Sps.

Viloria v Continental Airlines

GR No. 188288

16 January 2012

Facts:

 In July 1997, Fernando Viloria purchased two round-trip Continental Airlines tickets
from San Diego to Newark for himself and his wife Lourdes, through Holiday Travel, a
travel agency, for $400 each.
 The tickets were purchased based on the travel agent Margaret Mager’s claim that
Amtrak was fully booked.
 Fernando later discovered that Amtrak had available seats, which led him to demand a
refund, claiming misrepresentation.
 Continental Airlines denied the refund, citing that the tickets were non-refundable, but
offered re-issuance within one or two years.
 When Fernando tried to use the tickets in 1999 to get a round-trip ticket to Los Angeles,
he was charged $1,867.40, refused use of Lourdes’ ticket (non-transferable), and again
denied a refund.
 The Vilorias sued Continental Airlines, seeking refund, moral and exemplary
damages, and attorney's fees.

RTC Ruling:

 Found that Mager acted in bad faith and misled the Vilorias into purchasing the tickets.
 Held that Mager was CAI’s agent, citing Articles 1868 and 1869 of the Civil Code.
 Ordered CAI to refund the tickets due to fraudulent misrepresentation and bad faith.

CA Ruling:

 Reversed RTC. Held that:

o No agency relationship was proven between CAI and Holiday Travel.
o The transaction was a contract of sale, not agency.
o The tickets were clearly non-refundable, and CAI acted within its rights.
o CAI’s pricing for the new ticket was within its business discretion.

Issues for the Supreme Court:

1. Whether a principal-agent relationship existed between CAI and Holiday Travel.

2. If yes, whether CAI is liable for Mager’s acts as Holiday Travel’s agent.
3. Whether Mager’s statements amounted to fraudulent misrepresentation.
4. Whether CAI was justified in insisting that the tickets were non-transferable and non-
refundable.
 5. Whether CAI breached its undertaking by charging an allegedly excessive amount for
the replacement ticket.

RULING:

I. Existence of Agency between CAI and Holiday Travel

The Supreme Court found that a principal-agent relationship existed between Continental
Airlines, Inc. (CAI) and Holiday Travel, contrary to the Court of Appeals’ (CA) ruling. The
CA erred by characterizing the relationship as a contract of sale and not recognizing the agency
elements: consent, juridical act on behalf of the principal, representation, and authority.
Evidence, including CAI's acknowledgment of Holiday Travel’s authority to sell tickets on its
behalf, confirmed the agency. Thus, CAI is estopped from denying Holiday Travel’s authority.

II. No Vicarious Liability for Agent’s Employee Absent Proof of Fault

Although Holiday Travel is CAI’s agent, the Court ruled that CAI cannot be held liable for the
alleged fraud of Mager (Holiday Travel’s employee) unless Spouses Viloria proved CAI’s
own fault, negligence, or control over Mager. Under quasi-delict principles, liability attaches
only if there’s direct culpability or supervisory control, which was not established by the
Vilorias. The principal-agent relationship does not automatically extend liability to the
agent’s employees.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still,
Spouses Viloria are not entitled to a refund. Mager’s statement cannot be considered a
causal fraud that would justify the annulment of the subject contracts that would oblige
CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and may
be annulled within four (4) years from the time of the discovery of the fraud. Once a
contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to
each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent
to the subject contracts was supposedly secured by Mager through fraudulent means, it is plainly
apparent that their demand for a refund is tantamount to seeking for an annulment of the subject
contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether
Mager’s alleged misrepresentation constitutes causal fraud. Similar to the dispute on the
existence of an agency, whether fraud attended the execution of a contract is factual in nature
and this Court, as discussed above, may scrutinize the records if the findings of the CA are
contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to
the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a
deception employed by one party prior to or simultaneous to the contract in order to secure the
consent of the other."32

Also, fraud must be serious and its existence must be established by clear and convincing
evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere
preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he would not
have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by
full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must
be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the personal conditions of
the victim."34

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses
Viloria has not been satisfactorily established as causal in nature to warrant the annulment of the
subject contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that
Mager’s statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there
were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time
they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely
informed them otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an
Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI
correctly pointed out and as Fernando admitted, it was possible that during the intervening period
of three (3) weeks from the time Fernando purchased the subject tickets to the time he talked to
said Amtrak employee, other passengers may have cancelled their bookings and reservations
with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of
fraud cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is
good faith that is. Under the Rules of Court, it is presumed that "a person is innocent of crime or
wrong" and that "private transactions have been fair and regular."35 Spouses Viloria failed to
overcome this presumption.

