Torts Full Text Compiled

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G.R. No. 112573 February 9, 1995

NORTHWEST ORIENT AIRLINES, INC. petitioner,vs.COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents.

PADILLA, JR., J .:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals affirming the dismissal of the petitioner'scomplaint to enforce the judgment of a Japanese court. The principal issue here is whether a Japanese court can acquire jurisdiction

over a Philippine corporation doing business in Japan by serving summons through diplomatic channels on the Philippine corporation atits principal office in Manila after prior attempts to serve summons in Japan had failed.

Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST ), a corporation organized under the laws of the State of Minnesota,U.S.A., sought to enforce in Civil Case No. 83-17637 of the Regional Trial Court (RTC), Branch 54, Manila, a judgment rendered in itsfavor by a Japanese court against private respondent C.F. Sharp & Company, Inc., (hereinafter SHARP), a corporation incorporatedunder Philippine laws.

As found by the Court of Appeals in the challenged decision of 10 November 1993, 1 the following are the factual and proceduralantecedents of this controversy:

On May 9, 1974, plaintiff Northwest Airlines and defendant C.F. Sharp & Company, through its Japan branch, enteredinto an International Passenger Sales Agency Agreement, whereby the former authorized the latter to sell its air

transportation tickets. Unable to remit the proceeds of the ticket sales made by defendant on behalf of the plaintiffunder the said agreement, plaintiff on March 25, 1980 sued defendant in Tokyo, Japan, for collection of theunremitted proceeds of the ticket sales, with claim for damages.

On April 11, 1980, a writ of summons was issued by the 36th Civil Department, Tokyo District Court of Japan againstdefendant at its office at the Taiheiyo Building, 3rd floor, 132, Yamashita-cho, Naka-ku, Yokohoma, KanagawaPrefecture. The attempt to serve the summons was unsuccessful because the bailiff was advised by a person in theoffice that Mr. Dinozo, the person believed to be authorized to receive court processes was in Manila and would beback on April 24, 1980.

On April 24, 1980, bailiff returned to the defendant's office to serve the summons. Mr. Dinozo refused to accept thesame claiming that he was no longer an employee of the defendant.

After the two attempts of service were unsuccessful, the judge of the Tokyo District Court decided to have the

complaint and the writs of summons served at the head office of the defendant in Manila. On July 11, 1980, theDirector of the Tokyo District Court requested the Supreme Court of Japan to serve the summons through diplomaticchannels upon the defendant's head office in Manila.

On August 28, 1980, defendant received from Deputy Sheriff Rolando Balingit the writ of summons (p. 276, Records).Despite receipt of the same, defendant failed to appear at the scheduled hearing. Thus, the Tokyo Court proceededto hear the plaintiff's complaint and on [January 29, 1981], rendered judgment ordering the defendant to pay theplaintiff the sum of 83,158,195 Yen and damages for delay at the rate of 6% per annum from August 28, 1980 up toand until payment is completed (pp. 12-14, Records).

On March 24, 1981, defendant received from Deputy Sheriff Balingit copy of the judgment. Defendant not havingappealed the judgment, the same became final and executory.

Plaintiff was unable to execute the decision in Japan, hence, on May 20, 1983, a suit for enforcement of the judgment

was filed by plaintiff before the Regional Trial Court of Manila Branch 54. 2

On July 16, 1983, defendant filed its answer averring that the judgment of the Japanese Court sought to be enforcedis null and void and unenforceable in this jurisdiction having been rendered without due and proper notice to thedefendant and/or with collusion or fraud and/or upon a clear mistake of law and fact (pp. 41-45, Rec.).

Unable to settle the case amicably, the case was tried on the merits. After the plaintiff rested its case, defendant on April 21, 1989, filed a Motion for Judgment on a Demurrer to Evidence based on two grounds:(1) the foreign judgment sought to be enforced is null and void for want of jurisdiction and (2) the said judgment iscontrary to Philippine law and public policy and rendered without due process of law. Plaintiff filed its opposition afterwhich the court a quo rendered the now assailed decision dated June 21, 1989 granting the demurrer motion anddismissing the complaint (Decision, pp. 376-378, Records). In granting the demurrer motion, the trial court held that:

The foreign judgment in the Japanese Court sought in this action is null and void for want of jurisdiction over the person of the defendant considering that this is an action in personam; theJapanese Court did not acquire jurisdiction over the person of the defendant because jurisprudencerequires that the defendant be served with summons in Japan in order for the Japanese Court toacquire jurisdiction over it, the process of the Court in Japan sent to the Philippines which is outsideJapanese jurisdiction cannot confer jurisdiction over the defendant in the case before the JapaneseCourt of the case at bar. Boudard versus Tait 67 Phil. 170. The plaintiff contends that the JapaneseCourt acquired jurisdiction because the defendant is a resident of Japan, having four (4) branchesdoing business therein and in fact had a permit from the Japanese government to conduct businessin Japan (citing the exhibits presented by the plaintiff); if this is so then service of summons shouldhave been made upon the defendant in Japan in any of these alleged four branches; as admittedby the plaintiff the service of the summons issued by the Japanese Court was made in thePhilippines thru a Philippine Sheriff. This Court agrees that if the defendant in a foreign court is aresident in the court of that foreign court such court could acquire jurisdiction over the person of the


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defendant but it must be served upon the defendant in the territorial jurisdiction of the foreign court.Such is not the case here because the defendant was served with summons in the Philippines andnot in Japan.

Unable to accept the said decision, plaintiff on July 11, 1989 moved for reconsideration of the decision, filing at thesame time a conditional Notice of Appeal, asking the court to treat the said notice of appeal "as in effect after andupon issuance of the court's denial of the motion for reconsideration."

Defendant opposed the motion for reconsideration to which a Reply dated August 28, 1989 was filed by the plaintiff.

On October 16, 1989, the lower court disregarded the Motion for Reconsideration and gave due course to theplaintiff's Notice of Appeal. 3

In its decision, the Court of Appeals sustained the trial court. It agreed with the latter in its reliance upon Boudard vs. Tait 4 wherein itwas held that "the process of the court has no extraterritorial effect and no jurisdiction is acquired over the person of the defendant byserving him beyond the boundaries of the state." To support its position, the Court of Appeals further stated:

In an action strictly in personam, such as the instant case, personal service of summons within the forum is requiredfor the court to acquire jurisdiction over the defendant (Magdalena Estate Inc. vs. Nieto, 125 SCRA 230). To confer jurisdiction on the court, personal or substituted service of summons on the defendant not extraterritorial service isnecessary (Dial Corp vs. Soriano, 161 SCRA 739).

But while plaintiff-appellant concedes that the collection suit filed is an action in personam, it is its theory that a

distinction must be made between an action in personam against a resident defendant and an action in personam against a non-resident defendant. Jurisdiction is acquired over a non-resident defendant only if he isserved personally within the jurisdiction of the court and over a resident defendant if by personal, substituted orconstructive service conformably to statutory authorization. Plaintiff-appellant argues that since the defendant-appellee maintains branches in Japan it is considered a resident defendant. Corollarily, personal, substituted orconstructive service of summons when made in compliance with the procedural rules is sufficient to give the court jurisdiction to render judgment in personam.

Such an argument does not persuade.

It is a general rule that processes of the court cannot lawfully be served outside the territorial limits of the jurisdictionof the court from which it issues (Carter vs. Carter; 41 S.E. 2d 532, 201) and this is regardless of the residence orcitizenship of the party thus served (Iowa-Rahr vs. Rahr, 129 NW 494, 150 Iowa 511, 35 LRC, NS, 292, Am. Case1912 D680). There must be actual service within the proper territorial limits on defendant or someone authorized toaccept service for him. Thus, a defendant, whether a resident or not in the forum where the action is filed, must beserved with summons within that forum.

