1.) EXCONDE VS.

CAPUNO (Civil Liability: 2180 -- The obligation impossed by the next preceding
articles is enforceable not only for personal acts and omissions, but also for those of persons for
whom another is responsible.

The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by
the minor children who live with them. x x x xxx xxx

Finally, teachers or directors of arts and trades are liable for any damages caused by their pupils or
apprentices while they are under their custody)

Facts
Dante Capuno member of he Boy Scouts Organization and a student at Balintawak Elementary School
in San Pablo City attended a parade in honor of Dr. Jose Rizal instructed by the school’s supervisor.
From the school, Dante, with other students, boarded a jeep, Dante took hold of the wheel and drove
when the jeep turned turtle rendering Amado Ticzon and Isidore Caperiña dead. Dante’s father Delfin
was not with his son at the time of the accident. The father only knew after the accident that the
attended the parade as instructed by the teacher.

Issue
Whether defendant Delfin Capuno can be held civilly liable, jointly and severally with his son Dante,
for damages resulting from the death of Isidoro Caperiña caused by the negligent act of minor Dante
Capuno.

Ruling
CONCLUSION: WHEREFORE, the decision appealed from is modified in the sense that defendants
Delfin Capuno and Dante Capuno shall pay to plaintiff, jointly and severally, the sum of P2,959.00 as
damages, and the costs of action.

RULE STATEMENT:
We find merit in this claim. It is true that under the law above quoted, "teachers or directors of arts
and trades are liable for any damages caused by their pupils or apprentices while they are under
their custody", but this provision only applies to an institution of arts and trades and not to any
academic educational institution (Padilla, Civil Law, 1953, Ed., Vol. IV, p. 841; See 12 Manresa, 4th Ed.,
p. 557).

APPLICATION:
Here Dante capuno was then a student of the Balintawak Elementary School and as part of his extra-
curricular activity, he attended the parade in honor of Dr. Jose Rizal upon instruction of the city
school's supervisor. And it was in connection with that parade that Dante boarded a jeep with some
companions and while driving it, the accident occurred. In the circumstances, it is clear that neither
the head of that school, nor the city school's supervisor, could be held liable for the negligent act of
Dante because he was not then a student of an institute of arts and trades as provided by law.

REMEDY:
The only way by which they can relieve themselves of this liability is if they prove that they exercised
all the diligence of a good father of a family to prevent the damage (Article 1903, last paragraph,
Spanish Civil Code). This defendants failed to prove.

2.) MERCADO VS. CA AND QUISUMBIG, JR. ET AL. (ART. 2180. . . . Lastly, teachers or heads of
establishments of arts and trades shall be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody.)

Facts
Manuel Quisumbing Jr.was the son of Ana Pineda and Manuel Quisumbing, while Augusto Mercado is
the son of Ciriaco L. Mercado. Manuel and Augusto were classmates in Lourdes Catholic School on
Kanlaon, Quezon City. A “Pitogo” was the object of the quarrel of the two boys. Manuel Jr. thought
that Benedicto was the owner of the Pitogo and when Augusto was trying to get the pitogo from
Renato, who also did not know that the Pitogo belonged to Augusto, made Manuel Jr. push Augusto
and tell him not to take the Pitogo which led to Augusto slashing Manuel Jr. on his right cheek with a
sharp razor.

Issue
1. Whether the teacher or head of the school should be held responsible instead of the latter.
2. Whether or not Moral Damages may be received by the Quisumbing family.

Ruling
CONCLUSION:
After considering all the facts as found by the Court of Appeals, we find that none of the
cases mentioned in Article 2219 of the Civil Code, which authorizes the grant of moral damages, was
shown to have existed. Consequently, the grant of moral damages is not justified.
The decision appealed from is hereby reversed and the petitioner is declared exempt or free
from the payment of moral damages. The award of P50 for medical expenses, however, is hereby
affirmed. Without costs.

RULE STATEMENT:
1.) CIVIL LIABILITY OF SCHOOL - We find merit in this claim. It is true that under the law above quoted,
"teachers or directors of arts and trades are liable for any damages caused by their pupils or
apprentices while they are under their custody", but this provision only applies to an institution of
arts and trades and not to any academic educational institution (Padilla, Civil Law, 1953, Ed., Vol. IV, p.
841; See 12 Manresa, 4th Ed., p. 557).

2.) MORAL DAMAGES - While moral damages included physical suffering, which must have been
caused to the wounded boy Quisumbing (Art. 2217, Civil Code), the decision of the court below does
not declare that any of the cases specified in Article 2219 of the Civil Code in which moral damages
may be recovered, has attended or occasioned the physical injury.

APPLICATION:
1.) CIVIL LIABILITY OF SCHOOL - It would be seem that the clause "so long as they remain in their
custody," contemplates a situation where the pupil lives and boards with the teacher, such that the
control, direction and influence on the pupil supersedes those of the parents. In these circumstances
the control or influence over the conduct and actions of the pupil would pass from the father and
mother to the teacher; and so would the responsibility for the torts of the pupil. Such a situation does
not appear in the case at bar.
The pupils appear to go to school during school hours and go back to their homes with their
parents after school is over. The situation contemplated in the last paragraph of Article 2180 does not
apply, nor does paragraph 2 of said article, which makes father or mother responsible for the
damages caused by their minor children. The claim of petitioner that responsibility should pass to
the school must, therefore, be held to be without merit.

2.) MORAL DAMAGES - It is possible that the Court of Appeals may have considered Augusto Mercado
responsible for or guilty, of a quasi-delict causing physical injuries, within the meaning of paragraph 2
of Article 2219. Even if we assume that said court considered Mercado guilty of a quasi-delict when it
imposed the moral damages, yet the facts found by said court indicate that Augusto's resentment,
which motivated the assault, was occasioned by the fact that Manuel, Jr. had tried to intervene in or
interfere with the attempt of Mercado to get "his pitogo from Renato." This is, according to the
decision appealed from, the reason why Mercado was incensed and pushed Quisumbing who, in turn,
also pushed Mercado. It is, therefore, apparent that the proximate cause of the injury caused to
Quisumbing was Quisumbing's own fault or negligence for having interfered with Mercado while
trying to get the pitogo from another boy. (Art. 2179, Civil Code.)

REMEDY:
1.) The only way by which they can relieve themselves of this liability is if they prove that they
exercised all the diligence of a good father of a family to prevent the damage(Article 1903, last
paragraph, Spanish Civil Code). This defendants failed to prove.

2. ) MORAL DAMAGES - The only possible circumstance in the case at bar in which moral damages
are recoverable would be if a criminal offense or a quasi-delict has been committed.

3.) PALISOC vs BRILLANTES

Facts
16 year old Dominador Palisoc, a student in a automotive mechanics at the Manila Technical Institute,
Quezon Boulevard, Manila died at the hands of a fellow student Virgilio L. Daffon at the laboratory
room of said institute during the time of recess. Virgilio Daffon and Desiderio Cruz were working on a
machine while where Dominador Palisoc was looking at them. Daffon made a remark to the effect
that Palisoc was acting like a forman. Palisoc slightly slapped Daffon on the face. Daffon made a strong
flat blow to the face followed by a fist blow to the stomach. Palisoc retreated to avoid more hits and
Daffon followed, in the exchange of blows, Palisoc stumbled on an engine block which caused him to
fall. Pail and fainted, first aid was made on Palisoc but failed to revive him. Rushed to the hospital,
Palisoc died eventually. The statement was made by Desiderio Cruz the man working with Daffon and
the sole witness to the incident.

Issue
Whether or not the officials of the Manila Technical Institute are free from civil liability.

Ruling
CONCLUSION:
The Court finds the appeal, in the main, to be meritorious. The judgment appealed from is
modified so as to provide as follows: .
1. Sentencing the defendants Virgilio L. Daffon, Teodosio V. Valenton and Santiago M.
Quibulue jointly and severally to pay plaintiffs as heirs of the deceased Dominador Palisoc (a)
P12,000.00 for the death of Dominador Palisoc; (b) P3,375.00 for actual and compensatory
expenses; (c) P5,000.00 for moral, damages; (d) P10,000.00 for loss of earning power and (e)
P2,000.00 for attorney's fee, plus the costs of this action in both instances;
2. absolving defendant Antonio C. Brillantes from the complaint; and
3. dismissing defendants' counterclaims.

RULE STATEMENT:
1.) CIVIL LIABILITY OF SCHOOL - Art. 2180. ... . Lastly, teachers or heads of establishments of arts and
trades shall be liable for damages caused by their pupils and students and apprentices, so long as they
remain in their custody.

APPLICATION:
1.) Defendants Valenton and Quibulue as president and teacher-in-charge of the school must
therefore be held jointly and severally liable for the quasi-delict of their co-defendant Daffon in the
latter's having caused the death of his classmate, the deceased Dominador Palisoc. The unfortunate
death resulting from the fight between the protagonists-students could have been avoided, had said
defendants but complied with their duty of providing adequate supervision over the activities of
the students in the school premises to protect their students from harm, whether at the hands of
fellow students or other parties. At any rate, the law holds them liable unless they relieve themselves
of such liability, in compliance with the last paragraph of Article 2180, Civil Code, by "(proving) that
they observed all the diligence of a good father of a family to prevent damage." In the light of the
factual findings of the lower court's decision, said defendants failed to prove such exemption from
liability.

2.) "so long as (the students) remain in their custody" means the protective and supervisory custody
that the school and its heads and teachers exercise over the pupils and students for as long as they
are at attendance in the school, including recess time. There is nothing in the law that requires that
for such liability to attach the pupil or student who commits the tortious act must live and board in
the school, as erroneously held by the lower court, and the dicta in Mercado (as well as in Exconde)
on which it relied, must now be deemed to have been set aside by the present decision.

REMEDY:
1.) The only way by which they can relieve themselves of this liability is if they prove that they
exercised all the diligence of a good father of a family to prevent the damage(Article 1903, last
paragraph, Spanish Civil Code). This defendants failed to prove.

4.) AMADORA vs CA
Facts
Alfredo Amadora went to San Jose-Recoletos and was shot in the auditorium by a classmate
named Pablito Daffon. The family of the deceased contended that their son was in school to show his
physics experiment as prerequisite for graduation. The gun was also questioned by the family of the
deceased to have belonged to Jose Gumban confiscated by the dean of boys Sergio Damaso, Jr. and
returned to the former without a report. The gun was alleged to be from Gumban and was later used
by Daffon to kill Alfredo.

