SECOND DIVISION

G.R. No. 144476 February 1, 2002

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T.
ONG, And JULIE ONG ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU,
LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP., MASAGANA
TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, And the SECURITIES AND
EXCHANGE COMMISSION, respondents.

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

G.R. No. 144629

DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU,
LOURDES C. TIU, And INTRALAND RESOURCES DEVELOPMENT CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T.
ONG And JULIA ONG ALONZO, respondents.

DECISION

BUENA, J.:

Consolidated Petitions for Review of 1.) the Decision of the Court of Appeals in CA-G.R. SP No.
1

49056 dated October 5, 1999, which affirmed with modifications the Order dated September 11,
1998, issued by the SEC En Banc in SEC Case No. 598 and 601, confirming the rescission of the
Pre-Subscription Agreement; and 2.) the Resolution of the Court of Appeals dated August 17, 2000
which denied the motions for reconsideration filed by the private parties herein, except Masagana
Telamart, Inc.

The antecedent facts of the case, as summarized by the Court of Appeals are as follows:

"As one traverses Taft Avenue in Pasay City, one will see the Masagana Citimall, a commercial
complex owned and managed by the First Landlink Asia Development Corporation (FLADC) (p. 127,
520 and 211, Rollo). It was not long ago when this commercial complex, then unfinished, was
threatened with incompletion when its owner found it in financial distress in the amount of
₱190,000,000.00 for being indebted to the Philippine National Bank (PNB), (pp. 520 and 212, Rollo).
That was in 1994 (Ibid.)

"FLADC was then fully owned by the Tiu Group composed of David S. Tiu, Cely Y. Tiu, Moly Yu
Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (p. 211, Rollo). In order to
recover from its floundering finances, the Ong Group composed of Ong Yong, Juanita Tan Ong,
Wilson T. Ong, Anna L. Ong, William T. Ong and Julie Ong Alonzo, were invited by the Tius to invest
in FLADC (pp. 211 and 520, Rollo). Hence, the execution of a Pre-Subscription Agreement by and
between the Tiu and Ong Groups on August 15, 1994 (pp. 211-216, Rollo).

"By the Pre-Subscription Agreement, both parties agreed to maintain equal shareholdings in FLADC
with the Ongs investing cash while the Tius contributing property (pp. 213-214, Rollo). Specifically,
the Ongs were to subscribe to 1 million shares of FLADC at a par value of ₱100.00 per share while
the Tius were to subscribe to 549,800 shares more of FLADC at a par value of ₱100.00 per share
over and above their previous subscription of 450,200 shares in order to complete a subscription of
1 million shares (Ibid.). Commensurate to their proposed subscriptions, the Ongs were to pay
₱100,000,000.00 in cash (p.213, Rollo), while the Tius were to contribute the following properties by
way of separate Deeds of Assignments:

"1. A four-storey building described in Transfer Certificate of Title No. 15587 registered in the name
of Intraland Resources and Development Corporation (a corporation wholly owned by the Tius) and
valued at ₱20,000,000.00;

"2. A 1,902.30 square meter parcel of land covered by Transfer Certificate of Title No. 15587 in the
name of Masagana Telamart, Inc. (also a corporation owned by the Tius) and valued at
₱30,000,000.00; and

"3. A 151 square meter parcel of land adjacent to the properties covered by Transfer Certificate of
Title Nos. 132493 and 132494 and valued at ₱4,980,000.00 (pp. 212 and 214, Rollo).

"Also for purposes of equality, the parties agreed that 6 directors of FLADC were to be nominated
from the Ong Group, while 5 directors thereof were to be nominated from the Tiu Group (p. 213,
Rollo). It was also agreed that the positions of President and Secretary of FLADC shall be held by
the Ongs, while the positions of Vice-President and Treasurer thereof shall be held by the Tius
(Ibid.).

"In order to liquidate FLADC's outstanding ₱190,000,000.00 loan from the PNB, the parties to the
Pre-Subscription Agreement proposed payment thereof with the ₱100,000,000.00 cash to be
invested by the Ongs to FLADC and with the available funds of FLADC derived from:

"1. Reimbursement of costs of improvements received from tenants on the spaces leased to them;

"2. Receipts from reservations to lease; and

"3. Receipts for deposit or advance rentals from tenants (pp. 213-214, Rollo).

"In order to comply with the Pre-Subscription Agreement, the necessary increase in capital stock of
FLADC was applied for and duly approved (pp. 184-187, Rollo). The Ongs subscribed to 1 million
shares thereof at a par value of ₱100.00 per share, or ₱100,000,000.00 (p. 185, Rollo). Intraland
Resources and Development Corporation executed the requisite Deed of Assignment over a 4-
storey building it owned in favor of FLADC and was duly credited with 200,000 shares therefor in
FLADC (Ibid; pp. 837-838, Rollo).

"Masagana Telamart, Inc. executed a Deed of Assignment over the 1,902.30 square meter property
in favor of FLADC and delivered the owner's copy of the transfer certificate of title of the same as
well as the possession thereof to the latter (pp. 221-226, Rollo). Title over the 151 square meter
property was also transferred in the name of FLADC (pp. 1062-1063, Rollo).

"FLADC's articles of incorporation were also duly amended increasing the number of its directors
from seven (7) to eleven (11), six (6) of which were nominated by the Ong Group, while the rest
were nominated by the Tiu Group (pp. 188-189, Rollo). Later, Wilson T. Ong and Juanita Tan Ong
were elected President and Secretary, respectively, while David S. Tiu and Cely Yao Tiu were
elected Vice-President and Treasurer, respectively (pp. 191-192, Rollo)
"The ₱190,000,000.00 loan from the PNB was also settled, but not quite in accord with the
provisions of the Pre-Subscription Agreement (pp.437-441, Rollo). In lieu of the FLADC funds which
were supposed to be used as partial payment for said loan per Pre-Subscription Agreement, the
Ongs had to pay ₱70,000,000.00 more aside from their ₱100,000,000.00 subscription payment, and
the Tius had to advance ₱20,000,000.00 in cash, which amount was loaned to them by the former
(Ibid.).

"The controversy between the two parties arose when the Ongs refused to credit the number of
FLADC shares in the name of Masagana Telamart, Inc. commensurate to its 1,902.30 square meter
property contribution; also when they refused to credit the number of FLADC shares in favor of the
Tius commensurate to their 151 square meter property contribution; and when David S. Tiu and Cely
Y. Tiu were proscribed from assuming and performing their duties as Vice-President and Treasurer,
respectively of FLADC (pp. 132-136, Rollo). These became the basis of the Tius' unilateral
rescission of the Pre-Subscription Agreement on February 23, 1996 (p. 867, rollo)." 2

On February 27, 1996, the Tius sought the Securities and Exchange Commission (SEC)
confirmation of their rescission of the Pre-Subscription Agreement. Their complaint was docketed as
SEC Case No. 02-96-5269.

On May 19, 1997, after the Tiu Group, Masagana Telamart, Inc., Intraland Resources and
Development Corporation, the Ong Group and FLADC were heard on their respective claims
regarding the propriety of the Pre-Subscription Agreement's rescission, SEC Hearing Officer
Rolando G. Andaya, Jr., rendered a decision thereon confirming the rescission as follows:

"WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription

Agreement, and consequently ordering:

"(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in
FLADC;

"(b) FLADC to pay the amount of ₱170,000,000.00 to the individual defendants representing
the return of their contribution for 1,000,000 shares of FLADC;

"(c) The plaintiffs to submit with the Securities and Exchange Commission amended articles
of incorporation of FLADC to conform with this decision;

"(d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066
(formerly 15587), 135325 and 134204 and any other title or deed in the name of FLADC,
failing in which said titles are declared void;

"(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to
cancel the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT No.
134066 (formerly 15587).

"(f) The individual defendants, individually and collectively, their agents and representatives,
to desist from exercising or performing any and all acts pertaining to stockholder, director or
officer of FLADC or in any manner intervene in the management and affairs of FLADC;

"(g) The individual defendants, jointly and severally, to return to FLADC interest payment in
the amount of ₱8,866,669.00 and all interest payments as well as any payments on principal
 received from the ₱70,000,000.00 inexistent loan, plus the legal rate of interest thereon from
the date of their receipt of such payment, until fully paid;

"(h) The plaintiff David Tiu to pay individual defendants the sum of ₱20,000,000.00
representing his loan from said defendants plus legal interest from the date of receipt of such
amount.

"SO ORDERED." 3

On motion of the Ong Group, the aforequoted decision was later partially reconsidered in an
omnibus order issued by SEC Hearing Officer Manolito S. Soller on November 24, 1997, the
decretal portion of which in part reads:

"WHEREFORE, premises considered, judgment is hereby rendered as follows:

"1. The Decision of this Commission dated May 19, 1997 is partially reconsidered only insofar as the
investment amounting to P70 million which is hereby declared not as premium on capital stock but a
liability of FLADC or advances of the defendants made in favor of FLADC, and that the interest paid
on account thereof is hereby declared legal and valid;

"x x x x x x x x x

"SO ORDERED." 4

Both the Ong and Tiu Groups appealed the aforequoted Omnibus Order to the SEC en banc. Their
respective appeals were docketed as SEC Case Nos. 598 and 601. On September 11, 1998, the
SEC en banc issued an order, the decretal portion of which reads:

"WHEREFORE, judgment is hereby rendered CONFIRMING the omnibus Order dated 24 November
1997 insofar as it confirms the rescission of the Pre-Subscription Agreement and REVERSING the
same insofar as it held that the seventy million (P70 M) paid by the Ong Group over and above the
par value of the one million (1,000,000) shares of stocks of FLADC which they had subscribed as
loan and not premium.

"Accordingly,

"1. The subscription contract entered into by the Ong group and the corporation is hereby
declared rescinded, the latter is ordered to cancel the one million (1,000,000) shares
subscription of the Ong Group in FLADC, and FLADC shall return the amount of one
hundred and seventy million pesos (₱170 M) to the Ong Group;

"2. The Tiu Group shall pay the twenty million pesos (₱20 M) to the Ong group which was
loaned to them by the latter;

"3. The Ong Group, individually and collectively, their agents and representatives, are hereby
ordered to desist from exercising or performing any and all acts pertaining to stockholders,
directors or officers of FLADC or in any manner intervening in the management and affairs of
FLADC;

"4. The Ong Group, jointly and severally, are hereby ordered to return to FLADC the interest
payment on the seventy million pesos (₱70 M) in the amount of eight million and eight
 hundred sixty-six thousand, and six hundred sixty-nine pesos (₱8,866,669.00) and all
additional interest payments thereafter, as well as any payments on the principal received for
the seventy million pesos (₱70M) inexistent loan.

"No pronouncement as to cost and damages.

"SO ORDERED." 5

From the said Order of the SEC En Banc, the Ongs appealed to the Court of Appeals, by way of a
petition for review under Rule 43 of the 1997 Rules of Civil Procedure.

On October 5, 1999, the Court of Appeals issued the Decision subject of these petitions for review,
the decretal portion of which reads:

"WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange
Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the rescission of the Pre-
Subscription Agreement dated August 15, 1994 is hereby AFFIRMED, subject to the following
MODIFICATIONS:

"1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development Corporation in
accordance with the following cash and property contributions of the parties therein.

a. Ong Group - ₱100,000,000.00 cash contribution for one (1) million shares in First Landlink Asia
Development Corporation at a par value of ₱100.00 per share;

b. Tiu Group:

1.) ₱45,020,000.00 original cash contribution for 450,200 shares in First Landlink Asia
Development Corporation at a par value of ₱100.00 per share;

2.) A four-storey building described in Transfer Certificate of Title No. 15587 in the name of
Intraland Resources and Development Corporation valued at ₱20,000,000.00 for 200,000
shares in First Landlink Asia Development Corporation at a par value of ₱100.00 per share.

3.) A 1,902.30 square meter parcel of land covered by Transfer Certificate of Title No. 15587
in the name of Masagana Telamart, Inc. valued at ₱30,000,000.00 for 300,000 shares in
First Landlink Asia Development Corporation at a par value of ₱100.00 per share.

"2. Whatever remains of the assets of the First Landlink Asia Development
Corporation and the management thereof is hereby ordered transferred to the Tiu
Group.

"3. First Landlink Asia Development Corporation is hereby ordered to pay the amount
of ₱70,000,000.00 that was advanced to it by the Ong Group upon the finality of this
decision. Should the former incur in delay in the payment thereof, it shall pay the
legal interest thereon pursuant to Article 2209 of the New Civil Code.

"4. The Tius are hereby ordered to pay the amount of ₱20,000,000.00 loaned them
by the Ongs upon the finality of this decision. Should the former incur in delay in the
payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the
New Civil Code.
"SO ORDERED." 6

The Court of Appeals arrived at the said decision after finding that rescission and specific
performance as provided in Art. 1191 of the New Civil Code, may alternatively be availed of in this
case. The question is who between the contending parties may avail of the alternative remedies
when both of them violated the provisions of the contract, their Pre-Subscription Agreement. The
Court of Appeals also found that the Ongs were indeed preventing the Tius from assuming the
duties and responsibilities of the position of Vice-President and Treasurer of FLADC. The Ongs also
violated the Pre-subscription agreement when they did not credit to Masagana Telamart, Inc. the
number of shares in FLADC commensurate to its property contribution (1,902.30 sq. m.), despite the
execution by the Tius of the Deed of Assignment over said property. The Court of Appeals also
stated that the records also reveal the following violations on the Tius' part: 1.) While there is, on
record, a Deed of Assignment over the 151 sq. m. parcel of land in favor of FLADC, said Deed was
not executed by the Tius in favor of FLADC but by the Lichaucos; and 2.) the Tius did not turn over
to the Ong Group the entire amount of FLADC's funds in violation of the Pre-Subscription Agreement
which stipulated that the former grants to the latter, the management and administration of the
regular business of FLADC upon the agreement's execution. The Court of Appeals also found that
the Tius were diverting rentals due to FLADC into their own MATTERCO account which rentals
appear to have not been remitted to FLADC up to now. Considering the foregoing, the Court of
Appeals concluded that the two groups can no longer work harmoniously together and deemed it
proper to confirm the rescission and for the Ongs and the Tius to liquidate FLADC in accordance
with their respective cash and property contribution. The Court of Appeals also resolved the question
of the nature of the ₱70 M paid by the Ongs in excess of 1 million shares they acquired from
FLADC, ruling that the same is an advance made by the Ongs in favor of FLADC, and not a
premium or paid-in surplus on the actual value of 1 million shares, and that no interest thereon may
be awarded as there is no evidence on record which shows that at the time the ₱70M was advanced
to FLADC, the parties agreed that the same shall earn interest.

On August 17, 2000, the Court of Appeals issued a Resolution which denied the private parties'
motions for reconsideration.

The Ong Group and the Tiu Group both filed their respective petitions for review subject of these
consolidated cases.

Except for the fourth assigned error in the Ongs' petition (G.R. No. 144476) and sub-paragraphs (vi)
and (vii) of the second assigned error in the Tius’ petition (G.R. No. 144629), which are well taken,
We find both petitions to be without merit.

In their Petition, docketed as G.R. No. 144476, the Ongs raise the following assignment of errors:

"I

"The Court of Appeals erred in ruling that the ‘Pre-Subscription Agreement’ of the parties dated
August 15, 1994 may be rescinded under Article 1191 of the New Civil Code.

"a. Rescission is applicable only to reciprocal obligations and the ‘Pre-Subscription

Agreement’ does not provide for reciprocity; hence, the remedy of rescission is not
available.

"b. Rescission is not applicable when ‘rights’ over the subject matter of the rescission
have been acquired by third persons.
 "c. Rescission is only applicable in case of substantial and fundamental breach.

"II

"The Court of Appeals erred in finding that the Ongs violated the ‘Pre-Subscription Agreement’ in the
following manner:

"a. The Ongs prevented the Tius from assuming the duties and responsibilities of the Vice-President
and Treasurer of FLADC by not providing them with adequate offices.

"b. By not crediting Masagana Telamart, Inc. with 300,000 shares corresponding to the value of the
1,902.30 square meters property covered by TCT No. 15587.

"III

"The Court of Appeals erred in confirming rescission of the ‘Pre-Subscription Agreement’ dated
August 15, 1994 and the ‘liquidation’ of FLADC ‘for practical reasons,’ and to prevent ‘further
squabbles and numerous litigations,’ reasons unknown in law.

"IV

"The Court of Appeals erred in not awarding interest on the loan of respondent David S. Tiu from
petitioner Ong Yong in the amount of P20 million and the P70 million advanced by the Ongs to
FLADC.

"V

"The Court of Appeals erred in not awarding costs and damages to the Ongs."

On the first issue, the Court of Appeals did not err in ruling that the "Pre-Subscription Agreement" of
the parties dated August 15, 1994 may be rescinded under Article 1191 of the New Civil Code.

In paragraph (a) of the first assigned error, the Ongs allege that rescission is applicable only to
reciprocal obligations and the "Pre-Subscription Agreement" does not provide for reciprocity, hence,
the remedy of rescission is not available. The Ongs cited the case of Songcuan vs. IAC, (191
SCRA 28) to illustrate their point that "As in the Songcuan case, there are here two (2) separate and
distinct obligations each independent of the other – i.) the obligation to subscribe to, and to pay, 50%
of the increased capital stock of FLADC; and ii.) the obligation to install the Ongs and the Tius as
members of the Board of Directors and to certain corporate positions, but only after the Ongs and
the Tius have subscribed each to 50% of the increased capital stock of FLADC."

In this petition, in lieu of Art. 1191, the Ongs invoke Articles 1156 and 1159 of the New Civil Code
7

which state –

"Art. 1156. An obligation is a juridical necessity to give, to do or not to do.

"Art. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith."

and that should there be any violation, those who failed to fulfill their obligations should be required
to perform their obligations under the agreement.
Contrary to the Ongs' assertion, the Songcuan case does not apply squarely to this case. In the
Songcuan case, this Court ruled that Art. 1191 to rescind the right of the Alviars to repurchase does
not apply because their corresponding obligations can hardly be called reciprocal because the
obligation of the Alviars to lease to Songcuan the subject premise arises only after the latter had
reconveyed the realties to them. On the other hand, in the instant case, the obligations of the two (2)
groups to pay 50% of the increased capital stock of FLADC and to install them as members of the
Board of Directors and to certain corporate positions are simultaneous and arise upon the execution
of the pre-subscription agreement.

The Ongs illustrate reciprocity in the following manner: In a contract of sale, the correlative duty of
the obligation of the seller to deliver the property is the obligation of the buyer to pay the agreed
price.
8

In the case at bar, the correlative obligation of the Tius to let the Ongs have and exercise the
functions of the positions of President and Secretary is the obligation of the Ongs to let the Tius have
and exercise the functions of Vice-President and Treasurer. In this regard, the Court of Appeals aptly
stated, and we quote:

"It cannot be denied that the Pre-Subscription Agreement contains reciprocal obligations owing to
the fact that the parties thereto agreed to maintain parity not only in their shareholdings in FLADC
but also with regard to their standing in FLADC (pp. 214, 662, 708-710, 715-716, 1914, Rollo). In
fine, each party has the obligation to remain equal with the other on every matter pertaining to
FLADC. Herein lies the reciprocity in the Pre-Subscription Agreement." 9

Moreover, the Ongs are now estopped from denying the applicability of Art. 1191 to the present
controversy. As correctly observed by the Court of Appeals in its Resolution dated August 17, 2000,
which denied the Ongs' motion for reconsideration:

"Petitioners keep on harping for the Pre-Subscription Agreement's specific performance yet they
also actually failed to give a legal basis therefor. Why then must they deny that the Tiu Group has a
right to ask for rescission of their agreement per Article 1191 of the Civil Code (pp. 1141-1145,
Rollo) when they themselves invoke the same law as basis for asking the specific performance of
the same agreement (pp.1156-1159, Rollo)" 10

In paragraph (b) of the first assigned error, the Ongs allege that rescission is not applicable when
"rights" over the subject matter of the rescission have been acquired by third persons. The Ongs
refer to Arts. 1191 and 1385. 11

The Ongs argue that the payment on subscription of ₱100 million by the Ongs is not to the Tius and
the payment of ₱54.98 million by the Tius is not to the Ongs, but to FLADC, the corporation, which is
distinct and separate from the Ongs and the Tius notwithstanding the fact that they may be the only
stockholders. Pursuant to Arts. 1191 and 1385, continue the Ongs, the payment made by the two (2)
groups have come to be legally owned and possessed by FLADC, the corporation, a third person,
who did not act in bad faith. So that any alleged violation of the Pre-Subscription Agreement would
have no consequence on the respective amounts paid by the two (2) groups on their subscription to
FLADC, a third party.

We are not convinced.

The reliance of the Ongs on Article 1385 is misplaced. We agree with the Tius that the things which
are the object of the Pre-Subscription Agreement – one million shares of stock subscribed to by the
Ong Group, the additional 549,800 shares subscribed to by the Tius, and the corporate positions
mentioned above – are not in the possession of third persons, but are in the possession of the
parties to the Pre-Subscription Agreement. In any case, FLADC is not a third person in relation to
the Pre-Subscription Agreement though not named as a party. FLADC is deemed a party to the
agreement by virtue of stipulations pour autrie clearly and deliberately conferring on it a favor or
benefit which it subsequently accepted. (Art. 1311, Civil Code) Such benefit was in the form of the
12

payments made by the parties for their subscription to shares of stock in FLADC, which FLADC
accepted.

In paragraph (c) of the first assigned error, the Ongs allege that rescission is only applicable in case
of substantial and fundamental breach. The Ongs contend that the substantial and fundamental
aspects of the Pre-Subscription Agreement between the two (2) groups are their commitment to
subscribe to their respective numbers of shares and to pay corresponding amount thereof. The Ongs
say that they have accomplished their part but not the Tius; and that their alleged breach of the
agreement in their alleged failure to provide adequate offices to David Tiu as Vice-President and
Cely Yao Tiu, as Treasurer, is hardly substantial and fundamental because stockholders become
Vice-President or Treasurer of a corporation by election, not by virtue of office facilities he/she may
have been provided.

The Ongs' contention is without merit. Suffice it to state that what makes a stockholder an officer of a
corporation is not simply the fact of his election but, more important, his ability to perform the powers
and functions of that office. As will be discussed in the next assigned error, the Ongs indeed
prevented the Tius from exercising the powers and functions of their office. We rule, therefore, that
such breach of the agreement on the part of the Ongs is substantial and fundamental.

