1994; Signature of defendants counsel; Minutes of the hearing held on August 30, 1994; Signature of the defendants counsel; Appearance and Urgent Ex-Parte Motion; Order dated November 14, 1994; Postal certification dated January 13, 1995; Order dated February [illegible]; Courts return slip addressed to Atty. Elpidio Valera; Courts return slip addressed to Spouses Juan and Hermana Cerezo; Decision dated May [30], 1995 Courts return slip addressed to defendant Hermana Cerezo; Courts return slip addressed to defendants counsel, Atty. Elpidio Valera; Order dated September 21, 1995; Second Page of Exhibit 9; Third page of Exhibit 9; Fourth page of Exhibit 9; Courts return slip addressed to Atty. Elpidio Valera;

- Courts return slip addressed to plaintiffs counsel, Atty. Norman Dick de Guzman.12

On 4 March 1998, the trial court issued an order13 denying the petition for relief from judgment. The trial court stated that having received the decision on 25 June 1995, the Cerezo spouses should have filed a notice of appeal instead of resorting to a petition for relief from judgment. The trial court refused to grant relief from judgment because the Cerezo spouses could have availed of the remedy of appeal. Moreover, the Cerezo spouses not only failed to prove fraud, accident, mistake or excusable negligence by conclusive evidence, they also failed to prove that they had a good and substantial defense. The trial court noted that the Cerezo spouses failed to appeal because they relied on an expected settlement of the case. The Cerezo spouses subsequently filed before the Court of Appeals a petition for certiorari under Section 1 of Rule 65. The petition was docketed as CA-G.R. SP No. 48132.14 The petition questioned whether the trial court acquired jurisdiction over the case considering there was no service of summons on Foronda, whom the Cerezo spouses claimed was an indispensable party. In a resolution15 dated 21 January 1999, the Court of Appeals denied the petition for certiorari and affirmed the trial courts order denying the petition for relief from judgment. The Court of Appeals declared that the Cerezo spouses failure to file an answer was due to their own negligence, considering that they continued to participate in the proceedings without filing an answer. There was also nothing in the records to show that the Cerezo spouses actually offered a

reasonable settlement to Tuazon. The Court of Appeals also denied Cerezo spouses motion for reconsideration for lack of merit. The Cerezo spouses filed before this Court a petition for review on certiorari under Rule 45. Atty. Cerezo himself signed the petition, docketed as G.R. No. 137593. On 13 April 1999, this Court rendered a resolution denying the petition for review on certiorari for failure to attach an affidavit of service of copies of the petition to the Court of Appeals and to the adverse parties. Even if the petition complied with this requirement, the Court would still have denied the petition as the Cerezo spouses failed to show that the Court of Appeals committed a reversible error. The Courts resolution was entered in the Book of Entries and Judgments when it became final and executory on 28 June 1999.16 Undaunted, the Cerezo spouses filed before the Court of Appeals on 6 July 1999 a petition for annulment of judgment under Rule 47 with prayer for restraining order. Atty. Valera and Atty. Dionisio S. Daga ("Atty. Daga") represented Mrs. Cerezo in the petition, docketed as CA-G.R. SP No. 53572.17 The petition prayed for the annulment of the 30 May 1995 decision of the trial court and for the issuance of a writ of preliminary injunction enjoining execution of the trial courts decision pending resolution of the petition. The Court of Appeals denied the petition for annulment of judgment in a resolution dated 21 October 1999. The resolution reads in part: In this case, records show that the petitioner previously filed with the lower court a Petition for Relief from Judgment on the ground that they were wrongfully declared in default while waiting for an amicable settlement of the complaint for damages. The court a quo correctly ruled that such petition is without merit. The defendant spouses admit that during the initial hearing they appeared before the court and even mentioned the need for an amicable settlement. Thus, the lower court acquired jurisdiction over the defendant spouses. Therefore, petitioner having availed of a petition for relief, the remedy of an annulment of judgment is no longer available. The proper action for the petitioner is to appeal the order of the lower court denying the petition for relief. Wherefore, the instant petition could not be given due course and should accordingly be dismissed. SO ORDERED.18 On 20 January 2000, the Court of Appeals denied the Cerezo spouses motion for reconsideration.19 The Court of Appeals stated: A distinction should be made between a courts jurisdiction over a person and its jurisdiction over the subject matter of a case. The former is acquired by the proper service of summons or by the parties voluntary appearance; while the latter is conferred by law.

Resolving the matter of jurisdiction over the subject matter, Section 19(1) of B[atas] P[ambansa] 129 provides that Regional Trial Courts shall exercise exclusive original jurisdiction in all civil actions in which the subject of the litigation is incapable of pecuniary estimation. Thus it was proper for the lower court to decide the instant case for damages. Unlike jurisdiction over the subject matter of a case which is absolute and conferred by law; any defects [sic] in the acquisition of jurisdiction over a person (i.e., improper filing of civil complaint or improper service of summons) may be waived by the voluntary appearance of parties. The lower court admits the fact that no summons was served on defendant Foronda. Thus, jurisdiction over the person of defendant Foronda was not acquired, for which reason he was not held liable in this case. However, it has been proven that jurisdiction over the other defendants was validly acquired by the court a quo. The defendant spouses admit to having appeared in the initial hearings and in the hearing for plaintiffs motion to litigate as a pauper. They even mentioned conferences where attempts were made to reach an amicable settlement with plaintiff. However, the possibility of amicable settlement is not a good and substantial defense which will warrant the granting of said petition. xxx Assuming arguendo that private respondent failed to reserve his right to institute a separate action for damages in the criminal action, the petitioner cannot now raise such issue and question the lower courts jurisdiction because petitioner and her husband have waived such right by voluntarily appearing in the civil case for damages. Therefore, the findings and the decision of the lower court may bind them. Records show that the petitioner previously filed with the lower court a Petition for Relief from Judgment on the ground that they were wrongfully declared in default while waiting for an amicable settlement of the complaint for damages. The court a quo correctly ruled that such petition is without merit, jurisdiction having been acquired by the voluntary appearance of defendant spouses. Once again, it bears stressing that having availed of a petition for relief, the remedy of annulment of judgment is no longer available. Based on the foregoing, the motion for reconsideration could not be given due course and is hereby DENIED. SO ORDERED.20 The Issues

On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone representing her, filed the present petition for review on certiorari before this Court. Mrs. Cerezo claims that: 1. In dismissing the Petition for Annulment of Judgment, the Court of Appeals assumes that the issues raised in the petition for annulment is based on extrinsic fraud related to the denied petition for relief notwithstanding that the grounds relied upon involves questions of lack of jurisdiction. 2. In dismissing the Petition for Annulment, the Court of Appeals disregarded the allegation that the lower court[s] findings of negligence against defendant-driver Danilo Foronda [whom] the lower court did not summon is null and void for want of due process and consequently, such findings of negligence which is [sic] null and void cannot become the basis of the lower court to adjudge petitioner-employer liable for civil damages. 3. In dismissing the Petition for Annulment, the Court of Appeals ignored the allegation that defendant-driver Danilo A. Foronda whose negligence is the main issue is an indispensable party whose presence is compulsory but [whom] the lower court did not summon. 4. In dismissing the Petition for Annulment, the Court of Appeals ruled that assuming arguendo that private respondent failed to reserve his right to institute a separate action for damages in the criminal action, the petitioner cannot now raise such issue and question the lower courts jurisdiction because petitioner [has] waived such right by voluntarily appearing in the civil case for damages notwithstanding that lack of jurisdiction cannot be waived.21 The Courts Ruling The petition has no merit. As the issues are interrelated, we shall discuss them jointly. Remedies Available to a Party Declared in Default An examination of the records of the entire proceedings shows that three lawyers filed and signed pleadings on behalf of Mrs. Cerezo, namely, Atty. Daga, Atty. Valera, and Atty. Cerezo. Despite their number, Mrs. Cerezos counsels failed to avail of the proper remedies. It is either by sheer ignorance or by malicious manipulation of legal technicalities that they have managed to delay the disposition of the present case, to the detriment of pauper litigant Tuazon. Mrs. Cerezo claims she did not receive any copy of the order declaring the Cerezo spouses in default. Mrs. Cerezo asserts that she only came to know of the default order on 25 June 1995, when she received a copy of the decision. On 10 July 1995, Mrs. Cerezo filed before the trial court a petition for relief from judgment under Rule 38, alleging "fraud, mistake, or excusable negligence" as grounds. On 4 March 1998, the trial court denied Mrs. Cerezos petition for relief from judgment. The trial court stated that Mrs. Cerezo could have availed of appeal as a remedy and that she failed to prove that the judgment was entered through fraud, accident, mistake, or excusable negligence. Mrs. Cerezo then filed before the Court of Appeals a petition for certiorari

under Section 1 of Rule 65 assailing the denial of the petition for relief from judgment. On 21 January 1999, the Court of Appeals dismissed Mrs. Cerezos petition. On 24 February 1999, the appellate court denied Mrs. Cerezos motion for reconsideration. On 11 March 1999, Mrs. Cerezo filed before this Court a petition for review on certiorari under Rule 45, questioning the denial of the petition for relief from judgment. We denied the petition and our resolution became final and executory on 28 June 1999. On 6 July 1999, a mere eight days after our resolution became final and executory, Mrs. Cerezo filed before the Court of Appeals a petition for annulment of the judgment of the trial court under Rule 47. Meanwhile, on 25 August 1999, the trial court issued over the objection of Mrs. Cerezo an order of execution of the judgment in Civil Case No. 7415. On 21 October 1999, the Court of Appeals dismissed the petition for annulment of judgment. On 20 January 2000, the Court of Appeals denied Mrs. Cerezos motion for reconsideration. On 7 February 2000, Mrs. Cerezo filed the present petition for review on certiorari under Rule 45 challenging the dismissal of her petition for annulment of judgment. Lina v. Court of Appeals22 enumerates the remedies available to a party declared in default: a) The defendant in default may, at any time after discovery thereof and before judgment, file a motion under oath to set aside the order of default on the ground that his failure to answer was due to fraud, accident, mistake or excusable negligence, and that he has a meritorious defense (Sec. 3, Rule 18 [now Sec. 3(b), Rule 9]); b) If the judgment has already been rendered when the defendant discovered the default, but before the same has become final and executory, he may file a motion for new trial under Section 1 (a) of Rule 37; c) If the defendant discovered the default after the judgment has become final and executory, he may file a petition for relief under Section 2 [now Section 1] of Rule 38; and d) He may also appeal from the judgment rendered against him as contrary to the evidence or to the law, even if no petition to set aside the order of default has been presented by him (Sec. 2, Rule 41). (Emphasis added) Moreover, a petition for certiorari to declare the nullity of a judgment by default is also available if the trial court improperly declared a party in default, or even if the trial court properly declared a party in default, if grave abuse of discretion attended such declaration.23 Mrs. Cerezo admitted that she received a copy of the trial courts decision on 25 June 1995. Based on this admission, Mrs. Cerezo had at least three remedies at her disposal: an appeal, a motion for new trial, or a petition for certiorari. Mrs. Cerezo could have appealed under Rule 4124 from the default judgment within 15 days from notice of the judgment. She could have availed of the power of the Court of Appeals to try cases

and conduct hearings, receive evidence, and perform all acts necessary to resolve factual issues raised in cases falling within its appellate jurisdiction.25 Mrs. Cerezo also had the option to file under Rule 3726 a motion for new trial within the period for taking an appeal. If the trial court grants a new trial, the original judgment is vacated, and the action will stand for trial de novo. The recorded evidence taken in the former trial, as far as the same is material and competent to establish the issues, shall be used at the new trial without retaking the same.27 Mrs. Cerezo also had the alternative of filing under Rule 6528 a petition for certiorari assailing the order of default within 60 days from notice of the judgment. An order of default is interlocutory, and an aggrieved party may file an appropriate special civil action under Rule 65.29 In a petition for certiorari, the appellate court may declare void both the order of default and the judgment of default. Clearly, Mrs. Cerezo had every opportunity to avail of these remedies within the reglementary periods provided under the Rules of Court. However, Mrs. Cerezo opted to file a petition for relief from judgment, which is available only in exceptional cases. A petition for relief from judgment should be filed within the reglementary period of 60 days from knowledge of judgment and six months from entry of judgment, pursuant to Rule 38 of the Rules of Civil Procedure.30 Tuason v. Court of Appeals31 explained the nature of a petition for relief from judgment: When a party has another remedy available to him, which may either be a motion for new trial or appeal from an adverse decision of the trial court, and he was not prevented by fraud, accident, mistake or excusable negligence from filing such motion or taking such appeal, he cannot avail himself of this petition. Indeed, relief will not be granted to a party who seeks avoidance from the effects of the judgment when the loss of the remedy at law was due to his own negligence; otherwise the petition for relief can be used to revive the right to appeal which has been lost thru inexcusable negligence. Evidently, there was no fraud, accident, mistake, or excusable negligence that prevented Mrs. Cerezo from filing an appeal, a motion for new trial or a petition for certiorari. It was error for her to avail of a petition for relief from judgment. After our resolution denying Mrs. Cerezos petition for relief became final and executory, Mrs. Cerezo, in her last ditch attempt to evade liability, filed before the Court of Appeals a petition for annulment of the judgment of the trial court. Annulment is available only on the grounds of extrinsic fraud and lack of jurisdiction. If based on extrinsic fraud, a party must file the petition within four years from its discovery, and if based on lack of jurisdiction, before laches or estoppel bars the petition. Extrinsic fraud is not a valid ground if such fraud was used as a ground, or could have been used as a ground, in a motion for new trial or petition for relief from judgment.32

Mrs. Cerezo insists that lack of jurisdiction, not extrinsic fraud, was her ground for filing the petition for annulment of judgment. However, a party may avail of the remedy of annulment of judgment under Rule 47 only if the ordinary remedies of new trial, appeal, petition for relief from judgment, or other appropriate remedies are no longer available through no fault of the party.33 Mrs. Cerezo could have availed of a new trial or appeal but through her own fault she erroneously availed of the remedy of a petition for relief, which was denied with finality. Thus, Mrs. Cerezo may no longer avail of the remedy of annulment. In any event, the trial court clearly acquired jurisdiction over Mrs. Cerezos person. Mrs. Cerezo actively participated in the proceedings before the trial court, submitting herself to the jurisdiction of the trial court. The defense of lack of jurisdiction fails in light of her active participation in the trial court proceedings. Estoppel or laches may also bar lack of jurisdiction as a ground for nullity especially if raised for the first time on appeal by a party who participated in the proceedings before the trial court, as what happened in this case.34 For these reasons, the present petition should be dismissed for utter lack of merit. The extraordinary action to annul a final judgment is restricted to the grounds specified in the rules. The reason for the restriction is to prevent this extraordinary action from being used by a losing party to make a complete farce of a duly promulgated decision that has long become final and executory. There would be no end to litigation if parties who have unsuccessfully availed of any of the appropriate remedies or lost them through their fault could still bring an action for annulment of judgment.35 Nevertheless, we shall discuss the issues raised in the present petition to clear any doubt about the correctness of the decision of the trial court. Mrs. Cerezos Liability and the Trial Courts Acquisition of Jurisdiction Mrs. Cerezo contends that the basis of the present petition for annulment is lack of jurisdiction. Mrs. Cerezo asserts that the trial court could not validly render judgment since it failed to acquire jurisdiction over Foronda. Mrs. Cerezo points out that there was no service of summons on Foronda. Moreover, Tuazon failed to reserve his right to institute a separate civil action for damages in the criminal action. Such contention betrays a faulty foundation. Mrs. Cerezos contention proceeds from the point of view of criminal law and not of civil law, while the basis of the present action of Tuazon is quasi-delict under the Civil Code, not delict under the Revised Penal Code. The same negligent act may produce civil liability arising from a delict under Article 103 of the Revised Penal Code, or may give rise to an action for a quasi-delict under Article 2180 of the Civil Code. An aggrieved party may choose between the two remedies. An action based on a quasi-delict may proceed independently from the criminal action.36 There is, however, a distinction between civil liability arising from a delict and civil liability arising from a quasidelict. The choice of remedy, whether to sue for a delict or a quasi-delict, affects the procedural and jurisdictional issues of the action.37 Tuazon chose to file an action for damages based on a quasi-delict. In his complaint, Tuazon alleged that Mrs. Cerezo, "without exercising due care and diligence in the supervision and management of her employees and buses," hired Foronda as her driver. Tuazon became disabled

because of Forondas "recklessness, gross negligence and imprudence," aggravated by Mrs. Cerezos "lack of due care and diligence in the selection and supervision of her employees, particularly Foronda."38 The trial court thus found Mrs. Cerezo liable under Article 2180 of the Civil Code. Article 2180 states in part: 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 industry. Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable party to the case. An indispensable party is one whose interest is affected by the courts action in the litigation, and without whom no final resolution of the case is possible.39 However, Mrs. Cerezos liability as an employer in an action for a quasi-delict is not only solidary, it is also primary and direct. Foronda is not an indispensable party to the final resolution of Tuazons action for damages against Mrs. Cerezo. The responsibility of two or more persons who are liable for a quasi-delict is solidary.40 Where there is a solidary obligation on the part of debtors, as in this case, each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the entire obligation in full. There is no merger or renunciation of rights, but only mutual representation.41 Where the obligation of the parties is solidary, either of the parties is indispensable, and the other is not even a necessary party because complete relief is available from either.42 Therefore, jurisdiction over Foronda is not even necessary as Tuazon may collect damages from Mrs. Cerezo alone. Moreover, an employers liability based on a quasi-delict is primary and direct, while the employers liability based on a delict is merely subsidiary.43 The words "primary and direct," as contrasted with "subsidiary," refer to the remedy provided by law for enforcing the obligation rather than to the character and limits of the obligation.44 Although liability under Article 2180 originates from the negligent act of the employee, the aggrieved party may sue the employer directly. When an employee causes damage, the law presumes that the employer has himself committed an act of negligence in not preventing or avoiding the damage. This is the fault that the law condemns. While the employer is civilly liable in a subsidiary capacity for the employees criminal negligence, the employer is also civilly liable directly and separately for his own civil negligence in failing to exercise due diligence in selecting and supervising his employee. The idea that the employers liability is solely subsidiary is wrong.45 The action can be brought directly against the person responsible (for another), without including the author of the act. The action against the principal is accessory in the sense that it implies the existence of a prejudicial act committed by the employee, but it is not subsidiary in the sense that it can not be instituted till after the judgment against the author of the act or at least, that it is subsidiary to the principal action; the action for responsibility (of the employer) is in itself a principal action.46

Thus, there is no need in this case for the trial court to acquire jurisdiction over Foronda. The trial courts acquisition of jurisdiction over Mrs. Cerezo is sufficient to dispose of the present case on the merits. In contrast, an action based on a delict seeks to enforce the subsidiary liability of the employer for the criminal negligence of the employee as provided in Article 103 of the Revised Penal Code. To hold the employer liable in a subsidiary capacity under a delict, the aggrieved party must initiate a criminal action where the employees delict and corresponding primary liability are established.47 If the present action proceeds from a delict, then the trial courts jurisdiction over Foronda is necessary. However, the present action is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of Foronda. The Cerezo spouses contention that summons be served anew on them is untenable in light of their participation in the trial court proceedings. To uphold the Cerezo spouses contention would make a fetish of a technicality.48 Moreover, any irregularity in the service of summons that might have vitiated the trial courts jurisdiction over the persons of the Cerezo spouses was deemed waived when the Cerezo spouses filed a petition for relief from judgment.49 We hold that the trial court had jurisdiction and was competent to decide the case in favor of Tuazon and against Mrs. Cerezo even in the absence of Foronda. Contrary to Mrs. Cerezos contention, Foronda is not an indispensable party to the present case. It is not even necessary for Tuazon to reserve the filing of a separate civil action because he opted to file a civil action for damages against Mrs. Cerezo who is primarily and directly liable for her own civil negligence. The words of Justice Jorge Bocobo in Barredo v. Garcia still hold true today as much as it did in 1942: x x x [T]o hold that there is only one way to make defendants liability effective, and that is, to sue the driver and exhaust his (the latters) property first, would be tantamount to compelling the plaintiff to follow a devious and cumbersome method of obtaining relief. True, there is such a remedy under our laws, but there is also a more expeditious way, which is based on the primary and direct responsibility of the defendant under article [2180] of the Civil Code. Our view of the law is more likely to facilitate remedy for civil wrongs, because the procedure indicated by the defendant is wasteful and productive of delay, it being a matter of common knowledge that professional drivers of taxis and other similar public conveyances do not have sufficient means with which to pay damages. Why, then, should the plaintiff be required in all cases to go through this roundabout, unnecessary, and probably useless procedure? In construing the laws, courts have endeavored to shorten and facilitate the pathways of right and justice.50 Interest at the rate of 6% per annum is due on the amount of damages adjudged by the trial court.51 The 6% per annum interest shall commence from 30 May 1995, the date of the decision of the trial court. Upon finality of this decision, interest at 12% per annum, in lieu of 6% per annum, is due on the amount of damages adjudged by the trial court until full payment. WHEREFORE, we DENY the instant petition for review. The Resolution dated 21 October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its Resolution dated 20

January 2000 denying the motion for reconsideration, is AFFIRMED with the MODIFICATION that the amount due shall earn legal interest at 6% per annum computed from 30 May 1995, the date of the trial courts decision. Upon finality of this decision, the amount due shall earn interest at 12% per annum, in lieu of 6% per annum, until full payment. SO ORDERED. Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Azcuna, JJ., concur. Panganiban, J., on official leave.

Footnotes
1

Under Rule 45 of the Rules of Court.

Penned by Associate Justice Elvi John S. Asuncion, with Associate Justices Eubulo G. Verzola and Artemio G. Tuquero, concurring.
3

Penned by Judge Carlos D. Rustia. CA Rollo, p. 8. Ibid., pp. 13-17. Rollo, p. 66. CA Rollo, pp. 18-20. Ibid., p. 21. Rollo, p. 4. CA Rollo, p. 23. Ibid., pp. 24-33. Ibid., pp. 35-36. Penned by Judge Lourdes F. Gatbalite.

10

11

12

13

14

Captioned "Hermana R. Cerezo and Juan D. Cerezo, as husband, petitioners, v. Hon. Lourdes Gatbalite and David Tuazon, respondents."
15

Penned by Associate Justice Romeo A. Brawner, with Associate Justices Angelina Sandoval-Gutierrez and Martin S. Villarama, Jr., concurring.

16

Rollo, pp. 60-61.

17

Captioned "Hermana R. Cerezo and Juan D. Cerezo, as husband, petitioners, v. Lourdes Gatbalite, Presiding Judge (incumbent), RTC Branch 56, Angeles City, and David Tuazon, respondents."
18

Rollo, pp. 36-37. Ibid., pp. 33-34. Ibid., pp. 18-19. Ibid., pp. 6-7. No. L-63397, 9 April 1985, 135 SCRA 637.

19

20

21

22

23

Pacete v. Cariaga, Jr., G.R. No. 53880, 17 March 1994, 231 SCRA 321. See also Matute v. Court of Appeals, 136 Phil. 162 (1969); Omico Mining and Industrial Corporation v. Vallejos, No. L-38974, 25 March 1975, 63 SCRA 285.
24

Section 3, Rule 41. Section 9(3), Batas Pambansa Blg. 129, as amended.

25

26

Section 1. Grounds of and period for filing motion for new trial or reconsideration. Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party: (a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or (b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial, and which if presented would probably alter the result. xxx
27

Sections 1 and 6, Rule 37.

