G.R. No. 117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners, vs.COURT OF APPEALS and YSMAEL C. FERRER, respondents.

 

PADILLA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioners seek a review and reversal of the decision* of respondent Court of Appeals in CA-G.R. CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company, et. al." dated 31 August 1994, which affirmed the decision ** of the Regional Trial Court, Branch 63, Makati in Civil Case No. 42712, a complaint for breach of contract with damages.

Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the building of SBTC in Davao City for the price of P1,760,000.00. The contract dated 4 February 1980 provided that Ferrer would finish the construction in two hundred (200) working days. Respondent Ferrer was able to complete the construction of the building on 15 August 1980 (within the contracted period) but he was compelled by a drastic increase in the cost of construction materials to incur expenses of about P300,000.00 on top of the original cost. The additional expenses were made known to petitioner SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la Rama as early as March 1980. Respondent Ferrer made timely demands for payment of the increased cost. Said demands were supported by receipts, invoices, payrolls and other documents proving the additional expenses.

In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative of an architectural firm consulted by SBTC, verified Ferrer's claims for additional cost. A recommendation was then made to settle Ferrer's claim but only for P200,000.00. SBTC, instead of paying the recommended additional amount, denied ever authorizing payment of any amount beyond the original contract price. SBTC likewise denied any liability for the additional cost based on Article IX of the building contract which states:

If at any time prior to the completion of the work to be performed hereunder, increase in prices of construction materials and/or labor shall supervene through no fault on the part of the contractor whatsoever or any act of the government and its instrumentalities which directly or indirectly affects the increase of the cost of the project, OWNER shall equitably make the appropriate adjustment on mutual agreement of both parties.

Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to pay:

a) P259,417.23 for the increase in price of labor and materials plus 12% interest thereon per annumfrom 15 August 1980 until fully paid;

b) P24,000.00 as actual damages;

c) P20,000.00 as moral damages;

d) P20,000.00 as exemplary damages;

e) attorney's fees equivalent to 25% of the principal amount due; and

f) costs of suit.

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

In the present petition for review, petitioners assign the following errors to the appellate court:

. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS.

. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE CONSTRUCTION CONTRACT.

. . . IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1

Petitioners argue that under the aforequoted Article IX of the building contract, any increase in the price of labor and/or materials resulting in an increase in construction cost above the stipulated contract price will not automatically make petitioners liable to pay for such increased cost, as any payment above the stipulated contract price has been made subject to the condition that the "appropriate adjustment" will be made "upon mutual agreement of both parties". It is contended that since there was no mutual agreement between the parties, petitioners' obligation to pay amounts above the original contract price never materialized.

Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments raised by petitioners. It is of note however that the pleadings filed with this Court by counsel for Ferrer hardly refute the arguments raised by petitioners, as the contents of said pleadings are mostly quoted portions of the decision of the Court of Appeals, devoid of adequate discussion of the merits of respondent's case. The Court, to be sure, expects more diligence and legal

know-how from lawyers than what has been exhibited by counsel for respondent in the present case. Under these circumstances, the Court had to review the entire records of this case to evaluate the merits of the issues raised by the contending parties.

Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet lecupletari (no man ought to be made rich out of another's injury) states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as "basic principles to be observed for the rightful relationship between human beings and for the stability of the social order, . . . designed to indicate certain norms that spring from the fountain of good conscience, . . . guides for human conduct [that] should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice." 2

In the present case, petitioners' arguments to support absence of liability for the cost of construction beyond the original contract price are not persuasive.

Under the previously quoted Article IX of the construction contract, petitioners would make the appropriate adjustment to the contract price in case the cost of the project increases through no fault of the contractor (private respondent). Private respondent informed petitioners of the drastic increase in construction cost as early as March 1980.

Petitioners in turn had the increased cost evaluated and audited. When private respondent demanded payment of P259,417.23, petitioner bank's Vice-President Rosito C. Manhit and the bank's architectural consultant were directed by the bank to verify and compute private respondent's claims of increased cost. A recommendation was then made to settle private respondent's claim for P200,000.00. Despite this recommendation and several demands from private respondent, SBTC failed to make payment. It denied authorizing anyone to make a settlement of private respondent's claim and likewise denied any liability, contending that the absence of a mutual agreement made private respondent's demand premature and baseless.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in constructing petitioner bank's building due to a drastic and unexpected increase in construction cost. In fact, petitioner bank admitted liability for increased cost when a recommendation was made to settle private respondent's claim for P200,000.00. Private respondent's claim for the increased amount was adequately proven during the trial by receipts, invoices and other supporting documents.

Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect a condition dependent on petitioner bank's sole will, since private respondent would naturally and logically give consent to such an agreement which would allow him recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private respondent completed the construction even at an increased cost.

Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.

Finally, with respect to the award of attorney's fees to respondent, the Court has previously held that, "even with the presence of an agreement between the parties, the court may nevertheless reduce attorney's fees though fixed in the contract when the amount thereof appears to be unconscionable or unreasonable." 3 As previously noted, the diligence and legal know-how exhibited by counsel for private respondent hardly justify an award of 25% of the principal amount due, which would be at least P60,000.00. Besides, the issues in this case are far from complex and intricate. The award of attorney's fees is thus reduced to P10,000.00.

WHEREFORE, with the above modification in respect of the amount of attorney's fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

G.R. No. 98273 October 28, 1991

CLARITA V. CRUZ, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION (NLRC), PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), EMS MANPOWER & PLACEMENT SERVICE (PHIL.), ABDUL KARIM AL YAHYA, and TRAVELLERS INSURANCE, respondents.

Public Attorney's Office for petitioner.

Manuel T. Collado for private respondent.

 

CRUZ, J.:p

Clarita V. Cruz** went abroad pursuant to an employment contract that she hoped would improve her future. Although a high school graduate, she agreed to work as a domestic helper in Kuwait in consideration of an attractive salary and vacation leave benefits she could not expect to earn in this country. But her foreign adventure proved to be a bitter disappointment. On March 18,1988, after completing her two-year engagement, she was back home in the Philippines with her dead dreams and an angry grievance.

On March 23,1988, she filed a complaint against EMS Manpower and Placement Services (Phil.) and its foreign principal, Abdul Karim Al Yahya, for underpayment of her salary and non-payment of her vacation leave. She also claimed that she was charged a placement fee of P7,000.00 instead of the legal maximum of only P5,000.00. She alleged that her foreign employer treated her as a slave and required her to work 18 hours a day. She was beaten up and suffered facial deformity, head trauma and decreased sensation in the right portion of her body. On top of all this, she was paid only $120 per month and her total salaries were given to her only three hours before her flight back to Manila. This was after the plane she was supposed to take had left and she had to stay in the airport for 24 hours before her employer finally heard her pleas and delivered her passport and ticket to her.

In its answer and position paper, the private respondent raised the principal defense of settlement as evidenced by the Affidavit of Desistance executed by the complainant on June 21, 1988. In this document, she declared inter aliathat —

xxx xxx xxx

2. Thereafter going thoroughly over the facts of the case by reconciling our records, we came to discover that it was only a plain case of misunderstanding on our part, and that we have already settled our differences;

3. That I am no longer interested in further continuance of the above case against EMS Manpower & Placement Services either criminal, civil or administrative or whatever nature as I hereby desist now and hereafter;

4. That I am executing this affidavit of desistance to attest to the truth of the foregoing facts and circumstances and for the purpose of asking the dismissal of my said complaint against EMS Manpower & Placement Services.

On the basis of this affidavit, the Philippine Overseas Employment Administration (POEA) dismissed her complaint in a decision dated May 16, 1989. This was affirmed by the National Labor Relations Commission (NLRC) in its resolution dated December 28, 1990, reconsideration of which was denied on February 21, 1991.

The petition now before us faults the POEA and the NLRC with grave abuse of discretion for having upheld the Affidavit of Desistance. Cruz rejects the settlement as having been obtained from her under duress and false pretenses and insists on her original claim for the balance of her salaries and vacation- leave pay at the agreed rate of P250.00 per month.

Her contention is that she was inveigled into signing the Affidavit of Desistance without the assistance of counsel. The "Attorney" Alvarado who assisted her was not really a lawyer but only a helper in the Overseas Workers Welfare Administration. Atty. Biolena, on the other hand, merely acknowledged the document. Moreover, when she signed the affidavit, she was under the impression when she was agreeing to settle only her claim for one month unpaid vacation leave, as the wording of the receipt she issued on the same date showed, to wit:

June 21, 1988

Receipt

This is to certify that I received the amount of P2,400.00 from EMS Manpower & Placement Services in settlement of 1 month unpaid vacation leave.

(Sgd.) CLARITA V. CRUZ

IN THE PRESENCE OF:

(Sgd.) O.G. ALVARADO

OWWA Legal Dept.

For its part, the private respondent argues that the petitioner is bound by her Affidavit of Desistance, which she freely and knowingly executed. After all, she was not an ignorant and illiterate person but a high school graduate who understood what she was signing. The due execution of the instrument must also be sustained on the basis of the presumptions of regularity of official functions and of good faith.

Significantly, neither the private respondent nor the Solicitor General refuted the petitioner's submission that the person who allegedly assisted her in the execution of the Affidavit of Desistance and explained to her its content and

meaning was not a lawyer but a mere employee in the OWWA. His status was merely assumed but not established by the respondents although it was directly questioned. The comments of the public and private respondents did not meet this challenge squarely.

It is no less noteworthy that the receipt the petitioner issued on the same day was only for "P2,400.00 . . . in settlement of 1 month unpaid vacation." This clearly shows that she was not waiving the rest of her demands in exchange for that measly amount (which did not even really represent the commutable value of the 1 month vacation leave at the rate of $250.00). In fact, the total claim of the petitioner is for P88,840.00, itemized as follows:

a) P84,240.00, representing the salary differentials of $130 for 24 months (US $3,120.00 x P27.00).

b) P2,600.00, representing the balance of her vacation leave pay.

c) P2,000.00, representing her excess placement fee.

In Principe v. Philippine-Singapore Transport Service, Inc., 1 this Court held:

Even assuming for the sake of argument that the quitclaim had foreclosed petitioner's right over the death benefits of her husband, the fact that the consideration given in exchange thereof was very much less than the amount petitioner is claiming renders the quitclaim null and void for being contrary to public policy. The State must be firm in affording protection to labor. The quitclaim wherein the consideration is scandalously low and inequitable cannot be an obstacle to petitioner's pursuing her legitimate claim. Equity dictates that the compromise agreement should be voided in this instance. (Emphasis supplied.)

The following guidelines were likewise set in Periquet v. NLRC: 2

Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of a change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step in to annul the questionable transaction. (Emphasis supplied.)

The Court is convinced that the petitioner was not fully aware of the import and consequences of the Affidavit of Desistance when she executed it, allegedly with the assistance of counsel. Except for the disputable presumptions invoked by the private respondent, such assistance has not been established against the

petitioner's allegation that the "Attorney" Alvarado who supposedly counseled her was not even a lawyer. Indeed, even assuming that such assistance had been duly given, there is still the question of the intrinsic validity of the quitclaim in view of the gross disparity between the amount of the settlement and the petitioner's original claim. It is difficult to believe that the petitioner would agree to waive her total claim of P88,840.00 for the unseemly settlement of only P2,400.00. And even if she did, the waiver would still be null and void as violative of public policy.