On the second assigned error, the Court of Appeals did not err in finding that the Ongs violated the
"Pre-Subscription Agreement" (a.) when it prevented the Tius from assuming the duties and
responsibilities of the Vice-President and Treasurer of FLADC by not providing them with adequate
offices, and (b.) when it did not credit Masagana with 300,000 shares corresponding to the value of
its 1,902.30 sq. m. property contribution.

On paragraph (a), this Court takes exception to the phrase "by not providing them with adequate
offices." This is not the only reason but only one of the reasons cited by the Court of Appeals in
concluding that the Ongs violated the pre-subscription agreement when they prevented the Tius
from assuming the duties and responsibilities of the Vice-President and Treasurer of FLADC. The
discussion made by the Court of Appeals on this point is correct, very clear and enlightening, and we
quote:

"A reading of the records, which to date comprises more than 2,100 pages, reveal that the Ongs
were indeed preventing the Tius from assuming the duties and responsibilities of the position of
Vice-President and Treasurer of FLADC. This is highlighted by the fact that the Ongs' attempt to
provide David S. Tiu and Cely Y. Tiu with executive offices before the filing of the complaint a quo,
was merely half-hearted as evidenced by the delay in providing for said offices despite repeated
demands therefor (pp. 844-845, 862-868, 877-878, 895-896, 999-1000, Rollo), and by the need to
pass a board resolution when none is necessary in order to provide executive offices for the FLADC
President and his staff (pp. 936-937, Rollo). Another fact which shows that the Tius were being
prevented from assuming their responsibilities is the criminal case for theft filed by the Ongs against
David S. Tiu (pp. 856-859, Rollo). Why must there be a need for the Tius to act surreptitiously in
order to have a copy of FLADC's records made if they were not actively being prevented from
inspecting the same? Anyway, for all intents and purposes, the Ongs admit that they were
preventing the Tius from assuming the responsibilities of Vice-President and Treasurer of FLADC.
This was made via their reply to the Tiu's letter rescinding the Pre-Subscription Agreement, which in
part reads:
'As to your contention that the ONG GROUP has failed to accord you, the elected Vice-President of
FLADC, and your wife, the elected treasurer of FLADC, the powers vested in you by the by-laws,
allow me to remind you that in accordance with the Pre-Subscription Agreement, ‘the First Party (TIU
GROUP) hereby grants to the Second Part (ONG GROUP) the management and administration of
the regular business of the corporation upon the execution of this documents (sic).’ Notwithstanding
this fact, the ONG GROUP has always made you a co-signatory to the bank accounts of the
corporation; however, to the great prejudice and damage of the corporation you have, more often
than not, either purposely delayed or refused to affix your signature to checks in payment for the
valid obligations of the corporation. Moreover, from the start, the corporation has given your wife,
who is the Treasurer of FLADC, a space in our office but she has seldom come to hold office there.
Despite this, we have already acceded to your demand that your wife be given a room in lieu of the
space provided for her. Furthermore, pursuant to the by-laws, both the Vice-President and the
Treasurer are to perform duties which may be assigned to them by the Board of Directors and/or the
President. (p. 2049, Rollo; underscoring supplied)'

"The Pre-Subscription Agreement provides that the position of Vice-President and Treasurer of
FLADC shall be nominated from the Tiu Group (p. 213, Rollo). Despite the provision in the
agreement turning over the management and administration of FLADC to the Ong Group (p. 215,
Rollo), there is nothing in the agreement which states that the elected Vice-President and Treasurer
of FLADC cannot or must not be allowed to assume the responsibilities of their respective office.
From the tenor of the aforequoted reply to the Tius' letter of rescission, it is evident that the Ongs
have reduced the positions of Vice-President and Treasurer of FLADC to mere figure heads." 13

The Court of Appeals did not err in arriving at the same conclusion like the three (3) tribunals below
(Hearing Officer Andaya, Hearing Officer Soller and the SEC En Banc), that the Ongs excluded the
Tius from the corporation by preventing them from participating in its operation and financial affairs.

In paragraph (b) of the second assigned error, the Ongs maintain that their group cannot be faulted
for not crediting Masagana with 300,000 shares corresponding to the value of its 1,902.30 sq. m.
property contribution, because the Deed of Assignment over the said property executed by
Masagana in favor of FLADC was patently incomplete (not dated, no instrumental witness signed the
Deed and the Acknowledgement was not executed, because the Tius asked that the execution of
the document be not completed) and that the necessary documentary stamp taxes, and capital gains
and transfer taxes had not been paid, such that FLADC could not process with the SEC the
application regarding the exchange of the said property for shares of stock in the corporation.

The issue boils down to the question of "Who has the obligation to pay the taxes incident to the
assignment?"

We rule that FLADC, the assignee, has the obligation to pay the taxes incident to the assignment.
The Court of Appeals did not err in holding that:

"xxx The provisions on this matter in the Pre-Subscription Agreement is clear that upon the
execution of the Deed of Assignment thereon in favor of FLADC, Masagana Telamart, Inc. shall be
credited with the number of shares in FLADC commensurate to the value thereof of ₱30,000,000.00
(see paragraphs 14-15, 17 of the Pre-Subscription Agreement, p. 214, Rollo). Since the Deed of
Assignment over this property has already been executed in favor of FLADC, and the owner's
duplicate of the title and possession thereof have already been delivered to FLADC (pp. 221-226,
563, Rollo), the Ongs should have credited 300,000 shares of FLADC at a par value of ₱100.00 per
share in the name of Masagana Telamart, Inc. The transfer of the title to said property in FLADC's
name is another matter which is governed by the Deed of Assignment itself and not the Pre-
Subscription Agreement (pp. 221-222, Rollo)." 14
The Deed of Assignment stipulates:

"The ASSIGNEE (FLADC) hereby accepts said assignment and assumes all the obligations of
performing all the terms and conditions including but not limited to, the transfer of the said parcel of
land in the name of First Landlink Asia Development Corporation within a reasonable time."
(Emphasis supplied)

Said stipulation does not enumerate nor exclude any obligation on the part of the assignee for
purposes of transferring the property in its name. Instead, the Deed stipulates in simple language "all
the obligations of performing all the terms and conditions including, but not limited to, the transfer of
the said parcel of land in the name of (FLADC)." It imposes no obligation at all on the part of the
assignor for purposes of transferring the parcel of land in the name of FLADC.

In the interpretation of contracts, "if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the liberal meaning of its stipulation shall control." (Art. 1370, Civil
Code). Thus, the FLADC should shoulder all obligations, such as taxes, legal fees, notarial fees and
expenses of registration, for the conveyance to be registered and the title to the property placed in
the name of FLADC.

If the Ongs find ambiguity in the said stipulation in that the same allegedly does not provide that
FLADC would pay for the taxes arising from the assignment, and that it should have been expressly
provided in the deed of assignment, such alleged ambiguity can only be resolved against the Ongs
for it was their lawyer, the late Atty. John Uy, who prepared the Deed of Assignment. Where the
15

provisions of a contract are ambiguous, such ambiguity must be construed against the party who
drafted the same. 16

At any rate, the intention of the parties could not have been to impose on Masagana the obligation to
pay said taxes. As explained by the Tius in their Comment –

"xxx for such imposition is not consistent with the fundamental concept of 'equality' on which the Pre-
Subscription Agreement is based. If Masagana were to pay the taxes and other expenses for the
transfer of its 1,902.30 sq. m. property contribution to FLADC, Masagana would, in effect, be paying
more than ₱30 million, the agreed valuation of the said property contribution, for 300,000 shares of
stock in FLADC. Thus, assuming the Ong Group's computation of Masagana's net gain on the
assignment is correct, i.e., P14 million, and Masagana were to pay 35% of P14 million (P4.9 million)
in taxes for such assignment, in addition to the amount of ₱570,690.00 in documentary stamp taxes,
Masagana would be paying ₱35,470,690.00 for 300,000 shares of stock in FLADC, instead of only
₱30 million. This could not have been the intention of the parties." 17

The Ongs presented as proof that the Tius acknowledged their liability for the payment of the taxes,
the following letter-reply dated April 27, 1995 of Mr. David Tiu to Mr. Wilson T. Ong's request for him
to remit payment for documentary stamp tax:

"With respect to your request for the remittance of ₱570,690.00 representing 1-1/2% of documentary
stamps on the assignment of the land with an area of 1,902.30 sq. m. described in TCT No. 134066,
we are willing to remit the same after our proposed meeting, together with Atty. John Uy and Atty. A.
Santos regarding the possible tax liability which we have earlier discussed with you." 18

The contents of the said letter were satisfactorily explained by Mr. Tiu as simply a diplomatic way of
denying any tax liability on the transfer, precisely the reason behind the need for a meeting between
the lawyers of the two (2) groups:
"Hearing Officer:

"Okay, you may explain that.

"A In this letter that I mentioned, April 27, this is only my diplomatic way of denying or telling the Ong
Group that it is not part of our agreement that I will pay this amount. Because it's clearly written in
the Deed of Assignment that it is the assignee (that) who will pay the documentary stamps and other
taxes to be able to transfer the parcel of land in the name of FLADC. That is why it is a meeting with
both our lawyers." (TSN, 15 April 1996, p. 34)

"Atty. Santos:

"Q In that letter, you made mention of a meeting to be held between Atty. Santos and Atty. Uy. The
Atty. Santos being referred there, is this Atty. Santos, this representation?

"A Yes, Sir, you are the lawyer I'm referring. (TSN, 15 April 1996, pp. 43-44) 19

Sub-paragraph (c) of the second assigned error, that the Tius, not the Ongs, violated the Pre-
Subscription Agreement, shall be discussed together with the Tius' Assignment of Errors in G.R. No.
144629.

On the third assigned error, the Ongs allege that "the Court of Appeals erred in confirming rescission
of the Pre-Subscription Agreement and the liquidation of FLADC 'for practical reasons,' and to
prevent 'further squabbles and numerous litigations,' reasons unknown in law." Allegedly, it is an
error for the Court of Appeals to order the transfer to the Tiu Group whatever remains of the assets
of the FLADC and the management thereof, upon the return to each group of their respective cash
and property contribution. The Ongs maintain that the two (2) groups' payment for the shares of
stocks belong to the corporation, no longer to the Ongs or Tius; and even if the Ongs and Tius were
the only stockholders, they do not have the authority to transfer cash or properties of FLADC to
themselves, for that would be misappropriation. The Ongs further cite Sec. 122 of the Corporation
Code to support their claim that the order of the Court of Appeals for the return of the parties'
contribution (distribution of FLADC assets, in the words of the Ongs) is prohibited, thus:

"Sec. 122. Corporate Liquidation. - xxx

"Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all its
debts and liabilities."

The Ongs also question the order of the Court of Appeals to transfer to the Tius the Masagana
Citimall (the asset which would remain after moving out cash and property to the Ongs and Tius),
"the corporation's priceless jewel," when it was they who caused the venture to flourish because of
their P190 million contribution and their management thereof.

We find the Ongs' contentions to be without merit.

The Tius counter, among others, that: "When the Ong Group invested their ₱170 million for 50% of
the shares of FLADC, and loaned Mr. Tiu ₱20 million to enable FLADC to pay the ₱190 million PNB
loan, the mall leasing business was already in place, and all the Ong Group had to do was continue
the administration of the mall already started by the Tiu Group, and oversee the collection of rentals
which were supposed to be remitted to the Treasurer, but which the Ong Group refused to do. For
the Ong Group to disregard the valuable contributions of the Tiu Group and monopolize the credit for
FLADC's success is plain arrogance."

As discussed in the first assigned error, the Court of Appeals correctly confirmed the rescission of
the Pre-Subscription Agreement on the basis of Art. 1191 of the Civil Code. It could have relied on
the said provision and nonetheless stood on valid ground. It, however, judiciously took into account
the special circumstances of the case and further justified its decision confirming the rescission of
the Pre-Subscription Agreement on the basis of its perception that the two groups "can no longer
work harmoniously together" and that "to pit them together in the management of FLADC will only
result to further squabbles and numerous litigation."

Moreover, what the Court of Appeals ordered was not corporate liquidation upon lawful dissolution
under Sec. 122 of the Corporation Code, as cited by the Ong Group. The Court of Appeals clarified
in its Resolution promulgated on August 17, 2000 that "in ordering liquidation, the Court does not
mean its dissolution as provided in the Corporation Code." The prohibition, therefore, under Section
20

122 against distribution of assets or properties of the corporation does not apply.

As a legal consequence of rescission, the order of the Court of Appeals to return the cash and
property contribution of the parties is based on law, hence, cannot be considered an act of
misappropriation. For how can the rescission of the Pre-Subscription Agreement be implemented
without returning to the two groups whatever they delivered to the corporation in accordance with the
Agreement?

With regard to the order of the Court of Appeals transferring to the Tiu Group whatever remains of
the assets of FLADC and the management thereof, the same is but an inevitable consequence of
the rescission of the Pre-Subscription Agreement. Restoration of the parties to status quo
ante dictates that the building constructed on the two (2) existing lots of FLADC, the remaining asset
of FLADC, be transferred to the Tiu Group. The status quo ante immediately prior to the execution of
the Pre-Subscription Agreement was that the Tius, then wholly owning FLADC, had control and
custody over this remaining asset.

On the fourth assignment of error, we find the same to be well taken. Indeed, the Court of Appeals
erred in ruling that: "Since no period was stipulated for the return thereof (the P20 million loan
extended to the Tius and the P70 million the Ongs advanced to FLADC), the Court resolves to fix the
same upon the finality of this Decision (See Article 1197, Civil Code ). Failure of the Tius to pay the
21

same upon the finality of this decision shall make them liable for legal interests thereon pursuant to
Article 2209 of the New Civil Code."

We agree with the Ongs that since no period was stipulated for the return of the ₱20 million loan
they extended to the Tius, the same should earn 12% interest per annum and the period of payment
of interest thereon should reckon from the time of judicial (or extrajudicial) demand, which was, from
April 23, 1996, when the Ongs filed their Answer, and not upon the finality of this Decision.

In Eastern Shipping Lines, Inc. vs. Court of Appeals and affirmed in Gomez vs. Court of
22

Appeals (Sept. 21, 2000, G.R. No. 120747) and Catungal vs. Hao, (March 22, 2001, G.R. No.
134972), among other cases, this Court discussed at length the rate of interest, as well as the
accrual thereof in awarding interest in the concept of actual and compensatory damages and held
that:

"1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
23
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions
of Article 1169 of the Civil Code."
24

However, we do not deem it fit that the ruling in Eastern Shipping Lines, Inc. should also apply to the
₱70 million that the Ongs advanced to FLADC. This is because the Ongs themselves, in the Board
Resolution (Exhibit "16") that was approved in the meeting of the Board of Directors of FLADC held
on June 19, 1996 (during which the Tiu group was absent), authorized payment of 10% interest per
annum on the said ₱70 million. Thus, as to the ₱70 million, the FLADC should be made to pay only
10% interest per annum and not 12%, the period to be reckoned from June 19, 1996.

The matter of why the ₱70 million paid by the Ongs should be adjudged as an advance and not a
premium or paid-in surplus shall be taken up in G.R. No. 144629, the petition filed by the Tius.

On the fifth assigned error, the Ongs allege that the Court of Appeals erred in not ordering the Tius
to pay costs and damages to the Ongs for the filing of this baseless and unwarranted suit.
Considering all the foregoing which shows that the case filed by the Tius for confirmation of the
rescission of the pre-subscription agreement, is meritorious, it is obviously no longer necessary to
discuss this issue.

In their Petition, docketed as G.R. No. 144629, the Tius raise the following Assignment of Errors:

"I

"The Court of Appeals erred in ordering the liquidation of FLADC instead of merely ordering the
restitution of the parties' respective investments.

"II

"The Court of Appeals erred in relaxing the application of the laws and jurisprudence on rescission of
reciprocal obligations and in ordering the liquidation of FLADC obviously on the basis of its mistaken
perception:

"i) That in 1994, prior to the entry of the Ong Group in FLADC, the Masagana Citimall
was threatened with incompletion;

"ii) That at that time, FLADC was in financial distress in the amount of ₱190 million
for being indebted to PNB;

"iii) That the Tiu Group invited the Ong Group to come in as stockholders for FLADC
to recover from its floundering finances;

"iv) That the Pre-Subscription Agreement was entered into by the parties in order to
rescue FLADC from financial distress, i.e., for the purpose of settling its ₱190 million
indebtedness to PNB;

"v) That under the circumstances, Masagana Citimall will not be what it is today were
it not for the money that the Ong Group invested;

"vi) That the Tiu Group violated the Pre-Subscription Agreement since the deed of
assignment over the 151 sq. m. lot was not executed by the Tiu Group but by the
 Lichaucos in favor of FLADC, hence, the Tiu Group cannot be credited with the
number of shares commensurate to the value of said lot and will not, therefore, be
able to equal the Ong Group's one million subscription in FLADC;

"vii) That the Tiu Group were pulling a fast one on the Ong Group by their 'alleged'
151 sq. m. property contribution in exchange for 49,800 shares in FLADC;

"viii) That the Tiu Group did not turn over to the Ong Group the entire amount of
FLADC funds;

"ix) That the Tiu Group, by unilaterally rescinding the Pre-Subscription Agreement,
are now trying to oust the Ong Group from enjoying the fruits of their P190 million
investment in FLADC, and that this is ingratitude at its height;

"x) That the Tiu Group were diverting rentals due to FLADC into their own
MATERRCO account which rentals appear to have not been remitted to FLADC up
to now; and

"xi) That the ₱70 million paid by the Ong Group was an advance and not a premium
on capital."

On their first assigned error, the Tius allege that the Court of Appeals erred in ordering the
liquidation of FLADC instead of merely ordering the restitution of the parties' respective investments.
The Tius continue: "To rescind is 'to declare a contract as though it never were.' It is not merely to
terminate it and release the parties from further obligations to each other but to abrogate it from the
beginning and restore parties to their relative position which they would have occupied had no
contract ever been made (Ocampo vs. Court of Appeals, 233 SCRA 551)." The Tius also contend
25

that the liquidation of the profits of FLADC and the distribution thereof to the parties offend the very
essence of rescission which merely requires mutual restoration in consonance with the basic
principle that when an obligation has been extinguished, it is the duty of the court to require the
parties to surrender whatever they may have received from the other so that they may be restored,
as far as practicable, to their original situation. In support thereof, the Tius cite the following
cases: Floro Enterprises, Inc. vs. Court of Appeals, 249 SCRA 354 [1995], citing Agustin vs.
Court of Appeals, 186 SCRA 375 [1990]; Magdalena Estate, Inc. vs. Myrich, 71 Phil., 344
[1941]; Po Pauco vs. Siguenza, et al., 49 Phil. 404 [1926].

On the other hand, the Ongs, in their Comment also question the order of the Court of Appeals in its
Decision for the rescission and liquidation of FLADC and for the return to the Ongs of their ₱190
million, and nothing more. The Ongs ask what became of the profits earned and the additional
assets acquired by FLADC through the efforts of the Ongs, and the ₱190 million they invested in
FLADC.

To the above queries of the Ongs, it is precisely for those reasons that the Court of Appeals in its
Resolution of August 17, 2000, clarified thus:

"xxx. While the Court in the case at bench ordered the rescission of the Pre-Subscription Agreement,
it did not, however, order restitution of what the parties contributed pursuant thereto. What the Court
ordered was the liquidation of FLADC in accordance with the actual amount of investment each
party made in FLADC (pp. 18-19 and 24 of Decision; pp. 1045-1046 and 1050, Rollo). Restitution
and liquidation are two different things. Liquidation includes both the profits and losses each party
derived within the duration of their respective investment (see Sibal, Philippine Legal Encyclopedia,
p. 531; Black's Law Dictionary, p. 839; De Leon, The Corporation Code of the Philippines Annotated,
1997 ed., p. 705, citing 16 Fletcher, p. 658). Contrary therefore to Willie Ong's contention that the
Ongs will simply receive a return of their money without any fruits or interest, the decision assures
them that they (the Ong and Tiu Groups) will have a bountiful return of their respective investments
derived from the profits of the corporation." 26

With regard to the Tius' allegations, the same are without merit. As cited by the Tius themselves, "it
is the duty of the court to require the parties to surrender whatever they may have received from the
other so that they may be restored, as far as practicable, to their original situation." Restoration of
the parties to their relative position which they would have occupied had no contract ever been made
is not practicable nor possible because we cannot turn back the hands of time when the mall was
only "nearing completion" in 1994, when the mall was not fully tenanted yet and they had an existing
loan of ₱190 million with PNB with an interest of 19% per annum. But the Masagana Citimall is now
completely constructed/finished, the ₱190 million loan fully paid without their having to pay
enormous interest, and the Tius cannot deny that the Ongs are partly to be credited for the success
of the venture. What the Tius want the Court to order would have been fair and just had there been
no fault on their part as would be discussed in the second assigned error, and had they come to
Court with clean hands because he who comes to Court must come with clean hands. If, as the Tius
27

espouse, the Court would simply order the return of the ₱190 million of the Ongs, then, the Tius
would be unjustly enriched at the expense of the Ongs. Under the law, no one shall unjustly enrich
himself at the expense of another. "Niguno non deue enriquecerse tortizamente condaño de otro."

On their second assigned error, the Tius allege that the Court of Appeals erred in relaxing the
application of the laws and jurisprudence on rescission of reciprocal obligations and ordering the
liquidation of FLADC on the basis of its mistaken perception.

Subparagraphs i-iv, and ix, being interrelated, shall be discussed jointly. The Tius allege that
contrary to the Court of Appeals' findings:

i.) In 1994, prior to the entry of the Ong Group in FLADC, the Masagana Citimall was never
threatened with incompletion;

ii.) Prior to the execution of the Pre-Subscription Agreement, FLADC was not in financial
distress;

iii.) The Tiu Group invited the Ong Group to come in as stockholders of FLADC to expand
the company's leasing business;

iv.) It is not true that the Pre-Subscription Agreement was entered into by the parties in order
to rescue FLADC from financial distress, i.e., for the purpose of settling its ₱190 million
indebtedness to PNB;

ix.) It is the Tiu Group, not the Ong Group, who were ousted from enjoying the fruits of their
investment in FLADC, hence, it is the Tiu Group who are the victims of ingratitude;

We are not persuaded. The Court of Appeals did not have any mistaken perception.

Granting that the Masagana Citimall was not threatened with incompletion in 1994, it would have
gone off to a bad start had not the Ongs come in with ₱190 million which was used to pay the Tius'
loan with the PNB. The said loan would have meant payment of 19% interest per annum. As
presented by the Ongs in their Comment: 28
"d. As of July 18, 1994, FLADC had already drawn a total amount of ₱188,254,599.77 from the
credit line and was paying interest thereon at the rate of 19.00% per annum or close to ₱3 Million
every month.