28

Section 1. Petition for certiorari. When any tribunal, board, or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the

facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. xxx Section 4. Where petition filed. The petition may be filed not later than sixty (60) days from notice of judgment, order or resolution sought to be assailed in the Supreme Court; or, if it relates to the acts or omissions of a lower court or of a corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves acts or omissions of a quasi-judicial agency, and unless otherwise provided by law or these Rules, the petition shall be filed in and cognizable only by the Court of Appeals.
29

Section 1, Rule 41.

30

Section 1. Petition for relief from judgment, order, or other proceedings. When a judgment or final order is entered, or any other proceeding is thereafter taken against a party in any court through fraud, accident, mistake, or excusable negligence, he may file a petition in such court and in the same case praying that the judgment, order or proceeding be set aside. Section 3. Time for filing petition; contents and verification. A petition provided for in either of the preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns of the judgment, final order, or other proceeding to be set aside, and not more than six (6) months after such judgment or final order was entered, or such proceeding was taken; x x x. See Turqueza v. Hernando, No. L-51626, 30 April 1980, 97 SCRA 483.
31

326 Phil. 169 (1996). Sections 2 and 3, Rule 47.

32

33

Cipriano M. Lazaro v. Rural Bank of Francisco Balagtas (Bulacan), Inc. and The Register of Deeds of Valenzuela City, G.R. No. 139895, 15 August 2003; Teresita Villasor Manipol, et al., v. Spouses Pablo and Antonia Ricafort, G.R. No. 150159, 25 July 2003.
34

Tijam, et al. v. Sibonghanoy, et al., 181 Phil. 556 (1968).

35

See Ibabao v. Intermediate Appellate Court, No. L-74848, 20 May 1987, 150 SCRA 76.

36

See Article 2177, Civil Code of the Philippines. Compare Sections 1 and 3, Rule 111, 1988 Rules of Criminal Procedure with Sections 1 and 3, Rule 111, 2000 Rules of Criminal Procedure.
37

See Barredo v. Garcia, 73 Phil. 607 (1942). CA Rollo, pp. 8-9. Imson v. Court of Appeals, G.R. No. 106436, 8 December 1994, 239 SCRA 59. Article 2194, Civil Code of the Philippines.

38

39

40

41

Quiombing v. CA, G.R. No. 93219, 30 August 1990, 189 SCRA 331 (citing Tolentino, IV Civil Code of the Philippines 218 (1985 ed.)).
42

Ibid., (citing Feria, Civil Procedure 153 (1969 ed.). Poblete v. Fabros, No. L-29803, 14 September 1979, 93 SCRA 200. 33A Words and Phrases 215 (1971 ed.)

43

44

45

See Barredo v. Garcia, supra note 37 (1942) (citing Amandi, 4 Cuestionario del Cdigo Civil Reformado 429, 430).
46

Ibid., (citing Laurent, 20 Principles of French Civil Law 734-735 (Spanish translation)).
47

Poblete v. Fabros, supra note 43; Franco v. Intermediate Appellate Court, G.R. No. 71137, 5 October 1989, 178 SCRA 331.
48

Gumabay v. Baralin, No. L-30683, 77 SCRA 258, 31 May 1977; Rule 14, Section 20. See J.M. Tuason & Co., Inc., v. Estabillo, No. L-20610, 9 January 1975, 62 SCRA 1. Barredo v. Garcia, supra note 36, pp. 620-621.

49

50

51

Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78; Reformina v. Tomol, Jr., No. L-59096, 11 October 1985, 139 SCRA 260.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 125356 November 21, 2001

SUPREME TRANSLINER INC., FELIPE SIA and NOVENCIO FLORES, petitioners, vs. HON. COURT OF APPEALS, GLORIA BRAZAL and minor LOTIS BRAZAL, represented by her father, NOEL BRAZAL, respondents. QUISUMBING, J.: This petition seeks to annul the decision1 dated September 21, 1995, of the Court of Appeals in CA G.R. No. 39784, and its resolution2 dated June 18, 1996 denying petitioners' motion for reconsideration. Petitioners Supreme Transliner Inc. and Felipe Sia are the registered owners of a bus driven by co-petitioner Novencio Flores. On September 24, 1990, the bus collided with a passenger jeepney carrying private respondents Gloria and Lotis Brazal. At the time of the incident, the jeepney was owned and registered in the name of Marcelino Villones and driven by Reynaldo Decena. As a result of the collision, private respondents suffered injuries. They instituted Civil Case No. SP-3312 for damages against petitioners based on quasi-delict and against Villones and Decena for breach of contract. Petitioners, in turn, filed a third-party complaint against Country Bankers Insurance Company, insurer of the Supreme Transliner bus. During the trial, Gloria Brazal testified that on September 24, 1990, she and her daughter Lotis were on board the passenger jeepney when the Supreme Transliner bus hit it, causing them injuries that required medical treatment. Decena and Villones testified on their own behalf and presented Luzviminda Malabanan and Sgt. Nicolas M. Roxas as witnesses. Decena recounted that on September 24, 1990, at about 2:00 P.M., he was driving a passenger jeepney bound for Candelaria, Quezon. On board, the jeepney was about fifteen passengers, including private respondents Gloria and Lotis Brazal. Upon reaching Sampaloc, Sariaya, Quezon, a Supreme Transliner bus coming from the opposite direction, suddenly appeared on a curved portion of the road and overtook another jeepney, which it was then following. Thereafter, the bus collided with Decena's jeepney.1wphi1.nt Petitioners presented Novencio Flores and Moises Alvarez, the Manager of Supreme Transliner. Both testified that the passenger jeepney was running very fast when the accident occurred. On the third-party complaint, petitioners showed that they already submitted the required documents

for insurance claim and that Country Bankers Insurance Company promised to settle the claim, but did not. On October 28, 1992, the trial court rendered its judgment, the dispositive portion of which reads: WHEREFORE, finding that the plaintiffs [have] established by preponderance of evidence the allegations of the complaint, judgment is hereby rendered: ON THE COMPLAINT: 1. Ordering the defendants Felipe Sia, as registered owner of the Supreme Bus, and Novencio Flores primarily liable for the damages of the plaintiffs and directing them to jointly and severally pay plaintiffs the following: a. The amount of TWENTY FIVE THOUSAND PESOS (P25,000.00) by way of actual damages; b. The amount of P10,000.00 by way of moral damages; c. The amount of P5,000.00 as attorney's fees. On the third-party complaint, judgment is hereby rendered ordering the third-party defendant to pay the third-party plaintiffs any and all amounts that they have paid to the plaintiffs by reason of this decision provided it does not exceed P50,000.00. Third-party defendant is also ordered to pay the costs. SO ORDERED.3 The trial court declared that Flores was negligent in operating the bus, while Sia failed to exercise the diligence of a good father of a family in the choice, supervision and direction of his employees. On the third-party complaint, the trial court found that Supreme Transliner had insured the bus with Country Bankers, paid the premiums for the period covering the accident, and made an insurance claim by notifying the insurer and submitting the required documents. However, until the filing of the complaint, Country Bankers had not acted upon Supreme Transliner's claim. The trial court ordered Country Bankers to pay third-party plaintiffs an amount not exceeding P50,000. Petitioners appealed to the Court of Appeals where they maintained that the trial court erred in: (a) pronouncing them liable to private respondents; (b) awarding the amount of P25,000 as actual damages; and (c) finding Sia solidarily liable with driver Flores. Country Bankers Insurance Company filed on July 5, 1994, a manifestation and motion wherein it stated that it had already

settled its maximum liability under the policy, and therefore prayed for its exclusion from the case. On September 21, 1995, the Court of Appeals promulgated its decision, decreeing as follows: WHEREFORE, the appealed judgment is AFFIRMED subject to the Manifestation and Motion filed by third-party defendant as discussed in the text of herein decision. Costs against defendant-third party appellant Felipe Sia and defendant-appellant Novencio C. Flores. SO ORDERED.4 The Court of Appeals found that there was competent and preponderant evidence which showed that driver Novencio Flores' negligence was the proximate cause of the mishap and that Felipe Sia failed to perform the required degree of care in the selection and supervision of the bus driver. It also found that the actual damages representing the medical expenses incurred by private respondents were properly supported by receipts. Petitioners filed a motion for reconsideration but this was denied. Hence, this petition, where petitioners raise the following issues: I ARE EVIDENCES (SIC) IN THE RECORDS OF THE CASE BUT NOT OFFERED BY A P ARTY LITIGANT BE CONSIDERED IN THE LATTER'S FAVOR? II ARE EVIDENCES (SIC) ADDUCED BY A CO-DEFENDANT BE CONSIDERED AS EVIDENCES (SIC) OF THE PLAINTIFF AS AGAINST THE OTHER DEFENDANT? 5 Petitioners aver that the Court of Appeals erred in affirming the trial court's decision which was mainly based on the evidence proffered by their co-defendants Decena and Villones. Petitioners contend that this evidence, which proved their liability for quasi-delict, could not be appreciated against them because the same was not adopted, much less offered in evidence by private respondents. Neither did Decena and Villones file a cross-claim against them. Consequently, in accordance with Section 1,6 Rule 131 and Sections 347 and 358, Rule 132 of the Rules of Court, said evidence was placed beyond the court's consideration, hence they could not be held liable on the basis thereof. Private respondents contend that Philippine courts are not only courts of law but of equity and justice as well. The Court of Appeals, being a court of record, has to appreciate all the facts and evidence before it in determining the parties' rights and liabilities regardless of who among the litigants actually presented the same. Further, they point out that the issue is being raised for the

first time, thus it is highly improper to nullify or reverse the Court of Appeals' decision based solely on a completely new and foreign ground. For our resolution are the following issues: (a) Who has the burden of proving herein petitioners' liability? (b) May the evidence presented by Decena and Villones be considered in determining preponderance of evidence against herein petitioners? Burden of proof is the duty of a party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases.9 The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiffs cause of action, but one which, if established, will be a good defense - i.e. an "avoidance" of the claim.10 In this case, both private respondents as well as the jeepney driver Reynaldo Decena and its owner Marcelino Villones claim that the bus driver, Novencio Flores, was liable for negligently operating the bus. For private respondents, the claim constitutes their cause of action against petitioners which said private respondents must prove by preponderance of evidence. At the same time, the same claim is a matter of affirmative defense on the part of Decena and Villones who are impleaded as co-defendants of petitioners. Therefore, both private respondents as well as the said co-defendants had the burden of proving petitioners' negligence by the quantum of proof required to establish the latter's liability, i.e. by preponderance of evidence. On the second issue, we rule in the affirmative. The evidence presented by the jeepney owner and its driver, Villones and Decena, forms part of the totality of the evidence concerning the negligence committed by petitioners as defendants in quasi-delict case. Preponderance of evidence is determined by considering all the facts and circumstances of the case, culled from the evidence, regardless of who actually presented it.11 Petitioners' liability were proved by the evidence presented by Decena and Villones at the trial, taken together with the evidence presented by the victims of the collision, namely herein private respondents Gloria and Lotis Brazal. We find petitioners' reliance on Sections 34 and 35 of Rule 132 of the Rules of Court misplaced. Petitioners cited these rules to support their allegation that evidence by Decena and Villones should not be considered in private respondents' favor since the latter did not adopt much less offer them in evidence. Nothing in Section 34 requires that the evidence be offered or adopted by a specific party before it could be considered in his favor. It is enough that the evidence is offered for the court's consideration. We find, moreover, no pertinence in petitioners' invocation of Rule 35, on when to make an offer, except to indicate to us petitioners' reliance on inapplicable technicalities that betray the lack of merit of their petition. WHEREFORE, the instant petition is DENIED. The decision and resolution dated September 21, 1995 and June 18, 1996, respectively, of the Court of Appeals are hereby AFFIRMED. Costs against petitioners.1wphi1.nt

SO ORDERED. Bellosillo, Mendoza, Buena, De Leon, Jr., JJ., concur.

Footnotes
1

Rollo, pp. 24-39. Id. at 41. Records, pp. 128-129. Rollo, p. 38. Id. at 13.

Section 1. Burden of proof. - Burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required by law.
7

Section 34. Offer to evidence. - the court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.
8

Section 35. When to make offer. - As regards the testimony of a witness, the offer must be made at the time the witness is alled to testify. Documentary and object evidence shall be offered after the presentation of a party's testimonial evidence. Such offer shall be done orally unless allowed by the court to be done in writing.
9

See note 6. Paras, Rules of Court 448 (3rd ed. 1996).

10

11

Sec. 1, Rule 133, Revised Rules on Evidence. Preponderance of evidence, how determined. - In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 101439 June 21, 1999

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, respondents. QUISUMBING, J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Government Service Insurance System (GSIS) assails the January 15, 1991 Decision1 of the Court of Appeals in CA-G.R. No. 19849, which affirmed in toto the judgment of the Regional Trial Court of Butuan City, Branch II, dated April 30, 1985, stating in part: WHEREFORE, judgment is hereby rendered, as follows: xxx In Civil Case No. 2256: a) Dismissing the complaint against defendant Victor Uy; b) Ordering defendants Mabuhay Insurance and Guaranty Company, Inc., Guillermo Corbeta, NFA and GSIS to pay jointly and severally the following sums of money: i. to pay plaintiff Gloria Kho Vda. de Calabia, the sum of P8,935.06 for doctor's fees, medicines, hospitalizations and medical expenses; P2,319.00 for transportation expenses; and P53.30 for telegrams; P10,000.00 for the injuries she sustained; P12,000.00 loss of income for six months. ii. to plaintiff Victoria Kho, the sum P832.00 for hospitalization and medicines; P10,000.00 for the injuries she sustained; xxx xxx

iii. to the heirs of Wellie [Willie] Calabia, Roland Kho and Maxima Uhmad [Ugmad] Vda. de Kho, the sum of P7,500.00 as funeral expenses less P5,000.00 advanced by defendant Victor Uy. iv. to the heirs of Wellie [Willie] Calabia, Sr., heirs of Roland Kho and heirs of Maxima Ugmad Vda. de Kho; P30,000.00 each as compensatory damages. c) To pay plaintiff the sum of P10,000.00 as attorney's fees and expenses of litigation; d) Dismissing defendants counterclaim, and cross-claim; and e) To pay the costs. That this decision is without prejudice as to the right Mabuhay Insurance & Guaranty Co., Inc., and NFA to recover from Guillermo Corbeta and GSIS the amounts they may have paid by virtue hereof.2 For purposes of this review, we deem as also assailed the disposition by the trial court in its Order issued on July 12, 1985, modifying its original decision, by awarding moral damages to the heirs of the deceased victims, as follows: Considering that the dispositive portion of the decision in this case, an award of P10,000.00 each made to plaintiffs Gloria Kho Vda. de Calabia . . ., for injuries they sustained, this award, through [sic] not clearly stated in the decision, is the moral damages the instant motion seeks to obtain. However, the prayer for moral damages for the death of the three (3) persons above-mentioned is proper. (citation omitted) In view of the foregoing, the prayer of plaintiffs Gloria Kho Vda. de Calabia and Victoria Kho for an award of moral damages in their favor is hereby denied. However, as for the death of Wellie [Willie] Calabia, Sr., Rolando Kho and Maxima Ugmad Vda. de Kho, an award of moral damages is hereby made, and ordering and directing defendants Mabuhay Insurance and Guaranty Company Inc., Guillermo Corbeta, National Food Authority and Government Service Insurance System to pay jointly and severally the following sums to wit : P10,000.00 to the heirs of Wellie [Willie]Calabia, Sr. P10,000.00 to the heirs of Rolando Kho and P10,000.00 to the heirs of Maxima Ugmad Vda. de Kho. xxx IT IS SO ORDERED.3 xxx xxx

The relevant facts as found by the trial court are as follows: National Food Authority (NFA, formerly National Grains Authority) was the owner of a Chevrolet truck which was insured against liabilities for death of and injuries to third persons with the GSIS. On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City, the said truck driven by Guillermo Corbeta collided with a public utility vehicle, a Toyota Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the name and style of "Victory Line." The Tamaraw was a total wreck. All the collision victims were passengers of the Toyota Tamaraw. Five (5) passengers died4 while ten (10) others sustained bodily injuries. Among those injured were private respondents, Victoria Jaime Vda. de Kho and Gloria Kho Vda. de Calabia. Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie Calabia, Sr. Three (3) cases were filed with the Court of First Instance of Agusan del Norte and Butuan City. The first, Civil Case No. 2196 for quasi-delict, damages and attorney's fees, was commenced by Uy on June 5, 1979 against NFA and Corbeta. On August 27, 1979, the second, Civil Case No. 2225 for damages, was filed by an injured passenger, Librado Taer, against Uy, the operator of the public utility vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). In turn, Uy filed a cross-claim against MIGC and a third-party complaint against Corbeta and NFA. The third, Civil Case No. 2256, was instituted by herein private respondents on November 26, 1979 against the following: NFA and Corbeta for damages due to quasi-delict; GSIS as insurer of the truck; Uy for breach of contract of carriage; and MIGC as insurer of the Toyota Tamaraw. These cases were consolidated and partially tried by Judge Fortunate A. Vailoces, of the then Court of First Instance of Agusan del Norte and Butuan City. These cases were later on transferred to Branch II of the Regional Trial Court of Butuan City. Trial ensued and on April 30, 1985, the court rendered its decision5 holding that Corbeta's negligence was the proximate cause of the collision. The findings of the trial court stated that the truck which crossed over to the other lane was speeding because after the collision, its left front wheel was detached and the truck traveled for about fifty (50) meters and fell into a ravine.6 Likewise, the court concluded that if both vehicles had traveled in their respective lanes, the incident would not have occurred.7 However, the Chevy cargo truck had crossed over to the other lane which, under traffic rules, was the lane of the Toyota Tamaraw.8 In Civil Case No. 2196, the trial court awarded Uy the total amount of one hundred nine thousand one hundred (P109,100.00) pesos for damages. In Civil Case No. 2225, said court dismissed the case against Uy and ordered MIGC, Corbeta and NFA to pay plaintiff Taer, jointly and severally, the total amount of forty thousand five hundred fifty-nine pesos and ninety four centavos (P40,559.94) for actual, compensatory, and moral damages plus attorney's fees. Damages were likewise awarded to the herein private respondents in Civil Case No. 2256, as earlier mentioned.1wphi1.nt

Corbeta and NFA appealed the decision of the trial court in Civil Case Nos. 2196, 2225, and 2256 to the Court of Appeals. GSIS also elevated the decision in Civil Case No. 2256 to the same appellate court. The appeals were docketed as C.A.-G.R. Nos. 19847, 19848, and 19849. The Court of Appeals agreed with the conclusions of the trial court and ruled as follows: WHEREFORE, in view of the foregoing considerations, and finding no reversible error, the decisions of the Court a quo in Civil Cases Nos. 2196, 2225 and 2256 are hereby AFFIRMED in toto, with costs against the appellants. SO ORDERED.9 On February 5 and 6, 1991, GSIS and NFA filed their motions for reconsideration respectively, which were denied by the respondent court in its Resolution10 dated August 13, 1991. On October 4, 1991, only GSIS filed this petition for review on certiorari based on the following assigned errors: 1. The respondent court erred in holding GSIS solidarily liable with NFA. 2. The respondent court erred in holding GSIS liable beyond the terms and conditions of the contract of insurance and the limitations under Insurance Memorandum Circular (IMC) No. 5-78. 3. The respondent court erred in holding GSIS liable without proof that a notice of claim had been filed within six (6) months from the date of the accident. We find pertinent the following issues: 1) Whether the respondent court erred in holding GSIS solidarily liable with the negligent insured/owner-operator of the Chevrolet truck for damages awarded to private respondents which are beyond the limitations of the insurance policy and the Insurance Memorandum Circular No. 5-78. 2) Whether the respondent court failed to consider that the private respondents have no cause of action against the petitioner, allegedly for failure of the victims to file an insurance claim within six (6) months from the date of the accident. Petitioner denies solidary liability with the NFA or the negligent operator of the cargo truck because it claims that they are liable under different obligations. It asserts that the NFA's liability is based on quasi-delict, while petitioner's liability is based on the contract of insurance. Citing articles 120711 and 120812 of the Civil Code of the Philippines, petitioner states that when there are two or more debtors or two or more creditors, the obligation as a general rule is joint. It claims that the only exceptions are: (1) when there is a stipulation for solidary obligation; (2) when the nature of the obligation requires solidary liability; and (3) when the law declares the obligation to be solidary. However, since neither the provision of the contract nor the insurance

law provides for solidary liability, petitioner asserts that the presumption is that its obligation arising from a contract of insurance is joint. Petitioner's position insofar as joint liability is concerned is not tenable. It is now established that the injured or the heirs of a deceased victim of a vehicular accident may sue directly the insurer of the vehicle. Note that common carriers are required to secure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as provided under Sec. 37413 of the Insurance Code, precisely for the benefit of victims of vehicular accidents and to extend them immediate relief.14 As this Court held in Shafter vs. Judge, RTC of Olongapo City, Br. 75:15 Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their defendants [dependents] are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners. xxx xxx xxx

The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which injures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy. (S 449 7 Am. Jur., 2d, pp. 118-119)16 However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and those required by law. While it is true that where the insurance contract provides for indemnity against liability to third persons, and such third persons can directly17 sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault.18 For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort.19 The liability of GSIS based on the insurance contract is direct, but not solidary with that of the NFA. The latter's liability is based separately on Article 218020 of the Civil Code.21 Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance, in accordance with CMVLI law. At the time of the incident, the schedule of indemnities for death and/or bodily injuries, professional fees, hospital and other charges payable under a CMVLI coverage was provided under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim.22 The schedules for medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G).

Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident, could proceed (1) against GSIS for the indemnity of P12,000 for each dead victim, and against NFA and Guillermo Corbeta for any other damages or expenses claimed; or (2) against NFA and Corbeta to pay them all their claims in full. It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho, could claim their medical expenses for eight thousand nine hundred thirty-five pesos and six centavos (P8,935.06) and eight hundred thirty-two (P832.00) pesos, from any of the following: GSIS, NFA, or Corbeta. As to the other damages, only NFA or Corbeta may be held liable therefor. Computation of hospital charges and fees for the services rendered to the injured victims was conclusively established by the trial court. The petitioner failed to object to the evidence thereon, when presented by the private respondents during the trial. Thus, these factual bases for the award of damages may no longer be attacked. For generally, findings of the judge who tried the case and heard the witnesses could not be disturbed on appeal, unless there are substantial facts and particular circumstances which have been overlooked but which, if properly considered, might affect the result of the case.23 Thus, considering the evidence on record including the schedule of indemnities provided under IMC No. 5-78, we find no cogent reason to disturb the computation of medical charges and expenses that justify the award of damages by the trial court. As to the second issue, the petitioner contends that it cannot be held liable without proof nor allegation that the private respondents filed before its office a notice of claim within six (6) months from the date of the accident. This requirement, according to the petitioner, gives the insurer the opportunity to investigate the veracity of the claim, and non-compliance therewith constitutes waiver. Since the claim was not reported to the insurer, the petitioner avers that the presumption is that the victim opted to pursue his claim against the motor vehicle owner or against the tortfeasor. However, in this case the records reveal that on September 7, 1979, the private respondents sent a notice of loss to the petitioner informing the latter of the accident. Included as "Exihibit J''24 in the records, this notice constitutes evidence of the loss they suffered by reason of the vehicular collision. They stressed further that the petitioner did not deny receipt of notice of claim during the trial, and it would be too late now to state otherwise. Although merely factual, we need to emphasize that the alleged delay in reporting the loss by the insured and/or by the beneficiaries must be promptly raised by the insurer25 in objecting to the claims. When the insured presented proof of loss before the trial court, the insurer failed to object to said presentation. The petitioner should have promptly interposed the defense of delay, or belated compliance, concerning the notice of claim. Moreover, the petitioner merely waited for the victims or beneficiaries to file their complaint. As matters stand now, the defense of laches or prescription is deemed waived because of petitioner's failure to raise it not only before but also during the hearing.26 To recapitulate, petitioner seeks a definitive ruling only on the extent of its liability, as insurer of NFA, to those injured or killed in the May 9, 1979 vehicular collision.