But even assuming a distinction between a resident defendant and non-resident defendant were to be adopted, suchdistinction applies only to natural persons and not in the corporations. This finds support in the concept that "acorporation has no home or residence in the sense in which those terms are applied to natural persons" (ClaudeNeon Lights vs. Phil. Advertising Corp., 57 Phil. 607). Thus, as cited by the defendant-appellee in its brief:

Residence is said to be an attribute of a natural person, and can be predicated on an artificial being only by more orless imperfect analogy. Strictly speaking, therefore, a corporation can have no local residence or habitation. It hasbeen said that a corporation is a mere ideal existence, subsisting only in contemplation of law — an invisible beingwhich can have, in fact, no locality and can occupy no space, and therefore cannot have a dwelling place. (18 Am.Jur. 2d, p. 693 citing Kimmerle v. Topeka, 88 370, 128 p. 367; Wood v. Hartfold F. Ins. Co., 13 Conn 202)

Jurisprudence so holds that the foreign or domestic character of a corporation is to be determined by the place of itsorigin where its charter was granted and not by the location of its business activities (Jennings v. Idaho Rail Light & P.Co., 26 Idaho 703, 146 p. 101), A corporation is a "resident" and an inhabitant of the state in which it is incorporatedand no other (36 Am. Jur. 2d, p. 49).

Defendant-appellee is a Philippine Corporation duly organized under the Philippine laws. Clearly, its residence is thePhilippines, the place of its incorporation, and not Japan. While defendant-appellee maintains branches in Japan, thiswill not make it a resident of Japan. A corporation does not become a resident of another by engaging in businessthere even though licensed by that state and in terms given all the rights and privileges of a domestic corporation(Galveston H. & S.A.R. Co. vs. Gonzales, 151 US 496, 38 L ed. 248, 4 S Ct. 401).

On this premise, defendant appellee is a non-resident corporation. As such, court processes must be served upon itat a place within the state in which the action is brought and not elsewhere (St. Clair vs. Cox, 106 US 350, 27 L ed.222, 1 S. Ct. 354). 5

It then concluded that the service of summons effected in Manila or beyond the territorial boundaries of Japan was null and did notconfer jurisdiction upon the Tokyo District Court over the person of SHARP; hence, its decision was void.

Unable to obtain a reconsideration of the decision, NORTHWEST elevated the case to this Court contending that the respondent courterred in holding that SHARP was not a resident of Japan and that summons on SHARP could only be validly served within that country.

A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also properto presume the regularity of the proceedings and the giving of due notice therein. 6

Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a


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subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion,fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys thepresumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its official duty.

Consequently, the party attacking a foreign judgment has the burden of overcoming the presumption of its validity. 7 Being the partychallenging the judgment rendered by the Japanese court, SHARP had the duty to demonstrate the invalidity of such judgment. In anattempt to discharge that burden, it contends that the extraterritorial service of summons effected at its home office in the Philippineswas not only ineffectual but also void, and the Japanese Court did not, therefore acquire jurisdiction over it.

It is settled that matters of remedy and procedure such as those relating to the service of process upon a defendant are governed by

the lex fori or the internal law of the forum. 8 In this case, it is the procedural law of Japan where the judgment was rendered thatdetermines the validity of the extraterritorial service of process on SHARP. As to what this law is is a question of fact, not of law. It maynot be taken judicial notice of and must be pleaded and proved like any other fact. 9 Sections 24 and 25, Rule 132 of the Rules of Courtprovide that it may be evidenced by an official publication or by a duly attested or authenticated copy thereof. It was then incumbentupon SHARP to present evidence as to what that Japanese procedural law is and to show that under it, the assailed extraterritorialservice is invalid. It did not. Accordingly, the presumption of validity and regularity of the service of summons and the decision thereafterrendered by the Japanese court must stand.

Alternatively in the light of the absence of proof regarding Japaneselaw, the presumption of identity or similarity or the so-called processual presumption 10 may be invoked. Applying it, the Japanese lawon the matter is presumed to be similar with the Philippine law on service of summons on a private foreign corporation doing businessin the Philippines. Section 14, Rule 14 of the Rules of Court provides that if the defendant is a foreign corporation doing business in thePhilippines, service may be made: (1) on its resident agent designated in accordance with law for that purpose, or, (2) if there is nosuch resident agent, on the government official designated by law to that effect; or (3) on any of its officers or agents within thePhilippines.

If the foreign corporation has designated an agent to receive summons, the designation is exclusive, and service of summons is withoutforce and gives the court no jurisdiction unless made upon him. 11

Where the corporation has no such agent, service shall be made on the government official designated by law, to wit: (a) the InsuranceCommissioner in the case of a foreign insurance company; (b) the Superintendent of Banks, in the case of a foreign bankingcorporation; and (c) the Securities and Exchange Commission, in the case of other foreign corporations duly licensed to do business inthe Philippines. Whenever service of process is so made, the government office or official served shall transmit by mail a copy of thesummons or other legal proccess to the corporation at its home or principal office. The sending of such copy is a necessary part of theservice. 12

SHARP contends that the laws authorizing service of process upon the Securities and Exchange Commission, the Superintendent ofBanks, and the Insurance Commissioner, as the case may be, presuppose a situation wherein the foreign corporation doing business in

the country no longer has any branches or offices within the Philippines. Such contention is belied by the pertinent provisions of thesaid laws. Thus, Section 128 of the Corporation Code13 and Section 190 of the Insurance Code 14 clearly contemplate two situations:(1) if the corporation had left the Philippines or had ceased to transact business therein, and (2) if the corporation has no designatedagent. Section 17 of the General Banking Act 15 does not even speak a corporation which had ceased to transact business in thePhilippines.

Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive court processes in Japan. Thissilence could only mean, or least create an impression, that it had none. Hence, service on the designated government official or onany of SHARP's officers or agents in Japan could be availed of. The respondent, however, insists that only service of any of its officersor employees in its branches in Japan could be resorted to. We do not agree. As found by the respondent court, two attempts at servicewere made at SHARP's Yokohama branch. Both were unsuccessful. On the first attempt, Mr. Dinozo, who was believed to be theperson authorized to accept court process, was in Manila. On the second, Mr. Dinozo was present, but to accept the summonsbecause, according to him, he was no longer an employee of SHARP. While it may be true that service could have been made uponany of the officers or agents of SHARP at its three other branches in Japan, the availability of such a recourse would not precludeservice upon the proper government official, as stated above.

As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons for SHARP be served at its head officein the Philippine's after the two attempts of service had failed. 16 The Tokyo District Court requested the Supreme Court of Japan tocause the delivery of the summons and other legal documents to the Philippines. Acting on that request, the Supreme Court of Japansent the summons together with the other legal documents to the Ministry of Foreign Affairs of Japan which, in turn, forwarded thesame to the Japanese Embassy in Manila . Thereafter, the court processes were delivered to the Ministry (now Department) of Foreign Affairs of the Philippines, then to the Executive Judge of the Court of First Instance (now Regional Trial Court) of Manila, who forthwithordered Deputy Sheriff Rolando Balingit to serve the same on SHARP at its principal office in Manila. This service is equivalent toservice on the proper government official under Section 14, Rule 14 of the Rules of Court, in relation to Section 128 of the CorporationCode. Hence, SHARP's contention that such manner of service is not valid under Philippine laws holds no water. 17

In deciding against the petitioner, the respondent court sustained the trial court's reliance on Boudard vs. Tait 18where this Court held:

The fundamental rule is that jurisdiction in personam over nonresidents, so as to sustain a money judgment, must bebased upon personal service within the state which renders the judgment.

xxx xxx xxx

The process of a court, has no extraterritorial effect, and no jurisdiction is acquired over the person of the defendantby serving him beyond the boundaries of the state. Nor has a judgment of a court of a foreign country against aresident of this country having no property in such foreign country based on process served here, any effect hereagainst either the defendant personally or his property situated here.


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Process issuing from the courts of one state or country cannot run into another, and although a nonresidentdefendant may have been personally served with such process in the state or country of his domicile, it will not givesuch jurisdiction as to authorize a personal judgment against him.