"From the above-mentioned facts, assuming that FLADC would no longer draw on its remaining
credit line to complete the building, the following indisputable conclusions may be reached:

"a. At 19% interest per annum, the interest payments alone for the ₱188,254,599.77 existing loan of
FLADC with the PNB would be equivalent to the following amount:

₱35,768,373.96 on an annual basis;

₱ 8,942,093.49 on a quarterly basis; and

₱ 2,980,697.03 on a monthly basis.

"x x x xxx xxx

"c. For the same ₱190 Million loan, and in addition to the above-mentioned interest payments, the
semi-annual amortization for the PNB loan would have been ₱18,825,459.97 per payment and
should have been payable as follows:

April 29, 1996 - initial payment

October 29, 1996 - 2nd payment

April 29, 1997 - 3rd payment

October 29, 1997 - 4th payment

April 29, 1998 - 5th payment

October 29, 1998 - 6th payment

April 29, 1999 - 7th payment

October 29, 1999 - 8th payment

April 29, 2000 - 9th payment

October 29, 2000 - final payment

"d. Again, had the Ongs not invested in FLADC in August 1994, then by the time FLADC would have
made its initial amortization payment of ₱18,825,459.97 on April 29, 1996, it would have been
paying interest in the total amount of ₱59,613,940.60 (₱2,980,697.03/month x 20 months).

"Again, even assuming that the mall which FLADC was building was already completed, it was
impossible to generate these amounts from the mall operation for that short period of time.
"e. Clearly, the Tius were constrained to invite a partner to rescue FLADC from its inevitable
bankruptcy."

With the above illustration of the Ongs, it became incumbent upon the Tius to counter it by showing
how it would have been able to generate such income as would enable FLADC to pay interest and
loan amortization without ₱190 million infused by another group. This the Tius failed to do. All the
Tius made was their bare allegation that the Mall was already more than 50% tenanted at that time,
and was capable of paying the interests and amortization.

The Tius' claim – that they invited the Ongs to come in as stockholders of FLADC to expand the
company's leasing business – does not also appear to be true. Were this the case, they should have
used the new capital infusion of the Ongs to purchase adjoining properties and/or erect a new
building that could be connected with the existing structure of FLADC. The Ongs put it in the
following manner: "A close reading of the Pre-Subscription Agreement belies the claims of the Tius.
The reality, as clearly appearing in the said agreement, is that the parties intended to fully
liquidate the ₱190 million loan of FLADC with PNB so that the company could continue to operate
29

on a clean slate without the need of paying enormous interests. The reason is simple. Since the Tius
were not able to attract enough lessees to occupy the Citimall, they knew that they would not be able
to raise enough funds to pay its loan with PNB. Thus, the Tius invited the Ongs primarily for two
reasons: [1] to pay off FLADC's obligation with PNB, and [2] to help the Tius fill up the Citimall with
new lessees."

The Court also notes that while it was the Tius who started the corporation, they acquiesced to the
arrangement that the President should come from the Ong Group and the Board of Directors shall
comprise of six (6) members from the Ongs, and only five (5) from the Tius. If the Tius were not
desperate or in financial distress why should they agree to such an arrangement when, as claimed
by the Tius, (Petition, p. 74, Rollo, G.R. No. 144629, p. 171), the appraised value of the entire
property of FLADC as of 1994 was ₱420.3 million? If the FLADC had enough funds, why did it have
to borrow ₱70 million from the Ongs to be used in paying the ₱190 million loan with PNB?
Therefore, we also agree with the Court of Appeals when it held that:

"The Tius, in unilaterally rescinding the Pre-subscription Agreement, are now trying to oust the Ongs
from enjoying the fruits of their ₱190 million investment in FLADC. This is ingratitude at its height,
xxx."
30

As to sub-paragraph (v.) suffice it to say that none of the two groups may claim that their group's
business acumen, hard work, and dedication account for what Masagana Citimall is today because
both of the groups contributed money/property and labor thereto.

As to sub-paragraphs (vi) and (vii), the Court of Appeals indeed erred in finding that the Tiu Group
violated the Pre-Subscription Agreement since the deed of assignment over the 151 sq. m. lot was
not executed by the Tiu Group but by the Lichaucos in favor of FLADC. Hence, the Tiu Group cannot
be credited with the number of shares commensurate to the value of said lot and will not, therefore,
be able to equal the Ong Group's one million subscription in FLADC.

We do not agree with the following discussion of the Court of Appeals on this point:

"Under the Pre-Subscription Agreement, the Tius were obliged to execute a Deed of Assignment
over a 151 square meter parcel of land in favor of FLADC as payment of 49,800 shares thereof at a
par value of ₱100.00 per share (see paragraphs 14, 15 and 17 of the Pre-Subscription Agreement,
p. 214, Rollo). While there is on record a Deed of Assignment thereon in favor of FLADC (pp. 308-
312, Rollo), said Deed of Assignment was not executed by the Tius in favor of FLADC. The Deed of
Assignment was executed by the Lichaucos in favor of FLADC (Ibid). If ever somebody has to be
credited with the number of shares commensurate to the value of the 151 square meter property, it
will not be the Tius but the Lichaucos.

"Per the Pre-Subscription Agreement, the 151 square meter property shall be used by the Tius to
acquire a number of shares in FLADC in order to equal the 1 million subscription of the Ongs in
FLADC (supra). It turned out, however, that the 151 square meter property was acquired by FLADC
for a consideration of ₱900,000.00 (see paragraph 5 of Deed of Assignment, p. 309, Rollo). It will
therefore be iniquitous were the Ongs to credit the Tius the number of shares in FLADC
commensurate to the value of the 151 square meter property when the Tius did not contribute the
same for the purpose of acquiring shares in FLADC. The deed assigning this property to FLADC
was executed by the Lichaucos for a consideration which FLADC itself paid. Said deed was
executed even before the Pre-Subscription Agreement was entered into between the parties.
Consequently, the Tius cannot be credited with the number of shares commensurate to the value of
the 151 square meter property and will not therefore be able to equal the Ongs' 1 million subscription
in FLADC in accordance with their undertaking in the Pre-Subscription Agreement (see paragraph
14 of Pre-Subscription Agreement, p. 214, Rollo)." 31

The Tius aver that the direct transfer of the property from the Lichaucos to FLADC did not prejudice
the Ongs or FLADC. According to the Tius, what is important is that they obtained title to the 151 sq.
m. property in the name of FLADC after the execution of the Pre-Subscription Agreement, and
possession thereof has already been turned over to the corporation. Per the Tius, they cannot be
denied full credit for such property contribution, without unjustly enriching the Ongs and FLADC
which are now exercising control over the said property.

The Tius make the following explanations:

"During the brief negotiations that culminated in the execution of the Pre-Subscription Agreement,
the Tiu Group informed the Ong Group that as early as March 1994 they had acquired from the
Lichauco family another adjoining property consisting of 151 sq. m. which was actually intended for
the expansion of the mall. They disclosed to the Ong Group that the Deed of Assignment over the
said property was placed in the name of FLADC and was to be directly transferred from the Lichauco
family to the corporation. This is precisely the reason why the property was described in the Pre-
Subscription Agreement as '[t]he lot under Transfer Certificate No. ______ with an area of 150 sq.
m., more or less xxx,' clearly indicating that all that the parties were waiting for, at the time they were
discussing the terms of the Pre-Subscription Agreement, was the issuance of the title to the said lot.

"The Ong Group were (sic) fully aware of the real status of the 151 sq. m. property when they agreed
to consider it as one of the property contributions of the Tiu Group in payment for their additional
subscription in FLADC." 32

The Tius' contentions on this issue are well taken. We do not see why the Lichaucos, and not the
Tius, should be credited with the number of shares commensurate to the value of the 151 sq. m.
property. The Lichaucos are not parties to the Pre-Subscription Agreement and are not even
demanding that they be credited with such shares in exchange for the said property. Just like this
property, the 1,902.30 sq. m. parcel of land in the name of Masagana Telamart, Inc. (also a
corporation owned by the Tius), was also acquired by the Tius before the execution of the Pre-
Subscription Agreement. The fact that the 1,902.30 sq. m. property was acquired by the Tius
beforehand does not prejudice the Ongs, as shown by the Ongs' non-objection to crediting the
Masagana Telamart, Inc. with the commensurate number of shares, subject only to the Tius'
payment of the expenses for the transfer of the title in the name of FLADC. So, too, in the case of
the 151 sq. m. property, the fact that the Deed of Assignment between the Lichaucos and the
FLADC was executed prior to the execution of the Pre-Subscription Agreement does not prejudice
the Ongs. Therefore, the Tius should be credited with 49,800 shares in FLADC for this property
contribution, pursuant to the Pre-Subscription Agreement.

Sub-paragraph (viii) of the second assigned error states that the Tius turned over to the Ong Group
the entire amount of FLADC funds mentioned in paragraph 5 of the Pre-Subscription
Agreement The Tius have the following explanation: "xxx sometime in August 1994, the total
33

amount of these available funds had not yet been determined. Consequently, in lieu of these funds,
which amounted to ₱5,840,089.12, ₱1,.30,002.63(sic) of which had been earlier remitted to FLADC,
Mr. Tiu paid the same using the ₱20 million he borrowed from Mr. Ong Yong. Such payment
dispensed with the need to remit the said funds to FLADC." Why should Mr. Tiu pay ₱20 million if
34

he only needs to remit ₱5.8 million?

At any rate, assuming that the Tius' claim on this point, is true, the same is not reason enough to
alter the order of the Court of Appeals for the liquidation of FLADC.

On sub-paragraph (x), the Tius maintain that they never siphoned any rentals due to FLADC to their
MATERRCO account. In fact, the Tius continue, the trumped-up criminal charges filed by the Ongs
against Mr. and Mrs. Tiu regarding the aforesaid act of siphoning FLADC funds, filed during the
pendency of the rescission case with the SEC to harass the Tius, were dismissed by the DOJ in its
Resolution dated 15 Feb. 1999.

The argument fails to persuade. The dismissal of the said criminal case does not necessarily mean
that no act of siphoning FLADC funds was committed by the Tius. The following excerpts from the
testimony of Mr. David Tiu on cross-examination shows otherwise:

"Q Mr. Tiu, of course, you will admit that during the transition period, you were already operating
Masagana Superstore, is that not correct?

"A Yes, partly we are occupying a portion of the building.

"Q Of course, Masagana Superstore was operated by Matterco, Inc. of which you were the
president?

"A Yes, Ma'am.

"Q And I understand also that Matterco, Inc. is wholly owned or majority owned by the Tius?

"A Yes, Ma'am.

"Q Is it wholly owned by the Tius?

"A Majority owned.

"Q Mr. Tiu, I am showing to you a rental receipt no. 067 of Mercury Drug Corporation which is a
tenant of FLADC. This rental receipt is a receipt of Masagana Superstore operated by Matterco., Inc.
Do you affirm that this receipt was issued by Masagana Superstore operated by Matterco, Inc. and
that the rental here pertains to a rental due from Mercury Drugstore which is a tenant of FLADC?

"A This was mistakenly deposited at Masagana account.

"x x x xxx xxx

"Q May I show you another receipt likewise issued by Masagana Superstore operated by Matterco,
Inc. dated October 5, 1994. Will you please tell me if this another account, another payment that was
mistakenly deposited to the account of Masagana?

"A This is also one of these . . . Because during the time . . . (TSN, March 5, 1997, pp. 88-91, a
certified true copy of which forms part of Annex "N" and marked as Annex "N-3") 35

Finally, the Tius disagree with the Court of Appeals' characterization of the ₱70 million paid by the
Ongs to FLADC. The Tius allege that the ₱70 million paid by the Ongs in excess of the actual par
value of one million shares they acquired from FLADC was a premium on capital and not an
advance. The Tius contend that the receipt, Exh. "4," the Ongs' own exhibit, is quite clear that the
amount of ₱170 million was the agreed price for the Ong Group's subscription to one million shares
in FLADC representing 50% of the capital stock of the corporation. Exh. "4," reads:

"Received from Mr. Ong Yong the amount of TWENTY MILLION PESOS (₱20,000,000.00) in full
payment of the agreed price of ONE HUNDRED SEVENTY MILLION PESOS (₱170,000,000.00)
representing his group's FIFTY PERCENT (50%) share in First Landlink Asia Development
Corporation."

The Tius explain that the excess payment of ₱70 million, considering that the par value of the one
million shares subscribed by the Ongs was only ₱100 million, at ₱100 per share, in corporation law,
is called "paid-in surplus" or premium.

We are not convinced. This issue was very well discussed by the Court of Appeals, and we agree
and quote:

"But the available funds of FLADC were not enough to cover the ₱90,000,000.00 more needed to
pay the PNB loan because all there was of FLADC's funds at the time was ₱5,840,089.12 (pp. 734-
735, Rollo). It was then, therefore, that the Ongs advanced ₱70,000,000.00 in cash to FLADC while
the Tius advanced ₱20,000,000.00 in cash, an amount they also had to borrow from the Ongs (pp.
437-441, Rollo).

"The Pre-Subscription Agreement is explicit in its terms - that the Ongs agreed to pay
₱100,000,000.00 only for 1 million shares in FLADC at a par value of ₱100.00 per share (p. 211,
Rollo). FLADC's application for an increase in capital stock shows that the par value of each of its
shares is ₱100.00 only (pp. 185-186, Rollo). The same application also shows that the Ongs
subscribed to 1 million shares of FLADC at a par value of ₱100.00 per share (Ibid). There is nothing
in the application which shows that FLADC's shares are to be sold at a premium or at an amount
higher than the stated par value per share (Ibid).

"The receipt which states that the Ongs paid ₱170,000,000.00 for a 50% share in FLADC must not
be construed to mean that the Ongs paid ₱170,000,000.00 for one million shares in FLADC, thereby
making the ₱70,000,000.00 thereof a premium or paid-in-surplus on the actual par value of 1 million
shares (p. 182, Rollo). To treat the ₱70,000,000.00 as premium would not only have the effect of
modifying the Pre-Subscription Agreement, but would actually novate it (see Article 1291 (1), New
civil Code).
"To allow a novation of the Pre-Subscription Agreement in this manner would negate or contravene
the very intention of the parties in entering into the Pre-Subscription Agreement which is to maintain
EQUALITY between them.

"The Tius, in filing the complaint for rescission a quo, rely heavily on the Pre-Subscription Agreement
and even emphasized that it was entered into with the intention of maintaining EQUALITY as
regards the parties standing in FLADC (pp. 127-136, Rollo). If the Court were to allow the
₱70,000,000.00 to be classified as premium or paid-in-surplus, then the Tius' theory will altogether
crumble. The respective valuation of the properties to be used as payment of the Tius' 1 million
share in FLADC which were presented in evidence to prove that said properties are worth more than
the agreed value thereof in the Pre-Subscription Agreement, and therefore when added to the
₱45,020,000.00 paid up capital, are worth more than 1 million shares in FLADC, is of no
consequence (pp. 1023-1047-A, Rollo). The same valuations have been made AFTER the Pre-
Subscription Agreement was entered into and does not therefore reflect the actual value of the
properties at the time the Pre-Subscription Agreement was entered into (p. 1046, Rollo).

"The Tius also claim that the ₱70,000,000.00 cannot be treated as an advance because there was
no board resolution authorizing FLADC to incur such an obligation (pp. 764-767, Rollo). As pointed
out by SEC Hearing Official Soller, the fact that no board resolution was passed allowing FLADC to
incur such an obligation is immaterial, it appearing that there was also no board resolution
authorizing FLADC to secure a ₱20,000,000.00 advance from the Tius (p. 367, Rollo). What matters
then and now is that the ₱190,000,000.00 loan from PNB was finally settled in order for FLADC to
resume its business without fear of foreclosure of its properties.

"Besides, at the time the Ongs invested in FLADC, they knew that the same was in financial
distress. Why would the Ongs buy the shares of FLADC for 70% more than their actual par value of
1âwphi1

₱100.00 per share, when to do so would not be in consonance with what a prudent man would do
under the same circumstances?" 36

Except for the issue regarding the rate of interest and reckoning period for the payment thereof, and
that the Tius should be credited with 49,800 shares of FLADC for their 151 sq. m. lot property
contribution, we find no other error in the assailed Decision which was judiciously rendered by the
Court of Appeals.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the following
MODIFICATIONS:

1. the ₱20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent
(12%) per annum to be computed from the time of judicial demand which is from April 23,
1996;

2. the ₱70 million advanced by the Ongs to the FLADC shall earn interest at ten percent
(10%) per annum to be computed from the date of the FLADC Board Resolution which is
June 19, 1996; and

3. The Tius shall be credited with 49,800 shares in FLADC for their property contribution,
specifically, the 151 sq. m. parcel of land.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.

Footnotes

1
Special Division of Five: Justice Ramon A. Barcelona, ponente, Justices Mariano M. Umali
and Edgardo P. Cruz, concurring, Justice Conchita Carpio-Morales, with separate concurring
and dissenting opinion, and Justice Demetrio G. Demetria, dissenting.

2
Court of Appeals Decision, pp. 1-4, Rollo of G.R. No. 144476, pp. 111-114.

3
Ibid., pp. 114-116.

4
Ibid., pp. 116-117.

5
Ibid., 117-118.

6
Ibid., pp. 133-135.

7
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Law.

8
Petition, G.R. No. 144476, p. 35, Rollo, p. 52.

9
Rollo, G.R. No. 144476, p. 123.

10
Court of Appeals Resolution, p. 14, Rollo G.R. 144476, p.181.

Art. 1385. Rescission creates the obligation to return the things which were the object of the
11

contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to
restore.

Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the
loss.
 Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in
12

cases where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may

demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.

13
Court of Appeals Decision, pp. 14-15, Rollo of G.R. No. 144476, pp. 124-125.

14
Court of Appeals Decision, pp. 15-16, Rollo of G.R. No. 144476, pp. 125-126.

15
TSN, dated 7 Jan., 1997, p. 30, Comment filed by the Tius in 144476, p. 87, Rollo, p. 294.

De Leon vs. Court of Appeals, 205 SCRA 612 [1992]; Magellan Capital Management
16

Corporation vs. Zosa, et al., March 26, 2001, G.R. No. 129916.

17
Tiu's Comment, pp. 88-89; Rollo, G.R. No. 144476, pp. 295-296.

18
Annex "F," Petition for Review, G.R. No. 144476, Rollo, p. 194.

19
Comment, pp. 90-91; Rollo, G.R. No. 144476, pp. 297-298.

20
Court of Appeals Resolution dated August 17, 2000, p. 9.

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it
21

can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of
the debtor.

In every case the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.

22
234 SCRA 78, 95 [1994].

23
Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
24

obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

25
Petition,. P. 48, Rollo of G.R. 144629, p. 145.

26
Court of Appeals Resolution dated August 17, 2000, Rollo, G.R. 144476 pp. 173-174.

27
Camporedondo vs. NLRC, 312 SCRA 47 [1999].
 28
Comment, pp. 20-22; Rollo, G.R. No. 144629, pp. 1470-1472

"12. That the parties herein agree that the outstanding loan of P190,000,000.00 as of
29

August 16, 1994, with Philippine National Bank shall be liquidated and paid in full sourcing
such payment from the new capital generated from the subscription of the Second Party and
partly from the available funds of the corporation as mentioned in paragraph 5, sub. pars. a,
b and c;" (Exhibit "19", Annex "C" of Petition in G.R. No. 144476).

30
Court of Appeals Decision, Rollo, G.R. No. 144629, p. 30.

31
Court of Appeals Decision, pp. 16-17

Pre-Subscription Agreement, Annex "C", Petition, G.R. No. 144476, Rollo, pp. 184-188;
32

Petition, p. 67. G.R. No. 144629, Rollo, p. 164.

"5. That as of the signing of this Pre-Subscription Agreement, there is held by the
33

corporation and/or the First Party the following accounts:

"(a) Reimbursement of costs of improvements received from tenants on the spaces

leased to them;

"(b) Receipts for reservations to lease;

"(c) Receipts for deposit or advance rentals from tenants;" (Pre-Subscription

Agreement, Annex "C," Petition in G.R. No. 144476).

34
Petition, p. 77, Rollo, G.R. No. 144629, p.174

35
Pp. 30-31, Comment filed by the Ongs in G.R. No. 144629, Rollo, pp. 1480-1481.

36
Court of Appeals Decision, Rollo, G.R. No. 144476, pp. 131-133.

[ G.R. No. 234329. November 23, 2021 ]

BENJAMIN T. DE LEON, JR.,• PETITIONER, VS. ROQSON INDUSTRIAL SALES, INC.,

RESPONDENT.

DECISION

CAGUIOA, J.:

This is a Petition for Review on Certiorari1 under Rule 45 seeking to reverse and set aside the
Decision2 of the Court of Appeals Special Fifteenth Division (CA) in CA-G.R. SP No. 139973 dated
April 20, 2017. Said Decision affirmed the Judgment3 of Branch 226, Regional Trial Court of Quezon
City (RTC) which adjudged Benjamin T. De Leon, Jr. (petitioner) civilly liable to Roqson Industrial
Sales, Inc. (respondent) with modification as to the imposition of legal interest.

Facts
Petitioner was charged with violation of Batas Pambansa Blg. 22 (B.P. 22) in Criminal Case No. Q-
07-145218 titled "People of the Philippines vs. Benjamin T. De Leon, Jr." before Branch 40,
Metropolitan Trial Court of Quezon City (METC), for issuing RCBC Check No. 0201234 dated
August 25, 2006, in the amount of P436,800.00 which, upon presentment, was dishonored for
having been drawn from a "closed account."4

Respondent's Complaint-Affidavit detailed that sometime prior to August 25, 2006, petitioner
allegedly defrauded respondent by issuing the said postdated check in exchange for deliveries of oil
products made by respondent5 while fully aware that the account from which the check was drawn
was unfunded.6

Upon the dishonor of the check, respondent sent its first demand letter dated September 15, 2006
addressed to RB Freight International, Inc. (RB Freight) and petitioner, to which a certain Ms. Mean
Ramos, the administrative manager of RB Freight, sent a letter-reply dated September 18, 2006
proposing a settlement. Respondent, through its collection officer, Alfredo D. Crisostomo, sent a
second letter to RB Freight and petitioner, where it agreed to the proposed settlement.7 Then, on
October 14, 2006, respondent received a letter from RB Freight, where it communicated its Board
Resolution's rejection of the former proposal, along with a request for a "debt moratorium" instead.8

With no settlement agreed upon over the outstanding obligation in the amount of P436,800.00,
respondent sent RB Freight and petitioner its final demand letter, which was sent via registered mail,
as shown by its corresponding registry receipt and return card. This last demand letter went
unheeded,9 which prompted respondent to file a criminal complaint for violation of B.P. 22 against
petitioner. After the conduct of a preliminary investigation, the City Prosecutor of Quezon City later
found probable cause to prosecute petitioner on said charge.