As found by the trial court, the driver (Guillermo Corbeta), the operator (NFA), and MIGC, are solidarily liable for damages as computed below: SCHEDULE A I. For the Injured Victims. 1) Gloria Kho Vda. de Calabia. a) Medical expenses b) Transportation and Telegraph Expenses c) Other Compensatory/Moral Damages d) Loss of Income Total P8,935.06 2,372.30 10,000.00 12,000.00 P33,307.36 =========

2) Victoria Kho. a) Medical expenses b) Other Compensatory/Moral Damages Total P832.00 10,000.00

P10,832.00 =========

II. For the Heirs of the Deceased Victims: Compensatory/ Funeral Expenses 1) Heirs of Willie Calabia, Sr. 2) Heirs of Roland Kho 3) Heirs of Maxima Ugmad Vda. de Kho Death Indemnity Moral Damages Total 42,500.00 42,500.00 42,500.00

P2,500.00 P30,000.00 P10,000.00 2,500.00 2,500.00 30,000.00 30,000.00 10,000.00 10,000.00

Sub-Total Less: Advances by Victor Uy Balance

P7,500.00 P90,000.00 P30,000.00 P127,500.00 (5,000.00) NIL (5,000.00) 122,500.00 ========

P2,500.00 P90,000.00 P30,000.00 ======== ======== ========

III. Total Amount of Attorney's Fees

P10,000.00

Note that, the petitioner (GSIS) was impleaded as insurer of NFA. But under the CMVLI law, the petitioner could only be held liable under its contract of insurance. And pursuant to the CMVLI law, its liability is primary, and not dependent on the recovery of judgment from the insured. Hence, GSIS is directly liable to the private respondents, in the following amounts. SCHEDULE B I. Injured Victims 1) Victoria Jaime Vda. de Kho 2) Gloria Kho Vda. de Calabia II. Heirs of Deceased Victims 1) Heirs of Willie Calabia, Sr. 2) Heirs of Roland Kho 3) Heirs of Maxima Ugmad Vda. de Kho Medical Expenses P832.00 P8,935.00 Death Indemnity P12,000.00 P12,000.00 P12,000.00

The balance of the private respondents' claims as shown on Schedule A above, must be paid by Corbeta or NFA, or MIGC, the parties found solidarily liable.27 WHEREFORE, the instant petition is hereby GRANTED, but the decision of the trial court as affirmed by the Court of Appeals is hereby. MODIFIED, as follows: 1. Petitioner Government Service Insurance System is ordered to pay (a) twelve thousand pesos (P12,000.00) as death indemnity to each group of heirs of the deceased, Willie Calabia Sr., Roland Kho and Maxima Ugmad Vda. de Kho; (b) eight hundred thirty-two (P832.00) pesos for medical expenses of Victoria Jaime Vda. de Kho; and (c) eight thousand, nine hundred thirty-five pesos and six centavos (P8,935.06) for medical expenses of Gloria Kho Vda. de Calabia. 2. Guillermo Corbeta, National Foods Authority, and Mabuhay Insurance & Guaranty Co., Inc., jointly and severally, are ordered to pay private respondents' claims28 as

adjudged by the Regional Trial Court of Butuan City, minus the amounts that GSIS must pay to the injured victims and the heirs of the deceased victims as above stated. This decision is immediately executory. No pronouncement as to cost.1wphi1.nt SO ORDERED. Bellosillo, Mendoza and Buena, JJ., concur. Puno, J., took no part. Footnotes

Penned by Associate Justice Jainal D. Rasul, concurred by Associate Justices Fidel P. Purisima and Jorge S. Imperial; Rollo, pp. 23-30.
2

Court of Appeals Rollo, pp. 75-76. Emphasis supplied. Id. at 85-86. Emphasis supplied.

Annex A, RTC records, Civil Case No. 2256, p. 13. The police report states that only three (3) passengers died on the spot and another one (1) died a few hours later at Santos Hospital.
5

Penned by Judge Rosarito F. Abalos. Court of Appeals Rollo, p. 70. Id. at 70-71. Ibid. Rollo, p. 30. Court of Appeals, Rollo, p. 152 B-C.

10

11

Civil Code of the Philippines, art. 1207 states The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand or that each one of the latter is bound to render, entire compliance with the prestations. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
12

Civil Code of the Philippines, art. 1208 states If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not

appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.
13

Insurance Code, sec. 374 states It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnify the death or bodily injury of a third party or passenger, as the case may be, arising from the use thereof.
14

Insurance Memorandum Circular No. 5-78, paragraph I. 167 SCRA 386 (1988). Id. at 390-391.

15

16

17

Malayan Insurance Co., Inc v. Court of Appeals, 165 SCRA 536, 554 (1988); citing Coquia v. Fieldman 's Insurance Co., Inc., 26 SCRA 178 (1969).
18

Ibid. Ibid. Employers shall be liable for the damages caused by their employees. See Vda. de Maglana vs. Consolacion, 212 SCRA 268 (1992).

19

20

21

22

Insurance Memorandum Circular No. 5-78. Subject: Schedule of Indemnities for Death and/or Bodily Injuries, Professional Fees, Hospital and Other Charges Payable under a Compulsory Motor Vehicle Liability Insurance Coverage. xxx xxx xxx

II. SCHEDULE OF INDEMNITIES . . . A. DEATH INDEMNITY Maximum of P 12,000.00

23

People v. Pareja, 30 SCRA 693, 703 (1969). Regional Trial Court, folder of exhibits, p. 58. See Pacific Timber Export Corp. v. CA , 112 SCRA 199, 206 (1982).

24

25

26

MD Transit & Taxi Co., Inc. v. Estrella, 113 SCRA 378, 387 (1982); citing Blanco v. WCC, 29 SCRA 7 (1969).

27

The decision of the trial court as affirmed by the Court of Appeals not having been appealed by the insurer (MICG) of the Toyota Tamaraw, the same is now final as far as that entity is concerned, and may not be modified by this Court. Failure of any parties to appeal the judgment as against him makes such judgment final and executory. (Firestone Tire and Rubber Company of the Philippines vs. Tempongko, 27 SCRA 418. 424 (1969); Singapore Airlines Limited vs. Court of Appeals, 243 SCRA 143, 148 (1995). By the same token, an appeal by one party from such judgment does not inure to the benefit of the other party who had not appealed nor can it be deemed to be an appeal of such other party from the judgment against him.

SECOND DIVISION
Norma Mangaliag and Narciso Solano, Petitioners, - versus Hon. Edelwina Catubig-Pastoral, Judge of the Regional Trial Court, 1st Judicial Region, San Carlos City, (Pangasinan), Branch 56 and Apolinario Serquina, Jr., Respondents. G.R. No. 143951 Present: PUNO, Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ. Promulgated: October 25, 2005

DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for certiorari, with a prayer for the issuance of a temporary restraining order, to set aside the Order dated April 17, 2000 of the Regional Trial Court (RTC), Branch 56, San Carlos City in Civil Case No. SCC2240, which denied petitioners motion to dismiss; and the Or der dated June 13, 2000, which denied petitioners motion for reconsideration.

The factual background of the case is as follows:

On May 10, 1999, private respondent Apolinario Serquina, Jr. filed before the RTC a complaint for damages against petitioners Norma Mangaliag and

Narciso Solano. The complaint alleges that: on January 21, 1999, from 9:00 to 10:00 a.m., private respondent, together with Marco de Leon, Abner Mandapat and Manuel de Guzman, was on board a tricycle driven by Jayson Laforte; while in Pagal, San Carlos City, a dump truck owned by petitioner Mangaliag and driven by her employee, petitioner Solano, coming from the opposite direction, tried to overtake and bypass a tricycle in front of it and thereby encroached the left lane and sideswiped the tricycle ridden by private respondent; due to the gross negligence, carelessness and imprudence of petitioner Solano in driving the truck, private respondent and his co-passengers sustained serious injuries and permanent deformities; petitioner Mangaliag failed to exercise due diligence required by law in the selection and supervision of her employee; private respondent was hospitalized and spent P71,392.00 as medical expenses; private respondent sustained a permanent facial deformity due to a fractured nose and suffers from severe depression as a result thereof, for which he should be compensated in the amount of P500,000.00 by way of moral damages; as a further result of his hospitalization, private respondent lost income of P25,000.00; private respondent engaged the services of counsel on a contingent basis equal to 25% of the total award.[1]

On July 21, 1999, petitioners filed their answer with counterclaim denying that private respondent has a cause of action against them. They attributed fault or negligence in the vehicular accident on the tricycle driver, Jayson Laforte, who was allegedly driving without license.[2]

Following pre-trial conference, trial on the merits ensued. When private respondent rested his case, petitioner Solano testified in his defense. Subsequently, on March 8, 2000, petitioners, assisted by a new counsel, filed a motion to dismiss on the ground of lack of jurisdiction over the subject matter of the claim, alleging that the Municipal Trial Court (MTC) has jurisdiction over the case since the principal amount prayed for, in the amount of P71,392.00, falls within its jurisdiction.[3] Private respondent opposed petitioners motion to dismiss.[4] On March 24, 2000, petitioners filed a supplement in support of their motion to dismiss.[5]

On April 17, 2000, the respondent RTC Judge, Edelwina Catubig-Pastoral, issued the first assailed Order denying petitioners motion to dismiss, [6] relying upon the mandate of Administrative Circular No. 09-94, paragraph 2 of which reads:

2. The exclusion of the term damages of whatever kind in determining the jurisdictional amount under Section 19 (8) and Section 33 (1) of B.P. Blg. 129, as amended by R.A. No. 7691, applied to cases where the damages are merely incidental to or a consequence of the main cause of action. However, in cases where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court.

The respondent RTC Judge also cited the 1999 case of Ong vs. Court of Appeals,[7] where an action for damages due to a vehicular accident, with prayer

for actual damages of P10,000.00 and moral damages of P1,000,000.00, was tried in a RTC.

On May 19, 2000, petitioners filed a motion for reconsideration[8] but it was denied by the respondent RTC Judge in her second assailed Order, dated June 13, 2000.[9] Hence, the present petition for certiorari, with prayer for the issuance of a temporary restraining order.[10]

On August 9, 2000, the Court resolved to issue the temporary restraining order prayed for by petitioners. Consequently, the respondent RTC Judge desisted from hearing further Civil Case No. SCC-2240.[11]

Petitioners propound this issue for consideration: In an action for recovery of damages, does the amount of actual damages prayed for in the complaint provide the sole test for determining the courts jurisdiction, or is the total amount of all the damages claimed, regardless of kind and nature, such as moral, exemplary, nominal damages, and attorneys fees, etc., to be computed collectively with the actual damages to determine what court whether the MTC or the RTC has jurisdiction over the action?

Petitioners maintain that the courts jurisdiction should be based exclusively on the amount of actual damages, excluding therefrom the amounts claimed as moral, exemplary, nominal damages and attorneys fee, etc. They submit that the specification in Administrative Circular No. 09-94 that in cases where the claim for damages is the main cause of action. . . the amount of such claim shall be considered in determining the jurisdiction of the court signifies that the courts jurisdiction must be tested solely by the amount of that damage which is principally and primarily demanded, and not the totality of all the damages sought to be recovered.

Petitioners insist that private respondents claim for actual damages in the amount of P71,392.00 is the principal and primary demand, the same being the direct result of the alleged negligence of petitioners, while the moral damages for P500,000.00 and attorneys fee, being the consequent effects thereof, may prosper only upon a prior finding by the court of the existence of petitioners negligence that caused the actual damages. Considering that the amount of actual damages claimed by private respondent in Civil Case No. SCC-2240 does not exceed P200,000.00, which was then the jurisdictional amount of the MTC, the jurisdiction over the case clearly pertains to the MTC, and not to the RTC. Therefore, the RTC should have dismissed the case for lack of jurisdiction. Petitioners cite as relevant the case of Movers-Baseco Integrated Port Services, Inc. vs. Cyborg Leasing Corporation[12] wherein the Court, in disposing of the jurisdictional issue, limited its consideration only to the actual or compensatory damages.

Furthermore, while admitting that the defense of lack of jurisdiction was only raised during the trial, petitioners nevertheless contend that jurisdiction may be raised anytime, even after judgment, but before it is barred by laches or estoppel. They submit that they seasonably presented the objection to the RTCs lack of jurisdiction, i.e., during the trial stage where no decision had as yet been rendered, must less one unfavorable to them.

At any rate, they argue that when the jurisdictional flaw is evident from the record of the case, the court may, even without the urgings of the parties, take judicial notice of such fact, and thereupon dismiss the case motu proprio. Thus, even if lack of jurisdiction was not initially raised in a motion to dismiss or in the answer, no waiver may be imputed to them.

Private respondent, on the other hand, submits that in an action for recovery of damages arising from a tortious act, the claim of moral damages is not merely an incidental or consequential claim but must be considered in the amount of demand which will determine the courts jurisdiction. He argues that the position taken by petitioners is a misreading of paragraph 2 of Administrative Circular No. 09-94. The clear and explicit language of said circular leaves no room for doubt; hence, needs no interpretation.

He further submits that petitioners reliance on Movers-Baseco Integrated Port Services, Inc. is misplaced since that case is for recovery of the value of

vehicle and unpaid rentals on the lease of the same. He contends that Section 18, paragraph 8 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691, upon which petitioners anchor their stand, refers to all the demands involving collection of sums of money based on obligations arising from contract, express or implied, where the claim for damages is just incidental thereto and it does not apply to actions for damages based on obligations arising from quasi-delict where the claim for damages of whatever kind is the main action.

Private respondent also contends that, being incapable of pecuniary computation, the amount of moral damages that he may be awarded depends on the sound discretion of the trial court, not restrained by the limitation of the jurisdictional amount. Should the Court follow petitioners line of reasoning, private respondent argues that it will result in an absurd situation where he can only be awarded moral damages of not more than P200,000.00 although he deserves more than this amount, taking into consideration his physical suffering, as well as social and financial standing, simply because his claim for actual damages does not exceed P200,000.00 which amount falls under the jurisdiction of the MTC.

Lastly, he asserts that it is too late in the day for petitioners to question the jurisdiction of the RTC since they are estopped from invoking this ground. He contends that after actively taking part in the trial proceedings and presenting a witness to seek exoneration, it would be unfair and legally improper for petitioners to seek the dismissal of the case.

At the outset, it is necessary to stress that generally a direct recourse to this Court is highly improper, for it violates the established policy of strict observance of the judicial hierarchy of courts. Although this Court, the RTCs and the Court of Appeals (CA) have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not give the petitioner unrestricted freedom of choice of court forum. This Court is a court of last resort, and must so remain if it is to satisfactorily perform the functions assigned to it by the Constitution and immemorial tradition.[13]

Thus, this Court, as a rule, will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate courts, and exceptional and compelling circumstances, such as cases of national interest and of serious implications, justify the availment of the extraordinary remedy of writ of certiorari, calling for the exercise of its primary jurisdiction.[14] Such exceptional and compelling circumstances were present in the following cases: (a) Chavez vs. Romulo[15] on the citizens right to bear arms; (b) Government of the United States of America vs. Purganan[16] on bail in extradition proceedings; (c) Commission on Elections vs. Quijano-Padilla[17] on a government contract on the modernization and computerization of the voters registration list; (d) Buklod ng Kawaning EIIB vs. Zamora[18] on the status and existence of a public office; and (e) Fortich vs. Corona[19] on the so-called Win-Win Resolution of the Office of the President which modified the approval of the conversion to agro-industrial area of a 144-hectare land.

Be that as it may, the judicial hierarchy of courts is not an iron-clad rule. It generally applies to cases involving warring factual allegations. For this reason, litigants are required to repair to the trial courts at the first instance to determine the truth or falsity of these contending allegations on the basis of the evidence of the parties. Cases which depend on disputed facts for decision cannot be brought immediately before appellate courts as they are not triers of facts.[20] Therefore, a strict application of the rule of hierarchy of courts is not necessary when the cases brought before the appellate courts do not involve factual but legal questions.

In the present case, petitioners submit a pure question of law involving the interpretation and application of paragraph 2 of Administrative Circular No. 0994. This legal question and in order to avoid further delay are compelling enough reasons to allow petitioners invocation of this Courts jurisdiction in the first instance.

Before resolving this issue, the Court shall deal first on the question of estoppel posed by private respondent. Private respondent argues that the defense of lack of jurisdiction may be waived by estoppel through active participation in the trial. Such, however, is not the general rule but an exception, best characterized by the peculiar circumstances in Tijam vs. Sibonghanoy.[21] In Sibonghanoy, the party invoking lack of jurisdiction did so only after fifteen years and at a stage when the proceedings had already been elevated to the CA. Sibonghanoy is an exceptional case because of the presence of laches, which was

defined therein as failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier; it is the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert has abandoned it or declined to assert it.[22]

As enunciated in Calimlim vs. Ramirez,[23] this Court held:

A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the jurisdiction of a court over the subject matter of the action is a matter of law and may not be conferred by consent or agreement of the parties. The lack of jurisdiction of a court may be raised at any stage of the proceedings, even on appeal. This doctrine has been qualified by recent pronouncements which stemmed principally from the ruling in the cited case of Sibonghanoy. It is to be regretted, however, that the holding in said case had been applied to situations which were obviously not contemplated therein. The exceptional circumstances involved in Sibonghanoy which justified the departure from the accepted concept of non-waivability of objection to jurisdiction has been ignored and, instead a blanket doctrine had been repeatedly upheld that rendered the supposed ruling in Sibonghanoy not as the exception, but rather the general rule, virtually overthrowing altogether the time honored principle that the issue of jurisdiction is not lost by waiver or by estoppel. ... It is neither fair nor legal to bind a party by the result of a suit or proceeding which was taken cognizance of in a court which lacks jurisdiction over the same irrespective of the attendant circumstances. The equitable defense of estoppel requires knowledge or consciousness of the facts upon which it is based. The same thing is true with estoppel by conduct which may be asserted only when it is shown, among others, that the representation must have been made with knowledge of the facts and that the party to whom it was made is ignorant of the truth of the matter (De Castro vs. Gineta, 27 SCRA 623). The filing of an action or suit in a court that does not possess jurisdiction to entertain the same may not be presumed to be deliberate and intended to secure a ruling which could later be annulled if not favorable to the party who filed such suit or proceeding. Instituting such an action is not a one-sided affair. It can just as well be

prejudicial to the one who file the action or suit in the event that he obtains a favorable judgment therein which could also be attacked for having been rendered without jurisdiction. The determination of the correct jurisdiction of a court is not a simple matter. It can raise highly debatable issues of such importance that the highest tribunal of the land is given the exclusive appellate jurisdiction to entertain the same. The point simply is that when a party commits error in filing his suit or proceeding in a court that lacks jurisdiction to take cognizance of the same, such act may not at once be deemed sufficient basis of estoppel. It could have been the result of an honest mistake or of divergent interpretations of doubtful legal provisions. If any fault is to be imputed to a party taking such course of action, part of the blame should be placed on the court which shall entertain the suit, thereby lulling the parties into believing that they pursued their remedies in the correct forum. Under the rules, it is the duty of the court to dismiss an action whenever it appears that court has no jurisdiction over the subject matter. (Section 2, Rule 9, Rules of Court) Should the Court render a judgment without jurisdiction, such judgment may be impeached or annulled for lack of jurisdiction (Sec. 30, Rule 132, Ibid), within ten (10) years from the finality of the same (Art. 1144, par. 3, Civil Code).[24]

In the present case, no judgment has yet been rendered by the RTC.[25] As a matter of fact, as soon as the petitioners discovered the alleged jurisdictional defect, they did not fail or neglect to file the appropriate motion to dismiss. Hence, finding the pivotal element of laches to be absent, the Sibonghanoy doctrine does not control the present controversy. Instead, the general rule that the question of jurisdiction of a court may be raised at any stage of the proceedings must apply. Therefore, petitioners are not estopped from questioning the jurisdiction of the RTC.

In any event, the petition for certiorari is bereft of merit.

Section 1 of Republic Act (R.A.) No. 7691, which took effect on April 15, 1994, provides inter alia that where the amount of the demand in civil cases exceeds P100,000.00,[26] exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses, and costs, the exclusive jurisdiction thereof is lodged with in the RTC. Under Section 3 of the same law, where the amount of the demand in the complaint does not exceed P100,000.00, exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses, and costs, the exclusive jurisdiction over the same is vested in the Metropolitan Trial Court, MTC and Municipal Circuit Trial Court. The jurisdictional amount was increased to P200,000.00,[27] effective March 20, 1999, pursuant to Section 5[28] of R.A. No. 7691 and Administrative Circular No. 21-99.

In Administrative Circular No. 09-94 dated March 14, 1994, the Court specified the guidelines in the implementation of R.A. No. 7691. Paragraph 2 of the Circular provides:

2. The exclusion of the term damages of whatever kind in determining the jurisdictional amount under Section 19 (8) and Section 33 (1) of B.P. Blg. 129, as amended by R.A. No. 7691, applied to cases where the damages are merely incidental to or a consequence of the main cause of action. However, in cases where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court. (Emphasis supplied)

The well-entrenched principle is that the jurisdiction of the court over the subject matter of the action is determined by the material allegations of the

complaint and the law, irrespective of whether or not the plaintiff is entitled to recover all or some of the claims or reliefs sought therein.[29] In the present case, the allegations in the complaint plainly show that private respondent seeks to recover not only his medical expenses, lost income but also damages for physical suffering and mental anguish due to permanent facial deformity from injuries sustained in the vehicular accident. Viewed as an action for quasi-delict, the present case falls squarely within the purview of Article 2219 (2),[30] which provides for the payment of moral damages in cases of quasi-delict causing physical injuries.

Private respondents claim for moral damages of P500,000.00 cannot be considered as merely incidental to or a consequence of the claim for actual damages. It is a separate and distinct cause of action or an independent actionable tort. It springs from the right of a person to the physical integrity of his or her body, and if that integrity is violated, damages are due and assessable.[31] Hence, the demand for moral damages must be considered as a separate cause of action, independent of the claim for actual damages and must be included in determining the jurisdictional amount, in clear consonance with paragraph 2 of Administrative Circular No. 09-94.

If the rule were otherwise, i.e., the courts jurisdiction in a case of quasidelict causing physical injuries would only be based on the claim for actual damages and the complaint is filed in the MTC, it can only award moral damages

in an amount within its jurisdictional limitations, a situation not intended by the framers of the law.

It must be remembered that moral damages, though incapable of pecuniary estimation, are designed to compensate and alleviate in some way the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly caused a person.[32] Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering he/she has undergone, by reason of the defendants culpable action. Its award is aimed at restoration, as much as possible, of the spiritual status quo ante; thus, it must be proportionate to the suffering inflicted. Since each case must be governed by its own peculiar circumstances, there is no hard and fast rule in determining the proper amount.[33]

The petitioners reliance in the case of Movers-Baseco Integrated Port Services, Inc. vs. Cyborg Leasing Corporation[34] is misplaced. The claim for damages therein was based on a breach of a contract of lease, not a quasi-delict causing physical injuries, as in this case. Besides, there was no claim therein for moral damages. Furthermore, moral damages are generally not recoverable in damage actions predicated on a breach of contract in view of the provisions of Article 2220[35] of the Civil Code.

In view of the foregoing, the Court is convinced that the respondent RTC Judge committed no grave abuse of discretion in issuing the assailed Orders dated April 17, 2000 and June 13, 2000.