Issue
Whether or not the school may be held civilly liable

Ruling
CONCLUSION:
The petition is DENIED, without any pronouncement as to costs
1. The rector, the high school principal and the dean of boys cannot be held liable because
none of them was the teacher-in-charge as previously defined.
2. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon
was negligent in enforcing discipline upon Daffon or that he had waived observance of the rules and
regulations of the school or condoned their non-observance.
3. It does not necessarily link the Dean of Boys to the shooting of Amador as it has not been
shown that he confiscated and returned pistol was the gun that killed the petitioners' son.
4. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly
liable under the article because only the teacher or the head of the school of arts and trades is made
responsible for the damage caused by the student or apprentice.

RULE STATEMENT:
1.) CIVIL CODE -
Art. 2180. ... . Lastly, teachers or heads of establishments of arts and trades shall be
liable for damages caused by their pupils and students and apprentices, so long as they
remain in their custody.

2.) Doctrine made in the case -

This is the general rule: After an exhaustive examination of the problem, the Court
has come to the conclusion that the provision in question should apply to all schools,
academic as well as non-academic. Where the school is academic rather than technical or
vocational in nature, responsibility for the tort committed by the student will attach to the
teacher in charge of such student, following the first part of the provision.
An exception to the general rule: In the case of establishments of arts and
trades, it is the head thereof, and only he, who shall be held liable.

Teachers in general: shall be liable for the acts of their students

Exception: where the school is technical in nature, in which case it is the
head thereof who shall be answerable. Following the canon of reddendo singula
singulis "teachers" should apply to the words "pupils and students" and "heads of
establishments of arts and trades" to the word "apprentices."

APPLICATION:
 the teacher-in-charge who must answer for his students' torts, in practically the same way
that the parents are responsible for the child when he is in their custody. The teacher-in-charge is the
one designated by the dean, principal, or other administrative superior to exercise supervision over
the pupils in the specific classes or sections to which they are assigned. It is not necessary that at the
time of the injury, the teacher be physically present and in a position to prevent it. Custody does not
connote immediate and actual physical control but refers more to the influence exerted on the child
and the discipline instilled in him as a result of such influence. Thus, for the injuries caused by the
student, the teacher and not the parent shall be held responsible if the tort was committed within
the premises of the school at any time when its authority could be validly exercised over him

After an exhaustive examination of the problem, the Court has come to the conclusion that
the provision in question should apply to all schools, academic as well as non-academic. Where the
school is academic rather than technical or vocational in nature, responsibility for the tort committed
by the student will attach to the teacher in charge of such student, following the first part of the
provision. This is the general rule. In the case of establishments of arts and trades, it is the head
thereof, and only he, who shall be held liable as an exception to the general rule. In other words,
(General Rule) teachers in general shall be liable for the acts of their students except (Exception)
where the school is technical in nature, in which case it is the head thereof who shall be answerable.

REMEDY:
1.) The only way by which they can relieve themselves of this liability is if they prove that they
exercised all the diligence of a good father of a family to prevent the damage (Article 1903, last
paragraph, Spanish Civil Code).

5. PSBA et al. vs CA
Facts
A stabbing incident transpired in the Philippine School of Business Administration (PSBA)
where in Carlitos Bautista died prompting the parents of the deceased to file suit in the RTC Manila.
The suit impleaded the President, VP, Treasurer/cashier, chief of security and assistant chief of
security. During the proceedings assistant chief of security terminated his relationship with the other
petitioners by resigning from his position in the school. The petition was sought to be dismissed by
PSBA due to the Art 2180 and jurisprudence stating that academic schools are excluded from civil
liability.

Issue
Whether or not the petition should be dismissed under Article 2180 of the Civil Code.

Ruling
CONCLUSION:
WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin
(RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the
Court. Costs against the petitioners. As the proceedings a quo have yet to commence on the
substance of the private respondents' complaint, the record is bereft of all the material facts.
Obviously, at this stage, only the trial court can make such a determination from the evidence still to
unfold.
While we agree with the respondent appellate court that the motion to dismiss the
complaint was correctly denied and the complaint should be tried on the merits, we do not however
agree with the premises of the appellate court's ruling.

RULE STATEMENT:
1.) CIVIL CODE -
Art. 2180. ... . Lastly, teachers or heads of establishments of arts and trades shall be
liable for damages caused by their pupils and students and apprentices, so long as they
remain in their custody.
 2.) Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in
loco parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza,
Palisoc and, more recently, in Amadora vs. Court of Appeals:
In all such cases, it had been stressed that the law (Article 2180) plainly provides
that the damage should have been caused or inflicted by pupils or students of he educational
institution sought to be held liable for the acts of its pupils or students while in its custody.

3.) Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:
The field of non-contractual obligation is much broader than that of contractual
obligation, comprising, as it does, the whole extent of juridical human relations. These two fields,
figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by
contract does not relieve him from extra-contractual liability to such person. When such a contractual
relation exists the obligor may break the contract under such conditions that the same act which
constitutes a breach of the contract would have constituted the source of an extra-contractual
obligation had no contract existed between the parties.

4.) Civil Code on Human Relations, particularly Article 21, which provides:
Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good custom or public policy shall compensate the latter for the damage. (emphasis
supplied).

APPLICATION:
Because the circumstances of the present case evince a contractual relation between the
PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176
shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations,
arise only between parties not otherwise bound by contract, whether express or implied. However,
this impression has not prevented this Court from determining the existence of a tort even when
there obtains a contract. In Air France vs. Carrascoso (124 Phil. 722), the private respondent was
awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It
is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort,
not one arising from a contract of carriage. In effect, Air France is authority for the view that liability
from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort.
(Austro-America S.S. Co. vs. Thomas, 248 Fed. 231).

In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that
the contract between the school and Bautista had been breached thru the former's negligence in
providing proper security measures. This would be for the trial court to determine. And, even if there
be a finding of negligence, the same could give rise generally to a breach of contractual obligation
only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a
contract. In fact, that negligence becomes material only because of the contractual relation between
PSBA and Bautista. In other words, a contractual relation is a condition sine qua non to the school's
liability. The negligence of the school cannot exist independently of the contract, unless the
negligence occurs under the circumstances set out in Article 21 of the Civil Code.

6. SOLIMAN vs TUAZON
Facts
Soliman Jr fileda civil complaint against Republic Central Colleges, RL Security Agency Inc.,
and one Jimmy B. Solomon as defendants. Soliman Jr. was in the campus grounds of Republic Central
Colleges, when Jimmy Solomon (security guard) employee of RL Security Agency, Inc., headed by Mr.
Benjamin Serrano, and shot the Maximino Soliman Jr. in the abdomen. Serrano was given timely
medical assistance that saved his life in Angeles Medical Center and was told that he will not be able
to go to school for three to four months due to his wounds.

Issue
 Whether or not Republic Central Colleges may be civilly liable for injury cause by Jimmy
Solomon to Maximino Soliman Jr.

Ruling
CONCLUSION:
ACCORDINGLY, the Court Resolved to GRANT DUE COURSE to the Petition, to TREAT the
comment of respondent Colleges as its answer, and to REVERSE and SET ASIDE the Order dated 29
November 1983. This case is REMANDED to the court a quo for further proceedings consistent with
this Resolution.
While we agree with the respondent appellate court that the motion to dismiss the
complaint was correctly denied and the complaint should be tried on the merits, we do not however
agree with the premises of the appellate court's ruling.

RULE STATEMENT:
1.) CIVIL CODE -
Art. 2180.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils, their students or apprentices, so long as they remain in their
custody.
xxx xxx xxx

2.) Jurisprudence -
As a general rule, a client or customer of a security agency has no hand in selecting
who among the pool of security guards or watchmen employed by the agency shall be assigned to it;
the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in
the ordinary course of events, be demanded from the client whose premises or property are protected
by the security guards. (Social Security System v. Court of Appeals, 39 SCRA 629 (1971))

3.) Art. 349. The following persons shall exercise substitute parental authority:

xxx xxx xxx

(2) Teachers and professors;

xxx xxx xxx

(4) Directors of trade establishments with regard to apprentices;

xxx xxx xxx

Art. 350. The persons named in the preceding article shall exercise reasonable supervision
over the conduct of the child.

xxx xxx xxx

Art. 352. The relations between teacher and pupil, professor and student are fixed by
government regulations and those of each school or institution. In no case shall corporal punishment
be countenanced. The teacher or professor shall cultivate the best potentialities of the heart and
mind of the pupil or student.

4.) PSBA vs CA:

 Institutions of learning must also meet the implicit or "built-in" obligation of providing their
students with an atmosphere that promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades
exploding in the air or where there looms around the school premises a constant threat to life and
limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order
within the campus premises and to prevent the breakdown thereof.

APPLICATION:
The first paragraph quoted above offers no basis for holding the Colleges liable for the
alleged wrongful acts of security guard Jimmy B. Solomon inflicted upon petitioner Soliman, Jr. Private
respondent school was not the employer of Jimmy Solomon. The employer of Jimmy Solomon was
the R.L. Security Agency Inc., while the school was the client or customer of the R.L. Security Agency
Inc. It is settled that where the security agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of such guards or watchmen. 2 Liability for
illegal or harmful acts committed by the security guards attaches to the employer agency, and not to
the clients or customers of such agency.

In PSBA, the Court held that Article 2180 of the Civil Code was not applicable where a
student had been injured by one who was an outsider or by one over whom the school did not
exercise any custody or control or supervision. At the same time, however, the Court stressed that an
implied contract may be held to be established between a school which accepts students for
enrollment, on the one hand, and the students who are enrolled, on the other hand, which contract
results in obligations for both parties

7. REGINO vs. PANGASINAN COLLEGE OF SCIENCE AND TECHNOLOGY

Facts
Khristine Rea M. Regino was a first year computer science student at Pangasinan Colleges of
Science and Technology (PCST). Khristine enrolled with the financial assistance of her relatives in logic
and statistics subjects under Rachelle A. Gamurot and Elissa Baladad as teachers. PCST held a fund
raising campaign dubbed “Rave Party and Dance Revolution” where the proceeds will go to the
construction of the school’s tennis and volleyball courts. Students will be paying Php 100.00 for two
tickets and those who purchased said tickets will be given additional points in their test scores and
those who don’t cannot take their final examination. Lacking the financial capacity and prohibition by
her religion to dance party, Regino refused to pay for the tickets which resulted to her being
disallowed to take the final exam by Ms. Gamurot and Ms. Baladad who defended the PCST policy.
The case was filed to the RTC and was dismissed summarily due to the being administrative in nature
and must be referred to CHED.