IV. Implied Ratification by Spouses Viloria

Even if there was fraud by Mager that could void the contracts, Spouses Viloria are deemed to
have ratified the contracts when they used the tickets or sought to use them to buy new ones.
Under the Civil Code (Art. 1392 and 1393), this constitutes tacit ratification, which
extinguishes their right to annul the contract.
Furthermore, by seeking rescission for contractual breach (under Article 1191) instead of
annulment (under Article 1390), they acknowledged the contract's validity, as one cannot
pursue both remedies simultaneously. You cannot accept benefits from a contract and also seek
to void it.
V. No Rescission for Slight Breach

CAI's refusal to allow the transfer of Lourdes’ ticket to Fernando was not a substantial breach
of contract. There was no explicit provision in the ticket or contract stating it was non-
transferable, and CAI should have clearly communicated any limitations. However, the breach
was not serious enough to justify rescission.

CAI still fulfilled its main obligation by offering to apply the value of the tickets toward new
ones, and Spouses Viloria refused to pay the balance, wrongly insisting on a lower fixed price.
The breach was therefore mutual and equal, which under Article 1192, means both parties bear
their own losses.

Additionally, the evidence provided by the Vilorias (a newspaper ad of another airline) to prove
cheaper ticket prices was inadmissible hearsay and had no probative value.

Final Ruling:

 CAI and Spouses Viloria were both in breach, so neither can cancel the contract.
 CAI must still issue new tickets if Spouses Viloria surrender the originals and pay any
balance.
 No moral or exemplary damages can be awarded since CAI did not act in bad faith.

St. Francis High School v Court of Appeals

FACTS:

Ferdinand Castillo, a freshman student at St. Francis High School, drowned during a
beach picnic organized by teachers of Sections I-B and I-C. His parents, Dr. Romulo and
Lilia Castillo, did not permit him to join the picnic but allowed him to deliver food to the
teachers. However, due to persuasion by teachers, Ferdinand joined the trip and later drowned
while trying to rescue another teacher. His parents filed a complaint for damages against the
school, its principal Benjamin Illumin, and several teachers, claiming negligence.

The trial court found six teachers negligent and held them jointly and severally liable for actual,
moral damages, and attorney’s fees. It absolved the school, its principal, and two other
teachers from liability, citing lack of direct involvement or authorization. On appeal, the
Court of Appeals modified the ruling, holding the school and the principal solidarily liable
with the teachers under Articles 2176 and 2180 of the Civil Code, and awarded additional
exemplary damages. It absolved teachers Yoly Jaro and Nida Aragones due to their non-
participation in the negligent acts.

Issue:

Whether St. Francis High School, its principal, and the teachers can be held jointly and
severally liable for the negligent supervision that resulted in the death of a student during a
school-related picnic, even if the activity was not officially sanctioned by the school.

RULING:
NO. The Supreme Court set aside the Court of Appeals' decision that held the teachers and
school liable for the drowning of a student during an unsanctioned picnic. The Court ruled that
the teachers were not negligent, and the school could not be held liable under Article 2180
of the Civil Code because the incident occurred outside school premises, on a non-school
day, and during a private, non-school-sanctioned activity. The teachers exercised due diligence
by inviting qualified personnel and attempting rescue efforts. Furthermore, the parents had
consented—at least implicitly—to their son’s participation in the picnic. Thus, no damages—
moral or exemplary—were awarded to the parents.
In the case at bar, the teachers/petitioners were not in the actual performance of their assigned
tasks. The incident happened not within the school premises, not on a school day and most
importantly while the teachers and students were holding a purely private affair, a picnic. It is
clear from the beginning that the incident happened while some members of the I-C class of St.
Francis High School were having a picnic at Talaan Beach. This picnic had no permit from the
school head or its principal, Benjamin Illumin because this picnic is not a school sanctioned
activity neither is it considered as an extra-curricular activity.
As earlier pointed out by the trial court, mere knowledge by petitioner/principal Illumin of
the planning of the picnic by the students and their teachers does not in any way or
in any manner show acquiescence or consent to the holding of the same. The
application therefore of Article 2180 has no basis in law and neither is it supported by
any jurisprudence. If we were to affirm the findings of respondent Court on this score,
employers wig forever be exposed to the risk and danger of being hailed to Court to
answer for the misdeeds or omissions of the employees even if such act or omission he
committed while they are not in the performance of their duties.
 REPUBLIC OF THE PHILIPPINES vs. HON. PERFECTO R. PALACIO, MACARIO M. OFILADA, and
ILDEFONSO ORTIZ G.R. No. L-20322 May 29, 1968