It further availed of the ruling in Magdalena Estate, Inc . vs. Nieto 19 and Dial Corp. vs. Soriano, 20 as well as the principle laid down bythe Iowa Supreme Court in the 1911 case of Raher vs. Raher . 21

The first three cases are, however, inapplicable. Boudard involved the enforcement of a judgment of the civil division of the Court ofFirst Instance of Hanoi, French Indo-China. The trial court dismissed the case because the Hanoi court never acquired jurisdiction overthe person of the defendant considering that "[t]he, evidence adduced at the trial conclusively proves that neither the appellee [the

defendant] nor his agent or employees were ever in Hanoi, French Indo-China; and that the deceased Marie Theodore Jerome Boudardhad never, at any time, been his employee." In Magdalena Estate, what was declared invalid resulting in the failure of the court toacquire jurisdiction over the person of the defendants in an action in personam was the service of summons through publication againstnon-appearing resident defendants. It was claimed that the latter concealed themselves to avoid personal service of summons uponthem. In Dial , the defendants were foreign corporations which were not, domiciled and licensed to engage in business in the Philippinesand which did not have officers or agents, places of business, or properties here. On the other hand, in the instant case, SHARP wasdoing business in Japan and was maintaining four branches therein.

Insofar as to the Philippines is concerned, Raher is a thing of the past. In that case, a divided Supreme Court of Iowa declared that theprinciple that there can be no jurisdiction in a court of a territory to render a personal judgment against anyone upon service madeoutside its limits was applicable alike to cases of residents and non-residents. The principle was put at rest by the United StatesSupreme Court when it ruled in the 1940 case of Milliken vs. Meyer 22 that domicile in the state is alone sufficient to bring an absentdefendant within the reach of the state's jurisdiction for purposes of a personal judgment by means of appropriate substituted service orpersonal service without the state. This principle is embodied in section 18, Rule 14 of the Rules of Court which allows service ofsummons on residents temporarily out of the Philippines to be made out of the country. The rationale for this rule was explainedinMilliken as follows:

[T]he authority of a state over one of its citizens is not terminated by the mere fact of his absence from the state. Thestate which accords him privileges and affords protection to him and his property by virtue of his domicile may alsoexact reciprocal duties. "Enjoyment of the privileges of residence within the state, and the attendant right to invokethe protection of its laws, are inseparable" from the various incidences of state citizenship. The responsibilities of thatcitizenship arise out of the relationship to the state which domicile creates. That relationship is not dissolved by mereabsence from the state. The attendant duties, like the rights and privileges incident to domicile, are not dependent oncontinuous presence in the state. One such incident of domicile is amenability to suit within the state even duringsojourns without the state, where the state has provided and employed a reasonable method for apprising such anabsent party of the proceedings against him. 23

The domicile of a corporation belongs to the state where it was incorporated. 24 In a strict technical sense, such domicile as acorporation may have is single in its essence and a corporation can have only one domicile which is the state of its creation. 25

Nonetheless, a corporation formed in one-state may, for certain purposes, be regarded a resident in another state in which it has officesand transacts business. This is the rule in our jurisdiction and apropos thereto, it may be necessery to quote what we stated in StateInvestment House, Inc , vs. Citibank, N . A., 26 to wit:

The issue is whether these Philippine branches or units may be considered "residents of the Philippine Islands" asthat term is used in Section 20 of the Insolvency Law . . . or residents of the state under the laws of which they wererespectively incorporated. The answer cannot be found in the Insolvency Law itself, which contains no definition ofthe term, resident , or any clear indication of its meaning. There are however other statutes, albeit of subsequentenactment and effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to a foreigncorporation engaged in trade or business within the Philippines," as distinguished from a "'non-resident foreign

corporation' . . . (which is one) not engaged in trade or bussiness within the Philippines." [Sec. 20, pars. (h) and (i)].

The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extensionoffices or any other units of corporation or juridical person organized under the laws of any foreign country operatingin the Philippines shall be considered residents of the Philippines. [Sec. 1(e)].

The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . .. (which are) called Philippine branches," in the same category as "commercial banks, savings associations,mortgage banks, development banks, rural banks, stock savings and loan associations" (which have been formedand organized under Philippine laws), making no distinction between the former and the latter in so far as the terms"banking institutions" and "bank" are used in the Act [Sec. 2], declaring on the contrary that in "all matters notspecifically covered by special provisions applicable only to foreign banks, or their branches and agencies in thePhilippines, said foreign banks or their branches and agencies lawfully doing business in the Philippines "shall bebound by all laws, rules, and regulations applicable to domestic banking corporations of the same class, except such

laws, rules and regulations as provided for the creation, formation, organization, or dissolution of corporations or asfix the relation, liabilities, responsibilities, or duties of members, stockholders or officers of corporation. [Sec. 18].

This court itself has already had occasion to hold [Claude Neon Lights, Fed. Inc. vs. Philippine Advertising Corp., 57Phil. 607] that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, maynot be considered a non-resident within the scope of the legal provision authorizing attachment against adefendant not residing in the Philippine Islands; [Sec. 424, in relation to Sec. 412 of Act No. 190, the Code of CivilProcedure; Sec. 1(f), Rule 59 of the Rules of 1940, Sec. 1(f), Rule 57, Rules of 1964] in other words, a preliminaryattachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporationauthorized to do business in the Philippines — and is consequently and necessarily, "a party who resides out of thePhilippines." Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party whoresides out of the country, then, logically, it must be considered a party who does reside in the Philippines, who is aresident of the country. Be this as it may, this Court pointed out that:


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. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensedto do business here, to the status of domestic corporations. (Cf. Section 73, Act No. 1459, andMarshall Wells Co. vs. Henry W. Elser & Co., 46 Phil. 70, 76; Yu Cong Eng vs. Trinidad, 47 Phil.385, 411) We think it would be entirely out of line with this policy should we make a discriminationagainst a foreign corporation, like the petitioner, and subject its property to the harsh writ of seizureby attachment when it has complied not only with every requirement of law made specially offoreign corporations, but in addition with every requirement of law made of domestic corporations. .. .

Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to the status

of domestic corporations, subsumes their being found and operating as corporations, hence,residing , in the country.

The same principle is recognized in American law: that the residence of a corporation, if it can be said to have aresidence, is necessarily where it exercises corporate functions . . .;" that it is considered as dwelling "in the placewhere its business is done . . .," as being "located where its franchises are exercised . . .," and as being "presentwhere it is engaged in the prosecution of the corporate enterprise;" that a "foreign corporation licensed to do businessin a state is a resident of any country where it maintains an office or agent for transaction of its usual and customarybusiness for venue purposes;" and that the "necessary element in its signification is locality of existence." [Words andPhrases, Permanent Ed., vol. 37, pp. 394, 412, 493].

In as much as SHARP was admittedly doing business in Japan through its four duly registered branches at the time the collection suitagainst it was filed, then in the light of the processual presumption, SHARP may be deemed a resident of Japan, and, as such, wasamenable to the jurisdiction of the courts therein and may be deemed to have assented to the said courts' lawful methods of servingprocess. 27

Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not only under the processual presumptionbut also because of the presumption of regularity of performance of official duty.

We find NORTHWEST's claim for attorney's fees, litigation expenses, and exemplary damages to be without merit. We find no evidencethat would justify an award for attorney's fees and litigation expenses under Article 2208 of the Civil Code of the Philippines. Nor is anaward for exemplary damages warranted. Under Article 2234 of the Civil Code, before the court may consider the question of whetheror not exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatorydamaged. There being no such proof presented by NORTHWEST, no exemplary damages may be adjudged in its favor.

WHEREFORE, the instant petition is partly GRANTED, and the challenged decision is AFFIRMED insofar as it denied NORTHWEST'sclaims for attorneys fees, litigation expenses, and exemplary damages but REVERSED insofar as in sustained the trial court's dismissalof NORTHWEST's complaint in Civil Case No. 83-17637 of Branch 54 of the Regional Trial Court of Manila, and another in its stead ishereby rendered ORDERING private respondent C.F. SHARP L COMPANY, INC. to pay to NORTHWEST the amounts adjudged in the

foreign judgment subject of said case, with interest thereon at the legal rate from the filing of the complaint therein until the said foreign judgment is fully satisfied.

Costs against the private respondent.

SO ORDERED.

Padilla, Bellosillo, Quaison and Kapunan, JJ., concur.


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G.R. No. L-41093 October 30, 1978

ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION, petitioner,vs.COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and LOLITA MILLAN, respondents.

Purugganan & Bersamin for petitioner.

Salvador N. Beltran for respondent.