It remains to state that, contrary to the contention of the private respondent in the proceedings below that it has no privity of contract with the petitioner, we have held in a long line of cases that the local recruiter is solidarily liable with the foreign principal for all damages sustained by the overseas worker in connection with his contract of employment. Such liability is provided for in Section 1, Rule II, Book II, of the POEA Rules and Regulations, which we have consistently sustained.

This decision demonstrates once again the tenderness of the Court toward the worker subjected to the lawless exploitation and impositions of his employer. The protection of our overseas workers is especially necessary because of the inconveniences and even risks they have to undergo in their quest for a better life in a foreign land away from their loved ones and their own government.

The domestic helper is particularly susceptible to abuse because she usually works only by herself in a private household unlike other workers employed in an open business concern who are able to share and discuss their problems and bear or solve them together. The domestic helper is denied that comfort. She has no companions in her misery. She usually broods alone. There is no one to turn to for help. That is why we must carefully listen to her when she is finally able to complain against those who would rob her of her just rewards and even of her dignity as a human being.

WHEREFORE, the resolutions of the NLRC dated December 28, 1990, and February 21, 1991, are SET ASIDE, and the Affidavit of Desistance is DECLARED null and void. POEA Case No. 88-03-255 is REMANDED to the POEA for further proceedings and expeditious resolution.

SO ORDERED.

Narvasa, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. L-30745 January 18, 1978

PHILIPPINE MATCH CO., LTD., plaintiff-appellant, vs.THE CITY OF CEBU and JESUS E. ZABATE, Acting City Treasurer, defendants-appellees.

Pelaez, Pelaez & Pelaez for appellant.

Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.

 

AQUINO, J.:

This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the City.

Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved by the provincial board) is "an ordinance imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter.

Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city and shall be taxable.

Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are taxable as long as the matches sold are taken from the company's stock stored in Cebu City.

The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships cases or cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within the territories and districts under its Cebu branch or the whole Visayas-Mindanao region. Cebu City itself is just one of the eleven districts under the company's Cebu City branch office.

The company does not question the tax on the matches of matches consummated in Cebu City, meaning matches sold and delivered within the city.

It assails the legality of the tax which the city treasurer collected on out-of- town deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city; (2) transfers of matches to newsmen assigned to different agencies outside of the city and (3) shipments of matches to provincial customers pursuant to salesmen's instructions.

The company paid under protest to the city t the sum of P12,844.61 as one percent sales tax on those three classes of out-of-town deliveries of matches for the second quarter of 1961 to the second quarter of 1963.

In paying the tax the company accomplished the verified forms furnished by the city treasurers office. It submitted a statement indicating the four kinds of transactions enumerated above, the total sales, and a summary of the deliveries to the different agencies, as well as the invoice numbers, names of customers, the value of the sales, the transfers of matches to salesmen outside of Cebu City, and the computation of taxes.

Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city refer to orders for matches made in the city by the company's customers, by means of personal or phone calls, for which sales invoices are issued, and then the matches are shipped from the bodega in the city, where the matches had been stored, to the place of business or residences of the customers outside of the city, duly covered by bills of lading The matches are used and consumed outside of the city.

Transfers of matches to salesmen assigned to different agencies outside of the city embrace equipments of matches from the branch office in the city to the salesmen (provided with panel cars) assigned within the province of Cebu and in the different districts in the Visayas and Mindanao under the jurisdiction or supervision of the Cebu City branch office. The shipments are covered by bills of lading. No sales invoices whatever are issued. The matches received by the salesmen constitute their direct cash accountability to the company. The salesmen sell the matches within their respective territories. They issue cash sales invoices and remit the proceeds of the sales to the company's Cebu branch office. The value of the unsold matches constitutes their stock liability. The matches are used and consumed outside of the city.

Shipments of matches to provincial customers pursuant to newsmens instructions embrace orders, by letter or telegram sent to the branch office by the company's salesmen assigned outside of the city. The matches are shipped from the company's bodega in the city to the customers residing outside of the city. The salesmen issue the sales invoices. The proceeds of the sale, for which the salesmen are accountable are remitted to the branch office. As in the first and seconds of transactions above-mentioned, the matches are consumed and used outside of the city.

The company in its letter of April 15, 1961 to the city treasurer sought the refund of the sales tax paid for out-of-town deliveries of matches. It invoked Shell Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, 105 Phil. 1263. In that case sales of oil and petroleum products effected outside the territorial limits of Sipocot, were held not to be subject to the tax imposed by an ordinance of that municipality.

The city treasurer denied the request. His stand is that under section 9 of the ordinance all out-of-town deliveries of latches stored in the city are subject to the sales tax imposed by the ordinance.

On August 12, 1963 the company filed the complaint herein, praying that the ordinance be d void insofar as it taxed the deliveries of matches outside of Cebu City, that the city be ordered to refund to the company the said sum of P12,844.61 as excess sales tax paid, and that the city treasurer be ordered to pay damages.

After hearing, the trial court sustained the tax on the sales of matches booked and paid for in Cebu City although the matches were shipped directly to customers outside of the city. The lower court held that the said sales were consummated in Cebu City because delivery to the carrier in the city is deemed to be a delivery to the customers outside of the city.

But the trial court invalidated the tax on transfers of matches to salesmen assigned to different agencies outside of the city and on shipments of matches to provincial customers pursuant to the instructions of the newsmen It ordered the defendants to refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town deliveries with legal rate of interest from the respective dates of payment.

The trial court characterized the tax on the other two transactions as a "storage tax" and not a sales tax. It assumed that the sales were consummated outside of the city and, hence, beyond the city's taxing power.

The city did not appeal from that decision. The company appealed from that portion of the decision upholding the tax on sales of matches to customers outside of the city but which sales were booked and paid for in Cebu City, and also from the dismissal of its claim for damages against the city treasurer.

The issue is whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but the matches were delivered to customers outside of the City.

We hold that the appeal is devoid of merit bemuse the city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the company's branch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs. Yangco, 38 Phil. 602).

A different interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the out. skirts of the city through the purchase were effected and paid for in the company's branch office in the city.

The municipal board of Cebu City is empowered "to provide for the levy and collection of taxes for general and purposes in accordance with law" (Sec. 17[a], Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu city).

The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976, 69 SCRA 460), which took effect on June 19, 1959 and which provides:

SEC. 2. Taxation. — Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities,. municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees;

Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National International Revenue Code;

Provided, however, That no city, municipality or municipal districts may levy or impose any of the following: (here follows an enumeration of internal revenue taxes)

xxx xxx xxx *

Note that the prohibition against the imposition of percentage taxes (formerly provided for in section 1 of Commonwealth Act No. 472) refers to municipalities and municipal districts but not to chartered cities. (See Local Tax Code, P.D. No. 231. Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L-23794, February 17, 1968, 22 SCRA 603).

Note further that the taxing power of cities, municipalities and municipal districts may be used (1) "upon any person engaged in any occupation or business, or exercising any privilege" therein; (2) for services rendered by those political subdivisions or rendered in connection with any business, profession or occupation being conducted therein, and (3) to levy, for public purposes, just and uniform taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117 Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City).

Applying that jurisdictional test to the instant case, it is at once obvious that sales of matches to customers outside oil Cebu City, which sales were booked and paid for in the company's branch office in the city, are subject to the city's taxing power. The instant case is easily distinguishable from the Shell Company case where the price of the oil sold was paid outside of the municipality of Sipocot, the entity imposing the tax.

On the other hand, the ruling in Municipality of Jose Panganiban, Province of Camarines Norte vs. Shell Company of the Philippines, Ltd., L-18349, July 30, 1966, 17 SCRA 778 that the place of delivery determines the taxable situs of the property to be taxed cannot properly be invoked in this case. Republic Act No. 1435, the law which enabled the Municipality of Jose Panganiban to levy the sales tax involved in that case, specifies that the tax may be levied upon oils "distributed within the limits of the city or municipality", meaning the place where the oils were delivered. That feature of the Jose Panganiban case distinguished it from this case.

The sales in the instant case were in the city and the matches sold were stored in the city. The fact that the matches were delivered to customers, whose places of business were outside of the city, would not place those sales beyond the city's taxing power. Those sales formed part of the merchandising business being assigned on by the company in the city. In essence, they are the same as sales of matches fully consummated in the city.

Furthermore, because the sellers place of business is in Cebu City, it cannot be sensibly argued that such sales should be considered as transactions subject to the taxing power of the political subdivisions where the customers resided and accepted delivery of the matches sold.

The company in its second assignment of error contends that the trial court erred in not ordering defendant acting city treasurer to pay exemplary damages of P20,000 and attorney's fees.

The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is argued that the city treasurer refused and neglected without just cause to perform his duty and to act with justice and good faith. The company faults the city treasurer for not following the opinion of the city fiscals, as legal adviser of the city, that all out-of-town deliveries of matches are not subject to sales tax because such transactions were effected outside of the city's territorial limits.

In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance in question he was simply complying with his duty as collector of

taxes (Sec. 50, Revised Charter of Cebu City). Moreover, he had no choice but to enforce the ordinance because according to section 357 of the Revised Manual of Instruction to Treasurer's "a tax ordinance win be enforced in accordance with its provisions" until d illegal or void by a competent court, or otherwise revoked by the council or board from which it originated.

Furthermore, the Secretary of Finance had reminded the city treasurer that a tax ordinance approved by the provincial board is operative and must be enforced without prejudice to the right of any affected taxpayer to assail its legality in the judicial forum. The fiscals opinion on the legality of an ordinance is merely advisory and has no binding effect.

Article 27 of the Civil Code provides that "any person suffering material or moral lose because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken."

Article 27 presupposes that the refuse or omission of a public official is attributable to malice or inexcusable negligence. In this case, it cannot be said that the city treasurer acted wilfully or was grossly t in not refunding to the plaintiff the taxes which it paid under protest on out-of-town sales of matches.

The record clearly reveals that the city treasurer honestly believed that he was justified under section 9 of the tax ordinance in collecting the sales tax on out-of-town deliveries, considering that the company's branch office was located in Cebu City and that all out-of-town purchase order for matches were filled up by the branch office and the sales were duly reported to it.

The city treasurer acted within the scope of his authority and in consonance with his bona fide interpretation of the tax ordinance. The fact that his action was not completely sustained by the courts would not him liable for We have upheld his act of taxing sales of matches booked and paid for in the city.

"As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y liable to one injured in consequence of an act performed within the scope of his official authority, and in the line of his official duty." "Where an officer is invested with discretion and is empowered to exercise his judgment in matters brought before him. he is sometimes called a quasi-judicial officer, and when so acting he is usually given immunity from liability to persons who may be injured as the result or an erroneous or mistaken decision, however erroneous his judgment may be. provided the acts complained of are done within the scope of the officer's authority and without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in Philippine Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241).

It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith that would entitle an aggrieved party to an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That salutary in addition to moral temperate, liquidated or compensatory damages (Art. 2229, Civil Code). Attorney's fees are being claimed herein as actual

damages. We find that it would not be just and equitable to award attorney's fees in this case against the City of Cebu and its (See Art. 2208, Civil Code).