During the trial, respondent presented Alfredo Crisostomo's testimony as well as documentary
evidence consisting of the postdated check m question, along with the demand letters sent to RB
Freight and petitioner.

Petitioner, in his defense, testified that he received no written notice of the dishonor of the check he
admitted to issuing.10

METC Ruling

In its Decision11 dated May 28, 2013, the METC acquitted petitioner of violation of B.P. 22 on the
ground of reasonable doubt, for failure of the prosecution to prove the presence of all elements of
the crime charged, viz.:

WHEREFORE, premises considered,judgment is hereby

rendered finding accused BENJAMIN T. DE
LEON ACQUITTED of Violation of Batas Pambansa Bilang 22 on the
ground of REASONABLE DOUBT for failure of the prosecution to
prove the presence of all the elements for the crime charged.

That as and by way of civil liability, accused is hereby ordered to

pay private complainant:

1. The face value of the RCBC Check No. 0201234 dated

August 25, 2006, in the amount of Four Hundred Thirty Six
Thousand Eight Hundred Pesos (Php436,800.00), with legal interest
 of 6% per annum from date of last demand which was on November
3, 2006 until such time the whole obligation shall have been fully
paid;

2. The sum of Thirty Thousand Pesos (Php30,000.00) by way of

attorney's fees plus Two Thousand Pesos (Php2,000.00) per Court
appearance; and

3. Cost of suit.

SO ORDERED.12

The METC, however, found petitioner civilly liable to respondent, and ordered him to pay the latter:
(1) the face value of RCBC Check No. 0201234 dated August 25, 2006, in the amount of
P436,800.00, with legal interest of 6% per annum from date of last demand which was on November
3, 2006 until full payment thereof; (2) the sum of P30,000.00 by way of attorney's fees plus
P2,000.00 per court appearance; and (3) cost of suit.13

In acquitting petitioner, the METC found that although petitioner was shown to have issued the
check in question,14 and said check was proven to have been dishonored,15 the prosecution failed
to prove that petitioner knew of the insufficiency of funds and the resulting dishonor of the
check.16 It ruled that the prosecution merely presented a copy of the demand letter together with the
registry return receipt, the signature on which was unauthenticated. It held that the presentation of
the registry card with an unauthenticated signature does not meet the required proof beyond
reasonable doubt that petitioner received the notice of dishonor.17

However, the METC also found that since the acquittal was on the ground of reasonable doubt, said
acquittal did not necessarily extinguish petitioner's civil liability.18 It also noted that petitioner never
denied, and in fact admitted having contracted obligations from respondent in behalf of RB Freight
as its managing director, representing unpaid purchases for 12,000 liters of diesel in the amount of
P436,800.00. Therefore, the METC acquitted petitioner of the criminal charge, but found him civilly
liable to respondent for the face value of RCBC Check No. 0201234, which petitioner likewise issued
in respondent's favor.

RTC Ruling

On appeal before it, the RTC affirmed with modifications the METC Decision through its
Judgment19 dated February 23, 2015, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the present appeal is DISMISSED for lack of merit. The
judgment appealed from is hereby AFFIRMED with modifications and should read as follows:

WHEREFORE, premises considered, judgment is hereby

rendered finding accused BENJAMIN T. DE
LEON ACQUITTED of Violation of Batas Pambansa Bilang 22 on the
ground of REASONABLE DOUBT for failure of the prosecution to
prove the presence of all the elements for the crime charged.

That as and by way of civil liability, accused is hereby ordered to

pay private complainant:
 1. The face value of the RCBC Check No.
0201234 dated August 25, 2006, in the amount of
Four Hundred Thirty Six Thousand Eight Hundred
Pesos (Php436,800.00), with legal interest
of 12% per annum from date of judicial demand
on October 3, 2007 until such time the whole
obligation shall have been fully paid;

2. The sum of Thirty Thousand Pesos

(Php30,000.00) by way of attorney's fees plus Two
Thousand Pesos (Php2,000.00) per Court
appearance; and

3. Cost of suit.

SO ORDERED.

The rest of the trial court's decision stays.20

It upheld the METC's acquittal of petitioner, and likewise affirmed its finding of civil liability, only
modifying the same with respect to the rate of legal interest imposed and the reckoning date of said
legal interest.21 It found that pursuant to the Supreme Court's ruling in the case of Eastern Shipping
Lines, Inc. v. Court of Appeals,22 the applicable legal interest rate is 12% per annum, since the case
falls under those that involve loans or forbearance of money, goods, or credits. It further found that
since the prosecution failed to prove when petitioner actually received the notice of dishonor, it was
most prudent to reckon the date of interests from the time petitioner was considered to be in
default, i.e., from judicial demand, or the filing of the Information on October 3, 2007.23

The RTC dismissed petitioner's argument that the amount of P436,800.00 was in the form of a
corporate debt owed by RB Freight to respondent,24 and that he could not be correctly held
personally liable for such debts. The RTC ruled instead that petitioner was rightly found personally
liable on the face value of the check since he was the one who personally and actually signed the
check, pursuant to Section 1 of B.P. 22.25 The RTC reminded that B.P. 22 punishes the mere
issuance of a bouncing check, without regard for the purpose for which such check was issued or
the terms and conditions relating to its issuance.26 It found that since in the case at bar, petitioner
admittedly issued and signed a personal check as managing director of RB Freight, he was correctly
held civilly liable to respondent for the face value of the check issued.27

CA Ruling

When brought before via a petition for review under Rule 42 of the Rules of Court, the CA, in its
Decision28 dated April 20, 2017, affirmed the RTC Judgment, with modification as to the applicable
legal interest rate, thus:

WHEREFORE, the petition is hereby DENIED. The Regional

Trial Court Judgment dated February 23, 2015 in Criminal Case No.
QZN-13-03749 is hereby AFFIRMED with MODIFICATION that the
amount of Four Hundred Thirty Six Thousand Eight Hundred Pesos
(Php436,800,00) due to private respondent Roqson Industrial Sales,
Inc. from petitioner Benjamin T. De Leon, Jr. shall earn interest of
12% per annum from October 3, 2007 up to June 30, 2013, and
 interest of 6% per annum shall be applied from July 1, 2013 until full
payment.29

The CA ruled that with the more recent ruling in Nacar v. Gallery Frames,30 the amount of
P436,800.00 due to respondent from petitioner by way of civil liability shall earn interest of 12% per
annum from October 3, 2007 up to June 30, 2013, and thereafter earn the interest of 6% per
annum from July 1, 2013 until full payment.31

In upholding the lower courts' findings, the CA likewise found petitioner personally liable for the
amount of the dishonored check.32 It held that petitioner, by his act of issuing his own personal
check, effectively represented to respondent that he was personally answerable for the face value
thereof, and that he had funds for said purpose. The CA held that he could not now go back on this
representation to the damage and prejudice of respondent.33

Petition sought a reconsideration of the CA's Decision, which the latter denied through its Resolution
dated September 15, 2017.34

Hence the instant petition.

Petitioner here first argues that since the contract of sale of the liters of diesel which were paid for by
the check in question was between respondent and RB Freight, and that since he was only the
managing director of RB Freight, it is RB Freight which should be civilly liable for the amount
equivalent to the face value of the check, since the payment of the check was for its corporate
debt.35 Petitioner adds that the lower courts did not make any finding of fraud or bad faith
attributable to him, so that he may not be held solidarily liable with RB Freight for the face value of
the check.36 He finally avers that since he was acquitted on the criminal charge of violation of B.P.
22, he may not be found civilly answerable therefor.37

In its Comment,38 respondent counters that petitioner may not insist that he cannot be held civilly
liable for the face value of the check since the same was a personal check, which petitioner himself
admitted to having issued. It added that by petitioner's issuance of his personal check, he assumed
any and all civil liability that may arise from the wrong act of having drawn said check despite the
known insufficiency of funds.39 Respondent submits that the civil liability of petitioner for the act of
issuing an unfunded check is different from the civil liability that may attach to RB Freight, for the
very obligation which the check was issued for, i.e., the payment of the purchased diesel from
respondent.40 Citing the case of Aglibot v. Santia,41 it adds that petitioner, as managing director of
RB Freight, agreed to accommodate the existing debt of the latter by issuing his own personal
checks in payment thereof.42 It finally maintains that in all, petitioner should still be held liable for the
face value of the check he issued, and that he may not escape liability on this plain undisputed
fact.43

Petitioner, in his Reply,44 repeats his contention that the debt for which the check was paid was for
a purchase made by RB Freight, and that he merely issued his personal check as a "hold-out" check
for RB Freight's obligation, without any intention to be an accommodation party or surety of the
latter.45

Issue

The threshold issue for the Court's resolution is whether the CA erred in affirming petitioner's civil
liability in favor of respondent for the face value of the check amounting to P436,800.00.
 The Court's Ruling

The petition is unmeritorious. The CA was correct in affirming petitioner's civil liability for the face
value of the check amounting to P436,800.00.

In resolving the question of whether any civil liability on the part of petitioner survives his acquittal
beyond reasonable doubt, the Court anchors its analysis on two primary sequential premises that
must guide the facts of the instant case: (1) the civil liability arising from a violation of B.P. 22 is ex
delicto in character, and necessarily rises out of a finding of a crime having been committed,46 and
(2) if no crime is found to have been committed, as in this case, civil liability ex delicto is not
obtained, and any surviving civil liability to be proven by mere preponderance of evidence must be
grounded on another source of the civil obligation to pay, i.e., an underlying source of obligation by
virtue of which petitioner, though acquitted of the criminal charge, remains civilly liable therefor.47

Going by these premises, the Court finds that (1) the acquittal of petitioner by reasonable doubt
foreclosed any finding of civil liability ex delicto; but (2) he remains civilly liable for although the
evidence on record unequivocally shows that the underlying transaction for which the check in
question was issued was one between respondent and RB Freight, the same records are equally
unambiguous with respect to the fact that, as correctly found by the CA, petitioner stood as an
accommodation party within the definition of Section 29 of the Negotiable Instruments Law (NIL) for
RB Freight when he issued a personal check and delivered the same to respondent in exchange for
the deliveries made by respondent; and that (3) in any case, petitioner may proceed against RB
Freight for reimbursement of the amount he will pay to respondent upon the enforcement of this
Decision.

Petitioner's acquittal precludes

a finding of civil liability ex
delicto

First, the lead premise that must be remembered in resolving the instant petition is the fact of
petitioner's acquittal, for the reason that not all of the elements of the crime of violation of B.P. 22
were proven. As the METC reasoned:

After a careful evaluation of the prosecution's evidence, both

documentary and testimonial, the court believes and so rule[s] that
all the elements of violation of Batas Pambansa Bilang 22 were not
established beyond reasonable doubt.

xxxx

3. THE ELEMENT THAT ACCUSED KNEW OF THE INSUFFICIENCY OF FUNDS WAS NOT
PROVEN.

To prove that accused knew of the insufficiency of funds, the prosecution must prove that accused
Benjamin T. De Leon actually received the notice of dishonor personally. The prosecution presented
the demand letter dated September 15, 2006 marked as exhibit "C" as one of the proof that accused
received such notice of dishonor. However, upon closer examination, said documentary evidence
was just a mere reminder of the unpaid obligations of the accused. This was not the notice of
dishonor as contemplated by B.P. 22.
The prosecution then presented Exhibit "F." This time, the Court observed that it failed to show that
accused personally or his authorized agent received the notice that the check he (accused) issued
had been dishonored. Given the accused['s] denial of receipt of the demand letter, it behooved the
prosecution to present proof that the demand letter was indeed sent through registered mail and that
the same was received by accused. This, the prosecution miserably failed to do.

The prosecution merely presented a copy of the demand letter, together with the Registry Return
Receipt, allegedly sent to accused. However, there was no attempt to authenticate or identify the
signature on the registry return receipt. Receipts for registered letters and return receipts do not by
themselves prove receipt; they must be properly authenticated to serve as proof of receipt of the
letter, claimed to be a notice of dishonor. To be sure, the presentation of the registry card with an
unauthenticated signature, does not meet the required proof beyond reasonable doubt that petitioner
received such notice. It is not enough for the prosecution to prove that a notice of dishonor was sent
to the drawer of the check. The prosecution must also prove actual receipt of said notice, because
the fact of service provided for in the law is reckoned from receipt of such notice of dishonor by the
drawee of the check. The burden of proving notice rests upon the party asserting its existence.
Ordinarily, preponderance of evidence is sufficient to prove notice. In criminal cases, however, the
quantum of proof required is proof beyond reasonable doubt. Hence, for B.P. Blg. 22 cases, there
should be clear proof of notice. The failure of the prosecution to prove the receipt of petitioner of the
requisite notice of dishonor and that he was given at least five (5) banking days within which to settle
his account constitutes sufficient ground for his acquittal.

xxxx

Thus to create the prima facie presumption that the issuer knew of the reason for the dishonor of the
checks, it must be shown that he received the notice of dishonor and after the required period of
time thereafter, failed to satisfy the amount on the checks or make arrangement for its payment.
Since the accused himself did not actually receive the notice of dishonor, then he should not be
liable under the first paragraph of Section 1 of B.P. 22, that he knew at the presentment of the check
that it was not sufficiently funded. This element of knowledge of the insufficiency of funds was not
proven by the prosecution beyond reasonable doubt.48

This acquittal precludes the finding of civil liability on the part of petitioner ex delicto. Consequently,
any civil liability that survives the acquittal of petitioner in the instant case must therefore be rooted
on some other source of obligation, and must be imputed to the party that factually owes it. Of
particular guidance are the sources of obligation, which are outlined in Article 1157 of the Civil Code,
thus:

Article 1156. An obligation is a juridical necessity to give, to do or

not to do.

Article 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

 (5) Quasi-delicts.

Of import as well is the rule on civil liability vis-à-vis criminal actions as provided in Article 29 of the
Civil Code:

Article 29. When the accused in a criminal prosecution is

acquitted on the ground that his guilt has not been proved beyond
reasonable doubt, a civil action for damages for the same act or
omission may be instituted.

Such action requires only a preponderance of evidence. Upon

motion of the defendant, the court may require the plaintiff to file a
bond to answer for damages in case the complaint should be found
to be malicious.

If in a criminal case the judgment of acquittal is based upon

reasonable doubt, the court shall so declare. In the absence of any
declaration to that effect, it may be inferred from the text of the
decision whether or not the acquittal is due to that ground.

Relatedly, Article 1161 of the Civil Code further provides for the regulations on civil obligations
arising from criminal offenses:

Article 1161. Civil obligations arising from criminal offenses shall

be governed by the penal laws, subject to the provisions of article
2177, and of the pertinent provisions of Chapter 2, Preliminary Title,
on Human Relations, and of Title XVIII of this Book, regulating
damages.

Stated differently, in case of a criminal conviction, the basis of civil liability is the criminal liability
itself. This is predicated on the rule provided for in Article 100 of the Revised Penal Code49 that
every person liable for a felony is also civilly liable, which in tum rests on the premise that a crime
has both the criminal as well as the civil aspect.50 On the other hand, in the event of an acquittal,
there is no criminal liability to speak of, as well as no civil obligation arising from acts or omissions
punished by law or delicts. With criminal absolution, Article 29 contemplates an "act or omission"
from which liability may arise based on the other sources of obligations which are independent of the
delict. Since the civil liability that may remain to be attributable in this case cannot rise from a delict
since none was found by the lower courts, the only remaining possible source under the facts is the
purchase contract, which was entered into by RB Freight and respondent. This applicable source of
obligation hereby dictates the nature of the same and the party that may be held liable therefor.

Petitioner remains civilly liable

for the face value of the check
in his capacity asan
accommodation party who
accommodated RB Freight's
clearly corporate debt

Second, to be sure, an acquittal beyond reasonable doubt does not automatically extinguish civil
liability for the dishonored checks. The Court here finds, however, that in tracing the source and
accountability for the civil liability that survives the acquittal of petitioner on the charge against him
under B.P. 22 by preponderance of evidence, the reason must go into the very obligation that
underlies the issuance of the bad check in question, and the party that must answer for the face
value thereof.

Illustratively, the Court has already made pronouncements on the survival of a civil liability despite
an acquittal when the latter is based on reasonable doubt. The Court observes though that in these
pronouncements, the Court nevertheless affirmed the attribution of civil liability on the acquitted
accused in these cases since it has been shown that although the accusations were not established
with moral certainty for purposes of criminal convictions, the underlying transactions or events that
gave rise to the damage sustained by the complaining party, at the very least, ascribed responsibility
or benefit on the part of the acquitted, thereby justifying a finding of civil liability.

A case in point is Chiok v. People,51 which involved one Wilfred Chiok (Chiok) who was acquitted of
the charge of estafa under Article 315, paragraph 1(b) of the Revised Penal Code. In this case, the
Court held that although the allegation of misappropriation of the private complainant's money was
not proven beyond reasonable doubt, it nevertheless found that since the monetary transaction
between Chiok and the private complainant was shown by preponderance of evidence, the amount
which changed hands between them, and was shown to have been given to Chiok, was sufficient
basis for a finding that he was liable to return said amount to the private complainant, to wit:

While the CA acquitted Chiok on the ground that the

prosecution's evidence on his alleged misappropriation of Chua's
money did not meet the quantum of proof beyond reasonable doubt,
we hold that the monetary transaction between Chua and Chiok was
proven by preponderance of evidence.

Chua presented in evidence a bank deposit slip dated June 9,

1995 to Chiok's Far East Bank, Annapolis account in the amount of
P7,100,000.00. She also testified that she delivered to him in cash
the amount of P2,463,900.00. Chiok's admission that he issued the
interbank checks in the total amount of P9,563,900.00 to Chua,
albeit claiming that it was "for safekeeping purposes only" and to
assure her that she will be paid back her investment, corroborates
Chua's evidence. In any event, as found by the appellate court,
Chiok admitted that he received from Chua the amount of "P7.9"
million in June 1995 and for (sic) "P1.6" million at an earlier time. It is
on this basis that the CA found Chiok civilly liable in the amount of
P9,500,000.00 only.

However, we find that during the direct and cross-examination of

Chiok on September 15, 1997 and October 13, 1997, the reference
to "P9.5" million is the amount in issue, which is the whole of
P9,563,900.00.52

Similarly, in the case of Lumantas v. Calapiz, Jr.,53 which involved an eight-year-old boy who
suffered from a damaged urethra immediately after undergoing both appendectomy and
circumcision with therein accused, the attending physician, the Court held that although the latter
was acquitted of the charge of serious physical injuries due to the prosecution's failure to show the
required standard of care to be observed in the private complainant's procedures, it nevertheless
ruled that since the injury sustained was on the occasion of or incidental to the medical procedure
which the accused therein performed, the accused, though acquitted, was still civilly liable, viz.:
 The petitioner's contention that he could not be held civilly liable
because there was no proof of his negligence deserves scant
consideration. The failure of the Prosecution to prove his criminal
negligence with moral certainty did not forbid a finding against him
that there was preponderant evidence of his negligence to hold him
civilly liable. With the RTC and the CA both finding that Hanz had
sustained the injurious trauma from the hands of the petitioner on the
occasion of or incidental to the circumcision, and that the trauma
could have been avoided, the Court must concur with their uniform
findings. In that regard, the Court need not analyze and weigh again
the evidence considered in the proceedings a quo. The Court, by
virtue of its not being a trier of facts, should now accord the highest
respect to the factual findings of the trial court as affirmed by the CA
in the absence of a clear showing by the petitioner that such findings
were tainted with arbitrariness, capriciousness or palpable error.54

Finally, helpful is the case of Manantan v. Court of Appeals55 which involved a driver who was
charged with the crime of homicide through reckless imprudence resulting from a vehicular accident
where he allegedly sideswept a passenger jeepney, which killed one of its passengers. The Court
there held that even though the accused was acquitted of the crime charged since the records did
not fully support a finding of negligence, he was nonetheless held civilly liable by virtue of the fact
that on preponderance of evidence, his negligence was likely, thus:

Our law recognizes two kinds of acquittal, with different effects

on the civil liability of the accused. First is an acquittal on the ground
that the accused is not the author of the act or omission complained
of This instance closes the door to civil liability, for a person who has
been found to be not the perpetrator of any act or omission cannot
and can never be held liable for such act or omission. There being
no delict, civil liability ex delicto is out of the question, and the civil
action, if any, which may be instituted must be based on grounds
other than the delict complained of. This is the situation
contemplated in Rule 111 of the Rules of Court. The second
instance is an acquittal based on reasonable doubt on the guilt of the
accused. In this case, even if the guilt of the accused has not been
satisfactorily established, he is not exempt from civil liability which
may be proved by preponderance of evidence only.56

The Rules of Court requires that in case of an acquittal, the judgment shall state "whether the
evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to
prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act or
omission from which the civil liability might arise did not exist."57

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

Private respondents counter that a closer look at the trial court's

judgment shows that the judgment of acquittal did not clearly and
categorically declare the non-existence of petitioner's negligence or
imprudence. Hence, they argue that his acquittal must be deemed
 based on reasonable doubt, allowing Article 29 of the Civil Code to
come into play.

Our scrutiny of the lower court's decision in Criminal Case No.

066 supports the conclusion of the appellate court that the acquittal
was based on reasonable doubt; hence, petitioner's civil liability was
not extinguished by his discharge. We note the trial court's
declaration that did not discount the possibility that "the accused was
really negligent." However, it found that "a hypothesis inconsistent
with the negligence of the accused presented itself before the Court"
and since said "hypothesis is consistent with the record x x x the
Court's mind cannot rest on a verdict of conviction." The foregoing
clearly shows that petitioner's acquittal was predicated on the
conclusion that his guilt had not been established with moral
certainty. Stated differently, it is an acquittal based on reasonable
doubt and a suit to enforce civil liability for the same act or omission
lies.58

The aforementioned cases illustrate how in cases where the civil liability survives an acquittal based
on reasonable doubt, the Court found civil liability based on other sources of obligation other than ex
delicto, i.e., contract as the source of liability in the estafa case of Chiok v. People, and tort or quasi-
delict in the cases of Lumantas v. Calapiz, Jr. and Manantan v. Court of Appeals. It is therefore clear
that although an acquittal on reasonable doubt does not necessarily extinguish civil liability, it also
does not mean that the civil liability of the acquitted nonetheless automatically survives. Instead,
care must still be taken in determining whether a civil liability persists as traced back to another
source of obligation under Article 1157 of the Civil Code.