📌 FACTS:

 In 1960, Ildefonso Ortiz sued the Handong Irrigation Association, Inc. and the
Irrigation Service Unit (ISU) to recover land and damages.
 The ISU was an agency under the Department of Public Works and Communications.
It did not answer the complaint and was declared in default.
 The Republic of the Philippines, through the Solicitor General, moved to dismiss the
case, arguing that ISU has no legal personality to be sued because it is merely a
government office.
 The court denied this motion, saying the ISU was engaged in private business (selling
irrigation pumps and materials), and therefore could be sued.
 No appeal was made, so the decision became final.
 In 1962, a writ of execution and garnishment order was issued against the ISU’s trust
fund in the Philippine National Bank (PNB) to satisfy a judgment amounting to
₱14,874.40.
 The Solicitor General filed a motion to lift the garnishment, claiming the funds are public
funds and exempt from execution.
 The motion was denied. A petition for certiorari and prohibition was filed before the
Court of Appeals, which also denied the government’s petition.
 The Court of Appeals ruled that the ISU was engaged in private commercial activity,
meaning the government consented to be sued and its funds could be garnished.

⚖️ISSUE:

Whether or not the trust fund in the Irrigation Service Unit’s account at the Philippine National
Bank is public in nature and thus exempt from garnishment, or a private fund that may be
executed upon to satisfy a judgment.

RULING:

NO. The Irrigation Service Unit (ISU) is a government office, created to carry out an
economic assistance project with the U.S., not to operate as a profit-making business.

The trust fund in question came from public funds, specifically from the Counterpart Fund-
Special Account, used for the Pump Irrigation Project, which is a governmental activity.
Money from pump sales and interest is used not for profit, but to replenish government funds
and finance future project activities.
Even if the State consents to be sued, this does not mean its funds and property can be
seized to pay the judgment. Execution cannot issue against the State. It is the legislature that
decides how and whether to satisfy such judgments. Allowing garnishment of the ISU’s funds
would divert public money from its legally intended purpose, violating constitutional and
legal requirements on public spending.

The alleged liability of the ISU arose from a tort (wrongful act), not a contract. Under Article
2180 of the Civil Code, the State is only liable for torts committed by its special agents
acting outside of their normal duties. There was no evidence that ISU agents were specially
commissioned to commit the act, so the State cannot be held liable.

The Supreme Court REVERSED the Court of Appeals’ decision.

The garnishment order was declared null and void, and the preliminary injunction was made
permanent.

Exconde vs. Capuno [G.R. No. L-10134, June 29, 1957]

📌 FACTS:

 Dante Capuno, a 15-year-old student of Bilintawak Elementary School and a member

of the Boy Scouts Organization, was charged with double homicide through reckless
imprudence for the deaths of Isidoro Caperiña and Amado Ticzon on March 31,
1949, in the City of San Pablo.
 On that day, Dante attended a parade in honor of Dr. Jose Rizal in San Pablo City
upon the instruction of the city school’s supervisor.
 From the school, Dante and other students boarded a jeep. As it started to run, Dante
took control of the steering wheel while the actual driver sat on his left side.
 Shortly after, the jeep turned turtle, resulting in the deaths of passengers Amado
Ticzon and Isidoro Caperiña.
 During the criminal trial, Sabina Exconde, the mother of Isidoro Caperiña, reserved her
right to file a separate civil action for damages.
 After trial, Dante was found guilty, and the decision was affirmed by the Court of
Appeals.
 In her civil complaint, Sabina Exconde sought P2,959 in damages against both Dante
and his father Delfin Capuno.
 Delfin Capuno claimed he should not be held civilly liable because Dante was not
under his custody or supervision at the time. He further argued that he did not know
about the parade and only learned of it after the accident, when Dante told him he
attended it upon his teacher’s instructions.
  The trial court ruled in favor of Delfin Capuno, holding only Dante liable for
damages.
 Sabina appealed, raising a pure question of law, and the case was elevated to the
Supreme Court.

