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.

Actions; Independent Civil Actions;

Pleadings and Practice; It is easily deducible
from the present wording of Section 3, Rule
111 of the Rules of Court as brought about by
the 1988 amendments to the Rules on
Criminal Procedureparticularly the
phrase . . . which has been reservedthat
the independent character of these civil
actions does not do away with the reservation
requirement. 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.
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 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
Procedureparticularly the phrase . . .
which has been reservedthat 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.
Same; Same; Same; 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 lawi.e., the
Civil Code, should no longer be controlling;
Far from altering substantive rights, the
primary purpose of the reservation is 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.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 lawi.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 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 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.
Same; Same; Same; Insurance; Subrogation;
An insurer, 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 omission complained of
in the criminal case.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 omission 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.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
Tanjuatco, Sta. Maria, Tanjuatco for petitioners.
Conrado Mangahas & Associates for private 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 attorneys fees; P10,000.00 as litigation expenses; and P500.00 as appearance
fees.)1

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 in its Order dated July 21, 1993,2 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:

Section 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.

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
set forth in Section 2 of Rule 111.3 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 reservedthat 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 is deemed impliedly
instituted with the criminal action unless waived, reserved or previously instituted x x x.

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.

xxx

Objections were raised to the inclusion in this Rule of quasidelicts 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. (Italics ours. Justice Jose Y. Feria [Ret.], 1988 Amendments to the 1985 Rules
on Criminal Procedure, a pamphlet, published by Central Lawbook Publishing Co., Inc.,
Philippines Legal Studies, Series Nos. 3, 5-6).4
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. (Emphasis supplied.)5

In fact, a deeper reading of the Yakult Phils. vs. CA case6 relied upon by respondent court reveals
an acknowledgement 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 x x x.

The aforecited rule [referring to the amended Section 1, 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 (Italics supplied).

But what prompted the Court to validate the institution andnon-suspension of the civil case
involved in Yakult was thepeculiar 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 PISCs 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 lawi.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 to
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 speedy disposition of cases which should not
diminish, increase or modify substantive rights.7 Far from altering substantive rights, the primary
purpose of the reservation is, to borrow the words of the Court in Caos v. Peralta8:

. . . 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, 9 is not
exempt from the reservation requirement with respect to its damages suit based on quasi-delict
arising from the same act or omission 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 (Chairman), Melo, Puno and Mendoza, JJ., concur.
Judgment reversed and set aside.

Notes.The doctrine of subrogation has its roots in equityit is designed to promote and to
accomplish justice and is the mode by which equity adopts to compel the ultimate payment of a
debt by one who in justice, equity and good conscience ought to pay. (Philippine American
General Insurance Company, Inc. vs. Court of Appeals, 273 SCRA 262 [1997])

A final judgment rendered in a civil case absolving the defendant from civil liability is no bar
to a criminal action. (Bordador vs. Luz, 283 SCRA 374 [1997])
 G.R. No. 129029. April 3, 2000.*
RAFAEL REYES TRUCKING CORPORATION, petitioner,
vs. PEOPLE OF THE PHILIPPINES
and ROSARIO P. DY (for herself and on behalf of the
minors Maria Luisa, Francis Edward, Francis Mark
and Francis Rafael, all surnamed Dy), respondents.

Civil Law; Negligence; Damages; In Enforcement of the judgment against the

negligence cases, the same act or omission
can create two kinds of liability on the part of
the offender, that is, civil liability ex delicto,
and civil liability quasi delicto but the
offended party can not recover damages
under both types of liability.In negligence
cases, the aggrieved party has the choice
between (1) an action to enforce civil liability
arising from crime under Article 100 of the
Revised Penal Code; and (2) a separate action
for quasi delict under Article 2176 of the
Civil Code of the Philippines. Once the
choice is made, the injured party can not avail
himself of any other remedy because he may
not recover damages twice for the same
negligent act or omission of the accused. This
is the rule against double recovery. In other
words, the same act or omission can create
two kinds of liability on the part of the
offender, that is, civil liability ex delicto, and
civil liability quasi delicto either of which
may be enforced against the culprit, subject
to the caveat under Article 2177 of the Civil
Code that the offended party can not recover
damages under both types of liability.
Same; Same; Same; Vicarious liability of the
employee is founded in Article 2176 in
relation to Article 2180 of the Civil Code and
on Article 103 of the Revised Penal Code;
Under Article 2176 the liability of the
employer for the negligent conduct of the
subordinate is direct and primary, subject to
the defense of due diligence in the selection
and supervision of the employee;
employer does not require the employee to be
insolvent since the nature of the liability of
the employer with that of the employee, the
two being statutorily considered joint
tortfeasors, is solidary.Private respondents
sued petitioner Rafael Reyes Trucking
Corporation, as the employer of the accused,
to be vicariously liable for the fault or
negligence of the latter. Under the law, this
vicarious liability of the employer is founded
on at least two specific provisions of law. The
first is expressed in Article 2176 in relation
to Article 2180 of the Civil Code, which
would allow an action predicated on quasi-
delict to be instituted by the injured party
against the employer for an act or omission of
the employee and would necessitate only a
preponderance of evidence to prevail. Here,
the liability of the employer for the negligent
conduct of the subordinate is direct and
primary, subject to the defense of due
diligence in the selection and supervision of
the employee. The enforcement of the
judgment against the employer in an action
based on Article 2176 does not require the
employee to be insolvent since the nature of
the liability of the employer with that of the
employee, the two being statutorily
considered joint tortfeasors, is solidary. The
second, predicated on Article 103 of the
Revised Penal Code, provides that an
employer may be held subsidiarily civilly
liable for a felony committed by his
employee in the discharge of his duty. This
liability attaches when the employee is
convicted of a crime done in the performance
of his work and is found to be insolvent that
renders him unable to properly respond to the
civil liability adjudged.
Same; Same; Same; Reservation of the right
to file the separate civil action waives other
available civil actions predicated on the
same act or omission of the accused-
driver.Pursuant to the provision of Rule
111, Section 1, paragraph 3 of the 1985 Rules
on Criminal Procedure, when private
respondents, as complainants in the criminal
action, reserved the right to file the separate
civil action, they waived other available civil
actions predicated on the same act or
omission of the accused-driver. Such civil
action includes the recovery of indemnity
under the Revised Penal Code, and damages
under Articles 32, 33, and 34 of the Civil
Code of the Philippines arising from the same
act or omission of the accused.
Same; Same; Same; Award of damages in the
criminal case was improper because the civil
action for the recovery of civil liability was
waived in the criminal action by the filing of
a separate civil action against the
employer.With regard to the second issue,
the award of damages in the criminal case
was improper because the civil action for the
recovery of civil liability was waived in the
criminal action by the filing of a separate civil
action against the employer. As enunciated in
Ramos vs. Gonong, civil indemnity is not
part of the penalty for the crime committed.
The only issue brought before the trial court
in the criminal action is whether accused
Romeo Dunca y de Tumol is guilty of
reckless imprudence resulting in homicide
and damage to property. The action for
recovery of civil liability is not included
therein, but is covered by the separate civil
action filed against the petitioner as employer
of the accused truckdriver.
Criminal Law; Information; Penalty; No
offense of Double Homicide Through
Reckless Imprudence with violation of the
Motor Vehicle Law under the Revised Penal
Code; In reckless imprudence cases, the
actual penalty for criminal negligence bears
no relation to the individual willful crime or
crimes committed, but is set in relation to a
whole class, or series of crimes.
Parenthetically, the trial court found the
accused guilty beyond reasonable doubt of
the crime of Double Homicide Through
Reckless Imprudence with violation of the
Motor Vehicle Law (Rep. Act No. 4136).
There is no such nomenclature of an offense
under the Revised Penal Code. Thus, the trial
court was misled to sentence the accused to
suffer two (2) indeterminate penalties of four
(4) months and one (1) day of arresto mayor,
as minimum, to three (3) years, six (6)
months and twenty (20) days of prision
correccional, as maximum. This is
erroneous because in reckless imprudence
cases, the actual penalty for criminal
negligence bears no relation to the individual
willful crime or crimes committed, but is set
in relation to a whole class, or series of
crimes.
VITUG, J., Separate Opinion:
Civil Law; Negligence; Damages;
Notwithstanding the independent nature of
civil actions falling under Articles 32, 33, 34
and 2176 of the Civil Code, the right to
institute the action must still have to be
reserved.In the recently decided case of
San Ildefonso Lines, Inc. vs. Court of
Appeals, et al., the Supreme Court has ruled
that, notwithstanding the independent nature
of civil actions falling under Articles 32, 33,
34 and 2176 of the Civil Code, the right to
institute the action must still have to be
reserved. In the stern words of the Court: The
past pronouncements that view the
reservation requirement as an unauthorized
amendment to substantive law, i.e., the Civil
Code, should no longer be controlling.
Same; Same; Same; The requirement of
reservation is not incompatible with the
distinct and separate character of
independent civil actions.In Maniago vs.
Court of Appeals, the Court has said that the
requirement of reservation is not
incompatible with the distinct and separate
character of independent civil actions.
Indeed, there is no incongruence between
allowing the trial of civil actions to proceed
independently of the criminal prosecution
and mandating that, before so proceeding, a
reservation to do so should first be made.
Same; Same; Same; Reservation should be
made at the institution of the criminal case.
The civil action is deemed instituted together
with the criminal case except when the civil
action is reserved. The reservation should be
made at the institution of the criminal case. In
independent civil actions, not being
dependent op the criminal case, such
reservation would be required not for
preserving the cause of action but in order to
allow the civil action to proceed separately
from the criminal case in interest of good
order and procedure. Indeed, independent
civil actions already filed and pending may
still be sought to be consolidated in the
criminal case before final judgment is
rendered in the latter case. When no criminal
proceedings are instituted, a separate civil
action may be brought to demand the civil
liability, and a preponderance of evidence is
sufficient to warrant a favorable judgment
therefor. The same rule applies if the
information were to be dismissed upon
motion of the fiscal.
MENDOZA, J., Dissenting Opinion:
Civil Law; Negligence; Damages; The
PETITION for review on certiorari of a decision of the Court of Appeals.
reservation of the right to file a separate civil
action ex delicto against the driver was a
waiver of the offended parties right to
institute a civil action based on quasi delict
against petitioner.Following Rule 111, 1,
the reservation of the right to file a separate
civil action ex delioto against the driver was
a waiver of the offended parties right to
institute a civil action based on quasi delict
against petitioner. The filing of Civil Case
No. Br. 19-424 against petitioner was,
therefore, without basis, and its dismissal by
the trial court in its decision was in order. On
the other hand, as the offended parties had
withdrawn their reservation of the right to file
a separate civil action against the driver so
that they can pursue their action in the
criminal case, the trial court correctly
determined petitioners subsidiary civil
liability for its drivers negligence in the
criminal case.
Same; Same; Same; The award of damages
by the trial court simply constitutes an error
of judgment.Even assuming that the right
of the offended parties to recover damages ex
delicto had been waived, the award of such
damages by the trial court simply constitutes
an error of judgment. Hence, the award of
damages ex delicto to the offended parties is
not void and is now final. The Court has not
only set aside a final disposition by declaring
it void; it has likewise ordered the reopening
of a case already dismissed with finality on
the simplistic reasoning that rules of
procedure may be relaxed in order to
promote their objectives and assist the parties
in obtaining just, speedy, and inexpensive
determination of every action or
proceedings. There is no reason for doing so
in this case since, as already stated, all the
parties herein had been duly heard before the
trial court rendered its decision.
The facts are stated in the opinion of the Court.
Perpetuo G. Paner for petitioner.
Law Firm of Reyes, Martinez & Associates for private respondents.

PARDO, J.:

The case is an appeal via certiorari from the amended decision1 of the Court of Appeals2
affirming the decision and supplemental decision of the trial court,3 as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered dismissing the appeals

interposed by both accused and Reyes Trucking Corporation and affirming the Decision and
Supplemental Decision dated June 6, 1992 and October 26, 1992 respectively.
SO ORDERED.4

The facts are as follows:

On October 10, 1989, Provincial Prosecutor Patricio T. Durian of Isabela filed with the Regional
Trial Court, Isabela, Branch 19, Cauayan an amended information charging Romeo Dunca y de
Tumol with reckless imprudence resulting in double homicide and damage to property, reading as
follows:

That on or about the 20th day of June, 1989, in the Municipality of Cauayan, Province of
Isabela, Philippines, and within the jurisdiction of this Honorable Court, the said accused
being the driver and person-in-charge of a Trailer Truck Tractor bearing Plate No. N2A-
867 registered in the name of Rafael Reyes Trucking Corporation, with a load of 2,000
cases of empty bottles of beer grande, willfully, unlawfully and feloniously drove and
operated the same while along the National Highway of Barangay Tagaran, in said
Municipality, in a negligent, careless and imprudent manner, without due regard to traffic
laws, rules and ordinances and without taking the necessary precautions to prevent injuries
to persons and damage to property, causing by such negligence, carelessness and
imprudence the said trailer truck to hit and bump a Nissan Pick-up bearing Plate No. BBG-
957 driven by Feliciano Balcita and Francisco Dy, Jr., @ Pacquing, due to irreversible
shock, internal and external hemorrhage and multiple injuries, open wounds, abrasions,
and further causing damages to the heirs of Feliciano Balcita in the amount of P100,000.00
and to the death of Francisco Dy, Jr.; @ Pacquing and damages to his Nissan Pick-Up
bearing Plate No. BBG-957 in the total amount of P2,000,000.00.

CONTRARY TO LAW.

Cauayan, Isabela, October 10, 1989.

(Sgd.) FAUSTO C. CABANTAC
Third Assistant Provincial Prosecutor

Upon arraignment on October 23, 1989, the accused entered a plea of not guilty. On the same
occasion, the offended parties (Rosario P. Dy and minor children and Angelina M. Balcita and
minor son Paolo) made a reservation to file a separate civil action against the accused arising from
the offence charged.5 On November 29, 1989, the offended parties actually filed with the Regional
Trial Court, Isabela, Branch 19, Cauayan a complaint against petitioner Rafael Reyes Trucking
Corporation, as employer of driver Romeo Dunca y de Tumol, based on quasi delict. The petitioner
settled the claim of the heirs of Feliciano Balcita (the driver of the other vehicle involved in the
accident). The private respondents opted to pursue the criminal action but did not withdraw the
civil case quasi ex delicto they filed against petitioner. On December 15, 1989, private respondents
withdrew the reservation to file a separate civil action against the accused and manifested that they
would prosecute the civil aspect ex delicto in the criminal action.6 However, they did not withdraw
the separate civil action based on quasi delict against petitioner as employer arising from the same
act or omission of the accused driver.7

Upon agreement of the parties, the trial court consolidated both criminal and civil cases and
conducted a joint trial of the same.

The facts, as found by the trial court, which appear to be undisputed, are as follows:

The defendant Rafael Reyes Trucking Corporation is a domestic corporation engaged in

the business of transporting beer products for the San Miguel Corporation (SMC for short)
from the latters San Fernando, Pampanga plant to its various sales outlets in Luzon.
Among its fleets of vehicles for hire is the white truck trailer described above driven by
Romeo Dunca y Tumol, a duly licensed driver. Aside from the Corporations memorandum
to all its drivers and helpers to physically inspect their vehicles before each trip (Exh. 15,
pars. 4 & 5), the SMCs Traffic Investigator-Inspector certified the roadworthiness of this
White Truck trailer prior to June 20, 1989 (Exh. 17). In addition to a professional drivers
license, it also conducts a rigid examination of all driver applicants before they are hired.

In the early morning of June 20, 1989, the White Truck driven by Dunca left Tuguegarao,
Cagayan bound to San Fernando, Pampanga loaded with 2,000 cases of empty beer
Grande bottles. Seated at the front right seat beside him was Ferdinand Domingo, his
truck helper (pahinante in Pilipino). At around 4:00 oclock that same morning while the
truck was descending at a slight downgrade along the national road at Tagaran, Cauayan,
Isabela, it approached a damaged portion of the road covering the full width of the trucks
right lane going south and about six meters in length. These made the surface of the road
uneven because the potholes were about five to six inches deep. The left lane parallel to
this damaged portion is smooth. As narrated by Ferdinand Domingo, before approaching
the potholes, he and Dunca saw the Nissan with its headlights on coming from the opposite
direction. They used to evade this damaged road by taking the left lance but at that
particular moment, because of the incoming vehicle, they had to run over it. This caused
the truck to bounce wildly. Dunca lost control of the wheels and the truck swerved to the
left invading the lane of the Nissan. As a result, Duncas vehicle rammed the incoming
Nissan dragging it to the left shoulder of the road and climbed a ridge above said shoulder
where it finally stopped, (see Exh. A-5, p. 8, record). The Nissan was severely damaged
(Exhs. A-7, A-8, A-9 and A-14, pp. 9-11, record), and its two passengers, namely:
Feliciano Balcita and Francisco Dy, Jr. died instantly (Exh. A-19) from external and
internal hemorrhage and multiple fractures (pp. 15 and 16, record).
 For the funeral expenses of Francisco Dy, Jr. her widow spent P651,360.00 (Exh. 1-3). At
the time of his death he was 45 years old. He was the President and Chairman of the Board
of the Dynamic Wood Products and Development Corporation (DWPC), a wood
processing establishment, from which he was receiving an income of P10,000.00 a month
(Exh. D). In the Articles of Incorporation of the DWPC, the spouses Francisco Dy, Jr. and
Rosario Perez Dy appear to be stockholders of 10,000 shares each with par value of
P100.00 per share out of its outstanding and subscribed capital stock of 60,000 shares
valued at P6,000,000.00 (Exhs. K-1 & 10-B). Under its 1988 Income Tax Returns (Exh. J)
the DWPC had a taxable net income of P78,499.30 (Exh. J). Francisco Dy, Jr. was a La
Salle University graduate in Business Administration, past president of the Pasay Jaycees,
National Treasurer and President of the Philippine Jaycees in 1971 and 1976, respectively,
and World VicePresident of Jaycees International in 1979. He was also the recipient of
numerous awards as a civic leader (Exh. C). His children were all studying in prestigious
schools and spent about P180,000.00 for their education in 1988 alone (Exh. H-4).

As stated earlier, the plaintiffs procurement of a writ of attachment of the properties of

the Corporation was declared illegal by the Court of Appeals. It was shown that on
December 26, 1989, Deputy Sheriff Edgardo Zabat of the RTC at San Fernando,
Pampanga, attached six units of Truck Tractors and trailers of the Corporation at its garage
at San Fernando, Pampanga. These vehicles were kept under PC guard by the plaintiffs in
said garage thus preventing the Corporation to operate them. However, on December 28,
1989, the Court of Appeals dissolved the writ (p. 30, record) and on December 29, 1989,
said Sheriff reported to this Court that the attached vehicles were taken by the defendants
representative, Melita Manapil (Exh. O, p. 31, record). The defendants general Manager
declared that it lost P21,000.00 per day for the nonoperation of the six units during their
attachment (p. 31, t.s.n., Natividad C. Babaran, proceedings on December 10, 1990). 8

On June 6, 1992, the trial court rendered a joint decision, the dispositive portion of which reads as
follows:

WHEREFORE, in view of the foregoing considerations judgment is hereby rendered:

1. Finding the accused Romeo Dunca y de Tumol guilty beyond reasonable doubt of the
crime of Double Homicide through Reckless Imprudence with violation of the Motor
Vehicle Law (Rep. Act No. 4136), and appreciating in his favor the mitigating
circumstance of voluntary surrender without any aggravating circumstance to offset the
same, the Court hereby sentences him to suffer two (2) indeterminate penalties of four
months and one day of arresto mayor as minimum to three years, six months and twenty
days as maximum; to indemnify the Heirs of Francisco Dy, Jr. in the amount of
P3,000,000.00 as compensatory damages, P1,000,000.00 as moral damages, and
P1,030,000.00 as funeral expenses;

2. Ordering the plaintiff in Civil Case No. Br. 19-424 to pay the defendant therein actual
damages in the amount of P84,000.00; and
 3. Ordering the dismissal of the complaint in Civil Case No. Br. 19-424.

No pronouncement as to costs.
SO ORDERED.
Cauayan, Isabela, June 6, 1992.
(Sgd.) ARTEMIO R. ALIVIA
Regional Trial Judge9

On September 3, 1992, petitioner and the accused filed a notice of appeal from the joint
decision.10

On the other hand, private respondents moved for amendment of the dispositive portion of the joint
decision so as to hold petitioner subsidiarily liable for the damages awarded to the private
respondents in the event of insolvency of the accused.11

On October 26, 1992, the trial court rendered a supplemental decision amending the dispositive
portion by inserting an additional paragraph reading as follows:

2:AOrdering the defendant Reyes Trucking Corporation subsidiarily liable for all the
damages awarded to the heirs of Francisco Dy, Jr., in the event of insolvency of the accused
but deducting therefrom the damages of P84,000.00 awarded to said defendant in the next
preceding paragraph; and x x x12

On November 12, 1992, petitioner filed with the trial court a supplemental notice of appeal from
the supplemental decision.13

During the pendency of the appeal, the accused jumped bail and fled to a foreign country. By
resolution dated December 29, 1994, the Court of Appeals dismissed the appeal of the accused in
the criminal case.14

On January 6, 1997, the Court of Appeals rendered an amended decision affirming that of the trial
court, as set out in the opening paragraph of this decision.15

On January 31, 1997, petitioner filed a motion for reconsideration of the amended decision.16

On April 21, 1997, the Court of Appeals denied petitioners motion for reconsideration for lack of
merit. 17

Hence, this petition for review.18

On July 21, 1997, the Court required respondents to comment on the petition within ten (10) days
from notice.19

On January 27, 1998, the Solicitor General filed his comment.20 On April 13, 1998, the Court
granted leave to petitioner to file a reply and noted the reply it filed on March 11, 1998.21
We now resolve to give due course to the petition and decide the case.

Petitioner raises three (3) grounds for allowance of the petition, which, however, boil down to two
(2) basic issues, namely:
1. May petitioner as owner of the truck involved in the accident be held subsidiarily liable
for the damages awarded to the offended parties in the criminal action against the truck
driver despite the filing of a separate civil action by the offended parties against the
employer of the truck driver?