With the foregoing as the framing through which the Court resolves this case, it finds that the
corporate nature of the debt and the accommodation of the same by petitioner through his personal
check lead to no other solid conclusion than that petitioner is civilly liable for the corporate debt
precisely as an accommodation party.

First, the Court recognizes that the debt for which the dishonored check was issued was clearly a
corporate one. Particularly, a review of the entire records of the case categorically reveals, as was
admitted by both respondent and petitioner, that the bad check was issued in consideration of RB
Freight's purchase from respondent of 12,000 liters of diesel in the amount of P436,800.00. For one,
this is shown by the fact that when respondent sought the payment of the amount which was not
made due to the dishonor of the check in question, it addressed its first demand letter to RB Freight
and petitioner.59 For another, it was not petitioner but RB Freight's administrative manager, Mean
Ramos, who responded on behalf of RB Freight concerning the demand for said payment. Most
revealing is the very tenor of the letter response of RB Freight, through Mean Ramos, which
doubtlessly shows that the amount was a corporate debt, thus:

Mr. Crisostomo,

This is in response to your letter dated 15 September 2006

regarding our outstanding amount payable in the amount of PESOS
four hundred thirty-six thousand eight hundred pesos
(PHP436,800.00).
 Thank you very much for bearing with us but in as much as we
wanted to pay you soonest, we are not in a position to pay you
immediately because our loan application is still in process.

To show our good faith and our intention to pay our obligation to
you we would like to propose the following payment scheme:

1. Assignment of a certain real estate prope1ty

valued approximately at PHP 2.5 Million to cover our
obligation;

2. Four (4) Installment Payment Plan payable

weekly beginning 06 October 06, as follows:

xxxx

3. Pay 2% monthly interest computed on the

diminishing balance;

4. Upon full payment, the security or assigned

property will be released, accordingly.

Thank you for your kind attention and hoping that you grant
above request.

Very truly yours,

(signed)
Mean Ramos
Administrative
Manager60

More, on October 14, 2006, it was RB Freight's Board of Directors which wrote respondent
communicating its rejection of the latter's counter-proposal on the payment scheme. It was also RB
Freight, not petitioner, who made a request to respondent for a "debt moratorium."61

Second, and more importantly, in the process of discerning the underlying obligation or surviving civil
liability on the part of petitioner, if any, it is imperative to determine the capacity and nature of
petitioner's act of issuing the check in question. On this matter, it was raised during the deliberations
that as respondent argues, petitioner may not be absolved of civil liability for the check in question
since he acted as an accommodation party for RB Freight in the latter's purchase of diesel products
from respondent. Section 29 of the NIL defines an accommodation party by its elements, thus:

Section 29. Liability of accommodation party. — An

accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for
 value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.

The American Law Institute on Surety and Guaranty outlines the role of an accommodation party,
thus:

x x x Suretyship relationships are often created by the use of negotiable instruments. Frequently, the
secondary obligor is an indorser of an instrument of which the principal obligor is the maker, or the
secondary obligor and principal obligor are comakers. Occasionally, the secondary obligor will be the
maker of a note that the principal obligor indorses or the secondary obligor will be the acceptor of a
draft drawn by the principal obligor. When both the secondary obligor and the principal obligor are
parties to the instrument, the secondary obligor is an "accommodation party" to the instrument.62

In other words, for one to be deemed an accommodation party and held liable to fulfill the
outstanding obligation of the accommodated party, the person must not only sign an instrument and
not receive value therefor, but the person must have done the same for the purpose of lending his or
her name for the credit of the accommodated party.

Given the above definition, the Court finds that considering the entire factual context within which the
dishonored check is situated, it is persuaded that petitioner here in fact acted as an accommodation
party for RB Freight by virtue of his singular act of issuing a personal check in exchange for the
deliveries of diesel products which were made by respondent to RB Freight.

While the Court notes that petitioner consistently denied any intendment towards guarantying or
otherwise extending an accommodation to RB Freight, the over act of issuing a personal check to
pay the outstanding debt of RB Freight in favor of respondent clearly belies the same. The Court
notes that petitioner consistently alleges that he was only required by respondent to issue his
personal check in question in view of the accumulated payables of RB Freight, and in order for the
latter to continue purchasing diesel products from respondent on credit.63 However, the Court here
finds that what he insists upon, i.e., that the issuance of the check was a mere "hold out," is actually
an admission that such issuance can only be legally characterized as an accommodation within the
definition of Section 29 of the NIL. To be sure, had petitioner failed to issue the check in question,
respondent would not have delivered any more diesel products to RB Freight. Said effect of
extending a purchase on credit falls squarely within the typical situations where an accommodation
party assists in. What is more, while all the parties involved, most particularly respondent and RB
Freight, behaved in a manner which showed that they were all aware that it was RB Freight that
benefited from the purchase of the diesel products for which the debt arose, the Court is unable to
absolve petitioner of the civil liability. In the earlier case of Crisologo-Jose v. Court of Appeals,64 the
Court clarified that the fact that the accommodation party did not benefit from the accommodation or
otherwise receive any valuable consideration for the same does not bar a holder for value from
recovering from said accommodation party, to wit:

Consequently, to be considered an accommodation party, a

person must (1) be a party to the instrument, signing as maker,
drawer, acceptor, or indorser, (2) not receive value therefor, and (3)
sign for the purpose of lending his name for the credit of some other
person.

Based on the foregoing requisites, it is not a valid defense that

the accommodation party did not receive any valuable consideration
when he executed the instrument. From the standpoint of contract
law, he differs from the ordinary concept of a debtor therein in the
 sense that he has not received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a holder for value
as if the contract was not for accommodation, in whatever capacity
such accommodation party signed the instrument, whether primarily
or secondarily. Thus, it has been held that in lending his name to the
accommodated party, the accommodation party is in effect a surety
for the latter.65

In other words, despite the clear demonstration of the corporate nature of the debt in question,
petitioner nevertheless remains personally civilly liable for the face value of the dishonored check in
question because his act of issuing his personal check was the overt act of accommodation of RB
Freight's outstanding balance, and made him the accommodation party of the latter within the
contemplation of Section 29 of the NIL. Stated differently, although petitioner's civil liability may no
longer be ex delicto by virtue of his acquittal, he nonetheless remains civilly liable since his
obligation can be traced back to the law as his source of obligation, specifically Section 29 of the
NIL.

Third and finally, the Court understands that to leave the present disposition at a finding that
petitioner here remains personally civilly liable for the debt of RB Freight by virtue of his role as an
accommodation party would be unjust in its incompleteness. The Court, therefore, finds it imperative
to remind that petitioner may, in a separate action, avail of his right of recourse against the
accommodated party, RB Freight, for reimbursement of the amount that he shall pay to respondent
as a result of the enforcement of this Decision. With petitioner as an accommodation party and
surety of RB Freight, his recourse for reimbursement against the latter is in accordance with the
Court's jurisprudential affirmation of such right to reimbursement, as in the early case of Philippine
National Bank v. Maza:66

The defense is made to the action that the defendants never

received the value of the promissory notes. It is, of course,
fundamental that an instrument given without consideration does not
create any obligation at law or in equity in favor of the payee.
However, to fasten liability upon an accommodation maker, it is not
necessary that any consideration should move to him. The
consideration which supports the promise of the accommodation
maker is that parted with by the person taking the note and received
by the person accommodated. (5 Uniform Laws, Annotated, pp.
140 et seq.; Clark vs. Sellner 1921, 42 Phil., 384; First National Bank
of Hancock vs. Johnson 1903, 133 Mich., 700; 103 Am. St. Rep.,
468; Marling vs. Jones 1909, 138 Wis., 82; 131 Am. St. Rep., 996;
Schoenwetter vs. Schoenwetter 1916, 164 Wis., 131.)

While perhaps unnecessary to this decision, it may properly be

remarked that when the accommodation parties make payment to
the holder of the notes, they have the right to sue the accommodated
party for reimbursement, since the relation between them is in effect
that of principal and sureties, the accommodation parties being the
sureties.67

Furthermore, if the respondent has, during the pendency of this Decision, already successfully
recovered from RB Freight the payment of the face value of the dishonored check in question,
petitioner may offer as a defense against a second payment of the face value of the check in
question the proscription against double recovery as provided for in Article 1161 in relation to Article
2177 of the Civil Code, thus:

Article 2177. Responsibility for fault or negligence under the

preceding article is entirely separate and distinct from the civil liability
arising from negligence under the Penal Code. But the plaintiff
cannot recover damages twice for the same act or omission of the
defendant.

To the Court's mind, a double recovery for the same face value of the dishonored check would be
neither fair nor right, but would only allow for unjust enrichment on the part of the respondent. Such
a fallout is farthest from the intendments of the law, which dictate that all manners of retribution and
recompense must still remain circumscribed by the elementary notions of justice and fair play. For
although the law may be deemed harsh and unflinching with its straightforward ascription of civil
liability to an accommodation party for a corporate debt, it cannot be faulted as unjust since it is not
blind to the realities of each case, and affords the right of recourse to parties to ensure no failure of
justice.

WHEREFORE, in view of the foregoing, the petition is

hereby DENIED. The Decision of the Court of Appeals Special
Fifteenth Division dated April 20, 2017 and its Resolution dated
September 15, 2017 in CA-G.R. SP No. 139973 are
hereby AFFIRMED with MODIFICATION, in that petitioner Benjamin
T. De Leon, Jr. is found civilly liable as an accommodation party for
RB Freight International, Inc., without prejudice to a civil action which
petitioner Benjamin T. De Leon, Jr. may pursue against RB Freight
International, Inc. pursuant to the farmer's right of recourse.

The award of attorney's fees and costs are also deleted.

SO ORDERED.

Gesmundo, C.J., (Chairperson), Hernando,* and Lazaro-Javier, JJ., concur.

M. Lopez,** J., On wellness leave.

VINCULUM JURIS

FIRST DIVISION

February 6, 2017

G.R. No. 215910

MANUEL C. UBAS, SR., Petitioner

vs.
WILSON CHAN, Respondent

DECISION
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari is the Decision dated October 28, 2014 of the Court
1 2

of Appeals (CA) in CA-G.R. CV No. 04024 dismissing the complaint filed by petitioner Manuel C.
Ubas, Sr. (petitioner) for lack of cause of action.

The Facts

This case stemmed from a Complaint for Sum of Money with Application for Writ of
Attachment (Complaint) filed by petitioner against respondent Wilson Chan (respondent) before the
3

Regional Trial Court of Catarman, Northern Samar, Branch 19 (RTC), docketed as Civil Case No. C-
1071. In his Complaint, petitioner alleged that respondent, "doing business under the name and style
of UNIMASTER," was indebted to him in the amount of ₱1,500,000.00, representing the price of
boulders, sand, gravel, and other construction materials allegedly purchased by respondent from
him for the construction of the Macagtas Dam in Barangay Macagtas, Catarman, Northern Samar
(Macagtas Dam project). He claimed that the said obligation has long become due and demandable
and yet, respondent unjustly refused to pay the same despite repeated demands. Further, he
4

averred that respondent had issued three (3) bank checks, payable to "CASH" in the amount of
₱500,000.00 each, on January 31, 1998, March 13, 1998, and April 3, 1998, respectively (subject
checks), but when petitioner presented the subject checks for encashment on June 29, 1998, the
5

same were dishonored due to a stop payment order. As such, respondent was guilty of fraud in
incurring the obligation.
6

Respondent filed an Answer with Motion to Dismiss, seeking the dismissal of the case on the
7

following grounds: (a) the complaint states no cause of action, considering that the checks do not
belong to him but to Unimasters Conglomeration, Inc. (Unimasters); (b) there is no contract that ever
existed between him and petitioner; and (c) if petitioner even had a right of action at all, the
complaint should not have been filed against him but against Unimasters, a duly registered
construction company which has a separate juridical personality from him. 8

During trial, petitioner testified that on January 1, 1998, he entered into a verbal agreement with
respondent for the supply of gravel, sand, and boulders for the Macagtas Dam project. He 9

presented as the only proof of their business transaction the subject checks issued to him by
respondent and delivered to his office by respondent's worker on different occasions. He alleged
10

that, at the behest of respondent, he only deposited the checks to his bank account on June 29,
1998. When the checks were dishonored, petitioner demanded from respondent the value of the
11

dishonored checks, but to no avail. Apart from his own testimony, petitioner presented Jose Chie
12

Ubas, the company operations manager of Ubas Construction, Inc., who testified that in 1998, he
accompanied several deliveries of gravel, sand, and boulders to a certain project engineer named
Paking dela Cruz at the Macagtas Dam project site, and that respondent issued checks for their
payment; thus, he came to know that there was a transaction between them. Petitioner also
13

presented Francisco Barrelo, the former employee of Far East Bank, who testified that the subject
checks were dishonored upon presentment because of a stop payment order by the bank. 14

On the other hand, respondent presented Unimasters' comptroller, Belma Murillo (Murillo), who
testified that Unimasters was contracted by the Department of Public Works and Highways for the
Macagtas Dam project; that Engineer Ereberto Merelos (Engr. Merelos) was hired as project
engineer tasked to supervise the work, the hiring of laborers, the delivery and payment of
aggregates, and the payroll, and was likewise in charge of negotiating the supply of aggregates and
the revolving fund for its payments; that the subject checks were issued for the replenishment of the
revolving fund, but Engr. Merelos lost the same sometime in January 1998; and that upon being
15

informed about the loss of the checks, respondent, as President of Unimasters, instructed Murillo to
issue a Stop Payment Order on April 10, 1998. Murillo belied petitioner's claim that the subject
16

checks were given to the latter in payment of the aggregates and materials that he allegedly
delivered for the Macagtas Dam project, considering that their office did not process any delivery
receipt or proof of delivery of such aggregates by petitioner. 17

For his part, respondent admitted to having issued the subject checks. However, he claimed that
they were not issued to petitioner, but to Engr. Merelos for purposes of replenishing the project's
revolving fund. Respondent also described the procedure in the delivery of aggregates to their
18

project sites, asserting that petitioner was not among their suppliers of aggregates for the Macagtas
Dam project as, in fact, the latter never submitted any bill attaching purchase orders and delivery
receipts for payments as other suppliers did. 19

The RTC Ruling

In a Decision dated January 30, 2008, the RTC ruled that petitioner had a cause of action against
20

respondent. At the outset, it observed that petitioner's demand letter - which clearly stated the serial
numbers of the checks, including the dates and amounts thereof - was not disputed by respondent.
Also, it did not lend credence to respondent's claim that the subject checks were lost and only came
into the possession of petitioner, considering the fact that petitioner mentioned the details of the
subject checks in the said demand letter and, thus, would have incriminated himself had he actually
stolen them. It also took note that respondent did not file a case for theft in relation to the lost
21

checks found in possession of petitioner. Thus, finding that respondent failed to overcome the
22

disputable presumption that every party to an instrument acquired the same for a valuable
consideration under Section 24 of Act No. 2031, or the Negotiable Instruments Law (NIL), the RTC
23

ordered him to pay petitioner the amount of ₱l,500,000.00 representing the principal obligation plus
legal interests from June 1998 until fully paid, ₱40,000 as litigation expenses, ₱50,000 as attorney's
fees, and cost of the suit.
24

With the subsequent denial of his motion for reconsideration, respondent filed a notice of appeal.
25 26 27

The CA Ruling

In a Decision dated October 28, 2014, the CA reversed and set aside the RTC's ruling, dismissing
28

petitioner's complaint on the ground of lack of cause of action.

It held that respondent was not the proper party defendant in the case, considering that the drawer
of the subject checks was Unimasters, which, as a corporate entity, has a separate and distinct
personality from respondent. It observed that the subject checks cannot be validly used as proof of
the alleged transactions between petitioner and respondent, since from the face of these checks
alone, it is readily apparent that they are not personal checks of the former. Thus, if at all, the said
checks can only serve as evidence of transactions between Unimasters and petitioner. Accordingly,
29

Unimasters is an indispensable party, and since it was not impleaded, the court had no jurisdiction
over the case. 30

In any event, the CA found that petitioner's claim of unpaid deliveries had no merit, given that not a
single delivery receipt, trip ticket or similar document was presented to establish the delivery of
construction materials to respondent. Further, the CA gave scant consideration to petitioner's
31

argument that respondent and Unimasters should be treated as one and the same under the
doctrine of piercing the veil of corporate fiction because not only was the issue raised for the first
time on appeal, but that the records bear no evidence that would establish the factual conditions for
the application of the doctrine. 32
Hence, the instant petition.

The Issue Before the Court

The sole issue in this case is whether or not the CA erred in dismissing petitioner's complaint for lack
of cause of action.1âwphi1

The Court's Ruling

The petition is meritorious.

Cause of action is defined as the act or omission by which a party violates a right of another. It is
well-settled that the existence of a cause of action is determined by the allegations in the complaint. 33

In this case, petitioner's cause of action is anchored on his claim that respondent personally entered
into a contract with him for the delivery of construction materials amounting to ₱l,500,000.00, which
was, however, left unpaid. He also avers that respondent is guilty of fraud in the performance of said
obligation because the subject checks issued to him by respondent were dishonored on the ground
of stop payment. As proof, petitioner offered in evidence, among others, the demand letter he sent to
respondent detailing the serial numbers of the checks that were issued by the latter, including the
dates and amounts thereof. He also offered the dishonored checks which were in his possession.

Respondent neither disputes the fact that he had indeed signed the subject checks nor denies the
demand letter sent to him by petitioner. Nevertheless, he claims that the checks were not issued to
1âwphi1

petitioner but to the project engineer of Unimasters who, however, lost the same. He also disclaims
any personal transaction with petitioner, stating that the subject checks were in fact, issued by
Unimasters and not him. Besides, petitioner failed to present any documentary proof that he or his
firm delivered construction materials for the Macagtas Dam project.

The Court finds for petitioner.

Jurisprudence holds that "in a suit for a recovery of sum of money, as here, the plaintiff-creditor
[(petitioner in this case)] has the burden of proof to show that defendant [(respondent in this case)]
had not paid [him] the amount of the contracted loan. However, it has also been long established
that where the plaintiff-creditor possesses and submits in evidence an instrument showing the
indebtedness, a presumption that the credit has not been satisfied arises in [his] favor. Thus, the
defendant is, in appropriate instances, required to overcome the said presumption and present
evidence to prove the fact of payment so that no judgment will be entered against him." This
34

presumption stems from Section 24 of the NIL, which provides that:

Section 24. Presumption of Consideration. - Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon
to have become a party thereto for value.

As mentioned, petitioner had presented in evidence the three (3) dishonored checks which were
undeniably signed by respondent. During trial, respondent admitted to the following:

[Atty. Arturo Villarin] Q: Showing to you this check dated January 31, 1998 x x x, please go over this
check and tell the Honorable Court if that is the same check that you issued as replenishment for the
revolving fund?
x x xx

[Respondent] A: Yes, this is the check I signed.

Q: At the right bottom portion of this check is a signature, whose signature is this?

A: That is my signature.

Q: Likewise, for the month of March 13, 1998 [,] there is a check in the amount of [₱500,000.00]. Is
this also the check that you issued as replenishment for the project?

A: Yes, Sir. (Emphases supplied)

35

Hence, as the RTC correctly ruled, it is presumed that the subject checks were issued for a valid
consideration, which therefore, dispensed with the necessity of any documentary evidence to
support petitioner's monetary claim. Unless otherwise rebutted, the legal presumption of
consideration under Section 24 of the NIL stands. Verily, "the vital function of legal presumption is to
dispense with the need for proof." 36

Respondent's defense that the subject checks were lost and, thus, were not actually issued to
petitioner is a factual matter already passed upon by the RTC. As aptly pointed out by the trial court,
it would have been contrary to human nature and experience for petitioner to send respondent a
demand letter detailing the particulars of the said checks if he indeed unlawfully obtained the same.
In fact, it is glaring that respondent did not present Engr. Merelos, the project engineer who had
purportedly lost the checks, to personally testify on the circumstances surrounding the checks' loss.
Further, Unimasters' comptroller, Murillo, testified during trial that "she came to know that the lost
checks were deposited in the account of [petitioner as] she was informed by the [o]ffice[r]-in-charge
of the drawee bank, the Far East Bank of Tacloban, City Branch." However, there was no showing
37

that Unimasters and/or respondent commenced any action against petitioner to assert its interest
over a significant sum of ₱l,500,000.00 relative to the checks that were supposedly lost/ stolen.
Clearly, this paucity of action under said circumstances is again, inconsistent with ordinary human
nature and experience. Thus, absent any cogent reason to the contrary, the Court defers to the
RTC's findings of fact on this matter. In Madrigal v. CA, it was explained that:
38

The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed
by the lower court. The Supreme Court is not a trier of facts. It leaves these matters to the lower
court, which [has] more opportunity and facilities to examine these matters. This same Court has
declared that it is the policy of the Court to defer to the factual findings of the trial judge, who has the
advantage of directly observing the witnesses on the stand and to determine their demeanor
whether they are telling or distorting the truth.
39

Besides, Section 16 of the NIL provides that when an instrument is no longer in the possession of
the person who signed it and it is complete in its terms, "a valid and intentional delivery by him is
presumed until the contrary is proved," as in this case.

In Pacheco v. CA, the Court has expressly recognized that a check "constitutes an evidence of
40

indebtedness" and is a veritable "proof of an obligation." Hence, petitioner may rely on the same as
proof of respondent's personal obligation to him.

Although the checks were under the account name of Unimasters, it should be emphasized that the
manner or mode of payment does not alter the nature of the obligation. The source of obligation, as
claimed by petitioner in this case, stems from his contract with respondent. When they agreed upon
the purchase of the construction materials on credit for the amount of ₱l,500,000,00, the contract
between them was perfected. Therefore, even if corporate checks were issued for the payment of
41

the obligation, the fact remains that the juridical tie between the two (2) parties was already
established during the contract's perfection stage and, thus, does not preclude the creditor from
proceeding against the debtor during the contract's consummation stage.

That a privity of contract exists between petitioner and respondent is a conclusion amply supported
by the averments and evidence on record in this case.

First, the Court observes that petitioner was consistent in his account that he directly dealt with
respondent in his personal and not merely his representative capacity. In his Complaint, petitioner
alleged that "[Chan, doing business under the name and style of Unimaster] is indebted to [him] in
the amount [₱l,500,000.00] x x x." 42

Moreover, the demand letter, which was admitted by respondent, was personally addressed to
respondent and not to Unimasters as represented by the latter. 43

Also, it deserves mentioning that in his testimony before the RTC, petitioner explained that he
delivered the construction materials to respondent absent any written agreement due to his trust on
the latter, viz.:

[Atty. Daniel Arnold Añover] Q: So, when you delivered the aggregates, did you agree to deliver the
aggregates to Mr. Chan the defendant in this case, you did not put the terms into writing? Am I
correct?