ISSUE:

Can Delfin Capuno be held civilly liable, jointly and severally with his minor son Dante, for the
damages resulting from the latter’s negligent act that caused the death of Isidoro Caperiña?

RULING:

The Supreme Court reversed the ruling of the trial court that absolved Delfin Capuno, the
father, of civil liability. It ruled that both Delfin Capuno and his minor son, Dante Capuno,
should be held jointly and severally liable for the amount of ₱2,959.00 in damages, which was
claimed by Sabina Exconde, mother of the deceased Isidoro Caperiña.

The Court anchored its decision on Article 1903 of the Spanish Civil Code, which was then in
force in the Philippines. The relevant portion of Article 1903 provides:

"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."

This provision establishes a form of vicarious liability of parents for the negligent acts of their
minor children who reside with them. The basis of such liability lies in the parental authority
and responsibility over the upbringing, supervision, and conduct of the minor.

The Court clarified that this parental liability exists by operation of law and is a natural
consequence of the duties imposed on parents under Articles 154 and 155 of the Spanish Civil
Code — namely, the duty to support, educate, guide, and discipline their children.

In this case, the minor, Dante Capuno, was only 15 years old at the time of the accident and was
living with his father. He was found criminally liable for reckless imprudence resulting in
double homicide, after he took control of a moving jeep during a school-related parade and
caused it to turn turtle, resulting in the deaths of two passengers.

Although Dante committed the act during a school activity, the Court did not find the school or
its personnel liable, because the liability of teachers or directors under the fifth paragraph of
Article 1903 only applies to institutions of arts and trades — which does not include public
elementary schools such as Balintawak Elementary School. Therefore, the Court dismissed
any liability on the part of the school supervisor or principal.
Furthermore, Delfin Capuno failed to present any proof that he exercised the diligence of a
good father of a family to prevent the damage, which is the only way a parent may escape
liability under Article 1903. His mere absence during the time of the accident and lack of
knowledge of his son's whereabouts was insufficient to absolve him.

Thus, the Court held that the presumption of liability remained unrebutted, and Delfin
Capuno was civilly liable together with his son.

SPOUSES DIONISIO ESTRADA AND JOVITA R. ESTRADA, Petitioners, v. PHILIPPINE

RABBIT BUS LINES, INC. AND EDUARDO R. SAYLAN, Respondents
G.R. No. 204026 | January 15, 2014

Facts:
On April 9, 2002, Dionisio Estrada, a passenger of a Philippine Rabbit Bus, was injured in a
vehicular collision in Pozorrubio, Pangasinan. The bus, driven by Eduardo Saylan, swerved to
the left to avoid a jeepney it was tailgating, thereby encroaching into the lane of an oncoming
Isuzu truck. This resulted in a collision that led to Dionisio’s right arm being amputated.

Dionisio and his wife filed a complaint for damages against the bus company and its driver,
claiming breach of the contract of carriage.

Dionisio argued that pursuant to the contract of carriage between him and Philippine Rabbit,
respondents were duty bound to carry him safely as far as human care and foresight can
provide with utmost diligence.

They sought moral damages (₱500,000), actual damages (₱60,000), and attorney’s fees
(₱25,000).

Philippine Rabbit denied liability, arguing the accident was due to a fortuitous event or the
negligence of the truck driver who had the last clear chance to avoid the mishap. The company
also claimed it exercised due diligence in hiring and supervising the driver.

RTC Ruling:

 The RTC ruled in favor of the Estradas.