G.R. No. L-22554 August 29, 1975

DELFIN LIM and JIKIL TAHA, plaintiffs-appellants, vs.FRANCISCO PONCE DE LEON AND ORLANDO MADDELA, defendants-appellees.

Ricardo L. Manalilig for plaintiffs-appellants.

Iñigo R. Peña for defendants-appellees.

 

MARTIN, J.:

Appeal on a question of law from the decision of the Court of First Instance of Palawan in Civil Case No. 416, entitled "Delfin Lim and Jikil Taha vs. Francisco Ponce de Leon and Orlando Maddela", dismissing the complaint of the plaintiffs and ordering them to pay each of the defendants jointly and severally the sum of P500.00 by way of actual damages; P500.00 by way of attorney's fees; and P1,000.00 by way of exemplary damages.

On April 29, 1961, plaintiff-appellant Jikil Taha sold to a certain Alberto Timbangcaya of Brooke's Point, Palawan a motor launch named M/L "SAN RAFAEL". A year later or on April 9, 1962 Alberto Timbangcaya filed a complaint with the Office of the Provincial Fiscal of Palawan alleging that after the sale Jikil Taha forcibly took away the motor launch from him.

On May 14, 1962, after conducting a preliminary investigation, Fiscal Francisco Ponce de Leon in his capacity as Acting Provincial Fiscal of Palawan, filed with the Court of First Instance of Palawan the corresponding information for Robbery the Force and Intimidation upon Persons against Jikil Taha. The case was docketed as Criminal Case No. 2719.

On June 15, 1962, Fiscal Francisco Ponce de Leon, upon being informed that the motor launch was in Balabac, Palawan, wrote the Provincial Commander of Palawan requesting him to direct the detachment commander-in Balabac to impound and take custody of the motor launch. 1

On June 26, 1962, Fiscal Ponce de Leon reiterated his request to the Provincial Commander to impound the motor launch, explaining that its subsequent sale to a third party, plaintiff-appellant Delfin Lim, cannot prevent the court from taking custody of the same. 2 So, on July 6, 1962 upon order of the Provincial Commander, defendant-appellee Orlando Maddela, Detachment Commander of Balabac, Palawan, seized the motor launch "SAN RAFAEL" from plaintiff-appellant Delfin Lim and impounded it.

On July 15, 1962 plaintiff-appellant Delfin Lim pleaded with Orlando Maddela to return the motor launch but the latter refused. Likewise, on September 20, 1962, Jikil Taha through his counsel made representations with Fiscal Ponce de Leon to return the seized property to plaintiff-appellant Delfin Lim but Fiscal Ponce de Leon refused, on the ground that the same was the subject of a criminal offense.

All efforts to recover the motor launch going to naught, plaintiffs-appellants Delfin Lim and Jikil Taha, on November 19, 1962, filed with the Court of First Instance of Palawan a complaint for damages against defendants-appellees Fiscal Francisco Ponce de Leon and Orlando Maddela, alleging that on July 6, 1962 Orlando Maddela entered the premises of Delfin Lim without a search warrant and then and there took away the hull of the motor launch without his consent; that he effected the seizure upon order of Fiscal Ponce de Leon who knew fully well that his office was not vested with authority to order the seizure of a private property; that said motor launch was purchased by Delfin Lim from Jikil Taha in consideration of Three Thousand Pesos (P3,000.00), Two Thousand Pesos (P2,000.00) of which has been given to Jikil Taha as advance payment; that as a consequence of the unlawful seizure of the motor launch, its sale did not materialize; and that since July 6, 1962, the said motor launch had been moored at the Balabac Bay, Palawan and because of exposure to the elements it had become worthless and beyond repair. For the alleged violation of their constitutional rights, plaintiffs-appellants prayed that defendants-appellees be ordered to pay jointly and severally each of them the sum of P5,750.00 representing actual, moral and exemplary damages and attorney's fees.

In their answer, defendants-appellees denied the material allegations of the complaint and as affirmative defenses alleged that the motor launch in question which was sold by Jikil Taha to Alberto Timbangcaya on April 29, 1961 was sometime in April 1962, forcibly taken with violence upon persons and with intent to gain by Jikil Taha from Alfredo Timbangcaya without the latter's knowledge and consent, thus giving rise to the filing of a criminal charge of robbery against Jikil Taha; that Fiscal Ponce de Leon, in his capacity as Acting Provincial Fiscal of Palawan ordered Orlando Maddela to seize and impound the motor launch "SAN RAFAEL", for being the corpus delicti of the robbery; and that Orlando Maddela merely obeyed the orders of his superior officer to impound said launch. By way of counterclaim, defendants-appellees alleged that because of the malicious and groundless filing of the complaint by plaintiffs-appellants, they were constrained to engage the services of lawyers, each of them paying P500.00 as attorney's fees; and that they suffered moral damages in the amount of P5,000.00 each and actual damages in the amount of P500.00 each. They also prayed that each of them awarded exemplary damages in the amount of P1,000.00.

On September 13, 1965, the trial court rendered its decision, upholding the validity of the seizure of the motor launch on the ground that "the authority to impound evidences or exhibits or corpus delicti in a case pending investigation is inherent in the Provincial Fiscal who controls the prosecution and who introduces those exhibits in the court." Accordingly, the trial court dismissed the complaint of plaintiffs-appellants and ordered them to pay jointly and severally each of the defendants-appellees the amount of P500.00 by way of actual damages another amount of P500.00 for attorney's fees and P1,000.00 as exemplary damages.

Hence, this appeal.

Two vital issues call for resolution by this Court. First, whether or not defendant-appellee Fiscal Ponce de Leon had the power to order the seizure of the motor launch in question without a warrant of search and seizure even if the same was admittedly the corpus delicti of the crime. Second, whether or not defendants-appellees are civilly liable to plaintiffs-appellants for damages allegedly suffered by them granting that the seizure of the motor launch was unlawful.

The gravamen of plaintiffs-appellants' argument is that the taking of the motor launch on July 6, 1962 by Orlando Maddela upon the order of Fiscal Ponce de Loon was in violation of the constitutional guarantee against unreasonable searches and seizures since it was done without a warrant.

The pertinent provision of the Constitution then in force reads:

3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized. 3

A cursory reading of the above provision easily brings into focus the unreasonableness of the seizure of the aforementioned motor launch. A search and seizure to be reasonable, must be effected by means of a valid search warrant. And for a search warrant to be valid: (1) it must be issued upon probable cause; (2) the probable cause must be determined by the judge himself and not by the applicant or any other person; (3) in the determination of probable cause, the judge must examine, under oath or affirmation, the complainant and such witnesses as the latter may produce; and (4) the warrant issued must particularly describe the place to be searched and persons or things to be seized. 4 Thus in a long line of decisions, this Court has declared invalid search warrants which were issued in utter disregard of the constitutional injunction. 5

Defendants-appellees admitted that when Orlando Maddela entered the premises of Delfin Lim and impounded the motor launch he was not armed with a search warrant; that he effected the seizure of the motor launch in the absence of and without the consent of Delfin Lim. There can be no question that without the proper search warrant, no public official has the right to enter the premises of another without his consent for the purpose of search and seizure. 6 And since in the present case defendants-appellees seized the motor launch without a warrant, they have violated the constitutional right of plaintiffs-appellants against unreasonable search and seizure.

Defendants-appellees however would want to justify the seizure of the motor launch even without a warrant because of Fiscal Ponce de Leon's alleged inherent power to order the seizure of a personal property which is the corpus delicti of a crime, he being a quasi judicial officer who has the control of the

prosecution and the presentation of the evidence in the criminal case. They argue that inasmuch as the motor launch in question was allegedly stolen by Jikil Taha from Timbangcaya, Fiscal Ponce de Leon could order its seizure even without a search warrant. We cannot agree. Under the old Constitution 7 the power to issue a search warrant is vested in a judge or magistrate and in no other officer and no search and seizure can be made without a proper warrant. At the time the act complained of was committed, there was no law or rule that recognized the authority of Provincial Fiscals to issue a search warrant. In his vain attempt to justify the seizure of the motor launch in question without a warrant Fiscal Ponce de Leon invoked the provisions of Republic Act No. 732, which amended Sections 1674 and 1687 of the Revised Administrative Code. But there is nothing in said law which confers upon the provincial fiscal; the authority to issue warrants, much less to order without warrant the seizure of a personal property even if it is the corpus delicti of a crime. True, Republic Act No. 732 has broadened the power of provincial fiscals to conduct preliminary investigations, but said law did not divest the judge or magistrate of its power to determine, before issuing the corresponding warrant, whether or not probable cause exists therefor. 8

Moreover, under Sections 2 and 3 of Rule 122 of the Rules of Court 9 which complement the constitutional provision earlier cited, two principles are made clear, namely: (1) that in the seizure of a stolen property search warrant is still necessary; and (2) that in issuing a search warrant the judge alone determines whether or not there is a probable cause. The fact that a thing is a corpus delicti of a crime does not justify its seizure without a warrant. As held in U.S. v. de los Reyes and Esguerra, 10 citing McClurg v. Brenton: 11

The mere fact that a man is an officer, whether of high or low degree, gives him no more right than is possessed by the ordinary private citizen to break in upon the privacy of a home and subject its occupant to the indignity of a search for the evidence of crime, without a legal warrant procured for that purpose. No amount of incriminating evidence whatever its source, will supply the place of such warrant. At the closed door of the home be it palace or hovel even bloodhounds must wait till the law, by authoritative process, bids it open. (Emphasis supplied.)

Defendant-appellee Fiscal Ponce de Leon would also invoke lack of time to procure a search warrant as an excuse for the seizure of the motor launch without one. He claimed that the motor launch had to be seized immediately in order to preserve it and to prevent its removal out of the locality, since Balabac, Palawan, where the motor launch was at the time, could only be reached after three to four days' travel by boat. 12 The claim cannot be sustained. The records show that on June 15, 1962 13 Fiscal Ponce de Leon made the first request to the Provincial Commander for the impounding of the motor launch; and on June 26, 1962 14 another request was made. The seizure was not effected until July 6, 1962. In short, Fiscal Ponce de Leon had all the time to procure a search warrant had he wanted to and which he could have taken in less than a day, but he did not. Besides, there is no basis for the apprehension that the motor launch might be moved out of Balabac because even prior to its seizure the motor launch was already without its engine. 15 In sum, the fact that there was no time to secure a search warrant would not legally justify a search without one. 16

As to whether or not they are entitled to damages, plaintiffs-appellants anchor their claim for damages on Articles 32 and 2219 of the New Civil Code which provide in part as follows:

ART. 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages.

xxx xxx xxx

(9) The rights to be secure in one's person, house, papers, and effects against unreasonable searches and seizures.

xxx xxx xxx

The indemnity shall include moral damages. Exemplary damages may also be adjudicated.