[Petitioner] A: None, because it is verbal only, because I trusted him being a contractor.

x x xx

Q: Now, Mr. Witness you said that you trusted Mr. Chan, am I correct?

A: Yes, Sir.

Q: And that he promised you several times that he would pay you?

A: Yes, he promised me many times.

Q: And yet you still hold all these checks for security? Correct?

A: Yes Sir.

Q: Now, Mr. Witness, you said that you trusted Mr. Chan, then why did you not just handed [sic] over
the checks to him, because you said you trusted him?

A: How many times I gone to Tacloban and I went to Unimaster Office but they referred me to the
Leyte Park Hotel, since they are no longer in good terms with Mr. Wilson Chan so they referred me
to Leyte Park Hotel and then I went to Mr. Chan he promised that he will pay me and after several
months again, the same will be paid next month because there will be final inspection I even let him
borrow my equipment for free and hoping that the checks will be funded but again he lied. 44
This squares with respondent's own testimony, wherein he stated that every time he wanted to have
supplies delivered for the Macagtas Dam project, he would not enter into any written contract:

[Atty. Marlonfritz Broto] Q: [Okay], now having read this particular statement Mr. Witness would you
agree with this representation that every time you want to have supplies in Macagtas dam you
do not enter into contract as you testified here a while ago?

[Respondent] A: Yes, Sir. (Emphasis supplied)

45

Petitioner further testified that he personally demanded the value of the subject checks from
respondent in his office, viz.:

[Atty. Daniel Arnold Añover] Q: Now, Mr. Witness you said that you visited Leyte Park Hotel several
times, am I correct?

[Petitioner] A: I think once or twice to demand from Mr. Wilson Chan.

Q: And of course, you were able to see Mr. Chan personally?

A: Yes, we had the conversation.

x x xx

Q: So you are saying you are talking to him in his office?

A: Yes, apparently, it was his Office.

x x xx

Q: You said that when you were there you were just talking each other [sic] and you were taking
coffee and made promises, right?

A: Yes, sir. 46

Notably, these statements were considered undisputed. Hence, the same are binding on the parties.

In fine, the Court holds that the CA erred in dismissing petitioner's complaint against respondent on
the ground of lack of cause of action. Respondent was not able to overcome the presumption of
consideration under Section 24 of the NIL and establish any of his affirmative defenses. On the other
hand, as the holder of the subject checks which are presumed to have been issued for a valuable
consideration, and having established his privity of contract with respondent, petitioner has
substantiated his cause of action by a preponderance of evidence. "'Preponderance of evidence' is a
phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing
to the court as worthy of belief than that which is offered in opposition thereto." Consequently,
47

petitioner's Complaint should be granted.

WHEREFORE, the petition is GRANTED. The Decision dated October 28, 2014 of the Court of
Appeals in CA-G.R. CV No. 04024 is hereby SET ASIDE. The Decision dated January 30, 2008 of
the Regional Trial Court of Catarman, Northern Samar, Branch 19 in Civil Case No. C-1071
is REINSTATED.
SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

SECOND DIVISION
[ G.R. No. 228150. January 11, 2023 ]
KARLOS NOEL R. ALETA, PETITIONER, VS. SOFITEL PHILIPPINE
PLAZA MANILA, RESPONDENT.

DECISION

LEONEN, SAJ.:

The plaintiff bears the burden of proving an injury by reason of quasidelict by presenting
sufficient evidence in order to prove: (1) fault or negligence on the defendant's part; (2)
the concomitant injury sustained by the complainant; and (3) the nexus showing the cause
and effect of the fault or negligence and the resulting injury on the plaintiff's part.

This Court resolves a Petition for Review[1] assailing the Court of Appeals Decision[2] and
Resolution.[3] The Court of Appeals affirmed the findings of both the Metropolitan Trial
Court and Regional Trial Court that Karlos Noel R. Aleta (Karlos) failed to prove that the
injuries sustained by his children were caused by Sofitel Philippine Plaza Manila's
(Sofitel) negligence.

On February 13, 2009,[4] Attorney Bonifacio A. Alentajan (Atty. Bonifacio) and Doctor
Marilyn C. Alentajan (Dr. Marilyn), Karlos's parentsin-law, went to Sofitel to check in
Karlos's parents-in-law were accompanied by his children namely, Carlos Marco Aleta
(Carlos) and Mario Montego Aleta (Mario), who were then five and three years old
respectively.[5]

Later that day, Dr. Marilyn brought Carlos and Mario to the hotel's kiddie pool. As Mario
was stepping into the pool near the lifeguard station, he suddenly slipped which resulted
to his head hitting the rugged edge of the pool.[6] He sustained injuries which caused his
head to bleed.[7]

Meanwhile, Carlos mounted the kiddie pool slide and thereafter bumped his head. He
sustained a contusion, which likewise caused his head to bleed.[8]
To prevent the injuries' progression, Karlos and Dr. Marilyn administered first aid
treatment to the children. Carlos and Mario were then brought to the hotel clinic where
they were treated by the hotel's physician.[9]

On February 25, 2009, Karlos sent a Letter[10] to Mr. Bernd Schneider, Sofitel's Manager,
demanding compensation for his children's injuries.[11]

On April 15, 2009, Sofitel, through its counsel, denied Karlos's request for compensation.
[12]

Four months later, in June 2009, Carlos started having seizures and was admitted at
Medical City. He was subjected to laboratory diagnostics, MRI,[13] and EEG,
[14]
procedures which caused his father to incur expenses.[15]

Aggrieved, Karlos filed a Complaint for Damages[16] against Sofitel before the
Metropolitan Trial Court. He identified the following observations:
5. The level of the steps in the kiddie pool, at the left of the lifeguard station, is not
visible. Hence, swimmers can easily miss the steps and go off balance.

The edge of the kiddie pool is jagged that it can easily cut soft tissues by mere contact.
The notice, regarding the age limit for those desiring to use the slide, is not visible as
plants cover it.

The steps leading to the 2 slides are easily accessible for children swimming at the kiddie
pool, without physical barrier. Both slides slope down and end at the kiddie pool thus
giving the impression that these are integral to the kiddie pool.

6. The lifeguard on duty did not mind/nor prevent the many children going up the steps to
go up the slide.[17]
He maintained that the injuries sustained by his children were the result of Sofitel's
negligence and therefore prayed that it be ordered to pay him the following: (1)
P50,000.00 as actual damages; (2) P100,000.00 as moral damages; (3) P50,000.00 as
exemplary damages; and (4) P50,000.00 as attorney's fees.[18]

On August 26, 2009, Sofitel filed its Answer where it alleged the following affirmative
allegations and defenses: (1) the complaint states no cause of action; (2) Karlos failed to
identify his right violated by Sofitel entitling him to damages; (3) Karlos has no cause of
action against Sofitel; and (4) the incident was an accident.[19]

After trial, the Metropolitan Trial Court dismissed Karlos's complaint on the ground that
he was unable to substantiate his allegations.[20] It found that Karlos failed to prove that
the injury sustained by his children was the proximate cause of his children's admission at
Medical City. In addition, it noted that Karlos's children and parents-in-law were not on
Sofitel's list of checked-in guest on the day of the incident, and that they only checked-in
on February 14, 2019. Hence, it ruled that the children were not authorized to use the
hotel's facilities on February 13, 2019.[21]

Karlos moved for reconsideration[22] but the Metropolitan Trial Court denied it on August
1, 2011.[23]

On appeal,[24] the Regional Trial Court affirmed in toto the Metropolitan Trial Court's
decision.[25]

Karlos's motion for reconsideration[26] was likewise denied by the Regional Trial Court in
its October 11, 2013 Order.[27]

Undaunted, Karlos filed a Petition for Review[28] before the Court of Appeals.

In its May 11, 2016 Decision,[29] the Court of Appeals denied the petition and affirmed
the Regional Trial Court's decision. It ruled that Karlos failed to establish the connection
between Sofitel's alleged negligence and the injuries sustained by his children.[30]

On November 2, 2016, the Court of Appeals denied[31] Karlos's motion for

reconsideration.[32]

Hence, Karlos filed a Petition for Review before this Court seeking the reversal of the
Court of Appeals Decision and Resolution.

Petitioner cites Articles 2176 and 2180 of the Civil Code and argues that respondent
should be held liable for the injuries sustained by his children.[33] He maintains that the
presence of a slide within the pool's premises made it an attractive nuisance, which
should have prompted respondent to place more safeguards. He stresses that while
warning signs were posted regarding the use of the pool, the same were placed in an
inconspicuous place which could not have ensured the safety of its guests.[34]

He likewise insists that there were no lifeguards present at the time of the incident.
Moreover, assuming that there were, they were negligent in the performance of their
duties.[35]

In addition, petitioner contends that the doctrine of res ipsa loquitur should apply since,
based on Dr. Marilyn's observations, the edges of the stones by the pool are jagged and,
thus, dangerous to children.[36]

Petitioner likewise questions the competency of the doctor who attended to his children,
alleging that she had no training in occupational safety and health—in violation of Article
160 of the Labor Code.[37]

Finally, petitioner insists that the exact date of the incident is immaterial considering that
respondent admitted its occurrence.[38] He claims that assuming his children were not part
of the checked-in guests on the day of the incident, hotel management should have
required them to register before using the pool, which is therefore respondent's
responsibility.[39]

For its part, respondent argues that petitioner failed to prove the causal connection
between his children's injuries and its supposed negligence. It likewise claims that there
were lifeguards on duty at the time of the incident.[40] In addition, respondent contends
that the medical training received by the doctors at its clinic is more than sufficient
considering that the hotel is not a hazardous establishment.[41]

For this Court's resolution is the issue whether or not respondent Sofitel Philippine Plaza
Manila should be held liable for the injuries sustained by petitioner Karlos Noel R.
Aleta's children.

The Petition is impressed with merit.

The determination of whether a person is negligent is a question of fact, which is beyond

this Court's power of review under Rule 45 of the Rules of Court.[42] In a Petition for
Review on Certiorari, this Court's jurisdiction "is limited to reviewing errors of law that
may have been committed by the lower court."[43] Hence, it is not this Court's function to
review the factual findings and reevaluate the pieces of evidence presented by the parties,
especially when the conclusion of both the trial and appellate courts with regard to
respondent's negligence are the same.[44]

However, jurisprudence have recognized several exceptions to this rule. In Medina v.

Asistio, Jr.[45]:
(1) When the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; (2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion; (4) When the judgment is based on a
misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee; (7) The findings of the Court
of Appeals are contrary to those of the trial court; (8) When the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) When the
facts set forth in the petition as well as in the petitioner's main and reply briefs are not
disputed by the respondents; and (10) The finding of fact of the Court of Appeals is
premised on the supposed absence of evidence and is contradicted by the evidence on
record.[46] (Citations omitted)
Here, petitioner invokes the third exception, in that the Court of Appeals allegedly
committed grave abuse of discretion in issuing the assailed decision.

Grave abuse of discretion, as an exception to the general rule, was discussed in Pascual
v. Burgos[47] in this wise:
The Court of Appeals must have gravely abused its discretion in its appreciation of the
evidence presented by the parties and in its factual findings to warrant a review of factual
issues by this court. Grave abuse of discretion is defined, thus:
By grave abuse of discretion is meant such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be grave as
where the power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility and must be so patent and gross as to amount to an evasion of positive
duty or to a virtual refusal to perform the duty enjoined by or to act at all in
contemplation of law.

Grave abuse of discretion refers not merely to palpable errors of jurisdiction; or to

violations of the Constitution, the law and jurisprudence. It refers also to cases in which,
for various reasons, there has been a gross misapprehension of facts.
....

Grave abuse of discretion, to be an exception to the rule, must have attended the
evaluation of the facts and evidence presented by the parties.[48] (Citations omitted)
Here, a review of the records reveals that there has been a gross misapprehension of facts,
which permits this Court to resolve the factual controversies involved.

II

Article 2176 of the Civil Code provides that "[w]hoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no preexisting contractual relation between the
parties, is called a quasi-delict[.]" It governs instances of "wrongful or negligent act or
omission which creates a vinculum juris and gives rise to an obligation between two
persons not formally bound by any other obligation[.]"[49]

To sustain a case for quasi-delict, petitioner must establish the following requisites: "(a)
damage suffered by the plaintiff; (b) fault or negligence of the defendant; and, (c)
connection of cause and effect between the fault or negligence of the defendant and the
damage incurred by the plaintiff."[50]

In Mendoza v. Spouses Gomez,[51] this Court defined "negligence" as "the failure to

observe for the protection of the interests of another person, that degree of care,
precaution and vigilance which the circumstances justly demand, whereby such other
person suffers injury."[52] In determining the existence of negligence, Picart v. Smith[53] is
instructive:
The test by which to determine the existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the alleged negligent act use that reasonable
care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in a given case is
not determined by reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given
situation must of course be always determined in the light of human experience and in
view of the facts involved in the particular case. Abstract speculation cannot here be of
much value but his much can be profitably said: Reasonable men govern their conduct by
the circumstances which are before them or known to them. They are not, and are not
supposed to be, omniscient of the future. Hence they can be expected to take care only
when there is something before them to suggest or warn of danger. Could a prudent man,
in the case under consideration, foresee harm as a result of the course actually pursued? If
so, it was the duty of the actor to take precautions to guard against that harm. Reasonable
foresight of harm, followed by the ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to exist. Stated in these terms, the proper
criterion for determining the existence of negligence in a given case is this: Conduct is
said to be negligent when a prudent man in the position of the tortfeasor would have
foreseen that an effect harmful to another was sufficiently probable to warrant his
foregoing the conduct or guarding against its consequences.[54]
On the other hand, in Dy Teban Trading, Inc. v. Ching[55] the connection of cause and
effect between the injury and the purported negligence, otherwise known as the
proximate cause, has been explained as follows:
Proximate cause is defined as that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the
result would not have occurred. More comprehensively, proximate cause is that cause
acting first and producing the injury, either immediately or by setting other events in
motion, all constituting a natural and continuous chain of events, each having a close
causal connection with its immediate predecessor, the final event in the chain
immediately effecting the injury as natural and probable result of the cause which first
acted, under such circumstances that the person responsible for the first event should, as
an ordinarily prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result
therefrom.
There is no exact mathematical formula to determine proximate cause. It is based upon
mixed considerations of logic, common sense, policy and precedent. Plaintiff must,
however, establish a sufficient link between the act or omission and the damage or injury.
That link must not be remote or far-fetched; otherwise, no liability will attach. The
damage or injury must be a natural and probable result of the act or omission.
[56]
(Citations omitted)
Here, there is no dispute on the existence of the first requisite. The trial courts and the
Court of Appeals are all in agreement that petitioner's children sustained injuries while
they were at respondent's premises. However, they dismissed petitioner's plea for
damages on the ground that he allegedly failed to prove respondent's negligence and the
proximate cause between the injuries his children sustained and the alleged negligence
that respondent committed.

To reiterate, the Metropolitan Trial Court found in its decision that petitioner failed to
present sufficient evidence to establish respondent's liability for his children's injuries. It
noted that petitioner did not submit any medical finding showing that the injury sustained
was the proximate cause of the children's admission at the hospital, thus:
In the case under consideration, plaintiffs' allegation that the defendant's facilities are
hazardous to the children and that the defendant is negligent in attending to needs of its
guests and clients, however no pieces of evidence were presented to sufficiently establish
the same. Plaintiff failed to establish its cause of action by the degree of evidence
required by the Rules. They failed to prove that the defendant is liable to the injuries
sustained by the children.

It is worthy to note that there has been no iota of evidence introduced by the plaintiff to
show that the injuries sustained by the two children are the proximate cause of the latter's
admission to Medical City. There is no showing of any medical findings that the children
were admitted in the hospital because of the injuries obtained during the alleged incident,
considering the length of period before the children were admitted in the said hospital.
What the record indicates is that the alleged incident happened on February 13, 2009,
whereas the children were admitted in Medical City on June 10, 2009 and were
discharged on June 11, 2009, as shown in the Statement of Accounts marked as Exhibit
"I", "I-1" to "I-5".

From the evidence presented by the plaintiff, his money claim was not validly and
sufficiently established thus failed to give the legal basis to grant the relief prayed for in
the complaint. What they merely established was the fact that the two children of the
plaintiff was [sic] injured and treated at the hotel clinic, however, failed to prove that the
said injuries were due to the allegedly hazardous facilities of the hotel.[57]
In affirming this, the Court of Appeals held that:
In the case under consideration, petitioner failed to clearly show that as a result of the
fault or negligence of Sofitel, Mario and Carlos sustained the injuries at Sofitel's
swimming pool. It should be pointed out that Mario and Carlos sustained contusions and
concussions as a result of having slipped in the swimming pool and hitting their heads.
We thus cannot see the connection between the purportedly negligent acts of Sofitel and
the injuries sustained by Mario and Carlo. The fact that there was no lifeguard or if there
were any but were merely not doing their functions, could not have prevented the
incident from happening. Further, the fact that the stones used for the pool are jagged
could not have likewise contributed to the slip since it was not alleged that the pool
surface was slippery. True, Mario sustained laceration but this was not proven to have
been caused by the jagged stones on the pool's floor. While it could have boosted Sofitel's
capability as a "world class hotel with the best amenities" that its resident doctor has
government training accreditation in occupational health and safety, the lack of such
accreditation was also not contributory to the fall suffered by both Mario and Carlos.
Moreover, the signs purportedly merely stated the appropriate age of pool guests. Hence,
these could not have helped in averting the incident.[58]
Despite the lower courts' findings, petitioner demands liability on respondent's part, citing
as his basis the doctrines of attractive nuisance and res ipsa loquitur.

II (A)

First discussed in Taylor v. Manila Electric Railroad and Light Co.,[59] the doctrine of
attractive nuisance, which is of American origin, states:
Drawn by curiosity and impelled by the restless spirit of youth, boys here as well as there
will usually be found wherever the public permitted to congregate. The movement of
machinery, and indeed anything which arouses the attention of the young and inquiring
mind, will draw them to the neighborhood as inevitably as does the magnet draw the iron
which comes within the range of its magnetic influence. The owners of premises,
therefore, whereon things attractive to children are exposed, or upon which the public are
expressively or impliedly permitted to enter to or upon which the owner knows or ought
to know children are likely to roam about for pastime and in play, "must calculate upon
this, and take precautions accordingly." In such cases the owner of the premises can not
be heard to say that because the child has entered upon his premises without his express
permission he is a trespasser to whom the owner owes no duty or obligation
whatever. The owner's failure to take reasonable precautions to prevent the child form
entering premises at a place where he knows or ought to know that children are
accustomed to roam about or to which their childish instincts and impulses are likely to
attract them is at least equivalent to an implied license to enter, and where the child does
not enter under such conditions the owners failure to make reasonable precaution to
guard the child against the injury from unknown or unseen dangers, placed upon such
premises by the owner, is clearly a breach of duty, a negligent omission, for which he
may and should be held responsible, if the child is actually injured, without other fault on
its part than that it had entered on the premises of a stranger without his express
invitation or permission. To hold otherwise would be expose to all the children in the
community to unknown perils and unnecessary danger at the whim of the owners or
occupants of land upon which they might naturally and reasonably be expected to enter.
[60]
(Emphasis supplied)
Simply stated, the doctrine provides that:
One who maintains on his premises dangerous instrumentalities or appliances of a
character likely to attract children in play, and who fails to exercise ordinary care to
prevent children from playing therewith or resorting thereto, is liable to a child of tender
years who is injured thereby, even if the child is technically a trespasser in the premises.
[61]
(Citation omitted)
Later, in Hidalgo Enterprises, Inc. v. Balandan,[62] this Court made a clarification on the
doctrine's application to bodies of water, explaining:
Now, is a swimming pool or water tank an instrumentality or appliance likely to attract
little children in play? In other words is the body of water an attractive nuisance? The
great majority of American decisions say no.
"The attractive nuisance doctrine generally is not applicable to bodies of water, artificial
as well as natural, in the absence of some unusual condition or artificial feature other
than the mere water and its location."

"There are numerous cases in which the attractive nuisance doctrine has been held not to
be applicable to ponds or reservoirs, pools of water, streams, canals, dams, ditches,
culverts, drains, cesspools or sewer pools,...."
....

The reason why a swimming pool or pond or reservoir of water is not considered an
attractive nuisance was lucidly explained by the Indiana Appellate Court as follows:
"Nature has created streams, lakes and pools which attract children. Lurking in their
waters is always the danger of drowning. Against this danger children are early instructed
so that they are sufficiently presumed to know the danger; and if the owner of private
property creates an artificial pool on his own property, merely duplicating the work of
nature without adding any new danger,... (he) is not liable because of having created an
'attractive nuisance.'[63] (Emphasis supplied; citations omitted)
Here, the records show that there were two slides installed with slopes ending at the
kiddie pool. Taking Hidalgo into consideration, although the swimming pool alone may
not be considered as an attractive nuisance, the kiddie pool's close proximity to the slides
formed an unusual condition or artificial feature intended to attract children. In other
words, the installation of the slides with slopes ending over the swimming pool's waters
makes it an attractive nuisance.

By this reason, respondent was duty bound to undertake protective measures to ensure the
children's safety. It was respondent's responsibility to guarantee that appropriate
safeguards were in place within the attractive nuisance in order to protect children against
the injury from unknown or unseen dangers.

On the other hand, res ipsa loquitur is a Latin phrase which translates to "the thing or the
transaction speaks for itself."[64] It is a rule of evidence which recognizes that while
negligence is not generally presumed and should be proved by direct evidence, the mere
occurrence of an injury, taken with the surrounding circumstances, warrants an inference
that the injury was caused by, in this case, respondent's want of care.[65] As explained
in D.M. Consunji, Inc. v. Court of Appeals:[66]
As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence
which recognizes that prima facie negligence may be established without direct proof and
furnishes a substitute for specific proof of negligence.

The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere happening of
an accident or injury will not generally give rise to an inference or presumption that it
was due to negligence on defendant's part, under the doctrine of res ipsa loquitur, which
means, literally, the thing or transaction speaks for itself, or in one jurisdiction, that the
thing or instrumentality speaks for itself, the facts or circumstances accompanying an
injury may be such as to raise a presumption, or at least permit an inference of negligence
on the part of the defendant, or some other person who is charged with negligence.