Issue
1.) Whether or not there was reciprocity of the school-student contract.
2.) Whether or not there was liability for tort.

Ruling
CONCLUSION:
WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders REVERSED.
The trial court is DIRECTED to reinstate the Complaint and, with all deliberate speed, to continue the
proceedings in Civil Case No. U-7541. No costs.
In sum, the Court holds that the Complaint alleges sufficient causes of action against
respondents, and that it should not have been summarily dismissed. Needless to say, the Court is not
holding respondents liable for the acts complained of that will have to be ruled upon in due course by
the court a quo.

RULE STATEMENT:
1.)
a.) In Alcuaz v. PSBA,23 the Court characterized the relationship between the
school and the student as a contract, in which "a student, once admitted by the school is
considered enrolled for one semester."24 Two years later, in Non v. Dames II,25 the Court
modified the "termination of contract theory" in Alcuaz by holding that the contractual
relationship between the school and the student is not only semestral in duration, but for
the entire period the latter are expected to complete it."26 Except for the variance in the
period during which the contractual relationship is considered to subsist, both Alcuaz and
Non were unanimous in characterizing the school-student relationship as contractual in
nature.

b.) The school-student relationship is also reciprocal. Thus, it has consequences

appurtenant to and inherent in all contracts of such kind -- it gives rise to bilateral or
reciprocal rights and obligations.

c.) The obligation on the part of the school has been established in Magtibay v.
Garcia,28 Licup v. University of San Carlos29 and Ateneo de Manila University v. Garcia,30
in which the Court held that, barring any violation of the rules on the part of the students, an
institution of higher learning has a contractual obligation to afford its students a fair
opportunity to complete the course they seek to pursue.

d.) Sections 5 (1) and (3) of Article XIV of the 1987 Constitution provide:
"The State shall protect and promote the right of all citizens to quality education at all levels
and shall take appropriate steps to make such declaration accessible to all.
"Every student has a right to select a profession or course of study, subject to fair,
reasonable and equitable admission and academic requirements."

The same state policy resonates in Section 9(2) of BP 232, otherwise known as the Education
Act of 1982:
"Section 9. Rights of Students in School. – In addition to other rights, and subject to the
limitations prescribed by law and regulations, students and pupils in all schools shall enjoy
the following rights:
xxx xxx xxx
(2) The right to freely choose their field of study subject to existing curricula and to
continue their course therein up to graduation, except in cases of academic deficiency, or
violation of disciplinary regulations."

2.)
a.) These provisions of the law state thus:
"Article 19. Every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and good faith."
"Article 21. Any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the latter for the
damage."
"Article 26. Every person shall respect the dignity, personality, privacy and peace of
mind of his neighbors and other persons. The following and similar acts, though they may not
constitute a criminal offense, shall produce a cause of action for damages, prevention and
other relief:
(1) Prying into the privacy of another's residence;
(2) Meddling with or disturbing the private life or family relations of
another;
(3) Intriguing to cause another to be alienated from his friends;
(4) Vexing or humiliating another on account of his beliefs, lowly station in
life, place of birth, physical defect, or other personal condition."

b.) We ruled thus in PSBA vs. CA,34 from which we quote:

"x x x A perusal of Article 2176 [of the Civil Code] shows that obligations arising from
quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties
not otherwise bound by contract, whether express or implied. However, this impression has
not prevented this Court from determining the existence of a tort even when there obtains a
 contract. In Air France v. Carrascoso (124 Phil. 722), the private respondent was awarded
damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It
is noted, however, that the Court referred to the petitioner-airline's liability as one arising
from tort, not one arising form a contract of carriage. In effect, Air France is authority for the
view that liability from tort may exist even if there is a contract, for the act that breaks the
contract may be also a tort. x x x This view was not all that revolutionary, for even as early as
1918, this Court was already of a similar mind. In Cangco v. Manila Railroad (38 Phil. 780),
Mr. Justice Fisher elucidated thus: 'x x x. When such a contractual relation exists the obligor
may break the contract under such conditions that the same act which constitutes a breach of
the contract would have constituted the source of an extra-contractual obligation had no
contract existed between the parties.' "Immediately what comes to mind is the chapter of
the Civil Code on Human Relations, particularly Article 21 x x x."35

APPLICATION:
1.)
a.) The terms of the school-student contract are defined at the moment of its
inception -- upon enrolment of the student. Standards of academic performance and the
code of behavior and discipline are usually set forth in manuals distributed to new students
at the start of every school year. Further, schools inform prospective enrollees the amount of
fees and the terms of payment.

b.) The school undertakes to provide students with education sufficient to enable
them to pursue higher education or a profession. On the other hand, the students agree to
abide by the academic requirements of the school and to observe its rules and regulations.

c.) In the present case, PCST imposed the assailed revenue-raising measure
belatedly, in the middle of the semester. It exacted the dance party fee as a condition for the
students' taking the final examinations, and ultimately for its recognition of their ability to
finish a course. The fee, however, was not part of the school-student contract entered into at
the start of the school year. Hence, it could not be unilaterally imposed to the prejudice of
the enrollees.

d.) Such contract is by no means an ordinary one. In Non, we stressed that the
school-student contract "is imbued with public interest, considering the high priority given by
the Constitution to education and the grant to the State of supervisory and regulatory
powers over all educational institutions."

2.)
a.) The acts of respondents supposedly caused her extreme humiliation, mental
agony and "demoralization of unimaginable proportions" in violation of Articles 19, 21 and 26
of the Civil Code.
b.) Generally, liability for tort arises only between parties not otherwise bound by a
contract. An academic institution, however, may be held liable for tort even if it has an
existing contract with its students, since the act that violated the contract may also be a tort.

8. FLORDELIZA MENDOZA vs. MUTYA SORIANO and MINOR JULIE ANN SORIANO (AD LITEM
Facts
Sonny Soriano while crossing Commonwealth Avenue was hit by a speeding Tamaraw FX
driven by, where Flordeliza Mendoza was the registered owner of said vehicle, Lomer Macasasa.
Sonny Soriano was thrown 5-meters away. Gerard Villaspin, companion, asked Macasasa to bring
Soriano to the hospital, but after checking out the scene of the incident, Maasasa returned to the FX,
only to flee. A school bus brought Sonny Soriano to East Ave. Medial Center where he died.
A case was filed against owner Mendoza and driver Macasasa where the former put up a
defense of diligence of a good father of a family in choosing Macasasa as the driver. The case against
both was dismissed due to the discovery that Sonny was negligent for crossing Commonwealth Ave by
using a small gap in the island’s fencing rather than the pedestrian overpass. Also, that the
complainant was not able to produce evidence on the negligence of Mendoza in hiring Macasasa.
 Although, the CA reversed the ruling where the appellate court found Macasasa negligent for
speeding. Sonny’s negligence did not preclude recovery of damages from Macasasa’s negligence. And
since Mendoza failed to present evidence to the contrary, and conformably with Art. 2180 of the Civil
Code, the presumption of the employer in the selection and supervision of employees stood.
Hence the appel.

Issue
Whether or not there is sufficient legal basis for the awarding of damages.

Ruling
CONCLUSION:
WHEREFORE, we DENY the petition for lack of merit and hereby AFFIRM the
Decision dated November 17, 2003 and the Resolution dated May 24, 2004 of the Court of Appeals in
CA-G.R. CV No. 69037.

RULE STATEMENT:
1.
a) The records show that Macasasa violated two traffic rules under the Land
Transportation and Traffic Code. First, he failed to maintain a safe speed to avoid
endangering lives.16 Both the trial and the appellate courts found Macasasa
overspeeding.17 The records show also that Soriano was thrown five meters away
after he was hit.18 Moreover, the vehicle stopped only some 25 meters from the
point of impact.19 Both circumstances support the conclusion that the FX vehicle
driven by Macasasa was overspeeding. Second, Macasasa, the vehicle driver, did
not aid Soriano, the accident victim, in violation of Section 55,20 Article V of the
Land Transportation and Traffic Code.

b) Under Article 2180 of the Civil Code, employers are liable for the damages caused
by their employees acting within the scope of their assigned tasks.

c) Article 2179 of the Civil Code which reads:

When the plaintiff's own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.
APPLICATION:
1.
a) While Macasasa at first agreed to bring Soriano to the hospital, he fled the scene
in a hurry. Contrary to petitioner’s claim, there is no showing of any factual basis
that Macasasa fled for fear of the people’s wrath. What remains undisputed is that
he did not report the accident to a police officer, nor did he summon a doctor.
Under Article 2185 of the Civil Code, a person driving a motor vehicle is
presumed negligent if at the time of the mishap, he was violating traffic
regulations.

b) While respondents could recover damages from Macasasa in a

criminal case and petitioner could become subsidiarily liable, still petitioner, as
owner and employer, is directly and separately civilly liable for her failure to
exercise due diligence in supervising Macasasa.22
We must emphasize that this damage suit is for the quasi-delict of
petitioner, as owner and employer, and not for the delict of Macasasa, as driver
and employee. In this case, we hold petitioner primarily and solidarily liable for
the damages caused by Macasasa.23 Respondents could recover directly from
petitioner24 since petitioner failed to prove that she exercised the diligence of a
good father of a family in supervising Macasasa.25 Indeed, it is unfortunate that
 petitioner harbored the notion that the Regional Trial Court did not have
jurisdiction over the case and opted not to present her evidence on this point.

REMEDY:
1.
The liability arises due to the presumed negligence of the employers in supervising their
employees unless they prove that they observed all the diligence of a good father of a family to
prevent the damage.