WHEREFORE, the instant petition for certiorari is DISMISSED for lack of merit. The temporary restraining order issued by this Court on August 9, 2000 is LIFTED.

The Regional Trial Court, Branch 56, San Carlos City is DIRECTED to continue with the trial proceedings in Civil Case No. SCC-2240 and resolve the case with dispatch.

Costs against petitioners.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

WE CONCUR:

REYNATO S. PUNO Associate Justice

ROMEO J. CALLEJO, SR. Associate Justice

DANTE O. TINGA Associate Justice

(On Leave)

MINITA V. CHICO-NAZARIO Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO Associate Justice Chairman, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the abov e

Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice
[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13]

Records, pp. 3-4. Id., p. 25. Id., p. 219. Id., p. 232. Id., p. 237. Id., p. 251. G.R. No. 117103, January 21, 1999, 301 SCRA 387. Id., p. 199. Id., p. 214. Rollo, p. 3. Id., p. 63. G.R. No. 131755, October 25, 1999, 317 SCRA 327. Ouano vs. PGTT International Investment Corporation, G.R. No. 134230, July 17, 2002, 384 SCRA 589, 593; Vergara, Sr. vs. Suelto, G.R. No. L-74766, December 21, 1987, 156 SCRA 753, 766.
Zamboanga Barter Goods Retailers Association, Inc. vs. Lobregat, G.R. No. 145466, July 7, 2004, 433 SCRA 624, 629; Yared vs. Ilarde, G.R. No. 114732, August 1, 2000, 337 SCRA 53, 61; People vs. Court of Appeals, G.R. No. 128297, January 21, 1999, 301 SCRA 566, 569-570; Aleria, Jr. vs. Velez, G.R. No. 127400, November 16, 1998, 298 SCRA 611, 618-619; Tano vs. Socrates, G.R. No. 110249, August 21, 1997, 278 SCRA 154, 172-174. G.R. No. 157036, June 9, 2004, 431 SCRA 534. G.R. No. 148571, September 24, 2002, 389 SCRA 623. G.R. No. 151992, September 18, 2002, 389 SCRA 353.

[14]

[15] [16] [17]

[18] [19] [20]

G.R. Nos. 142801-802, July 10, 2001, 360 SCRA 718. G.R. No. 131457, April 24, 1998, 289 SCRA 624.

Agan, Jr. vs. Philippine International Air Terminals Co., Inc., G.R. Nos. 155001, 155547 and 155661, January 21, 2004, 420 SCRA 575, 584. Cf. Liga ng mga Barangay National vs. Atienza, Jr., G.R. No. 154599, January 21, 2004, 420 SCRA 562, 573; Santiago vs. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633, 652. G.R. No. L-21450, April 15, 1968, 23 SCRA 29. See Metromedia Times Corporation, et al. vs. Pastorin, G.R. No. 154295, July 29, 2005. Id., p. 35. G.R. No. L-34362, November 19, 1982, 118 SCRA 399. Id., pp. 406-408. See Binay vs. Sandiganbayan, G.R. Nos. 120681-83 and G.R. No. 128136, October 1, 1999, 316 SCRA 65, 100; Uy vs. Court of Appeals, G.R. No. 119000, July 28, 1997, 276 SCRA 367, 379. P200,000.00 in Metro Manila. P400,000.00 in Metro Manila. SEC. 5. After five (5) years from the effectivity of this Act, the jurisdictional amounts mentioned in Sec. 19 (3), (4), and (8); and Sec. 33 (1) of Batas Pambansa Blg. 129 as amended by this Act, shall be adjusted to Two hundred thousand pesos (P200,000.00). Five (5) years thereafter, such jurisdictional amounts shall be adjusted further to Three hundred thousand pesos (P300,000.00): Provided, however, that in case of Metro Manila, the abovementioned jurisdictional amounts shall be adjusted after five (5) years from the effectivity of this Act to Four hundred thousand pesos (P400,000.00). Laresma vs. Abellana, G.R. No. 140973, November 11, 2004, 442 SCRA 156, 169; Hilado vs. Chavez, G.R. No. 134742, September 22, 2004, 438 SCRA 623, 641; Cruz vs. Torres, G.R. No. 121939, October 4, 1999, 316 SCRA 193.
Art. 2219. Moral damages may be recovered in the following and analogous cases: (2) Quasi-delicts causing physical injuries;

[21]

[22] [23] [24] [25]

[26] [27] [28]

[29]

[30]

[31] [32]

Ong vs. Court of Appeals, supra, Note No. 7, p. 402. Article 2217 of the Civil Code.

[33]

Pleyto vs. Lomboy, G.R. No. 148737, June 16, 2004, 432 SCRA 329, 342; Samson, Jr. vs. Bank of the Philippine Islands, G.R. No. 150487, July 10, 2003, 405 SCRA 607, 612; Kierulf vs. Court of Appeals, G.R. Nos. 99301 & 99343, March 13, 1997, 269 SCRA 433, 448-449. G.R. No. 131755, October 25, 1999, 317 SCRA 327. 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.

[34] [35]

FIRST DIVISION [G.R. No. 138569. September 11, 2003] THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents. DECISION CARPIO, J.: The Case Before us is a petition for review of the Decision of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost of suit. The Facts Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting. Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-16872-6.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook. Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went back to L.C. Diaz and reported the incident to Macaraya. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya. Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed. PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez. The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. On the same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000. In an Information dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992. On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused.

On 25 August 1992, L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint. L.C. Diaz then appealed to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the decision of the trial court. On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary damages and attorneys fees. The Ruling of the Trial Court In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that possession of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally. At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz. The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it is derogatory to its action. Another provision of the rules on savings account states that the depositor must keep the passbook under lock and key. When another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is considered as the owner of the passbook. The trial court ruled that the passbook presented during the questioned transaction was now out of the lock and key and presumptively read y for a business transaction. Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of a signed

withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized person of a PBC check long closed by L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal. The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a managers check. The bearer must also have a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization or any communication with Solidbank that the money be converted into a managers check. The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan. The dispositive portion of the decision of the trial court reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint. The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees. With costs against plaintiff. SO ORDERED. The Ruling of the Court of Appeals The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit: Article 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 preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter. The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.

The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial, should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision of its employees. The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal. The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered. 1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit; and Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees.

2.

SO ORDERED. Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231 of the Civil Code, the appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of simple negligence only, the award of exemplary damages was not justified. Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on Solidbank. The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit. SO ORDERED. Hence, this petition. The Issues Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds: I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.

II.

III.

IV.

The Ruling of the Court

The petition is partly meritorious. Solidbanks Fiduciary Duty under the Law The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties. We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance. This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791. However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or

implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of nonbank debtors under a similar contract of simple loan. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791. Solidbanks Breach of its Contractual Obligation Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor. Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same. In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana. The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance required of Solidbanks employees. Proximate Cause of the Unauthorized Withdrawal Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first verifying with L.C. Diaz. We do not agree with either court. Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent. L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.

We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz. There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so. Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction. Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan: xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt. (Emphasis supplied.) L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip. We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook. Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence. We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract. Mitigated Damages Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced. In Philippine Bank of Commerce v. Court of Appeals, where the Court held the depositor guilty of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur. Azcuna, J., on official leave. Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Jesus M. Elbinias, Marina L. Buzon, Godardo A. Jacinto and Candido V. Rivera, concurring, Fourth Division (Special Division of Five Justices).

Penned by Judge Felixberto T. Olalia, Jr. Rollo, p. 119. Ibid., p. 229. The account must have been long dormant. Records, p. 9. Ibid., p. 34. Docketed as Civil Case No. 92-62384. Docketed as CA-G.R. CV No. 49243. Rollo, p. 231. Ibid., p. 233. Ibid., p. 60. Ibid., p. 66. Rollo, pp. 49-50. Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. Rollo, p. 43. Ibid., pp. 33-34. Article 1953 of the Civil Code provides: A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality. The General Banking Law of 2000. In the United States, the prevailing rule, as enunciated by the U.S. Supreme Court in Bank of Marin v. England, 385 U.S. 99 (1966), is that the bank-depositor relationship is governed by contract, and the bankruptcy of the depositor does not alter the relationship unless the bank receives notice of the bankruptcy. However, the Supreme Court of some states, like Arizona, have held that banks have more than a contractual duty to depositors, and that a special relationship may create a fiduciary obligation on banks outside of their contract with depositors. See Stewart v. Phoenix National Bank, 49 Ariz. 34, 64 P. 2d 101 (1937); Klein v. First Edina National Bank, 293 Minn. 418, 196 N.W. 2d 619 (1972).

G.R. No. 88013, 19 March 1990, 183 SCRA 360. The ruling in Simex International was followed in the following cases: Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206 SCRA 408; Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, 27 May 1994, 232 SCRA 559; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310; Metropolitan Bank & Trust Co. v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA 761; Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667 (1997); Firestone v. Court of Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601. The second paragraph of Article 1172 of the Civil Code provides: If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. See notes 20 and 21. Serrano v. Central Bank, G.R. L-30511, 14 February 1980, 96 SCRA 96. Cangco v. Manila Railroad Co., 38 Phil. 769 (1918); De Guia v. Meralco, 40 Phil. 706 (1920). Philippine Bank of Commerce v. Court of Appeals, supra note 21, citing Vda. de Bataclan v. Medina, 102 Phil. 181 (1957). Ibid. Rollo, p. 35. Philippine Bank of Commerce v. Court of Appeals, supra note 21. Ibid. See note 23. Del Prado v. Manila Electric Co., 52 Phil. 900 (1928-1929). See note 21.

FIRST DIVISION [G.R. No. 126640. November 23, 2000] SPOUSES MARCELO B. ARENAS and ANITA T. ARENAS, petitioners, vs. THE HON. COURT OF APPEALS, SPOUSES CONRADO S. ROJAS AND ROSALINA BAUZON ROJAS, respondents. DECISION PARDO, J.:
The Case

The case is a petition for review assailing the decision of the Court of Appeals, reversing and setting aside the decision of the Regional Trial Court, Pangasinan, Branch 39, Lingayen, dismissing petitioners complaint for Damages, Certiorari with a Writ of Preliminary Injunction and/or Restraining Order.
The Facts

Respondent Rosalina B. Rojas was the co-owner of a two-story building located in Calasiao, Pangasinan. Sometime in 1970, respondent Rojas entered into a verbal contract of lease with petitioner Marcelo B. Arenas over one stall located at the ground floor of the building, on a month to month basis. Petitioner Arenas used the leased premises as an optical clinic. In 1990, respondent Rojas wanted to demolish and reconstruct the building and terminated her lease contract with petitioner Arenas. On November 19, 1990, respondents sent petitioners a notice of termination and a demand to vacate the premises on or before January 2, 1991. However, petitioners refused to vacate the premises.
Civil Case No. 658

On June 18, 1991, respondent Rojas filed with the Municipal Trial Court, Calasiao, Pangasinan, a complaint for Unlawful Detainer and Damages against petitioner Arenas. Respondent prayed first, that the petitioner be ordered to vacate the premises in question; second, that respondent be allowed to cause the demolition, reconstruction and renovation of the premises; and third, that petitioner be ordered to indemnify respondent damages in the form of litigation expenses and attorneys fees.

On June 28, 1991, petitioner Arenas filed his answer to the complaint and counterclaim for moral damages amounting to P50,000.00, exemplary damages totaling P30,000.00 and attorneys fees, stating that the case was maliciously filed. After trial, on August 29, 1991, the Municipal Trial Court, Calasiao, Pangasinan decided against petitioners, to wit: Premises considered, the Court hereby renders judgment in favor of the plaintiff and against the defendant by ordering the defendant: (a) to vacate the premises leased and occupied by him subject of this case;

(b) to pay the plaintiff litigation expenses in the amount of P2,000.00 and attorneys fees in the amount of P10,000.00; and (c) to pay the costs of suit.

Counterclaim of defendant is dismissed for lack of evidence. In due time, petitioner Arenas appealed the above-quoted decision to the Regional Trial Court, Dagupan City, Branch 44. The Regional Trial Court denied the appeal and affirmed the decision of the Municipal Trial Court in toto.
Civil Case No. 16890

On September 2, 1991, before petitioners Arenas received a copy of the decision in Civil Case No. 658, they filed with the Regional Trial Court, Pangasinan, Lingayen an action for Damages, Certiorari with a Writ of Preliminary Injunction and/or Restrainin g Order against respondents Rojas. We quote pertinent parts of the complaint: 3. That notwithstanding the existence of a contract between plaintiff Marcelo R. Arenas and defendant Rosanna Bauzon-Rojas (sic), for the use of said one door commercial stall, defendant Rosanna Bauzon Rojas (sic) filed a complaint for ejectment against plaintiff Marcelo R. Arenas, a copy of which is hereto attached as Annex A hereof; xxx xxx xxx

5. That after the filling of said complaint, defendants-spouses conspiring together as husband and wife caused the removal of the sign board infront (sic) of the clinic of plaintiffs and dumped gravel and sand infront (sic) of their stall and fenced off the same preventing the patients and customers of plaintiffs from coming in; 6. That in order to force the ejectment of plaintiffs from their stall defendants cut off their electric connection;

15. That due to the unlawful and malicious concerted acts of defendant spouses, plaintiffs suffered moral damages amounting to P200,000.00; 16. That likewise plaintiffs suffered a net income loss of P50,000.00 at the rate of P5,000.00 per month; 17. That similarly plaintiffs were constrained to engage the services of undersigned counsel for a fee of P25,000.00. On September 4, 1991, the Regional Trial Court issued a temporary restraining order enjoining the Municipal Trial Court, Calasiao, Pangasinan from hearing Civil Case No. 658. The temporary restraining order also directed respondents to cease and desist from committing acts of disturbances against the stall of petitioners. On September 13, 1991, invoking the rule against multiplicity of suits, respondents moved the trial court to dismiss the case. On September 26, 1991, the trial court denied the motion to dismiss for lack of merit. On October 16, 1991, respondents filed with the trial court their answer to the complaint with counterclaim, reiterating their motion to dismiss with an alternative motion to suspend the proceedings for the reason that the pending appeal raises a prejudicial question. On December 23, 1991, the trial court issued a resolution stating that it had jurisdiction to hear, try and decide Civil Case No. 16890. On August 10, 1992, the trial court decided the case in favor of petitioners. The trial court reasoned: First, there was a tacit renewal of the lease and that the defendants (respondents) maliciously filed the ejectment case (Civil Case No. 658). Second, respondents acts of dumping gravel and of placing a no trespassing sign in front of the stall rented by plaintiffs (petitioners) were done merely to harass petitioners and cause damage to their business. The trial court thus ordered: (1) Defendants to pay the plaintiffs actual damages in the amount of P 50,000.00 representing unrealized earnings; (2) Defendants to pay the plaintiffs, moral and exemplary damages in the amount of P15,000.00; (3) Defendants to pay the plaintiffs, attorneys fees of P6,500.00 plus expenses of litigation of P3,000.00 and to pay the costs. SO ORDERED. On August 20, 1992, respondents appealed to the Court of Appeals.

On June 10, 1996, the Court of Appeals rendered its decision reversing that of the trial court and dismissing petitioners complaint. The Court of Appeals reasoned that since petitioners interposed a counterclaim for moral and exemplary damages in Civil Case No. 658, they were barred from instituting Civil Case No. 16890. The Court of Appeals dismissed Civil Case No. 16890, as follows: WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and the complaint filed by plaintiffs-appellees against defendants-appellants is hereby DISMISSED. With costs against plaintiffs-appellees. SO ORDERED. On June 27, 1996, petitioners filed with the Court of Appeals a motion for reconsideration. On September 12, 1996, the Court of Appeals denied petitioners motion for reconsideration for lack of merit. Hence, this appeal.
The Issue

The sole issue raised is whether the causes of action complained of in the Regional Trial Court were in the nature of compulsory counterclaims that must be pleaded in Civil Case No. 658 of the Municipal Trial Court. Petitioners argue that the acts complained of in Civil Case No. 16890 arose after the filing of the complaint and the answer in Civil Case No. 658. Thus, damages arising from such acts could not be raised therein as compulsory counterclaims.
The Courts Ruling

We find the appeal meritorious. We agree with petitioners that the causes of action pleaded in Civil Case No. 16890 are different from those in Civil Case No. 658, and that such causes could not have been raised as compulsory counterclaims therein. Nonetheless, we find that the trial court erred in Civil Case No. 16890 for touching on the propriety of the ejectment case which was settled in Civil Case No. 658 and affirmed on appeal in Civil Case No. D-9996. We discuss these points seriatim.
Not Compulsory Counterclaims

Rule 11 of the 1997 Rules of Civil Procedure provides: Sec. 8. Existing counterclaim or cross-claim - A compulsory counterclaim or a crossclaim that a defending party has at the time he files his answer shall be contained therein. (underscoring ours) A counterclaim is compulsory where: (1) it arises out of, or is necessary connected with, the transaction or occurrence that is the subject matter of the opposing partys claim; (2) it does not require the presence of third parties of whom the court cannot acquire jurisdiction; and (3) the trial court has jurisdiction to entertain the claim. The following are the tests by which the compulsory nature of a counterclaim can be determined: (1) Are the issues of fact and law raised by the claim and counterclaim largely the same? (2) Would res judicata bar a subsequent suit on defendants claim absent the compulsory counterclaim rule? (3) Will substantially the same evidence support or refute plaintiffs claim as well as defendants counterclaim? (4) Is there any logical relation between the claim and counterclaim? We do not agree with the Court of Appeals that the claims in Civil Case No. 16890 may be pleaded as compulsory counterclaims in Civil Case No. 658. First. In Civil Case No. 16890, the damages prayed for arose not from contract but from quasi-delict. They constitute separate and distinct causes of action. A cause of action has the following elements: (1) the legal right of plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right.
Cause of Action in Civil Case No. 658

Civil Case No. 658 involves a complaint for unlawful detainer and damages. In an unlawful detainer case, the issue is the right to physical possession of the premises or possession de facto. The basis is a contract of lease.
Causes of Action in Civil Case No. 16890

The acts complained of in Civil Case No. 16890 were: 1. Removal of the signboard in front of the stall of Marcelo Arenas, which is being used as an eye clinic and the refusal of Conrado Rojas or his failure to return it; 2. Dumping of gravel and sand in front of the stall as well as the fencing of the front of the stall in question thus effectively preventing patients and customers from coming in; 3. Cutting off the electric connection to the eye clinic.

We agree with petitioners that the acts complained of were not founded on the contract of lease but could constitute violations of the Civil Code provisions on Human Relations, specifically: 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, willfully or negligently causes damage to another, shall indemnify the latter for the same. 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. Here, respondents duty to respect petitioners rights is an obligation sourced not from contract but from quasi-delict. Second. In de Leon v. Court of Appeals, we held that [W]here the issues of the case extend beyond those commonly involved in unlawful detainer suits, the case is converted from a mere detainer suit to one incapable of pecuniary estimation thereby placing it under the exclusive jurisdiction of the regional trial courts. Verily, since the municipal trial court could not have taken cognizance of the claims in Civil Case No. 16890, then such claims could not be considered as compulsory counterclaims in Civil Case No. 658. The fact that the rule on summary procedure governs ejectment cases emphasizes the point that an action for damages incapable of pecuniary estimation can not be pleaded as counterclaims therein. It cannot be overemphasized that the reason for the rule on summary procedure is to prevent undue delays in the disposition of cases. To achieve this, the filing of certain pleadings is prohibited and the periods for acting on motions as well as on the case itself are relatively reduced. Third. The acts complained of were committed after the complaint and the answer were filed.
Trial Court Ruling in Civil Case No. 16890 Erroneous

However, as the Court of Appeals erred, so did the trial court. In Civil Case No. 16890, the trial court ruled that the lease was still subsisting and that the ejectment case was maliciously brought. It should not have done so. These issues were already decided in Civil Case No. 658 and affirmed on appeal in Civil Case No. D9996. These issues, stemming from the lease contract are barred by res judicata. Res judicata exists when the following elements are present:

(a)

the former judgment must be final;

"(b) the court which rendered judgment had jurisdiction over the parties and the subject matter; "(c) it must be a judgment on the merits;

"(d) and there must be between the first and second actions identity of parties, subject matter, and cause of action." The doctrine of res judicata is a rule which pervades every well regulated system of jurisprudence and is founded upon two grounds embodied in various maxims of the common law, namely: (1) public policy and necessity which makes it to the interest of the State that there should be an end to litigation, interest reipublicae ut sit finis litum, and (2) the hardship on the individual that he should be vexed twice for the same cause, memo debet bis vexari et eadem causa. The decision of the Regional Trial Court, Branch 39, Lingayen, Pangasinan in Civil Case No. 16890 touched on matters already decided. There must be an end to litigation. The issue of whether ejectment was proper was fully and fairly adjudicated in Civil Case No. 658.
Remand Case

Whether or not the acts of respondents complained of in Civil Case No. 16890 prejudiced petitioners may be objectively determined by the trial court, independent of the issues of the propriety of the ejectment and malicious prosecution. To settle this, it must be determined whether respondents committed quasi-delict and acted in bad faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. The determination of whether one acted in bad faith and whether damages may be awarded is evidentiary in nature. As a matter of defense, it can be best passed upon after a full-blown trial on the merits. Thus, there is a need to remand the case to the court of origin.
The Fallo

WHEREFORE, the Court GRANTS the petition, and SETS ASIDE the decision of the Court of Appeals in CA-G. R. CV No. 40470, dismissing the petition in Civil Case No. 16890. In lieu thereof, the Court renders judgment setting aside the decision of the Regional Trial Court, Pangasinan, Branch 39, Lingayen, in Civil Case No. 16890, and REMANDING the case to the court of origin with instructions that the court shall hear

the case with all deliberate dispatch, limiting itself to the determination of whether the acts committed by respondents constitute quasi-delict, entitling petitioners to the damages prayed for. The trial court shall report to the Court the progress of the case on a month to month basis. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur. Filed under Rule 45 of the 1964 Revised Rules of Court. In CA-G. R. CV No. 40470, promulgated June 10, 1996, Luna, J., ponente, Barcelona and Alino-Hormachuelos, JJ., concurring. In Civil Case No. 16890. No. 15, Rizal Avenue, Poblacion East, Calasiao, Pangasinan. Tandoc-Arenas Optical Clinic. Docketed as Civil Case No. 658, Complaint, Annex B, RTC Record, pp. 7 -8. Complaint, Annex C, RTC Record, pp. 12-16. RTC Record, pp. 30-33. Docketed as Civil Case No. D-9996. Petition, Annex A, Rollo, pp. 28-39, at pp. 31-33. RTC Record, p. 23. Ibid., p. 27. Ibid., pp. 35-36. RTC Record, pp. 37-41. Civil Case No. D-9996. RTC Record, pp. 69-70. RTC Decision, Ibid., pp. 127-133.

Docketed as CA-G. R. CV No. 40470. Petition, Annex A, Rollo, pp. 28-39. Rollo, p. 39. CA Rollo, pp. 68-72. Petition, Annex B, Rollo, p. 40. Petition, filed on November 8, 1996, Rollo, pp. 8-20. On January 31, 2000, we gave due course to the petition, Rollo, pp. 62-63. Civil Case No. 16890. Petition, Rollo, p. 18. Cabaero v. Cantos, 338 Phil. 105 (1997). Intestate Estate of Amado B. Dalisay v. Marasigan, 327 Phil. 298 (1996); Ponciano v. Parentella, G. R. No. 133284, May 9, 2000. Valencia v. Court of Appeals, 331 Phil. 590 (1996). The Civil Code of the Philippines, Article 1157, provides Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. Article 2176 provides, 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. Dabuco v. Court of Appeals, G. R. No. 133775, January 20, 2000. Del Rosario v. Court of Appeals, 311 Phil. 589 (1995), citing University Physicians Services, Inc. v. Court of Appeals, 233 SCRA 86 [1994]; Gachon v. Davera, Jr., 274 SCRA 540 (1997); Arcal v. Court of Appeals, 348 Phil. 813 (1998); Carreon v. Court of Appeals, 353 Phil. 271, 281 (1998). Supra, Note 10. Banco Filipino Savings and Mortgage Bank v. Court of Appeals, 225 SCRA 199 (1993). 315 Phil. 140 (1995). Cuevas v. Balerian, A. M. No. MTJ-00-1276, June 23, 2000.