2. May the Court award damages to the offended parties in the criminal case despite the
filing of a civil action against the employer of the truck driver; and in amounts exceeding
that alleged in the information for reckless imprudence resulting in homicide and damage
to property?22

We grant the petition, resolving under the circumstances pro hac vice to remand the cases to the
trial court for determination of the civil liability of petitioner as employer of the accused driver in
the civil action quasi ex delicto re-opened for the purpose.

In negligence cases, the aggrieved party has the choice between (1) an action to enforce civil
liability arising from crime under Article 100 of the Revised Penal Code; and (2) a separate action
for quasi delict under Article 2176 of the Civil Code of the Philippines. Once the choice is made,
the injured party can not avail himself of any other remedy because he may not recover damages
twice for the same negligent act or omission of the accused.23 This is the rule against double
recovery.

In other words, the same act or omission can create two kinds of liability on the part of the
offender, that is, civil liability ex delicto, and civil liability quasi delicto either of which may be
enforced against the culprit, subject to the caveat under Article 2177 of the Civil Code that the
offended party can not recover damages under both types of liability.24

In the instant case, the offended parties elected to file a separate civil action for damages against
petitioner as employer of the accused, based on quasi delict, under Article 2176 of the Civil Code
of the Philippines. Private respondents sued petitioner Rafael Reyes Trucking Corporation, as the
employer of the accused, to be vicariously liable for the fault or negligence of the latter. Under the
law, this vicarious liability of the employer is founded on at least two specific provisions of law.

The first is expressed in Article 2176 in relation to Article 2180 of the Civil Code, which would
allow an action predicated on quasi-delict to be instituted by the injured party against the employer
for an act or omission of the employee and would necessitate only a preponderance of evidence to
prevail. Here, the liability of the employer for the negligent conduct of the subordinate is direct
and primary, subject to the defense of due diligence in the selection and supervision of the
employee. The enforcement of the judgment against the employer in an action based on Article
2176 does not require the employee to be insolvent since the nature of the liability of the employer
with that of the employee, the two being statutorily considered joint tortfeasors, is solidary.25 The
second, predicated on Article 103 of the Revised Penal Code, provides that an employer may be
held subsidiarily civilly liable for a felony committed by his employee in the discharge of his duty.
This liability attaches when the employee is convicted of a crime done in the performance of his
work and is found to be insolvent that renders him unable to properly respond to the civil liability
adjudged.26

As regards the first issue, the answer is in the negative. Rafael Reyes Trucking Corporation, as
employer of the accused who has been adjudged guilty in the criminal case for reckless
imprudence, can not be held subsidiarily liable be cause of the filing of the separate civil action
based on quasi delict against it. In view of the reservation to file, and the subsequent filing of the
civil action for recovery of civil liability, the same was not instituted with the criminal action. Such
separate civil action was for recovery of damages under Article 2176 of the Civil Code, arising
from the same act or omission of the accused.27

Pursuant to the provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules on Criminal
Procedure, when private respondents, as complainants in the criminal action, reserved the right to
file the separate civil action, they waived other available civil actions predicated on the same act
or omission of the accused-driver. Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, and 34 of the Civil Code of the
Philippines arising from the same act or omission of the accused.28

The intention of private respondents to proceed primarily and directly against petitioner as
employer of accused truck driver became clearer when they did not ask for the dismissal of the
civil action against the latter based on quasi delict.
Consequently, the Court of Appeals and the trial court erred in holding the accused civilly liable,
and petitioneremployer of the accused subsidiarily liable for damages arising from crime (ex
delicto) in the criminal action as the offended parties in fact filed a separate civil action against the
employer based on quasi delict resulting in the waiver of the civil action ex delicto.

It might be argued that private respondents as complainants in the criminal case withdrew the
reservation to file a civil action against the driver (accused) and manifested that they would pursue
the civil liability of the driver in the criminal action. However, the withdrawal is ineffective to
reverse the effect of the reservation earlier made because private respondents did not withdraw the
civil action against petitioner based on quasi delict. In such a case, the provision of Rule 111,
Section 1, paragraph 3 of the 1985 Rules on Criminal Procedure is clear that the reservation to file
or the filing of a separate civil action results in a waiver of other available civil actions arising
from the same act or omission of the accused. Rule 111, Section 1, paragraph 2 enumerated what
are the civil actions deemed waived upon such reservation or filing, and one of which is the civil
indemnity under the Revised Penal Code. Rule 111, Section 1, paragraph 3 of the 1985 Rules on
Criminal Procedure specifically provides:

A waiver of any of the civil actions extinguishes the others. The institution of, or the
reservation of the right to file, any of said civil actions separately waives the others.

The rationale behind this rule is the avoidance of multiple suits between the same litigants arising
out of the same act or omission of the offender. The restrictive phraseology of the section under
consideration is meant to cover all kinds of civil actions, regardless of their source in law, provided
that the action has for its basis the same act or omission of the offender.29

However, petitioner as defendant in the separate civil action for damages filed against it, based on
quasi delict, may be held liable thereon. Thus, the trial court grievously erred in dismissing
plaintiffs civil complaint. And the Court of Appeals erred in affirming the trial courts decision.
Unfortunately private respondents did not appeal from such dismissal and could not be granted
affirmative relief.30

The Court, however, in exceptional cases has relaxed the rules in order to promote their objectives
and assist the parties in obtaining just, speedy, and inexpensive determination of every action or
proceeding31 or exempted a particular case from the operation of the rules.32

Invoking this principle, we rule that the trial court erred in awarding civil damages in the criminal
case and in dismissing the civil action. Apparently satisfied with such award, private respondent
did not appeal from the dismissal of the civil case. However, petitioner did appeal. Hence, this
case should be remanded to the trial court so that it may render decision in the civil case awarding
damages as may be warranted by the evidence. 33

With regard to the second issue, the award of damages in the criminal case was improper because
the civil action for the recovery of civil liability was waived in the criminal action by the filing of
a separate civil action against the employer. As enunciated in Ramos vs. Gonong,34 civil
indemnity is not part of the penalty for the crime committed. The only issue brought before the
trial court in the criminal action is whether accused Romeo Dunca y de Tumol is guilty of reckless
imprudence resulting in homicide and damage to property. The action for recovery of civil liability
is not included therein, but is covered by the separate civil action filed against the petitioner as
employer of the accused truck-driver.

In this case, accused-driver jumped bail pending his appeal from his conviction. Thus, the
judgment convicting the accused became final and executory, but only insofar as the penalty in the
criminal action is concerned. The damages awarded in the criminal action was invalid because of
its effective waiver. The pronouncement was void because the action for recovery of the civil
liability arising from the crime has been waived in said criminal action.
With respect to the issue that the award of damages in the criminal action exceeded the amount of
damages alleged in the amended information, the issue is de minimis. At any rate, the trial court
erred in awarding damages in the criminal case because by virtue of the reservation of the right to
bring a separate civil action or the filing thereof, 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.35

As a final note, we reiterate that 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.36 The injured party must choose which of the available causes of action for
damages he will bring.37

Parenthetically, the trial court found the accused guilty beyond reasonable doubt of the crime of
Double Homicide Through Reckless Imprudence with violation of the Motor Vehicle Law (Rep.
Act No. 4136). There is no such nomenclature of an offense under the Revised Penal Code. Thus,
the trial court was misled to sentence the accused to suffer two (2) indeterminate penalties of four
(4) months and one (1) day of arresto mayor, as minimum, to three (3) years, six (6) months and
twenty (20) days of prision correccional, as maximum. This is erroneous because in reckless
imprudence cases, the actual penalty for criminal negligence bears no relation to the individual
willful crime or crimes committed, but is set in relation to a whole class, or series of crimes.38

Unfortunately, we can no longer correct this judgment even if erroneous, as it is, because it has
become final and executory.

Under Article 365 of the Revised Penal Code, criminal negligence is treated as a mere quasi
offense, and dealt with separately from willful offenses. It is not a question of classification or
terminology. In intentional crimes, the act itself is punished; in negligence or imprudence, what is
principally penalized is the mental attitude or condition behind the act, the dangerous recklessness,
lack of care or foresight, the imprudencia punible. Much of the confusion has arisen from the
common use of such descriptive phrase as homicide through reckless imprudence, and the like;
when the strict technical sense is, more accurately, reckless imprudence resulting in homicide;
or simple imprudence causing damages to property. 39

There is need, therefore, to rectify the designation of the offense without disturbing the imposed
penalty for the guidance of bench and bar in strict adherence to precedent.

WHEREFORE, the Court GRANTS the petition and SETS ASIDE the amended decision and
resolution of the Court of Appeals in CA-G.R. CR No. 14448, promulgated on January 6, 1997,
and the joint decision of the Regional Trial Court, Isabela, Branch 19, Cauayan, in Criminal Case
No. Br. 19-311 and Civil Case No. Br. 19-424, dated June 6, 1992.
IN LIEU THEREOF, the Court renders judgment as follows:

(1) In Criminal Case No. Br. 19-311, the Court declares the accused Romeo Dunca y de
Tumol guilty beyond reasonable doubt of reckless imprudence resulting in homicide and
damage to property, defined and penalized under Article 365, paragraph 2 of the Revised
Penal Code, with violation of the automobile law (R.A. No. 4136, as amended), and
sentences him to suffer two (2) indeterminate penalties of four (4) months and one (1) day
of arrest o mayor, as minimum, to three (3) years, six (6) months and twenty (20) days of
prision correccional, as maximum,40 without indemnity, and to pay the costs, and

(2) In Civil Case No. Br. 19-424, the Court orders the case reopened to determine the
liability of the defendant Rafael Reyes Trucking Corporation to plaintiffs and that of
plaintiffs on defendants counterclaim.

No costs in this instance.

SO ORDERED.
Bellosillo, Melo, Kapunan, Buena, Gonzaga-Reyes, Ynares-Santiago and De Leon, Jr., JJ.,
concur.
Davide, Jr. (C.J.), Please see dissenting opinion.
 Puno, J., I concur but pro hac vice.
Vitug, J., Please see separate opinion.
Mendoza, J., Please see my dissent.
Panganiban, J., In the result.
Quisumbing, J., Concurs in separate opinion of J. Vitug.
Purisima, J., I join in the dissent of Mr. Justice Mendoza.

DISSENTING OPINION

DAVIDE, JR., C.J..

I understand that this is an appeal by an employer from a decision holding it subsidiarily liable
with the driver. The drivers appeal from the judgment of conviction was dismissed because the
driver jumped bail. Hence, the decision in the criminal case insofar as the criminal liability is
concerned is already firm and final. Accordingly, for this reason alone we cannot modify the
decision as to him. The modifications introduced in the ponencia is very substantial for it deletes
the award of indemnity.

Also, the plaintiff in Civil Case No. Br. 19-424the action for damages based on quasi-delict
did not appeal from the decision of the Regional Trial Court dismissing the case. That decision
had long become final and executory.
Since there was no appeal from the dismissal of the civil case to the Court of Appeals, it logically
follows that it was not brought to that Court. Obviously, too, it was never brought to our
jurisdiction. Accordingly, there is nothing to remand to the court of origin for further proceedings.

I believe that we cannot even suspend the rules to accommodate the plaintiffs in Civil Case No.
Br. 19-424. Such suspension would do much violence to the rules and open floodgates to
dangerous precedents.

The simple solution in this case is to sustain the judgment of the trial court, affirmed by the Court
of Appeals, holding petitioner, as employer of the offending driver, subsidiarily liable for the
damages adjudged.

It is settled that every person criminally liable for a felony is also civilly liable. (Article 100,
Revised Penal Code). Employers are subsidiarily civilly liable for felonies committed by their
employees. (Article 103, id.).

The aggrieved parties in criminal cases may pursue their claims for damages either as delictual
damages, or quasidelictual damages under Article 2176 of the Civil Code, which the Code
considers as entirely distinct and separate from the civil liability arising from negligence under
the Revised Penal Code. However, Article 2177 of the Civil Code expressly provides that the
plaintiffs cannot recover damages twice for the same act or omission of the defendant.

The offended parties filed a separate action for damages under Article 2176. It must, however, be
pointed out that, as can be gathered from the ponencia, only petitioner was made as defendant in
that civil case. Part of the first paragraph of page three of the ponencia reads:
On November 29, 1989, the offended parties actually filed with the Regional Trial Court, Isabela,
Branch 19, Cauayan, a complaint against petitioner Rafael Reyes Trucking Corporation, as
employer of driver Romeo Dunca y de Tumol, based on quasi-delicts.

Obviously then there was no separate civil action for damages arising from the felony. It was then
deemed impliedly instituted in the criminal action against the driver.

The civil case against petitioner alone was consolidated with the criminal case where the civil
aspect arising from the delict was impliedly instituted against the driver. Hence, there was no legal
obstacle for the trial court to award damages therein, such as indemnity for the death, etc. and
pursuant to Article 103 of the Revised Penal Code, to make petitioner subsidiarily liable for the
awards. Considering, however, the abovestated proscription in Article 2177 of the Civil Code, the
trial court had dismissed the civil case for damages against petitioner, which was already made
subsidiarily liable for the damages in the criminal case.

To recapitulate, both the trial court and the Court of Appeals committed no error.
I vote to DENY the petition.
SEPARATE OPINION
VITUG, J.:
An early established rule under our law is that an act or omission, extra-contractual in nature,
causing damage to another, there being fault or negligence can create two separate civil liabilities
on the part of the offender, i.e., civil liability ex delicto and civil liability ex quasi delicto. Either
one of these two possible liabilities may be sought to be enforced against the offender subject,
however, to the caveat under Article 2177 of the Civil Code that the offended party cannot recover
damages twice for the same act or omission or under both causes.1 Outside of this proscription,
the two civil liabilities are distinct and independent of each other; thus, and conversely against the
rule on double recovery, the failure of recovery in one will not necessarily preclude recovery in
the other.

Procedurally, the Revised Rules on Criminal Procedure, while reiterating that a civil action under
the Civil Code may be brought separately from the criminal action, provides, nevertheless, that the
right to bring it must be reserved. Rule 111 reads in full:

Section 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.

A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation
of the right to file, any of said civil actions separately waives the others.

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.
In no case may the offended party recover damages twice for the same act or omission of the
accused.

When the offended party seeks to enforce civil liability against the accused by way of moral,
nominal, temperate or exemplary damages, the filing fees for such civil action as provided in these
Rules shall constitute a first lien on the judgment except in an award for actual damages.

In cases wherein the amount of damages, other than actual, is alleged in the complaint or
information, the corresponding filing fees shall be paid by the offended party upon the filing
thereof in court for trial.

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.

(a) Whenever the offended party shall have instituted the civil action as provided for in the first
paragraph of Section 1 hereof before the filing of the criminal action and the criminal action is
subsequently commenced, the pending civil action shall be suspended, in whatever stage before
final judgment it may be found, until final judgment in the criminal action has been rendered.
However, if no final judgment has been rendered by the trial court in the civil action, the same
may be consolidated with the criminal action upon application with the court trying the. criminal
action. If the application is granted, the evidence presented and admitted in the civil action shall
be deemed automatically reproduced in the criminal action, without prejudice to the admission of
additional evidence that any party may wish to present. In case of consolidation, both the criminal
and the civil actions shall be tried and decided jointly.

(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.

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.

In the recently decided case of San Ildefonso Lines, Inc. vs. Court of Appeals, et al.,2 the Supreme
Court has ruled that, notwithstanding the independent nature of civil actions falling under Articles
32, 33, 34 and 2176 of the Civil Code, the right to institute the action must still have to be reserved.
In the stern words of the Court: The past pronouncements that view the reservation requirement
as an unauthorized amendment to substantive law, i.e., the Civil Code, should no longer be
controlling. Essentially, I share this view although I also understand San Ildefonso as merely
fortifying a procedural rule that unless a reservation is made, the court trying the criminal case
would not, for instance, be precluded from taking cognizance of the civil aspect of the litigation
and that, upon the other hand, the other court in the civil case might, motu proprio or at the instance
of a party, hold in abeyance the consideration thereof pending the outcome of the criminal case. In
Maniago vs. Court of Appeals,3 the Court has said that the requirement of reservation is not
incompatible with the distinct and separate character of independent civil actions. Indeed, there is
no incongruence between allowing the trial of civil actions to proceed independently of the
criminal prosecution and mandating that, before so proceeding, a reservation to do so should first
be made.
In fine

FirstThe civil action is deemed instituted together with the criminal case except when the
civil action is reserved.4 The reservation should be made at the institution of the criminal case.5 In
independent civil actions, not being dependent on the criminal case, such reservation would be
required not for preserving the cause of action but in order to allow the civil action to proceed
separately from the criminal case in interest of good order and procedure.6 Indeed, independent
civil actions already filed and pending may still be sought to be consolidated in the criminal case
before final judgment is rendered in the latter case.7 When no criminal proceedings are instituted,
a separate civil action may be brought to demand the civil liability, and a preponderance of
evidence is sufficient to warrant a favorable judgment therefor.8 The same rule applies if the
information were to be dismissed upon motion of the fiscal.9

SecondThe pendency of the criminal case suspends the civil action, except

(1) When properly reserved, in independent civil actions, such as those cases (a) not arising
from the act or omission complained of as a felony (e.g. culpa contractual under Art. 31,10
intentional torts under Arts. 3211and 34,12 and culpa acquiliana under Art. 217613 of the
Civil Code); or (b) where the injured party is granted a right to file an action independent
and separate from the criminal action (e.g. Art. 33,14 Civil Code); and

(2) In the case of pre-judicial questions which must be decided before any criminal
prosecution may be instituted or may proceed (Art. 36, Civil Code). In the above instances,
the civil case may proceed independently and regardless of the outcome of the criminal
case.

ThirdAn acquittal in the criminal case may bar any further separate civil action, except

(1) In independent civil actions, unless the complainant, not having reserved a separate action,
has actively participated and intervened in the criminal case.15 Such active participation and
intervention can only be deemed to be an unequivocal election by the complainant to sue under
ex-delictu rather than on another cause of action (arising from the same act or omission complained
of as being ex-delictu). If, however, the acquittal is predicated on the ground that guilt has not been
proven beyond reasonable doubt, and not upon a finding that the fact from which the civil (action)
might arise did not exist, an action for damages can still be instituted.16

(2) In dependent civil actions where the acquittal is premised on a failure of proof beyond
reasonable doubt, which the court shall so declare as its basis, a civil action for damages for the
same act or omission may be instituted. Such action requires only a preponderance of evidence.
Where acquittal is thus based on the fact that the crime did not exist or that the offender did not
commit the crime, and not on mere quantum of proof, a civil action based on such ex delictu of
which the accused is already acquitted would be improper.17

The vicarious liability of an employer for the fault or negligence of an employee is founded on at
least two specific provisions of law. The first is expressed in Article 2176, in relation to Article
2180, of the Civil Code which would allow an action predicated on quasi-delict to be instituted by
the injured party against the employer for an act or omission of the employee and would necessitate
only a preponderance of evidence in order to prevail. Here, the liability of the employer for the
negligent conduct of the subordinate is direct and primary subject to the defense of due diligence
in the selection and supervision of the employee. The enforcement of the judgment against the
employer for an action based on Article 2176 does not require the employee to be insolvent since
the nature of the liability of the employer with that of the employee, the two being statutorily
considered joint tortfeasors, is solidary.18 The second, predicated on Article 103 of the Revised
Penal Code, provides that an employer may be held subsidiarily liable for a felony committed by
his employee in the discharge of his duty. This liability attaches when the employee is convicted
of a crime done in the performance of his work and is found to be insolvent that renders him unable
to properly respond to the civil liability adjudged.19

Normally, the judgment in the criminal case concludes the employer not only with regard to the
civil liability but likewise with regard to its amount since the liability of an employer follows that
of the employee.20 Nevertheless, due process demands that the employer be accorded full
opportunity to be heard to dispute the basic thesis upon which that liability is premised, i.e., the
existence of an employer-employee relationship engagement in an industry by the employer, and
commission of the felony by the employee in carrying on his tasks. In highly meritorious cases,
the extent of the liability of the employer himself, including the amount of damages, although final
and conclusive on the accused, may be shown by the employer to be clearly unwarranted or
unconscionable to be a valid measure of his own subsidiary liability. In such an instance, there is
little excuse for not allowing the employer due process and to be given a chance to be heard
thereon. The right of the employer to his own day in court, in no way, would amend or nullify the
final judgment rendered by the court which stands unaffected insofar as the accused himself is
concerned. It bears stressing that the employer takes no active role in the criminal proceedings,
nor entitled to take such role, up until he suddenly finds himself open to a possible subsidiary
liability following the judgment of conviction.

Finally, it may not be amiss to repeat that in independent civil actions only a successful recourse
in one would foreclose recovery in the other.

I concur, therefore, with the majority in remanding the case to the court a quo for the determination
and extent of the subsidiary liability of the employer conformably with the foregoing opinion.

DISSENTING OPINION

MENDOZA, J.:
The question in this case is whether petitioner, as employer of the driver found guilty of reckless
imprudence resulting in homicide and damage to property, can be held subsidiarily liable for
damages awarded in the criminal case considering that a separate civil action for quasi-delict had
been filed against said petitioner, although the case was later dismissed. Based on the facts as
stated in the majority opinion, the answer is yes. My reasons are twofold: first, because the filing
of the case for quasi-delict against petitioner was without basis, the same being contrary to the
reservation earlier made by the offended parties of their right to file a separate civil action arising
from the crime against the driver, and, second, because the action for quasi-delict against petitioner
was dismissed precisely because the civil action against petitioners driver had been reinstituted in
the criminal case against him. Let me explain.

As the records show, at the arraignment on October 23, 1989 of the driver Romeo Dunca, the heirs
of Francisco Dy, Jr. and Feliciano Balcita reserved in Criminal Case No. Br. 19-311 their right to
institute a separate civil action arising from the offense charged against the herein accused.1 In
accordance with Rule 111, 1 of the 1985 Rules on Criminal Procedure,2 such reservation of the
right to file a civil action ex delicto was a waiver of the right to file any other civil action under
Arts. 32, 33, 34 and 2176 of the Civil Code for recovery of damages for the same act or omission
of the accused. Hence, the subsequent filing by private respondent Rosario P. Dy of a civil action
for quasi-delict, based on Arts. 2176 and 2180 of the Civil Code, against petitioner Rafael Reyes
Trucking Corporation was without any basis, the same having been waived by the reservation
earlier made by her of the right to file a separate civil action arising from crime.