9. PROFESSIONAL SERVICES INC. VS. AGAN

Facts
Dr. Miguel Ampil of te Medical City General Hospital performed surgery on Natividad Agana
who was diagnosed with “cancer of the sigmoid”. Consent needed for another procedure from
Enrique Agana (husband of Natividad) was made by Dr. Ampil so that Dr. Juan Fuentes may preform a
hysterectomy. After the procedure of Dr. Fuentes, Dr. Ampil took over and sutured the incision.
Hospital bill of the Agana’s reached PHP 60,000.00 including doctor’s fees. Little did they know about
the flaw of the procedure as to the sponge count that lacked 2 sponges. Excruciating pain experience
by Natividad in her anal region made her consult with both doctors responsible for her procedure. Dr.
Ampil referred Natividad to consult an oncologist to examine the cancerous nodes during the
operation. After being declared free from cancer in the US Natividad went home only to find out that
gauze was protruding from her vagina, as later seen by her daughter. Dr. Ampil went to Natividad’s
home to pull out the gauze and assured that the pains would vanish.
The pain later on intensified prompting Natividad to go to Polymedi General Hospital. R.
Ramon Gutierrez later detected another gauze that infected her vaginal vault causing stool to excrete
from her vagina which needed a procedure. Later on, Natividad soon died and was replaced by her
daughter in the given case.

Issue
Whether or not PSI, Dr. Ampil and Dr. Fuentes are liable for civil damages.

Ruling
CONCLUSION:
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of
Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198. Costs against petitioners PSI and Dr.
Miguel Ampil.

RULE STATEMENT:
1.) CIVIL CODE -
Art. 2180 (respondeat superior) -
The owners and managers of an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the branches in which
the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks even though the former are
not engaged in any business or industry.

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

2.) res ipsa loquitur -

the requisites for the applicability of the doctrine of res ipsa loquitur are: (1) the occurrence
of an injury; (2) the thing which caused the injury was under the control and management of the
defendant; (3) the occurrence was such that in the ordinary course of things, would not have
happened if those who had control or management used proper care; and (4) the absence of
explanation by the defendant
 3.) Captain of the ship rule -
In other words, he was the "Captain of the Ship." That he discharged such role is evident
from his following conduct: (1) calling Dr. Fuentes to perform a hysterectomy; (2) examining the work
of Dr. Fuentes and finding it in order; (3) granting Dr. Fuentes’ permission to leave; and (4) ordering
the closure of the incision.

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

5. ) Ramos vs. Court of Appeals -

In other words, private hospitals, hire, fire and exercise real control over their attending and
visiting ‘consultant’ staff. While ‘consultants’ are not, technically employees, x x x, the control
exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks of an
employer-employee relationship, with the exception of the payment of wages. In assessing whether
such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the
foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an
employer-employee relationship in effect exists between hospitals and their attending and visiting
physicians. "

6. ) Agency Principle of Apparent Authority or agency by estoppel -

"The principal is bound by the acts of his agent with the apparent authority which he
knowingly permits the agent to assume, or which he holds the agent out to the public as possessing.
The question in every case is whether the principal has by his voluntary act placed the agent in such a
situation that a person of ordinary prudence, conversant with business usages and the nature of the
particular business, is justified in presuming that such agent has authority to perform the particular
act in question. In Irving v. Doctor Hospital of Lake Worth, Inc.32 There, it was explicitly stated that
"there does not appear to be any rational basis for excluding the concept of apparent authority from
the field of hospital liability." Thus, in cases where it can be shown that a hospital, by its actions, has
held out a particular physician as its agent and/or employee and that a patient has accepted
treatment from that physician in the reasonable belief that it is being rendered in behalf of the
hospital, then the hospital will be liable for the physician’s negligence.

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

8.) Darling v. Charleston Community Hospital - (1) the use of reasonable care in the
maintenance of safe and adequate facilities and equipment; (2) the selection and retention of
competent physicians; (3) the overseeing or supervision of all persons who practice medicine within its
walls; and (4) the formulation, adoption and enforcement of adequate rules and policies that ensure
quality care for its patients.

9.) Tucson Medical Center, Inc. v. Misevich -

it was held that a hospital, following the doctrine of corporate responsibility, has the duty to
see that it meets the standards of responsibilities for the care of patients. Such duty includes the
proper supervision of the members of its medical staff.

10.) Bost v. Riley -

the court concluded that a patient who enters a hospital does so with the reasonable
expectation that it will attempt to cure him. The hospital accordingly has the duty to make a
reasonable effort to monitor and oversee the treatment prescribed and administered by the
physicians practicing in its premises.

APPLICATION:
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se
create or constitute an independent or separate ground of liability, being a mere evidentiary rule.17
In other words, mere invocation and application of the doctrine does not dispense with the
requirement of proof of negligence. Here, the negligence was proven to have been committed by Dr.
Ampil and not by Dr. Fuentes.

In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and
specializations of the physicians associated or accredited by it, including those of Dr. Ampil and Dr.
Fuentes. We concur with the Court of Appeals’ conclusion that it "is now estopped from passing all
the blame to the physicians whose names it proudly paraded in the public directory leading the public
to believe that it vouched for their skill and competence." Indeed, PSI’s act is tantamount to holding
out to the public that Medical City Hospital, through its accredited physicians, offers quality health
care services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their qualifications, the
hospital created the impression that they were its agents, authorized to perform medical or surgical
services for its patients. As expected, these patients, Natividad being one of them, accepted the
services on the reasonable belief that such were being rendered by the hospital or its employees,
agents, or servants.
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are
capable of acting only through other individuals, such as physicians. If these accredited physicians do
their job well, the hospital succeeds in its mission of offering quality medical services and thus profits
financially. Logically, where negligence mars the quality of its services, the hospital should not be
allowed to escape liability for the acts of its ostensible agents.

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

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

REMEDY:
1.) The only way by which they can relieve themselves of this liability is if they prove that they
exercised all the diligence of a good father of a family to prevent the damage (Article 1903, last
paragraph, Spanish Civil Code).

10. CATHAY PACIFIC vs SPOUSES VASQUEZ

Facts
Dr Daniel Earnshaw Vasquez and Maria Luisa Madrigal Vasquez are frequent flyers of Cathay
and are Gold Card members of its Marco Polo Club. Spouses Vasquez, their maid, two friends Pacita
Cruz and Josefina Vergel De Dios went to Hong Kong for business and pleasure. In a return flight to
Manila, while boarding, the ground attendant Ms. Clara Lai Han Chiu saw that the Spouses Vasquez
were moved from business class to first class. Dr. Vasquez refused as they wanted to discuss business
matters to their friends and that it would not look nice as hosts. Ms. Chiu went back from the
manager to have the Spouses accept the upgrade. Later on, the Spouses agreed and as soon as they
arrived in Manila they wrote a letter asking for Php 1 Million pesos for humiliation and
embarrassment cause by its employees and that the company should apologize with no rank less than
country manager along with Ms. Chiu all of which must be in writing and submitted within fifteen
days.
 After non compliance of a self-imposed deadline, the Spouses filed an action for damages for
250k for temperate damages, 500k as moral damages, and 500k exemplary or corrective damages and
250k for attorney’s fee. For the reason of activation of the bilateral carpal tunnel syndrome due to the
non-assistance of the cabin crew, that the stewardess shouted and them in front of a lot of people,
and that the Spouses belonged to the top elite Philippine Society and financial community among the
wealthiest persons in the Philippines.

Issue
Whether (1) by upgrading the seat accommodation of the Vazquezes from Business Class to
First Class Cathay breached its contract of carriage with the Vazquezes; (2) the upgrading was tainted
with fraud or bad faith; and (3) the Vazquezes are entitled to damages.

Ruling
CONCLUSION:
1) We resolve the first issue in the affirmative.
2.) We are not, however, convinced that the upgrading or the breach of contract was
attended by fraud or bad faith. Thus, we resolve the second issue in the negative.
3.) The most that can be adjudged in favor of the Vazquezes for Cathay’s breach of contract
is an award for nominal damages under Article 2221 of the Civil Code.

RULE STATEMENT:
1.) CIVIL CODE:
a.) A contract is a meeting of minds between two persons whereby one agrees to
give something or render some service to another for a consideration. There is no contract
unless the following requisites concur:
(1) consent of the contracting parties;
(2) an object certain which is the subject of the contract; and
(3) the cause of the obligation which is established.

b.) Breach of contract is defined as the "failure without legal reason to comply with
the terms of a contract."5 It is also defined as the "[f]ailure, without legal excuse, to perform
any promise which forms the whole or part of the contract."6

c.) Bad faith and fraud are allegations of fact that demand clear and convincing
proof. They are serious accusations that can be so conveniently and casually invoked, and
that is why they are never presumed. They amount to mere slogans or mudslinging unless
convincingly substantiated by whoever is alleging them.

d.) Fraud has been defined to include an inducement through insidious

machination. Insidious machination refers to a deceitful scheme or plot with an evil or
devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to
state material facts and, by reason of such omission or concealment, the other party was
induced to give consent that would not otherwise have been given.7

e.) Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a
known duty through some motive or interest or ill will that partakes of the nature of fraud.8

f.) Article 2220 - Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are justly due.
The same rule applies to breaches of contract where the defendant acted fraudulently or in
bad faith.

g.) Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Although incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant’s wrongful act or omission.
 h.) case law establishes the following requisites for the award of moral damages:
(1) there must be an injury clearly sustained by the claimant, whether
physical, mental or psychological;
(2) there must be a culpable act or omission factually established;
(3) the wrongful act or omission of the defendant is the proximate cause of
the injury sustained by the claimant; and
(4) the award for damages is predicated on any of the cases stated in
Article 2219 of the Civil Code.

i.) Article 2221 of the Civil Code provides:

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

APPLICATION:
1.) Undoubtedly, a contract of carriage existed between Cathay and the Vazquezes. They
voluntarily and freely gave their consent to an agreement whose object was the transportation of the
Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class Section of
the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.
We note that in all their pleadings, the Vazquezes never denied that they were members of
Cathay’s Marco Polo Club. They knew that as members of the Club, they had priority for upgrading of
their seat accommodation at no extra cost when an opportunity arises. But, just like other privileges,
such priority could be waived. The Vazquezes should have been consulted first whether they wanted
to avail themselves of the privilege or would consent to a change of seat accommodation before their
seat assignments were given to other passengers. Normally, one would appreciate and accept an
upgrading, for it would mean a better accommodation. But, whatever their reason was and however
odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their boarding passes. They clearly
waived their priority or preference when they asked that other passengers be given the upgrade. It
should not have been imposed on them over their vehement objection. By insisting on the upgrade,
Cathay breached its contract of carriage with the Vazquezes.

2.) We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not
induced to agree to the upgrading through insidious words or deceitful machination or through willful
concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their
accommodations were upgraded to First Class in view of their being Gold Card members of Cathay’s
Marco Polo Club. She was honest in telling them that their seats were already given to other
passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider
the remedy of offering the First Class seats to other passengers. But, we find no bad faith in her failure
to do so, even if that amounted to an exercise of poor judgment.