The complaint was filed by respondents on June 18, 1991; petitioners filed their answer on June 28, 1991. On July 20, 1991, respondents removed the signboard of petitioners stall; respondents also subsequently dumped gravel and sand in front of the stall, placed a no trespassing sign and cut off the electricity to the stall (Rollo, pp. 99-100). Mangoma v. Court of Appeals, 241 SCRA 21 (1995); Militante v. National Labor Relations Commission, 246 SCRA 365 (1995); Saura v. Saura, 313 SCRA 465 (1999). Madarieta v. Regional Trial Court, G. R. No. 126443, February 28, 2000. Calusin v. Court of Appeals, G. R. No. 128405, June 21, 2000. Far East Bank and Trust Company v. Court of Appeals, 311 Phil. 783 (1995). Deloso v. Desierto, G. R. No. 129939, September 9, 1999.

Republic of the Philippines

SUPREME COURT
Baguio

SECOND DIVISION G.R. No. 119771 April 24, 1998 SAN ILDEFONSO LINES, INC., and EDUARDO JAVIER, petitioners, vs. COURT OF APPEALS (Thirteenth Division) and PIONEER INSURANCE and SURETY CORPORATION, respondents.

MARTINEZ, J.: At around 3:30 in the afternoon of June 24, 1991, a Toyota Lite Ace Van being driven by its owner Annie U. Jao and a passenger bus of herein petitioner San Ildefonso Lines, Inc. (hereafter, SILI) figured in a vehicular mishap at the intersection of Julia Vargas Avenue and Rodriguez Lanuza Avenue in Pasig, Metro Manila, totally wrecking the Toyota van and injuring Ms. Jao and her two (2) passengers in the process. A criminal case was thereafter filed with the Regional Trial Court of Pasig on September 18, 1991 charging the driver of the bus, herein petitioner Eduardo Javier, with reckless imprudence resulting in damage to property with multiple physical injuries. About four (4) months later, or on January 13, 1992, herein private respondent Pioneer Insurance and Surety Corporation (PISC), as insurer of the van and subrogee, filed a case for damages against petitioner SILI with the Regional Trial Court of Manila, seeking to recover the sums it paid the assured under a motor vehicle insurance policy as well as other damages, totaling P564,500.00 (P454,000.00 as actual/compensatory damages; P50,000.00 as exemplary damages; P50,000.00 as attorney's fees; 1 P10,000.00 as litigation expenses; and P500.00 as appearance fees.) With the issues having been joined upon the filing of the petitioners' answer to the complaint for damages and after submission by the parties of their respective pre-trial briefs, petitioners filed on September 18, 1992 a Manifestation and Motion to Suspend Civil Proceedings grounded on the pendency of the criminal case against petitioner Javier in the Pasig RTC and the failure of respondent PISC to make a reservation to file a separate damage suit in said criminal action. This was denied by the Manila Regional Trial Court 2 in its Order dated July 21, 1993, ruling thus:
Answering the first question thus posed, the court holds that plaintiff may legally institute the present civil action even in the absence of a reservation in the criminal action. This is so because it falls among the very exceptions to the rule cited by the movant. It is true that the general rule is that once a criminal action has been instituted, then civil action based thereon is deemed instituted together with the criminal action, such that if the offended party did not reserve the filing of the civil action when the criminal action was filed, then such filing of the civil action is therefore barred; on the other hand, if there was such reservation, still the civil action cannot be instituted until final judgment has been rendered in the criminal action; But, this rule (Section 2, Rule 111, Revised Rules of Court) is subject to exemptions, the same being those provided for in Section 3 of the same rule which states: 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 was been

reserved may be brought by the offended party, shall proceed independently of the criminal action, and shall require only a preponderance of evidence. Besides, the requirement in Section 2 of Rule 111 of the former Rules on Criminal Procedure that there be a reservation in the criminal case of the right to institute an independent civil action has been declared as not in accordance with law. It is regarded as an unauthorized amendment to our substantive law, i.e., the Civil Code which does not require such reservation. In fact, the reservation of the right to file an independent civil action has been deleted from Section 2, Rule 111 of the 1985 Rules on Criminal Procedure, in consonance with the decisions of this Court declaring such requirement of a reservation as ineffective. (Bonite vs. Zosa, 162 SCRA 180). Further, the Court rules that a subrogee-plaintiff may institute and prosecute the civil action, it being allowed by Article 2207 of the Civil Code.

After their motion for reconsideration of said July 21, 1993 Order was denied, petitioners elevated the matter to this Court via petition for certiorari which was, however, referred to public respondent Court of Appeals for disposition. On February 24, 1995, a decision adverse to petitioners once again was rendered by respondent court, upholding the assailed Manila Regional Trial Court Order in this wise:
A separate civil action lies 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 the tortfeasor 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. To subordinate the civil action contemplated in the said articles to the result of the criminal prosecution whether it be conviction or acquittal would render meaningless the independent character of the civil action and the clear injunction in Art. 31, that this action may proceed independently of the criminal proceedings and regardless of the result of the latter. In Yakult Phil. vs. CA, the Supreme Court said: Even if there was no reservation in the criminal case and that the civil action was not filed before the filing of the criminal action but before the prosecution presented evidence in the criminal action, and the judge handling the criminal case was informed thereof, then the actual filing of the civil action is even far better than a compliance with the requirement of an express reservation that should be made by the offended party before the prosecution presented its evidence. The purpose of this rule requiring reservation is to prevent the offended party from recovering damages twice for the same act or omission. Substantial compliance with the reservation requirement may, therefore, be made by making a manifestation in the criminal case that the private respondent has instituted a separate and independent civil action for damages. Oft-repeated is the dictum that courts should not place undue importance on technicalities when by so doing substantial justice is sacrificed. While the rules of procedure require adherence, it must be remembered that said rules of procedure are intended to promote, not defeat, substantial justice, and therefore, they should not be applied in a very rigid and technical sense.

Hence, this petition for review after a motion for reconsideration of said respondent court judgment was denied. The two (2) crucial issues to be resolved, as posited by petitioners, are: 1) If a criminal case was filed, can an independent civil action based on quasi-delict under Article 2176 of the Civil Code be filed if no reservation was made in the said criminal case? 2) Can a subrogee of an offended party maintain an independent civil action during the pendency of a criminal action when no reservation of the right to file an independent civil action was made in the criminal action and despite the fact that the private complainant is actively participating through a private prosecutor in the aforementioned criminal case? We rule for petitioners.

On the chief issue of "reservation", at the fore is Section 3, Rule 111 of the Rules of Court which reads:
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 be brought by the offended party, shall proceed independently of the criminal action, and shall require only a preponderance of evidence.

There is no dispute that these so-called "independent civil actions" based on the aforementioned Civil Code articles are the exceptions to the primacy of the criminal action over the civil action as 3 set forth in Section 2 of Rule 111. However, it is easily deducible from the present wording of Section 3 as brought about by the 1988 amendments to the Rules on Criminal Procedure particularly the phrase ". . . which has been reserved" that the "independent" character of these civil actions does not do away with the reservation requirement. In other words, prior reservation is a condition sine qua non before any of these independent civil actions can be instituted and thereafter have a continuous determination apart from or simultaneous with the criminal action. That this should now be the controlling procedural rule is confirmed by no less than retired Justice Jose Y. Feria, remedial law expert and a member of the committee which drafted the 1988 amendments, whose learned explanation on the matter was aptly pointed out by petitioners, to wit:
The 1988 amendment expands the scope of the civil action which his deemed impliedly instituted with the criminal action unless waived, reserved or previously instituted. . . . Under the present Rule as amended, such a civil action includes not only recovery of indemnity under the Revised Penal Code and damages under Articles 32, 33, 34 of the Civil Code of the Philippines, but also damages under Article 2176 of the said code. . . . Objections were raised to the inclusion in this Rule of quasi-delicts under Article 2176 of the Civil Code of the Philippines. However, in view of Article 2177 of the said code which provides that the offended party may not recover twice for the same act or omission of the accused, and in line with the policy of avoiding multiplicity of suits, these objections were overruled. In any event, the offended party is not precluded from filing a civil action to recover damages arising from quasi-delict before the institution of the criminal action, or from reserving his right to file such a separate civil action, just as he is not precluded from filing a civil action for damages under Articles 32, 33 and 34 before the institution of the criminal action, or from reserving his right to file such a separate civil action. It is only in those cases where the offended party has not previously filed a civil action or has not reserved his right to file a separate civil action that his civil action is deemed impliedly instituted with the criminal action. It should be noted that while it was ruled in Abella vs. Marave (57 SCRA 106) that a reservation of the right to file an independent civil action is not necessary, such a reservation is necessary under the amended rule. Without such reservation, the civil action is deemed impliedly instituted with the criminal action, unless previously waived or instituted. (Emphasis ours, Justice Jose Y. Feria [Ret.], 1988 Amendments to the 1985 Rules on Criminal Procedure, a 4 pamphlet, published by Central Lawbook Publishing Co., Inc., Philippine Legal Studies, Series No. 3, 5-6).

Sharing the same view on the indispensability of a prior reservation is Mr. Justice Florenz D. Regalado, whose analysis of the historical changes in Rule 111 since the 1964 Rules of Court is equally illuminating. Thus,
1. Under Rule 111 of the 1964 Rules of Court, the civil liability arising from the offense charged was impliedly instituted with the criminal action, unless such civil action was expressly waived or reserved. The offended party was authorized to bring an independent civil action in the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code provided such right was reserved. In the 1985 Rules on Criminal Procedure, the same Rule 111 thereof reiterated said provision on the civil liability arising from the offense charged. The independent civil actions, however, were limited to the cases provided for in Articles 32, 33 and 34 of the Civil Code, obviously because the actions contemplated in Articles 31 and 2177 of said Code are not liabilities ex-delicto. Furthermore, no reservation was required in order the civil actions in said Articles 32, 33 and 34 may be pursued separately. 2. The present amendments introduced by the Supreme Court have the following notable features on this particular procedural aspect, viz:

a. The civil action which is impliedly instituted with the criminal action, barring a waiver, reservation or prior institution thereof, need not arise from the offense charged, as the phrase "arising from the offense charged" which creates that nexus has been specifically eliminated. b. The independent civil actions contemplated in the present Rule 111 include the quasi-delicts provided for in Art. 2176 of the Civil Code, in addition to the cases provided in Arts. 32, 33 and 34 thereof. It is necessary, however, that the civil liability under all the said articles arise "from the same act or omission of the accused." Furthermore, a reservation of the right to institute these separate civil actions is again required otherwise, said civil actions are impliedly instituted with the criminal action, unless the former are waived or filed ahead of the criminal action. 5 (Emphasis supplied.)

In fact, a deeper reading of the "Yakult Phils. vs. CA" case relied upon by respondent court reveals an acknowledgment of the reservation requirement. After recognizing that the civil case instituted by private respondent therein Roy Camaso (represented by his father David Camaso) against petitioner Yakult Phils. (the owner of the motorcycle that sideswiped Roy Camaso, only five years old at the time of the accident) and Larry Salvado (the driver of the motorcycle) during the pendency of the criminal case against Salvado for reckless imprudence resulting to slight physical injuries, as one based on tort, this Court said:
The civil liability sought arising from the act or omission of the accused in this case is a quasi-delict as defined under Article 2176 of the Civil Code as follows: xxx xxx xxx The aforecited rule [referring to the amended Section l, Rule 111] requiring, such previous reservation also covers quasi-delict as defined under Article 2176 of the Civil Code arising from the same act or omission of the accused (emphasis supplied).

But what prompted the Court to validate the institution and non-suspension of the civil case involved in "Yakult" was the peculiar facts attendant therein. Thus,
Although the separate civil action filed in this case was without previous reservation in the criminal case, nevertheless since it was instituted before the prosecution presented evidence in the criminal action, and the judge handling the criminal case was informed thereof, then the actual filing of the civil action is even far better than a compliance with the requirement of an express reservation that should be made by the offended party before the prosecution presents its evidence.

The distinct factual scenario in "Yakult" simply does not obtain in this case. No satisfactory proof exists to show that private respondent PISC's damage suit was instituted before the prosecution presented its evidence in the criminal case pending in the Pasig Regional Trial Court. Neither is there any indication that the judge presiding over the criminal action has been made aware of the civil case. It is in this light that reliance on the "Yakult" case is indeed misplaced. Now that the necessity of a prior reservation is the standing rule that shall govern the institution of the independent civil actions referred to in Rule 111 of the Rules of Court, past pronouncements that view the reservation requirement as an "unauthorized amendment" to substantive law i.e., the Civil Code, should no longer be controlling. There must be a renewed adherence to the time-honored dictum that procedural rules are designed, not to defeat, but to safeguard the ends of substantial justice. And for this noble reason, no less than the Constitution itself has mandated this Court to promulgate rules concerning the enforcement of rights with the end in view of providing a simplified and inexpensive procedure for the 7 speedy disposition of cases which should not diminish, increase or modify substantive rights. Far from altering substantive rights, the primary purpose of the reservation is, to borrow the words of the Court in 8 "Caos v. Peralta":
. . . to avoid multiplicity of suits, to guard against oppression and abuse, to prevent delays, to clear congested dockets, to simplify the work of the trial court; in short, the attainment of justice with the least expense and vexation to the parties-litigants.

Clearly then, private respondent PISC, as subrogee under Article 2207 of the Civil Code, is not exempt from the reservation requirement with respect to its damages suit based on quasi-delict arising from the same act or ommission of petitioner Javier complained of in the criminal case. As private respondent PISC merely stepped into the shoes of Ms. Jao (as owner of the insured Toyota van), then it is bound to observe the procedural requirements which Ms. Jao ought to follow had she herself instituted the civil case. WHEREFORE, premises considered, the assailed decision of the Court of Appeals dated February 24, 1995 and the Resolution dated April 3, 1995 denying the motion for reconsideration thereof are hereby REVERSED and SET ASIDE. The "MANIFESTATION AND MOTION TO SUSPEND CIVIL PROCEEDINGS" filed by petitioners is GRANTED. SO ORDERED. Regalado, Melo, Puno and Mendoza, JJ., concur. Footnotes
1 See Complaint, Rollo, pp. 35-38. 2 Annex F, Rollo, pp. 43-47. 3 Section 2, Rule 111 of the Rules of Court reads in part: Sec. 2. Institution of separate civil action. Except in the cases provided for in Section 3 hereof, after the criminal action has been commenced, the civil action which has been reserved cannot be instituted until final judgment has been rendered in the criminal action. xxx xxx xxx 4 Petition, pp. 10-11; Rollo, pp. 11-12. 5 Regalado, Remedial Law Compendium, Volume II, 1995 Edition, p. 275. 6 190 SCRA 357, October 5, 1990. 7 Article VIII, Section 5(5), 1987 Constitution. 8 115 SCRA 843. 9 Article 2207. "If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved a party shall be entitled to recover the deficiency from the person causing the loss or injury.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 120553 June 17, 1997 PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG, petitioner, vs. COURT OF APPEALS and HEIRS OF THE LATE RAMON ACUESTA, respondents. DAVIDE, JR., J.: The petitioners interposed this appeal by way of a petition for review under Rule 45 of the Rules of Court from the 31 January 1995 Decision of the Court of Appeals in CAG.R. CV No. 41140 1 affirming the 22 January 1993 2 Decision of Branch 31 of the Regional Trial Court, Calbayog City, in Civil Case No. 373, which ordered the petitioners to pay the private respondents damages as a result of a vehicular accident. Civil Case No. 373 was an action against herein petitioners for damages instituted by the heirs of Ramon A. Acuesta, namely, Gregorio O. Acuesta; Julio O. Acuesta; Ramon O. Acuesta, Jr.; Baltazar O. Acuesta; Rufino O. Acuesta; Maximo O. Acuesta; Neri O. Acuesta; Iluminada O. Acuesta; Rosario Acuesta-Sanz; and Pamfilo O. Acuesta. Atty. Julio O. Acuesta also appeared as counsel for the plaintiffs (herein private respondents). 3 The private respondents alleged that the petitioners were guilty of gross negligence, recklessness, violation of traffic rules and regulations, abandonment of victim, and attempt to escape from a crime. To support their allegations, the private respondents presented eight witnesses. On 10 February 1992, after the cross-examination of the last witness, the private respondents' counsel made a reservation to present a ninth witness. The case was then set for continuation of the trial on 30 and 31 March 1992. Because of the non-appearance of the petitioners' counsel, the 30 March 1992 hearing was cancelled. The next day, private respondents' counsel manifested that he would no longer present the ninth witness. He thereafter made an oral offer of evidence and rested the case. The trial court summarized private respondents' evidence in this wise:
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta was riding in his easy rider bicycle (Exhibit "O"), along the Gomez Street of Calbayog City. The Gomez Street is along the side of Nijaga Park. On the Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-725 driven by defendant Rogasiones Manilhig y Dolira was being pushed by some persons in order to start its engine. The Magsaysay Blvd. runs perpendicular to Gomez St. and the said Philtranco bus 4025 was heading in the general direction of the said Gomez Street. Some of the persons who were pushing the bus were on its back, while the others were on the sides. As the bus was pushed, its engine started thereby the bus continued on its running motion and it occurred at the time

when Ramon A. Acuesta who was still riding on his bicycle was directly in front of the said bus. As the engine of the Philtranco bus started abruptly and suddenly, its running motion was also enhanced by the said functioning engine, thereby the subject bus bumped on the victim Ramon A. Acuesta who, as a result thereof fell and, thereafter, was run over by the said bus. The bus did not stop although it had already bumped and ran [sic] over the victim; instead, it proceeded running towards the direction of the Rosales Bridge which is located at one side of the Nijaga Park and towards one end of the Gomez St., to which direction the victim was then heading when he was riding on his bicycle. P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading and meeting the victim Ramon A. Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being pushed by some passengers, when its engine abruptly started and when the said bus bumped and ran over the victim. He approached the bus driver defendant Manilhig herein and signalled to him to stop, but the latter did not listen. So the police officer jumped into the bus and introducing himself to the driver defendant as policeman, ordered the latter to stop. The said defendant driver stopped the Philtranco bus near the Nijaga Park and Sgt. Yabao thereafter, told the driver to proceed to the Police Headquarter which was only 100 meters away from Nijaga Park because he was apprehensive that the said driver might be harmed by the relatives of the victim who might come to the scene of the accident. Then Sgt. Yabao cordoned the scene where the vehicular accident occurred and had P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an investigation and make a sketch of the crime scene. Sgt. Yambao Yabao was only about 20 meters away when he saw the bus of defendant Philtranco bumped [ sic] and [sic] ran over the victim. From the place where the victim was actually bumped by the 4 bus, the said vehicle still had run to a distance of about 15 meters away.

For their part, the petitioners filed an Answer 5 wherein they alleged that petitioner Philtranco exercised the diligence of a good father of a family in the selection and supervision of its employees, including petitioner Manilhig who had excellent record as a driver and had undergone months of rigid training before he was hired. Petitioner Manilhig had always been a prudent professional driver, religiously observing traffic rules and regulations. In driving Philtranco's buses, he exercised the diligence of a very cautious person. As might be expected, the petitioners had a different version of the incident. They alleged that in the morning of 24 March 1990, Manilhig, in preparation for his trip back to Pasay City, warmed up the engine of the bus and made a few rounds within the city proper of Calbayog. While the bus was slowly and moderately cruising along Gomez Street, the victim, who was biking towards the same direction as the bus, suddenly overtook two tricycles and swerved left to the center of the road. The swerving was abrupt and so sudden that even as Manilhig applied the brakes and blew the bus horn, the victim was bumped from behind and run over by the bus. It was neither willful nor deliberate on Manilhig's part to proceed with the trip after his bus bumped the victim, the truth being that when he looked at his rear-view window, he saw people crowding around the victim, with others running after his bus. Fearing that he might be mobbed, he moved away from the scene of the accident and intended to report the incident to the police. After a man boarded his bus and introduced himself as a policeman, Manilhig gave himself up to the custody of the police and reported the accident in question. The petitioners further claimed that it was the negligence of the victim in overtaking two tricycles, without taking precautions such as seeing first that the road was clear, which

caused the death of the victim. The latter did not even give any signal of his intention to overtake. The petitioners then counterclaimed for P50,000 as and for attorney's fees; P1 million as moral damages; and P50,000 for litigation expenses. However, the petitioners were not able to present their evidence, as they were deemed to have waived that right by the failure of their counsel to appear at the scheduled hearings on 30 and 31 March 1992. The trial court then issued an Order 6 declaring the case submitted for decision. Motions for the reconsideration of the said Order were both denied. On 22 January 1992, the trial court handed down a decision ordering the petitioners to jointly and severally pay the private respondents the following amounts:
1) P55, 615.72 as actual damages; 2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta; 3) P1 million as moral damages; 4) P500,000 by way of exemplary damages; 5) P50,000 as attorney's fees; and 6) the costs of suit.
7

Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals imputing upon the trial court the following errors: (1) in preventing or barring them from presenting their evidence; (2) in finding that petitioner Manilhig was at fault; (3) in not finding that Ramon was the one at fault and his own fault caused, or at least contributed to, his unfortunate accident; (4) in awarding damages to the private respondents; and (5) in finding that petitioner Philtranco was solidarily liable with Manilhig for damages.
8

In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the trial court. It held that the petitioners were not denied due process, as they were given an opportunity to present their defense. The records show that they were notified of the assignment of the case for 30 and 31 March 1992. Yet, their counsel did not appear on the said dates. Neither did he file a motion for postponement of the hearings, nor did he appeal from the denial of the motions for reconsideration of the 31 March 1992 Order of the trial court. The petitioners have thereby waived their right to present evidence. Their expectation that they would have to object yet to a formal offer of evidence by the

private respondents was "misplaced," for it was within the sound discretion of the court to allow oral offer of evidence. As to the second and third assigned errors, the respondent court disposed as follows:
. . . We cannot help but accord with the lower court's finding on appellant Manilhig's fault. First, it is not disputed that the bus driven by appellant Manilhig was being pushed at the time of the unfortunate happening. It is of common knowledge and experience that when a vehicle is pushed to a jump-start, its initial movement is far from slow. Rather, its movement is abrupt and jerky and it takes a while before the vehicle attains normal speed. The lower court had thus enough basis to conclude, as it did, that the bumping of the victim was due to appellant Manilhig's actionable negligence and inattention. Prudence should have dictated against jump-starting the bus in a busy section of the city. Militating further against appellants' posture was the fact that the precarious pushing of subject bus to a jumpstart was done where the bus had to take a left turn, thereby making the move too risky to take. The possibility that pedestrians on Gomez Street, where the bus turned left and the victim was biking, would be unaware of a vehicle being pushed to a jumpstart, was too obvious to be overlooked. Verily, contrary to their bare arguments, there was gross negligence on the part of appellants. The doctrine of last clear chance theorized upon by appellants, is inapplicable under the premises because the victim, who was bumped from behind, obviously, did not of course anticipate a Philtranco bus being pushed from a perpendicular street.