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

xxx xxx xxx

(6) Illegal search;

xxx xxx xxx

(1) Acts and action referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

Pursuant to the foregoing provisions, a person whose constitutional rights have been violated or impaired is entitled to actual and moral damages from the public officer or employee responsible therefor. In addition, exemplary damages may also be awarded. In the instant case, plaintiff-appellant Delfin Lim claimed that he purchased the motor launch from Jikil Taha in consideration of P3,000.00, having given P2,000.00 as advanced payment; that since or seizure on July 6, 1962 the motor launch had been moored at Balabac Bay and because of exposure to the elements it has become worthless at the time of the filing of the present action; that because of the illegality of the seizure of the motor launch, he suffered moral damages in the sum of P1,000.00; and that because of the violation of their constitutional rights they were constrained to engage the services of a lawyer whom they have paid P1,500.00 for attorney's fees. We find these claims of Delfin Lim amply supported by the evidence and therefore should be awarded the sum of P3,000.00 as actual damages; P1,000.00 as moral damages and P750.00 for attorney's fees. However, with respect co plaintiff Jikil Taha, he is not entitled to recover any damage which he alleged he had suffered from the unlawful seizure of the motor launch inasmuch as he had

already transferred the ownership and possession of the motor launch to Delfin Lim at the time it was seized and therefore, he has no legal standing to question the validity of the seizure. Well settled is the rule that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. 17 Consequently, one who is not the owner, lessee, or lawful occupant of the premise searched cannot raise the question of validity of the search and seizure. 18 Jikil Taha is not without recourse though. He can still collect from his co-plaintiff, Delfin Lim the unpaid balance of P1,000.00.

Defendant-appellee Fiscal Ponce de Leon wanted to wash his hands of the incident by claiming that "he was in good faith, without malice and without the slightest intention of inflicting injury to plaintiff-appellant, Jikil Taha" 19when he ordered the seizure of the motor launch. We are not prepared to sustain his defense of good faith. To be liable under Article 32 of the New Civil Code it is enough that there was a violation of the constitutional rights of the plaintiffs and it is not required that defendants should have acted with malice or bad faith. Dr. Jorge Bocobo, Chairman of the Code Commission, gave the following reasons during the public hearings of the Joint Senate and House Committees, why good faith on the part of the public officer or employee is immaterial. Thus:

DEAN BOCOBO. Article 32, regarding individual rights; Attorney Cirilo Paredes proposes that Article 32 be so amended as to make a public official liable for violation of another person's constitutional rights only if the public official acted maliciously or in bad faith. The Code Commission opposes this suggestion for these reasons:

The very nature of Article 32 is that the wrong may be civil or criminal. It is not necessary therefore that there should be malice or bad faith. To make such a requisite would defeat the main purpose of Article 32 which is the effective protection of individual rights. Public officials in the past have abused their powers on the pretext of justifiable motives or good faith in the performance of their duties. Precisely, the object of the Article is to put an end to official abuse by the plea of good faith. In the United States this remedy is in he nature of a tort.

Mr. Chairman, this article is firmly one of the fundamental articles introduced in the New Civil Code to implement democracy. There is no real democracy if a public official is abusing, and we made the article so strong and so comprehensive that it concludes an abuse of individual rights even if done in good faith, that official is liable. As a matter of fact, we know that there are very few public officials who openly and definitely abuse the individual rights of the citizens. In most cases, the abuse is justified on a plea of desire to enforce the law to comply with one's duty. And so, if we should limit the scope of this article, that would practically nullify the object of the article. Precisely, the opening object of the article is to put an end to abuses which are justified by a

plea of good faith, which is in most cases the plea of officials abusing individual rights. 20

But defendant-appellee Orlando Maddela cannot be held accountable because he impounded the motor launch upon the order of his superior officer. While a subordinate officer may be held liable for executing unlawful orders of his superior officer, there are certain circumstances which would warrant Maddela's exculpation from liability. The records show that after Fiscal Ponce de Leon made his first request to the Provincial Commander on June 15, 1962 Maddela was reluctant to impound the motor launch despite repeated orders from his superior officer. 21 It was only after he was furnished a copy of the reply of Fiscal Ponce de Leon, dated June 26, 1962, to the letter of the Provincial Commander, justifying the necessity of the seizure of the motor launch on the ground that the subsequent sale of the launch to Delfin Lim could not prevent the court from taking custody of the same, 22 that he impounded the motor launch on July 6, 1962. With said letter coming from the legal officer of the province, Maddela was led to believe that there was a legal basis and authority to impound the launch. Then came the order of his superior officer to explain for the delay in the seizure of the motor launch. 23 Faced with a possible disciplinary action from his Commander, Maddela was left with no alternative but to seize the vessel. In the light of the above circumstances. We are not disposed to hold Maddela answerable for damages.

IN VIEW OF THE FOREGOING, the decision appealed from is hereby reversed and another one entered declaring the seizure illegal and ordering defendant-appellee Fiscal Francisco Ponce de Leon to pay to plaintiff-appellant Delfin Lim the sum of P3,000.00 as actual damages, plus P1,000.00 moral damages, and, in addition, P750.00 for attorney's fees. With costs against defendant-appellee Fiscal Ponce de Leon.

SO ORDERED.

Castro (Chairman), Teehankee, Makasiar and Esguerra, JJ., concur.

Muñoz Palma, J, is on leave.

G.R. No. 117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners, vs.COURT OF APPEALS and YSMAEL C. FERRER, respondents.

 

PADILLA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioners seek a review and reversal of the decision* of respondent Court of Appeals in CA-G.R. CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company, et. al." dated 31 August 1994, which affirmed the decision ** of the Regional Trial Court, Branch 63, Makati in Civil Case No. 42712, a complaint for breach of contract with damages.

Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the building of SBTC in Davao City for the price of P1,760,000.00. The contract dated 4 February 1980 provided that Ferrer would finish the construction in two hundred (200) working days. Respondent Ferrer was able to complete the construction of the building on 15 August 1980 (within the contracted period) but he was compelled by a drastic increase in the cost of construction materials to incur expenses of about P300,000.00 on top of the original cost. The additional expenses were made known to petitioner SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la Rama as early as March 1980. Respondent Ferrer made timely demands for payment of the increased cost. Said demands were supported by receipts, invoices, payrolls and other documents proving the additional expenses.

In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative of an architectural firm consulted by SBTC, verified Ferrer's claims for additional cost. A recommendation was then made to settle Ferrer's claim but only for P200,000.00. SBTC, instead of paying the recommended additional amount, denied ever authorizing payment of any amount beyond the original contract price. SBTC likewise denied any liability for the additional cost based on Article IX of the building contract which states:

If at any time prior to the completion of the work to be performed hereunder, increase in prices of construction materials and/or labor shall supervene through no fault on the part of the contractor whatsoever or any act of the government and its instrumentalities which directly or indirectly affects the increase of the cost of the project, OWNER shall equitably make the appropriate adjustment on mutual agreement of both parties.

Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to pay:

a) P259,417.23 for the increase in price of labor and materials plus 12% interest thereon per annumfrom 15 August 1980 until fully paid;

b) P24,000.00 as actual damages;

c) P20,000.00 as moral damages;

d) P20,000.00 as exemplary damages;

e) attorney's fees equivalent to 25% of the principal amount due; and

f) costs of suit.

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

In the present petition for review, petitioners assign the following errors to the appellate court:

. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS.

. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE CONSTRUCTION CONTRACT.

. . . IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1

Petitioners argue that under the aforequoted Article IX of the building contract, any increase in the price of labor and/or materials resulting in an increase in construction cost above the stipulated contract price will not automatically make petitioners liable to pay for such increased cost, as any payment above the stipulated contract price has been made subject to the condition that the "appropriate adjustment" will be made "upon mutual agreement of both parties". It is contended that since there was no mutual agreement between the parties, petitioners' obligation to pay amounts above the original contract price never materialized.

Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments raised by petitioners. It is of note however that the pleadings filed with this Court by counsel for Ferrer hardly refute the arguments raised by petitioners, as the contents of said pleadings are mostly quoted portions of the decision of the Court of Appeals, devoid of adequate discussion of the merits of respondent's case. The Court, to be sure, expects more diligence and legal know-how from lawyers than what has been exhibited by counsel for respondent in the present case. Under these circumstances, the Court had to review the entire records of this case to evaluate the merits of the issues raised by the contending parties.

Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet lecupletari (no man ought to be made rich out of another's injury) states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as "basic principles to be observed for the rightful relationship between human beings and for the stability of the social order, . . . designed to indicate certain norms that spring from the fountain of good conscience, . . . guides for human conduct [that] should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice." 2

In the present case, petitioners' arguments to support absence of liability for the cost of construction beyond the original contract price are not persuasive.

Under the previously quoted Article IX of the construction contract, petitioners would make the appropriate adjustment to the contract price in case the cost of the project increases through no fault of the contractor (private respondent). Private respondent informed petitioners of the drastic increase in construction cost as early as March 1980.

Petitioners in turn had the increased cost evaluated and audited. When private respondent demanded payment of P259,417.23, petitioner bank's Vice-President Rosito C. Manhit and the bank's architectural consultant were directed by the bank to verify and compute private respondent's claims of increased cost. A recommendation was then made to settle private respondent's claim for P200,000.00. Despite this recommendation and several demands from private respondent, SBTC failed to make payment. It denied authorizing anyone to make a settlement of private respondent's claim and likewise denied any liability, contending that the absence of a mutual agreement made private respondent's demand premature and baseless.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in constructing petitioner bank's building due to a drastic and unexpected increase in construction cost. In fact, petitioner bank admitted liability for increased cost when a recommendation was made to settle private respondent's claim for P200,000.00. Private respondent's claim for the increased amount was adequately proven during the trial by receipts, invoices and other supporting documents.

Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect a condition dependent on petitioner bank's sole will, since private respondent would naturally and logically give consent to such an agreement which would allow him recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private respondent completed the construction even at an increased cost.

Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.

Finally, with respect to the award of attorney's fees to respondent, the Court has previously held that, "even with the presence of an agreement between the parties, the court may nevertheless reduce attorney's fees though fixed in the contract when the amount thereof appears to be unconscionable or unreasonable." 3 As previously noted, the diligence and legal know-how exhibited by counsel for private respondent hardly justify an award of 25% of the principal amount due, which would be at least P60,000.00. Besides, the issues in this case are far from complex and intricate. The award of attorney's fees is thus reduced to P10,000.00.

WHEREFORE, with the above modification in respect of the amount of attorney's fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

Footnotes

* Justice Lourdes K. Tayao-Jaguros, ponente, with Justices Jesus M. Elbiñas and Bernardo Ll. Salas, concurring.

** Penned by Judge Julio R. Logarta.

G.R. No. 86720 September 2, 1994

MHP GARMENTS, INC., and LARRY C. DE GUZMAN, petitioners, vs.THE HONORABLE COURT OF APPEALS, AGNES VILLA CRUZ, MIRASOL LUGATIMAN, and GERTRUDES GONZALES, respondents.

Benjamin M. Dacanay for petitioners.

Emmanuel O. Tansingco for private respondents.

 

PUNO, J.:

The constitutional protection of our people against unreasonable search and seizure is not merely a pleasing platitude. It vouchsafes our right to privacy and dignity against undesirable intrusions committed by any public officer or private individual. An infringement of this right justifies an award for damages.