Be that as it may, the records further show that on December 15, 1989, private respondent filed a
manifestation in the criminal case that she was withdrawing the previous reservation made by her
to institute a separate civil action and that she was instead going to prosecute the civil action in the
criminal case. Hence, she prayed that the reservation to institute separate civil action in this case
be ordered withdrawn and the Heirs of the victims be allowed to present evidence in support of
the civil liability to the accused in this case.3 The trial court granted private respondents motion
and allowed her to intervene in the criminal case. Consequently, the civil action ex delicto was
merged with the criminal prosecution.

The civil action for quasi-delict against petitioner, which had been docketed as Civil Case No. Br.
19-424, was subsequently consolidated and jointly tried with the criminal case (Criminal Case No.
Br. 19-311) against the driver. Then, on June 6, 1992, the trial court rendered judgment, which
was amended on October 26, 1992
(1) finding the driver Romeo Dunca guilty of double homicide through reckless
imprudence and violation of the Motor Vehicle Law and sentencing him to two
indeterminate penalties of 4 months and 1 day of arresto mayor to 3 years, 6 months and
20 days and to pay the heirs of Francisco Dy, Jr. in the total amount of P5,030,000.00;
(2) ordering private respondent to pay P84,000.00 as damages for wrongful attachment
of petitioners trucks; and
(3) dismissing Civil Case No. Br. 19-424 but declaring petitioner subsidiarily liable to
private respondent heirs of Francisco Dy, Jr. in the event of insolvency of the accused
driver.

It is contended that, as the trial court had dismissed the action for quasi-delict (Civil Case No. Br.
19-424) and private respondent did not appeal, no award of damages can be made in her favor.
This contention has no merit. The civil action for quasi-delict was dismissed precisely so that
petitioners liability for its drivers negligence could be determined in the criminal case. Thus, the
trial court stated:

Since Civil Case No. Br. 19-424 was admittedly instituted after the criminal case was filed, the
Court believes that the waiver made by the Heirs of Francisco Dy, Jr. on December 15, 1969
included their right to file a separate civil action against the Rafael Reyes Trucking Corporation,
the accuseds employer, for the reason that under Section 1, Rule 111, actions arising from Article
2176 of the Civil Code or quasi-delicts are deemed included in the waiver. As such, since the latter
raised as an affirmative defense the defense that the plaintiffs cannot maintain Civil Case No. [Br.]
19-424, this Court must have to rule that the filing of said case was not proper. Nevertheless,
inasmuch as the plaintiffs cannot recover damages twice for the offense committed by the accused,
under Article 103 of the Revised Penal Code, in the event the accused will be insolvent, the
Corporation could be held subsidiarily liable for the same damages.4

On the other hand, because of the subsequent withdrawal of the reservation to file a separate civil
action the same was reinstituted in the criminal case, as though no reservation to file it separately
had ever been made. The trial court, therefore, properly included in its decision in the criminal
case a finding of the drivers civil liability, in addition to his criminal liability.

Petitioner and its driver, Romeo Dunca, appealed to the Court of Appeals. However, while the
appeal was thus pending, Dunca jumped bail. The decision convicting him and imposing on him
civil liability ex delicto thereby became final and executory. This circumstance allows for the
application of Art. 103 of the Revised Penal Code, which provides:

Subsidiary civil liability of other persons.The subsidiary liability established in the next
preceding article shall also apply to employers, teachers, persons, and corporations engaged in any
kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties.

To establish the subsidiary civil liability of the petitioner, the following must be shown: (1) that
petitioner is engaged in an industry; (2) that its employee (Romeo Dunca) committed the offense
in the discharge of his duties; and (3) that the employee is insolvent.5

The first requisite has already been established considering that petitioner admitted in its answer
in the trial court that it is engaged in an industry and that Dunca was its employee at the time of
the accident.6

The second requisite must likewise be deemed to have been established since it is settled that, in
the absence of any collusion between the accused employee and the offended party, a judgment
convicting the former is conclusive upon the party subsidiarily liable.7 Petitioner cannot claim that
he has been deprived of due process on the ground that it was not a party to the suit. For as held in
Miranda v. Malate Garage & Taxicab, Inc.:

It is true that an employer, strictly speaking, is not a party to the criminal case instituted against
his employee but in substance and in effect he is, considering the subsidiary liability imposed upon
him by law. It is his concern, as well as of his employee, to see to it that his interest be protected
in the criminal case by taking virtual participation in the defense of his employee. He cannot leave
him to his own fate because his failure is also his. And if because of his indifference or inaction
the employee is convicted and damages are awarded against him, he cannot later be heard to
complain, if brought to court for the enforcement of his subsidiary liability, that he was not given
his day in court. . . .8
Indeed, Civil Case No. Br. 19-424 and Criminal Case No. Br. 19-311 were jointly tried. All the
parties in the two casesthe prosecution and the defense in the criminal case, and the Dys and
petitioner Rafael Reyes Trucking Corporation in the civil casewere duly heard before the trial
court, in its joint decision, rendered judgment dismissing the civil action for quasi delict against
petitioner and finding it instead subsidiarily liable in the criminal case. Petitioner and its driver
were in fact represented by the same counsel, who raised all possible defenses that petitioner could
raise.9 The remand of this case to the trial court should, therefore, be solely for the purpose of
determining, in the execution of the decision, whether Dunca, the accused driver, is insolvent.
The Court holds, however, that petitioner cannot be held liable in the criminal case on the ground
that the right to file a civil action ex delicto has been waived and that instead its liability for its
drivers negligence must be determined under Arts. 2176 and 2180 of the Civil Code. For this
purpose, the Court orders the reopening of the action for quasi delict (Civil Case No. Br. 19-424).
As basis for its decision, the Court states:

In the instant case, the offended parties elected to file a separate civil action for damages against
petitioner as employer of the accused, based on quasi delict, under Article 2176 of the Civil Code
of the Philippines . . . Rafael Reyes Trucking Corporation, as employer of the accused who has
been adjudged guilty in the criminal case for reckless imprudence, can not be held subsidiarily
liable because of the filing of the separate civil action based on quasi delict against it. In view of
the reservation to file, and the subsequent filing of the civil action for recovery of civil liability,
the same was not instituted with the criminal action. Such separate civil action was for recovery
of damages under Article 2176 of the Civil Code, arising from the same act or omission of the
accused.10

With due respect, it is not true that private respondent reserved the right to file a separate civil
action based on quasi delict and thereby waived the right to recover from petitioner civil liability
ex delicto in the event of the insolvency of the driver. The offended parties stated very clearly that
what they were reserving was the right to institute a separate civil action arising from the offense
charged against the herein accused. It is, therefore, error to say that what was reserved was the
right to bring a civil action based on quasi delict.

Following Rule 111, 1, the reservation of the right to file a separate civil action ex delicto against
the driver was a waiver of the offended parties right to institute a civil action based on quasi delict
against petitioner. The filing of Civil Case No. Br. 19-424 against petitioner was, therefore, without
basis, and its dismissal by the trial court in its decision was in order. On the other hand, as the
offended parties had withdrawn their reservation of the right to file a separate civil action against
the driver so that they can pursue their action in the criminal case, the trial court correctly
determined petitioners subsidiary civil liability for its drivers negligence in the criminal case.

It is contended that the offended parties did not appeal from the decision of the trial court insofar
as it dismissed their complaint for quasi delict. That is because, as they had previously manifested
in withdrawing their reservation of the
right to file a separate civil action against the driver, they intended to pursue their action in the
criminal case. That included the action to enforce the subsidiary civil liability of petitioner, as
employer, in the event of the drivers insolvency.

To relieve petitioner from its subsidiary liability, the Court has to declare the award of damages
ex delicto void because, by filing a civil action based on quasi delict, the offended parties allegedly
waived the right to bring action ex delicto. As already stated, it was the right to bring an action for
quasi delict which was waived as a result of the reservation to file a civil action ex delicto. Hence,
as a consequence of the drivers jumping bail, the judgment finding him liable not only criminally
but also civilly became final. As under Art. 103 of the Revised Penal Code the employer is
subsidiarily liable, there is no way by which petitioner may be absolved from such liability except
upon a showing that the driver is not insolvent.

Even assuming that the right of the offended parties to recover damages ex delicto had been
waived, the award of such damages by the trial court simply constitutes an error of judgment.
Hence, the award of damages ex delicto to the offended parties is not void and is now final. The
Court has not only set aside a final disposition by declaring it void; it has likewise ordered the
reopening of a case already dismissed with finality on the simplistic reasoning that rules of
procedure may be relaxed in order to promote their objectives and assist the parties in obtaining
just, speedy, and inexpensive determination of every action or proceedings. There is no reason
for doing so in this case since, as already stated, all the parties herein had been duly heard before
the trial court rendered its decision.

Indeed, for what purpose is this case to be remanded to the trial court? So that petitioner can present
evidence in its defense? But it has already done so. For the trial court to redetermine the amount
of damages? But even under Arts. 2176 and 2180, the employer is liable for the same amount the
employee is liable, as the only difference between its liability ex delicto and its liability based on
quasi delict is that the former is subsidiary or secondary to that of the driver while its liability for
quasi delict is primary.

I do not think it is worth sacrificing legal rules to reach the judgment the majority arrives at in this
case. The award of damages ex delicto in the decision of the trial court is final, just as the dismissal
of the case for quasi delict is final. To ignore this fact is to set at naught the policy behind the
finality of judicial decisions and deprive adjudication of stability.

Apparently realizing the cost to basic rules of its decision today, the majority says that it is ordering
the determination of petitioners liability for quasi delict only pro hac vice. Apparently, the
majority is not willing to apply its ruling in this case to similar situations should they arise in the
future. For that is what pro hac vice meansfor this turn; for this one particular occasion only.11
But adjudication cannot be limited to the immediate parties and declared to have no precedential
value. Adjudication, such as this, is like a restricted or oneway railroad ticket, good for this day
and train only.12
For the foregoing reasons, I dissent and vote to affirm the decision of the Court of Appeals with
the modification that this case should be remanded to the trial court for the sole purpose of
determining the subsidiary civil liability of petitioner in the event of insolvency of its driver, the
accused Romeo Dunca.

Petition granted, amended judgment and resolution set aside.

Note.The liability of the registered owner of a public service vehicle like petitioner
Philtranco for damages arising from the tortious acts of the driver is primary, direct and joint and
several or solidary with the driver. (Philtranco Service Enterprises Inc. vs. Court of Appeals, 273
SCRA 562 [1997]
G.R. No. 145804. February 6, 2003.*
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners, vs. MARJORIE
NAVIDAD, Heirs of the Late NICANOR NAVIDAD & PRUDENT SECURITY AGENCY,
respondents.

Civil Law; Contracts; Contract of Carriage;
The law requires common carriers to carry
passengers safely using the utmost diligence
of very cautious persons with due regard for
all circumstances.The law requires
common carriers to carry passengers safely
using the utmost diligence of very cautious
persons with due regard for all
circumstances. Such duty of a common
carrier to provide safety to its passengers so
obligates it not only during the course of the
trip but for so long as the passengers are
within its premises and where they ought to
be in pursuance to the contract of carriage.
Same; Same; Same; Instances when a
common carrier becomes liable for death of
or injury to passengers.The statutory
provisions render a common carrier liable for
death of or injury to passengers (a) through
the negligence or willful acts of its employees
or b) on account of willful acts or negligence
of other passengers or of strangers if the
common carriers employees through the
exercise of due diligence could have
prevented or stopped the act or omission.
still establish the fault or negligence of the
carrier or of its employees and the burden
shifts upon the carrier to prove that the injury
is due to an unforeseen event or to force
majeure.
Same; Obligations; Tort; The premise,
however, for the employers liability is
negligence or fault on the part of the
employee.Should Prudent be made
likewise liable? If at all, that liability could
only be for tort under the provisions of
Article 2176 and related provisions, in
conjunction with Article 2180, of the Civil
Code. The premise, however, for the
employers liability is negligence or fault on
the part of the employee. Once such fault is
established, the employer can then be made
liable on the basis of the presumption juris
tantum that the employer failed to exercise
diligentissimi patris families in the selection
and supervision of its employees. The
liability is primary and can only be negated
by showing due diligence in the selection and
supervision of the employee, a factual matter
that has not been shown.

Same; Same; Same; Presumption of
Negligence; In case of such death or injury,
a carrier is presumed to have been at fault or
been negligent.In case of such death or
injury, a carrier is presumed to have been at
fault or been negligent, andby simple proof of
injury, the passenger is relieved of the duty to
Same; Same; Same; In fine, a liability for tort
may arise even under a contract, where tort
is that which breaches the contract.A
contractual obligation can be breached by tort
and when the same act or omission causes the
injury, one resulting in culpa contractual and
the other in culpa aquiliana, Article 2194 of
the Civil Code can well apply. In fine, 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 had no contract existed
between the parties, the contract can be said
to have been breached by tort, thereby
allowing the rules on tort to apply.
Same; Damages; Nominal Damages; It is an
established rule that nominal damages
cannot co-exist with compensatory
damages.The award of nominal damages
in addition to actual damages is untenable.
Nominal damages are adjudicated in order
that a right of the plaintiff, which has been
violated or invaded by the defendant, may be
vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any
loss suffered by him. It is an established rule
that nominal damages cannot co-exist with
compensatory damages.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
Office of the Government Corporate Counsel for petitioners.
Mario F. Estayan for private respondent.
Arias Law Offices for M. Navidad and Heirs of the Late N. Navidad, Jr.

VITUG, J.:

The case before the Court is an appeal from the decision and resolution of the Court of Appeals,
promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720,
entitled Marjorie Navidad and Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et al.,
which has modified the decision of 11 August 1998 of the Regional Trial Court, Branch 266,
Pasig City, exonerating Prudent Security Agency (Prudent) from liability and finding Light Rail
Transit Authority (LRTA) and Rodolfo Roman liable for damages on account of the death of
Nicanor Navidad.

On 14 October 1993, about half an hour past seven oclock in the evening, Nicanor Navidad,
then drunk, entered the EDSA LRT station after purchasing a token (representing payment of
the fare). While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the
security guard assigned to the area approached Navidad. A misunderstanding or an altercation
between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to
indicate how the fight started or who, between the two, delivered the first blow or how Navidad
later fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by
petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was
killed instantaneously.

On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with
her children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the
LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her
husband. LRTA and Roman filed a counterclaim against Navidad and a cross-claim against
Escartin and Prudent. Prudent, in its answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.
The LRTA and Roman presented their evidence while Prudent and Escartin, instead of
presenting evidence, filed a demurrer contending that Navidad had failed to prove that Escartin
was negligent in his assigned task. On 11 August 1998, the trial court rendered its decision; it
adjudged:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants
Prudent Security and Junelito Escartin ordering the latter to pay jointly and severally the plaintiffs
the following:
1 a) 1) Actual damages of P44,830.00;
2 2) Compensatory damages of P443,520.00;
3 3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;
4 b) Moral damages of P50,000.00;
5 c) Attorneys fees of P20,000;
6 d) Costs of suit.
7
The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.
The compulsory counterclaim of LRTA and Roman are likewise dismissed.1

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its
now assailed decision exonerating Prudent from any liability for the death of Nicanor Navidad
and, instead, holding the LRTA and Roman jointly and severally liable thusly:

WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from
any liability for the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light
Rail Transit Authority (LRTA) are held liable for his death and are hereby directed to pay jointly
and severally to the plaintiffs-appellees, the following amounts:
1 a) P44,830.00 as actual damages;
2 b) P50,000.00 as nominal damages;
3 c) P50,000.00 as moral damages;
4 d) P50,000.00 as indemnity for the death of the deceased; and
5 e) P20,000.00 as and for attorneys fees.2
The appellate court ratiocinated that while the deceased might not have then as yet boarded the
train, a contract of carriage theretofore had already existed when the victim entered the place where
passengers were supposed to be after paying the fare and getting the corresponding token therefor.
In exempting Prudent from liability, the court stressed that there was nothing to link the security
agency to the death of Navidad. It said that Navidad failed to show that Escartin inflicted fist blows
upon the victim and the evidence merely established the fact of death of Navidad by reason of his
having been hit by the train owned and managed by the LRTA and operated at the time by Roman.
The appellate court faulted petitioners for their failure to present expert evidence to establish the
fact that the application of emergency brakes could not have stopped the train.

The appellate court denied petitioners motion for reconsideration in its resolution of 10 October
2000.
In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz.:

I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE
FINDINGS OF FACTS BY THE TRIAL COURT
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
PETITIONERS ARE LIABLE FOR THE DEATH OF NICANOR NAVIDAD, JR.
III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
RODOLFO ROMAN IS AN EMPLOYEE OF LRTA.3

Petitioners would contend that the appellate court ignored the evidence and the factual findings of
the trial court by holding them liable on the basis of a sweeping conclusion that the presumption
of negligence on the part of a common carrier was not overcome. Petitioners would insist that
Escartins assault upon Navidad, which caused the latter to fall on the tracks, was an act of a
stranger that could not have been foreseen or prevented. The LRTA would add that the appellate
courts conclusion on the existence of an employer-employee relationship between Roman and
LRTA lacked basis because Roman himself had testified being an employee of Metro Transit and
not of the LRTA.

Respondents, supporting the decision of the appellate court, contended that a contract of carriage
was deemed created from the moment Navidad paid the fare at the LRT station and entered the
premises of the latter, entitling Navidad to all the rights and protection under a contractual relation,
and that the appellate court had correctly held LRTA and Roman liable for the death of Navidad
in failing to exercise extraordinary diligence imposed upon a common carrier.

Law and jurisprudence dictate that a common carrier, both from the nature of its business and for
reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the
safety of passengers.4 The Civil Code, governing the liability of a common carrier for death of or
injury to its passengers, provides:

Article 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 a
due regard for all the circumstances.

Article 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 in articles 1733 and 1755.

Article 1759. Common carriers are liable for the death of or injuries to passengers through
the negligence or willful acts of the formers employees, although such employees may
have acted beyond the scope of their authority or in violation of the orders of the common
carriers.
 This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

Article 1763. A common carrier is responsible for injuries suffered by a passenger on

account of the willful acts or negligence of other passengers or of strangers, if the common
carriers employees through the exercise of the diligence of a good father of a family could
have prevented or stopped the act or omission.
The law requires common carriers to carry passengers safely using the utmost diligence of very
cautious persons with due regard for all circumstances.5 Such duty of a common carrier to provide
safety to its passengers so obligates it not only during the course of the trip but for so long as the
passengers are within its premises and where they ought to be in pursuance to the contract of
carriage.6 The statutory provisions render a common carrier liable for death of or injury to
passengers (a) through the negligence or wilful acts of its employees or b) on account of willful
acts or negligence of other passengers or of strangers if the common carriers employees through
the exercise of due diligence could have prevented or stopped the act or omission.7 In case of such
death or injury, a carrier is presumed to have been at fault or been negligent, and8by simple proof
of injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier
or of its employees and the burden shifts upon the carrier to prove that the injury is due to an
unforeseen event or to force majeure.9 In the absence of satisfactory explanation by the carrier on
how the accident occurred, which petitioners, according to the appellate court, have failed to show,
the presumption would be that it has been at fault,10 an exception from the general rule that
negligence must be proved.11

The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the high diligence
required of the common carrier. In the discharge of its commitment to ensure the safety of
passengers, a carrier may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the common carrier is not
relieved of its responsibilities under the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 217612 and related provisions, in conjunction with Article 2180,13 of the Civil
Code. The premise, however, for the employers liability is negligence or fault on the part of the
employee. Once such fault is established, the employer can then be made liable on the basis of the
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection and supervision of its employees. The liability is primary and can only be negated by
showing due diligence in the selection and supervision of the employee, a factual matter that has
not been shown. Absent such a showing, one might ask further, how then must the liability of the
common carrier, on the one hand, and an independent contractor, on the other hand, be described?
It would be solidary. A contractual obligation can be breached by tort and when the same act or
omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana,
Article 219414 of the Civil Code can well apply.15 In fine, a liability for tort may arise even under
a contract, where tort is that which breaches the contract.16 Stated differently, when an act which
constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability
had no contract existed between the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.17
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad,
this Court is concluded by the factual finding of the Court of Appeals that there is nothing to link
(Prudent) to the death of Nicanor (Navidad), for the reason that the negligence of its employee,
Escartin, has not been duly proven x x x. This finding of the appellate court is not without
substantial justification in our own review of the records of the case.

There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable
act or omission, he must also be absolved from liability. Needless to say, the contractual tie
between the LRT and Navidad is not itself a juridical relation between the latter and Roman; thus,
Roman can be made liable only for his own fault or negligence.