... where it is shown that the thing or instrumentality which caused the injury complained
of was under the control or management of the defendant, and that the occurrence
resulting in the injury was such as in the ordinary course of things would not happen if
those who had its control or management used proper care, there is sufficient evidence,
or, as sometimes stated, reasonable evidence, in the absence of explanation by the
defendant, that the injury arose from or was caused by the defendant's want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence
is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in
charge of the instrumentality which causes the injury either knows the cause of the
accident or has the best opportunity of ascertaining it and that the plaintiff has no such
knowledge, and therefore is compelled to allege negligence in general terms and to rely
upon the proof of the happening of the accident in order to establish negligence. The
inference which the doctrine permits is grounded upon the fact that the chief evidence of
the true cause, whether culpable or innocent, is practically accessible to the defendant but
inaccessible to the injured person.

It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a
plaintiff, without knowledge of the cause, reaches over to defendant who knows or
should know the cause, for any explanation of care exercised by the defendant in respect
of the matter of which the plaintiff complains. The res ipsa loquitur doctrine, another
court has said, is a rule of necessity, in that it proceeds on the theory that under the
peculiar circumstances in which the doctrine is applicable, it is within the power of the
defendant to show that there was no negligence on his part, and direct proof of
defendant's negligence is beyond plaintiff's power. Accordingly, some courts add to the
three prerequisites for the application of the res ipsa loquitur doctrine the further
requirement that for the res ipsa loquitur doctrine to apply, it must appear that the injured
party had no knowledge or means of knowledge as to the cause of the accident, or that the
party to be charged with negligence has superior knowledge or opportunity for
explanation of the accident.[67] (Emphasis in the original; citations omitted)
The doctrine is applied in conformity with ordinary human experience or common
knowledge, in that:
The doctrine of res ipsa loquitur is simply a recognition of the postulate that, as a matter
of common knowledge and experience, the very nature of certain types of occurrences
may justify an inference of negligence on the part of the person who controls the
instrumentality causing the injury in the absence of some explanation by the defendant
who is charged with negligence. It is grounded in the superior logic of ordinary human
experience and on the basis of such experience or common knowledge, negligence may
be deduced from the mere occurrence of the accident itself. Hence, res ipsa loquitur is
applied in conjunction with the doctrine of common knowledge.[68] (Emphasis in original;
citations omitted)
In any case, it must be emphasized that the doctrine is not a rule of substantive law and is
not a separate basis for liability. It is regarded as a mere procedural convenience,
relieving the plaintiff of the burden of producing a specific proof of negligence.[69] It
"rests on inference and not on presumption"[70]:
However, much has been said the res ipsa loquitur is not a rule of substantive law and, as
such, does not create or constitute an independent or separate ground of liability. Instead,
it is considered as merely evidentiary or in the nature of a procedural rule. It is regarded
as a mode of proof, of a mere procedural convenience since it furnishes a substitute for,
and relieves a plaintiff of, the burden of producing specific proof of negligence. In other
words, mere invocation and application of the doctrine does not dispense with the
requirement of proof of negligence. It is simply a step in the process of such proof
permitting the plaintiff to present along with the proof of the accident, enough of the
attending circumstances to invoke the doctrine, creating an inference or presumption of
negligence, and to thereby place on the defendant the burden of going forward with the
proof.[71] (Emphasis supplied)
For the doctrine to apply, the following requisites must be established:
(1) the accident is of such character as to warrant an inference that it would not have
happened except for the defendant's negligence;

(2) the accident must have been caused by an agency or instrumentality within the
exclusive management or control of the person charged with the negligence complained
of; and
(3) the accident must not have been due to any voluntary action or contribution on the
part of the person injured.[72]
This Court finds that all requisites are present in this case.

To begin with, it is undisputed that petitioner's children sustained their injuries while
playing within the pool's premises—an instrumentality within respondent's exclusive
management and control.

Further, by reason of the swimming pool's nature as an attractive nuisance, respondent is

duty bound to guarantee that it had installed sufficient precautionary measures to ensure
the safety of its guests, particularly the children. The establishment of these safeguards
should have prevented the incident. Accordingly, it could be inferred that petitioner's
children would not have sustained their injuries were it not for respondent's negligence.

No contributory negligence can likewise be imputed against the children. Children, by

nature, are enthusiastically inquisitive towards different places and objects, such as pools
with slides. By reason of their "childish instincts and impulses" it is expected that they
will be drawn to such places to play, unaware of the dangers present within their
immediate vicinity.

Having established the applicability of the doctrine of res ipsa loquitur, there exists a
presumption that respondent acted negligently. Hence, the burden is shifted to respondent
to prove that it had taken sufficient precautionary measures. The presumption may be
rebutted upon proof that it exercised due care and prudence.[73]

Respondent refutes their liability by insisting that it posted safety rules in conspicuous
places around and within the pool area. However, as the Court of Appeals correctly
noted, "the signs purportedly merely stated the appropriate legal age of pool guests[,]"
which could not have prevented the occurrence of the incident.[74]

Likewise, the presence of lifeguards during the incident cannot relieve respondent from
its liability. While it was established that there were lifeguards at the time of the incident,
the lifeguards admitted that they failed to stop the children from using the pool:
"Q: You did not see the child or these two (2) boys used the pool before that?
"A: As I recall, sir, I saw that one, the two (2) boys.
"Q: Swimming there?
"A: Yes, sir!
"Q: Before they got injured?
"A: Yes, sir.
"Q: Did you stop them?
"A: He did not stop because they are... (interrupted)
"Q: Did you stop them?
"A: No, sir.
"Q: Children below 12 years old you said in your Affidavit are not allowed to use the pool?
"A: Yes, sir!
"Q: and you saw these two (2) boys there who are below 12 years old, did you stop them from
using the pool?
"A: No, sir!"[75]
Based on the foregoing, respondent's failure to prevent the children from using the
swimming pool was the proximate cause of the injuries they sustained. To reiterate, by
maintaining an attractive nuisance in its premises, it is respondent's responsibility to
ensure that necessary precautions are in place to prevent children from being harmed.
Respondent's failure to install the needed safeguards constitutes negligence for which it
should be held liable for damages.

III

We now determine the amount of damages for which petitioner is entitled.

Article 2199 of the Civil Code states that "[e]xcept as provided by law or by stipulation,
one is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved. Such compensation is referred to as actual or compensatory
damages." Actual damages refer to the compensation given to an injured person as an
indemnification for the pecuniary loss they suffered. Its purpose is to "put the injured
party in the position in which he had been before he was injured."[76] To justify its award,
it is necessary that the loss sustained are supported by competent proof, such as receipts
and invoices.[77]

Here, petitioner asks this Court that he be awarded actual damages in the amount of
P50,000.00 for the alleged expenses he incurred. As proof, he submitted a Statement of
Account and a receipt[78] from Medical City which, however, only proves that Carlos was
subjected to certain medical procedures. The Statement of Account and receipt are
insufficient to prove that the procedures were done by reason of the injuries Carlos
sustained as a result of Sofitel's negligence.

In the absence of competent proof, this Court denies petitioner's claim of actual damages.

However, temperate damages may be awarded even in the absence of proof of actual
damages, provided that it has been proven that the injured party suffered some pecuniary
loss. Article 2224 of the Civil Code provides:
Article 2224. Temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount can not, from the nature of the case, be provided
with certainty.
Spouses Hernandez v. Spouses Dolor[79] discussed the nature of temperate damages:
Temperate or moderate damages are damages which are more than nominal but less than
compensatory which may be recovered when the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the case, be proved with certainty.
Temperate damages are awarded for those cases where, from the nature of the case,
definite proof of pecuniary loss cannot be offered, although the court is convinced that
there has been such loss. A judge should be empowered to calculate moderate damages in
such cases, rather than the plaintiff should suffer, without redress, from the defendant's
wrongful act. The assessment of temperate damages is left to the sound discretion of the
court provided that such an award is reasonable under the circumstances.[80] (Citations
omitted)
Here, a perusal of the records reveals that petitioner and his children suffered some
pecuniary loss by reason of the incident. As alleged in the pleadings, the injuries that
petitioner's children sustained took two weeks to physically heal. As compensation for
the pecuniary loss which petitioner and his children suffered, this Court awards temperate
damages in the amount of P50,000.00.

III (A)

Petitioner's prayer for moral damages is granted.

Moral damages refer to the compensation awarded to an injured party, not for the purpose
of penalizing the wrong doer, but as a means to "alleviate in some way the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury unjustly caused a person."[81]

The characteristics and purpose of moral damages were discussed in Guy v. Tulfo[82]:
Moral damages are "compensatory damages awarded for mental pain and suffering or
mental anguish resulting from a wrong." They are awarded to the injured party to enable
him to obtain means that will ease the suffering he sustained from respondent's
reprehensible act.

"Moral damages are not punitive in nature," but are instead a type of "award designed to
compensate the claimant for actual injury suffered[.]"As explained in Mangaliag v.
Catubig-Pastoral:
It must be remembered that moral damages, though incapable of pecuniary estimation,
are designed to compensate and alleviate in some way the physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury unjustly caused a person. Moral damages are
awarded to enable the injured party to obtain means, diversions or amusements that will
serve to alleviate the moral suffering he/she has undergone, by reason of the defendant's
culpable action. Its award is aimed at restoration, as much as possible, of the spiritual
status quo ante; thus, it must be proportionate to the suffering inflicted. Since each case
must be governed by its own peculiar circumstances, there is no hard and fast rule in
determining the proper amount.
....

Unlike actual and temperate damages, moral damages may be awarded even if the injured
party failed to prove that he has suffered pecuniary loss. As long as it was established that
complainant's injury was the result of the offending party's action, the complainant may
recover moral damages.[83] (Emphasis in the original; citations omitted)
Article 2219 of the Civil Code categorically states that moral damages may be awarded in
cases involving "[q]uasi-delicts causing physical injuries[.]" In awarding moral damages,
courts are given the discretion to determine the amount to be granted, taking into
consideration the circumstances of a particular case. While there is no fixed standard,
"the amount should not be palpably and scandalously excessive."[84] Further, in fixing the
amount, regard must be made to the injury suffered and the wrong committed.[85]

Taking into account the injuries sustained by petitioner's children and respondent's
concomitant failure to place sufficient safeguards to ensure the children's safety, this
Court finds the award of moral damages in the amount of P100,000.00 adequate to
recompense for the physical suffering and similar injuries sustained by petitioner and his
children.

III (B)

In cases involving quasi-delicts, "exemplary damages may be granted if the defendant

acted with gross negligence."[86] Recovery of exemplary damages is not a matter of right
and is subject to the court's discretion.[87]

The prerequisites for the award of exemplary damages was discussed in Kierulf v. Court
of Appeals[88]:
Exemplary damages are designed to permit the courts to mould behavior that has socially
deleterious consequences, and its imposition is required by public policy to suppress the
wanton acts of an offender. However, it cannot be recovered as a matter of right. It is
based entirely on the discretion of the court. Jurisprudence sets certain requirements
before exemplary damages may be awarded, to wit:
"(1) (T)hey may be imposed by way of example or correction only in addition, among
others, to compensatory damages, and cannot be recovered as a matter of right, their
determination depending upon the amount of compensatory damages that may be
awarded to the claimant;

(2) the claimant must first establish his right to moral, temperate, liquidated or
compensatory damages; and
(3) the wrongful act must be accompanied by bad faith, and the award would be allowed
only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner"[89] (Citations omitted)
Here, the circumstances surrounding the case warrant the imposition of exemplary
damages.

As a luxury hotel which caters to an extensive range of clientele, respondent ought to

ensure that adequate measures are in place to guarantee the safety of its guests. By reason
of the insufficiency of the safety rules posted and the lifeguards' failure to avert the
injuries sustained by petitioner's children, this Court awards petitioner P50,000.00 as
exemplary damages.

Finally, on account of this dispute's protracted litigation, P50,000.00 as attorney's fees is

awarded.

ACCORDINGLY, the Petition is GRANTED. The May 11, 2016 Decision and
November 2, 2016 Resolution of the Court of Appeals in CA G.R. SP No. 132851
are REVERSED. Respondent Sofitel Philippine Plaza Manila is ORDERED to pay
petitioner Karlos Noel R. Aleta: (1) P50,000.00 as temperate damages; (2) P100,000.00
as moral damages; (3) P50,000.00 as exemplary damages; and (4) P50,000.00 as
attorney's fees.

All damages awarded shall be subject to interest at the rate of six percent (6%) per
annum[90] from the finality of this Decision until its full satisfaction.

SO ORDERED.

Lazaro-Javier, M. Lopez, J. Lopez, and Kho, Jr., JJ., concur.

OBLIGATIONS FROM LAW ARE NOT PRESUMED

THIRD DIVISION

G.R. No. 177056 September 18, 2009

THE OFFICE OF THE SOLICITOR GENERAL, Petitioner,

vs.
AYALA LAND INCORPORATED, ROBINSON'S LAND CORPORATION, SHANGRI-LA PLAZA
CORPORATION and SM PRIME HOLDINGS, INC., Respondents.

DECISION

CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of the Revised Rules of Court,
filed by petitioner Office of the Solicitor General (OSG), seeking the reversal and setting aside of the
Decision2 dated 25 January 2007 of the Court of Appeals in CA-G.R. CV No. 76298, which affirmed
in toto the Joint Decision3 dated 29 May 2002 of the Regional Trial Court (RTC) of Makati City,
Branch 138, in Civil Cases No. 00-1208 and No. 00-1210; and (2) the Resolution 4 dated 14 March
2007 of the appellate court in the same case which denied the Motion for Reconsideration of the
OSG. The RTC adjudged that respondents Ayala Land Incorporated (Ayala Land), Robinsons Land
Corporation (Robinsons), Shangri-la Plaza Corporation (Shangri-la), and SM Prime Holdings, Inc.
(SM Prime) could not be obliged to provide free parking spaces in their malls to their patrons and the
general public.

Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls in
various locations in Metro Manila. Respondent SM Prime constructs, operates, and leases out
commercial buildings and other structures, among which, are SM City, Manila; SM Centerpoint, Sta.
Mesa, Manila; SM City, North Avenue, Quezon City; and SM Southmall, Las Piñas.

The shopping malls operated or leased out by respondents have parking facilities for all kinds of
motor vehicles, either by way of parking spaces inside the mall buildings or in separate buildings
and/or adjacent lots that are solely devoted for use as parking spaces. Respondents Ayala Land,
Robinsons, and SM Prime spent for the construction of their own parking facilities. Respondent
Shangri-la is renting its parking facilities, consisting of land and building specifically used as parking
spaces, which were constructed for the lessor’s account.

Respondents expend for the maintenance and administration of their respective parking facilities.
They provide security personnel to protect the vehicles parked in their parking facilities and maintain
order within the area. In turn, they collect the following parking fees from the persons making use of
their parking facilities, regardless of whether said persons are mall patrons or not:

Respondent Parking Fees

Ayala Land On weekdays, ₱25.00 for the first four hours and
₱10.00 for every succeeding hour; on weekends, flat
rate of ₱25.00 per day
Robinsons ₱20.00 for the first three hours and ₱10.00 for every
succeeding hour
Shangri-la Flat rate of ₱30.00 per day
SM Prime ₱10.00 to ₱20.00 (depending on whether the parking
space is outdoors or indoors) for the first three hours
and 59 minutes, and ₱10.00 for every succeeding hour
or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that
respondents shall not be responsible for any loss or damage to the vehicles parked in respondents’
parking facilities.

In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights
conducted a joint investigation for the following purposes: (1) to inquire into the legality of the
prevalent practice of shopping malls of charging parking fees; (2) assuming arguendo that the
collection of parking fees was legally authorized, to find out the basis and reasonableness of the
parking rates charged by shopping malls; and (3) to determine the legality of the policy of shopping
malls of denying liability in cases of theft, robbery, or carnapping, by invoking the waiver clause at
the back of the parking tickets. Said Senate Committees invited the top executives of respondents,
who operate the major malls in the country; the officials from the Department of Trade and Industry
(DTI), Department of Public Works and Highways (DPWH), Metro Manila Development Authority
(MMDA), and other local government officials; and the Philippine Motorists Association (PMA) as
representative of the consumers’ group.

After three public hearings held on 30 September, 3 November, and 1 December 1999, the afore-
mentioned Senate Committees jointly issued Senate Committee Report No. 225 5 on 2 May 2000, in
which they concluded:

In view of the foregoing, the Committees find that the collection of parking fees by shopping malls is
contrary to the National Building Code and is therefor [sic] illegal. While it is true that the Code
merely requires malls to provide parking spaces, without specifying whether it is free or not, both
Committees believe that the reasonable and logical interpretation of the Code is that the parking
spaces are for free. This interpretation is not only reasonable and logical but finds support in the
actual practice in other countries like the United States of America where parking spaces owned and
operated by mall owners are free of charge.

Figuratively speaking, the Code has "expropriated" the land for parking – something similar to the
subdivision law which require developers to devote so much of the land area for parks.

Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines) provides that "it is the policy
of the State to protect the interest of the consumers, promote the general welfare and establish
standards of conduct for business and industry." Obviously, a contrary interpretation (i.e., justifying
the collection of parking fees) would be going against the declared policy of R.A. 7394.

Section 201 of the National Building Code gives the responsibility for the administration and
enforcement of the provisions of the Code, including the imposition of penalties for administrative
violations thereof to the Secretary of Public Works. This set up, however, is not being carried out in
reality.

In the position paper submitted by the Metropolitan Manila Development Authority (MMDA), its
chairman, Jejomar C. Binay, accurately pointed out that the Secretary of the DPWH is responsible
for the implementation/enforcement of the National Building Code. After the enactment of the Local
Government Code of 1991, the local government units (LGU’s) were tasked to discharge the
regulatory powers of the DPWH. Hence, in the local level, the Building Officials enforce all rules/
regulations formulated by the DPWH relative to all building plans, specifications and designs
including parking space requirements. There is, however, no single national department or agency
directly tasked to supervise the enforcement of the provisions of the Code on parking,
notwithstanding the national character of the law.6

Senate Committee Report No. 225, thus, contained the following recommendations:

In light of the foregoing, the Committees on Trade and Commerce and Justice and Human Rights
hereby recommend the following:

1. The Office of the Solicitor General should institute the necessary action to enjoin the
collection of parking fees as well as to enforce the penal sanction provisions of the National
Building Code. The Office of the Solicitor General should likewise study how refund can be
exacted from mall owners who continue to collect parking fees.
 2. The Department of Trade and Industry pursuant to the provisions of R.A. No. 7394,
otherwise known as the Consumer Act of the Philippines should enforce the provisions of the
Code relative to parking. Towards this end, the DTI should formulate the necessary
implementing rules and regulations on parking in shopping malls, with prior consultations
with the local government units where these are located. Furthermore, the DTI, in
coordination with the DPWH, should be empowered to regulate and supervise the
construction and maintenance of parking establishments.

3. Finally, Congress should amend and update the National Building Code to expressly
prohibit shopping malls from collecting parking fees by at the same time, prohibit them from
invoking the waiver of liability.7

Respondent SM Prime thereafter received information that, pursuant to Senate Committee Report
No. 225, the DPWH Secretary and the local building officials of Manila, Quezon City, and Las Piñas
intended to institute, through the OSG, an action to enjoin respondent SM Prime and similar
establishments from collecting parking fees, and to impose upon said establishments penal
sanctions under Presidential Decree No. 1096, otherwise known as the National Building Code of
the Philippines (National Building Code), and its Implementing Rules and Regulations (IRR). With
the threatened action against it, respondent SM Prime filed, on 3 October 2000, a Petition for
Declaratory Relief8 under Rule 63 of the Revised Rules of Court, against the DPWH Secretary and
local building officials of Manila, Quezon City, and Las Piñas. Said Petition was docketed as Civil
Case No. 00-1208 and assigned to the RTC of Makati City, Branch 138, presided over by Judge
Sixto Marella, Jr. (Judge Marella). In its Petition, respondent SM Prime prayed for judgment:

a) Declaring Rule XIX of the Implementing Rules and Regulations of the National Building
Code as ultra vires, hence, unconstitutional and void;

b) Declaring [herein respondent SM Prime]’s clear legal right to lease parking spaces
appurtenant to its department stores, malls, shopping centers and other commercial
establishments; and

c) Declaring the National Building Code of the Philippines Implementing Rules and
Regulations as ineffective, not having been published once a week for three (3) consecutive
weeks in a newspaper of general circulation, as prescribed by Section 211 of Presidential
Decree No. 1096.

[Respondent SM Prime] further prays for such other reliefs as may be deemed just and equitable
under the premises.9

The very next day, 4 October 2000, the OSG filed a Petition for Declaratory Relief and Injunction
(with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction) 10 against
respondents. This Petition was docketed as Civil Case No. 00-1210 and raffled to the RTC of
Makati, Branch 135, presided over by Judge Francisco B. Ibay (Judge Ibay). Petitioner prayed that
the RTC:

1. After summary hearing, a temporary restraining order and a writ of preliminary injunction
be issued restraining respondents from collecting parking fees from their customers; and

2. After hearing, judgment be rendered declaring that the practice of respondents in charging
parking fees is violative of the National Building Code and its Implementing Rules and
Regulations and is therefore invalid, and making permanent any injunctive writ issued in this
case.
Other reliefs just and equitable under the premises are likewise prayed for. 11

On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order
consolidating Civil Case No. 00-1210 with Civil Case No. 00-1208 pending before Judge Marella of
RTC of Makati, Branch 138.

As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued a Pre-
Trial Order12 of even date which limited the issues to be resolved in Civil Cases No. 00-1208 and No.
00-1210 to the following:

1. Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute the present
proceedings and relative thereto whether the controversy in the collection of parking fees by
mall owners is a matter of public welfare.

2. Whether declaratory relief is proper.

3. Whether respondent Ayala Land, Robinsons, Shangri-La and SM Prime are obligated to
provide parking spaces in their malls for the use of their patrons or the public in general, free
of charge.

4. Entitlement of the parties of [sic] award of damages.13

On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 00-1210.

The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil Case No.
00-1210 under Presidential Decree No. 478 and the Administrative Code of 1987. 14 It also found that
all the requisites for an action for declaratory relief were present, to wit:

The requisites for an action for declaratory relief are: (a) there is a justiciable controversy; (b) the
controversy is between persons whose interests are adverse; (c) the party seeking the relief has a
legal interest in the controversy; and (d) the issue involved is ripe for judicial determination.

SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who stands to be affected
directly by the position taken by the government officials sued namely the Secretary of Public
Highways and the Building Officials of the local government units where it operates shopping malls.
The OSG on the other hand acts on a matter of public interest and has taken a position adverse to
that of the mall owners whom it sued. The construction of new and bigger malls has been
announced, a matter which the Court can take judicial notice and the unsettled issue of whether mall
operators should provide parking facilities, free of charge needs to be resolved. 15

As to the third and most contentious issue, the RTC pronounced that:

The Building Code, which is the enabling law and the Implementing Rules and Regulations do not
impose that parking spaces shall be provided by the mall owners free of charge. Absent such
directive[,] Ayala Land, Robinsons, Shangri-la and SM [Prime] are under no obligation to provide
them for free. Article 1158 of the Civil Code is clear:

"Obligations derived from law are not presumed. Only those expressly determined in this Code or in
special laws are demandable and shall be regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the provisions of this Book (1090).["]
xxxx

The provision on ratios of parking slots to several variables, like shopping floor area or customer
area found in Rule XIX of the Implementing Rules and Regulations cannot be construed as a
directive to provide free parking spaces, because the enabling law, the Building Code does not so
provide. x x x.

To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide parking spaces for free
can be considered as an unlawful taking of property right without just compensation.

Parking spaces in shopping malls are privately owned and for their use, the mall operators collect
fees. The legal relationship could be either lease or deposit. In either case[,] the mall owners have
the right to collect money which translates into income. Should parking spaces be made free, this
right of mall owners shall be gone. This, without just compensation. Further, loss of effective control
over their property will ensue which is frowned upon by law.

The presence of parking spaces can be viewed in another light. They can be looked at as necessary
facilities to entice the public to increase patronage of their malls because without parking spaces,
going to their malls will be inconvenient. These are[,] however[,] business considerations which mall
operators will have to decide for themselves. They are not sufficient to justify a legal conclusion, as
the OSG would like the Court to adopt that it is the obligation of the mall owners to provide parking
spaces for free.16

The RTC then held that there was no sufficient evidence to justify any award for damages.

The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No. 00-
1210 that:

FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc., Robinsons Land
Corporation, Shangri-la Plaza Corporation and SM Prime Holdings[,] Inc. are not obligated to provide
parking spaces in their malls for the use of their patrons or public in general, free of charge.

All counterclaims in Civil Case No. 00-1210 are dismissed.

No pronouncement as to costs.17

CA-G.R. CV No. 76298 involved the separate appeals of the OSG18 and respondent SM Prime19 filed
with the Court of Appeals. The sole assignment of error of the OSG in its Appellant’s Brief was:

THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE DID NOT
INTEND MALL PARKING SPACES TO BE FREE OF CHARGE[;] 20

while the four errors assigned by respondent SM Prime in its Appellant’s Brief were:

THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE IMPLEMENTING
RULES AS HAVING BEEN ENACTED ULTRA VIRES, HENCE, UNCONSTITUTIONAL AND VOID.

II
THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES
INEFFECTIVE FOR NOT HAVING BEEN PUBLISHED AS REQUIRED BY LAW.

III

THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSG’S PETITION FOR
DECLARATORY RELIEF AND INJUNCTION FOR FAILURE TO EXHAUST ADMINISTRATIVE
REMEDIES.

IV

THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO LEGAL
CAPACITY TO SUE AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST IN THE INSTANT
CASE.21

Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the lone
issue raised therein involved a pure question of law, not reviewable by the Court of Appeals.

The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January 2007. The
appellate court agreed with respondent Robinsons that the appeal of the OSG should suffer the fate
of dismissal, since "the issue on whether or not the National Building Code and its implementing
rules require shopping mall operators to provide parking facilities to the public for free" was evidently
a question of law. Even so, since CA-G.R. CV No. 76298 also included the appeal of respondent SM
Prime, which raised issues worthy of consideration, and in order to satisfy the demands of
substantial justice, the Court of Appeals proceeded to rule on the merits of the case.

In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case No. 00-
1210 before the RTC as the legal representative of the government, 22 and as the one deputized by
the Senate of the Republic of the Philippines through Senate Committee Report No. 225.

The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to
exhaust administrative remedies. The appellate court explained that an administrative review is not a
condition precedent to judicial relief where the question in dispute is purely a legal one, and nothing
of an administrative nature is to be or can be done.

The Court of Appeals likewise refused to rule on the validity of the IRR of the National Building
Code, as such issue was not among those the parties had agreed to be resolved by the RTC during
the pre-trial conference for Civil Cases No. 00-1208 and No. 00-1210. Issues cannot be raised for
the first time on appeal. Furthermore, the appellate court found that the controversy could be settled
on other grounds, without touching on the issue of the validity of the IRR. It referred to the settled
rule that courts should refrain from passing upon the constitutionality of a law or implementing rules,
because of the principle that bars judicial inquiry into a constitutional question, unless the resolution
thereof is indispensable to the determination of the case.

Lastly, the Court of Appeals declared that Section 803 of the National Building Code and Rule XIX of
the IRR were clear and needed no further construction. Said provisions were only intended to control
the occupancy or congestion of areas and structures. In the absence of any express and clear
provision of law, respondents could not be obliged and expected to provide parking slots free of
charge.

The fallo of the 25 January 2007 Decision of the Court of Appeals reads:
WHEREFORE, premises considered, the instant appeals are DENIED. Accordingly, appealed
Decision is hereby AFFIRMED in toto.23

In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for
Reconsideration of the OSG, finding that the grounds relied upon by the latter had already been
carefully considered, evaluated, and passed upon by the appellate court, and there was no strong
and cogent reason to modify much less reverse the assailed judgment.

The OSG now comes before this Court, via the instant Petition for Review, with a single assignment
of error:

THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF THE LOWER
COURT THAT RESPONDENTS ARE NOT OBLIGED TO PROVIDE FREE PARKING SPACES TO
THEIR CUSTOMERS OR THE PUBLIC.24

The OSG argues that respondents are mandated to provide free parking by Section 803 of the
National Building Code and Rule XIX of the IRR.

According to Section 803 of the National Building Code:

SECTION 803. Percentage of Site Occupancy

(a) Maximum site occupancy shall be governed by the use, type of construction, and height
of the building and the use, area, nature, and location of the site; and subject to the
provisions of the local zoning requirements and in accordance with the rules and regulations
promulgated by the Secretary.

In connection therewith, Rule XIX of the old IRR,25 provides:

RULE XIX – PARKING AND LOADING SPACE REQUIREMENTS

Pursuant to Section 803 of the National Building Code (PD 1096) providing for maximum site
occupancy, the following provisions on parking and loading space requirements shall be observed:

1. The parking space ratings listed below are minimum off-street requirements for specific
uses/occupancies for buildings/structures:

1.1 The size of an average automobile parking slot shall be computed as 2.4 meters by 5.00 meters
for perpendicular or diagonal parking, 2.00 meters by 6.00 meters for parallel parking. A truck or bus
parking/loading slot shall be computed at a minimum of 3.60 meters by 12.00 meters. The parking
slot shall be drawn to scale and the total number of which shall be indicated on the plans and
specified whether or not parking accommodations, are attendant-managed. (See Section 2 for
computation of parking requirements).

xxxx

1.7 Neighborhood shopping center – 1 slot/100 sq. m. of shopping floor area

The OSG avers that the aforequoted provisions should be read together with Section 102 of the
National Building Code, which declares:
SECTION 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health, property, and public
welfare, consistent with the principles of sound environmental management and control; and to this
end, make it the purpose of this Code to provide for all buildings and structures, a framework of
minimum standards and requirements to regulate and control their location, site, design, quality of
materials, construction, use, occupancy, and maintenance.

The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of
safeguarding "life, health, property, and public welfare, consistent with the principles of sound
environmental management and control." Adequate parking spaces would contribute greatly to
alleviating traffic congestion when complemented by quick and easy access thereto because of free-
charge parking. Moreover, the power to regulate and control the use, occupancy, and maintenance
of buildings and structures carries with it the power to impose fees and, conversely, to control --
partially or, as in this case, absolutely -- the imposition of such fees.

The Court finds no merit in the present Petition.

The explicit directive of the afore-quoted statutory and regulatory provisions, garnered from a plain
reading thereof, is that respondents, as operators/lessors of neighborhood shopping centers, should
provide parking and loading spaces, in accordance with the minimum ratio of one slot per 100
square meters of shopping floor area. There is nothing therein pertaining to the collection (or non-
collection) of parking fees by respondents. In fact, the term "parking fees" cannot even be found at
all in the entire National Building Code and its IRR.

Statutory construction has it that if a statute is clear and unequivocal, it must be given its literal
meaning and applied without any attempt at interpretation.26 Since Section 803 of the National
Building Code and Rule XIX of its IRR do not mention parking fees, then simply, said provisions do
not regulate the collection of the same. The RTC and the Court of Appeals correctly applied Article
1158 of the New Civil Code, which states:

Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall be regulated by the precepts of the law which
establishes them; and as to what has not been foreseen, by the provisions of this Book. (Emphasis
ours.)

Hence, in order to bring the matter of parking fees within the ambit of the National Building Code and
its IRR, the OSG had to resort to specious and feeble argumentation, in which the Court cannot
concur.

The OSG cannot rely on Section 102 of the National Building Code to expand the coverage of
Section 803 of the same Code and Rule XIX of the IRR, so as to include the regulation of parking
fees. The OSG limits its citation to the first part of Section 102 of the National Building Code
declaring the policy of the State "to safeguard life, health, property, and public welfare, consistent
with the principles of sound environmental management and control"; but totally ignores the second
part of said provision, which reads, "and to this end, make it the purpose of this Code to provide for
all buildings and structures, a framework of minimum standards and requirements to regulate and
control their location, site, design, quality of materials, construction, use, occupancy, and
maintenance." While the first part of Section 102 of the National Building Code lays down the State
policy, it is the second part thereof that explains how said policy shall be carried out in the Code.
Section 102 of the National Building Code is not an all-encompassing grant of regulatory power to
the DPWH Secretary and local building officials in the name of life, health, property, and public
welfare. On the contrary, it limits the regulatory power of said officials to ensuring that the minimum
standards and requirements for all buildings and structures, as set forth in the National Building
Code, are complied with.

Consequently, the OSG cannot claim that in addition to fixing the minimum requirements for parking
spaces for buildings, Rule XIX of the IRR also mandates that such parking spaces be provided by
building owners free of charge. If Rule XIX is not covered by the enabling law, then it cannot be
added to or included in the implementing rules. The rule-making power of administrative agencies
must be confined to details for regulating the mode or proceedings to carry into effect the law as it
has been enacted, and it cannot be extended to amend or expand the statutory requirements or to
embrace matters not covered by the statute. Administrative regulations must always be in harmony
with the provisions of the law because any resulting discrepancy between the two will always be
resolved in favor of the basic law.27

From the RTC all the way to this Court, the OSG repeatedly referred to Republic v. Gonzales 28 and
City of Ozamis v. Lumapas29 to support its position that the State has the power to regulate parking
spaces to promote the health, safety, and welfare of the public; and it is by virtue of said power that
respondents may be required to provide free parking facilities. The OSG, though, failed to consider
the substantial differences in the factual and legal backgrounds of these two cases from those of the
Petition at bar.

In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of land of the
public domain to give way to a road-widening project. It was in this context that the Court
pronounced:

Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was prevalent; this,
of course, caused the build up of traffic in the surrounding area to the great discomfort and
inconvenience of the public who use the streets. Traffic congestion constitutes a threat to the health,
welfare, safety and convenience of the people and it can only be substantially relieved by widening
streets and providing adequate parking areas.

The Court, in City of Ozamis, declared that the City had been clothed with full power to control and
regulate its streets for the purpose of promoting public health, safety and welfare. The City can
regulate the time, place, and manner of parking in the streets and public places; and charge minimal
fees for the street parking to cover the expenses for supervision, inspection and control, to ensure
the smooth flow of traffic in the environs of the public market, and for the safety and convenience of
the public.

Republic and City of Ozamis involved parking in the local streets; in contrast, the present case deals
with privately owned parking facilities available for use by the general public. In Republic and City of
Ozamis, the concerned local governments regulated parking pursuant to their power to control and
regulate their streets; in the instant case, the DPWH Secretary and local building officials regulate
parking pursuant to their authority to ensure compliance with the minimum standards and
requirements under the National Building Code and its IRR. With the difference in subject matters
and the bases for the regulatory powers being invoked, Republic and City of Ozamis do not
constitute precedents for this case.

Indeed, Republic and City of Ozamis both contain pronouncements that weaken the position of the
OSG in the case at bar. In Republic, the Court, instead of placing the burden on private persons to
provide parking facilities to the general public, mentioned the trend in other jurisdictions wherein the
municipal governments themselves took the initiative to make more parking spaces available so as
to alleviate the traffic problems, thus:
Under the Land Transportation and Traffic Code, parking in designated areas along public streets or
highways is allowed which clearly indicates that provision for parking spaces serves a useful
purpose. In other jurisdictions where traffic is at least as voluminous as here, the provision by
municipal governments of parking space is not limited to parking along public streets or highways.
There has been a marked trend to build off-street parking facilities with the view to removing parked
cars from the streets. While the provision of off-street parking facilities or carparks has been
commonly undertaken by private enterprise, municipal governments have been constrained to put
up carparks in response to public necessity where private enterprise had failed to keep up with the
growing public demand. American courts have upheld the right of municipal governments to
construct off-street parking facilities as clearly redounding to the public benefit. 30

In City of Ozamis, the Court authorized the collection by the City of minimal fees for the parking of
vehicles along the streets: so why then should the Court now preclude respondents from collecting
from the public a fee for the use of the mall parking facilities? Undoubtedly, respondents also incur
expenses in the maintenance and operation of the mall parking facilities, such as electric
consumption, compensation for parking attendants and security, and upkeep of the physical
structures.

It is not sufficient for the OSG to claim that "the power to regulate and control the use, occupancy,
and maintenance of buildings and structures carries with it the power to impose fees and,
conversely, to control, partially or, as in this case, absolutely, the imposition of such fees." Firstly, the
fees within the power of regulatory agencies to impose are regulatory fees. It has been settled law in
this jurisdiction that this broad and all-compassing governmental competence to restrict rights of
liberty and property carries with it the undeniable power to collect a regulatory fee. It looks to the
enactment of specific measures that govern the relations not only as between individuals but also as
between private parties and the political society.31 True, if the regulatory agencies have the power to
impose regulatory fees, then conversely, they also have the power to remove the same. Even so, it
is worthy to note that the present case does not involve the imposition by the DPWH Secretary and
local building officials of regulatory fees upon respondents; but the collection by respondents of
parking fees from persons who use the mall parking facilities. Secondly, assuming arguendo that the
DPWH Secretary and local building officials do have regulatory powers over the collection of parking
fees for the use of privately owned parking facilities, they cannot allow or prohibit such collection
arbitrarily or whimsically. Whether allowing or prohibiting the collection of such parking fees, the
action of the DPWH Secretary and local building officials must pass the test of classic
reasonableness and propriety of the measures or means in the promotion of the ends sought to be
accomplished.32

Keeping in mind the aforementioned test of reasonableness and propriety of measures or means,
the Court notes that Section 803 of the National Building Code falls under Chapter 8 on Light and
Ventilation. Evidently, the Code deems it necessary to regulate site occupancy to ensure that there
is proper lighting and ventilation in every building. Pursuant thereto, Rule XIX of the IRR requires
that a building, depending on its specific use and/or floor area, should provide a minimum number of
parking spaces. The Court, however, fails to see the connection between regulating site occupancy
to ensure proper light and ventilation in every building vis-à-vis regulating the collection by building
owners of fees for the use of their parking spaces. Contrary to the averment of the OSG, the former
does not necessarily include or imply the latter. It totally escapes this Court how lighting and
ventilation conditions at the malls could be affected by the fact that parking facilities thereat are free
or paid for.

The OSG attempts to provide the missing link by arguing that:

Under Section 803 of the National Building Code, complimentary parking spaces are required to
enhance light and ventilation, that is, to avoid traffic congestion in areas surrounding the building,
which certainly affects the ventilation within the building itself, which otherwise, the annexed parking
spaces would have served. Free-of-charge parking avoids traffic congestion by ensuring quick and
easy access of legitimate shoppers to off-street parking spaces annexed to the malls, and thereby
removing the vehicles of these legitimate shoppers off the busy streets near the commercial
establishments.33

The Court is unconvinced. The National Building Code regulates buildings, by setting the minimum
specifications and requirements for the same. It does not concern itself with traffic congestion in
areas surrounding the building. It is already a stretch to say that the National Building Code and its
IRR also intend to solve the problem of traffic congestion around the buildings so as to ensure that
the said buildings shall have adequate lighting and ventilation. Moreover, the Court cannot simply
assume, as the OSG has apparently done, that the traffic congestion in areas around the malls is
due to the fact that respondents charge for their parking facilities, thus, forcing vehicle owners to just
park in the streets. The Court notes that despite the fees charged by respondents, vehicle owners
still use the mall parking facilities, which are even fully occupied on some days. Vehicle owners may
be parking in the streets only because there are not enough parking spaces in the malls, and not
because they are deterred by the parking fees charged by respondents. Free parking spaces at the
malls may even have the opposite effect from what the OSG envisioned: more people may be
encouraged by the free parking to bring their own vehicles, instead of taking public transport, to the
malls; as a result, the parking facilities would become full sooner, leaving more vehicles without
parking spaces in the malls and parked in the streets instead, causing even more traffic congestion.

Without using the term outright, the OSG is actually invoking police power to justify the regulation by
the State, through the DPWH Secretary and local building officials, of privately owned parking
facilities, including the collection by the owners/operators of such facilities of parking fees from the
public for the use thereof. The Court finds, however, that in totally prohibiting respondents from
collecting parking fees from the public for the use of the mall parking facilities, the State would be
acting beyond the bounds of police power.

Police power is the power of promoting the public welfare by restraining and regulating the use of
liberty and property. It is usually exerted in order to merely regulate the use and enjoyment of the
property of the owner. The power to regulate, however, does not include the power to prohibit. A
fortiori, the power to regulate does not include the power to confiscate. Police power does not
involve the taking or confiscation of property, with the exception of a few cases where there is a
necessity to confiscate private property in order to destroy it for the purpose of protecting peace and
order and of promoting the general welfare; for instance, the confiscation of an illegally possessed
article, such as opium and firearms. 34

When there is a taking or confiscation of private property for public use, the State is no longer
exercising police power, but another of its inherent powers, namely, eminent domain. Eminent
domain enables the State to forcibly acquire private lands intended for public use upon payment of
just compensation to the owner.35

Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and
possession of, the expropriated property; but no cogent reason appears why the said power may not
be availed of only to impose a burden upon the owner of condemned property, without loss of title
and possession.36 It is a settled rule that neither acquisition of title nor total destruction of value is
essential to taking. It is usually in cases where title remains with the private owner that inquiry should
be made to determine whether the impairment of a property is merely regulated or amounts to a
compensable taking. A regulation that deprives any person of the profitable use of his property
constitutes a taking and entitles him to compensation, unless the invasion of rights is so slight as to
permit the regulation to be justified under the police power. Similarly, a police regulation that
unreasonably restricts the right to use business property for business purposes amounts to a taking
of private property, and the owner may recover therefor.37 1avvphi1

Although in the present case, title to and/or possession of the parking facilities remain/s with
respondents, the prohibition against their collection of parking fees from the public, for the use of
said facilities, is already tantamount to a taking or confiscation of their properties. The State is not
only requiring that respondents devote a portion of the latter’s properties for use as parking spaces,
but is also mandating that they give the public access to said parking spaces for free. Such is
already an excessive intrusion into the property rights of respondents. Not only are they being
deprived of the right to use a portion of their properties as they wish, they are further prohibited from
profiting from its use or even just recovering therefrom the expenses for the maintenance and
operation of the required parking facilities.

The ruling of this Court in City Government of Quezon City v. Judge Ericta 38 is edifying. Therein, the
City Government of Quezon City passed an ordinance obliging private cemeteries within its
jurisdiction to set aside at least six percent of their total area for charity, that is, for burial grounds of
deceased paupers. According to the Court, the ordinance in question was null and void, for it
authorized the taking of private property without just compensation:

There is no reasonable relation between the setting aside of at least six (6) percent of the total area
of all private cemeteries for charity burial grounds of deceased paupers and the promotion of' health,
morals, good order, safety, or the general welfare of the people. The ordinance is actually a taking
without compensation of a certain area from a private cemetery to benefit paupers who are charges
of the municipal corporation. Instead of' building or maintaining a public cemetery for this purpose,
the city passes the burden to private cemeteries.

'The expropriation without compensation of a portion of private cemeteries is not covered by Section
12(t) of Republic Act 537, the Revised Charter of Quezon City which empowers the city council to
prohibit the burial of the dead within the center of population of the city and to provide for their burial
in a proper place subject to the provisions of general law regulating burial grounds and cemeteries.
When the Local Government Code, Batas Pambansa Blg. 337 provides in Section 177(q) that a
sangguniang panlungsod may "provide for the burial of the dead in such place and in such manner
as prescribed by law or ordinance" it simply authorizes the city to provide its own city owned land or
to buy or expropriate private properties to construct public cemeteries. This has been the law, and
practise in the past. It continues to the present. Expropriation, however, requires payment of just
compensation. The questioned ordinance is different from laws and regulations requiring owners of
subdivisions to set aside certain areas for streets, parks, playgrounds, and other public facilities from
the land they sell to buyers of subdivision lots. The necessities of public safety, health, and
convenience are very clear from said requirements which are intended to insure the development of
communities with salubrious and wholesome environments. The beneficiaries of the regulation, in
turn, are made to pay by the subdivision developer when individual lots are sold to homeowners.

In conclusion, the total prohibition against the collection by respondents of parking fees from persons
who use the mall parking facilities has no basis in the National Building Code or its IRR. The State
also cannot impose the same prohibition by generally invoking police power, since said prohibition
amounts to a taking of respondents’ property without payment of just compensation.

Given the foregoing, the Court finds no more need to address the issue persistently raised by
respondent SM Prime concerning the unconstitutionality of Rule XIX of the IRR. In addition, the said
issue was not among those that the parties, during the pre-trial conference for Civil Cases No. 12-08
and No. 00-1210, agreed to submit for resolution of the RTC. It is likewise axiomatic that the
constitutionality of a law, a regulation, an ordinance or an act will not be resolved by courts if the
controversy can be, as in this case it has been, settled on other grounds. 39

WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The Decision dated
25 January 2007 and Resolution dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No.
76298, affirming in toto the Joint Decision dated 29 May 2002 of the Regional Trial Court of Makati
City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210 are hereby AFFIRMED. No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

Negotiorum gestio