On February 22, 1983, petitioner MHP Garments, Inc., was awarded by the Boy Scouts of the Philippines, the exclusive franchise to sell and distribute official Boy Scouts uniforms, supplies, badges, and insignias. In their Memorandum Agreement, petitioner corporation was given the authority to "undertake or cause to be undertaken the prosecution in court of all illegal sources of scout uniforms and other scouting supplies." 1

Sometime in October 1983, petitioner corporation received information that private respondents Agnes Villa Cruz, Mirasol Lugatiman, and Gertrudes Gonzales were selling Boy Scouts items and paraphernalia without any authority. Petitioner de Guzman, an employee of petitioner corporation, was tasked to undertake the necessary surveillance and to make a report to the Philippine Constabulary (PC).

On October 25, 1983, at about 10:30 A.M., petitioner de Guzman, Captain Renato M. Peñafiel, and two (2) other constabulary men of the Reaction Force Battalion, Sikatuna Village, Diliman, Quezon City went to the stores of respondents at the Marikina Public Market. Without any warrant, they seized the boy and girl scouts pants, dresses, and suits on display at respondents' stalls. The seizure caused a commotion and embarrassed private respondents. Receipts were issued for the seized items. The items were then turned over by Captain Peñafiel to petitioner corporation for safekeeping.

A criminal complaint for unfair competition was then filed against private respondents. 2 During its pendency, petitioner de Guzman exacted from private respondent Lugatiman the sum of THREE THOUSAND ONE HUNDRED PESOS (P3,100.00) in order to be dropped from the complaint. On December 6, 1983, after a preliminary investigation, the Provincial Fiscal of Rizal dismissed the complaint against all the private respondents. On February 6, 1984, he also ordered the return of the seized items. The seized items were not immediately returned despite demands. 3 Private respondents had to go personally to petitioners' place of business to recover their goods. Even then, not all the seized items were returned. The other items returned were of inferior quality.

Private respondents then filed Civil Case No. 51144 against the petitioners for sums of money and damages. 4 In its Decision dated January 9, 1987, the trial court ruled for the private respondents, thus:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendants, ordering the latter jointly and severally:

1. To return the amount of P3,100.00 to plaintiff Mirasol Lugatiman with interest at 12% per annum from January 12, 1984, the date of the last receipt issued, until fully paid;

2. To pay plaintiff Agnes Villa Cruz the sum of P2,000.00 for the 26 pieces of girl scout items not returned;

3. To pay plaintiffs the amount of P50,000.00 for and as moral damages and P15,000.00 for and as exemplary damages; and

4. P5,000.00 for and as attorney's fees and litigation expenses.

Costs against the defendants.

SO ORDERED.

The decision was appealed to the respondent court. On January 18, 1989, its Fifth Division, 5 affirmed the Decision with modification, thus:

WHEREFORE, the decision appealed from is AFFIRMED with MODIFICATION; and, as modified, the dispositive portion thereof now reads as follows:

Judgment is hereby rendered in favor of plaintiffs (private respondents) and against defendants (petitioners), ordering the latter jointly and severally;

1. To return the amount of P3,100.00 to plaintiff (respondent) Mirasol Lugatiman and cancel her application for distributor's license;

2. To pay plaintiff (respondent) Agnes Villa Cruz the sum of P2,000.00 for the unreturned 26 pieces of girl scouts items with interest at 12% per annum from June 4, 1984 (date the complaint was filed) until it is fully paid;

3. To pay plaintiffs (respondents) the amount of P10,000.00 each, or a total of P30,000.00, for and as moral damages; and P5,000.00 each, or a total of P15,000.00, for and as exemplary damages; and

4. To pay plaintiffs (respondents) P5,000.00 for and as attorney's fees and litigation expenses.

Costs of the case a quo and the instant appeal are assessed jointly and severally against defendants-appellants (petitioners) MHP Garments, Inc. and Larry de Guzman.

SO ORDERED.

In this petition for certiorari, petitioners contend:

FIRST ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED IN IMPUTING LIABILITY FOR DAMAGES TO THE PETITIONERS WHO DID NOT EFFECT THE SEIZURE OF THE SUBJECT MERCHANDISE.

SECOND ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED WHEN IT MADE A FINDING THAT THE MANNER WITH WHICH THE CONFISCATION OF PRIVATE RESPONDENTS WAS TORTIOUS BUT PENALIZED INSTEAD THE PETITIONERS WHO DID NOT COMMIT THE ACT OF CONFISCATION.

THIRD ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED WHEN IT FOUND FOR THE PRIVATE RESPONDENTS AND AGAINST THE PETITIONERS.

We affirm.

Article III, section 2, of the Constitution protects our people from unreasonable search and seizure. It provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized.

This provision protects not only those who appear to be innocent but also those who appear to be guilty but are nevertheless to be presumed innocent until the contrary is proved. 6 In the case at bench, the seizure was made without any warrant. Under the Rules of Court, 7 a warrantless search can only be undertaken under the following circumstance:

Sec. 12. Search incident to a lawful arrest. - A person lawfully arrested may be searched for dangerous weapons or anything which may be used as proof of the commission of an offense, without a search warrant.

We hold that the evidence did not justify the warrantless search and seizure of private respondents' goods. Petitioner corporation received information that private respondents were illegally selling Boy Scouts items and paraphernalia in October 1983. The specific date and time are not established in the evidence adduced by the parties. Petitioner de Guzman then made a surveillance of the stores of private respondents. They reported to the Philippine Constabulary and on October 25, 1983, the raid was made on the stores of private respondents and the supposed illicit goods were seized. The progression of time between the receipt of the information and the raid of the stores of private respondents shows there was sufficient time for petitioners and the PC raiding party to apply for a judicial warrant. Despite the sufficiency of time, they did not apply for a warrant and seized the goods of private respondents. In doing so, they took the risk of a suit for damages in case the seizure would be proved to violate the right of private respondents against unreasonable search and seizure. In the case at bench, the search and seizure were clearly illegal. There was no probable cause for the seizure. Probable cause for a search has been defined as "such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched." 8 These facts and circumstances were not in any way shown by the petitioners to justify their warrantless search and seizure. Indeed, after a preliminary investigation, the Provincial Fiscal of Rizal dismissed their complaint for unfair competition and later ordered the return of the seized goods.

Petitioners would deflect their liability with the argument that it was the Philippine Constabulary that conducted the raid and their participation was only to report the alleged illegal activity of private respondents.

While undoubtedly, the members of the PC raiding team should have been included in the complaint for violation of the private respondents' constitutional rights, still, the omission will not exculpate petitioners.

In the case of Lim vs. Ponce de Leon, 9 we ruled for the recovery of damages for violation of constitutional rights and liberties from public officer or private individual, thus:

Art. 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages.

xxx xxx xxx

(9) The rights to be secure in one's person, house, papers, and effects against unreasonable searches and seizures.

xxx xxx xxx

The indemnity shall include moral damages. Exemplary damages may also be adjudged.

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

xxx xxx xxx

(6) Illegal search;

(1) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Pursuant to the foregoing provisions, a person whose constitutional rights have been violated or impaired is entitled to actual and moral damages from the public officer or employee responsible therefor. In addition, exemplary damages may also be awarded.

xxx xxx xxx

The very nature of Article 32 is that the wrong may be civil or criminal. It is not necessary therefore that there should be malice or bad faith. To make such a requisite would defeat the main purpose of Article 32 which is the effective protection of individual rights. Public officials in the past have abused their powers on the pretext of justifiable motives or good faith in the performance of their duties. Precisely, the object of the Article is to put an end to official abuse by plea of the good faith. In the United States this remedy is in the nature of a tort. (emphasis supplied)

In the subsequent case of Aberca vs. Ver, 10 the Court En Banc explained the liability of persons indirectly responsible,viz:

[T]he decisive factor in this case, in our view, is the language of Article 32. The law speaks of an officer or employee or person "directly or indirectly" responsible for the violation of the constitutional rights and liberties of another. Thus, it is not the actor alone (i.e., the one directly responsible) who must answer for damages under Article 32; the person indirectly responsible has also to answer for the damages or injury caused to the aggrieved party.

xxx xxx xxx

While it would certainly be too naive to expect that violators of human rights would easily be deterred by the prospect of facing damages suits, it should nonetheless be made clear in no uncertain terms that Article 32 of the Civil Code makes the persons who are directly, as well as indirectly, responsible for the transgression joint tortfeasors.

xxx xxx xxx

[N]either can it be said that only those shown to have participated "directly" should be held liable. Article 32 of the Civil Code encompasses within the ambit of its provisions those directly, as well as indirectly, responsible for its violations. (emphasis supplied)

Applying the aforecited provisions and leading cases, the respondent court correctly granted damages to private respondents. Petitioners were indirectly involved in transgressing the right of private respondents against unreasonable search and seizure. Firstly, they instigated the raid pursuant to their covenant in the Memorandum Agreement to undertake the prosecution in court of all illegal sources of scouting supplies. 11 As correctly observed by respondent court:

Indeed, the acts committed by the PC soldiers of unlawfully seizing appellees' (respondents') merchandise and of filing the criminal complaint for unfair competition against appellees (respondents) were for the protection and benefit of appellant (petitioner) corporation. Such being the case, it is, thus, reasonably fair to infer from those acts that it was upon appellant (petitioner) corporation's instance that the PC soldiers conducted the raid and effected the illegal seizure. These circumstances should answer the trial court's query — posed in its decision now under consideration — as to why the PC soldiers immediately turned over the seized merchandise to appellant (petitioner) corporation. 12

The raid was conducted with the active participation of their employee. Larry de Guzman did not lift a finger to stop the seizure of the boy and girl scouts items. By standing by and apparently assenting thereto, he was liable to the same extent as the officers themselves. 13 So with the petitioner corporation which even received for safekeeping the goods unreasonably seized by the PC raiding team and de Guzman, and refused to surrender them for quite a time despite the dismissal of its complaint for unfair competition.

Secondly, Letter of Instruction No. 1299 was precisely crafted on March 9, 1983 to safeguard not only the privilege of franchise holder of scouting items but also the citizen's constitutional rights, to wit:

TITLE: APPREHENSION OF UNAUTHORIZED MANUFACTURERS AND DISTRIBUTORS OF SCOUT PARAPHERNALIA AND IMPOUNDING OF SAID PARAPHERNALIA.

ABSTRACT:

Directs all law enforcement agencies of the Republic of the Philippines, to apprehend immediately unauthorized

manufacturers and distributors of Scout paraphernalia, upon proper application by the Boy Scouts of the Philippines and/or Girl Scouts of the Philippines for warrant of arrest and/or search warrant with a judge, or such other responsible officer as may be authorized by law; and to impound the said paraphernalia to be used as evidence in court or other appropriate administrative body. Orders the immediate and strict compliance with the Instructions. 14

Under the above provision and as aforediscussed, petitioners miserably failed to report the unlawful peddling of scouting goods to the Boy Scouts of the Philippines for the proper application of a warrant. Private respondents' rights are immutable and cannot be sacrificed to transient needs. 15 Petitioners did not have the unbridled license to cause the seizure of respondents' goods without any warrant.