3.) We are not amused but alarmed at the lower court’s unbelievable alacrity, bordering on
the scandalous, to award excessive amounts as damages. In their complaint, appellees asked for P1
million as moral damages but the lower court awarded P4 million; they asked for P500,000.00 as
exemplary damages but the lower court cavalierly awarded a whooping P10 million; they asked for
P250,000.00 as attorney’s fees but were awarded P2 million; they did not ask for nominal damages
but were awarded P200,000.00. It is as if the lower court went on a rampage, and why it acted that
way is beyond all tests of reason. In fact the excessiveness of the total award invites the suspicion that
it was the result of "prejudice or corruption on the part of the trial court."
The presiding judge of the lower court is enjoined to hearken to the Supreme Court’s
admonition in Singson vs. CA (282 SCRA 149 [1997]), where it said:

The well-entrenched principle is that the grant of moral damages depends upon the
discretion of the court based on the circumstances of each case. This discretion is limited by
 the principle that the amount awarded should not be palpably and scandalously excessive as
to indicate that it was the result of prejudice or corruption on the part of the trial court….

and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Nonetheless, we agree with the injunction expressed by the Court of Appeals that
passengers must not prey on international airlines for damage awards, like "trophies in a safari." After
all neither the social standing nor prestige of the passenger should determine the extent to which he
would suffer because of a wrong done, since the dignity affronted in the individual is a quality
inherent in him and not conferred by these social indicators. 19

11. SINGAPORE AIRLINES vs. FERNANDEZ

Facts
Andion Fernandez who was availing an educational grant from Germany and pursuing music
was invited to sing for the king and queen of malaysia. An Airline ticket was purchased for her from
Singapore Airline moving to Manila from Singapore from Frankfurt and from Manila to Malaysia.
When she got to Singapore she was two hours late. The flight to Manila had already left
leaving her with 25 passengers stranded in Singapore. She stayed overnight in Singapore with a help
from a family friend. When she got back to the airport, she approached a counter for assistance
where an employee told her “Cant you see I am doing something?” and “It’s your problem not ours.”
Andion never made it to manila instead head straight to Malaysia from Singapore and had
her mother bring her wardrobe to Malaysia from Manila where they incurred Php 50,000.00 worth of
expenses. Andion suffered anxiety due to the treatment of Singapore Airlines towards her. Andion
was compelled to seek medical attention for “Acute Urticaria.” The RTC, through Andion’s petitin, was
awarded damages and was appealed by petitioner in the CA where they found no reversible error.
Hence this petition to the Supreme Court.

Issue
Whether or not the petition will prosper.
When a passenger contracts for a specific flight, he has a purpose in making that choice
which must be respected. This choice, once exercised, must not be impaired by a breach on the part
of the airline without the latter incurring any liability.25 For petitioner’s failure to bring the
respondent to her destination, as scheduled, we find the petitioner clearly liable for the breach of its
contract of carriage with the respondent.

Ruling
CONCLUSION:
The petition will not prosper.

RULE STATEMENT:
1. JURISPRUDENCE
a) Alitalia Airways vs. CA:
When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger then has every
right to expect that he be transported on that flight and on that date. If he does not,
then the carrier opens itself to a suit for a breach of contract of carriage.

b.) In PAL vs. CA:

.... Undisputably, PAL’s diversion of its flight due to inclement weather was
a fortuitous event. Nonetheless, such occurrence did not terminate PAL’s contract
with its passengers. Being in the business of air carriage and the sole one to operate
in the country, PAL is deemed to be equipped to deal with situations as in the case
at bar. What we said in one case once again must be stressed, i.e., the relation of
carrier and passenger continues until the latter has been landed at the port of
destination and has left the carrier’s premises. Hence, PAL necessarily would still
have to exercise extraordinary diligence in safeguarding the comfort, convenience
 and safety of its stranded passengers until they have reached their final
destination...

c.) Lopez vs. Pan American World Airways, 16 SCRA 431 (1966):
Self-enrichment or fraternal interest, and not personal ill will, may well
have been the motive; but it is malice nevertheless.

2. CIVIL CODE
a) Art. 1755 C.C., Art. 1733 C.C
"...If the cause of non-fulfillment of the contract is due to a fortuitous
event, it has to be the sole and only cause
Since part of the failure to comply with the obligation of common carrier to
deliver its passengers safely to their destination lay in the defendant’s failure to
provide comfort and convenience to its stranded passengers using extraordinary
diligence, the cause of non-fulfillment is not solely and exclusively due to fortuitous
event, but due to something which defendant airline could have prevented,
defendant becomes liable to plaintiff."

b.) Article 2232

in a contractual or quasi-contractual relationship, exemplary damages may
be awarded only if the defendant had acted in a "wanton, fraudulent, reckless,
oppressive or malevolent manner."

APPLICATION
1. In the case at bar, it is undisputed that the respondent carried a confirmed ticket
for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-Singapore; and 2) Singapore-Manila. In
her contract of carriage with the petitioner, the respondent certainly expected that she would fly to
Manila on Flight No. SQ 72 on January 28, 1991. Since the petitioner did not transport the respondent
as covenanted by it on said terms, the petitioner clearly breached its contract of carriage with the
respondent. The respondent had every right to sue the petitioner for this breach. The defense that
the delay was due to fortuitous events and beyond petitioner’s control is unavailing.

1.c. Bad faith was imputed by the trial court when it found that the petitioner’s
employees at the Singapore airport did not accord the respondent the attention and
treatment allegedly warranted under the circumstances. The lady employee at the counter
was unkind and of no help to her. The respondent further alleged that without her threats of
suing the company, she was not allowed to use the company’s phone to make long distance
calls to her mother in Manila. The male employee at the counter where it says: "Immediate
Attention to Passengers with Immediate Booking" was rude to her when he curtly retorted
that he was busy attending to other passengers in line. The trial court concluded that this
inattentiveness and rudeness of petitioner’s personnel to respondent’s plight was gross
enough amounting to bad faith. This is a finding that is generally binding upon the Court
which we find no reason to disturb.

2. Indeed, in the instant case, petitioner was not without recourse to enable it to
fulfill its obligation to transport the respondent safely as scheduled as far as human care and
foresight can provide to her destination. Tagged as a premiere airline as it claims to be and with the
complexities of air travel, it was certainly well-equipped to be able to foresee and deal with such
situation. The petitioner’s indifference and negligence by its absence and insensitivity was exposed by
the trial court. Petitioner airlines could have carried her on one of its flights bound for Hongkong
and arranged for a connecting flight from Hongkong to Manila all on the same date. But then the
airline personnel who informed her of such possibility told her that she has to pay for that flight.
Regrettably, respondent did not have sufficient funds to pay for it.

2.b. In this case, petitioner’s employees acted in a wanton, oppressive or

malevolent manner. The award of exemplary damages is, therefore, warranted in this case.
12. EQUITABLE PCIB vs. NG SHEUNG NGOR UNDER “KEN MARKETING”, KEN APPLIANCE DIVISION,
INC. And BENJAMINE E. GO
Facts
Ng Sheun Ngor, Ken Appliance Division, Inc. And Benjamin E. Go filed an action for
annulment and/or reformation of documents and contract against Equitable PCI Bank and its
employees in the RTC of Cebu City. Ng Sheung Ngor et al. claimed that Equitable induced them to
avail of a peso and dollar credit facilities with low interest rates proposal and signed the bank’s pre-
printed promissory notes. Unaware, the documents contained identical escalation clauses granting
authority to increase interest rates without the consent of Ng Sheung Ngor et al. Equitable assailed
that Ng et al. was aware with the terms and accepted the terms and conditions in said promissory
note. The RTC invalidated the escalation clause contained therein due to a violation of mutuality of
contracts. The RTC requested the 1996 dollar exchange rate in computing respondents’ dollar-
denominated loans. Lastly, the business of Ng et al. was severely damaged when Equitable froze their
accounts, the trial court awarded moral and exemplary damages. An appeal was denied from both
parties since they have not paid appeal fees.

Issue
1. Whether or not the Promissory Notes Were Valid.
2. Whether or not escalation Clause Violated The Principle Of Mutuality Of Contracts.
3. Whether or not there Was No Extraordinary Deflation.
4. Whether or not the Award Of Moral And Exemplary Damages Lacked Basis.

Ruling
CONCLUSION:
ACCORDINGLY, the petition is hereby GRANTED. The October 28, 2005 decision and February
3, 2006 resolution of the Court of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET
ASIDE.

RULE STATEMENT:
1. Issue #1
a) General Rule - A contract of adhesion is a contract whereby almost all of its
provisions are drafted by one party. The participation of the other party is limited
to affixing his signature or his "adhesion" to the contract. For this reason,
contracts of adhesion are strictly construed against the party who drafted it.
(Citibank, N.A. v. Sabeniano, G.R. No. 156132, 6 February 2007.)
i. Exception - It is erroneous, however, to conclude that contracts of adhesion
are invalid per se. They are, on the contrary, as binding as ordinary contracts.
A party is in reality free to accept or reject it. A contract of adhesion becomes
void only when the dominant party takes advantage of the weakness of the
other party, completely depriving the latter of the opportunity to bargain on
equal footing. (Perez v. Development Bank of the Philippines citing Rizal
Commercial Banking Corporation v. Court of Appeals)

2. Issue #2
a) Escalation clauses are not void per se. However, one "which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the
agreement" is void. Clauses of that nature violate the principle of mutuality of
contracts. (New Sampaguita Builders Construction, Inc. v. Philippine National Bank,
citing Philippine National Bank v. Court of Appeals)
b) A contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them (Civil Code, Article 1308).
c) For this reason, we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum
rate of interest is increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable
 maximum rate of interest is reduced by law or by the Monetary Board (de-
escalation clause) (Llorin v. Court of Appeals)

3. Issue #3
a) Article 1250 - In case an extraordinary inflation or deflation of the currency
stipulated should intervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.
i. For extraordinary inflation (or deflation) to affect an obligation, the following
requisites must be proven:
1. that there was an official declaration of extraordinary inflation or
deflation from the Bangko Sentral ng Pilipinas (BSP);
2. that the obligation was contractual in nature; and
3. that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.