MUÑOZ PALMA, J.:

This is a direct appeal on questions of law from a decision of the Court of First Instance of Rizal, Branch XXXIV, presided by theHonorable Bernardo P. Pardo, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered commanding the defendant to register the deed of absolute sale it hadexecuted in favor of plaintiff with the Register of Deeds of Caloocan City and secure the corresponding title in thename of plaintiff within ten (10) days after finality of this decision; if, for any reason, this not possible, defendant ishereby sentenced to pay plaintiff the sum of P5,193.63 with interest at 4% per annum from June 22, 1972 until fullypaid.

In either case, defendant is sentenced to pay plaintiff nominal damages in the amount of P20,000.00 plus attorney'sfee in the amount of P5,000.00 and costs.

SO ORDERED.

Caloocan City, February 11, 1975. (rollo, p. 21)

Petitioner corporation questions the award for nominal damages of P20,000.00 and attorney's fee of P5,000.00 which are allegedlyexcessive and unjustified.

In the Court's resolution of October 20, 1975, We gave due course to the Petition only as regards the portion of the decision awardingnominal damages. 1

The following incidents are not in dispute:

In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner, agreed to sell to private respondent Lolita Millan forand in consideration of the sum of P3,864.00, payable in installments, a parcel of land containing an area of approximately 276 squaremeters, situated in Barrio Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its Franville Subdivision. 2

Millan complied with her obligation under the contract and paid the installments stipulated therein, the final payment having been madeon December 22, 1971. The vendee made a total payment of P5,193.63 including interests and expenses for registration of title. 3

Thereafter, Lolita Millan made repeated demands upon the corporation for the execution of the final deed of sale and the issuance toher of the transfer certificate of title over the lot. On March 2, 1973, the parties executed a deed of absolute sale of the aforementionedparcel of land. The deed of absolute sale contained, among others, this particular provision:

That the VENDOR further warrants that the transfer certificate of title of the above-described parcel of land shall betransferred in the name of the VENDEE within the period of six (6) months from the date of full payment and in casethe VENDOR fails to issue said transfer certificate of title, it shall bear the obligation to refund to the VENDEE thetotal amount already paid for, plus an interest at the rate of 4% per annum. (record on appeal, p. 9)

Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months, the corporation failed to cause the issuance ofthe corresponding transfer certificate of title over the lot sold to Millan, hence, the latter filed on August 14, 1974 a complaint for specificperformance and damages against Robes-Francisco Realty & Development Corporation in the Court of First Instance of Rizal, BranchXXXIV, Caloocan City, docketed therein as Civil Case No. C-3268. 4

The complaint prayed for judgment (1) ordering the reformation of the deed of absolute sale; (2) ordering the defendant to deliver toplaintiff the certificate of title over the lot free from any lien or encumbrance; or, should this be not possible, to pay plaintiff the value ofthe lot which should not be less than P27,600.00 (allegedly the present estimated value of the lot); and (3) ordering the defendant topay plaintiff damages, corrective and actual in the sum of P15 000.00. 5

The corporation in its answer prayed that the complaint be dismissed alleging that the deed of absolute sale was voluntarily executedbetween the parties and the interest of the plaintiff was amply protected by the provision in said contract for payment of interest at 4%per annum of the total amount paid, for the delay in the issuance of the title. 6

At the pretrial conference the parties agreed to submit the case for decision on the pleadings after defendant further made certainadmissions of facts not contained in its answer. 7

Finding that the realty corporation failed to cause the issuance of the corresponding transfer certificate of title because the parcel ofland conveyed to Millan was included among other properties of the corporation mortgaged to the GSIS to secure an obligation of P10million and that the owner's duplicate certificate of title of the subdivision was in the possession of the Government Service InsuranceSystem (GSIS), the trial court, on February 11, 1975, rendered judgment the dispositive portion of which is quoted in pages 1 and 2 of


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this Decision. We hold that the trial court did not err in awarding nominal damages; however, the circumstances of the case warrant areduction of the amount of P20,000.00 granted to private respondent Millan.

There can be no dispute in this case under the pleadings and the admitted facts that petitioner corporation was guilty of delay,amounting to nonperformance of its obligation, in issuing the transfer certificate of title to vendee Millan who had fully paid up herinstallments on the lot bought by her. Article 170 of the Civil Code expressly provides that those who in the performance of theirobligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

Petitioner contends that the deed of absolute sale executed between the parties stipulates that should the vendor fail to issue thetransfer certificate of title within six months from the date of full payment, it shall refund to the vendee the total amount paid for with

interest at the rate of 4% per annum, hence, the vendee is bound by the terms of the provision and cannot recover more than what isagreed upon. Presumably, petitioner in invoking Article 1226 of the Civil Code which provides that in obligations with a penal clause, thepenalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation tothe contrary.

The foregoing argument of petitioner is totally devoid of merit. We would agree with petitioner if the clause in question were to beconsidered as a penal clause. Nevertheless, for very obvious reasons, said clause does not convey any penalty, for even without it,pursuant to Article 2209 of the Civil Code, the vendee would be entitled to recover the amount paid by her with legal rate of interestwhich is even more than the 4% provided for in the clause. 7-A

It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause which will preclude an award of damagesto the vendee Millan. In fact the clause is so worded as to work to the advantage of petitioner corporation.

Unfortunately, the vendee, now private respondent, submitted her case below without presenting evidence on the actual damages

suffered by her as a result of the nonperformance of petitioner's obligation under the deed of sale. Nonetheless, the facts show that theright of the vendee to acquire title to the lot bought by her was violated by petitioner and this entitles her at the very least to nominaldamages.

The pertinent provisions of our Civil Code follow:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff , which has been violated or invadedby the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any losssuffered by him.

Art. 2222. The court may award nominal damages in every obligation arising from any source enumerated in article1157, or in every case where any property right has been invaded.

Under the foregoing provisions nominal damages are not intended for indemnification of loss suffered but for the vindication orrecognition of a right violated or invaded. They are recoverable where some injury has been done the amount of which the evidencefails to show, the assessment of damages being left to the discretion of the court according to the circumstances of the case. 8

It is true as petitioner claims that under American jurisprudence nominal damages by their very nature are small sums fixed by the courtwithout regard to the extent of the harm done to the injured party.

It is generally held that a nominal damage is a substantial claim, if based upon the violation of a legal right; in suchcase, the law presumes a damage, although actual or compensatory damages are not proven; in truth nominaldamages are damages in name only and not in fact, and are allowed, not as an equivalent of a wrong inflicted, butsimply in recogniton of the existence of a technical injury. (Fouraker v. Kidd Springs Boating and Fishing Club, 65 S.W. 2d 796-797, citing 17 C.J. 720, and a number of authorities). 9

In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al . 1956, which was an action for damages arising out of a vehicular

accident, this Court had occasion to eliminate an award of P10,000.00 imposed by way of nominal damages, the Court stating interalia that the amount cannot, in common sense, be demeed "nominal". 10

In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca, 1965, this Court, however, through then Justice RobertoConcepcion who later became Chief Justice of this Court, sustained an award of P20,000.00 as nominal damages in favor ofrespnodent Cuenca. The Court there found special reasons for considering P20,000.00 as "nominal". Cuenca who was the holder of afirst class ticket from Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to the tourist classnotwithstanding its knowledge that Cuenca as Commissioner of Public Highways of the Republic of the Philippines was travelling in hisofficial capacity as a delegate of the country to a conference in Tokyo." 11

Actually, as explained in the Court's decision in Northwest Airlines, there is no conflict between that case and Medina, for in the latter,the P10,000.00 award for nominal damages was eliminated principally because the aggrieved party had already been awardedP6,000.00 as compensatory damages, P30,000.00 as moral damages and P10,000.00 as exemplary damages, and "nominal damagescannot coexist with compensatory damages," while in the case of Commissioner Cuenca, no such compensatory, moral, or exemplary

damages were granted to the latter. 12

At any rate, the circumstances of a particular case will determine whether or not the amount assessed as nominal damages is withinthe scope or intent of the law, more particularly, Article 2221 of the Civil Code.