The award of nominal damages in addition to actual damages is untenable. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him.18 It is an established rule that nominal damages cannot co-exist with
compensatory damages.19

WHEREFORE, the assailed decision of the appellate court is AFFIRMED with

MODIFICATION but only in that (a) the award of nominal damages is DELETED and (b)
petitioner Rodolfo Roman is absolved from liability. No costs.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur.
Judgment affirmed with modification.
Note.Where a common carrier failed to exercise the extraordinary diligence required of it,
which resulted in the death of a passenger, it is deemed to have acted recklessly, and the heirs of
the passenger shall be entitled to exemplary damages. (Yobido vs. Court of Appeals, 281 SCRA 1
[1997]).
 G.R. No. 175554. December 23, 2008.*
EDSEL LIGA, petitioner, vs. ALLEGRO RESOURCES CORP., respondent.
Actions; Due Process; Parties; It is
basic that no relief can be extended in a
judgment to a stranger or one who is not a
party to a case.Ortigas is not a party to this month to Allegro since she had already
case, whether as plaintiff or otherwise. It is
basic that no relief can be extended in a
judgment to a stranger or one who is not a
party to a case.
Same; Same; Pleadings and Practice;
Evidence; It is elementary that a judgment
must conform to, and be supported by, both
the pleadings and the evidence, and be in
accordance with the theory of the action on
which the pleadings are framed and the case
was tried.There is no allegation or prayer
in the complaint that Allegro was seeking the
collection of the back rentals due Ortigas.
Nor was there evidence to that effect. It is
elementary that a judgment must conform to,
and be supported by, both the pleadings and
the evidence, and be in accordance with the
theory of the action on which the pleadings
are framed and the case was tried. The
judgment must be secundum allegata et
probata.
Obligations and Contracts;
Obligations arising from contracts have the
force of law between the contracting parties
and should be complied with in good faith; It
is a general principle of law that no one may
be permitted to change his mind or disavow
and go back upon his own acts, or to proceed
contrary thereto, to the prejudice of the other
party.The Court cannot countenance the
obstinate refusal of Liga to pay P40,000.00 a
acquiesced to pay such rental rate when she
signed the Rental Information. It is
fundamental that a contract is the law
between the parties. Obligations arising from
contracts have the force of law between the
contracting parties and should be complied
with in good faith. Unless the stipulations in
a contract are contrary to law, morals, good
customs, public order or public policy, the
same are binding as between the parties. It is
a general principle of law that no one may be
permitted to change his mind or disavow and
go back upon his own acts, or to proceed
contrary thereto, to the prejudice of the other
party. Likewise, it is settled that if the terms
of the contract clearly express the intention of
the contracting parties, the literal meaning of
the stipulations would be controlling.
Same; Estoppel; Estoppel cannot be
sustained by mere argument or doubtful
inference.The filing by Allegro of the
Motion to Release Cash Bond in Favor of the
Plaintiff did not operate to estop it from
claiming a monthly rental rate of P40,000.00.
Estoppel cannot be sustained by mere
argument or doubtful inference. Allegro did
not abandon its stance nor did it represent to
Liga that it was doing so. Liga cannot feign
ignorance of such fact since Allegros
petition for review before the Court of
Appeals puts as an issue the reduction by the
RTC of the monthly rentals from P40,000.00
to P20,000.00. Allegro never made any deed
or representation that could have misled Liga.
Ejectment; Judgments; Execution; The
Supreme Court has previously sanctioned
partial execution of the trial courts decision
awarding damages in an ejectment suit at the
instance of the plaintiffnot only is such an
act procedurally sound, it also serves the
ends of justice.The Court has previously
sanctioned a similar partial execution of the
trial courts decision awarding damages in
an ejectment suit at the instance of the
plaintiff. Not only is such an act procedurally
sound, it also serves the ends of justice. As
the Court succinctly held in Sps. Catungal v.
Hao, 355 SCRA 29 (2001): Finally,
respondent questions why petitioners would
want to reinstate the RTC decision when in
fact they had already applied for a writ of
execution of the 8 March 1997 Decision.
Respondent is of the view that since
petitioners had already moved for the
execution of the decision awarding a smaller
amount of damages or fair rental value, the
same is inconsistent with a petition asking for
a greater fair rental value and, therefore, a
possible case of unjust enrichment in favor of
the petitioners. We are not persuaded. In
order to avoid further injustice to a lawful
possessor, an immediate execution of a
judgment is mandated and the courts duty to
order such execution is practically
ministerial. In City of Manila, et al. v. CA, et
al., 149 SCRA 183 (1987) We held that
Section 8 (now Section 19), Rule 70, on
execution pending appeal, also applies even
if the plaintiff-lessor appeals where, as in that
case, judgment was rendered in favor of the
lessor but it was not satisfied with the
increased rentals granted by the trial court,
hence the appeal xxx.
Same; Damages; Attorneys Fees;
Attorneys fees and costs of litigation are
awarded in instances where the defendant
acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid,
just and demandable claim.Liga also
ends up at the shorter end. Law and
jurisprudence support the award of attorneys
fees and costs of suit in favor of Allegro. The
award of damages and attorneys fees is left
to the sound discretion of the court, and if
such discretion is well exercised, as in this
case, it will not be disturbed on appeal.
Attorneys fees and costs of litigation are
awarded in instances where the defendant
acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid,
just and demandable claim. Having
delivered possession over the leased property
to Liga, Allegro had already performed its
obligation under the lease agreement. Liga
should have exercised fairness and good
judgment in dealing with Allegro by
religiously paying the agreed monthly rental
of P40,000.00.
Same; Same; Interests; The back
rentals in the instant case being equivalent to
a loan or forbearance of money, the interest
due thereon is twelve percent (12%) per
annum from the time of extrajudicial
demand.The Court deems it proper to
award interest in favor of Allegro. In Eastern
Shipping Lines, Inc. v. Court of Appeals, 234
SCRA 78 (1994) we gave the following
guidelines in the award of interest: II. With
regard particularly to an award of interest in
the concept of actual and compensatory
damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows: 1.
When the obligation is breached, and it
consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the
interest due should be that which may have
been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest
from the time it is judicially demanded. In the
absence of stipulation, the rate of interest
shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial
demand under and subject to the provisions
of Article 1169 of the Civil Code. The back
rentals in this case being equivalent to a loan
or forbearance of money, the interest due
thereon is twelve percent (12%) per annum
from the time of extrajudicial demand on 15
December 2001.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ronnie B. Rodillas for petitioner.
Dy & Associates for respondent.
TINGA, J.:
Before the Court is the petition for review1 under Rule 45 of the Rules of Court assailing the
Court of Appeals Decision2 dated 25 January 2006 and Resolution3 dated 22 November 2006 in
CA-G.R. SP No. 86331.

The undisputed factual antecedents of the case are as follows:

On 10 October 1975, Ortigas & Company, Limited Partnership (Ortigas) entered into a lease
agreement with La Paz Investment & Realty Corporation (La Paz) wherein the former leased to
the latter its parcel of land located in San Juan, Metro Manila (now San Juan City) consisting of
5,514 square meters for a period of twenty-five (25) years from 1 January 1976 to 31 December
2000. Under the lease agreement, La Paz undertook to construct a two or three-storey concrete
framed commercial building for the establishment of first class stores which would be subdivided
into various stalls for subleasing to interested parties.4

In compliance with its undertaking, La Paz constructed the Greenhills Shopping Arcade
(GSA) and divided it into several stalls and subleased them to other people. One of the sub-lessees
was Edsel Liga (Liga), who obtained the leasehold right to Unit No. 26, Level A of the GSA.

As the lease of La Paz had expired on 31 December 2000, the stallholders, through the Greenhills
Shoppesville Unit Lessees Association, Inc. (GSULAI), made several attempts to have their
leasehold rights extended. Even prior to the expiration of their leaseholds, the sub-lessees made
several overtures to Ortigas but these were all denied. These developments notwithstanding, Liga
was allowed by Ortigas to remain in possession of her leased property.

On 30 August 2001, Ortigas formally informed the GSULAI of the impending lease of the GSA
to respondent Allegro Resources Corporation (Allegro).5 On 3 September 2001, Ortigas and
Allegro executed the corresponding Contract of Lease.6 On the same day, the same parties
executed the Addendum to Agreement, Section 1 of which provides that (t)he LESSEE (Allegro)
shall take immediate possession and control of the leased premises upon the signing of the Contract
of Lease. and also assist in the collection of back rentals due to the LESSOR (Ortigas) in
Shoppesville Arcade from 1 January 2001 up to the 31 August 2001, when it shall commence to
pay rentals for its own account.7
As the new lessee, Allegro offered to sublease Unit No. 26, Level A to Liga. Subsequently they
entered into a lease agreement dubbed Rental Information8 in which Liga agreed to pay rental of
P40,000.00 monthly starting 1 September 2001. She also agreed to pay the back rentals covering
the months of January through August 2001 due Ortigas. Upon signing the agreement, Liga also
gave P40,000.00 as one month advance rental and another P40,000.00 as one month security
deposit as provided in the agreement.9

Ligas compliance with the agreement ended as soon as it was executed. Despite repeated demands
from Allegro, Liga had failed to pay her rentals for the subleased property, as well as the back
rentals from January to August 2001 due Ortigas. Hence, Allegro filed a complaint for ejectment
on 15 March 2002 with the Metropolitan Trial Court (MeTC) of San Juan, Metro Manila, Branch
57.10

The MeTC rendered a decision11 in favor of Allegro, ordering Liga to vacate the subleased stall
and to pay back rentals for her continuous possession of the property. The MeTC held that Allegro
has rightful possession over the disputed stall since Ligas continued occupancy from 1 January
2001 to 31 August 2001 was by mere tolerance of Ortigas and that ceased upon the execution of a
contract of lease between Ortigas and Allegro. The MeTC found that Liga had agreed to sublease
the property for P40,000.00 per month. In compliance with the lease agreement with Allegro, Liga
even paid the sum of P80,000.00 corresponding to one-month advance rental and one-month
security deposit as evidenced by a provisional receipt issued by the former. It thus ordered Liga to
pay Allegro P210,000.00 representing back rentals from 1 October 2001 to February 2002 and
P20,000.00 per month as reasonable compensation for the use of the premises from the filing of
the ejectment suit until it is vacated.

On appeal, the Regional Trial Court (RTC) affirmed the decision of the MeTC but made
modifications with respect to its monetary awards.12 It extended the period of lease over the
property for two years at a rental rate of P20,000.00 per month, and ordered Liga to pay P80,000.00
as back rentals for the period of September 2001 to February 2002 and P20,000.00 per month as
rental from March 2002 until the property is vacated.

Allegro filed a petition for review13 under Rule 42 of the Rules of Court before the Court of
Appeals assailing the modified decision of the RTC. The appellate court, in a Decision dated 25
January 2006, granted Allegros petition and set aside the RTCs decision.14 It held that after the
expiration of La Pazs lease with Ortigas on 31 December 2000, Liga occupied the property merely
by tolerance of Ortigas and that it was incorrect for the RTC to extend the lease contract for two
years since it would infringe on the parties right to contract and Liga herself had never raised as
an issue the extension of the lease contract before the MeTC. It found that Liga signed the Rental
Information with Allegro and agreed to a monthly rental of P40,000.00 starting 1 September 2001.
The appellate court ordered Liga to pay Ortigas back rentals of P20,000.00 per month for the
period of 1 January 2001 to 31 August 2001 and P40,000.00 per month as rentals to Allegro
starting 1 September 2001 until the property is vacated. In a Resolution dated 22 November 2006,
the Court of Appeals denied Ligas motion for reconsideration.15

Hence, the present petition for review before this Court.

The petition raised the following issues: whether the Court of Appeals had erred in ordering Liga
to pay: (a) to Ortigas back rentals covering the period 1 January 2001 to 31 August 2001 totaling
of P160,000.00; (b) to Allegro back rentals in the amount of P40,000.00 a month starting from 1
September 2001 until such time as she vacates the leased property; and (c) to Allegro the amount
of P20,000.00 as attorneys fees and the costs of suit.16

Liga argues that the Court of Appeals erred in ordering her to pay Ortigas back rentals although
the latter is not a party in the instant case. The ruling of the appellate court ran counter to the
Courts doctrine that judgment cannot bind persons who are not parties to the action.17 She avers
that Allegro was already estopped from claiming monthly rentals in the amount of P40,000.00
starting from 1 September 2001 since it filed the Motion to Release Cash Bond in Favor of
Plaintiff18 with the MeTC. By filing the motion, Allegro signified its concurrence in the monthly
rental of P20,000.00.19 Since Liga is willing and able to pay the appropriate rentals as evidenced
by the deposits she made before the RTC, she should not be made liable for attorneys fees in the
amount of P20,000.00 and for the costs of suit.20

The Court will discuss the issues in seriatim.

We sustain Liga on the first issue. The Court of Appeals erred in awarding back rentals for the
month of 1 January 2001 to 31 August 2001 in favor of Ortigas.

Firstly, Ortigas is not a party to this case, whether as plaintiff or otherwise. It is basic that no
relief can be extended in a judgment to a stranger or one who is not a party to a case.21

Secondly, Allegro cannot justify the award as a legal representative by virtue of a provision in
its lease agreement with Ortigas. Although Section 1 of Rule 70 of the Rules of Court22 specifically
allows the legal representatives or assigns of any such lessor, vendor, vendee, or other person to
bring action for restitution of possession with damages and costs against persons who unlawfully
withheld or deprived the lawful possessor of possession over any land or building, Allegro did not
aver in its complaint that it was acting as Ortigass legal representative and seeking the back rentals
due Ortigas.

Thirdly, there is no allegation or prayer in the complaint that Allegro was seeking the
collection of the back rentals due Ortigas. Nor was there evidence to that effect. It is elementary
that a judgment must conform to, and be supported by, both the pleadings and the evidence, and
be in accordance with the theory of the action on which the pleadings are framed and the case was
tried.23 The judgment must be secundum allegata et probata.

In Falcon v. Manzano,24 the Court set aside the judgment of the trial court in conceding to her
a remedy which was not prayed for in the complaint as the trial court rendered judgment allowing
plaintiff to recover from the defendant the unpaid portion of the purchase price of a parcel of land
when the plaintiff only asked for the nullification of the contract of sale of the realty and the return
of the property to her. We held that courts, in rendering decisions, ought to limit themselves to the
issues presented by the parties in their pleadings.

In the analogous case of Lerma v. De la Cruz,25 the plaintiff therein brought an action to
recover accrued rents and damages for the injury to the land but the trial court extended the relief
sought by giving judgment for possession of the land. The Court held that (t)he plaintiff did not
ask for possession, nor is there any prayer to that effect in the complaint, and the judgment must,
therefore be reversed insofar as it undertakes to provide for the restitution of the land in question
to the plaintiff.

As to the second issue, the Court cannot countenance the obstinate refusal of Liga to pay
P40,000.00 a month to Allegro since she had already acquiesced to pay such rental rate when she
signed the Rental Information. It is fundamental that a contract is the law between the parties.26
Obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith.27 Unless the stipulations in a contract are contrary to law, morals,
good customs, public order or public policy, the same are binding as between the parties.28 It is a
general principle of law that no one may be permitted to change his mind or disavow and go back
upon his own acts, or to proceed contrary thereto, to the prejudice of the other party.29 Likewise,
it is settled that if the terms of the contract clearly express the intention of the contracting parties,
the literal meaning of the stipulations would be controlling.30

The filing by Allegro of the Motion to Release Cash Bond in Favor of the Plaintiff did not operate
to estop it from claiming a monthly rental rate of P40,000.00. Estoppel cannot be sustained by
mere argument or doubtful inference.31 Allegro did not abandon its stance nor did it represent to
Liga that it was doing so. Liga cannot feign ignorance of such fact since Allegros petition for
review before the Court of Appeals puts as an issue the reduction by the RTC of the monthly
rentals from P40,000.00 to P20,000.00.32 Allegro never made any deed or representation that could
have misled Liga.

Moreover, the Court has previously sanctioned a similar partial execution of the trial courts
decision awarding damages in an ejectment suit at the instance of the plaintiff. Not only is such an
act procedurally sound, it also serves the ends of justice. As the Court succinctly held in Sps.
Catungal v. Hao:33

Finally, respondent questions why petitioners would want to reinstate the RTC decision
when in fact they had already applied for a writ of execution of the 8 March 1997 Decision.
Respondent is of the view that since petitioners had already moved for the execution of the
decision awarding a smaller amount of damages or fair rental value, the same is inconsistent
with a petition asking for a greater fair rental value and, therefore, a possible case of unjust
enrichment in favor of the petitioners. We are not persuaded.

In order to avoid further injustice to a lawful possessor, an immediate execution of a

judgment is mandated and the courts duty to order such execution is practically
ministerial. In City of Manila, et al. v. CA, et al., We held that Section 8 (now Section 19),
Rule 70, on execution pending appeal, also applies even if the plaintiff-lessor appeals
where, as in that case, judgment was rendered in favor of the lessor but it was not satisfied
with the increased rentals granted by the trial court, hence the appeal xxx.

As above discussed, the petitioners have long been deprived of the exercise of their
proprietary rights over the leased premises and the rightful amount of rentals at the rate of
P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals of
 P27,000.00, which is the difference between P40,000.00 awarded by the Regional Trial Court
and P13,000.00 awarded by the MeTC and affirmed by the Court of Appeals. Said amount of
P27,000.00 should rightly be the subject of another writ of execution being distinct from the
subject of the first writ of execution filed by petitioners. (Emphasis supplied.)

On the last issue regarding damages, Liga also ends up at the shorter end. Law and jurisprudence
support the award of attorneys fees and costs of suit in favor of Allegro. The award of damages
and attorneys fees is left to the sound discretion of the court, and if such discretion is well
exercised, as in this case, it will not be disturbed on appeal.34 Attorneys fees and costs of litigation
are awarded in instances where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs plainly valid, just and demandable claim.35 Having delivered possession
over the leased property to Liga, Allegro had already performed its obligation under the lease
agreement. Liga should have exercised fairness and good judgment in dealing with Allegro by
religiously paying the agreed monthly rental of P40,000.00.

However, the Court deems it proper to award interest in favor of Allegro. In Eastern Shipping
Lines, Inc. v. Court of Appeals,36 we gave the following guidelines in the award of interest:

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.37

The back rentals in this case being equivalent to a loan or forbearance of money, the interest due
thereon is twelve percent (12%) per annum from the time of extrajudicial demand on 15 December
2001.38

WHEREFORE, the petition for review is DENIED. The Decision of the Court of Appeals in CA-
G.R. SP No. 86331 is AFFIRMED with the MODIFICATIONS that the award of back rentals for
the period of 1 January 2001 to 31 August 2001 to Ortigas & Company, Limited Partnership is
DELETED and that petitioner Edsel Liga is ORDERED to pay respondent Allegro Resources
Corporation legal interest of twelve percent (12%) per annum on the back rentals from the date of
extrajudicial demand on 15 December 2001 until fully paid.
SO ORDERED.
Quisumbing (Chairperson), Carpio-Morales, Velasco, Jr. and Brion, JJ., concur.

Petition denied, judgment affirmed with modifications.

Notes.An obligation is indivisible when it cannot be validly performed in parts, whatever

may be the nature of the thing which is the object thereof, and indivisibility cannot be based on
the number of obligors. (Nazareno vs. Court of Appeals, 343 SCRA 637 [2000])
_______________
37 Id., at p. 95.
38 Record, pp. 168-170.

G.R. No. 138814. April 16, 2009.*

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO, ADOLFO M.
DUARTE, MYRON C. PAPA, NORBERTO C. NAZARENO, GEORGE UY-TIOCO,
ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L. VIRATA, and ANTONIO GARCIA,
JR., petitioners, vs. MIGUEL V. CAMPOS, substituted by JULIA ORTIGAS VDA. DE
CAMPOS,1 respondent.

Actions; Causes of Action; therefrom. Hence, if the allegations in the

Obligations; Motion to Dismiss; If a
defendant moves to dismiss the complaint on
the ground of lack of cause of action, he is
regarded as having hypothetically admitted
all the averments thereof.A cause of action
is the act or omission by which a party
violates a right of another. A complaint states
a cause of action where it contains three
essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2)
the correlative obligation of the defendant,
and (3) the act or omission of the defendant
in violation of said legal right. If these
elements are absent, the complaint becomes
vulnerable to dismissal on the ground of
failure to state a cause of action. If a
defendant moves to dismiss the complaint on
the ground of lack of cause of action, he is
regarded as having hypothetically admitted
all the averments thereof. The test of
sufficiency of the facts found in a complaint
as constituting a cause of action is whether or
not admitting the facts alleged, the court can
render a valid judgment upon the same in
accordance with the prayer thereof. The
hypothetical admission extends to the
relevant and material facts well pleaded in the
complaint and inferences fairly deducible
complaint furnish sufficient basis by which
the complaint can be maintained, the same
should not be dismissed regardless of the
defense that may be assessed by the
defendant.
Same; Same; Same; Words and
Phrases; Right and obligation are legal
terms with specific legal meaninga right is
a claim or title to an interest in anything
whatsoever that is enforceable by law while
an obligation is defined in the Civil Code as
a juridical necessity to give, to do or not to
do; For every right enjoyed by any person,
there is a corresponding obligation on the
part of another person to respect such
right.There is no question that the Petition
in SEC Case No. 02-94-4678 asserts a right
in favor of respondent, particularly,
respondents alleged right to subscribe to the
IPOs of corporations listed in the stock
market at their offering prices; and stipulates
the correlative obligation of petitioners to
respect respondents right, specifically, by
continuing to allow respondent to subscribe
to the IPOs of corporations listed in the stock
market at their offering prices. However, the
terms right and obligation in respondents
Petition are not magic words that would
automatically lead to the conclusion that such
Petition sufficiently states a cause of action.
Right and obligation are legal terms with
specific legal meaning. A right is a claim or
title to an interest in anything whatsoever that
is enforceable by law. An obligation is
defined in the Civil Code as a juridical
necessity to give, to do or not to do. For every
right enjoyed by any person, there is a
corresponding obligation on the part of
another person to respect such right. Thus,
Justice J.B.L. Reyes offers the definition
given by Arias Ramos as a more complete
definition: An obligation is a juridical
relation whereby a person (called the
creditor) may demand from another (called
the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and
in case of breach, may demand satisfaction
from the assets of the latter.
Same; Same; Same; Civil Law;
Pleadings and Practice; The mere assertion
of a right and claim of an obligation in an
initiatory pleading, whether a Complaint or
Petition, without identifying the basis or
source thereof, is merely a conclusion of fact
and lawa pleading should state the
ultimate facts essential to the rights of action
or defense asserted, as distinguished from
mere conclusions of fact or conclusions of
law.The Civil Code enumerates the
sources of obligations: Art. 1157.
Obligations arise from: (1) Law; (2)
Contracts; (3) Quasi-contracts; (4) Acts or
omissions punished by law; and (5) Quasi-
delicts. Therefore, an obligation imposed on
a person, and the corresponding right granted
to another, must be rooted in at least one of
these five sources. The mere assertion of a
right and claim of an obligation in an
initiatory pleading, whether a Complaint or
Petition, without identifying the basis or
source thereof, is merely a conclusion of fact
and law. A pleading should state the ultimate
facts essential to the rights of action or
defense asserted, as distinguished from mere
conclusions of fact or conclusions of law.
Thus, a Complaint or Petition filed by a
person claiming a right to the Office of the
President of this Republic, but without stating
the source of his purported right, cannot be
said to have sufficiently stated a cause of
action. Also, a person claiming to be the
owner of a parcel of land cannot merely state
that he has a right to the ownership thereof,
but must likewise assert in the Complaint
either a mode of acquisition of ownership or
at least a certificate of title in his name.
Same; Same; Same; Words and
Phrases; A practice or custom is, as a
general rule, not a source of a legally
demandable or enforceable right.A
meticulous review of the Petition reveals that
the allocation of IPO shares was merely
alleged to have been done in accord with a
practice normally observed by the members
of the stock exchange, to wit: IPOs are shares
of corporations offered for sale to the public,
prior to their listing in the trading floor of the
countrys two stock exchanges. Normally,
Twenty-Five Percent (25%) of these shares
are divided equally between the two stock
exchanges which in turn divide these equally
among their members, who pay therefor at
the offering price. A practice or custom is, as
a general rule, not a source of a legally
demandable or enforceable right. Indeed, in
labor cases, benefits which were voluntarily
given by the employer, and which have
ripened into company practice, are
considered as rights that cannot be
diminished by the employer. Nevertheless,
even in such cases, the source of the
employees right is not custom, but
ultimately, the law, since Article 100 of the
Labor Code explicitly prohibits elimination
or diminution of benefits.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Rodrigo, Berenguer & Guno for petitioners.
Pastelero Law Office for respondent.

CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the Decision2
dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R.
SP No. 38455.
The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos,
who filed with the Securities, Investigation and Clearing Department (SICD) of the Securities and
Exchange Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc.
(MKSE) and MKSE directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C. Papa,
Norberto C. Nazareno, George Uy-Tioco, Antonio A. Lopa, Ramon B. Arnaiz, Luis J.L. Virata,
and Antonio Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification of the Resolution
dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of his right to
participate equally in the allocation of Initial Public Offerings (IPO) of corporations registered
with MKSE; (2) the delivery of the IPO shares he was allegedly deprived of, for which he would
pay IPO prices; and (3) the payment of P2 million as moral damages, P1 million as exemplary
damages, and P500,000.00 as attorneys fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondents prayer for the issuance of
a Temporary Restraining Order to enjoin petitioners from implementing or enforcing the 3 June
1993 Resolution of the MKSE Board of Directors.

The SICD subsequently issued another Order on 10 March 1994 granting respondents application
for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No.
02-94-4678, the implementation or enforcement of the MKSE Board Resolution in question.
Petitioners assailed this SICD Order dated 10 March 1994 in a Petition for Certiorari filed with
the SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition in SEC Case No.
02-94-4678, based on the following grounds: (1) the Petition became moot due to the cancellation
of the license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the Petition
failed to state a cause of action.

The SICD denied petitioners Motion to Dismiss in an Order dated 4 May 1994. Petitioners again
challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition for
Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10 March 1994
Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary Injunction in favor of
respondent. Likewise, in an Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc
annulled the 4 May 1994 Order of SICD in SEC Case No. 02-94-4678 denying petitioners Motion
to Dismiss, and accordingly ordered the dismissal of respondents Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders of the
SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No. 403,
respectively. Respondents Petition before the appellate court was docketed as CA-G.R. SP No.
38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No. 38455,
granting respondents Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders dated May 31, 1995
and August 14, 1995 in SEC-EB

Case Nos. 393 and 403 is GRANTED. The said orders are hereby rendered null and void and set
aside.
Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied by the
Court of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I.
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED
BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF
ACTION.
II.
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE
ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE
MAKATI STOCK EXCHANGE, INC.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO
MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENTS ALLEGATIONS IN
HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE
HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF ACTION.
IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE
BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.3

On 18 September 2001, counsel for respondent manifested to this Court that his client died on 7
May 2001. In a Resolution dated 24 October 2001, the Court directed the substitution of respondent
by his surviving spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by the SEC en banc of respondents Petition in
SEC Case No. 02-94-4678 for failure to state a cause of action. On the other hand, respondent
insists on the sufficiency of his Petition and seeks the continuation of the proceedings before the
SICD.

A cause of action is the act or omission by which a party violates a right of another.4 A complaint
states a cause of action where it contains three essential elements of a cause of action, namely: (1)
the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these elements are absent, the complaint
becomes vulnerable to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action, he is
regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of the
facts found in a complaint as constituting a cause of action is whether or not admitting the facts
alleged, the court can render a valid judgment upon the same in accordance with the prayer thereof.
The hypothetical admission extends to the relevant and material facts well pleaded in the complaint
and inferences fairly deducible therefrom. Hence, if the allegations in the complaint furnish
sufficient basis by which the complaint can be maintained, the same should not be dismissed
regardless of the defense that may be assessed by the defendant.5

Given the foregoing, the issue of whether respondents Petition in SEC Case No. 02-94-4678
sufficiently states a cause of action may be alternatively stated as whether, hypothetically
admitting to be true the allegations in respondents Petition in SEC Case No. 02-94-4678, the SICD
may render a valid judgment in accordance with the prayer of said Petition.

A reading of the exact text of respondents Petition in SEC Case No. 02-94-4678 is, therefore,
unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioners invaluable services, the general membership of respondent

corporation [MKSE] passed a resolution sometime in 1989 amending its Articles of Incorporation,
to include the following provision therein:

ELEVENTHWHEREAS, Mr. Miguel Campos is the only surviving incorporator of the Makati
Stock Exchange, Inc. who has maintained his membership;

WHEREAS, he has unselfishly served the Exchange in various capacities, as governor from 1977
to the present and as President from 1972 to 1976 and again as President from 1988 to the present;

WHEREAS, such dedicated service and leadership which has contributed to the advancement
and well being not only of the Exchange and its members but also to the Securities industry, needs
to be recognized and appreciated;

WHEREAS, as such, the Board of Governors in its meeting held on February 09, 1989 has
correspondingly adopted a resolution recognizing his valuable service to the Exchange, reward the
same, and preserve for posterity such recognition by proposing a resolution to the membership
body which would make him as Chairman Emeritus for life and install in the Exchange premises
a commemorative bronze plaque in his honor;

NOW, THEREFORE, for and in consideration of the above premises, the position of the
Chairman Emeritus to be occupied by Mr. Miguel Campos during his lifetime and irregardless
of his continued membership in the Exchange with the Privilege to attend all membership meetings
as well as the meetings of the Board of Governors of the Exchange, is hereby created.

8. Hence, to this day, petitioner is not only an active member of the respondent corporation, but
its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and Chairman
Emeritus of respondent corporation, petitioner has always enjoyed the right given to all the other
members to participate equally in the Initial Public Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior to the listing in the trading
floor of the countrys two stock exchanges. Normally, Twenty Five Percent (25%) of these shares
are divided equally between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of respondent-
corporation, individual respondents passed a resolution to stop giving petitioner the IPOs he is
entitled to, based on the ground that these shares were allegedly benefiting Gerardo O. Lanuza, Jr.,
who these individual respondents wanted to get even with, for having filed cases before the
Securities and Exchange (SEC) for their disqualification as member of the Board of Directors of
respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived of his right to
subscribe to the IPOs of corporations listing in the stock market at their offering prices.

13. The collective act of the individual respondents in depriving petitioner of his right to a share
in the IPOs for the aforementioned reason, is unjust, dishonest and done in bad faith, causing
petitioner substantial financial damage.6

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of
respondent, particularly, respondents alleged right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices; and stipulates the correlative obligation of petitioners
to respect respondents right, specifically, by continuing to allow respondent to subscribe to the
IPOs of corporations listed in the stock market at their offering prices.

However, the terms right and obligation in respondents Petition are not magic words that would
automatically lead to the conclusion that such Petition sufficiently states a cause of action. Right
and obligation are legal terms with specific legal meaning. A right is a claim or title to an interest
in anything whatsoever that is enforceable by law.7 An obligation is defined in the Civil Code as
a juridical necessity to give, to do or not to do.8 For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to respect such right. Thus, Justice J.B.L.
Reyes offers9 the definition given by Arias Ramos as a more complete definition:
An obligation is a juridical relation whereby a person (called the creditor) may demand from
another (called the debtor) the observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding right granted to another, must
be rooted in at least one of these five sources. The mere assertion of a right and claim of an
obligation in an initiatory pleading, whether a Complaint or Petition, without identifying the basis
or source thereof, is merely a conclusion of fact and law. A pleading should state the ultimate facts
essential to the rights of action or defense asserted, as distinguished from mere conclusions of fact
or conclusions of law.10 Thus, a Complaint or Petition filed by a person claiming a right to the
Office of the President of this Republic, but without stating the source of his purported right, cannot
be said to have sufficiently stated a cause of action. Also, a person claiming to be the owner of a
parcel of land cannot merely state that he has a right to the ownership thereof, but must likewise
assert in the Complaint either a mode of acquisition of ownership or at least a certificate of title in
his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondents
right to subscribe to the IPOs of corporations listed in the stock market at their offering prices, and
petitioners obligation to continue respecting and observing such right, the Petition utterly failed
to lay down the source or basis of respondents right and/or petitioners obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989,
granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in
the said Petition from which the Court can deduce that respondent, by virtue of his position as
Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to
subscribe to the IPOs of corporations listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged
to have been done in accord with a practice normally observed by the members of the stock
exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing in the trading
floor of the countrys two stock exchanges. Normally, Twenty-Five Percent (25%) of these shares
are divided equally between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price.11 (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or enforceable
right.12 Indeed, in labor cases, benefits which were voluntarily given by the employer, and which
have ripened into company practice, are considered as rights that cannot be diminished by the
employer.13 Nevertheless, even in such cases, the source of the employees right is not custom, but
ultimately, the law, since Article 100 of the Labor Code explicitly prohibits elimination or
diminution of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to MKSE
members, for subscription at their offering prices, into an enforceable or demandable right. Thus,
even if it is hypothetically admitted that normally, twenty five percent (25%) of the IPOs are
divided equally between the two stock exchangeswhich, in turn, divide their respective
allocation equally among their members, including the Chairman Emeritus, who pay for IPO
shares at the offering pricethe Court cannot grant respondents prayer for damages which
allegedly resulted from the MKSE Board Resolution dated 3 June 1993 deviating from said
practice by no longer allocating any shares to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-94-4678
should be dismissed for failure to state a cause of action. It does not matter that the SEC en banc,
in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not limiting
itself to the issue of whether respondents Petition before the SICD sufficiently stated a cause of
action. The SEC en banc may have been mistaken in considering extraneous evidence in granting
petitioners Motion to Dismiss, but its discussion thereof are merely superfluous and obiter dictum.
In the main, the SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for
its failure to state the basis for respondents alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for his alleged right to
participate equally in the IPO allocations of the Exchange. He cited paragraph 11 of the amended
articles of incorporation of the Exchange in support of his position but a careful reading of the said
provision shows nothing therein that would bear out his claim. The provision merely created the
position of chairman emeritus of the Exchange but it mentioned nothing about conferring upon the
occupant thereof the right to receive IPO allocations.14

With the dismissal of respondents Petition in SEC Case No. 02-94-4678, there is no more need
for this Court to resolve the propriety of the issuance by SCID of a writ of preliminary injunction
in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 11
February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 are REVERSED
and SET ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the Securities and
Exchange Commission en banc in SEC-EB Case No. 393 and No. 403, respectively, are hereby
reinstated. No pronouncement as to costs.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez, Nachura and Peralta, JJ., concur.

Petition granted, judgment and resolution reversed and set aside.

Notes.The jurisdiction of the court over the subject matter is determined upon the
allegations made in the complaint, irrespective of whether the plaintiff is entitled or not to recover
upon the claim asserted. (Davao Abaca Plantation Company, Inc. vs. Dole Philippines, Inc., 346
SCRA 682 [2000])
If the suit is not brought in the name of, or against, the real party in interest, a Motion to
Dismiss may be filed on the ground that the Complaint states no cause of action. (Strongworld
Construction Corporation vs. Perello, 496 SCRA 700 [2006])
o0o

No. 27454, April 30, 1970.

ROSENDO O. CHAVES, plaintiff-appellant, vs. FRUCTUOSO GONZALES, defendant-
appellee

Civil law; Obligations; Nature and effect of
obligations; Obligation of a person obliged
to do something and fails to do it.Under
Article 1167 of the Civil Code, a person who
is obliged to do something and fails to do it
shall be liable for the cost of executing the
obligation in a proper manner.
Same; Same; Same; Same; Cost of
obligation; Case at bar.The cost of
execution of the obligation to repair a
typewriter is the cost of the labor or service
expended in the repair of the typewriter. In
addition, the obligor, under Article 1170 of
the Code, is liable for the cost of the missing
parts because in his obligation to repair the
typewriter he is bound to return the
typewriter in the same condition it was when
he received it.
Same; Same; Obligation with period; Where
obligation does not fix a period; When fixing
a period is mere formality.Where the
defendant virtually admitted non-
performance by returning the typewriter he
was obliged to repair in a non-working
condition, with essential parts, missing, he
cannot invoke Article 1137 of the Civil Code.
The time for compliance having evidently
expired, and there being a breach of contract
by non-performance, it was academic for the
plaintiff to have first petitioned the court to
fix a period for the performance of the
contract before filing his complaint in this
case. The fixing of a period would thus be a
mere formality and would serve no purpose
than to delay.
Same; Damages; Claims for damages and
attorneys fees must be alleged and
proved.Claims for damages and attorneys
fees must be pleaded, and the existence of the
actual basis thereof must be proved. Where
there is no findings of fact on the claims for
damages and attorneys fees in the lower
courts decision, there is no factual basis
upon which to make an award therefor.

DIRECT APPEAL from a decision of the Court of First Instance of Manila. Vasquez, J.

The facts are stated in the opinion of the Court.

Chaves, Elio, Chaves & Associates for plaintiff-appellant.
Sulpicio E. Platon for defendant-appellee.

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and
recovery of damages but was unsatisfied with the decision rendered by the Court of First
Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out of his
total claim of P690.00 for actual, temperate and moral damages and attorneys fees.

The appealed judgment, which is brief, is hereunder quoted in full: In the early part of July,
1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter
for routine cleaning and servicing. The defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff. The defendant merely gave assurances, but
failed to comply with the same. In October, 1963, the defendant asked from the plaintiff the sum
of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the defendant. On
October 26, 1963, after getting exasperated with the delay of the repair of the typewriter, the
plaintiff went to the house of the defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff
examined the typewriter returned to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws missing. On October 29, 1963, the
plaintiff sent a letter to the defendant formally demanding the return of the missing parts, the
interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the
plaintiff some of the missing parts, the interior cover and the P6.00.

On August 29, 1964, the plaintiff had his typewriter repairfed by Freixas Business Machines, and
the repair job cost him a total of P89.85, including labor and materials (Exhibit C ) .
On August 23, 1965, the plaintiff commenced this action before the City Court of Manila,
demanding from the defendant the payment of P90.00 as actual and compensatory damages,
P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorneys fees.

In his answer as well as in his testimony given before this court, the defendant made no denials
of the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to
the defendant through a certain Julio Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.

The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85
should not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C,
shows that the missing parts had a total value of only P31.10.

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum
of P31.10, and the costs of suit.

SO ORDERED.

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it
awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor
and materials that went into the repair of the machine, as provided for in Article 1167 of the Civil
Code, reading as follows:

ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not
liable at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not
contain a period, so that plaintiff-appellant should have first filed a petition for the court to fix the
period, under Article 1197 of the Civil Code, within which the defendant-appellee was to comply
with the contract before said defendant-appellee could be held liable for breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose
any appeal, the facts, as found by the trial court, are now conclusive and non-reviewable.1

The appealed judgment states that the plaintiff delivered to the defendant x x x a portable
typewriter for routine cleaning and servicing; that the defendant was not able to finish the job
after some time despite repeated reminders made by the plaintiff; that the defendant merely gave
assurances, but failed to comply with the same; and that after getting exasperated with the delay
of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for its
return, which was done. The inferences derivable from these findings of fact are that the appellant
and the appellee had a perfected contract for cleaning and servicing a typewriter; that they intended
that the defendant was to finish it at some future time although such time was not specified; and
that such time had passed without the work having been accomplished, for the defendant returned
the typewriter cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for the work he
had already done. The time for compliance having evidently expired, and there being a breach of
contract by non-performance, it was academic for the plaintiff to have first petitioned the court to
fix a period for the performance of the contract before filing his complaint in this case. Defendant
cannot invoke Article 1197 of the Civil Code for he virtually admitted non-performance by
returning the typewriter that he was obliged to repair in a nonworking condition, with essential
parts missing. The fixing of a period would thus be a mere formality and would serve no purpose
than to delay (cf. Tiglao, et al. v. Manila Railroad Co., 98 Phil. 181).

It is clear that the defendant-appellee contravened the tenor of his obligation because he not only
did not repair the typewriter but returned it in shambles, according to the appealed decision. For
such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code, jam
quot, for the cost of executing the obligation in a proper manner. The cost of the execution of the
obligation in this case should be the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost
of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was
bound, but failed or neglected, to return it in the same condition it was when he received it.

Appellants claims for moral and temperate damages and attorneys fees were, however, correctly
rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-
5). Claims for damages and attorneys fees must be pleaded, and the existence of the actual basis
thereof must be proved.2 The appealed judgment thus made no findings on these claims, nor on
the fraud or malice charged to the appellee. As no findings of fact were made on the claims for
damages and attorneys fees, there is no factual basis upon which to make an award therefor.
Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly
to the Supreme Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by

ordering the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the
sum of P89.85, with interest at the legal rate from the filing of the complaint. Costs in all instances
against appellee Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and
Villamor, JJ., concur,
Barredo, J., did not take part.
Judgment modified.

Notes.(a) Liability for negligent performance of obligation.Under Article 1170 of the Civil
Code, those who in the performance of their obligation are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages. And under
Article 1173, the fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the persons,
of the time and of the place xxx. 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.

Notes.It is not proper to consider an obligation novated by unimportant modifications which

do not alter its essence. (Idolor vs. Court of Appeals, 351 SCRA 399 [2001])
Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of
the creditor. (Public Estates Authority vs. Uy, 372 SCRA 180 [2001])
o0o
 G.R. No. 174269. May 8, 2009.*
POLO S. PANTALEON, petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC.,
respondent.
Credit Cards; Obligations and
Contracts; Delay; Mora Solvendi and Mora
Accipiendi; Requisites.Petitioner correctly
cites that under mora solvendi, the three
requisites for a finding of default are that the
obligation is demandable and liquidated; the
debtor delays performance; and the creditor
judicially or extrajudicially requires the
debtors performance. Petitioner asserts that
the Court of Appeals had wrongly applied the
principle of mora accipiendi, which relates to
delay on the part of the obligee in accepting
the performance of the obligation by the
obligor. The requisites of mora accipiendi
are: an offer of performance by the debtor
who has the required capacity; the offer must
be to comply with the prestation as it should
be performed; and the creditor refuses the
performance without just cause. The error of
the appellate court, argues petitioner, is in
relying on the invocation by respondent of
just cause for the delay, since while just
cause is determinative of mora accipiendi, it
is not so with the case of mora solvendi.
Same; Same; Same; Generally, the
relationship between a credit card provider
and its card holders is that of creditor-
debtor, with the card company as the creditor
extending loans and credit to the card holder,
who as debtor is obliged to repay the
creditor, a relationship which takes
exception to the general rule that as between
a bank and its depositors, the bank is deemed
as the debtor while the depositor is
considered as the creditor.We can see the
possible source of confusion as to which type
of mora to appreciate. Generally, the
relationship between a credit card provider
and its card holders is that of creditor-debtor,
with the card company as the creditor
extending loans and credit to the card holder,
who as debtor is obliged to repay the creditor.
This relationship already takes exception to
the general rule that as between a bank and its
depositors, the bank is deemed as the debtor
while the depositor is considered as the
creditor. Petitioner is asking us, not
baselessly, to again shift perspectives and
again see the credit card company as the
debtor/obligor, insofar as it has the obligation
to the customer as creditor/obligee to act
promptly on its purchases on credit.
Same; Same; Same; Notwithstanding
the popular notion that credit card purchases
are approved within seconds, there really
is no strict, legally determinative point of
demarcation on how long must it take for a
credit card company to approve or
disapprove a customers purchase, much less
one specifically contracted upon by the
parties, but one hour appears to be an
awfully long, patently unreasonable length of
time to approve or disapprove a credit card
purchase.Notwithstanding the popular
notion that credit card purchases are
approved within seconds, there really is no
strict, legally determinative point of
demarcation on how long must it take for a
credit card company to approve or
disapprove a customers purchase, much less
one specifically contracted upon by the
parties. Yet this is one of those instances
when youd know it when youd see it, and defendant acted fraudulently or in bad faith,
one hour appears to be an awfully long,
patently unreasonable length of time to
approve or disapprove a credit card purchase.
It is long enough time for the customer to
walk to a bank a kilometer away, withdraw
money over the counter, and return to the
store.
Same; Same; Same; The culpable failure of
the credit card company herein is not the
failure to timely approve the cardholders
purchase, but the more elemental failure to
timely act on the same, whether favorably or
unfavorably.We do not wish do dispute
that respondent has the right, if not the
obligation, to verify whether the credit it is
extending upon on a particular purchase was
indeed contracted by the cardholder, and that
the cardholder is within his means to make
such transaction. The culpable failure of
respondent herein is not the failure to timely
approve petitioners purchase, but the more
elemental failure to timely act on the same,
whether favorably or unfavorably. Even
assuming that respondents credit authorizers
did not have sufficient basis on hand to make
a judgment, we see no reason why respondent
could not have promptly informed petitioner
the reason for the delay, and duly advised him
that resolving the same could take some time.
In that way, petitioner would have had
informed basis on whether or not to pursue
the transaction at Coster, given the attending
circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn
winds in a foreign land and soon forced to
confront the wrath of foreign folk.
Same; Same; Same; Damages; Moral
Damages; Moral damages avail in cases of
breach of contract where the defendant acted
fraudulently or in bad faith, and the court
should find that under the circumstances,
such damages are due.Moral damages
avail in cases of breach of contract where the
and the court should find that under the
circumstances, such damages are due. The
findings of the trial court are ample in
establishing the bad faith and unjustified
neglect of respondent, attributable in
particular to the dilly-dallying of
respondents Manila credit authorizer,
Edgardo Jaurique.
Same; Same; Same; Same; Moral damages
do not avail to soothe the plaints of the simply
impatient, so this decision should not be
cause for relief for those who time the length
of their credit card transactions with a
stopwatch.It should be emphasized that the
reason why petitioner is entitled to damages
is not simply because respondent incurred
delay, but because the delay, for which
culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the
Civil Code for which moral damages are
remunerative. Moral damages do not avail to
soothe the plaints of the simply impatient, so
this decision should not be cause for relief for
those who time the length of their credit card
transactions with a stopwatch. The somewhat
unusual attending circumstances to the
purchase at Costerthat there was a deadline
for the completion of that purchase by
petitioner before any delay would redound to
the injury of his several traveling
companionsgave rise to the moral shock,
mental anguish, serious anxiety, wounded
feelings and social humiliation sustained by
the petitioner, as concluded by the RTC.
Those circumstances are fairly unusual, and
should not give rise to a general entitlement facts.
for damages under a more mundane set of

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Castillo, Layman, Tan, Pantaleon and San Jose for petitioner.