4. Issue #4
a) Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty to the wrongdoer. To be entitled
to moral damages, a claimant must prove:
1. That he or she suffered besmirched reputation, or physical, mental or
psychological suffering sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the
damages the claimant sustained;
4. The case is predicated on any of the instances expressed or envisioned
by Article 2219 and 2220 .
b) In culpa contractual or breach of contract, moral damages are recoverable only if
the defendant acted fraudulently or in bad faith or in wanton disregard of his contractual
obligations. (Philippine National Bank v. Pike citing Philippine Telegraph & Telephone
Corporation v. Court of Appeals) The breach must be wanton, reckless, malicious or in bad
faith, and oppressive or abusive (Salvador v. Court of Appeals).
c) The relationship between a bank and its depositor is that of creditor and debtor.
For this reason, a bank has the right to set-off the deposits in its hands for the payment of a
depositor's indebtedness (Gullas v. National Bank, 62 Phil. 519, 521 (1935) citing Fulton Iron
Works Co. v. China Banking Corporation, 55 Phil. 208 (1930) and San Carlos Milling Co. v.
Bank of the Philippine Islands and China Banking Corporation, 59 Phil. 59 (1933)).

APPLICATION
1. Issue #1
a) While the RTC categorically found that respondents had outstanding dollar - and
peso-denominated loans with Equitable, it, however, failed to ascertain the total amount due
(principal, interest and penalties, if any) as of July 9, 2001. The trial court did not explain how
it arrived at the amounts of US$228,200 and P1,000,000.

2. Issue #2
a) With regard to the proper rate of interest, in New Sampaguita Builders v.
Philippine National Bank we held that, because the escalation clause was annulled, the
principal amount of the loan was subject to the original or stipulated rate of interest. Upon
maturity, the amount due was subject to legal interest at the rate of 12% per annum.
b) Equitable dictated the interest rates if the term (or period for repayment) of the
loan was extended. Respondents had no choice but to accept them. This was a violation of
Article 1308 of the Civil Code. Furthermore, the assailed escalation clause did not contain
the necessary provisions for validity, that is, it neither provided that the rate of interest
would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation.
For these reasons, the escalation clause was void.
c) Consequently, respondents should pay Equitable the interest rates of 12.66% p.a.
 for their dollar-denominated loans and 20% p.a. for their peso-denominated loans from
January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest of 12%
p.a. on all amounts due.

3. Issue #3
a) Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation.
Moreover, although the obligation in this instance arose out of a contract, the parties did not agree to
recognize the effects of extraordinary inflation (or deflation). The RTC never mentioned that there
was a such stipulation either in the promissory note or loan agreement. Therefore, respondents
should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.

4. Issue #4
a) Respondents indeed defaulted on their obligation. For this reason, Equitable had
the option to exercise its legal right to set-off or compensation. However, the RTC
mistakenly (or, as it now appears, deliberately) concluded that Equitable acted "fraudulently
or in bad faith or in wanton disregard" of its contractual obligations despite the absence of
proof. The undeniable fact was that, whatever damage respondents sustained was purely the
consequence of their failure to pay their loans. There was therefore absolutely no basis for
the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents were
not entitled to moral damages, neither should they be awarded exemplary damages. And if
respondents were not entitled to moral and exemplary damages, neither could they be
awarded attorney's fees and litigation expenses.

13. ILEANA DR. MACALINO vs BPI

Facts
Ileana Macalinao was an approved cardholder of BPI Mastercard. Macalinao made purchases
with the her card and defaulted in the payment of the purchases made. Macalinao received a letter
from BPI demanding payment of the amount of 141,518.34 pesos. Under the terms and conditions,
interest rate of 3% per month on the unpaid balance and a penalty to another 3% per month. Due
to Macalinao’s failure to settle her obligation, BPI filed with the MeTC of Makati City a complaint
for sum of money against Macalinao and her Danilo Macalinao (husband). The spouses failed to
file an answer which led to BPI expediting the proceeding. MeTC ruled in favor of BPI and
ordered petitioner Macalinao and her husband to pay 141,518.34 plus interest and penalty
charges of 2% per month. Spouses Macalinao filed in the RTC their recourse. The RTC affirmed
the decision of the MeTC. An appeal was made to the CA and modified the decision of the RTC to
126,760.70 pesos, plus interest and penalty charges of 3% per month from 5 January 2004 and
10,000.00 for attorney’s fees.
Further, the CA also emphasized that respondent BPI should not compound the interest
in the instant case absent a stipulation to that effect. The CA also held, however, that the MeTC
erred in modifying the amount of interest rate from 3% monthly to only 2% considering that
petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to
the general public. It explained that contracts of adhesion are not invalid per se and are not
entirely prohibited. Petitioner Macalinao’s motion for reconsideration was denied by the CA in its
Resolution dated November 21, 2006.

Issue
I. The reduction of interest rate, from 9.25% to 2%, should be upheld since the stipulated rate of
interest was unconscionable and iniquitous, and thus illegal.
Ii.the court of appeals arbitrarily modified the reduced rate of interest from 2% to 3%, contrary
to the tenor of its own decision.
Iii. The court a quo, instead of proceeding with a recomputation, should have dismissed the case
for failure of respondent bpi to prove the correct amount of petitioner’s obligation, or in the
alternative, remanded the case to the lower court for respondent bpi to present proof of the
correct amount thereof.
Ruling
CONCLUSION
WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated
June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIED with respect to the
total amount due, interest rate, and penalty charge. Accordingly, petitioner
Macalinao is ordered to pay respondent BPI the following:
(1) The amount of one hundred twelve thousand three
hundred nine pesos and fifty-two centavos (PhP 112,309.52) plus
interest and penalty charges of 2% per month from January 5, 2004
until fully paid;
(2) PhP 10,000 as and by way of attorney’s fees; and
(3) Cost of suit.

RULES STATEMENT
1. a) We held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must
be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had
affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to
morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of
maturity, nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. (Emphasis supplied.)

b) Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case since what
may be iniquitous and unconscionable in one may be totally just and equitable in
another.

APPLICATON
1. a) We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per
month should be equitably reduced to 2% per month or 24% per annum. Indeed, in the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3%
interest rate. Nevertheless, it should be noted that this is not the first time that this Court has
considered the interest rate of 36% per annum as excessive and unconscionable.
Since the stipulation on the interest rate is void, it is as if there
was no express contract thereon. Hence, courts may reduce the
interest rate as reason and equity demand.

b) In the instant case, the records would reveal that petitioner

Macalinao made partial payments to respondent BPI, as indicated in her
Billing Statements.20 Further, the stipulated penalty charge of 3% per
month or 36% per annum, in addition to regular interests, is indeed
iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to
reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly
and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a
 total of 2% per month or 24% per annum in line with the prevailing
jurisprudence and in accordance with Art. 1229 of the Civil Code.

14. HEIRS OF SERVANDO FRANCO vs SPOUSES GONZALES

Facts
Servando Franco and Leticia Medel obtained a P50,000.00 loan from Veronica R. Gonzales
who was engaged in the money lending business under “Gonzales Credit Enterprises” payable in two
months. Veronica gave P47,000.00 to the to the borrowers and retained P3,000.00 as advance
interest for one month at 6% per month. Servando and Leticia executed a promissory note for
P50,000.00 to evidence the loan. Servando and Leticia got another loan from Veronica for P90,000.00,
payable in two months at the same interest rate per month and received P84,000.00 out of the loan.
On maturity the borrowers failed to pay for the two debts they got from Veronica. Servando
and Leticia secured another loan of P300,000.00, maturing in one month, secured by a real estate
mortgage belonging to Leticia Makalintal Yaptinchay who issued an SPA in favor of Leticia,
authorizing her to execute the mortgage. Servando and Leticia was only given P275,000.00 from the
P300,000.00 loan from Veronica. Yet again, both failed to pay for the debt. Another loan was
executed, this time with the husband of Leticia Dr. Rafael Medel, amounting to P500,000.00 which
was yet again not paid. Veronica R. Gonzales and her husband Danilo G. Gonzales file in the RTC of
Bulacan a complaint for collection of the full amount of the loan including interest and other charges.
In an answer, Servando alleged he did not obtain loans from the Veronica that it was Leticia
and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00. Servando claimed
that he only signed the promissory note as a witness with respect to the real estate mortgage. Leticia
and Rafael claimed that the loan was by Leticia Yaptinchay who executed the mortgage in favor of the
plaintiffs. That the interest rate is excessive at 5.5% per month with additional service charge of 2%
per annum, and penalty charge of 1% per month, and 25% attorneys fee. After trial, the four
promissory notes were duly proved, and notwithstanding the Usury Law being repealed, the interest
was unconscionable and revolting to the conscience hence the trial court reduced the debt to be paid
by Servando and Leticia.
In their appeal to the CA, spouses Gonzaes argued that the promissory note is the law that
governs the parties. Arguing further, Circular No. 416 of the Cetral Bank prescribing the rate of
interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in the
absence of a stipulation on interest rate, but not when the parties agreed thereon. CA sustained the
contention and rule, "the Usury Law having become ‘legally inexistent’ with the promulgation by the
Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that
may be charged on the loan. The imposition of ‘an additional amount equivalent to 1% per month of
the amount due and demandable as penalty charges in the form of liquidated damages until fully
paid’ was allowed by law". The CA ruled in favor of the spouses and ordered the payment of
P500,000.00.
A motion for reconsideration was filed by Servando and Leticia, but was denied. Although,
upon review, the Court struck down as void the stipulation for being iniquitous or unconscionable and
revived the judgment of the RTC. Spouses Gonzales moved for execution where Servando opposed
claiming the agreement between spouses Gonzales to fix the entire obligation at P775,000.00 which
was embodied in a receipt. An initial payment of P400,000.00 and promised to pay the balance of
P375,000.00 superseded the promissory note. This arrangement of Servando did not sit well with the
RTC. The RTC ordered a high regard on the execution they made which is to hold solidary both
Servando and Leticia Medel to pay for the debt. A motion for reconsideration by Servando was denied
and the CA affirmed the RTC’s decision due to Servando’s failure to comply with the terms of the
compromise agreement. The spouses Gonzales said that Servando’s payments cannot alter, modify,
or revoke the decision of the SC. Even when there is a compromise agreement the execution ordered
by the court shall sustain. Servando appealed but was substituted by his heirs due to his intervening
death.