In the situation now before Us, We are of the view that the amount of P20,000.00 is excessive. The admitted fact that petitionercorporation failed to convey a transfer certificate of title to respondent Millan because the subdivision property was mortgaged to theGSIS does not in itself show that there was bad faith or fraud. Bad faith is not to be presumed. Moreover, there was the expectation ofthe vendor that arrangements were possible for the GSIS to make partial releases of the subdivision lots from the overall real estatemortgage. It was simply unfortunate that petitioner did not succeed in that regard.


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For that reason We cannot agree with respondent Millan Chat the P20,000.00 award may be considered in the nature of exemplarydamages.

In case of breach of contract, exemplary damages may be awarded if the guilty party acted in wanton, fraudulent, reckless, oppressiveor malevolent manner. 13 Furthermore, exemplary or corrective damages are to be imposed by way of example or correction for thepublic good, only if the injured party has shown that he is entitled to recover moral, temperate or compensatory damages."

Here, respondent Millan did not submit below any evidence to prove that she suffered actual or compensatory damages. 14

To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by way of nominal damages is fair and just under the

following circumstances, viz : respondent Millan bought the lot from petitioner in May, 1962, and paid in full her installments onDecember 22, 1971, but it was only on March 2, 1973, that a deed of absolute sale was executed in her favor, and notwithstanding thelapse of almost three years since she made her last payment, petitioner still failed to convey the corresponding transfer certificate oftitle to Millan who accordingly was compelled to file the instant complaint in August of 1974.

PREMISES CONSIDERED, We modify the decision of the trial court and reduce the nominal damages to Ten Thousand Pesos(P10,000.00). In all other respects the aforesaid decision stands.

Without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.


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EN BANC

[G.R. No. L-8194. July 11, 1956.]

EMERENCIANA M. VDA. DE MEDINA, ET AL., Plaint if fs -Appel lees , vs. GUILLERMO CRESENCIA, ET AL., Defendants .GUILLERMO CRESENCIA, Appel lant .

D E C I S I O N

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

Appeal by Defendant Guillermo Cresencia from the judgment of the Court of First Instance of Manila in its civil case No. 19890,sentencing Appellant , jointly and severally with his co-Defendant Brigido Avorque, to pay Plaintiffs Emerencia M. Vda. de Medina andher minor children damages in the total amount of P56,000, P5,000 attorneys’ fees, and costs.

It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-2232 (Manila), driven by Brigido Avorque, smashed into aMeralco post on Azcarraga Street, resulting in the death of Vicente Medina, one of its passengers. A criminal case for homicide throughreckless imprudence was filed against Avorque (criminal case No. 22775 of the Court of First Instance of Manila), to which he pleadedguilty on September 9, 1953. The heirs of the deceased, however, reserved their right to file a separate action for damages, and onJune 16, 1953, brought suit against the driver Brigido Avorque and Appellant Guillermo Cresencia, the registered owner and operator ofthe jeepney in question. Defendant Brigido Avorque did not file any answer; chan roblesvirtualawlibrarywhile Defendant Cresenciaanswered, disclaiming liability on the ground that he had sold the jeepney in question on October 14, 1950 to one Maria A.Cudiamat; chan roblesvirtualawlibrarythat the jeepney had been repeatedly sold by one buyer after another, until the vehicle waspurchased on January 29, 1953 by Rosario Avorque, the absolute owner thereof at the time of the accident. In view of Cresencia’sanswer, Plaintiffsfiled leave, and was allowed, to amend their complaint making Rosario Avorque a co-Defendant ; chanroblesvirtualawlibraryand the latter, by way of answer, admitted having purchased the aforesaid jeepney on May 31, 1953, but allegedin defense that she was never the public utility operator thereof. The case then proceeded to trial, during which, after the Plaintiffs hadpresented their evidence, DefendantsGuillermo Cresencia and Rosario Avorque made manifestations admitting that the former was stillthe registered operator of the jeepney in question in the records of the Motor Vehicles Office and the Public Service Commission, whilethe latter was the owner thereof at the time of the accident;chan roblesvirtualawlibraryand submitted the case for the decision on thequestion of who, as between the two, should be held liable to Plaintiffs for damages. The lower court, by Judge Jose Zulueta, held thatas far as the public is concerned, Defendant Cresencia, in the eyes of the law, continued to be the legal owner of the jeepney inquestion; chan roblesvirtualawlibraryand rendered judgment against him, jointly and severally with the driver Brigido Avorque, forP6,000 compensatory damages, P30,000 moral damages, P10,000 exemplary damages, P10,000 nominal damages, P5,000 attorneysfees, and costs, while Defendant Rosario Avorque was absolved from liability. From this judgment, Defendant Cresencia appealed.

We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182 (December 29, 1953), which the court below cited, that the law(section 20 [g], C. A. No. 146 as amended) requires the approval of the Public Service Commission in order that a franchise, or anyprivilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee; chan roblesvirtualawlibraryandthat if property covered by the franchise is transferred or leased without this requisite approval, the transfer is not binding against thepublic or the Service Commission; chan roblesvirtualawlibraryand in contemplation of law, the grantee of record continues to beresponsible under the franchise in relation to the Commission and to the public. There we gave the reason for this rule to be asfollows:chanroblesvirtuallawlibrary

“ cralaw Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission sothat the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval isgranted, there should be a public hearing, with notice to all interested parties, in order that the Commission may determine if there aregood and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease isdetrimental to public interest cralaw .”

The above ruling was later reiterated in the cases of Timbol vs. Osias, L-7547, April 30, 1955 and Roque vs. Malibay Transit Inc., L-8561, November 18, 1955.

As the sale of the jeepney here in question was admittedly without the approval of the Public Service Commission, Appellant herein,Guillermo Cresencia, who is the registered owner and operator thereof, continued to be liable to the Commission and the public for theconsequences incident to its operation. Wherefore, the lower court did not err in holding him, and not the buyer Rosario Avorque,responsible for the damages sustained by Plaintiff by reason of the death of Vicente Medina resulting from the reckless negligence ofthe jeepney’s driver, Brigido Avorque.

Appellant also argues that the basis of Plaintiffs’ action being the employer’s subsidiary liability under the Revised Penal Code fordamages arising from his employee’s criminal acts, it isDefendant Rosario Avorque who should answer subsidiarily for the damagessustained byPlaintiffs, since she admits that she, and not Appellant , is the employer of the negligent driver Brigido Avorque. Theargument is untenable, because Plaintiffs’ action for damages is independent of the criminal case filed against Brigido Avorque, andbased, not on the employer’s subsidiary liability under the Revised Penal Code, but on a breach of the carrier’s contractual obligation tocarry his passengers safely to their destination (culpa contractual). And it is also for this reason that there is no need of first proving theinsolvency of the driver Brigido Avorque before damages can be recovered from the carrier, for in culpa contractual, the liability of thecarrier is not merely subsidiary or secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code).

The propriety of the damages awarded has not been questioned, Nevertheless, it is patent upon the record that the award of P10,000by way of nominal damages is untenable as a matter of law, since nominal damages cannot co-exist with compensatory damages. Thepurpose of nominal damages is to vindicate or recognize a right that has been violated, in order to preclude further contestthereon; chan roblesvirtualawlibrary“and not for the purpose of indemnifying the Plaintiff for any loss suffered by him” (Articles 2221,2223, new Civil Code.) Since the court below has already awarded compensatory and exemplary damages that are in themselves a

judicial recognition that Plaintiff ’s right was violated, the award of nominal damages is unnecessary and improper. Anyway, tenthousand pesos cannot, in common sense, be deemed “nominal”.

With the modification that the award of P10,000 nominal damages” be eliminated, the decision appealed from is affirmed. Costs against Appellant . SO ORDERED.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia, JJ ., concur.


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G.R. No. L-17681 February 26, 1965

MINDANAO ACADEMY, INC., MAURICIO O. BAS, ERLINDA D. DIAZ, accompanied by her husband ANTOLIN DIAZ, ESTERAIDA D. BAS, accompanied by her husband MAURICIO O. BAS, ROSALINDA D. BELLEZA, accompanied by her husbandAPOLINARIO BELLEZA, LUZ MINDA D. DAJAO, accompanied by her husband ELIGIO C. DAJAO, ADELAIDA D. NUESA,accompanied by her husband WILSON NUESA, PEDRO N. ABUTON, SY PAOCO, JOSEFA DIGNUM, and PERFECTOVELASQUEZ, plaintiffs-appellees,vs.ILDEFONSO D. YAP, ROSENDA A. DE NUQUI, and SOTERO A. DIONISIO, JR., defendants,ILDEFONSO D. YAP, defendant-appellant.