Skycap, Salazar, Hernandez and Gambian for respondent.

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son
Adrian Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of
Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the afternoon of 25
October 1991, the second to the last day of the tour. As the group had arrived late in the city, they
failed to engage in any sight-seeing. Instead, it was agreed upon that they would start early the
next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The
group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of
diamond polishing that lasted for around ten minutes.1 Afterwards, the group was led to the stores
showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to
purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond
close enough in approximation that she decided to buy.2 Mrs. Pantaleon also selected for purchase
a pendant and a chain,3 all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with
his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the
tour group was slated to depart from the store. The sales clerk took the cards imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and informed
the other members of the Pantaleon family that the entire tour group was waiting for them. As it
was already 9:40 a.m., and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait
a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent had
demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed
his daughter to return to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the items
even without respondents approval of the purchase. The spouses Pantaleon returned to the bus. It
is alleged that their offers of apology were met by their tourmates with stony silence. 4 The tour
groups visible irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m.
ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband had to
take a tranquilizer to calm his nerves.

It later emerged that Pantaleons purchase was first transmitted for approval to respondents
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at
9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was
transmitted to respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had
already left Coster, and 78 minutes from the time the purchases were electronically transmitted by
the jewelry store to respondents Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use
his AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by
respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the
respondent, demanding an apology for the inconvenience, humiliation and embarrassment he and
his family thereby suffered for respondents refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 was out of the usual charge purchase
pattern established.10 Since respondent refused to accede to Pantaleons demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of
Makati City, Branch 145.11 Pantaleon prayed that he be awarded P2,000,000.00, as moral damages;
P500,000.00, as exemplary damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation
expenses.12

On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding
him P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as
attorneys fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal,
while Pantaleon moved for partial reconsideration, praying that the trial court award the increased
amount of moral and exemplary damages he had prayed for.14 The RTC denied Pantaleons motion
for partial reconsideration, and thereafter gave due course to respondents Notice of Appeal.15

On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages
in favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence,
this petition.
The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondents
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was a matter of
seconds. Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the
part of respondent in approving the purchases. However, it made two critical conclusions in favor
of respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice,
or gross negligence. Second, it ruled that respondent had exercised diligent efforts to effect the
approval of the purchases, which were not in accordance with the charge pattern petitioner had
established for himself, as exemplified by the fact that at Coster, he was making his very first
single charge purchase of US$13,826, and the record of [petitioner]s past spending with
[respondent] at the time does not favorably support his ability to pay for such purchase.17

On the premise that there was an obligation on the part of respondent to approve or disapprove
with dispatch the charge purchase, petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of respondent in the performance of
its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation to
him as to approve purchases instantaneously or in a matter of seconds.

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are
that the obligation is demandable and liquidated; the debtor delays performance; and the creditor
judicially or extrajudicially requires the debtors performance.18 Petitioner asserts that the Court
of Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the
part of the obligee in accepting the performance of the obligation by the obligor. The requisites of
mora accipiendi are: an offer of performance by the debtor who has the required capacity; the offer
must be to comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.19 The error of the appellate court, argues petitioner, is in relying
on the invocation by respondent of just cause for the delay, since while just cause is
determinative of mora accipiendi, it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor,20 with
the card company as the creditor extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. This relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor while the depositor is
considered as the creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and
again see the credit card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioners perspective appears more sensible than if we were to still regard
respondent as the creditor in the context of this cause of action. If there was delay on the part of
respondent in its normal role as creditor to the cardholder, such delay would not have been in the
acceptance of the performance of the debtors obligation (i.e., the repayment of the debt), but it
would be delay in the extension of the credit in the first place. Such delay would not fall under
mora accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases
on credit, has already been constituted. Herein, the establishment of the debt itself (purchases on
credit of the jewelry) had not yet been perfected, as it remained pending the approval or consent
of the respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioners
purchases with timely dispatch, or for the purposes of this case, within a period significantly less
than the one hour it apparently took before the purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioners purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customers purchase request, whether such
action be favorable or unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a
matter of seconds.

Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in
a matter of seconds.

Defendants credit authorizer Edgardo Jaurique likewise testified:

Q. You also testified that on normal occasions, the normal approval time for charges would be 3
to 4 seconds?
A. Yes, Maam.

Both parties likewise presented evidence that the processing and approval of plaintiffs charge
purchase at the Coster Diamond House was way beyond the normal approval time of a matter of
seconds.

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by
the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the
Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that defendants
Amsterdam office received the request to approve plaintiffs charge purchase at 9:20 a.m.,
Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at
10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] Positive
Identification of Card holder necessary further charges require bank information due to high
exposure. By Jack Manila.

The delay in the processing is apparent to be undue as shown from the frantic successive queries
of Amexco Amsterdam which reads: US$13,826. Cardmember buying jewels. ID seen. Advise
how long will this take? They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times
Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.

x x x

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows
how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in
Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants
own record shows:

01:22the authorization is referred to Manila Amexco

01:32Netherlands gives information that the identification of the cardmember has been
presented and he is buying jewelries worth US $13,826.
01:33Netherlands asks How long will this take?
02:08Netherlands is still asking How long will this take?
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to
act on his use of the card abroad with special handling.22 (Citations omitted)
x x x

Notwithstanding the popular notion that credit card purchases are approved within seconds, there
really is no strict, legally determinative point of demarcation on how long must it take for a credit
card company to approve or disapprove a customers purchase, much less one specifically
contracted upon by the parties. Yet this is one of those instances when youd know it when youd
see it, and one hour appears to be an awfully long, patently unreasonable length of time to approve
or disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as to approve or disapprove the purchase
in timely dispatch, and not to approve the purchase instantaneously or within seconds.
Certainly, had respondent disapproved petitioners purchase within seconds or within a timely
manner, this particular action would have never seen the light of day. Petitioner and his family
would have returned to the bus without delayinternally humiliated perhaps over the rejection of
his cardyet spared the shame of being held accountable by newly-made friends for making them
miss the chance to tour the city of Amsterdam.

We do not wish to dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction. The culpable failure of respondent
herein is not the failure to timely approve petitioners purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even assuming that respondents credit
authorizers did not have sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed
basis on whether or not to pursue the transaction at Coster, given the attending circumstances.
Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land
and soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in
bad faith, and the court should find that under the circumstances, such damages are due. The
findings of the trial court are ample in establishing the bad faith and unjustified neglect of
respondent, attributable in particular to the dilly-dallying of respondents Manila credit
authorizer, Edgardo Jaurique.23 Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to
the amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires special handling, meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or travellers checks, which can be
delivered and accepted quickly. Such right was not accorded to plaintiff in the instances
complained off for reasons known only to defendant at that time. This, to the Courts mind,
amounts to a wanton and deliberate refusal to comply with its contractual obligations, or at least
abuse of its rights, under the contract.24

x x x

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since
it alleges to have consumed more than one hour to simply go over plaintiffs past credit history
with defendant, his payment record and his credit and bank references, when all such data are
already stored and readily available from its computer. This Court also takes note of the fact that
there is nothing in plaintiffs billing history that would warrant the imprudent suspension of action
by defendant in processing the purchase. Defendants witness Jaurique admits:

Q.But did you discover that he did not have any outstanding account?
A.Nothing in arrears at that time.
Q.You were well aware of this fact on this very date?
A.Yes, sir.

Mr. Jaurique further testified that there were no delinquencies in plaintiffs account.25

It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led
to the particular injuries under Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase at Costerthat
there was a deadline for the completion of that purchase by petitioner before any delay would
redound to the injury of his several traveling companionsgave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as
concluded by the RTC.27 Those circumstances are fairly unusual, and should not give rise to a
general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-
fast rule in determining what would be a fair and reasonable amount of moral damages, since each
case must be governed by its own peculiar facts, however, it must be commensurate to the loss or
injury suffered.28 Petitioners original prayer for P5,000,000.00 for moral damages is excessive
under the circumstances, and the amount awarded by the trial court of P500,000.00 in moral
damages more seemly.

Likewise, we deem exemplary damages available under the circumstances, and the amount of
P300,000.00 appropriate. There is similarly no cause though to disturb the determined award of
P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145
in Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.
Carpio-Morales (Acting Chairperson), Velasco, Jr., Leonardo-De Castro** and Brion,
JJ., concur.

Petition granted, judgment reversed and set aside.

Notes.Prospective sureties to credit card applicants would be well-advised to study carefully

the terms of the agreements prepared by credit card companies before giving their consent, and
pay heed to stipulations that could lead to onerous effects. (Molino vs. Security Diners
International Corporation, 363 SCRA 358 [2001])

While it is true that a credit card company may have no control of all the actions of its merchant
affiliates, and should not be held liable therefor, it is incorrect, however, to give it blanket freedom
from liability if its card is dishonored by any merchant affiliate for any reason. (Aznar vs. Citibank,
N.A. [Philippines], 519 SCRA 287 [2007])
o0o
_______________
** Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby designated as
additional member of the Second Division in lieu of Justice Leonardo A. Quisumbing, who is on
official leave.
 G.R. No. 154885. March 24, 2008.*
DIESEL CONSTRUCTION CO., INC., petitioner, vs. UPSI PROPERTY HOLDINGS,
INC., respondent.
G.R. No. 154937. March 24, 2008.*

UPSI PROPERTY HOLDINGS, INC., petitioner, vs. DIESEL CONSTRUCTION CO.,

INC. and FGU INSURANCE CORP., respondents.

Administrative Law; The consequent such evidence is clearly, manifestly and

policy and practice underlying our
Administrative Law is that courts of justice
should respect the findings of fact of said
administrative agencies, unless there is
absolutely no evidence in support thereof or
such evidence is clearly, manifestly and
patently insubstantial.The CA, in its
assailed resolution, dismissed as untenable
Diesels position that the factual findings of
the CIAC are binding on and concludes the
appellate court. The CA went to clarify,
however, that the general rule is that factual
conclusions of highly specialized bodies are
given great weight and even finality when
supported by substantial evidence. Given this
perspective, the CA was correct in holding
that it may validly review and even overturn
such conclusion of facts when the matter of
its being adequately supported by substantial
evidence duly adduced on record comes to
the fore and is raised as an issue. Well-
established jurisprudence has it that [t]he
consequent policy and practice underlying
our Administrative Law is that courts of
justice should respect the findings of fact of
said administrative agencies, unless there is
absolutely no evidence in support thereof or
patently insubstantial.
Same; Construction Industry
Arbitration Commission (CIAC); The
question of whether or not the findings of fact
of the Construction Industry Arbitration
Commission (CIAC) are supported by
substantial evidence has no causal
connection to the personal qualifications of
the members of the arbitration panelsurely,
a persons undergraduate or postgraduate
degrees, as the case may be, can hardly be
invoked as the sole, fool proof basis to
determine that persons qualification to hold
a certain position.There can be no serious
dispute about the correctness of the CAs
above posture. However, what the appellate
court stated later to belabor its point strikes
the Court as specious and uncalled for. Wrote
the CA: This dictum finds greater application
in the case of the CIAC because x x x as
pointed out by petitioner in its Comment, the
doctrine of primary jurisdiction relied upon
by [Diesel] is diluted by the indubitable fact
that the CIAC panel x x x is not at all
composed of technocrats, or persons
exceptionally well-versed in the construction
industry. For instance, its chair x x x is a
statistician; another member, x x x a former
magistrate, is a member of the Bar.
Doubtless, these two are preeminent in their
fields, and their competence and proficiency
in their chosen professions are
unimpeachable. However, when it comes to
determining findings of fact with respect to
the matter before Us, the said panel which
they partly comprise cannot claim to have
any special advantage over the members of
this Court. The question of whether or not the
findings of fact of the CIAC are supported by
substantial evidence has no causal connection
to the personal qualifications of the members
of the arbitration panel. Surely, a persons
undergraduate or postgraduate degrees, as the
case may be, can hardly be invoked as the
sole, fool proof basis to determine that
persons qualification to hold a certain
position. Ones work experiences and
attendance in relevant seminars and trainings
would perhaps be the more important factors
in gauging a persons fitness to a certain
undertaking.
Same; Same; Presumption of Regularity;
Evidence; A party in whose favor the legal
presumption exists may rely on and invoke
such legal presumption to establish a fact in
issueone need not introduce evidence to
prove that the fact for a presumption is prima
facie proof of the fact presumed.Diesel,
obviously having in mind the disputable
presumption of regularity, correctly argues
that highly specialized agencies are presumed
to have the necessary technical expertise in
their line of authority. In other words, the
members of the Arbitral Tribunal of the
CIAC have in their favor the presumption of
possessing the necessary qualifications and
competence exacted by law. A party in whose
favor the legal presumption exists may rely
on and invoke such legal presumption to
establish a fact in issue. One need not
introduce evidence to prove that the fact for a
presumption is prima facie proof of the fact
presumed.
Same; Same; Obligations and
Contracts; A level of work accomplishment of
97.56% complete would, by any rational
norm, be considered as substantial to
warrant full payment of the contract amount,
less actual damages suffered by the
principal.As evidenced by UPSIs
Progress Report No. 19 for the period ending
March 22, 2000, Diesels scope of work, as
of that date, was already 97.56% complete.
Such level of work accomplishment would,
by any rational norm, be considered as
substantial to warrant full payment of the
contract amount, less actual damages
suffered by UPSI. Article 1234 of the Civil
Code says as much, If the obligation had
been substantially performed in good faith,
the obligor may recover as though there had
been a strict and complete fulfillment, less
damages suffered by the obligee.
Supreme Court; Appeals; It is settled
rule that the Court, not being a trier of facts,
is under no obligation to examine, winnow,
and weigh anew evidence adduced below;
Exceptions.The Court cannot accord the
desired review. It is settled rule that the
Court, not being a trier of facts, is under no
obligation to examine, winnow, and weigh
anew evidence adduced below. This general
rule is, of course, not absolute. In Superlines
Transportation Company, Inc. v. Philippine
National Construction Company, 519 SCRA
432 (2007), the Court enumerated the
recognized exceptions to be: x x x (1) when
the findings are grounded entirely on
speculation, surmises or conjectures; (2)
when the inference made is manifestly
mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension
of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings
the [CA] went beyond the issues of the case,
or its findings are contrary to the admissions
of both the appellant and the appellee; (7)
when the findings are contrary to the trial
court; (8) when the findings are conclusions
without citation of specific evidence on
which they are based; (9) when the facts set
forth in the petition as well as in the
petitioners main and reply briefs are not
disputed by the respondent; (10) when the
findings of fact are premised on the supposed
absence of evidence and contradicted by the
evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain
relevant facts not disputed by the parties,
which, if properly considered, would justify a
different conclusion. (Emphasis supplied.)

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
Perlas, De Guzman, Antonio, Venturanza, Quizon-Venturanza & Herbosa Law Firm and
R.A.V. Saguisag for Diesel Construction Company, Inc.
Kalaw, Sy, Vida, Selva & Campos for UPSI Property Holdings, Inc.
Jacinto Jimenez for FGU Insurance Corporation.

VELASCO, JR., J.:

The Case

Before the Court are these petitions for review under Rule 45 separately interposed by Diesel
Construction Co., Inc. (Diesel) and UPSI Property Holdings, Inc. (UPSI) to set aside the Decision1
dated April 16, 2002 as partly modified in a Resolution2 of August 21, 2002, both rendered by the
Court of Appeals (CA) in CA-G.R. SP No. 68340, entitled UPSI Property Holdings, Inc. v. Diesel
Construction Co., Inc., and FGU Insurance Corporation. The CA Decision
modified the Decision dated December 14, 2001 of the Arbitral Tribunal of the Construction
Industry Arbitration Commission (CIAC) in CIAC Case No. 18-2001, while the CA Resolution
granted in part the motion of Diesel for reconsideration and denied a similar motion of UPSI.

The Facts

The facts, as found in the CA Decision under review, are as follows:

On August 26, 1995, Diesel, as Contractor, and UPSI, as Owner, entered into a Construction
Agreement3 (Agreement) for the interior architectural construction works for the 14th to 16th
floors of the UPSI Building 3 Meditel/Condotel Project (Project) located on Gen. Luna St., Ermita,
Manila. Under the Agreement, as amended, Diesel, for PhP 12,739,099, agreed to undertake the
Project, payable by progress billing.4 As stipulated, Diesel posted, through FGU Insurance Corp.
(FGU), a performance bond in favor of UPSI.5

Inter alia, the Agreement contained provisions on contract works and Project completion,
extensions of contract period, change/extra works orders, delays, and damages for negative
slippage.

Tasked to oversee Diesels work progress were: Grace S. Reyes Designs, Inc. for interior
design and architecture, D.L. Varias and Associates as Construction Manager, and Ryder Hunt
Loacor, Inc. as Quantity Surveyor.6

Under the Agreement, the Project prosecution proper was to start on August 2, 1999, to run
for a period of 90 days or until November 8, 1999. The parties later agreed to move the
commencement date to August 21, 1999, a development necessitating the corresponding
movement of the completion date to November 20, 1999.

Of particular relevance to this case is the section obliging the contractor, in case of unjustifiable
delay, to pay the owner liquidated damages in the amount equivalent to one-fifth (1/5) of one (1)
percent of the total Project cost for each calendar day of delay.7

In the course of the Project implementation, change orders were effected and extensions sought.
At one time or another, Diesel requested for extension owing to the following causes or delaying
factors: (1) manual hauling of materials from the 14th to 16th floors; (2) delayed supply of marble;
(3) various change orders; and (4) delay in the installation of shower assembly.8

UPSI, it would appear, disapproved the desired extensions on the basis of the foregoing causes,
thus putting Diesel in a state of default for a given contract work. And for every default situation,
UPSI assessed Diesel for liquidated damages in the form of deductions from Diesels progress
payments, as stipulated in the Agreement.9

Apparently irked by and excepting from the actions taken by UPSI, Diesel, thru its Project
manager, sent, on March 16, 2000, a letter notice to UPSI stating that the Project has been
completed as of that date. UPSI, however, disregarded the notice, and refused to accept delivery
of the contracted premises, claiming that Diesel had abandoned the Project unfinished. Apart
therefrom, UPSI withheld Diesels 10% retention money and refused to pay the unpaid balance
of the contract price.10

It is upon the foregoing factual backdrop that Diesel filed a complaint before the CIAC, praying
that UPSI be compelled to pay the unpaid balance of the contract price, plus damages and
attorneys fees. In an answer with counterclaim, UPSI denied liability, accused Diesel of
abandoning a project yet to be finished, and prayed for repayment of expenses it allegedly incurred
for completing the Project and for a declaration that the deductions it made for liquidated damages
were proper. UPSI also sought payment of attorneys fees.11

After due hearing following a protracted legal sparring, the Arbitral Tribunal of the CIAC, on
December 14, 2001, in CIAC Case No. 18-2001, rendered judgment for Diesel, albeit for an
amount lesser than its original demand. To be precise, the CIAC ordered UPSI to pay Diesel the
total amount of PhP 4,027,861.60, broken down as follows: PhP 3,661,692.60, representing the
unpaid balance of the contract price; and PhP 366,169 as attorneys fees. In the same decision, the
CIAC dismissed UPSIs counterclaim12 and assessed it for arbitration costs in the amount of PhP
298,406.03.13

In time, UPSI went to the CA on a petition for review, docketed as CA-G.R. SP No. 68340.
Eventually, the appellate court rendered its assailed Decision dated April 16, 2002, modifying that
of the CIAC, thus:
 WHEREFORE, premises considered, the petition is GRANTED and the questioned
Decision is MODIFIED in this wise:
a. The claim of [UPSI] for liquidated damages is GRANTED to the extent of PESOS:
ONE MILLION THREE HUNDRED NINE THOUSAND AND FIVE HUNDRED
(P1,309,500.00) representing forty-five (45) days of delay at P29,100 per diem;

b. We hold that [Diesel] substantially complied with the Construction Contract and is
therefore entitled to one hundred percent (100%) payment of the contract price. Therefore,
the claim of [Diesel] for an unpaid balance of PESOS: TWO MILLION FOUR HUNDRED
FORTY-ONE THOUSAND FOUR HUNDRED EIGHTY TWO and SIXTY FOUR
centavos (P2,441,482.64), which amount already includes the retention on the additional
works or Change Orders, is GRANTED, minus liquidated damages. In sum, [UPSI] is held
liable to [Diesel] in the amount of PESOS: ONE MILLION ONE HUNDRED THIRTY
ONE THOUSAND NINE HUNDRED EIGHTY TWO and sixty four centavos
(P1,131,982.64), with legal interest until the same is fully paid;

c. The parties are liable equally for the payment of arbitration costs;

d. All claims for attorneys fees are DISMISSED; and

e. Since there is still due and owing from UPSI an amount of money in favor of Diesel,
respondent FGU is DISCHARGED as surety for Diesel.
Costs de officio.
SO ORDERED.14

Therefrom, Diesel and UPSI each sought reconsideration. On August 21, 2002, the CA issued its
equally assailed Resolution denying reconsideration to UPSI, but partially granting Diesels
motion, disposing as follows:

WHEREFORE, the Motion for Reconsideration of [Diesel] is partially GRANTED. The

liquidated damages are hereby reduced to P1,146,519.00 (45 days multiplied by
P25,478.20 per diem). However, in accordance with the main opinion, We hold that [UPSI]
is liable to [Diesel] for the total amount of P3,661,692.64, representing the unpaid balance
of the contract price plus the ten-percent retention, from which the liquidated damages,
must, of course, be deducted. Thus, in sum, as amended, We hold that petitioner is still
liable to respondent Diesel in the amount of P2,515,173.64, with legal interest until the
same is fully paid.
The main opinion, in all other respects, STANDS.
SO ORDERED.15

Hence, these separate petitions are before us.