Issue
Was there a novation of the August 23, 1986 promissory note when respondent Veronica
Gonzales issued the February 5, 1992 receipt
Ruling
CONCLUSION
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated
on March 19, 2003; ORDERS the Regional Trial Court, Branch 16, in Malolos, Bulacan to proceed with
the execution based on its decision rendered on December 9, 1991, deducting the amount of
₱400,000.00 already paid by the late Servando Franco; and DIRECTS the petitioners to pay the costs of
suit.

RULE STATEMENT
1. A novation arises when there is a substitution of an obligation by a subsequent one that
extinguishes the first, either by changing the object or the principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the rights of the creditor. (Foundation
Specialists, Inc. v. Betonval Ready Concrete) For a valid novation to take place, there must be,
therefore: (a) a previous valid obligation; (b) an agreement of the parties to make a new contract; (c)
an extinguishment of the old contract; and (d) a valid new contract. (Valenzuela v. Kalayaan
Development & Industrial Corporation; Bautista v. Pilar Development Corporation) In short, the new
obligation extinguishes the prior agreement only when the substitution is unequivocally declared, or
the old and the new obligations are incompatible on every point. A compromise of a final judgment
operates as a novation of the judgment obligation upon compliance with either of these two
conditions. (Magbanua v. Uy)
a) There is incompatibility when the two obligations cannot stand
together, each one having its independent existence. If the two
obligations cannot stand together, the latter obligation novates the first.
Changes that breed incompatibility must be essential in nature and not
merely accidental. The incompatibility must affect any of the essential
elements of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change is merely modificatory in
nature and insufficient to extinguish the original obligation.

APPLICATION
1. Novation did not transpire because no irreconcilable incompatibility existed
between the promissory note and the receipt. To be clear, novation is not presumed.
This means that the parties to a contract should expressly agree to abrogate the old
contract in favor of a new one. In the absence of the express agreement, the old and
the new obligations must be incompatible on every point. According to California Bus
Lines, Inc. v. State Investment House, Inc. The issuance of the receipt created no new
obligation. Instead, the respondents only thereby recognized the original obligation by
stating in the receipt that the ₱400,000.00 was "partial payment of loan" and by
referring to "the promissory note subject of the case in imposing the interest." The loan
mentioned in the receipt was still the same loan involving the ₱500,000.00 extended to
Servando.
The receipt dated February 5, 1992 was only the proof of Servando’s
payment of his obligation as confirmed by the decision of the RTC. It did not establish
the novation of his agreement with the respondents. Indeed, the Court has ruled that
an obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, or changes only the terms of payment, or adds other obligations
not incompatible with the old ones, or the new contract merely supplements the old
one.
A new contract that is a mere reiteration, acknowledgment or ratification
of the old contract with slight modifications or alterations as to the cause or object or
principal conditions can stand together with the former one, and there can be no
incompatibility between them.
Worth noting is that Servando’s liability was joint and solidary with his co-
debtors. In a solidary obligation, the creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously.27 The choice to determine
against whom the collection is enforced belongs to the creditor until the obligation is
 fully satisfied.28 Thus, the obligation was being enforced against Servando, who, in
order to escape liability, should have presented evidence to prove that his obligation
had already been cancelled by the new obligation or that another debtor had assumed
his place.
Lastly, the extension of the maturity date did not constitute a novation of
the previous agreement. It is settled that an extension of the term or period of the
maturity date does not result in novation.

15. ABS-CBN BROADCASTING CORP vs. CA ET AL

Facts
ABS-CBN and Viva executed a Film Exhibition Agreement where Viva gave ABS-CBN an
exclusive right to exhibit some Viva films in accordance with par. 2.4 in the said agreement giving ABS-
CBN the right of first refusal to the next 24 films of Viva (Meaning of Right of Firs Refusal: A right of first refusal is a contractual right
giving its holder the option to transact with the other contracting party before others can. )
Vicente Del Rosario (Viva) offered vice-president
Charo Santos-Concio (ABS-CBN) a list of 3 film packages with 36 titles all of which that were ticked off
are not subject except for the filme “Maging Sino Ka Man.” A letter was sent from Mrs. Concio to Del
Rosario requesting for additional runs of the list of movies provided by Mrs. Concio as well as
requesting for the addition of other Viva movies produced last year.
Del Rosario yet again provided a list of 52 original movies (not yet aired) including the 14
titles subject of the present case as well as 104 re-runs from which ABS-CBN may choose another 52
titles, a total of 156 titles proposed to sell to ABS-CBN airing rights over this package of 52 original and
52 re-runs for 60 million pesos of which 30 million pesos will be in cash and 30 million pesos of
television spots. Del Rosario met with Eugenio Lopez III in Tamarind Grill Resto in Quezon City to
discuss the package proposal. Conflicting sides of the story were made in the meeting.
Lopez testified the agreement that ABS-CBN was granted exclusive film rights to the 14 films
for a total of 36 million pesos all written on a “napkin”signed and gave it to Del Rosario. Del Rosarios
denied having made an agreement with Lopez and denied said napkin. Del Rosario insisted that the
discussion was an agreement of 104 films for 60 million pesos. Lopez promising to make a counter
proposal which came in a form of contract.
A handwritten note from Mrs. Concio with a counter-proposal covering 53 films for 35
million pesos but the board of directors of Viva rejected and stated that it will not sell anything less
than 104 films for 60 million pesos. Later on, Del Rosario and Teresita Cruz in consideraton of 60
million pesos, signed a letter of agreement granting Republic Broadcasting Corporation exclusive
rights to air 104 viva produced films including the 14 films subject in the case.
CASE FLOW: ABS-CBN went to the RTC for specific performance w/ prayer for a writ of
preliminary injunction and/or TRO (civil case). RTC issued said TRO enjoining respondents from
proceeding with airing starting with Maging Sino Ka Man that was set for airing. After proceedings,
RTC issued an order directing the issuance of preliminary injunction upon ANS-CBN posting 35 million
peso bond. ABS-CBN moved for a reduction, respondents moved for reconsideration. RTC issued an
order dissolving the writ of preliminary injunction upon RBS posting of 30 million counter bond to
answer for damages reducing ABS-CBNs injunction bond to 15 million pesos. At pre-trial parties
looked into a possibility of an amicable settlement. A counter bond was posted by RBS due to the
failure of an amicable settlement. ABS-CBN filed a motion for reconsideration which RBS opposed.
RTC conducted pre-trial.
A case was filed by ABS-CBN to the CA praying for the preliminary injunction made in the RTC
to be enforced. CA issued the temporary restraining order. CA decided dismissing the petition for
being premature. ABS-CBN challenged the dismissal in a petition for review with the SC.
RTC received the evidence for the parties which later rendered a decision in favor of RBS and
VIVA against ABS-CBN. The RTC believed that there was no meeting of the minds on the price and
terms that an approval from the VIVA Board of Directors not the agreement of Del Rosario a mere
agent with Lopez.

Issue
(1) whether there was a perfected contract between VIVA and ABS-CBN
(2) whether RBS is entitled to damages and attorney's fees.

Ruling
 CONCLUSION
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court
of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's
fees in favor of VIVA Productions, Inc.

RULE STATEMENT
1.
a) Civil Code - Art. 1318: there is no contract unless the following requisites
concur:
(i) consent of the contracting parties;
(ii) object certain which is the subject of the contract; and
(iii) cause of the obligation, which is established

b) Toyota Shaw, Inc. v. Court of Appeals:

(i) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement
of the parties;
(ii) perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
(iii) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract.

c) Corporation Code of the Philippines - B.P. Blg. 68, Sec. 23

i) Under Corporation Code, unless otherwise provided by said
Code, corporate powers, such as the power; to enter into contracts; are
exercised by the Board of Directors. However, the Board may delegate such
powers to either an executive committee or officials or contracted
managers.

ii) JOSE C. CAMPOS, JR., and MARIA CLARA LOPEZ-CAMPOS, THE

CORPORATION CODE - The delegation, except for the executive committee,
must be for specific purposes, Delegation to officers makes the latter
agents of the corporation; accordingly, the general rules of agency as to the
bindings effects of their acts would apply.

2.
a) Civil Code
Art. 2199
i) Except as provided by law or by stipulation, one is entitled to compensation for actual damages only
for such pecuniary loss suffered by him as he has duly proved.

Art. 2200
ii) The indemnification shall comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain.

Art. 2201
iii) In contracts and quasi-contracts the damages which may be awarded are dependent on whether
the obligor acted with good faith or otherwise, in case of good faith, the damages recoverable are
those which are the natural and probable consequences of the breach of the obligation and which the
parties have foreseen or could have reasonably foreseen at the time of the constitution of the
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be
responsible for all damages which may be reasonably attributed to the non-performance of the
obligation.

Art 2202
iv) In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of, whether or not such damages has been
foreseen or could have reasonably been foreseen by the defendant.

Art 2205
v) Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiff's business standing or
commercial credit.

b)
i) Firestone Tire & Rubber Company of the Philippines v. Ines
Chaves & Co. Ltd., Philippine Air Lines v. Miano:
The general rule is that attorney's fees cannot be
recovered as part of damages because of the policy that no
premium should be placed on the right to litigate.

ii) Scott Consultants & Resource Development Corporation, Inc. v.

Court of Appeals:
They are not to be awarded every time a party wins a
suit. The power of the court to award attorney's fees under
Article 2208 demands factual, legal, and equitable justification.

c)
i) The elements of abuse of right under Article 19 are the following: (1) the existence of a
legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not
especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has
the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good
custom, public order, or public policy, and (3) and it is done with intent to injure.
ii) If damages result from a person's exercise of a right, it is damnum
absque injuria meaning: person sustains actual damage, that is, harm or loss to his person or property, without
sustaining any legal injury, that is, an act or omission which the law does not deem an injury

APPLICATION
1.
a) When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104
VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form
of a draft contract proposing exhibition of 53 films for a consideration of P35
million. This counter-proposal could be nothing less than the counter-offer of Mr.
Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly,
there was no acceptance of VIVA's offer, for it was met by a counter-offer which
substantially varied the terms of the offer.

b) That Del Rosario did not have the authority to accept ABS-CBN's
counter-offer was best evidenced by his submission of the draft contract to VIVA's
Board of Directors for the latter's approval. In any event, there was between Del
Rosario and Lopez III no meeting of minds.