The respondent court sustained the awards of moral and exemplary damages and of attorney's fees, for they are warranted under Articles 2206, 2231, and 2208(1), respectively, of the Civil Code. Anent the solidary liability of petitioner Philtranco, the same finds support in Articles 2180 and 2194 of the said Code. The defense that Philtranco exercised the diligence of a good father of a family in the selection and supervision of its employees crumbles in the face of the gross negligence of its driver, which caused the untimely death of the victim. Their motion for reconsideration having been denied, the petitioners came to us claiming that the Court of Appeals gravely erred
I . . . IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT THEIR EVIDENCE, AND THAT PETITIONERS WERE NOT DENIED DUE PROCESS. II . . . IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE, AND IN HOLDING THAT PETITIONER PHILTRANCO CAN NOT INVOKE THE DEFENSE OF DILIGENCE OF A GOOD FATHER OF A FAMILY. III . . . IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING THE TRIAL COURT'S AWARD OF DAMAGES EXCESSIVE.

We resolved to give due course to the petition and required the parties to submit their respective memoranda after due consideration of the allegations, issues, and arguments adduced in the petition, the comment thereon by the private respondents, and the reply to the comment filed by the petitioners. The petitioners filed their memorandum in due time; while the private respondents filed theirs only on 3 January 1997, after their counsel was fined in the amount of P1,000 for failure to submit the required memorandum. The first imputed error is without merit. The petitioners and their counsel, Atty. Jose Buban, were duly notified in open court of the order of the trial court of 10 February 1992 setting the case for hearing on 30 and 31 March 1992. 9 On both dates neither the petitioners nor their counsel appeared. In his motion for reconsideration, 10 Atty. Buban gave the following reasons for his failure to appear on the said hearings:
1. That when this case was called on March 27, 1992, counsel was very much indisposed due to the rigors of a very hectic campaign as he is a candidate for City Councilor of Tacloban; he wanted to leave for Calbayog City, but he was seized with slight fever on the morning of said date; but then, during the last hearing, counsel was made to understand that plaintiffs would formally offer their exhibits in writing, for which reason, counsel for defendants waited for a copy of said formal offer, but counsel did not receive any copy as counsel for plaintiffs opted to formally offer their exhibits orally in open court; 2. That counsel for defendants, in good faith believed that he would be given reasonable time within which to comment on the formal offer in writing, only to know that counsel for plaintiffs orally offered their exhibits in open court and that the same were admitted by the Honorable Court; and that when this case was called on March 30 and 31, 1992, the undersigned counsel honestly believed that said schedule would be cancelled, pending on the submission of the comments made by the defendants on the formal offer; but it 11 was not so, as the exhibits were admitted in open court.

In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid of meritorious basis," as Atty. Buban could have filed a motion for postponement. 12 Atty. Buban then filed a motion to reconsider 13 the order of denial, which was likewise denied by the trial court in its order of 12 August 1992. 14 Nothing more was done by the petitioners after receipt of the order of 12 August 1992. A perusal of the first and second motions for reconsideration discloses absence of any claim that the petitioners have meritorious defenses. Clearly, therefore, the trial court committed no error in declaring the case submitted for decision on the basis of private respondent's evidence. The second imputed error is without merit either. Civil Case No. 373 is an action for damages based on quasi-delict 15 under Article 2176 and 2180 of the Civil Code against petitioner Manilhig and his employer, petitioner Philtranco, respectively. These articles pertinently provide:
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.

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 The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. 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 industry. xxx xxx xxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

We have consistently held that the liability of the registered owner of a public service vehicle, like petitioner Philtranco, 16 for damages arising from the tortious acts of the driver is primary, direct, and joint and several or solidary with the driver. 17 As to solidarity, Article 2194 expressly provides:
Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.

Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for damages is satisfied by it is to recover what it has paid from its employee who committed the fault or negligence which gave rise to the action based on quasi-delict. Article 2181 of the Civil Code provides:
Art. 2181. Whoever pays for the damage caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim.

There is, however, merit in the third imputed error. The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended the award in their Opposition to the Motion for Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for death is computed on the basis of the life expectancy of the deceased." In that case, the "death indemnity" was computed by multiplying the victim's gross annual income by his life expectancy, less his yearly living expenses. Clearly then, the "death indemnity" referred to was the additional indemnity for the loss of earning capacity mentioned in Article 2206(1) of the Civil Code, and not the basic indemnity for death mentioned in the first paragraph thereof. This article provides as follows:

Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period of not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased.

We concur with petitioners' view that the trial court intended the award of "P200,000.00 as death indemnity" not as compensation for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning capacity, the same must be struck out for lack of basis. There is no evidence on the victim's earning capacity and life expectancy. Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by current jurisprudence at P50,000. 18 The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is excessive and unreasonable. This was based solely on the testimony of one of the heirs, Atty. Julio Acuesta, contained in his "Direct Testimony . . . As Plaintiff, conducted by Himself," 19 to wit:
Q. What was your feeling or reaction as a result of the death of your father Ramon A. Acuesta? A. We, the family members, have suffered much from wounded feelings, moral shock, mental anguish, sleepless nights, to which we are entitled to moral damages at the reasonable amount of ONE MILLION (P1,000,000.00) PESOS or at the sound discretion of this Hon. Court.

Since the other heirs of the deceased did not take the witness stand, the trial court had no basis for its award of moral damages to those who did not testify thereon. Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant's culpable action and must, perforce, be proportional to the suffering inflicted. 20 In light of the circumstances in this case, an award of P50,000 for moral damages is in order.

The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may be awarded if the party at fault acted with gross negligence. 21 The Court of Appeals found that there was gross negligence on the part of petitioner Manilhig. 22 Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated, or compensatory damages. Considering its purpose, it must be fair and reasonable in every case and should not be awarded to unjustly enrich a prevailing party. In the instant case, an award of P50,000 for the purpose would be adequate, fair, and reasonable. Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. 23 Stated otherwise, the grant of attorney's fees as part of damages is the exception rather than the rule, as counsel's fees are not awarded every time a party prevails in a suit. 24 Such attorney's fees can be awarded in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be reasonable. In the instant case, the counsel for the plaintiffs is himself a co-plaintiff; it is then unlikely that he demanded from his brothers and sisters P100,000 as attorney's fees as alleged in the complaint and testified to by him. 25 He did not present any written contract for his fees. He is, however, entitled to a reasonable amount for attorney's fees, considering that exemplary damages are awarded. Among the instances mentioned in Article 2208 of the Civil Code when attorney's fees may be recovered is "(1) when exemplary damages are awarded." Under the circumstances in this case, an award of P25,000 for attorney's fees is reasonable. The petitioners did not contest the award for actual damages fixed by the trial court. Hence, such award shall stand. IN VIEW OF THE FOREGOING, the petition is hereby partly granted and the challenged decision of CA-G.R. CV No. 41140 is AFFIRMED, subject to modifications as to the damages awarded, which are reduced as follows: (a) Death indemnity, from P200,000 to P50,000; (b) Moral damages, from P1 million to P50,000; (c) Exemplary damages, from P500,000 to P50,000; and (d) Attorney's fees, from P50,000 to P25,000. No pronouncements as to costs in this instance. SO ORDERED.

Narvasa, C.J., Melo and Panganiban, JJ., concur. Francisco, J., is on leave. Footnotes
1 Rollo, 28-36. Per Purisima, F., J., with Rasul, J., and Adefuin-de la Cruz, B.A., JJ., concurring. 2 Original Record (OR), 169-184. Per Judge Clemente C. Rosales. 3 OR, 1-7. 4 OR, 177-178. 5 Id., 18-22. 6 OR, 132. 7 OR, 184; Rollo, 32. 8 Rollo, CA-G.R. CV No. 41140, 38. 9 OR, 129. 10 Id., 135-136. 11 OR, 135. 12 Id., 145. 13 Id., 148. 14 Id., 156. 15 Also called culpa aquiliana or culpa extra-contractual, V ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES 591-592 (1992) (hereafter V TOLENTINO). 16 The allegation in the complaint that it is "a privately owned big bus company" (OR, 1) is admitted without qualification in the Answer (id., 18.) 17 Gelisan v. Alday, 154 SCRA 388, 394 [1987], Vargas v. Langcay, 116 Phil. 478, 481 [1962]. See V TOLENTINO 616; V EDGARDO L. PARAS, et al., CIVIL CODE OF THE PHILIPPINES 1129, 1154 (13th ed. 1995). 18 People v. Galas, G.R. No. 114007, 24 September 1996; People v. Tabag, G.R. No. 116511, 12 February 1997, 11. 19 Exh. "K," OR, 119.

20 Grand Union Supermarket, Inc. v. Espino, 94 SCRA 953, 966 [1979]; R and B Surety & Insurance Co. v. Intermediate Appellate Court, 129 SCRA 736, 745 [1984]; Prudenciado v. Alliance Transport System, Inc. 148 SCRA 440, 449 [1987]; Radio Communications of the Phils., Inc. v. Rodriguez, 182 SCRA 899, 907 [1990]; Visayan Sawmill Company, Inc. v. Court of Appeals, 219 SCRA 378, 392 [1993]. 21 Article 2231, New Civil Code. 22 Rollo, 35. 23 Firestone Tire and Rubber Co. of the Phil, v. Ines Chaves Co., 18 SCRA 356, 358 [1966]; Philippine Air Lines v. Miano, 242 SCRA 235, 240 [1995]. 24 Scott Consultants and Resource Development Corp. v. Court of Appeals, 242 SCRA 393, 406 [1995]. 25 OR, 6; Exh. "K," id, 121.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 104392 February 20, 1996 RUBEN MANIAGO, petitioner, vs. THE COURT OF APPEALS (First Division) HON. RUBEN C. AYSON, in his capacity as Acting Presiding Judge, Regional Trial Court, Branch IV, Baguio City, and ALFREDO BOADO, respondents.

MENDOZA, J.: Petitioner Ruben Maniago was the owner of shuttle buses which were used in transporting employees of the Texas Instruments, (Phils.), Inc. from Baguio City pLoakan, Baguio City.roper to its plant site at the Export Processing Authority in On January 7, 1990, one of his buses figured in a vehicular accident with a passenger jeepney owned by private respondent Alfredo Boado along Loakan Road, Baguio City. As a result of the accident, a criminal case for reckless imprudence resulting in damage to property and multiple physical injuries was filed on March 2, 1990 against petitioner's driver, Herminio Andaya, with the Regional Trial Court of Baguio City, Branch III, where it was docketed as Criminal Case No. 7514-R. A month later, on April 19, 1990, a civil

case for damages was filed by private respondent Boado against petitioner himself. The complaint, docketed as Civil Case No. 2050-R, was assigned to Branch IV of the same court. Petitioner moved for the suspension of the proceedings in the civil case against him, citing the pendency of the criminal case against his driver. But the trial court, in its order dated August 30, 1991, denied petitioner's motion on the ground that pursuant to the Civil Code, the action could proceed independently of the criminal action, in addition to the fact that the petitioner was not the accused in the criminal case. Petitioner took the matter on certiorari and prohibition to the Court of Appeals, maintaining that the civil action could not proceed independently of the criminal case because no reservation of the right to bring it separately had been made in the criminal case. On January 31, 1992, the Court of Appeals dismissed his petition on the authority of Garcia v. Florido, 1 and Abellana v. Marave, 2 which it held allowed a civil action for damages to be filed independently of the criminal action even though no reservation to file the same has been made. Therefore, it was held, the trial court correctly denied petitioner's motion to suspend the proceedings in the civil case. 3 Hence this petition for review on certiorari. There is no dispute that private respondent, as offended party in the criminal case, did not reserve the right to bring a separate civil action, based on the same accident, either against the driver, Herminio Andaya, or against the latter's employer, herein petitioner Ruben Maniago. The question is whether despite the absence of such reservation, private respondent may nonetheless bring an action for damages against petitioner under the following provisions of the Civil Code:
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. 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. .... 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 industry.

Art. 2177 states that responsibility for fault or negligence under the above-quoted provisions is entirely separate and distinct from the civil liability arising from negligence under the Revised Penal Code.

However, Rule III of the Revised Rules of Criminal Procedure, while reiterating that a civil action under these provisions of the Civil Code may be brought separately from the criminal action, provides that the right to bring it must be reserved. This Rule reads:
Sec. I. 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, and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. .... The reservation of the right to institute the separate civil actions shall be made before the prosecution starts to present its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation. 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 be brought by the offended party, shall proceed independently of the criminal action, and shall require only a preponderance of evidence.

Based on these provisions, petitioner argues that the civil action against him was impliedly instituted in the criminal action previously filed against his employee because private respondent did not reserve his right to bring this action separately. (The records show that while this case was pending in the Court of Appeals, the criminal action was dismissed on July 10, 1992 for failure of the prosecution to file a formal offer of its evidence, with the consequence that the prosecution failed to prosecute its case. Accordingly, it seems to be petitioner's argument that since the civil action to recover damages was impliedly instituted with the criminal action, the dismissal of the criminal case brought with it the dismissal of the civil action.) Private respondent admits that he did not reserve the right to institute the present civil action against Andaya's employer. He contends, however, that the rights provided in Arts. 2176 and 2177 of the Civil Code are substantive rights and, as such, their enforcement cannot be conditioned on a reservation to bring the action to enforce them separately. Private respondent cites in support of his position statements made in Abellana v. Marave, 4 Tayag v. Alcantara, 5 Madeja v. Caro, 6 and Jarantilla v. Court of Appeals, 7 to the effect that the requirement to reserve the civil action is substantive in character and, therefore, is beyond the rule making power of this Court under the Constitution. 8 After considering the arguments of the parties, we have reached the conclusion that the right to bring an action for damages under the Civil Code must be reserved as required by Rule III, 1, otherwise it should be dismissed. I.

A. To begin with, 1 quite clearly requires that a reservation must be made to institute separately all civil actions for the recovery of civil liability, otherwise they will be deemed to have been instituted with the criminal case. Such civil actions are not limited to those which arise "from the offense charged," as originally provided in Rule III before the amendment of the Rules of Court in 1988. In other words the right of the injured party to sue separately for the recovery of the civil liability whether arising from crimes ( ex delicto) or from quasi delict under Art. 2176 of the Civil Code must be reserved otherwise they will be deemed instituted with the criminal action. 9 Thus Rule III, 1 of the Revised Rules of Criminal Procedure expressly 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.

B. There are statements in some cases implying that Rule III, 1 and 3 are beyond the rule making power of the Supreme Court under the Constitution. A careful examination of the cases, however, will show that approval of the filing of separate civil action for damages even though no reservation of the right to institute such civil action had been reserved rests on considerations other than that no reservation is needed. In Garcia v. Florido 10 the right of an injured person to bring an action for damages even if he did not make a reservation of his action in the criminal prosecution for physical injuries through reckless imprudence was upheld on the ground that by bringing the civil action the injured parties had "in effect abandoned their right to press for recovery of damages in the criminal case. . . . Undoubtedly an offended party loses his right to intervene in the prosecution of a criminal case, not only when he has waived the civil action or expressly reserved his right to institute, but also when he has actually instituted the civil action. For by either of such actions his interest in the criminal case has disappeared." 11 The statement that Rule III, 1 of the 1964 Rules is "an unauthorized amendment of substantive law, Articles 32, 33, and 34 of the Civil Code, which do not provide for the reservation" is not the ruling of the Court but only an aside, quoted from an observation made in the footnote of a decision in another case. 12 Another case cited by private respondent in support of his contention that the civil case need not be reserved in the criminal case is Abellana v. Marave 13 in which the right of persons injured in a vehicular accident to bring a separate action for damages was sustained despite the fact that the right to bring it separately was not reserved. But the basis of the decision in that case was the fact that the filing of the civil case was equivalent to a reservation because it was made after the decision of the City Court convicting the accused had been appealed. Pursuant to Rule 123, 7 of the 1964 Rules, this had the effect of vacating the decision in the criminal case so that technically, the injured parties could still reserve their right to institute a civil action while the criminal

case was pending in the Court of First Instance. The statement "the right of a party to sue for damages independently of the criminal action is a substantive right which cannot be frittered away by a construction that could render it nugatory" without raising a "serious constitutional question" 14 was thrown in only as additional support for the ruling of the Court. On the other hand, in Madeja v. Caro 15 the Court held that a civil action for damages could proceed even while the criminal case for homicide through reckless imprudence was pending and did not have to await the termination of the criminal case precisely because the widow of the deceased had reserved her right to file a separate civil action for damages. We do not see how this case can lend support to the view of private respondent. In Jarantilla v. Court of Appeals 16 the ruling is that the acquittal of the accused in the criminal case for physical injuries through reckless imprudence on the ground of reasonable doubt is not a bar to the filing of an action for damages even though the filing of the latter action was not reserved. This is because of Art. 29 of the Civil Code which provides that "when an accused is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted." This ruling obviously cannot apply to this case because the basis of the dismissal of the criminal case against the driver is the fact that the prosecution failed to prove its case as a result of its failure to make a formal offer of its evidence. Rule 132, 34 of the Revised Rules on Evidence provides that "The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified." To the same effect are the holdings in Tayag, Sr. v. Alcantara, 17 Bonite v. Zosa 18 and Diong Bi Chu v. Court of Appeals. 19 Since Art. 29 of the Civil Code authorizes the bringing of a separate civil action in case of acquittal on reasonable doubt and under the Revised Rules of Criminal procedure such action is not required to be reserved, it is plain that the statement in these cases that to require a reservation to be made would be to sanction an unauthorized amendment of the Civil Code provisions is a mere dictum. As already noted in connection with the case of Garcia v. Florido, that statement was not the ruling of the Court but only an observation borrowed from another case. 20 The short of it is that the rulings in these cases are consistent with the proposition herein made that, on the basis of Rule III, 1-3, a civil action for the recovery of civil liability is, as a general rule, impliedly instituted with the criminal action, except only (1) when such action arising from the same act or omission, which is the subject of the criminal action, is waived; (2) the right to bring it separately is reserved or (3) such action has been instituted prior to the criminal action. Even if an action has not been reserved or it was brought before the institution of the criminal case, the acquittal of the accused will not bar recovery of civil liability unless the acquittal is based on a finding that the act from which the civil liability might arise did not exist because of Art. 29 of the Civil Code.

Indeed the question on whether the criminal action and the action for recovery of the civil liability must be tried in a single proceeding has always been regarded a matter of procedure and, since the rule making power has been conferred by the Constitution on this Court, it is in the keeping of this Court. Thus the subject was provided for by G.O. No. 58, the first Rules of Criminal Procedure under the American rule. Sec. 107 of these Orders provided:
The privileges now secured by law to the person claiming to be injured by the commission of an offense to take part in the prosecution of the offense and to recover damages for the injury sustained by reason of the same shall not be held to be abridged by the provisions of this order; but such person may appear and shall be heard either individually or by attorney at all stages of the case, and the court upon conviction of the accused may enter judgment against him for the damages occasioned by his wrongful act. It shall, however, be the duty of the promotor fiscal to direct the prosecution, subject to the right of the person injured to appeal from any decision of the court denying him a legal right.

This was superseded by the 1940 Rules of Court, Rule 106 of which provided:
Sec. 15. Intervention of the offended party in criminal action. Unless the offended party has waived the civil action or expressly reserved the right to institute it after the termination of the criminal case, and subject to the provisions of section 4 hereof, he may intervene, personally or by attorney, in the prosecution of the offense.

This Rule was amended thrice, in 1964, in 1985 and lastly in 1988. Through all the shifts or changes in policy as to the civil action arising from the same act or omission for which a criminal action is brought, one thing is clear: The change has been effected by this Court. Whatever contrary impression may have been created by Garcia v. Florido 21 and its progeny 22 must therefore be deemed to have been clarified and settled by the new rules which require reservation of the right to recover the civil liability, otherwise the action will be deemed to have been instituted with the criminal action. Contrary to private respondent's contention, the requirement that before a separate civil action may be brought it must be reserved does not impair, diminish or defeat substantive rights, but only regulates their exercise in the general interest of orderly procedure. The requirement is merely procedural in nature. For that matter the Revised Penal Code, by providing in Art. 100 that any person criminally liable is also civilly liable, gives the offended party the right to bring a separate civil action, yet no one has ever questioned the rule that such action must be reserved before it may be brought separately. Indeed, the requirement that the right to institute actions under the Civil Code separately must be reserved is not incompatible with the independent character of such actions. There is a difference between allowing the trial of civil actions to proceed independently of the criminal prosecution and requiring that, before they may be instituted at all, a reservation to bring them separately must be made. Put in another way, it is the conduct of the trial of the civil action not its institution through the filing of a complaint which is allowed to proceed independently of the outcome of the criminal case.

C. There is a practical reason for requiring that the right to bring an independent civil action under the Civil Code separately must be reserved. It is to avoid the filing of more than one action for the same act or omission against the same party. Any award made against the employer, whether based on his subsidiary civil liability under Art. 103 of the Revised Penal Code or his primary liability under Art. 2180 of the Civil Code, is ultimately recoverable from the accused. 23 In the present case, the criminal action was filed against the employee, bus driver. Had the driver been convicted and found insolvent, his employer would have been held subsidiarily liable for damages. But if the right to bring a separate civil action (whether arising from the crime or from quasi delict) is reserved, there would be no possibility that the employer would be held liable because in such a case there would be no pronouncement as to the civil liability of the accused. In such a case the institution of a separate and independent civil action under the Civil Code would not result in the employee being held liable for the same act or omission. The rule requiring reservation in the end serves to implement the prohibition against double recovery for the same act or omission. 24 As held in Barredo v. Garcia, 25 the injured party must choose which of the available causes of action for damages he will bring. If he fails to reserve the filing of a separate civil action he will be deemed to have elected to recover damages from the bus driver on the basis of the crime. In such a case his cause of action against the employer will be limited to the recovery of the latter's subsidiary liability under Art. 103 of the Revised Penal Code. II. Nor does it matter that the action is against the employer to enforce his vicarious liability under Art. 2180 of the Civil Code. Though not an accused in the criminal case, the employer is very much a party, as long as the right to bring or institute a separate action (whether arising from crime or from quasi delict) is not reserved. 26 The ruling that a decision convicting the employee is binding and conclusive upon the employer "not only with regard to its civil liability but also with regard to its amount because the liability of an employer cannot be separated but follows that of his employee" 27 is true not only with respect to the civil liability arising from crime but also with respect to the civil liability under the Civil Code. Since whatever is recoverable against the employer is ultimately recoverable by him from the employee, the policy against double recovery requires that only one action be maintained for the same act or omission whether the action is brought against the employee or against his employer. Thus in Dulay v. Court of Appeals 28 this Court held that an employer may be sued under Art. 2180 of the Civil Code and that the right to bring the action did not have to be reserved because, having been instituted before the criminal case against the employee, the filing of the civil action against the employer constituted an express reservation of the right to institute it separately. WHEREFORE, the decision appealed from is REVERSED and the complaint against petitioner is DISMISSED.

SO ORDERED. Regalado, Romero and Puno, JJ., concur. Footnotes

1 52 SCRA 420 (1973). 2 57 SCRA 106 (1974). 3 Per Justice Antonio M. Martinez concurred in by Justices Asaali S. Isnani and Regina G. Ordoez-Benitez. 4 Supra at note 2. 5 98 SCRA 723 (1980). 6 126 SCRA 293 (1983). 7 171 SCRA 429 (1989). 8 Art. VIII, 5 (5) of the Constitution provides that the Supreme Court shall have the power to "Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice, and procedure in all courts, the admission to the practice of law, the Integrated Bar, and legal assistance to the under privileged. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not diminish, increase, or modify substantive rights. Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court." 9 Dulay v. Court of Appeals, 243 SCRA 220 (1995); Yakult v. Court of Appeals, 190 SCRA 347 (1990). 10 52 SCRA 420 (1973). 11 Id. at 428. 12 Corpus v. Paje, 28 SCRA 1062, n. 2 at 1069 (1969). 13 57 SCRA 106 (1974). 14 Id. at 112. 15 126 SCRA 293 (1983). 16 171 SCRA 429 (1989). 17 98 SCRA 723 (1980). 18 162 SCRA 173 (1988).