And thirdly, if petitioners did not have a hand in the raid, they should have filed a third-party complaint against the raiding team for contribution or any other relief, 16 in respect of respondents' claim for Recovery of Sum of Money with Damages. Again, they did not.

We have consistently ruled that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 17 Conformably with our ruling in Lim vs. Ponce de Leon, op. cit., moral damages can be awarded in the case at bench. There can be no doubt that petitioners must have suffered sleepless nights, serious anxiety, and wounded feelings due the tortious raid caused by petitioners. Private respondents' avowals of embarrassment and humiliation during the seizure of their merchandise were supported by their testimonies. Respondent Cruz declared:

I felt very nervous. I was crying to loss (sic) my goods and capital because I am doing business with borrowed money only, there was commotion created by the raiding team and they even stepped on some of the pants and dresses on display for sale. All passersby stopped to watch and stared at me with accusing expressions. I was trembling and terribly ashamed, sir. 18

Respondent Lugatiman testified:

I felt very nervous. I was crying and I was very much ashamed because many people have been watching the PC soldiers hauling my items, and many/I (sic) heard say "nakaw pala ang mga iyan" for which I am claiming P25,000.00 for damages. 19

While respondent Gonzalez stated thus:

I do not like the way the raid was conducted by the team sir because it looked like that what I have been selling were stolen items that they should be confiscated by uniformed soldiers. Many people were around and the more the

confiscation was made in a scandalous manner; every clothes, T-shirts, pants and dresses even those not wrapped dropped to the ground. I was terribly shamed in the presence of market goers that morning. 20

Needles to state, the wantonness of the wrongful seizure justifies the award of exemplary damages. 21 It will also serve as a stern reminder to all and sundry that the constitutional protection against unreasonable search and seizure is a virile reality and not a mere burst of rhetoric. The all encompassing protection extends against intrusions directly done both by government and indirectly by private entities.

IN VIEW WHEREOF, the appealed decision is AFFIRMED WITH MODIFICATION. We impose a SIX PERCENT (6%) interest from January 9, 1987 on the TWO THOUSAND PESOS (P2,000.00) for the unreturned twenty-six (26) pieces of girl scouts items and a TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), on the said amount upon finality of this Decision until the payment thereof. 22 Costs against petitioners.

SO ORDERED.

Narvasa, Padilla, Regalado, and Mendoza, JJ., concur.

G.R. No. L-13505            February 4, 1919

GEO. W. DAYWALT, plaintiff-appellant, vs.LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees.

C. C. Cohn and Thos. D. Aitken for appellant.Crossfield & O'Brien for appellee.

STREET, J.:

In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not issued until later. The parties, however, met immediately upon the entering of this decree and made a new contract with a view to carrying their original agreement into effect. This new contract was executed in the form of a deed of conveyance and bears date of August 16, 1906. The stipulated price was fixed at P4,000, and the area of the land enclosed in the boundaries defined in the contract was stated to be 452 hectares and a fraction.

The second contract was not immediately carried into effect for the reason that the Torrens certificate was not yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the contract had expired. Accordingly, upon October 3, 1908, the parties entered into still another agreement, superseding the old, by which Teodorica Endencia agreed upon receiving the Torrens title to the land in question, to deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of P3,100.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative to the registration of the land, it was found by official survey that the area of the tract inclosed in the boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser, asserting that she never intended to sell so large an amount of land and that she had been misinformed as to its area.

This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and effect. This decree appears to have become finally effective in the early part of the year 1914.1

The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in the city of Manila. Said corporation was formerly the owner of a large tract of land, known as the San Jose Estate, on the island of Mindoro, which was sold to the Government of the Philippine Islands in the year 1909. The same corporation was at this time also the owner of another estate on the same island immediately adjacent to the land which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had maintained large herds of cattle on the farms referred to. Their representative, charged with management of these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long been well acquainted with Teodorica Endencia and exerted over her an influence and ascendency due to his religious character as well as to the personal friendship which existed between them. Teodorica appears to be a woman of little personal force, easily subject to influence, and upon all the important matters of business was accustomed to seek, and was given, the advice of father Sanz and other members of his order with whom she came in contact.

Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia agreed to sell her land to the plaintiff as well as of the later important developments connected with the history of that contract and the contract substituted successively for it; and in particular Father Sanz, as well as other members of the defendant corporation, knew of the existence of the contract of October 3, 1908, which, as we have already seen finally fixed the rights of the parties to the property in question. When the Torrens certificate was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan Labarga the procurador and chief official of the defendant corporation, until the deliver

thereof to the plaintiff was made compulsory by reason of the decree of the Supreme Court in 1914.

When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As Teodorica still retained possession of said property Father Sanz entered into an arrangement with her whereby large numbers of cattle belonging to the defendant corporation were pastured upon said land during a period extending from June 1, 1909, to May 1, 1914.

Under the first cause stated in the complaint in the present action the plaintiff seeks to recover from the defendant corporation the sum of P24,000, as damages for the use and occupation of the land in question by reason of the pasturing of cattle thereon during the period stated. The trial court came to the conclusion that the defendant corporation was liable for damages by reason of the use and occupation of the premises in the manner stated; and fixed the amount to be recovered at P2,497. The plaintiff appealed and has assigned error to this part of the judgment of the court below, insisting that damages should have been awarded in a much larger sum and at least to the full extent of P24,000, the amount claimed in the complaint.

As the defendant did not appeal, the property of allowing damages for the use and occupation of the land to the extent o P2,497, the amount awarded, is not now in question an the only thing here to be considered, in connection with this branch of the case, is whether the damages allowed under this head should be increased. The trial court rightly ignored the fact that the defendant corporation had paid Teodorica Endencia of ruse and occupation of the same land during the period in question at the rate of P425 per annum, inasmuch as the final decree of this court in the action for specific performance is conclusive against her right, and as the defendant corporation had notice of the rights of the plaintiff under this contract of purchase, it can not be permitted that the corporation should escape liability in this action by proving payment of rent to a person other than the true owner.

With reference to the rate of which compensation should be estimated the trial court came to the following conclusion:

As to the rate of the compensation, the plaintiff contends that the defendant corporation maintained at leas one thousand head of cattle on the land and that the pasturage was of the value of forty centavos per head monthly, or P4,800 annually, for the whole tract. The court can not accept this view. It is rather improbable that 1,248 hectares of wild Mindoro land would furnish sufficient pasturage for one thousand head of cattle during the entire year, and, considering the locality, the rate of forty centavos per head monthly seems too high. The evidence shows that after having recovered possession of the land the plaintiff rented it to the defendant corporation for fifty centavos per hectares annually, the tenant to pay the taxes on the land, and this appears to be a reasonable rent. There is no reason to suppose that the land was worth more for grazing purposes during the period from 1909 to 1913,

than it was at the later period. Upon this basis the plaintiff is entitled to damages in the sum of p2,497, and is under no obligation to reimburse the defendants for the land taxes paid by either of them during the period the land was occupied by the defendant corporation. It may be mentioned in this connection that the Lontok tract adjoining the land in question and containing over three thousand hectares appears to have been leased for only P1,000 a year, plus the taxes.

From this it will be seen that the trial court estimated the rental value of the land for grazing purposes at 50 centavos per hectare per annum, and roughly adopted the period of four years as the time for which compensation at that rate should be made. As the court had already found that the defendant was liable for these damages from June, 1, 1909, to May 1, 1914, or a period of four years and eleven months, there seems some ground for the contention made in the appellant's first assignment of error that the court's computation was erroneous, even accepting the rule upon which the damages were assessed, as it is manifest that at the rate of 50 centavos per hectare per annum, the damages for four years and eleven months would be P3,090.

Notwithstanding this circumstance, we are of the opinion that the damages assessed are sufficient to compensate the plaintiff for the use and occupation of the land during the whole time it was used. There is evidence in the record strongly tending to show that the wrongful use of the land by the defendant was not continuous throughout the year but was confined mostly to the reason when the forage obtainable on the land of the defendant corporation was not sufficient to maintain its cattle, for which reason it became necessary to allow them to go over to pasture on the land in question; and it is not clear that the whole of the land was used for pasturage at any time. Considerations of this character probably led the trial court to adopt four years as roughly being the period during which compensation should be allowed. But whether this was advertently done or not, we see no sufficient reason, in the uncertainty of the record with reference to the number of the cattle grazed and the period when the land was used, for substituting our guess for the estimate made by the trial court.

In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained her in her defense to the action of specific performance which was finally decided in favor of the plaintiff in this court. The cause of action here stated is based on liability derived from the wrongful interference of the defendant in the performance of the contract between the plaintiff and Teodorica Endencia; and the large damages laid in the complaint were, according to the proof submitted by the plaintiff, incurred as a result of a combination of circumstances of the following nature: In 1911, it appears, the plaintiff, as the owner of the land which he had bought from Teodorica Endencia entered into a contract (Exhibit C) with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned

to the Philippine Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the registered title for delivery in compliance with said agreement with Wakefield. Teodorica Endencia seems to have yielded her consent to the consummation of her contract, but the Torrens title was then in the possession of Padre Juan Labarga in Manila, who refused to deliver the document. Teodorica also was in the end contract with the plaintiff, with the result that the plaintiff was kept out of possession until the Wakefield project for the establishment of a large sugar growing and milling enterprise fell through. In the light of what has happened in recent years in the sugar industry, we feel justified in saying that the project above referred to, if carried into effect, must inevitably have proved a great success.

The determination of the issue presented in this second cause of action requires a consideration of two points. The first is whether a person who is not a party to a contract for the sale of land makes himself liable for damages to the vendee, beyond the value of the use and occupation, by colluding with the vendor and maintaining him in the effort to resist an action for specific performance. The second is whether the damages which the plaintiff seeks to recover under this head are too remote and speculative to be the subject of recovery.

As preliminary to a consideration of the first of these questions, we deem it well it dispose of the contention that the members of the defendants corporation, in advising and prompting Teodorica Endencia not to comply with the contract of sale, were actuated by improper and malicious motives. The trial court found that this contention was not sustained, observing that while it was true that the circumstances pointed to an entire sympathy on the part of the defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim to the land, the fact that its officials may have advised her not to carry the contract into effect would not constitute actionable interference with such contract. It may be added that when one considers the hardship that the ultimate performance of that contract entailed on the vendor, and the doubt in which the issue was involved — to the extent that the decision of the Court of the First Instance was unfavorable to the plaintiff and the Supreme Court itself was divided — the attitude of the defendant corporation, as exhibited in the conduct of its procurador, Juan Labarga, and other members of the order of the Recollect Fathers, is not difficult to understand. To our mind a fair conclusion on this feature of the case is that father Juan Labarga and his associates believed in good faith that the contract cold not be enforced and that Teodorica would be wronged if it should be carried into effect. Any advice or assistance which they may have given was, therefore, prompted by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would have surrendered the documents of title and given possession of the land but for the influence and promptings of members of the defendants corporation. But we do not credit the idea that they were in any degree influenced to the giving of such advice by the desire to secure to themselves the paltry privilege of grazing their cattle upon the land in question to the prejudice of the just rights of the plaintiff.