 Found the bus driver negligent for tailgating and swerving into the opposite lane in
violation of traffic rules. It is presume that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any traffic regulation
 Held Philippine Rabbit jointly and severally liable with its driver.
 Awarded:
o ₱500,000 as moral damages,
o ₱57,766.25 as actual damages,
 o ₱25,000 as attorney’s fees.
 Philippine Rabbit failed to show that it had taken all the necessary an actual steps to
thoroughly examine the qualification of driver Eduardo and no proof relative to the
existence of company rules and regulations, instructions and policies affecting its drivers.
Hence, Philippine Rabbit was held jointly and severally liable with Eduardo. Philippine
Rabbit appealed to the CA imputed error upon the RTC in not finding that it exercised
diligence of a good father of a family in the selection and supervision of its drivers.

CA Ruling:

 Affirmed that Philippine Rabbit was liable under breach of contract of carriage.
 However, it deleted the award of moral damages, citing that moral damages are
generally not recoverable in breach of contract cases, unless there is fraud or bad
faith, or death occurs — none of which applied.

The Parties' Arguments

They argue that while in a strict sense, Dionisio incurred actual damages through the
amputation of his right arm, such loss may rightly be considered as falling under moral
damages. This is because a right arm is beyond the commerce of man and loss thereof
necessarily brings physical suffering, mental anguish, besmirched reputation, social
humiliation and similar injury to a person. At any rate, should this Court award the
amount of P500,000.00 as actual damages due to the loss of Dionisio's right arm,
petitioners also find the same proper and appropriate under the circumstances.

The respondents, now jointly represented, argue that moral damages are generally not
recoverable in breach of contract cases, as such is not included in Article 2219 of the Civil
Code. They acknowledge only two exceptions: when the breach results in death, or when the
carrier acted with fraud or bad faith. Since Dionisio did not die and Philippine Rabbit was
not proven to have acted fraudulently or in bad faith, they assert that the award of moral
damages has no legal or factual basis.

Issue:
Whether Philippine Rabbit is liable for moral damages under a breach of contract of carriage
when the passenger sustains serious injury (but not death) due to the carrier’s negligence.

RULING:
NO.
The Supreme Court modified the Court of Appeal’s decision. Moral damages are not recover breach of
contract cases unless fraud or bad faith is proven, in which it was not established here.
Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if
they are the proximate result of the defendant's wrongful act or omission. 21

Since breach of contract is not one of the items enumerated under Article
2219, moral damages, as a general rule, are not recoverable in actions for
damages predicated on breach of contract.33

x x x As an exception, such damages are recoverable [in an action for breach

of contract:] (1) in cases in which the mishap results in the death of a
passenger, as provided in Article 1764, 34 in relation to Article 2206(3) 35 of the Civil
Code; and (2) in x x x cases in which the carrier is guilty of fraud or bad faith, as
provided in Article 222036.37

Moral damages are not recoverable in this case.

It is obvious that this case does not come under the first of the above-mentioned
exceptions since Dionisio did not die in the mishap but merely suffered an
injury. Nevertheless, petitioners contend that it falls under the second
category since they aver that Philippine Rabbit is guilty of fraud or bad faith.

It is, however, settled that "damages for loss [or impairment] of earning capacity
is in the nature of actual damages x x x."45 Actual or compensatory damages are
those awarded in order to compensate a party for an injury or loss he suffered.

Thus, as a rule, documentary evidence should be presented to substantiate the

claim for damages for loss of earning capacity. By way of exception, damages for loss
[or impairment] of earning capacity may be awarded despite the absence of
documentary evidence when (1) the deceased [or the injured] was self-employed
and earning less than the minimum wage under current labor laws, in which
case, judicial notice may be taken of the fact that in the deceased's line of
work no documentary evidence is available; or (2) the deceased was
employed as a daily worker earning less than the minimum wage under
current labor laws.47

Here, it is unlikely that petitioners presented evidence to prove a claim for actual
damages based on loss/impairment of earning capacity since what they were claiming
at the outset was an award for moral damages.

Actual damages by way of medical expenses must be supported by official

receipts.
Anent petitioners' assertion that actual damages should be awarded to them for the
cost of replacement of Dionisio's amputated right arm, suffice it to state that
petitioners failed to show during trial that the said amputated right arm was
actually replaced by an artificial one. All that petitioners submitted was a
quotation of P160,000.00 for a unit of elbow prosthesis56 and nothing more.