Per its Resolution of March 17, 2003, the Court ordered the consolidation of the petitions.

The Issues
 In its petition in G.R. No. 154885, Diesel raises the following issues:

1. Whether or not the [CA] has the discretion, indeed the jurisdiction, to pass upon the
qualifications of the individual members of the CIAC Arbitral Tribunal and declare them to be
non-technocrats and not exceptionally well-versed in the construction industry warranting reversal
and nullification of the tribunals findings.

2. Whether or not the [CA] may intervene to annul the findings of a highly specialized agency,
like the CIAC, on the ground that essentially the question to be resolved goes to the very heart of
the substantiality of evidence, when in so doing, [CA] merely substituted its own conjectural
opinion to that of the CIAC Arbitral Tribunals well-supported findings and award.

3. Whether or not the [CA] erred in its findings, which are contrary to the findings of the CIAC
Arbitral Tribunal.16

On the other hand, in G.R. No. 154937, UPSI presents the following issues:

I
Whether or not portion of the Decision dated April 16, 2002 of the Honorable [CA] denying
additional expenses to complete the unfinished and abandoned work of [Diesel], is null and void
for being contrary to clean and convincing evidence on record.
II
Whether or not portion of the Decision x x x of the [CA] finding delay of only forty five (45) days
is null and void for being not in accord with contractual stipulations upon which the controversy
arise.
III
Whether or not the resolution of the Honorable Court of Appeals denying the herein petitioners
motion for reconsideration and partially granting the respondents motion for reconsideration is
likewise null and void as it does not serve its purpose for being more on expounding than rectifying
errors.17

The issues shall be discussed in seriatim.

The Courts Ruling

We resolve to modify the assailed CA Decision.

First Issue

Diesel maintains that the CA erred in its declaration that it may review the CIACs decision
considering the doctrine on the binding effect of conclusions of fact of highly specialized
agencies, such as the CIAC, when supported by substantial evidence.

The above contention is erroneous and, as couched, misleading.

As is noted, the CA, in its assailed resolution, dismissed as untenable Diesels position that the
factual findings of the CIAC are binding on and concludes the appellate court. The CA went to
clarify, however, that the general rule is that factual conclusions of highly specialized bodies are
given great weight and even finality when supported by substantial evidence. Given this
perspective, the CA was correct in holding that it may validly review and even overturn such
conclusion of facts when the matter of its being adequately supported by substantial evidence
duly adduced on record comes to the fore and is raised as an issue.

Well-established jurisprudence has it that [t]he consequent policy and practice underlying our
Administrative Law is that courts of justice should respect the findings of fact of said
administrative agencies, unless there is absolutely no evidence in support thereof or such
evidence is clearly, manifestly and patently insubstantial.18

There can be no serious dispute about the correctness of the CAs above posture. However, what
the appellate court stated later to belabor its point strikes the Court as specious and uncalled for.
Wrote the CA:

This dictum finds greater application in the case of the CIAC because x x x as pointed out
by petitioner in its Comment, the doctrine of primary jurisdiction relied upon by [Diesel]
is diluted by the indubitable fact that the CIAC panel x x x is not at all composed of
technocrats, or persons exceptionally well-versed in the construction industry. For
instance, its chair x x x is a statistician; another member, x x x a former magistrate, is a
member of the Bar. Doubtless, these two are preeminent in their fields, and their
competence and proficiency in their chosen professions are unimpeachable. However,
when it comes to determining findings of fact with respect to the matter before Us, the said
panel which they partly comprise cannot claim to have any special advantage over the
members of this Court.19

The question of whether or not the findings of fact of the CIAC are supported by substantial
evidence has no causal connection to the personal qualifications of the members of the arbitration
panel. Surely, a persons undergraduate or postgraduate degrees, as the case may be, can hardly be
invoked as the sole, fool proof basis to determine that persons qualification to hold a certain
position. Ones work experiences and attendance in relevant seminars and trainings would perhaps
be the more important factors in gauging a persons fitness to a certain undertaking.

Correlatively, Diesel, obviously having in mind the disputable presumption of regularity, correctly
argues that highly specialized agencies are presumed to have the necessary technical expertise in
their line of authority. In other words, the members of the Arbitral Tribunal of the CIAC have in
their favor the presumption of possessing the necessary qualifications and competence exacted by
law. A party in whose favor the legal presumption exists may rely on and invoke such legal
presumption to establish a fact in issue. One need not introduce evidence to prove that the fact for
a presumption is prima facie proof of the fact presumed.20

To set the records straight, however, the CA did not cast aspersion on the competence let alone the
bona fides of the members of the Arbitral Tribunal to arbitrate. In context, what the appellate court
saidin reaction to Diesels negative commentary about the CAs expertise on construction
mattersis that the said members do not really enjoy a special advantage over the members of the
CA in terms of fleshing out the facts from the evidence on record.

In any event, the fact remains that the CA stands justified in reviewing the CIAC decision.

Second and Third Issues

The next two issues, being interrelated, shall be discussed jointly.

Diesel submits that the CA, in reaching its decision, substituted its own conjectural opinion to
that of the CIACs well-grounded findings and award.

Even as Diesels submission has little to commend itself, we deem it prudent to address its
concern by reviewing the incongruent determinations of the CIAC and CA and the factual
premises holding such determinations together.
As it were, the CA reduced the award for unpaid balance of the contract cost from PhP
3,661,692.60, as earlier fixed by the CIAC, to PhP 2,441,482.64, although it would consider the
reduction and revert to the original CIAC figure. Unlike the CIAC which found the award of
liquidated damages to be without basis, the CA was of a different disposition and awarded UPSI
PhP 1,309,500, only to reduce the same to PhP 1,146,519 in its assailed resolution. Also, the CA
struck out the CIAC award of PhP 366,169 to Diesel for attorneys fees. Additionally, the
CIACs ruling making UPSI alone liable for the costs of arbitration was modified by the CA,
which directed UPSI and Diesel to equally share the burden.

The CIAC found Diesel not to have incurred delay, thus negating UPSIs entitlement to liquidated
damages. The CA, on the other hand, found Diesel to have been in delay for 45 days.

In determining whether or not Diesel was in delay, the CIAC and CA first turned on the question
of Diesels claimed entitlement to have the Project period extended, an excusable delay being
chargeable against the threshold 90-day completion period. Both were one in saying that
occurrence of certain events gave Diesel the right to an extension, but differed on the matter of
length of the extension, and on the nature of the delay, that is, whether the delay is excusable or
not. The CA deemed the delay, and the resulting extension of 14 days, arising from the manual
hauling of materials, as undeserved. But the CIAC saw it otherwise for the reason that Frederick
W. Crespillo, the witness UPSI presented to refute the allegation of Diesels entitlement to time
extension for the manual hauling of materials, was incompetent to testify on the issue. As CIAC
observed, Crespillo lacked personal knowledge of the real situation at the worksite.

The CIACs reasoning, however, is flawed, assuming that the onus rested on UPSI, instead of on
Diesel, to prove that the delay in the execution of the Project was excusable. Diesel explained that
there was no place for its own hoisting machine at the Project site as the assigned location was
being used by the General Contractor, while the alternative location was not feasible due to power
constraint. Moreover, Diesel could not use the site elevator of the General Contractor as its
personnel were only permitted to use the same for one hour every day at PhP 600 per hour.
The provisions in the Agreement on excusable delays read:

2.3 Excusable delays: The Contractor shall inform the owner in a timely manner, of any delay
caused by the following:
2.3.a Acts of God, such as storm, floods or earthquakes.
2.3.b Civil disturbance, such as riots, revolutions, insurrection.
2.3.c Any government acts, decrees, general orders or regulations limiting the performance of
the work.
2.3.d Wars (declared or not).
2.3.e Any delays initiated by the Owner or his personnel which are clearly outside the control of
the Contractor.
2.3.1 Delays caused by the foregoing shall be excusable. A new schedule or adjustments in
contract time shall be negotiated with the Owner. As time is of the essence of this agreement, all
other delays shall not be excusable.21

As may be noted, a common thread runs among the events listed above, that is, the delaying event
is unforeseeable and/or its occurrence is beyond the control of Diesel as contractor. Here, the lack
of a location to establish Diesels own hoisting machine can hardly be tagged as a foreseeable
event. As the CA aptly observed:

[U]nder the terms of the contract, it is Diesel that would formulate the schedule to be followed in
the completion of the works; therefore, it was encumbent upon Diesel to take into account all
factors that would come into play in the course of the project. From the records it appears that the
General Contractor x x x had been in the premises ahead of Diesel; hence it would have been a
simple matter for Diesel to have conferred with the formers officer if the use of its equipment
would be viable. Likewise, it would not have been too much trouble for Diesel to have made a
prior request from UPSI for the use of its freight elevatorin the face of the denial thereof, it could
have made the necessary remedial measures x x x. In other words, those delays were foreseeable
on the part of Diesel, with the application of even ordinary diligence. But Diesel did all of those
when construction was about to commence. Therefore, We hold that the delays occasioned by
Diesels inability to install its hoisting machine x x x [were] attributable solely to Diesel, and thus
the resultant delay cannot be charged against the ninety-day period for the termination of the
construction.22
There can be no quibbling that the delay caused by the manual hauling of materials is not excusable
and, hence, cannot validly be set up as ground for an extension. Thus, the CA excluded the delay
caused thereby and only allowed Diesel a total extension period of 85 days. Such extension,
according to that court, effectively translated to a delay of 45 days in the completion of the project.
The CA, in its assailed decision, explained why:

7. All told, We find, and so hold, that [Diesel] has incurred in delay. x x x However, under the
circumstances wherein UPSI was responsible for some of the delay, it would be most unfair to
charge Diesel with two hundred and forty (240) days of delay, so much so that it would still owe
UPSI, even after liquidated damages have eaten up the retention and unpaid balance, the amount
of [P4,340,000.00]. Thus, based on Our own calculations, We deem it more in accord with the
spirit of the contract, as amended, x x x to assess Diesel with an unjustifiable delay of forty-five
(45) days only; hence, at the rate of 1/5 of one percent as stated in the contract, [or at
P1,309,500.00], which should be deducted from the total unpaid balance of [P2,441,482.64],
which amount already includes the retention on the additional works or Change Orders.23
The CA, in its questioned resolution, expounded on how it arrived at the figure of 45-day delay in
this wise:

7. x x x We likewise cannot give Our assent to the asseveration of [Diesel] that Our calculations
as to the number of days of delay have no basis. For indeed, the same was arrived at after taking a
holistic view of the entire circumstances attendant to the instant case. x x x

But prescinding from the above, the basis for Our ruling should not be hard to discern. To disabuse
the mind of [Diesel] that the forty-five day delay was plucked from out of the blue, allow Us to let
the records speak. The records will show that while the original target date for the completion x x x
was 19 November 1999 x x x, there is a total of eighty-five (85) days of extension which are
justifiable and sanctioned by [UPSI], to wit: thirty (30) days as authorized on 27 January 2000 by
UPSIs Construction Manager x x x; thirty (30) days as again consented to by the same
Construction Manager on 24 February 2000 x x x; and twenty-five (25) days on 16 March 2000
by Rider Hunt and Liacom x x x. The rest of the days claimed by Diesel were, of course, found by
Us to be unjustified in the main opinion. Hence, the project should have been finished by February
12, 2000. However, by 22 March 2000, as certified to by Grace S. Reyes Designs, Inc. the project
was only 97.56% finished, meaning while it was substantially finished, it was not wholly finished.
By 25 March 2000, the same consultant conditionally accepted some floors but were still punch
listed, so that from 12 February 2000 to 25 March 2000 was a period of forty-one (41) days.
Allowing four (4) more days for the punch listed items to be accomplished, and for the general
cleaning mentioned by Grace S. Reyes Designs, Inc., to be done, which to Us is a reasonable
length of time, equals forty-five (45) days.

This is why We find the [conclusion] made by the CIAC, x x x that there was no delay whatsoever
in the work done by [Diesel], too patently absurd for Us to offer Our unconditional assent.24

Aside from the fact that the CA seemingly assumed contradictory positions in the span of two
paragraphs, its holding immediately adverted to above is patently erroneous. The CA completely
failed to factor in the change orders of UPSI to Dieselthe directives effectively extending the
Project completion time at the behest of UPSI.

Section V of the Agreement on the subject Change Orders reads:

V. CHANGES IN SCOPE OF WORK AND EXTRA WORK

Any changes or extra work in the SCOPE OF WORK recommended by the INTERIOR
DESIGNER/ARCHITECT or directed and approved by the OWNER shall be presented to the
CONTRACTOR. Within the shortest time possible, the CONTRACTOR x x x shall also inform
the OWNER if such changes shall require a new schedule and/or revised completion date.

The Parties shall then negotiate mutually agreeable terms x x x. The CONTRACTOR shall not
perform any change order or extra work until the covering terms are agreed upon [in writing and
signed by the parties].25

Pursuant thereto, UPSI issued Change Order (CO) Nos. 1 to 4 on February 3, 2, 8, and 9, 2000
respectively. Thereafter, Diesel submitted a Schedule of Completion of Additional Works26 under
which Diesel committed to undertake CO No. 1 for 30 days from February 10, 2000; CO No. 2 for
21 days from January 6, 2000; CO No. 3 for 15 days, subject to UPSIs acceptance of Diesels
proposal; and CO No. 4 for 10 days after the receipt of the items from UPSI.

The CIAC found that the COs were actually implemented on the following dates:
CO No. 1February 9 to March 3, 2000
CO No. 3February 24 to March 10, 2000
CO No. 4March 16 to April 7, 200027

Hence, as correctly held by the CIAC, UPSI, no less, effectively moved the completion date,
through the various COs, to April 7, 2000.

Moreover, as evidenced by UPSIs Progress Report No. 19 for the period ending March 22, 2000,
Diesels scope of work, as of that date, was already 97.56% complete.28 Such level of work
accomplishment would, by any rational norm, be considered as substantial to warrant full payment
of the contract amount, less actual damages suffered by UPSI. Article 1234 of the Civil Code says
as much, If the obligation had been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

The fact that the laborers of Diesel were still at the work site as of March 22, 2000 is a reflection
of its honest intention to keep its part of the bargain and complete the Project. Thus, when Diesel
attempted to turn over the premises to UPSI, claiming it had completed the Project on March 15,
2000, Diesel could no longer be considered to be in delay. Likewise, the CIAC cited the Uniform
General Conditions of Contract for Private Construction (CIAP Document 102), wherein it is
stated that no liquidated damages for delay beyond the completion time shall accrue after the date
of substantial completion of the work.29

In all, Diesel cannot be considered as in delay and, hence, is not amenable under the Agreement
for liquidated damages.

As to the issue of attorneys fees, Diesel insists that bad faith tainted UPSIs act of imposing
liquidated damages on account of its (Diesels) alleged delay. And, this prompted Diesel to file its
petition for arbitration. Thus, the CIAC granted Diesel an award of PhP 366,169 as attorneys fees.
However, the CA reversed the CIAC on the award, it being its finding that Diesel was in delay.

The Court resolves to reinstate the CIACs award of attorneys fees, there being sufficient
justification for this kind of disposition. As earlier discussed, Diesel was not strictly in delay in the
completion of the Project. No valid reason, therefore, obtains for UPSI to withhold the retention
money or to refuse to pay the unpaid balance of the contract price. Indeed, the retention and
nonpayment were, to us, as was to the CIAC, resorted to by UPSI out of whim, thus forcing the
hand of Diesel to sue to recover what is rightfully due. Thus, the grant of attorneys fees would be
justifiable under Art. 2208 of the Civil Code, thus:

Article 2208. In the absence of stipulation, attorneys fees and expenses of litigation x x x
cannot be recovered, except:
xxxx

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim.

And for the same reason justifying the award of attorneys fees, arbitration costs ought to be
charged against UPSI, too.

Fourth Issue

UPSI urges a review of the factual basis for the parallel denial by the CIAC and CA of its claim
for additional expenses to complete the Project. UPSI states that the reality of Diesel having
abandoned the Project before its agreed completion is supported by clear and convincing
evidence.

The Court cannot accord the desired review. It is settled rule that the Court, not being a trier of
facts, is under no obligation to examine, winnow, and weigh anew evidence adduced below. This
general rule is, of course, not absolute. In Superlines Transportation Company, Inc. v. Philippine
National Construction Company, the Court enumerated the recognized exceptions to be:

x x x (1) when the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the [CA]
went beyond the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when
the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioners main and reply briefs
are not disputed by the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record; and (11) when
the Court of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.30 (Emphasis
supplied.)

In the instant case, the factual findings of the CIAC and CA, with regard to the completion of the
Project and UPSIs entitlement to recover expenses allegedly incurred to finish the Project, do not
fall under any one of these exceptions. As things stand, the factual findings of the CIAC and CA
are supported by evidence presented during the hearing before the Arbitral Tribunal. Consider
what the CIAC wrote:

This Tribunal finds overwhelming evidence to prove that accomplishment as of the alleged
period of takeover was 95.87% as of March 3, 2000 and increased to 97.56% on March 15, 2000
based on Progress Report # 18. x x x This is supported by the statement of [UPSIs] witness, Mr.
Crespillo x x x where he conceded that such admissions and statements bound [UPSI, the Owner].
By that time, [Diesel] had substantially completed the project and only needed to correct the items
included in the punchlist.31

The CA seconded what the CIAC said, thus:

6. Neither are We prepared to sustain UPSIs argument that Diesel left the work unfinished and
pulled-out all of its workmen from the project. This claim is belied by the assessment of its own
Construction Manager in Progress Report No. 19 for the period ending 22 March 2000, wherein
it was plaintly stated that as of that period, with respect to Diesel, there were still twenty-three
laborers on site with the project 97.56% complete x x x. This indicates that the contracted works
of Diesel were substantially completed with only minor corrections x x x, thus contradicting the
avowal of UPSI that the work was abandoned in such a state that necessitated the engagement of
another contractor for the project to be finished. It was therefore not right for UPSI to have declined
the turn-over and refused the full payment of the contract price, x x x.32

Given the 97.56% work accomplishment tendered by Diesel, UPSIs theory of abandonment and
of its having spent a sum to complete the work must fall on its face. We can concede hypothetically
that UPSI undertook what it characterized as additional or rectification works on the Project.
But as both the CIAC and CA held, UPSI failed to show that such additional or rectification
works, if there be any, were the necessary result of the faulty workmanship of Diesel.

The Court perceives of no reason to doubt, much less disturb, the coinciding findings of the CIAC
and CA on the matter.

The foregoing notwithstanding and considering that Diesel may only be credited for 97.56% work
accomplishment, UPSI ought to be compensated, by way of damages, in the amount corresponding
to the value of the 2.44% unfinished portion (100% 97.56% = 2.44%). In absolute terms, 2.44%
of the total Project cost translates to PhP 310,834.01. This disposition is no more than adhering to
the command of Art. 1234 of the Civil Code.

The fifth and sixth issues have already been discussed earlier and need not detain us any longer.

WHEREFORE, Diesels petition is PARTIALLY GRANTED and UPSIs Petition is DENIED

with qualification. The assailed Decision dated April 16, 2002 and Resolution dated August 21,
2002 of the CA are MODIFIED, as follows:

(1) The award for liquidated damages is DELETED;

(2) The award to Diesel for the unpaid balance of the contract price of PhP3,661,692.64 is
AFFIRMED;
(3) UPSI shall pay the costs of arbitration before the CIAC in the amount of PhP298,406.03;
(4) Diesel is awarded attorneys fees in the amount of PhP366,169; and
(5) UPSI is awarded damages in the amount of PhP310,834.01, the same to be deducted from
the retention money, if there still be any, and, if necessary, from the amount referred to in item (2)
immediately above.

In summary, the aggregate award to Diesel shall be PhP3,717,027.64. From this amount shall be
deducted the award of actual damages of PhP310,834.01 to UPSI which shall pay the costs of
arbitration in the amount of PhP298,406.03.
FGU is released from liability for the performance bond that it issued in favor of Diesel.

No costs.
SO ORDERED.
Quisumbing (Chairperson), Carpio-Morales, Tinga and Chico-Nazario,** JJ., concur.

Diesels petition partially granted and UPSIs petition denied with qualification.

Notes.As an arbitration body, the Construction Industry Arbitration Commission (CIAC)

can only resolve issues brought before it by the parties through the Terms of Re-fe-
_______________
** Additional member as per Special Order No. 494 dated March 3, 2008.
 Republic of the Philippines
SUPREME COURT
Manila
SPECIAL SECOND DIVISION
G.R. No. 174269 August 25, 2010

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
RESOLUTION
BRION, J.:

We resolve the motion for reconsideration filed by respondent American Express International,
Inc. (AMEX) dated June 8, 2009,1 seeking to reverse our Decision dated May 8, 2009 where we
ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder
petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral and
exemplary damages, as well as attorneys fees and costs of litigation.2

FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing credit services
through the operation of a charge card system. Pantaleon has been an AMEX cardholder since
1980.3

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son
(Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived
in Amsterdam. Due to their late arrival, they postponed the tour of the city for the following
day.4

The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster
Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before
their departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the
latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for
this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked
Pantaleon to sign the charge slip, which was then electronically referred to AMEXs Amsterdam
office at 9:20 a.m.5

At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so
Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced
Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that
AMEX was asking for bank references; Pantaleon responded by giving the names of his
Philippine depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not
approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the
tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even
without AMEXs approval.