2
a) The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-
delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of
cause of action.
It may further be observed that in cases where a writ of
preliminary injunction is issued, the damages which the defendant may
 suffer by reason of the writ are recoverable from the injunctive bond. In
this case, ABS-CBN had not yet filed the required bond; as a matter of fact,
it asked for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter, Clearly then, it was not necessary for
RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for
the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for
"Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction on
the basis of its determination that there existed sufficient ground for the
issuance thereof. Notably, the RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but because of the plea of RBS
that it be allowed to put up a counterbond.

b) They are not to be awarded every time a party wins a suit. The power of the court to award
attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still
attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a
party's persistence in a case other than erroneous conviction of the righteousness of his cause.
Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer (Pagsuyuin v. Intermediate Appellate Court).
The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or
amusements that will serve to obviate then moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible,
of the spiritual status quo ante, and should be proportionate to the
suffering inflicted (Visayan Sawmill Company v. Court of Appeals).
The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence only in
legal contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be
experienced only by one having a nervous system (Prime White Cement
Corp. v. Intermediate Appellate). The statement in People v. Manero 66
and Mambulao Lumber Co. v. PNB 67 that a corporation may recover
moral damages if it "has a good reputation that is debased, resulting in
social humiliation" is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
They are recoverable in criminal cases as part of the civil liability
when the crime was committed with one or more aggravating
circumstances; 69 in quasi-contracts, if the defendant acted with gross
negligence; 70 and in contracts and quasi-contracts, if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner.71
(Art. 2230, 2231 & 2232)

16. NERI ET AL. vs HEIRS OF UY

Facts
Anunciacion Neri had seven children, two from her first marriage with Gonzalo: Eutropia and
Victoria, and 5 from Enrique: Napoleon, Alicia, Visminda, Douglas and Rosa. Throughout the marriage
of spouses Anunciacion and Enrique, they acquired several homestead properties with a total of
296,555 square meters located in Davao embraced by Original Certificate of Title.
When Anunciacion died intestate her husband, Enrique, in his capacity and as natural
guardian of the children executed an Extra-Judicial Settlement of the Estate with Absolute Deed of
Sale adjudicating among themselves the said homestead properties and thereafter conveying the
properties to Spouses Uy. The children of Enrique filed a complaint for annulment of sale of the said
homestead properties against the spouses Uy before the RTC having been sold in the prohibited
period. The complaint was later amended to include Eutropia and Victoria as additional plaintiffs due
to exclusion and deprived of their legitimes as children of the first marriage. Spouses Uy claimed the
sale was executed after the 5 year prohibitory period.

Procedure: RTC - Ordered the annulment of the Extra-Judicial Settlement of the Estate with Absolute
Deed of Sale. Sale was void due to the exclusion of Eutropia and Victoria. CA - On appeal, CA reversed
and set aside the RTC ruling. CA found it unconscionable to permit the annulment of the sale
considering the spouses possession thereof for 17 years.

Issue
I. When it upheldthe validity of the "Extra judicial settlement of the estate with absolute
deed of sale" As far as the shares of eutropia and victoria were concerned, thereby depriving them of
their inheritance;
ii. When it did not nullify or annul the "Extra judicial settlement of the estate with absolute
deed of sale" With respect to the sharesof rosa and douglas, thereby depriving them of their
inheritance; and
iii. When it found that laches or prescription has set in.

Ruling
CONCLUSION
WHEREFORE, the instant petition is GRANTED. The April 27, 2010 Decision and
October 18, 2010 Resolution of the Court of Appeals are REVERSED and SET ASIDE and a new
judgment is entered:
1. Declaring the Extra-Judicial Settlement of the Estate of Anunciacion
Neri NULL and VOID;
2. Declaring the Absolute Deed of Sale in favor of the late spouses Hadji Yusop Uy
and Julpha Ibrahim Uy as regards the 13/16 total shares of the late Enrique Neri, Napoleon
Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-Millan VALID;
3. Declaring Eutropia D. Illut-Cockinos, Victoria D. Illut-Piala and Douglas D. Neri as
the LAWFUL OWNERS of the 3/16 portions of the subject homestead properties, covered by
Original Certificate of Title Nos. (P-7998) P-2128, (P-14608) P-5153 and P-20551 (P-8348);
and
4. Ordering the estate of the late Enrique Neri, as well as Napoleon Neri, Alicia D.
Neri-Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-Millan to return to the
respondents jointly and solidarily the amount paid corresponding to the 3/16 shares of
Eutropia, Victoria and Douglas in the total amount of ₱ 15,000.00, with legal interest at 6%
per annum computed from the time of payment until finality of this decision and 12% per
annum thereafter until fully paid.

RULE STATEMENT
1.
a . …pursuant to Articles 979 and 980 of the Civil Code which read:
ART. 979. Legitimate children and their descendants succeed the
parents and other ascendants, without distinction as to sex or age, and
even if they should come from different marriages.
xxx
ART. 980. The children of the deceased shall always inherit from
him in their own right, dividing the inheritance in equal shares.

b. Articles 320 and 326 of the Civil Code, the laws in force at the time of the
execution of the settlement and sale, provide:
ART. 320. The father, or in his absence the mother, is the
legal administrator of the property pertaining to the child under
parental authority. If the property is worth more than two
 thousand pesos, the father or mother shall give a bond subject to
the approval of the Court of First Instance.
ART. 326. When the property of the child is worth more
than two thousand pesos, the father or mother shall be
considered a guardian of the child’s property, subject to the
duties and obligations of guardians under the Rules of Court.

Corollarily, Section 7, Rule 93 of the Rules of Court also provides:

SEC. 7. Parents as Guardians. – When the property of the

child under parental authority is worth two thousand pesos or
less, the father or the mother, without the necessity of court
appointment, shall be his legal guardian. When the property of
the child is worth more than two thousand pesos, the father or
the mother shall be considered guardian of the child’s property,
with the duties and obligations of guardians under these Rules,
and shall file the petition required by Section 2 hereof. For good
reasons, the court may, however, appoint another suitable
persons.

c. Articles 1317 and 1403(1) of the Civil Code which provide:

ART. 1317. No one may contract in the name of another without
being authorized by the latter or unless he has by law a right to represent
him.
A contract entered into in the name of another by one
who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.

ART. 1403. The following contracts are unenforceable, unless they

are ratified:
(1) Those entered into the name of another person by
one who has been given no authority or legal representation, or
who has acted beyond his powers;
xxx

APPLICATION
1.
a. As such, upon the death of Anunciacion on September 21, 1977, her
children and Enrique acquired their respective inheritances, entitling them to their
pro indiviso shares in her whole estate. Hence, in the execution of the Extra-Judicial
Settlement of the Estate with Absolute Deed of Sale in favor of spouses Uy, all the
heirs of Anunciacion should have participated. Considering that Eutropia and
Victoria were admittedly excluded and that then minors Rosa and Douglas were
not properly represented therein, the settlement was not valid and binding upon
them and consequently, a total nullity.
However, while the settlement of the estate is null and void, the
subsequent sale of the subject properties made by Enrique and his children,
Napoleon, Alicia and Visminda, in favor of the respondents is valid but only with
respect to their proportionate shares therein. It cannot be denied that these heirs
have acquired their respective shares in the properties of Anunciacion from the
moment of her death11 and that, as owners thereof, they can very well sell their
undivided share in the estate.
 b. With respect to Rosa and Douglas who were minors at the time of the
execution of the settlement and sale, their natural guardian and father, Enrique,
represented them in the transaction. However, on the basis of the laws prevailing at
that time, Enrique was merely clothed with powers of administration and bereft of
any authority to dispose of their 2/16 shares in the estate of their mother,
Anunciacion.
Administration includes all acts for the preservation of the property and
the receipt of fruits according to the natural purpose of the thing. Any act of
disposition or alienation, or any reduction in the substance of the patrimony of
child, exceeds the limits of administration.13 Thus, a father or mother, as the
natural guardian of the minor under parental authority, does not have the power
to dispose or encumber the property of the latter. Such power is granted by law
only to a judicial guardian of the ward’s property and even then only with courts’
prior approval secured in accordance with the proceedings set forth by the Rules of
Court.

c. Ratification means that one under no disability voluntarily adopts and

gives sanction to some unauthorized act or defective proceeding, which without
his sanction would not be binding on him. It is this voluntary choice, knowingly
made, which amounts to a ratification of what was theretofore unauthorized, and
becomes the authorized act of the party so making the ratification.16 Once ratified,
expressly or impliedly such as when the person knowingly received benefits from
it, the contract is cleansed from all its defects from the moment it was
constituted,17 as it has a retroactive effect.
Records, however, show that Rosa had ratified the extrajudicial
settlement of the estate with absolute deed of sale. In Napoleon and Rosa’s
Manifestation18 before the RTC.
The same, however, is not true with respect to Douglas for lack of
evidence showing ratification. Considering, thus, that the extrajudicial settlement
with sale is invalid and therefore, not binding on Eutropia, Victoria and Douglas,
only the shares ofEnrique, Napoleon, Alicia, Visminda and Rosa in the homestead
properties have effectivelybeen disposed in favor of spouses Uy. "A person can only
sell what he owns, or is authorized to sell and the buyer can as a consequence
acquire no more than what the sellercan legally transfer."

d. Consequently, spouses Uy or their substituted heirs became pro

indiviso co-owners of the homestead properties with Eutropia, Victoria and
Douglas, who retained title to their respective 1/16 shares. They were deemed to
be holding the 3/16 shares of Eutropia, Victoria and Douglas under an implied
constructive trust for the latter’s benefit, conformably with Article 1456 of the Civil
Code which states:"if property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the benefit
of the person from whom the property comes." As such, it is only fair, just and
equitable that the amount paid for their shares equivalent to ₱ 5,000.0021 each or
a total of ₱ 15,000.00 be returned to spouses Uy with legal interest.

e. On the issue of prescription, the Court agrees with petitioners that the
present action has not prescribed in so far as it seeks to annul the extrajudicial
settlement of the estate. an "action or defense for the declaration of the inexistence
of a contract does not prescribe" in accordance with Article 1410 of the Civil Code.
However, the action to recover property held in trust prescribes after 10 years
from the time the cause of action accrues,22 which is from the time of actual notice
in case of unregistered deed. In this case, Eutropia, Victoria and Douglas claimed to
have knowledge of the extrajudicial settlement with sale after the death of their
father, Enrique, in 1994 which spouses Uy failed to refute. Hence, the complaint
filed in 1997 was well within the prescriptive period of 10 years.
17. AGAN vs PIATCO

18. PAJUYO vs CA ET AL