The attorney for the plaintiff maintains that, by interfering in the performance of the contract in question and obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the defendant corporation made itself a co-participant with Teodorica Endencia in the breach of said contract; and inasmuch as father Juan Labarga, at the time of said unlawful intervention between the contracting parties, was fully aware of the existence of the contract

(Exhibit C) which the plaintiff had made with S. B. Wakefield, of San Francisco, it is insisted that the defendant corporation is liable for the loss consequent upon the failure of the project outlined in said contract.

In this connection reliance is placed by the plaintiff upon certain American and English decisions in which it is held that a person who is a stranger to contract may, by an unjustifiable interference in the performance thereof, render himself liable for the damages consequent upon non-performance. It is said that the doctrine of these cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been earnestly pressed to extend the rule there enunciated to the situation here presente.

Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to permit an action for damages to be maintained against a stranger to a contract wrongfully interfering in its performance. The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that the plaintiff, as manager of a theatre, had entered into a contract with Miss Johanna Wagner, an opera singer,, whereby she bound herself for a period to sing in the plaintiff's theatre and nowhere else. The defendant, knowing of the existence of this contract, and, as the declaration alleged, "maliciously intending to injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's employment. It was held that the plaintiff was entitled to recover damages. The right which was here recognized had its origin in a rule, long familiar to the courts of the common law, to the effect that any person who entices a servant from his employment is liable in damages to the master. The master's interest in the service rendered by his employee is here considered as a distinct subject of juridical right. It being thus accepted that it is a legal wrong to break up a relation of personal service, the question now arose whether it is illegal for one person to interfere with any contract relation subsisting between others. Prior to the decision of Lumley vs. Gye [supra] it had been supposed that the liability here under consideration was limited to the cases of the enticement of menial servants, apprentices, and others to whom the English Statutes of Laborers were applicable. But in the case cited the majority of the judges concurred in the opinion that the principle extended to all cases of hiring. This doctrine was followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Temperton vs. Russell ([1893], Q. B., 715), it was held that the right of action for maliciously procuring a breach of contract is not confined to contracts for personal services, but extends to contracts in general. In that case the contract which the defendant had procured to be breached was a contract for the supply of building material.

Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential.

Upon the question as to what constitutes legal justification, a good illustration was put in the leading case. If a party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third person, with abona fide purpose of benefiting the one who is under contract to go, dissuades him from the step, no action will lie. But if the advice is not disinterested and

the persuasion is used for "the indirect purpose of benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and the contract broken.

The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated relations of modern industry, as a means of restraining the activities of labor unions and industrial societies when improperly engaged in the promotion of strikes. An illustration of the application of the doctrine in question in a case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there appeared that certain miners employed in the plaintiff's collieries, acting under the order of the executive council of the defendant federation, violated their contract with the plaintiff by abstaining from work on certain days. The federation and council acted without any actual malice or ill-will towards the plaintiff, and the only object of the order in question was that the price of coal might thereby be kept up, a factor which affected the miner's wage scale. It was held that no sufficient justification was shown and that the federation was liable.

In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be held liable upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the situation where the contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121; Bourliervs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co., 138 Mo., 439.)

It should be observed in this connection that, according to the English and American authorities, no question can be made as to the liability to one who interferes with a contract existing between others by means which, under known legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the person using such unlawful means is, under all the authorities, liable for the damage which ensues. And in jurisdictions where the doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome and malicious interference with a contract relation unless some such unlawful means as those just indicated are used. (See cases last above cited.)

This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared that one Cuddy, the owner of a cinematographic film, let it under a rental contract to the plaintiff Gilchrist for a specified period of time. In violation of the terms of this agreement, Cuddy proceeded to turn over the film also under a rental contract, to the defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of First Instance and produced an injunction restraining the defendants from exhibiting the film in question in their theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to this court it was in effect held that the injunction was not improperly granted, although the defendants did not, at the time their contract was made, know the identity of the plaintiff as the person holding the prior contract but did know of the existence of a contract in favor of someone. It was also said arguendo, that the defendants would have been liable in damages under article 1902 of the Civil Code, if the action had been brought by the

plaintiff to recover damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in the concurring opinion, where it is said that the question of breach of contract by inducement was not really involved in the case. Taking the decision upon the point which was rally decided, it is authority for the proposition that one who buys something which he knows has been sold to some other person can be restrained from using that thing to the prejudice of the person having the prior and better right.

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the defendant corporation, having notice of the sale of the land in question to Daywalt, might have been enjoined by the latter from using the property for grazing its cattle thereon. That the defendant corporation is also liable in this action for the damage resulting to the plaintiff from the wrongful use and occupation of the property has also been already determined. But it will be observed that in order to sustain this liability it is not necessary to resort to any subtle exegesis relative to the liability of a stranger to a contract for unlawful interference in the performance thereof. It is enough that defendant use the property with notice that the plaintiff had a prior and better right.

Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault or negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of this article as relates to liability for negligence, we take the rule to be that a person is liable for damage done to another by any culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted legal standards. The idea thus expressed is undoubtedly broad enough to include any rational conception of liability for the tortious acts likely to be developed in any society. Thus considered, it cannot be said that the doctrine of Lumleyvs. Gye [supra] and related cases is repugnant to the principles of the civil law.

Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach thereof. Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of the contract except in the case especially contemplated in the second paragraph of the same article. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. vs. Compañia Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into between certain parties, determines not only the character and extent of the liability of the contracting parties but also the person or entity by whom the obligation is exigible. The same idea should apparently be applicable with respect to the person against whom the obligation of the contract may be enforced; for it is evident that there must be a certain mutuality in the obligation, and if the stranger to a contract is not permitted to sue to enforce it, he cannot consistently be held liable upon it.

If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the process must be accomplished by distinguishing clearly between the right of action arising from the improper interference with the contract by a stranger thereto, considered as an independent act generate of civil liability, and the right of action ex contractu against a party to the

contract resulting from the breach thereof. However, we do not propose here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are of the opinion that neither the doctrine of Lumley vs. Gye [supra] nor the application made of it by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages which the plaintiff is supposed to have suffered by reason of his inability to comply with the terms of the Wakefield contract.

Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of Teodorica Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in possession.

It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this court, but without obtaining any special adjudication with reference to damages. Indemnification for damages resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore, it should be considered that the right of action to recover damages for the breach of the contract in question was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res judicata in her behalf; and as the defendant corporation was not a party to that action, and such defense could not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia for damages without refernce to this point.

The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. Now, what is the measure of damages for the wrongful detention of real property by the vender after the time has come for him to place the purchaser in possession?

The damages ordinarily and normally recoverable against a vendor for failure to deliver land which he has contracted to deliver is the value of the use and occupation of the land for the time during which it is wrongfully withheld. And of course where the purchaser has not paid the purchaser money, a deduction

may be made in respect to the interest on the money which constitutes the purchase price. Substantially the same rule holds with respect to the liability of a landlord who fails to put his tenant in possession pursuant to contract of lease. The measure of damages is the value of the leasehold interest, or use and occupation, less the stipulated rent, where this has not been paid. The rule that the measure of damages for the wrongful detention of land is normally to be found in the value of use and occupation is, we believe, one of the things that may be considered certain in the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.) — almost as wellsettled, indeed, as the rule that the measure of damages for the wrongful detention of money is to be found in the interest.

We recognize the possibility that more extensive damages may be recovered where, at the time of the creation of the contractual obligation, the vendor, or lessor, is aware of the use to which the purchaser or lessee desires to put the property which is the subject of the contract, and the contract is made with the eyes of the vendor or lessor open to the possibility of the damage which may result to the other party from his own failure to give possession. The case before us is not this character, inasmuch as at the time when the rights of the parties under the contract were determined, nothing was known to any to them about the San Francisco capitalist who would be willing to back the project portrayed in Exhibit C.

The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to such as might be reasonable are in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties. Where the purchaser desires to protect himself, in the contingency of the failure of the vendor promptly to give possession, from the possibility of incurring other damages than such as the incident to the normal value of the use and occupation, he should cause to be inserted in the contract a clause providing for stipulated amount to the paid upon failure of the vendor to give possession; and not case has been called to our attention where, in the absence of such a stipulation, damages have been held to be recoverable by the purchaser in excess of the normal value of use and occupation. On the contrary, the most fundamental conceptions of the law relative to the assessment of damages are inconsistent with such idea.

The principles governing this branch of the law were profoundly considered in the case Hadley vs. Baxendale (9 Exch., 341), decided in the English Court of Exchequer in 1854; and a few words relative to the principles governing will here be found instructive. The decision in that case is considered a leading authority in the jurisprudence of the common law. The plaintiffs in that case were proprietors of a mill in Gloucester, which was propelled by steam, and which was engaged in grinding and supplying meal and flour to customers. The shaft of the engine got broken, and it became necessarily that the broken shaft be sent to an engineer or foundry man at Greenwich, to serve as a model for casting or manufacturing another that would fit into the machinery. The broken shaft could be delivered at Greenwich on the second day after its receipts by the carrier it. It was delivered to the defendants, who were common carriers engaged in that business between these points, and who had told plaintiffs it would be delivered at Greenwich on the second day after its delivery to them, if

delivered at a given hour. The carriers were informed that the mill was stopped, but were not informed of the special purpose for which the broken shaft was desired to forwarded, They were not told the mill would remain idle until the new shaft would be returned, or that the new shaft could not be manufactured at Greenwich until the broken one arrived to serve as a model. There was delay beyond the two days in delivering the broken shaft at Greenwich, and a corresponding delay in starting the mill. No explanation of the delay was offered by the carriers. The suit was brought to recover damages for the lost profits of the mill, cause by the delay in delivering the broken shaft. It was held that the plaintiff could not recover.

The discussion contained in the opinion of the court in that case leads to the conclusion that the damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense necessary damage; and (2) special damages.

Ordinary damages is found in all breaches of contract where the are no special circumstances to distinguish the case specially from other contracts. The consideration paid for an unperformed promise is an instance of this sort of damage. In all such cases the damages recoverable are such as naturally and generally would result from such a breach, "according to the usual course of things." In case involving only ordinary damage no discussion is ever indulged as to whether that damage was contemplated or not. This is conclusively presumed from the immediateness and inevitableness of the damage, and the recovery of such damage follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a matter of law to be within the contemplation of the parties.

Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is only found in case where some external condition, apart from the actual terms to the contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without actual notice of that external condition, could not reasonably be expected to foresee. Concerning this sort of damage, Hadley vs.Baxendale (1854) [supra] lays down the definite and just rule that before such damage can be recovered the plaintiff must show that the particular condition which made the damage a possible and likely consequence of the breach was known to the defendant at the time the contract was made.