When the Pantaleons finally returned to the tour bus, they found their travel companions visibly
irritated. This irritation intensified when the tour guide announced that they would have to cancel
the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the
ferry to London.6

From the records, it appears that after Pantaleons purchase was transmitted for approval to
AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manila office at 9:33 a.m.;
and was approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office
finally transmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a
total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry
store.7

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon
experienced delay in securing approval for purchases using his American Express credit card on
two separate occasions. He experienced the first delay when he wanted to purchase golf
equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on
October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth
US$87.00 at the Quiency Market in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation
and inconvenience he and his family experienced due to the delays in obtaining approval for his
credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to
the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons
established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action
for damages against the credit card company with the Makati City Regional Trial Court (RTC).

On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00
as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and
P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards.8 While the CA recognized that delay in the nature of
mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it
disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay
was not attended by bad faith, malice or gross negligence.

The appellate court found that AMEX exercised diligent efforts to effect the approval of
Pantaleons purchases; the purchase at Coster posed particularly a problem because it was at
variance with Pantaleons established charge pattern. As there was no proof that AMEX
breached its contract, or that it acted in a wanton, fraudulent or malevolent manner, the appellate
court ruled that AMEX could not be held liable for any form of damages.

Pantaleon questioned this decision via a petition for review on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX was
guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit
provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with
"timely dispatch." Based on the evidence on record, we found that AMEX failed to timely act on
Pantaleons purchases.

Based one ly, tual obligations. 271,ct; moral damages le. uitable that attorney'workers;plaitniff'
the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card
charges would be three to four seconds under regular circumstances. In Pantaleons case, it took
AMEX 78 minutes to approve the Amsterdam purchase. We attributed this delay to AMEXs
Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history,
his payment record and his credit and bank references before he approved the purchase. Finding
this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and
exemplary damages, as well as attorneys fees and costs of litigation.

THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX
guilty of culpable delay in complying with its obligation to act with timely dispatch on
Pantaleons purchases. While AMEX admits that it normally takes seconds to approve charge
purchases, it emphasizes that Pantaleon experienced delay in Amsterdam because his transaction
was not a normal one. To recall, Pantaleon sought to charge in a single transaction jewelry
items purchased from Coster in the total amount of US$13,826.00 or P383,746.16. While the
total amount of Pantaleons previous purchases using his AMEX credit card did exceed
US$13,826.00, AMEX points out that these purchases were made in a span of more than 10
years, not in a single transaction.

Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit
card, AMEX argues that the transaction necessarily required the credit authorizer to carefully
review Pantaleons credit history and bank references. AMEX maintains that it did this not only
to ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently
using his credit card), but also to protect itself from the risk that Pantaleon might not be able to
pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with
the extraordinary degree of diligence required of banks in handling its transactions. AMEX
concluded that in these lights, the thorough review of Pantaleons credit record was motivated by
legitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.

AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassment
was his own decision to proceed with the purchase despite his awareness that the tour group was
waiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelled
the sale when he noticed that the credit approval for the Coster purchase was unusually delayed.

In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora
solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences
of delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve
it from the liability arising from its failure to timely act on Pantaleons purchase.
In response to AMEXs assertion that the delay was in keeping with its duty to perform its
obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or
prompt performance of its obligation.
As to AMEXs contention that moral or exemplary damages cannot be awarded absent a finding
of malice, Pantaleon argues that evil motive or design is not always necessary to support a
finding of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient
basis for the award of moral and exemplary damages.

OUR RULING

We GRANT the motion for reconsideration.

Brief historical background

A credit card is defined as "any card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or anything of value on credit."9
It traces its roots to the charge card first introduced by the Diners Club in New York City in
1950.10 American Express followed suit by introducing its own charge card to the American
market in 1958.11

In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card
into the country in the 1970s.12 However, it was only in the early 2000s that credit card use
gained wide acceptance in the country, as evidenced by the surge in the number of credit card
holders then.13

Nature of Credit Card Transactions

To better understand the dynamics involved in credit card transactions, we turn to the United
States case of Harris Trust & Savings Bank v. McCray14 which explains:

The bank credit card system involves a tripartite relationship between the issuer bank, the
cardholder, and merchants participating in the system. The issuer bank establishes an account on
behalf of the person to whom the card is issued, and the two parties enter into an agreement
which governs their relationship. This agreement provides that the bank will pay for cardholders
account the amount of merchandise or services purchased through the use of the credit card and
will also make cash loans available to the cardholder. It also states that the cardholder shall be
liable to the bank for advances and payments made by the bank and that the cardholders
obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand by
the cardholder with respect to any merchandise or service purchased.

The merchants participating in the system agree to honor the banks credit cards. The bank
irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant
performs his undertakings such as checking the list of revoked cards before accepting the card. x
x x.

These slips are forwarded to the member bank which originally issued the card. The cardholder
receives a statement from the bank periodically and may then decide whether to make payment
to the bank in full within a specified period, free of interest, or to defer payment and ultimately
incur an interest charge.

We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),15
where we also recognized that credit card issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular,
refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x
x x or services x x x on credit;" and is being used "usually on a revolving basis." This means that
the consumer-credit arrangement that exists between the issuer and the holder of the credit card
enables the latter to procure goods or services "on a continuing basis as long as the outstanding
balance does not exceed a specified limit." The card holder is, therefore, given "the power to
obtain present control of goods or service on a promise to pay for them in the future."

Business establishments may extend credit sales through the use of the credit card facilities of a
non-bank credit card company to avoid the risk of uncollectible accounts from their customers.
Under this system, the establishments do not deposit in their bank accounts the credit card drafts
that arise from the credit sales. Instead, they merely record their receivables from the credit card
company and periodically send the drafts evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments, but
it does not redeem the drafts at full price. The agreement between them usually provides for
discounts to be taken by the company upon its redemption of the drafts. At the end of each
month, it then bills its credit card holders for their respective drafts redeemed during the previous
month. If the holders fail to pay the amounts owed, the company sustains the loss.
Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract
between the credit card holder and the merchant or the business establishment which accepted
the credit card; (b) the loan agreement between the credit card issuer and the credit card holder;
and lastly, (c) the promise to pay between the credit card issuer and the merchant or business
establishment.16
Credit card issuer cardholder relationship

When a credit card company gives the holder the privilege of charging items at establishments
associated with the issuer,17 a necessary question in a legal analysis is when does this
relationship begin? There are two diverging views on the matter. In City Stores Co. v.
Henderson,18 another U.S. decision, held that:

The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral
and supported by no consideration. The offer may be withdrawn at any time, without prior
notice, for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty for
there is no duty to continue it and violates no rights.
Thus, under this view, each credit card transaction is considered a separate offer and acceptance.

Novack v. Cities Service Oil Co.19 echoed this view, with the court ruling that the mere issuance
of a credit card did not create a contractual relationship with the cardholder.

On the other end of the spectrum is Gray v. American Express Company20 which recognized the
card membership agreement itself as a binding contract between the credit card issuer and the
card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray
paid an annual fee for the privilege of being an American Express cardholder.

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between
the credit card issuer and the credit card holder as a contractual one that is governed by the terms
and conditions found in the card membership agreement.21 This contract provides the rights and
liabilities of a credit card company to its cardholders and vice versa.

We note that a card membership agreement is a contract of adhesion as its terms are prepared
solely by the credit card issuer, with the cardholder merely affixing his signature signifying his
adhesion to these terms.22 This circumstance, however, does not render the agreement void; we
have uniformly held that contracts of adhesion are "as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely."23 The only effect is
that the terms of the contract are construed strictly against the party who drafted it.24

On AMEXs obligations to Pantaleon

We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the
issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon
presumes that since his credit card has no pre-set spending limit, AMEX has the obligation to
approve all his charge requests. Conversely, even if AMEX has no such obligation, at the very
least it is obliged to act on his charge requests within a specific period of time.

i. Use of credit card a mere offer to enter into loan agreements

Although we recognize the existence of a relationship between the credit card issuer and the
credit card holder upon the acceptance by the cardholder of the terms of the card membership
agreement (customarily signified by the act of the cardholder in signing the back of the credit
card), we have to distinguish this contractual relationship from the creditor-debtor relationship
which only arises after the credit card issuer has approved the cardholders purchase request. The
first relates merely to an agreement providing for credit facility to the cardholder. The latter
involves the actual credit on loan agreement involving three contracts, namely: the sales
contract between the credit card holder and the merchant or the business establishment which
accepted the credit card; the loan agreement between the credit card issuer and the credit card
holder; and the promise to pay between the credit card issuer and the merchant or business
establishment.

From the loan agreement perspective, the contractual relationship begins to exist only upon the
meeting of the offer25 and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the purchase requests
that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code,
which provides:

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.

This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX "reserve[s] the right to deny
authorization for any requested Charge." By so providing, AMEX made its position clear that
it has no obligation to approve any and all charge requests made by its card holders.

ii. AMEX not guilty of culpable delay

Since AMEX has no obligation to approve the purchase requests of its credit cardholders,
Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code,
which provides the requisites to hold a debtor guilty of culpable delay, states:

Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation. x x x.

The three requisites for a finding of default are: (a) that the obligation is demandable and
liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially
requires the debtors performance.26

Based on the above, the first requisite is no longer met because AMEX, by the express terms of
the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a
demandable obligation, there can be no finding of default.

Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the
demand required by Article 1169 of the Civil Code.
As previously established, the use of a credit card to pay for a purchase is only an offer to the credit
card company to enter a loan agreement with the credit card holder. Before the credit card issuer
accepts this offer, no obligation relating to the loan agreement exists between them. On the
other hand, a demand is defined as the "assertion of a legal right; xxx an asking with authority,
claiming or challenging as due."27 A demand presupposes the existence of an obligation
between the parties.

Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not
be classified as the demand required by law to make the debtor in default, given that no obligation
could arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleons offers.
Pantaleons act of "insisting on and waiting for the charge purchases to be approved by AMEX"28
is not the demand contemplated by Article 1169 of the Civil Code.

For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty
of culpable delay in approving his purchase requests must fail.

iii. On AMEXs obligation to act on the offer within a specific period of time

Even assuming that AMEX had the right to review his credit card history before it approved his
purchase requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests,
either to approve or deny, in "a matter of seconds" or "in timely dispatch." Pantaleon impresses
upon us the existence of this obligation by emphasizing two points: (a) his card has no pre-set
spending limit; and (b) in his twelve years of using his AMEX card, AMEX had always approved
his charges in a matter of seconds.

Pantaleons assertions fail to convince us.

We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as
well as the two other transactions in the United States which took AMEX approximately 15 to 20
minutes to approve. This conclusion appears valid and reasonable at first glance, comparing the
time it took to finally get the Coster purchase approved (a total of 78 minutes), to AMEXs
"normal" approval time of three to four seconds (based on the testimony of Edgardo Jaurigue, as
well as Pantaleons previous experience). We come to a different result, however, after a closer
look at the factual and legal circumstances of the case.

AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a
credit card simply means that the charges made by the cardholder are approved based on his ability
to pay, as demonstrated by his past spending, payment patterns, and personal resources. 29
Nevertheless, every time Pantaleon charges a purchase on his credit card, the credit card
company still has to determine whether it will allow this charge, based on his past credit
history. This right to review a card holders credit history, although not specifically set out in the
card membership agreement, is a necessary implication of AMEXs right to deny authorization for
any requested charge.
As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has
always approved his charge requests in three or four seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge requests
within a matter of seconds. For one, Pantaleon failed to present any evidence to support his
assertion that AMEX acted on purchase requests in a matter of three or four seconds as an
established practice. More importantly, even if Pantaleon did prove that AMEX, as a matter of
practice or custom, acted on its customers purchase requests in a matter of seconds, this would
still not be enough to establish a legally demandable right; as a general rule, a practice or custom
is not a source of a legally demandable or enforceable right.30

We next examine the credit card membership agreement, the contract that primarily governs the
relationship between AMEX and Pantaleon. Significantly, there is no provision in this
agreement that obligates AMEX to act on all cardholder purchase requests within a
specifically defined period of time. Thus, regardless of whether the obligation is worded was to
"act in a matter of seconds" or to "act in timely dispatch," the fact remains that no obligation exists
on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his testimony
that he could not recall any provision in the Agreement that guaranteed AMEXs approval of his
charge requests within a matter of minutes.31

Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged
obligation to act upon his credit card purchases within a matter of seconds. As the following survey
of Philippine law on credit card transactions demonstrates, the State does not require credit card
companies to act upon its cardholders purchase requests within a specific period of time.

Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved on
February 11, 1998, is the controlling legislation that regulates the issuance and use of access
devices,32 including credit cards. The more salient portions of this law include the imposition of
the obligation on a credit card company to disclose certain important financial information 33 to
credit card applicants, as well as a definition of the acts that constitute access device fraud.

As financial institutions engaged in the business of providing credit, credit card companies fall
under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).34 BSP Circular No. 398
dated August 21, 2003 embodies the BSPs policy when it comes to credit cards

The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through
innovative products such as credit cards under conditions of fair and sound consumer credit
practices. The BSP likewise encourages competition and transparency to ensure more efficient
delivery of services and fair dealings with customers. (Emphasis supplied)

Based on this Circular, "x x x [b]efore issuing credit cards, banks and/or their subsidiary credit
card companies must exercise proper diligence by ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their credit commitments."35 As the above-quoted
policy expressly states, the general intent is to foster "fair and sound consumer credit practices."

Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on September
24, 2004, but this circular merely enumerates the unfair collection practices of credit card
companies a matter not relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor legally
obligated to act on its cardholders purchase requests within any specific period of time, much less
a period of a "matter of seconds" that Pantaleon uses as his standard. The standard therefore is
implicit and, as in all contracts, must be based on fairness and reasonableness, read in relation to
the Civil Code provisions on human relations, as will be discussed below.

AMEX acted with good faith

Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal
obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEX has
a right to review a cardholders credit card history. Our recognition of these entitlements,
however, does not give AMEX an unlimited right to put off action on cardholders
purchase requests for indefinite periods of time. In acting on cardholders purchase requests,
AMEX must take care not to abuse its rights and cause injury to its clients and/or third persons.
We cite in this regard Article 19, in conjunction with Article 21, of the Civil Code, which
provide:

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

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

Article 19 pervades the entire legal system and ensures that a person suffering damage in the
course of anothers exercise of right or performance of duty, should find himself without relief.36
It sets the standard for the conduct of all persons, whether artificial or natural, and requires that
everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice,
(b) give everyone his due, and (c) observe honesty and good faith. It is not because a person
invokes his rights that he can do anything, even to the prejudice and disadvantage of another.37
While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the
person injured by the willful act, an action for damages. We explained how these two provisions
correlate with each other in GF Equity, Inc. v. Valenzona:38

[Article 19], known to contain what is commonly referred to as the principle of abuse of rights,
sets certain standards which must be observed not only in the exercise of one's rights but also in
the performance of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself legal because recognized or granted by
law as such, may nevertheless become the source of some illegality. When a right is
exercised in a manner which does not conform with the norms enshrined in Article 19 and
results in damage to another, a legal wrong is thereby committed for which the wrongdoer
must be held responsible. But while Article 19 lays down a rule of conduct for the government
of human relations and for the maintenance of social order, it does not provide a remedy for its
violation. Generally, an action for damages under either Article 20 or Article 21 would be
proper.
In the context of a credit card relationship, although there is neither a contractual stipulation nor
a specific law requiring the credit card issuer to act on the credit card holders offer within a
definite period of time, these principles provide the standard by which to judge AMEXs actions.

According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused
this right when it unreasonably delayed the processing of the Coster charge purchase, as well as
his purchase requests at the Richard Metz Golf Studio and Kids Unlimited Store; AMEX
should have known that its failure to act immediately on charge referrals would entail
inconvenience and result in humiliation, embarrassment, anxiety and distress to its cardholders
who would be required to wait before closing their transactions.39

It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of
proving bad faith rests upon the party alleging it.40 Although it took AMEX some time before it
approved Pantaleons three charge requests, we find no evidence to suggest that it acted with
deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was contrary to
morals, good customs or public policy. We give credence to AMEXs claim that its review
procedure was done to ensure Pantaleons own protection as a cardholder and to prevent the
possibility that the credit card was being fraudulently used by a third person.

Pantaleon countered that this review procedure is primarily intended to protect AMEXs
interests, to make sure that the cardholder making the purchase has enough means to pay for the
credit extended. Even if this were the case, however, we do not find any taint of bad faith in such
motive. It is but natural for AMEX to want to ensure that it will extend credit only to people who
will have sufficient means to pay for their purchases. AMEX, after all, is running a business, not
a charity, and it would simply be ludicrous to suggest that it would not want to earn profit for its
services. Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts
with good faith, with no intent to cause harm, even if it may occasionally inconvenience others,
it cannot be held liable for damages.
We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which,
in our opinion, justified the wait. In Edgardo Jaurigues own words:

Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H, also
Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the request was relayed at 1:33
a.m., can you explain why the approval came after about 46 minutes, more or less?

A21: Because we have to make certain considerations and evaluations of [Pantaleons] past
spending pattern with [AMEX] at that time before approving plaintiffs request because
[Pantaleon] was at that time making his very first single charge purchase of US$13,826 [this is
below the US$16,112.58 actually billed and paid for by the plaintiff because the difference was
already automatically approved by [AMEX] office in Netherland[s] and the record of
[Pantaleons] past spending with [AMEX] at that time does not favorably support his
ability to pay for such purchase. In fact, if the foregoing internal policy of [AMEX] had been
strictly followed, the transaction would not have been approved at all considering that the past
spending pattern of the plaintiff with [AMEX] at that time does not support his ability to pay for
such purchase.41
xxxx

Q: Why did it take so long?

A: It took time to review the account on credit, so, if there is any delinquencies [sic] of the
cardmember. There are factors on deciding the charge itself which are standard measures in
approving the authorization. Now in the case of Mr. Pantaleon although his account is single
charge purchase of US$13,826. [sic] this is below the US$16,000. plus actually billed x x x we
would have already declined the charge outright and asked him his bank account to support his
charge. But due to the length of his membership as cardholder we had to make a decision on
hand.42
As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was
because he had to go over Pantaleons credit card history for the past twelve months.43 It would
certainly be unjust for us to penalize AMEX for merely exercising its right to review Pantaleons
credit history meticulously.

Finally, we said in Garciano v. Court of Appeals that "the right to recover [moral damages]
under Article 21 is based on equity, and he who comes to court to demand equity, must come
with clean hands. Article 21 should be construed as granting the right to recover damages to
injured persons who are not themselves at fault."44 As will be discussed below, Pantaleon is not a
blameless party in all this.

Pantaleons action was the proximate cause for his injury

Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and
humiliation that he felt when the European tour group had to wait for him and his wife for
approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After thoroughly
reviewing the records of this case, we have come to the conclusion that Pantaleon is the proximate
cause for this embarrassment and humiliation.

As borne by the records, Pantaleon knew even before entering Coster that the tour group would
have to leave the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam before
they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus ahead of his
family, returned to the store to inform his family that they were the only ones not on the bus and
that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale at
9:40 a.m. because he did not want to cause any inconvenience to the tour group. However, when
Costers sale manager asked him to wait a few more minutes for the credit card approval, he
agreed, despite the knowledge that he had already caused a 10-minute delay and that the city tour
could not start without him.

In Nikko Hotel Manila Garden v. Reyes,45 we ruled that a person who knowingly and voluntarily
exposes himself to danger cannot claim damages for the resulting injury:

The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury")
refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages
by one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent
in doing so.

This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the
most basic rule when travelling in a tour group is that you must never be a cause of any delay
because the schedule is very strict.46 When Pantaleon made up his mind to push through with his
purchase, he must have known that the group would become annoyed and irritated with him. This
was the natural, foreseeable consequence of his decision to make them all wait.
We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed
when they had to wait for AMEX to approve the Coster purchase in Amsterdam. We have to
acknowledge, however, that Pantaleon was not a helpless victim in this scenario at any time, he
could have cancelled the sale so that the group could go on with the city tour. But he did not.

More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances
under the principle of damnum absque injuria, or damages without legal wrong, loss without
injury.47 As we held in BPI Express Card v. CA:48

We do not dispute the findings of the lower court that private respondent suffered damages as a
result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm
which results from the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those instances in which the loss or
harm was not the result of a violation of a legal duty. In such cases, the consequences must be
borne by the injured person alone, the law affords no remedy for damages resulting from an act
which does not amount to a legal injury or wrong. These situations are often called damnum absque
injuria.

In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the defendant
owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person
causing it. The underlying basis for the award of tort damages is the premise that an individual
was injured in contemplation of law. Thus, there must first be a breach of some duty and the
imposition of liability for that breach before damages may be awarded; and the breach of such
duty should be the proximate cause of the injury.

Pantaleon is not entitled to damages

Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the
willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.

Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can
only be awarded if a defendant acted "in a wanton, fraudulent, reckless, oppressive or malevolent
manner."49 The plaintiff must also show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not exemplary damages should
be awarded.50

As previously discussed, it took AMEX some time to approve Pantaleons purchase requests
because it had legitimate concerns on the amount being charged; no malicious intent was ever
established here. In the absence of any other damages, the award of exemplary damages clearly
lacks legal basis.1avvphi1

Neither do we find any basis for the award of attorneys fees and costs of litigation. No premium
should be placed on the right to litigate and not every winning party is entitled to an automatic
grant of attorney's fees.51 To be entitled to attorneys fees and litigation costs, a party must show
that he falls under one of the instances enumerated in Article 2208 of the Civil Code. 52 This,
Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must
we delete the award for attorney's fees and litigation expenses.

Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this
Resolution and not for those found in the CA decision.

WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT
the present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is
hereby AFFIRMED. No costs.
SO ORDERED.