-----------------------------

G.R. No. L-17682 February 26, 1965

ROSENDA A. DE NUQUI, SOTERO DIONISIO, JR., ERLINDA DIONISIO-DIAZ and ANTOLIN DIAZ, plaintiffs-appellees,vs.ILDEFONSO D. YAP, defendant-appellant.

Mauricio O. Bas for and in his own behalf as plaintiff-appellee.Eligio C. Dayao for and in his own behalf as plaintiff-appellee.Roque Desquitado for other plaintiffs-appellees.

Ambrosio Padilla Law Offices for defendant-appellant.

MAKALINTAL, J .:

By deed entitled "Mutual Agreement," executed on May 10, 1964, Rosenda A. de Nuqui (widow of deceased Sotero Dionisio) and herson Sotero Dionisio, Jr. sold three parcels of residential land in Oroquieta, Misamis Occidental, and another parcel in Ozamis City infavor of Ildefonso D. Yap. Included in the sale were certain buildings situated on said lands as well as laboratory equipment, books,furniture and fixtures used by two schools established in the respective properties, the Mindanao Academy in Oroquieta and theMisamis Academy in Ozamis City. The aggregate price stated in the deed was P100,700.00, to be paid according to the terms andconditions specified in the contract.

Besides Rosenda and her son Sotero, Jr., both of whom signed the instrument, Adelaida Dionisio-Nuesa (a daughter of Rosenda) isalso named therein as co-vendor, but actually did not take part either personally or through her uncle and supposed attorney-in-fact,Restituto Abuton.

These three — Rosenda and her two children above named — are referred to in the deed as the owners pro-indiviso of the propertiessold. The truth, however, was that there were other co-owners of the lands, namely, Erlinda D. Diaz, Ester Aida D. Bas, Rosalinda D.Belleza, and Luz Minda D. Dajao, children also of Rosenda by her deceased husband Sotero Dionisio, Sr., and that as far as the schoolbuilding, equipment, books, furniture and fixtures were concerned, they were owned by the Mindanao Academy, Inc., a corporationoperating both the Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City.

The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue of the sale, took over the operation of the two schools andeven changed their names to Harvardian Colleges. In view thereof two actions were commenced in the Court of First Instance ofMisamis Occidental. The first was for annulment of the sale and recovery of rents and damages (Civil Case No. 1774, filed May 3,1955) with the Mindanao Academy, Inc., the five children of Rosenda Nuqui who did not take part in the deed of sale, and several otherpersons who were stockholders of the said corporation, as plaintiffs, and the parties who signed the deed of sale as defendants. Thesecond action was for rescission (Civil Case No. 1907, filed July 17, 1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and Erlinda D. Diaz(and the latter's husband Antolin Diaz) as plaintiffs, and Ildefonso D. Yap as lone defendant. The other four children of Rosenda did not join, having previously ceded and quitclaimed their shares in the litigated properties in favor of their sister Erlinda D. Diaz.

The two actions were tried jointly and on March 31, 1960 the court a quo rendered judgment as follows:

In both Cases —

(1) The Mutual Agreement is hereby declared null and void ab initio;

(2) Defendant Ildefonso D. Yap is hereby ordered to pay the costs of the proceedings in both cases.

In Civil Case No. 1907 only —

(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the plaintiffs in said case all the buildings and groundsdescribed in the Mutual Agreement together with all the permanent improvements thereon;

(2) To pay to the plaintiffs therein the amount of P300.00 monthly from July 31, 1956 up to the time he shall have surrenderedthe properties in question to the plaintiffs herein, plus P1,000.00 as attorney's fees to plaintiffs Antolin and Erlinda D. Diaz.

In Civil Case No. 1774 only —

(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the Mindanao Academy, Inc., all the books laboratoryapparatus, furniture and other equipments described in the Mutual Agreement and specified in the inventory attached to theRecords of this case; or in default thereof, their value in the amount of P23,500.00;

(2) To return all the Records of the Mindanao Academy and Misamis Academy;


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(3) To pay to the plaintiffs stockholders of the Mindanao Academy, Inc., the amount of P10,000.00 as nominal damages,P3,000.00 as exemplary damages; and P2,000.00 as attorney's fees. These damages shall be apportioned to each of thestockholders named as plaintiffs in said case in proportion to their respective interests in the corporation.

Ildefonso D. Yap appealed from the foregoing judgment and has assigned five errors therein.

I. He first contends that the lower court erred "in declaring that the mutual agreement dated May 10, 1954 ... is entirely void and legallynon-existent in that the vendors therein ceded to defendant-appellant not only their interests, rights, shares and participation in theproperty sold but also those that belonged to persons who were not parties thereto."

The lower court did not rule categorically on the question of rescission considering it unnecessary to do so in view of its conclusion thatthe contract of sale is null and void. This conclusion is premised on two grounds: (a) the contract purported to sell properties of whichthe sellers were not the only owners, since of the four parcels of land mentioned in the deed their shares consisted only of 7/12, (6/12for Rosenda Nuqui and 1/12 for Sotero, Jr.), while in the buildings, laboratory equipment, books, furniture and fixtures they had noparticipation at all, the owner being the Mindanao Academy, Inc.; and (b) the prestation involved in the sale was indivisible, andtherefore incapable of partial annulment, inasmuch as the buyer Yap, by his own admission, would not have entered into thetransaction except to acquire all of the properties purchased by him.

These premises are not challenged by appellant. But he calls attention to one point, namely, that the four children of Rosenda Nuquiwho did not take part in the sale, besides Erlinda Dionisio Diaz, quitclaimed in favor of the latter their interests in the properties; and thatthe trial court held that Erlinda as well as her husband acted in bad faith, because "having reasonable notice of defendants' havingunlawfully taken possession of the property, they failed to make reasonable demands for (him) to vacate the premises to respect theirrights thereto." It is argued that being herself guilty of bad faith, Erlinda D. Diaz, as owner of 5/12 undivided interest in the properties(including the 4/12 ceded to her by her four sisters), is in no position to ask for annulment of the sale. The argument does not convince

us. In the first place the quitclaim, in the form of an extrajudicial partition, was made on May 6, 1956, after the action for annulment wasfiled, wherein the plaintiffs were not only Erlinda but also the other co-owners who took no part in the sale and to whom there has beenno imputation of bad faith. Secondly, the trial court's finding of bad faith is an erroneous conclusion induced by a manifest oversight ofan undisputed fact, namely, that on July 10, 1954, just a month after the deed of sale in question, Erlinda D. Diaz did file an actionagainst Ildefonso D. Yap and Rosenda Nuqui, among others, asserting her rights as co-owner of the properties (Case No. 1646).Finally, bad faith on the part of Erlinda would not militate against the nullity of the sale, considering that it included not only the landsowned in common by Rosenda Nuqui and her six children but also the buildings and school facilities owned by the Mindanao Academy,Inc., an entity which had nothing to do with the transaction and which could be represented solely by its Board of Trustees.

The first assignment of error is therefore without merit.

II. The second and third errors are discussed jointly in appellant's brief. They read as follows:

THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE FOR RENTS AND ATTORNEY'S FEES IN

THE SUM OF P1,000.00 AFTER DECLARING THAT ALL THE PLAINTIFFS-APPELLEES IN CIVIL CASE NO. 1907 ACTEDIN BAD FAITH.

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLEES IN SAID CIVIL CASE NO. 1907 AREENTITLED TO RECOVER ALL THE LANDS, BUILDINGS AND OTHER PERMANENT IMPROVEMENTS DESCRIBED INTHE MUTUAL AGREEMENT DATED MAY 10, 1954.

The lower court correctly found that both vendors and vendee in the sale acted in bad faith and therefore must be treated, vis-a-viseach other, as having acted in good faith. The return of the properties by the vendee is a necessary consequence of the decree ofannulment. No part of the purchase price having been paid, as far as the record shows, the trial court correctly made no correspondingorder for the restitution thereof.