19 192 SCRA 554 (1990). 20 Supra p. 8. 21 Supra at note 1. 22 Abellana v. Marave, 57 SCRA 106 (1974); Tayag v. Alcantara, 98 SCRA 723 (1980); Madeja v. Caro, 126 SCRA 293 (1983); Jarantilla v. Court of Appeals, 171 SCRA 429 (1989); Bonite v. Zosa, 162 SCRA 173 (1988); Diong Bi Chu v. Court of Appeals, 192 SCRA 554 (1990). 23 Civil Code, Art. 2181; Emerencia v. Gonzales, 104 Phil. 1059 (1958). 24 Yakult v. Court of Appeals, 190 SCRA 347 (1990). 25 73 Phil. 607 (1942). Accord, Joaquin v. Aniceto, 120 Phil. 1100 (1964). 26 Yasay v. Adil, 164 SCRA 494 (1988); Pajarito v. Seneris, 87 SCRA 275 (1978). 27 Miranda v. Malate Garage and Taxicab, Inc., 99 Phil. 670 (1956). 28 Supra at note 9.

FIRST DIVISION [G.R. No. 160039. June 29, 2004] RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs. HEIRS OF ERWIN SUAREZ FRANCISCO, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision of the Court of Appeals dated February 27, 2003 in CA-G.R. CV No. 61868, which affirmed in toto the June 19, 1998 decision of Branch 20 of the Regional Trial Court of Manila in Civil Case No. 96-79554. The facts are as follows: On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the Manila Central University, was riding a motorcycle along Radial

10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the same time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU-253 on the same road. The truck was owned by petitioner, Dassad Warehousing and Port Services, Inc. Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being tailed by the Isuzu truck driven by Secosa. The three vehicles were traversing the southbound lane at a fairly high speed. When Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision. Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy. The complaint was docketed as Civil Case No. 96-79554 of the RTC of Manila, Branch 20. On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of herein respondents, the dispositive portion of which states: WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of the plaintiffs ordering the defendants to pay plaintiffs jointly and severally: 1. 2. 3. 4. 5. 6. The sum of P55,000.00 as actual and compensatory damages; The sum of P20,000.00 for the repair of the motorcycle; The sum of P100,000.00 for the loss of earning capacity; The sum of P500,000.00 as moral damages; The sum of P50,000.00 as exemplary damages; The sum of P50,000.00 as attorneys fees plus cost of suit.

SO ORDERED. Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed decision in toto. Hence the present petition, based on the following arguments: I. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND

SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN ACCORDANCE WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND RELATED JURISPRUDENCE ON THE MATTER. II. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED JURISPRUDENCE ON THE MATTER. III. THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF APPEALS AWARDING P500,000.00 AS MORAL DAMAGES IS MANIFESTLY ABSURD, MISTAKEN AND UNJUST. The petition is partly impressed with merit. On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised the diligence of a good father of a family in the selection and supervision of its employees, we find the assailed decision to be in full accord with pertinent provisions of law and established jurisprudence. Article 2176 of the Civil Code provides: 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. On the other hand, Article 2180, in pertinent part, states: The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible x x x. 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 industry x x x. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there instantly arises a presumption that there was negligence on the part of the employer either in the selection of his employee or in the supervision over him after such selection. The presumption, however, may be rebutted by a clear showing on the part of the employer that it

exercised the care and diligence of a good father of a family in the selection and supervision of his employee. Hence, to evade solidary liability for quasi-delict committed by an employee, the employer must adduce sufficient proof that it exercised such degree of care. How does an employer prove that he indeed exercised the diligence of a good father of a family in the selection and supervision of his employee? The case of Metro Manila Transit Corporation v. Court of Appeals is instructive: In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment . . . In making proof in its or his case, it is paramount that the best and most complete evidence is formally entered. Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioners attempt to prove its deligentissimi patris familias in the selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony. Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would convincingly and undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the underlying rationale pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., set amidst an almost identical factual setting, where we held that: The failure of the defendant company to produce in court any record or other documentary proof tending to establish that it had exercised all the diligence of a good father of a family in the selection and supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and the opposing counsel, argues strongly against its pretensions. We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove due observance of all the diligence of a good father of a family as would constitute a valid defense to the legal presumption of negligence on the part of an employer or master whose employee has by his negligence, caused damage to another. x x x (R)educing the testimony of Albert to its proper proportion, we do not have enough trustworthy evidence left to go by. We are of the considered opinion, therefore, that the believable evidence on the degree of care and diligence that has been exercised in the selection and supervision of Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of negligence against the defendant company. The above-quoted ruling was reiterated in a recent case again involving the Metro Manila Transit Corporation, thus:

In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, with respect to the supervision of employees, employers should formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence. In this case, MMTC sought to prove that it exercised the diligence of a good father of a family with respect to the selection of employees by presenting mainly testimonial evidence on its hiring procedure. According to MMTC, applicants are required to submit professional driving licenses, certifications of work experience, and clearances from the National Bureau of Investigation; to undergo tests of their driving skills, concentration, reflexes, and vision; and, to complete training programs on traffic rules, vehicle maintenance, and standard operating procedures during emergency cases. xxx xxx xxx

Although testimonies were offered that in the case of Pedro Musa all these precautions were followed, the records of his interview, of the results of his examinations, and of his service were not presented. . . [T]here is no record that Musa attended such training programs and passed the said examinations before he was employed. No proof was presented that Musa did not have any record of traffic violations. Nor were records of daily inspections, allegedly conducted by supervisors, ever presented. . . The failure of MMTC to present such documentary proof puts in doubt the credibility of its witnesses. Jurisprudentially, therefore, the employer must not merely present testimonial evidence to prove that he observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the employers testimony or that of his witnesses. Applying the foregoing doctrines to the present case, we hold that petitioner Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it had exercised the requisite diligence of a good father of a family in the selection and supervision of its employees. Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port Services, Inc. to support its position that it had exercised the diligence of a good father of a family in the selection and supervision of its employees, testified that he was the one who recommended petitioner Raymundo Secosa as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty to scrutinize the capabilities of drivers; and that he believed petitioner to be physically and mentally fit for he had undergone rigid training and attended the PPA safety seminar. Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness with documentary evidence which would have strengthened its claim of due diligence in the selection and supervision of its employees. Such an omission is fatal to its position, on

account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the damages suffered by the heirs of Erwin Francisco. However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his copetitioners. While it may be true that Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners. It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders or members. It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality. A corporations authority to act and its liability for its actions are separate and apart from the individuals who own it. The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. The records of this case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with it. The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso Sys exclusion from liability for damages arising from the death of Erwin Francisco. Having both found Raymundo Secosa and Dassad Warehousing and Port Services, Inc. liable for negligence for the death of Erwin Francisco on June 27, 1996, we now consider the question of moral damages which his parents, herein respondents, are entitled to recover. Petitioners assail the award of moral damages of P500,000.00 for being manifestly absurd, mistaken and unjust. We are not persuaded. Under Article 2206, the spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish for the death of the deceased. The reason for the grant of moral damages has been explained in this wise:

. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the victim is proportionate to the intensity of affection for him and bears no relation whatsoever with the wealth or means of the offender. In the instant case, the spouses Francisco presented evidence of the searing pain that they felt when the premature loss of their son was relayed to them. That pain was highly evident in the testimony of the father who was forever deprived of a son, a son whose untimely death came at that point when the latter was nearing the culmination of every parents wish to educate their children. The death of Francis has indeed left a void in the lives of the respondents. Antonio Francisco testified on the effect of the death of his son, Francis, in this manner: Q: (Atty. Balanag): What did you do when you learned that your son was killed on June 27, 1996? A: (ANTONIO FRANCISCO): I boxed the door and pushed the image of St. Nio telling why this happened to us. Q: Mr. Witness, how did you feel when you learned of the untimely death of your son, Erwin Suares (sic)? A: Masakit po ang mawalan ng anak. Its really hard for me, the thought that my son is dead. xxx xxx xxx

Q: How did your family react to the death of Erwin Suarez Francisco? A: All of my family and relatives were felt (sic) sorrow because they knew that my son is (sic) good. Q: We know that it is impossible to put money terms(s) [on] the life of [a] human, but since you are now in court and if you were to ask this court how much would you and your family compensate? (sic) A: Even if they pay me millions, they cannot remove the anguish of my son (sic).

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the defendants culpable action and must, perforce, be proportional to the suffering inflicted. We have previously held as proper an award of P500,000.00 as moral damages to the heirs of a deceased family member who died in a vehicular accident. In our 2002 decision in Metro Manila Transit Corporation v. Court of Appeals, et al., we affirmed the award of moral damages of P500,000.00 to the heirs of the victim, a mother, who died from injuries she sustained when a bus driven by an employee of the petitioner hit her. In the case at bar, we likewise affirm the portion of the assailed decision awarding the moral damages.

Since the petitioners did not question the other damages adjudged against them by the court a quo, we affirm the award of these damages to the respondents. WHEREFORE, the petition is DENIED. The assailed decision is AFFIRMED with the MODIFICATION that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged against his co-petitioners in this case. Costs against petitioners. SO ORDERED. Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur. Penned by Justice Danilo B. Pine and concurred in by Justices Eugenio S. Labitoria and Renato C. Dacudao. Rollo, pp. 25-31. Penned by Judge Virgilio D. Quijano, Presiding Judge. Rollo, pp. 25-26. Id., p. 31. Id., p. 15. Baliwag Transit, Inc. v. Court of Appeals, et al., G.R. No. 116624, 20 September 1996, 262 SCRA 230. See also, Philippine Air Lines v. Court of Appeals, G.R. No. L-46036, 18 May 1990, 185 SCRA 449. G.R. No. 104408, 21 June 1993, 223 SCRA 521. Citing Republic v. Court of Appeals, G.R. No. 84966, 21 November 1991, 204 SCRA 160. U.S. v. Tria, 17 Phil. 303 (1910). Garcia v. Gonzales, G.R. No. 48184, 12 March 1990, 183 SCRA 72. 54 O.G., No. 31, 7415 (1958). Metro Manila Transit Corporation v. Court of Appeals, et al., G.R. No. 116617, 16 November 1998, 298 SCRA 495. Campo v. Camarote, 100 Phil. 459, 463 (1956). Ernesto Syki v. Salvador Begasa, G.R. No. 149149, 23 October 2003. Rollo, p. 27.

Villanueva, Philippine Commercial Law Review, 1998 edition, p. 345. Sunio v. NLRC, G.R. No. L-57767, 31 January 1984, 127 SCRA 390. Jentz, Miller, Cross and Clarkson, Wests Business Law, 4th edition, p. 614. Volume 1, Fletcher Cyclopedia Corporations, Chapter 2, Section 41.7. Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, 24 October 1996, 263 SCRA 490, 509. Avelina G. Ramoso, et al. v. Court of Appeals, et al., G.R. No. 117416, 8 December 2000, 347 SCRA 463. Sangco, Torts and Damages, 986 [1994 ed.]. TSN, March 20, 1997, pp. 4-6. Philtranco Service Enterprises v. Court of Appeals, et al., G.R. No. 120553, 17 June 1997, 273 SCRA 562. G.R. No. 141089, 1 August 2002.

THIRD DIVISION

AMERICAN INTERNATIONAL, INC.,

EXPRESS G.R. No. 138550

Petitioner,
Present:

PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,

- versus -

CORONA, CARPIO MORALES, and GARCIA, JJ.

Promulgated:

NOEL CORDERO,
October 14, 2005

Defendant.

x-------------------------------------------------------------------------------------------------x

DECISION
SANDOVAL-GUTIERREZ, J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated April 30, 1999 in CA-G.R. CV No. 51671, entitled, Noel

Cordero, Plaintiff-Appellee versus American Express International, Inc., Defendant-Appellant.

Petitioner is a foreign corporation that issues charge cards to its customers, which the latter then use to purchase goods and services at accredited merchants worldwide. Sometime in 1988, Nilda Cordero, wife of respondent Noel Cordero, applied for and was issued an American Express charge card with No. 3769-895901-010020. The issuance of the charge card was covered by an Amex Cardmember Agreement. As cardholder, Nilda, upon signing the back portion of the card, manifested her acceptance of the terms of the Agreement. An extension charge card, with No. 3769-895901-01010, was likewise issued to respondent Noel Cordero which he also signed.[2] On November 29, 1991, respondent, together with his wife, Nilda, daughter, sisters-in-law and uncle-in-law, went on a three-day holiday trip to Hong Kong. In the early evening of November 30, 1991, at about 7:00 oclock, the group went to the Watsons Chemist Shop located at 277C Ocean Gallery, Kowloon, Hong Kong. Noel picked up some chocolate candies and handed to the sales clerk his American Express extension charge card to pay for his purchases. The sales clerk verified the card by making a telephone call to the American Express Office in Hong Kong. Moments later, Susan Chong, the store manager, emerged from behind the counter and informed respondent that she

had to confiscate the card.

Thereupon, she cut respondents American

Express card in half with a pair of scissors. This, according to respondent, caused him embarrassment and humiliation considering that it was done in front of his family and the other customers lined up at the check-out counter. Hence, Nilda had to pay for the purchases using her own American Express charge card.[3] When they returned to the Excelsior Hotel, Nilda called up petitioners Office in Hong Kong. She was able to talk to Senior Authorizer Johnny Chen, who informed her that on November 1, 1991, a person in Hong Kong attempted to use a charge card with the same number as respondents card. The Hong Kong American Express Office called up respondent and after determining that he was in Manila and not in Hong Kong, placed his card in the Inspect Airwarn Support System. This is the system utilized by

petitioner as a protection both for the company and the cardholders against the fraudulent use of their charge cards. Once a card suspected of unauthorized use is placed in the system, the person to whom the card is tendered must verify the identity of the holder. If the true identity of the card owner is established, the card is honored and the charges are approved. Otherwise, the card is revoked or confiscated.[4]

When the Watsons sales clerk called up petitioners Hong Kong Office, its representative said he wants to talk to respondent in order to verify the latters identity, pursuant to the procedure observed under the Inspect Airwarn Support System. However, respondent refused. Consequently, petitioners representative was unable to establish the identity of the cardholder.[5] This led to the confiscation of respondents card. On March 31, 1992, respondent filed with the Regional Trial Court, Branch V, Manila, a complaint for damages against petitioner, docketed as Civil Case No. 92-60807. He prayed for the award of moral damages and exemplary damages, as well as attorneys fees as a result of the humiliation he suffered.

The trial court found that the inexcusable failure of defendant (petitioner herein) to inform plaintiff (respondent herein) of the November 1, 1991 incident despite sufficient time was the proximate cause of the confiscation and cutting of plaintiffs extension card which exposed the latter to public humiliation for which defendant should be held liable.[6] On February 20, 1995, the trial court promulgated its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay the former the following amounts, namely:

a)

The sum of P300,000.00 as and by way of moral damages;

b)

The sum of P200,000.00 as exemplary damages;

c) and d)

The sum of P100,000.00 as and for reasonable attorneys fees;

The costs of the suit.

SO ORDERED.[7]

Upon appeal, the Court of Appeals rendered the assailed Decision affirming the trial courts Decision with modification in the sense that the amounts of damages awarded were reduced, thus:

WHEREFORE, in view of the foregoing, the appealed decision dated February 20, 1995 of the Regional Trial Court of Manila, Branch V, in Civil Case No. 92-60807 is hereby AFFIRMED, subject to modifications with respect to the amount of damages awarded, which are reduced as follows:

(a) Moral damages from P300,000.00 to P150,000.00; and

(b) Exemplary damages from P200,000.00 to P100,000.00.

No pronouncement as to costs.

SO ORDERED.

Hence, the instant petition raising the following issues: A. Whether the lower courts gravely erred in attributing the public humiliation allegedly suffered by Cordero to Amex.

B. Whether the lower courts gravely erred in holding Amex liable to Cordero for moral damages, exemplary damages and attorneys fees.[8]

Respondent filed his comment contending in the main that the petition raises questions of fact beyond this Courts domain. While it is true that under Rule 45 of the 1997 Rules of Civil Procedure, as amended, this Court may review only errors of law, however, this rule admits of well-known recognized exceptions, thus:

. . . (1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both

parties; (7) the findings of fact of the Court of Appeals are contrary to those of the trial court; (8) said findings of fact are conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the petition are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[9]

In this case, the inference made by the courts below is manifestly mistaken. Therefore, we are justified in reviewing the records of this case

and rendering judgment based on our own findings. In his complaint, respondent claimed that he suffered embarrassment and humiliation because his card was unceremoniously confiscated and cut in half by Susan Chong of Watsons Chemist Shop. Respondent anchors his cause of action on the following provision of the Civil Code:
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.[10]

In order that an obligation based on quasi-delict may arise, there must be no pre-existing contractual relation between the parties. But there are

exceptions. There may be an action for quasi-delict notwithstanding that there is a subsisting contract between the parties. A liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability, the contract can be said to have been breached by tort, thereby allowing the rules on tort to apply.[11] Furthermore, to constitute quasi-delict, the fault or negligence must be the proximate cause of the damage or injury suffered by the plaintiff. Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent.[12] According to the trial court, petitioner should have informed respondent that on November 1, 1991, a person in Hong Kong attempted to use a charge card bearing similar number to that of respondents card; and that petitioners inexcusable failure to do so is the proximate cause of the

confiscation and cutting of [respondents] extension card which exposed the latter to public humiliation for which [petitioner] should be held liable.[13] We cannot sustain the trial courts conclusion. As explained by respondent himself, he could have used his card upon verification by the sales clerk of Watson that indeed he is the authorized cardholder. This could have been accomplished had respondent talked to petitioners representative, enabling the latter to determine that respondent is indeed the true holder of the card. Clearly, no negligence which breaches the contract can be attributed to petitioner. If at all, the cause of respondents humiliation and embarrassment was his refusal to talk to petitioners representative. That respondent refused to talk to petitioners representative can be gleaned from the testimony of Mr. Chen Heng Kun a.k.a. Johnny Chen during the deposition in Hong Kong,[14] thus:

Question

No 9 : Was AEII required under its existing policies and/or membership agreement with its cardholders to advise said cardholders of their card have been put under the support INSPECT Strictly Question (for identification) cardmembers before approving any charge?

Mr. Johnny Chen : Under the existing policies of AEII, we dont have to inform the cardholders if they have to pass the INSPECT Strictly Questions (for identification).

Question No 10 : If the answer to Q9 is in the negative, please explain why not? Mr. Johnny Chen : The reason why we dont have to are because, first, we are not terminating the service to the cardholder. Second, it doesnt mean that we are going to limit the service to the cardholder. Third, as long as the cardholder can present an identification card of his membership, we allow him to use the card. He can show this by telephoning the company or by presenting us his passport or travel document. When Watson Company called AEII for authorization, AEII representative requested that he talk to Mr. Cordero but he refused to talk to any representative of AEII. AEII could not prove then that he is really the real card holder.

Mr. Chen Heng Kun was briefly cross-examined by respondents counsel, thus:
Question No 10 : Question 9 is objected to since the best evidence would be the membership agreement between plaintiffs and AEII.

Significantly, paragraph 16 of the Cardmember Agreement signed by respondent provides: 16.

THE CARD REMAINS OUR PROPERTY

The Card remains our property and we can revoke your right and the right of ay Additional Cardmember to use it at any time, we can do this with or without giving you notice. If we have revoked the Card without cause, we will refund a proportion of your annual Card Account fee. We may list revoked Cards in our Cancellation Bulletin, or otherwise inform Establishments that the Card issued to you and, if you are the basic Cardmember, any Additional Cards have been revoked or cancelled.

If we revoke the card or it expires, you must return it to us if we request. Also, if any Establishment asks you to surrender an expired or revoked Card, you must do so. You may not use the Card after it has expired or after it has been revoked.

The revocation, repossession or request for the return of the Card is not, and shall not constitute any reflection of your character or credit-worthiness and we shall not be liable in any way for any statement made by any person requesting the return or surrender of the Card.[15]

To be sure, pursuant to the above stipulation, petitioner can revoke respondents card without notice, as was done here. It bears reiterating that the subject card would not have been confiscated and cut had respondent talked to petitioners representative and identified himself as the genuine cardholder. It is thus safe to conclude that there was no negligence on the part of petitioner and that, therefore, it cannot be held liable to respondent for damages. WHEREFORE, the petition is GRANTED. The assailed Decision of the

Court of Appeals in CA-G.R. CV No. 51671 is REVERSED.

SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ Associate Justice

WE CONCUR:
ARTEMIO V. PANGANIBAN

Associate Justice Chairman RENATO C. CORONA Associate Justice CONCHITA CARPIO MORALES Associate Justice

CANCIO C. GARCIA Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

ARTEMIO V. PANGANIBAN Associate Justice

Chairman, Third Division

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR. Chief Justice

[1] Rollo at 9-25, at 25; penned by Associate Justice B.A. Adefuin-Dela Cruz (retired), concurred in by Associate Justices Eugenio S. Labitoria and Presbitero J. Velasco, Jr. (now Court Administrator). Exh. 3-C. TSN, March 25, 1993 at 6-11. TSN, May 4, 1993 at 13. TSN of Deposition of Johnny Chen, February 28, 1994, at 6. Rollo at 154-159, 158. Id., at 159; penned by Presiding Judge Zeus O. Abrogar. Petition at 8; Rollo at 60. Baricuatro v. Court of Appeals, G.R. No. 105902, February 9, 2000, 325 SCRA 137. Civil Code, Article 2176 Light Rail Transit Authority, et al. v. Navidad, et al., G.R. No. 145804, February 6, 2003, 397 SCRA 75. The Consolidated Bank & Trust Co. v. Court of Appeals , G.R. No. 138569, September 11, 2003, 410 SCRA 562 Rollo at 158 Deposition upon Written Interrogatories and Cross-Examination Re Case of Mr. Johnny Chen before Vice Consul Marlene Brigida B. Agmata at the Philippine Consultate General, 21-22/F Regent Centre, 88 Queens Road, Central, Hong Kong, 28 Fenruary 1994 at 5-6. Exh. 3-A.

[2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12]

[13] [14]

[15]

MALACAANG Manila PRESIDENTIAL DECREE No. 1152 PHILIPPINE ENVIRONMENTAL CODE WHEREAS, the broad spectrum of environment has become a matter of vital concern to the government; WHEREAS, the national leadership has taken a step towards this direction by creating the National Environmental Protection Council under Presidential Decree No. 1121; WHEREAS, it is necessary that the creation of the Council be implemented with the launching of a comprehensive program of environmental protection and management; WHEREAS, such a program can assume tangible and meaningful significance only by establishing specific environment management policies and prescribing environment quality standards in a Philippine Environment Code: NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines , by virtue of the powers vested in me by the Constitution, do hereby order and decree: Section 1. Short Title. This Decree shall be known and cited as the "Philippine Environment Code." TITLE I AIR QUALITY MANAGEMENT Section 2. Purposes. The purposes of this Title are: (a) to achieve and maintain such levels of air quality as to protect public health; and (b) to prevent to the greatest extent practicable, injury and/or damage to plant and animal life and property, and promote the social and economic development of the country. Chapter I Standards Section 3. Ambient Air Quality Standards. There shall be established ambient air quality standards which shall prescribe the maximum concentration of air pollutants permissible in the atmosphere consistent with public health, safety and general welfare. In the establishment of ambient air quality standards, factors such as local atmospheric conditions, location and land use, and available technology, shall be considered among others. Section 4. National Emission Standards. There shall be established national emission standards for new and existing stationary and mobile sources of pollution which shall consider among others such factors as type of industry, practicable control technology available, location and land use, and the nature of pollutants emitted. Section 5. Community Noise Standards. Appropriate standards for community noise levels shall be established considering, among others, location, zoning and land use classification. Section 6. Standards for Noise-Producing Equipment. There shall be established a standard for noise producing equipment such as construction equipment, transportation equipment, stationary engines, and electrical or electronic equipment and such similar equipment or contrivances. The standards shall set a limit on the acceptable level of noise emitted from a given equipment for the protection of public health and welfare, considering among others, the magnitude and condition of use, the degree of noise reduction achievable through the application of best available technology and the cost of compliance.