The statement that special damages may be recovered where the likelihood of such damages flowing from the breach of the contract is contemplated and foreseen by the parties needs to be supplemented by a proposition which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from subsequent cases. This is that where the damage which a plaintiff seeks to recover as special damage is so far speculative as to be in contemplation of law remote, notification of the special conditions which make that damage possible cannot render the defendant liable therefor. To bring damages which would ordinarily be treated as remote within the category of recoverable special damages, it is necessary that the condition should be made the subject of contract in such sense as to become an express or implied term of the engagement. Horne vs. Midland R. Co. (L. R., 8 C. P., 131) is a case where the damage which was sought to be recovered as special damage was really remote, and some of the judges rightly places the disallowance of the damage

on the ground that to make such damage recoverable, it must so far have been within the contemplation of the parties as to form at least an implied term of the contract. But others proceeded on the idea that the notice given to the defendant was not sufficiently full and definite. The result was the same in either view. The facts in that case were as follows: The plaintiffs, shoe manufacturers at K, were under contract to supply by a certain day shoes to a firm in London for the French government. They delivered the shoes to a carrier in sufficient time for the goods to reach London at the time stipulated in the contract and informed the railroad agent that the shoes would be thrown back upon their hands if they did not reach the destination in time. The defendants negligently failed to forward the good in due season. The sale was therefore lost, and the market having fallen, the plaintiffs had to sell at a loss.

In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica Endencia; and what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages in question are special damages which were not within contemplation of the parties when the contract was made, and secondly, because said damages are too remote to be the subject of recovery. This conclusion is also necessarily fatal to the right of the plaintiff to recover such damages from the defendant corporation, for, as already suggested, by advising Teodorica not to perform the contract, said corporation could in no event render itself more extensively liable than the principle in the contract.

Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against the appellant.

Arellano, C.J., Torres, Carson, Araullo, Malcolm, Avanceña and Moir, JJ., concur.

Footnotes

1 Daywalt vs. Endencia, R. G. No. 7331, decided November 16, 1912, not published.

G.R. No. L-50911 August 21, 1987

MIGUEL PEREZ RUBIO, petitioner, vs.COURT OF APPEALS, ROBERTO O. PHILLIPS & SONS, INC., MAGDALENA YSMAEL PHILLIPS, MANUFACTURERS BANK & TRUST CO., INC., HACIENDA BENITO, INC., ET AL., respondents.

Daniel M. Malabonga for petitioner.

Argel-Guevarra & Associates for respondent Hacienda Benito, Inc.

Meer, Meer & Meer Law Office for respondent Victoria Valley.

Magtanggol C. Gunigundo for respondents Robert O. Phillips & Sons, Inc., Magdalena Ysmael Phillips and Heirs of Robert Phillips.

Ambrosia Padilla, Mempin & Reyes Law Office for respondent Manufacturers Bank & Trust Co Inc.

 

GUTIERREZ, JR., J.:

Before us for reconsideration are the various motions for reconsideration of the March 12, 1986 decision, the dispositive portion of which reads:

WHEREFORE, the petition is GRANTED. The decision of the former Court of Appeals is hereby REVERSED and SET ASIDE. The respondents Phillips and Sons and the Phillips spouses are declared to be jointly and severally liable to the petitioner for the outstanding debt of Phillips and Sons in the amount of FOUR MILLION TWO HUNDRED FIFTY THOUSAND PESOS (P4,250,000.00) with interest at the rate of eight (8%) percent per annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated August 13, 1963. Costs against the respondents. (p. 869, rollo)

The petitioner asks that the decision be reconsidered insofar as it makes no finding against respondent Phillips for moral and exemplary damages as well as attorney's fees and to the extent that the same decision absolves from joint and

solidary liability respondents Manufacturers Bank and Trust Company (hereinafter called MBTC), Hacienda Benito (hereinafter called HB, and Victoria Valley Development Corporation (hereinafter called VVDC).

The petitioner restates his position that the respondents conspired amongst themselves to put the properties of Hacienda Benito beyond his reach and thus make it impossible for him to collect the sum of P4,250,000.00 still unpaid on the purchase price of his shares of stock in Hacienda Benito.

It may be recalled that on June 5, 1965, respondent Hacienda Benito, Inc., represented by Robert O. Phillips, president and Victoria Valley Development Corporation which was in the process of incorporation and represented by Alfonso Yuchengco with the conformity of Manufacturers Bank and Trust Company represented by Galicano Calapatia executed a "MEMORANDUM AGREEMENT. (Exhibit "31" — Miguel Perez Rubio).

The thrust of the agreement is that respondent VVDC will acquire under conditions stated therein 134.1668 hectares of land including account receivables belonging to respondent HBI Moreover, it was specifically provided in the agreement that " ... HB warrants that the properties to be acquired by VVDC are not subject to any other obligations, liens, encumbrances, charges or claims of whatever nature than those mentioned herein, including real estate taxes up to the first semester of 1965." (Memorandum Agreement, supra, pp. 3-4).

Included in this 134.1668 hectares are the 78 hectares mortgaged to MBTC. These parcels of land were mortgaged to MBTC to secure obligation and liabilities incurred by HBI and other affiliate companies owned by the Phillips. Of the P7,419,130.19 amount due from these companies, only P1,456,276.48 was the liability of HBI.

Under this agreement, MBTC will institute judicial foreclosure of mortgage after which all the companies would confess judgment and enter into a compromise agreement in full satisfaction of the claim of MBTC under the several deeds of mortgage. It was further provided that HBI will convey all the 78 hectares in favor of MBTC after which VVDC will purchase from MBTC the same parcels of land together with the receivables. A final proviso was to the effect that VVDC and HBI will enter into a separate agreement whereby HBI will expressly assign in favor of VVDC its right to redeem the properties foreclosed by MBTC.

The consideration of the agreement amounted to Pl1,621,889.11 which VVDC agreed to assume in order to settle the obligations of HBI and the other Phillips companies.

The Memorandum Agreement was executed under the following factual background: (1) Respondent ROPSI had still to pay its outstanding P4,250.000.00 debt to the petitioner as the result of the latter's sale of his shares of stock of HBI; (2) Negotiations had broken down between the Phillips spouses, ROPSI and Alfonso Yuchengco as regards the sale of the shares of stock of Hacienda Benito, Inc.; and (3) Petitioner had threatened to rescind the contract of sale of his shares of stock of Hacienda Benito.

Obviously, Hacienda Benito through Robert O. Phillips, and VVDC through Alfonso Yuchengco were fully aware of the petitioner's still being unpaid the P4,250,000.00 balance on his shares of stocks of Hacienda Benito sold to ROPSI. MBTC, too, because of the unrebutted evidence that its top officers are also the top officers of VVDC is conclusively presumed to know the petitioner's predicament. These same personalities figures prominently in the negotiations involving the shares of stock of Hacienda Benito including the unpaid P4,250,000.00 collectibles of the petitioner from the ROPSI as full payment for the sale of his shares of stock in Hacienda Benito.

Hence, the scheme provided for in the Memorandum Agreement wherein all the properties of Hacienda Benito will be ultimately transferred to VVDC without any mention at all and completely ignoring the petitioner's interest in said Hacienda placed the petitioner's rightful claim to the payment of his shares of stock in clear jeopardy.

The fact that the Memorandum Agreement was not fully implemented is immaterial. The intent to defraud the petitioner and the damage which led to the filing of this case was present in the execution of the Memorandum Agreement.

Therefore, an award for damages in favor of the petitioner is in order against respondents Hacienda Benito, VVDC and MBTC.

Article 19 of the New Civil Code provides that:

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.

while Article 20 thereof provides that:

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

Parenthetically, these respondents did not observe honesty and good faith in dealing with the rightful claim of the petitioner to the still unpaid P4,250,000.00 collectibles from ROPSI. The respondents' acts are tortious pursuant to Articles 19 and 20 of the New Civil Code. Hence, these respondents are obliged to pay for the damage done to the petitioner. (See Article 2176, New Civil Code).

In the case at bar, the tortious and fraudulent scheme of the private respondents made it impossible for the petitioner to collect the P4,250,000.00 still unpaid purchase price of his shares of stock in Hacienda Benito. All the respondents are, therefore, solidarity liable for these actual damages suffered by the petitioner. (See Article 2194 of the New Civil Code).

Consequently, we rule that Hacienda Benito, VVDC and MBTC together with ROPSI and the Phillips spouses are solidarity liable to the petitioner for the

outstanding debt of ROPSI in the amount of P14,250,000.00 with interest at the rate of eight (8 % per cent per annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated August 13,1963.

Also, an award for moral damages in favor of the petitioner is in order against respondents Hacienda Benito, VVDC and MBTC. The planned transfer of all the assets of Hacienda Benito to VVDC which the respondents sought to accomplish through the Memorandum Agreement created further anguish and anxiety on the part of the petitioner who at that time was still trying to collect the P4,250,000.00 full payment of his shares of stock in Hacienda Benito.

Considering the circumstances under which the respondents executed the Memorandum Agreement and the social status of the parties herein, the amount of P100,000.00 as moral damages in favor of the petitioner is awarded.

However, we find no reasonable ground to set aside our findings in the March 12, 1986 decision that respondents Phillips spouses are not liable for moral and exemplary damages and attorney's fees.

Juan Miguel Phillips also filed a motion to intervene in the instant case stating therein that Robert O. Phillips had died leaving as heirs respondent Magdalena Ysmael Phillips and four legitimate children; that he is one of the four (4) children; that as such legal heir, he has a legal interest in the subject matter of the instant case and will be favored or prejudiced in his interest depending on the final outcome of the instant case. He cites Rule 12, Section 2, Rules of Court.

The right of the movant-intervenor proceeds only from the fact of heirship. Hence his interest to specific portions of the property of the deceased is, if not conjectural, stin contingent and expectant. At this point, he cannot specify any property nor segregate any as his own before the liquidation of the estate is completed. This is in accordance with Article 657 of the Civil Code (Article 777, Civil Code) which provides that the rights to succession of a person are transmitted from the moment of death.

Thus, the heir has the right to impugn the validity of the decedent's transaction only when he is made answerable or when his specific right or property would be affected thereby. The instant case is a personal action against Robert O. Phillips, filed while he was still alive. It is Robert O. Phillips and his estate which are sought to be made liable, not the movant-intervenor or any of his legal heirs.

WHEREFORE, the petitioners motion for reconsideration is GRANTED in that respondent's Hacienda Benito, Victoria Valley Development Corporation and Manufacturers Bank and Trust Company (now Filipinas Bank) together with respondents Robert 0. Phillips & Sons and the Phillips spouses are declared to be jointly and severally liable to the petitioner for the outstanding debt of Phillips and Sons in the amount of FOUR MILLION TWO HUNDRED FIFTY THOUSAND PESOS (P4,250,000.00) with interest at the rate of eight (8%) per cent per annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated August 13, 1963; that respondents Hacienda Benito, Inc., Victoria Valley Development Corporation and Manufacturers Bank and Trust

Company (now Filipinas Bank) are jointly and severally liable to the petitioner in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages. Juan Miguel Phillips' motion for reconsideration is DENIED for lack of merit. The motions for reconsideration filed by Robert O. Phillips and Sons, Magdalena Ysmael Phillips and the heirs of Robert O. Phillips, Hacienda Benito, Inc., and Manufacturers Bank and Trust Company are DENIED it appearing that no new substantial reasons have been invoked to warrant reconsideration of the said decision as far as these parties' motions are concerned, and this DENIAL is FINAL.

SO ORDERED.

Fernan (Chairman), Paras, Bidin and Cortes, JJ., concur.

Padilla, J., took no part.