In regard to the rents the trial court found that prior to the sale the Mindanao Academy, Inc., was paying P300.00 monthly for itsoccupancy of the lands on which the buildings are situated. This is the amount the defendant has been ordered to pay to the plaintiffs inCivil Case No. 1907, beginning July 31, 1956, when he filed his "first pleading" in the case. There can be no doubt that Erlinda D. Diazis entitled to recover a share of the said rents in proportion to her own interests in the lands and the interest in the four co-owners whichshe had acquired. Rosenda Nuqui and her son Sotero, it is true, acted in bad faith when they sold the properties as theirs alone, but sodid the defendant Yap when he purchased them with knowledge of the fact that there were other co-owners. Although the bad faith ofone party neutralizes that of the other and hence as between themselves their rights would be as if both of them had acted in good faithat the time of the transaction, this legal fiction of Yap's good faith ceased when the complaint against him was filed, and consequentlythe court's declaration of liability for the rents thereafter is correct and proper. A possessor in good faith is entitled to the fruits only solong as his possession is not legally interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and1123, Civil Code).

In our opinion the award of attorney's fees to Erlinda D. Diaz and her husband is erroneous. Civil Case No. 1907, in which said feeshave been adjudged, is for rescission (more properly resolution) of the so-called "mutual agreement" on the ground that the defendantYap failed to comply with certain undertakings specified therein relative to the payment of the purchase price. Erlinda Diaz was not aparty to that agreement and hence had no cause of action for rescission. And as already stated, the trial court did not decide the matter

of rescission because of the decree of annulment it rendered in the other case (Civil Case No. 1774), wherein the defendants are notonly Ildefonso D. Yap but also Rosenda Nuqui and her son Sotero. Erlinda D. Diaz could just as well have refrained from joining asplaintiff in the action for rescission, not being a party to the contract sought to be rescission and being already one of the plaintiffs in theother action. In other words, it cannot be said with justification that she was constrained to litigate, in Civil Case No. 1907, because ofsome cause attributable to the appellant.

The appellant claims reimbursement for the value of the improvements he allegedly introduced in the schools, consisting of a newbuilding worth P8,000.00 and a toilet costing P800.00, besides laboratory equipment, furniture, fixtures and books for the libraries. Itshould be noted that the judgment of the trial court specifies, for delivery to the plaintiffs (in Civil Case No. 1907), only "the buildingsand grounds described in the mutual agreement together with all the permanent improvements thereon." If the defendant constructed anew building, as he alleges, he cannot recover its value because the construction was done after the filing of the action for annulment,thus rendering him a builder in bad faith who is denied by law any right of reimbursement.


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In connection with the equipment, books, furniture and fixtures brought in by him, he is not entitled to reimbursement either, becausethe judgment does not award them to any of the plaintiffs in these two actions. What is adjudged (in Civil Case No. 1774) is for thedefendant to restore to the Mindanao Academy, Inc. all the books, laboratory apparatus, furniture and other equipment "described inthe Mutual Agreement and specified in the Inventory attached to the records of this case; or in default thereof, their value in the amountof P23,500.00." In other words, whatever has been brought in by the defendant is outside the scope of the judgment and may beretained by him.

III. The appellant's fourth assignment of error refers to the nominal and exemplary damages, as well as the attorney's fees, granted tothe stockholders of the Mindanao Academy, Inc. The trial court awarded no compensatory damages because the Mindanao Academy,Inc. had been operating the two schools at a loss before the sale in question, and the defendant himself was no more successful after

he took over. Are the stockholders of the said corporation who joined as plaintiffs in Civil Case No. 1774 entitled to nominal andexemplary damages? We do not believe so. According to their second amended complaint they were joined merely pro forma, and "forthe sole purpose of the moral damage which has been all the time alleged in the original complaint." Indeed the interests of the saidstockholders, if any, were already represented by the corporation itself, which was the proper party plaintiff; and no cause of actionaccruing to them separately from the corporation is alleged in the complaint, other than that for moral damages due to "extreme mentalanguish, serious anxiety and wounded feelings." The trial court, however, ruled out this claim for moral damages and no appeal fromsuch ruling has been taken. The award for nominal and exemplary damages should be eliminated in toto.

The award for attorney's fees in the amount of P2,000.00 should be upheld, although the same should be for the account, not of theplaintiff stockholders of the Mindanao Academy, Inc., but of the corporation itself, and payable to their common counsel as prayed for inthe complaint.

IV. Under the fifth and last assignment of error the appellant insists on the warranty provided for in clause VI of the deed of sale in viewof the claims of the co-owners who did not take part therein. The said clause provides: "if any claim shall be filed against the propertiesor any right, share or interest which are in the possession of the party of the First Part (vendors) which had been hereby transferred,ceded and conveyed unto the party of the Second Part (vendee) the party of the First Part assumes as it hereby holds itselfanswerable.

It is unnecessary to pass upon the question posed in this assignment of error in view of the total annulment of the sale on groundsconcerning which both parties thereto were at fault. The nullity of the contract precludes enforcement of any of its stipulations.

WHEREFORE, the judgment appealed from is modified by eliminating therefrom the award of attorney's fees of P1,000.00 in favor ofErlinda D. Diaz and her husband, plaintiffs in Civil Case No. 1907, and the award of nominal and exemplary damages in Civil Case No.1774; and making the award of attorney's fees in the sum of P2,000.00 payable to counsel for the account of the Mindanao Academy,Inc. instead of the plaintiff stockholders. In all other respects the judgment appealed from is affirmed. No pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes and Bengzon, J.P., JJ., concur.Barrera, Dizon, Regala and Zaldivar, JJ., took no part.


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G.R. No. 160283 October 14, 2005

JOHN KAM BIAK Y. CHAN, JR., Petitioner,vs.Iglesia Ni Cristo, Inc., Respondent.

D E C I S I O N

CHICO-NAZARIO, J .:

Before Us is a petition for review on certiorar i 1 assailing the Decision2 of the Court of Appeals in CA-G.R. CV No. 65976, dated 25September 2003. Said Decision denied the petitioner’s appeal from the decision of the Regional Trial Court (RTC), La Union, Branch31, in Civil Case No. A-1646.

THE FACTS

The antecedents of the instant case are quite simple.

The Aringay Shell Gasoline Station is owned by the petitioner. It is located in Sta. Rita East, Aringay, La Union, and bounded on thesouth by a chapel of the respondent.

The gasoline station supposedly needed additional sewerage and septic tanks for its washrooms. In view of this, the services ofDioscoro "Ely" Yoro (Yoro), a retired general of the Armed Forces of the Philippines, was procured by petitioner, as the former was

allegedly a construction contractor in the locality.

Petitioner and Yoro executed a Memorandum of Agreement3 (MOA) on 28 February 1995 which is reproduced hereunder:

MEMORANDUM OF AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This MEMORANDUM OF AGREEMENT, executed this 28th day of February, 1995, by and between:

JOHN Y. CHAN, of legal age, single, and a resident of Aringay, La Union, now and hereinafter called the FIRST PARTY;

GEN. ELY E. YORO, Jr., of legal age, married, and a resident of Damortis, Sto. Tomas, La Union, hereinafter referred to as theSECOND PARTY:

WITNESSETH that:

WHEREAS, the FIRST PARTY is the owner of a parcel of land located at Sta. Rita, Aringay, La Union.

WHEREAS, the FIRST PARTY, desires to dig a septic tank for its perusal in the property bordering Iglesia ni Cristo.

WHEREAS, the SECOND PARTY is willing to contract the intended digging of septic tank for the first party.

WHEREAS, the FIRST PARTY and SECOND PARTY has (sic) agreed verbally as to the compensation of the said digging of septictank.

WHEREFORE, for and in consideration of the terms and covenants hereinbelow set forth, the FIRST PARTY hereby AGREES and ALLOWS the SECOND PARTY to undertake the digging of the parcel of land for the exclusive purpose of having a septic tank.