The Installation of any noise-producing equipment shall conform with the requirements of Presidential Decree No. 1096 and other applicable laws as well as their implementing rules and regulations. Section 7. Aircraft Emission and Sonic Booms. Appropriate government agencies shall encourage research studies on the harmful effects of aircraft emissions in the environment in order to establish permissible emission standards. Research and studies shall also be undertaken to mitigate and/or minimize the effects of sonic booms in the environment. Chapter II Regulation and Enforcement Section 8. Air Quality and Noise Standards. The National Pollution Control Commission in coordination with appropriate government agencies shall be responsible for the enforcement of ambient air quality emission and noise standards, including the monitoring and surveillance of air pollutants, licensing and permitting of air pollution control facilities, and the promulgation of appropriate rules and regulations. Existing air quality emission and noise standards may be revised and/or modified consistent with new development and technology. Section 9. Aircraft Noise. Community noise standards around airports shall be implemented by the Civil Aeronautics Administration in coordination with the National Pollution Control Commission. Section 10. Vehicular Emissions. The Land Transportation Commission, in coordination with the National Pollution Control Commission, shall implement emission standards for motor vehicles and may deputize other appropriate law enforcement agencies for the purpose. Section 11. Radioactive Emissions. The release and emission of radioactivity into the environment incident to the establishment or possession of nuclear energy facilities and radioactive materials, handling, transport, production, storage, use and disposal of radioactive materials shall be regulated by the Philippine Atomic Energy Commission in coordination with other appropriate government agencies. Chapter III Monitoring Section 12. Air Quality Monitoring. The National Pollution Control Commission, in coordination with appropriate government agencies, shall establish to the greatest extent practicable an air quality monitoring network. Such air quality monitoring network shall put to maximum use the capabilities of these agencies. The National Environmental Protection Council shall be furnished with the results of air quality monitoring activities. Section 13. Weather Modification. The Philippine Atmospheric, Geophysical and Astronomical Services Administration shall monitor regularly meteorological factors affecting environmental conditions in order to effectively guide air pollution monitoring activities. Activities relating to weather modification such as rainfall stimulation and storm seeding experiments shall be undertaken in consultation and/or in coordination with the Philippine Atmospheric, Geophysical and Astronomical Service Administration. TITLE II WATER QUALITY MANAGEMENT Section 14. Purpose. It is the purpose of this Title to prescribe management guidelines aimed to protect and improve the quality of Philippine water resources through: (a) classification of Philippine waters;

(b) establishment of water quality standards; (c) protection and improvement of the quality of the Philippine water resources, and (d) responsibilities for surveillance and mitigation of pollution incidents. Chapter I Classification and Standards Section 15. Classification of Philippine Waters. The National Pollution Control Commission, in coordination with appropriate government agencies, shall classify Philippine waters, according to their best usage. In classifying said waters, the National Pollution Control Commission shall take into account, among others, the following: (a) the existing quality of the body of water at the time of classification; (b) the size, depth, surface area covered, volume, direction, rate of flow, gradient of stream; and (c) the most beneficial uses of said bodies of water and lands bordering them for residential, agricultural, commercial, industrial, navigational, recreational, and aesthetic purposes. Section 16. Reclassification of Waters Based on Intended Beneficial Use. Where the public interest so requires, the National Pollution Control Commission, in coordination with appropriate government agencies, shall reclassify a body of water based on the intended beneficial use and take such steps as may be necessary to upgrade the quality of said water. Other government agencies may adopt higher standards for a particular body of water, subject to the approval of the National Pollution Control Commission. Section 17. Upgrading of Water Quality. Where the quality of water has deteriorated to a degree where its state will adversely affect its best usage, the government agencies concerned shall take such measures as may be necessary to upgrade the quality of such water to meet the prescribed water quality standards. Section 18. Water Quality Standards. The National Pollution Control Commission shall prescribe quality and effluent standards consistent with the guidelines set by the National Environmental Protection Council and the classification of waters prescribed in the preceding sections, taking into consideration, among others, the following: (a) the standard of water quality or purity may vary according to beneficial uses; and (b) the technology relating to water pollution control. Chapter II Protection and Improvement of Water Quality Section 19. Enforcement and Coordination. The production, utilization, storage and distribution of hazardous, toxic and other substances such as radioactive materials, heavy metals, pesticides, fertilizers, and oils, and the disposal, discharge and dumping of untreated wastewater, mine tailings and other substances that may pollute any body of water of the Philippines resulting from normal operations of industries, water-borne sources, and other human activities as well as those resulting from accidental spills and discharge shall be regulated by appropriate government agencies pursuant to their respective charters and enabling legislations. In the performance of the above functions, the government agencies concern shall coordinate with the National Environmental Protection Council and furnish the latter with such information as may be necessary to enable it to attain its objectives under Presidential Decree No. 1121. Section 20. Clean-up Operations. It shall be the responsibility of the polluter to contain, remove and clean up water pollution incidents at his own expense. In case of his failure to do so, the government agencies concerned shall undertake containment, removal and clean-up operations and expenses incurred in said operations shall be charged against the persons and/or entities responsible for such pollution. Section 21. Water Quality Monitoring and Surveillance. The various government agencies concerned with environmental

protection shall establish to the greatest extent practicable a water quality surveillance and monitoring network with sufficient stations and sampling schedules to meet the needs of the country. Said water quality surveillance network shall put to maximum use the capabilities of such government agencies. Each agency involved in such network shall report to the National Environmental Protection Council the results of these monitoring activities as the need arises. TITLE III LAND USE MANAGEMENT Section 22. Purpose. The purposes of this Title are: (a) to provide a rational, orderly and efficient acquisition, utilization and disposition of land and its resources in order to derive therefrom maximum benefits; and (b) to encourage the prudent use and conservation of land resources in order to prevent and imbalance between the nation's needs and such resources. Section 23. National Land Use Scheme. The Human Settlements Commission, in coordination with the appropriate agencies of the government, shall formulate and recommend to the National Environmental Protection Council a land use scheme consistent with the purpose of this Title. The Land Use Scheme shall include among others, the following: (a) a science-based and technology-oriented land inventory and classification system; (b) a determination of present land uses, the extent to which they are utilized, underutilized, rendered idle or abandoned; (c) a comprehensive and accurate determination of the adaptability of the land for community development, agriculture, industry, commerce and other fields of endeavor; (d) a method of identification of areas where uncontrolled development could result in irreparable damage to important historic, cultural, or aesthetic values, or natural systems or processes of national significance; (e) a method for exercising control by the appropriate government agencies over the use of land in areas of critical environmental concern and areas impacted by public facilities including, but not limited to, airports, highways, bridges, ports and wharves, buildings and other infrastructure projects; (f) a method to ensure the consideration of regional development and land use in local regulations; (g) policy for influencing the location of new communities and methods for assuring appropriate controls over the use of land around new communities; (h) a system of controls and regulations pertaining to areas and development activities designed to ensure that any source of pollution will not be located where it would result in a violation of any applicable environmental pollution control regulations; and (i) a recommended method for the periodic revisions and updating of the national land use scheme to meet changing conditions. Section 24. Location of Industries. In the location of industries, factories, plants, depots and similar industrial establishments, the regulating or enforcing agencies of the government shall take into consideration the social, economic, geographic and significant environmental impact of said establishments. TITLE IV NATURAL RESOURCES MANAGEMENT AND CONSERVATION

Section 25. Purposes. The purposes of this Title are: (a) to provide the basic policy on the management and conservation of the country's natural resources to obtain the optimum benefits therefrom and to preserve the same for the future generations; and (b) to provide general measures through which the aforesaid policy may be carried out effectively. Chapter I Fisheries and Aquatic Resources Section 26. Management Policy. The National government, through the Department of Natural Resources, shall establish a system of rational exploitation of fisheries and aquatic resources within the Philippine territory and shall encourage citizen participation therein to maintain and/or enhance the optimum and continuous productivity of the same. Section 27. Measures for National Exploitation. Measures for the national exploitation of fisheries and other aquatic resources may include, but shall not be limited to, the following: (a) undertaking manpower and expertise development; (b) acquiring the necessary facilities and equipment; (c) regulating the marketing of threatened species of fish or other aquatic resources; (d) reviewing all existing rules and regulations on the exploitation of fisheries and aquatic resources with a view of formulating guidelines for the systematic and effective enforcement thereof; and (e) conserving the vanishing species of fish and aquatic resources such as turtles, sea snakes, crocodiles, corals, as well as maintaining the mangrove areas, marshes and inland waters, coral reef-areas and islands serving as sanctuaries for fish and other aquatic life. Chapter II Wildlife Section 28. Management Policy. The national government through the Department of Natural Resources, shall establish a system of rational exploitation and conservation of wildlife resources and shall encourage citizen participation in the maintenance and/or enhancement of their continuous productivity. Section 29. Measures for Rational Exploitation. Measures for rational exploitation of wildlife resources may include, but shall not be limited to, the following: (a) regulating the marketing of threatened wildlife resources. (b) reviewing all existing rules and regulations on the exploitation of wildlife resources with a view of formulating guidelines for the systematic and effective enforcement thereof; and (c) conserving the threatened species of fauna, increasing their rate of reproduction, maintaining their original habitat, habitat manipulation, determining bag/creel limits, population control in relation to the carrying capacity of any given area, banning of indiscriminate and/or destructive means of catching or hunting them. Chapter III Forestry and Soil Conservation Section 30. Management Policy for Forestry. The national government, through the Department of Natural Resources, shall undertake a system of rational exploitation of forest resources and shall encourage citizen participation therein to keep the

country's forest resources at maximum productivity at all time. Section 31. Measures for Rational Exploitation of Forest Resources. Measures for the rational exploitation of forest resources may include, but shall not be limited to, the following: (a) regulating the marketing of threatened forest resources; (b) reviewing all existing rules and regulations on the exploitation of forest resources with a view of formulating guidelines for the systematic and efficient enforcement thereof; (c) conserving threatened species of flora as well as increasing their rate of propagation; the banning of destructive modes of exploitation, kaingin making or shifting cultivation, indiscriminate harvesting of minor forest products the recycling methods of waste materials, and (d) carrying out a continuing effect on reforestation; timber stand improvement; forest protection; land classification; forest occupancy management; agri-silviculture; range management; agri-silvicultural/kaingin management; industrial tree plantation; parks and wildlife management; multiple use forest; timber management and forest research. Section 32. Use of Fertilizers and Pesticides. The use of fertilizers and pesticides in agriculture shall be regulated prescribing therefor a tolerance level in their use. Their use shall be monitored by appropriate government agencies to provide empirical data for effective regulation. Section 33. Management Policy on Soil Conservation. The national government, through the Department of Natural Resources and the Department of Agriculture, shall likewise undertake a soil conservation program including therein the identification and protection of critical watershed areas, encouragement of scientific farming techniques, physical and biological means of soil conservation, and short-term and long-term researches and technology for effective soil conservation. Chapter IV Flood Control and Natural Calamities Section 34. Measures in Flood Control Program. In addition to the pertinent provisions of existing laws, the following shall be included in a soil erosion, sediment and flood control program; (a) the control of soil erosion on the banks of rivers, the shores of lakes, and the seashores; (b) the control of flow and flooding in and from rivers and lakes; (c) the conservation of water which, for purposes of this Section shall mean forms of water, but shall not include captive water; (d) the needs of fisheries and wildlife and all other recreational uses of natural water; (e) measures to control the damming, diversion, taking, and use of natural water, so far as any such act may affect the quality and availability of natural water for other purposes; and (f) measures to stimulate research in matters relating to natural water and soil conservation and the application of knowledge thereby acquired. Section 35. Measures to Mitigate Destructive Effects of Calamities. The national government, through the Philippine Atmospheric, Geophysical and Astronomical Services Administration, shall promote intensified and concerted research efforts on weather modification, typhoon, earthquake, tsunami, storm surge, and other tropical natural phenomena in order to bring about any significant effect to mitigate or prevent their destructive effects. Chapter V Energy Development

Section 36. Policy. Consistent with the environmental protection policies, the national government, through the Energy Development Board, shall undertake an energy development program encouraging the utilization of invariant sources such as solar, wind and tidal energy. Section 37. Measures for Energy Development. Measures for energy development program may include, but shall not be limited to, the following: (a) setting up of pilot plants utilizing invariant sources of energy; (b) training of technical personnel for purposes of energy development; and (c) conducting researches aimed at developing technology for energy development. Section 38. Safety Measures on Energy Development. Rules and regulations shall be promulgated to prevent or mitigate the adverse effects of energy development on the environment. For this purpose, all nuclear powered plants exploring and utilizing geothermal energy, whether owned or controlled by private or government entities shall: (a) observe internationally accepted standards of safety; and (b) provide safety devices to ensure the health and welfare of their personnel as well as the surrounding community. Chapter VI Conservation and Utilization of Surface and Ground Waters Section 39. Management Policy. In addition to existing laws, the national government through the National Water Resources Council in coordination with other appropriate government agencies, shall prescribe measures for the conservation and improvement of the quality of Philippine water resources and provide for the prevention, control and abatement of water pollution. Chapter VII Mineral Resources Section 40. Management Policy. - The national government, through the Department of Natural Resources, shall undertake a system of gainful exploitation and rational and efficient utilization of mineral resources and shall encourage citizen participation in this endeavor. Section 41. Measures for Exploitation and Utilization of Mineral Resources. Measures for the gainful exploitation and rational and efficient utilization of such mineral resources may include, but shall not be limited to the following: (a) increasing research and development in mineral resources technology; (b) training of additional technical manpower needed in geology, geophysics, mining engineering, and related fields; (c) regulating the exploitation of identified mineral reserves; (d) accelerating the exploration of undiscovered mineral deposits; and (e) encouraging the establishment of processing plants for refined metals. TITLE V WASTE MANAGEMENT Section 42. Purpose. The purposes of this Title are:

(a) to set guidelines for waste management with a view to ensuring its effectiveness; (b) to encourage, promote and stimulate technological, educational economic and social efforts to prevent environmental damage and unnecessary loss of valuable resources of the nation through recovery, recycling and re-use of wastes and waste products; and (c) to provide measures to guide and encourage appropriate government agencies in establishing sound, efficient, comprehensive and effective waste management. Chapter I Enforcement and Guidelines Section 43. Waste Management Programs. Preparation and implementation of waste management program shall be required of all provinces, cities and municipalities. The Department of Local Government and Community Development shall promulgate guidelines for the formulation and establishment of waste management programs. Every waste management program shall include the following: (a) an orderly system of operation consistent with the needs of the area concerned; (b) a provision that the operation will not create pollution of any kind or will constitute public nuisance; (c) a system for a safe and sanitary disposal of waste; (d) a provision that existing plans affecting the development, use and protection of air, water or natural resources shall be considered; (e) schedules and methods of implementing the development, construction and operation of the plan together with the estimated costs; and (f) a provision for the periodic revision of the program to ensure its effective implementation. Section 44. Responsibility of Local Governments. Each province, city or municipality shall provide measures to facilitate the collection, transportation, processing and disposal of waste within its jurisdiction in coordination with other government agencies concerned. For this purpose, the national government shall provide the necessary subsidy, to local governments upon request made through the National Environmental Protection Council and subject to such terms and conditions as the latter may provide. Chapter II Methods of Solid Waste Disposal Section 45. Solid Waste Disposal. Solid Waste disposal shall be by sanitary landfill, incineration, composing, and other methods as may be approved by competent government authority. Section 46. Sanitary Landfills. Local governments, including private individuals, corporations or organizations may operate one or more sanitary landfills. Any entity proposing to operate a sanitary landfill shall submit to the appropriate government agency an operational work plan showing, among other things, a map of the proposed work location, disposal areas for rubbish, garbage, refuse and other waste matter; and the equipment or machinery needed to accomplish its operations. In no case shall landfill or work locations under this Section be located along any shore or coastline, or along the banks of rivers and streams. lakes throughout their entire length, in violation of any existing rules and regulations. Section 47. Incineration and Composting Plants. The installation and establishment of incineration or composting plants, or the alteration/modification of any part thereof shall be regulated by the local governments concerned in coordination with the National Pollution Control Commission. Section 48. Disposal Sites. The location of solid waste disposal sites shall conform with existing zoning; land use standards, and

pollution control regulations. Section 49. Dumping into the Sea and Other Navigable Waters. The dumping or disposal of solid wastes into the sea and any body of water in the Philippines , including shorelines and river banks, where these wastes are likely to be washed into the water is prohibited. However, dumping of solid wastes or other materials into the sea or any navigable waters shall be permitted in case of immediate or imminent danger to life and property, subject to the rules and regulations of the Philippine Coast Guard and the National Pollution Control Commission. Government agencies and private entities which are undertaking solid waste management programs shall make consultations with the government agencies concerned with respect to the effects of such dumping to the marine environment and navigation. Chapter III Methods of Liquid Waste Disposal Section 50. Liquid Waste Disposal. Wastewater from manufacturing plants, industries, community, or domestic sources shall be treated either physically, biologically or chemically prior to disposal in accordance with the rules and regulations promulgated by proper government authority. Section 51. Applicability of Sec. 8. The provisions of Sec. 8 hereof shall likewise apply to the dumping or disposal of liquid waste into the sea and other bodies of water. TITLE VI MISCELLANEOUS PROVISIONS Section 52. Population-Environment Balance. In the assessment of development projects, the National Environmental Protection Council, hereinafter referred to in this Title as the "Council" shall take into consideration their effect on population with a view to achieving a rational and orderly balance between man and his environment. Section 53. Environmental Education. The Department of Education and Culture shall integrate subjects on environmental education in its school curricula at all levels. It shall also endeavor to conduct special community education emphasizing the relationship of man and nature as well as environmental sanitation and practices. The Council and other government agencies implementing environmental protection laws in coordination with public information agencies of the government shall undertake public information activities for the purpose of stimulating awareness and encouraging involvement in environmental protection. Section 54. Environmental Research. The Council shall undertake and/or promote continuing studies and research programs on environmental management and shall, from time to time, determine priority areas of environmental research. Section 55. Monitoring and Dissemination of Environmental Information of Foreign Origin. The Council shall keep itself informed of current environmental developments by obtaining information and literature from foreign sources through the Department of Foreign Affairs, government agencies and other entities, both domestic and foreign. Such information and literature shall be given the widest dissemination possible. Section 56. Incentives. To operate the installation and the utilization of pollution control facilities, the following incentives are hereby granted: (a) exemption to the extent of fifty (50) per cent of tariff duties and compensating tax for the importation of pollution control equipment, devices, spare parts and accessories for a period of five (5) years from the effectivity of this Decree subject to the conditions that will be imposed by the Council. (b) a tax credit equivalent to fifty (50) per cent of the value of the compensating tax and tariff duties that would have been paid on the pollution control equipment, devices, spare parts and accessories had these items been imported shall, within a period of seven (7) years from the effectivity of this Decree be given to the person or firm who or which purchases them from a domestic manufacturer, and another tax credit equivalent to twenty-five (25) per cent thereof shall be given to the said manufacturer subject to such conditions as may be imposed by the Council; and

(c) deductions equivalent to fifty (50) per cent of the expenses actually incurred on research projects undertaken to develop technologies for the manufacture of pollution control equipment which have been proven effective and commercially reproducible, from the taxable income of the person or firm actually undertaking such projects subject to the conditions that may be imposed by the Council. The pollution control equipment, devices, spare parts and accessories acquired under this Section shall not be sold, transferred or disposed of within five (5) years from the date of acquisition without the prior approval of the Council otherwise the importer or purchaser shall pay twice the amount of the tax exemption or tax credit granted. Section 57. Financial Assistance/Grant. Financial assistance/grant for the study, design and construction of environmental protection facilities especially for waste disposal in favor of cities, municipalities, small and medium-scale industries may be granted on a case to case basis subject to such conditions as may be imposed by the Council. Section 58. Participation of Local Government Units and Private Individuals. It shall be the responsibility of local government units as well as private individuals to actively participate in the environmental management and protection programs of the government. Section 59. Preservation of Historic and Cultural Resources and Heritage. It shall be the duty of every person to help preserve the historic and cultural resources of the country such as sites, structures, artifacts, documents, objects, memorials and priceless trees. Section 60. Government Offices Performing Environmental Protection Functions. Government agencies vested by law to exercise environmental management powers, shall continue to function as such within their respective jurisdictions. The Council may, however, in the exercise of its powers and functions under Presidential Decree No. 1121, inquire into any action or issue of environmental significance. Section 61. Public Hearings. The Council may, whenever it deems necessary, conduct public hearings on issues of environmental significance. Section 62. Definition of Terms. As used in this Code: (a) "Ambient Air Quality" means the average atmospheric purity as distinguished from discharge measurements taken at the source of pollution. It is the general amount of pollution present in a broad area. (b) "Emission" means the act of passing into the atmosphere an air contaminant, pollutant, gas stream and unwanted sound from a known source. (c) "Water Quality" means the characteristics of water which define its use in terms of physical, chemical and biological contents; hence the quality of water for domestic use is different from industrial use. (d) "Water Quality Surveillance" means a close and continuous supervision of the water quality to detect development movements or changes in the characteristics of the water. (e) "Water Quality Standard" means a plan that is established by governmental authority as a program for water pollution prevention and abatement. Such a standard may include water use classification and the criteria to support the uses of the water. (f) "Effluent Standards" means restrictions established to limit levels of concentration of physical, chemical and biological constituents which are discharged from point sources. (g) "Clean-up Operations" refers to activities conducted in removing the pollutants discharged or spilled in water to restore it to pre-spill condition. (h) "Accidental Spills" refers to spills of oil or other hazardous substances in water that result from accidents involving the carriers of such substance such as collisions and grounding.

(i) "Areas of Critical Environmental Concern" are areas where uncontrolled development could result in irreparable damage to important historic, cultural, or aesthetic values or natural systems or processes of national significance. (j) "Hazardous Substances" means elements or compounds which when discharged in any quantity present imminent or substantial danger to public health and welfare. (k) "Areas Impacted by Public Facilities" refers to areas where the introduction of public facilities may tend to induce development and urbanization of more than local significance or impact. (l) "Environmental Impact" is the alteration, to any degree, of environmental conditions or the creation of a new set of environmental conditions, adverse or beneficial, to be induced or caused by a proposed project. (m) "Government Agencies" refers to national, local and regional agencies and instrumentalities including governmentowned and controlled corporations. TITLE VII FINAL PROVISIONS Section 63. Separability of Provisions. If any provision of this Code, or the application of such provisions to any person or circumstance, is declared unconstitutional, the remainder of the Code or the application of such provision to other persons or circumstances shall not be affected by such declaration. Section 64. Effectivity. This Code shall take effect upon its approval. Done in the City of Manila , this 6th day of June in the year of Our Lord, nineteen hundred and seventy-seven.

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