TERMS AND COVENANTS

1. The SECOND PARTY shall contract the said digging;

2. The FIRST PARTY shall have complete control over the number of personnel who will be entering the property for said contract;

3. The digging shall be allowed for a period of three (3) weeks only, commencing on March 28, 1995, unless extended by agreement ofthe parties;

4. Any damage within or outside the property of the FIRST PARTY incurred during the digging shall be borne by the SECOND PARTY;

5. In the event that valuable objects are found on the property, the same shall be divided among the parties as follows:

FIRST PARTY - 60%

SECOND PARTY - 40%

6. In the event that valuable objects are found outside the property line during the said digging, the same shall be divided among theparties as follows:

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FIRST PARTY - 35%

SECOND PARTY - 65%

7. In case government or military interference or outside intervention is imminent, the FIRST PARTY hereby reserves the option to stopthe digging at any stage thereof.

IN WITNESS WHEREOF, We have hereunto set our hands on the day and year first above-written at Aringay, La Union.4

Diggings thereafter commenced. After some time, petitioner was informed by the members of the respondent that the digging traversedand penetrated a portion of the land belonging to the latter. The foundation of the chapel was affected as a tunnel was dug directlyunder it to the damage and prejudice of the respondent.

On 18 April 1995, a Complaint5 against petitioner and a certain Teofilo Oller, petitioner’s engineer, was filed by the respondent beforethe RTC, La Union, Branch 31, docketed therein as Civil Case No. A-1646. Petitioner and Oller filed an Answer with Third-PartyComplaint6 impleading Yoro as third-party defendant.

Yoro filed an Answer to the Third-Party Complaint7 dated 13 July 1995. An Amended and Supplemental Complaint8 dated 30 August1995 was later filed by the respondent already naming Yoro as a party-defendant, to which the petitioner and Oller filed an Answer .9 Yoro filed his own Answer .10

After four years of hearing the case, the trial court promulgated its Decision11 holding that the diggings were not intended for theconstruction of sewerage and septic tanks but were made to construct tunnels to find hidden treasure .12 The trial court adjudged the

petitioner and Yoro solidarily liable to the respondent on a 35%-65% basis (the petitioner liable for the 35%), and absolving Oller fromany liability, viz :

WHEREFORE, this Court renders judgment in favor of plaintiff IGLESIA NI CRISTO and against defendants JOHN KAMBIAK CHANand DIOSCORO "ELY" YORO, JR. who are respectively solidarily liable to PLAINTIFF on a 35%-65% basis, with JOHN CHAN takingthe 35% tab, Ordering the two (2) aforesaid DEFENDANTS to pay PLAINTIFF the following amounts:

1. SIX HUNDRED THIRTY-THREE THOUSAND FIVE HUNDRED NINETY-FIVE PESOS AND FIFTY CENTAVOS (P633,595.50);representing ACTUAL DAMAGES;

2. FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing MORAL DAMAGES;

3. TEN MILLION PESOS (P10,000,000.00) as EXEMPLARY DAMAGES;

4. FIFTY THOUSAND PESOS (P50,000.00) as plaintiff’s attorney’s fees; and

5. TWENTY THOUSAND PESOS (P20,000.00) as litigation expenses.

Defendant TEOFILO OLLER is absolved of any civil liability.

Any counterclaim filed against PLAINTIFF IGLESIA NI CRISTO is dismissed.13

Petitioner filed a Notice of Appeal14 dated 18 August 1999. Yoro filed his own Notice of Appeal15 dated 20 August 1999.

In a Resolution16 dated 19 November 1999, the trial court disallowed Yoro’s appeal for failure to pay the appellate court docket andother lawful fees within the reglementary period for taking an appeal.17 In view of Yoro’s failure to appropriately file an appeal, an order

was issued for the issuance of a Writ of Execution as against him only, the dispositive portion of which reads:

WHEREFORE, premises considered, this Court GRANTS the motion of plaintiff Iglesia ni Cristo for the issuance of a Writ of Executionas against Dioscoro "Ely" Yoro, Jr. only.18

The petitioner’s appeal to the Court of Appeals, on the other hand, was given due course.19 On 25 September 2003, the Court of Appeals rendered its Decision denying the appeal. It affirmed the trial court but with modifications. The decretal portion of the decisionstates:

WHEREFORE, the appeal is hereby DENIED. The assailed decision in Civil Case No. A-1646 is hereby AFFIRMED withMODIFICATIONS as follows:

(a) The award of moral damages in the amount of P500,000.00 is hereby deleted.

(b) The award of exemplary damages is hereby reduced to P50,000.00.

(c) The award of attorney’s fees and litigation expenses is hereby reduced to P30,000.00.20

Undeterred, petitioner instituted the instant case before this Court. On 15 December 2004, the instant petition was given due course .21

ASSIGNMENT OF ERRORS

Petitioner assigns as errors the following:

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15/93

I

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT (BRANCH 31, AGOO, LAUNION) PARTICULARLY IN SAYING THAT THE BASIS OF THE SOLIDARY OBLIGATION OF PETITIONER AND YORO VIS-À-

VIS PLAINTIFF IS BASED NOT ON THE MOA BUT ON TORT

II

THE COURT OF APPEALS ERRED IN NOT GIVING EFFECT TO THE MOA WHICH SHOULD EXONERATE THE PETITIONERFROM ALL LIABILITIES TO THE PRIVATE RESPONDENT

III

THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE THIRD-PARTY COMPLAINT AS CROSS-CLAIM OF THEPETITIONER AGAINST YORO.22

ISSUE

Drawn from the above assignment of errors, the solitary issue that needs to be resolved is:

WHETHER OR NOT THE MEMORANDUM OF AGREEMENT ENTERED INTO BY THE PETITIONER AND YORO HAS THE EFFECTOF MAKING THE LATTER SOLELY RESPONSIBLE FOR DAMAGES TO THE RESPONDENT.

THE RULINGS OF THE COURT

Petitioner avers that no liability should attach to him by laying the blame solely on Yoro. He argues that the MOA executed between himand Yoro is the law between them and must be given weight by the courts. Since nothing in the MOA goes against the law, morals,good customs and public policy, it must govern to absolve him from any liability.23 Petitioner relies heavily in Paragraph 4 of the MOA,which is again reproduced hereunder:

4. Any damage within or outside the property of the FIRST PARTY incurred during the digging shall be borne by the SECOND PARTY.

In answer to this, the respondent asserts that the MOA should not absolve petitioner from any liability. This written contract, accordingto the respondent, clearly shows that the intention of the parties therein was to search for hidden treasure. The alleged digging for aseptic tank was just a cover-up of their real intention.24 The aim of the petitioner and Yoro to intrude and surreptitiously hunt for hiddentreasure in the respondent’s premises should make both parties liable.25

At this juncture, it is vital to underscore the f indings of the trial court and the Court of Appeals as to what was the real intention of thepetitioner and Yoro in undertaking the excavations. The findings of the trial court and the Court of Appeals on this point are in completeunison. Petitioner and Yoro were in quest for hidden treasur e26and, undoubtedly, they were partners in this endeavor.

The Court of Appeals, in its Decision, held in part:

The basis of their solidarity is not the Memorandum of Agreement but the fact that they have become joint tortfeasors. There is solidaryliability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.27

We find no compelling reason to disturb this particular conclusion reached by the Court of Appeals. The issue, therefore, must be ruledin the negative.

Article 2176 of the New Civil Code provides:

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

Based on this provision of law, the requisites of quasi-delict are the following:

(a) there must be an act or omission;

(b) such act or omission causes damage to another;

(c) such act or commission is caused by fault or negligence; and

(d) there is no pre-existing contractual relation between the parties.

All the requisites are attendant in the instant case. The tortious act was the excavation which caused damage to the respondentbecause it was done surreptitiously within its premises and it may have affected the foundation of the chapel. The excavation onrespondent’s premises was caused by fault. Finally, there was no pre-existing contractual relation between the petitioner and Yoro onthe one hand, and the respondent on the other.

For the damage caused to respondent, petitioner and Yoro are jointly liable as they are joint tortfeasors. Verily, the responsibility of twoor more persons who are liable for a quasi-delict is solidary.28

The heavy reliance of petitioner in paragraph 4 of the MOA cited earlier cannot steer him clear of any liability.

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