Nonetheless, since it was established that Dionisio lost his right arm,
temperate damages in lieu of actual damages for loss/impairment of earning
capacity may be awarded in his favor. Under Article 2224, "[t]emperate or
moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the
case, be proved with certainty."

Legal interest is imposed on the amounts awarded.

In addition, the amounts of damages awarded are declared subject to legal interest of
6% per annum from the finality of this Decision until full satisfaction. 59

WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed May 16,
2012 Decision and October 1, 2012 Resolution of the Court of Appeals in CA-G.R. CV
No. 95520 are AFFIRMED with MODIFICATIONS as follows: (1) petitioners are
declared entitled to temperate damages of P500,000.00; (2) the award of actual
damages is set at the amount of P57,658.25; and (3) all damages awarded are subject
to legal interest of 6% per annum from the finality of this Decision until full satisfaction.

Scott Consultants & Resource Development Corporation, Inc. vs. Court of Appeals and
Philippine Rock Products, Inc.
G.R. No. 112809

Facts:
Scott Consultants entered into agreements in late 1988 and early 1990 granting it rights to
explore and develop mining claims in Rodriguez, Rizal. These claims were held by two separate
entities: Kadakilaan Estate and San Mateo Mines Exploration, Inc. (SMMEI).

Scott's agreements were registered with the DENR Mines and Geosciences Bureau, and it
claimed the right to operate on the site.

However, Philippine Rock Products, Inc. (Philrock), a previous operator of the same mining
site under an agreement with SMMEI, was notified by SMMEI on February 9, 1990, that
their agreement was terminated. Despite this, Philrock allegedly refused to vacate the site,
and prevented Scott from accessing the mining area, even after the Bureau of Mines issued a
cease and desist order.

Scott filed a complaint for damages against Philrock on April 2, 1990, alleging that it was
illegally barred from conducting its exploration activities, resulting in heavy financial losses
(₱300,000 per day), and sought exemplary damages and attorney’s fees.

Philrock denied liability, arguing that:

 It had valid easement rights over the land,

 The area in question was privately owned, and
 It had constructed exclusive access roads and infrastructure (e.g., a spillway) necessary
for its operations.

Philrock also filed a Third-Party Complaint against SMMEI, claiming damages due to the
abrupt termination of its contract. Intervening landowners also filed a Complaint in
Intervention, asserting that Scott had no right to enter the property without their consent.

The trial court issued temporary restraining orders and considered evidence from both parties.
Philrock claimed that Scott committed acts of trespass and sought moral and exemplary
damages in return.

The trial court ruled on the central issue of whether plaintiff Scott Consultants & Resource
Development Corp., Inc. (Scott) had the right to conduct exploration and related activities
within certain mining claims. Scott based its rights on contracts it had entered into with San
Mateo Mines Exploration, Inc. and Kadakilaan Estate.

The trial court found that:

1. San Mateo’s prior contract with Philrock (defendant Philippine Rock Products, Inc.)
covering the same mining area under Industrial Permit No. 40 remained valid. The
Mines and Geo-Sciences Bureau had issued a directive recognizing Philrock's rights
and rejected the subsequent agreement with Scott, citing PD No. 1281. The Bureau’s
decision was binding, and any challenge must be addressed to the Bureau itself, not the
court.
 2. San Mateo's unilateral termination of its contract with Philrock was unjustified and
thus invalid.
3. Scott’s agreement with Kadakilaan Estate was an Option Agreement that had expired
without Scott exercising the required notice. Hence, it gave no operational rights to Scott.
4. The access routes used by Philrock were legally acquired through easement contracts
with landowners. Since Scott had no legal right over these routes, it must either:
o File an eminent domain case and pay just compensation, or
o Secure its own access routes.

On these bases, the trial court dismissed Scott’s complaint, dissolved the injunction it had
obtained, and awarded actual, moral, and exemplary damages, as well as attorney's fees to
Philrock, finding Scott’s actions caused undue harm to Philrock.

Dispositive Portion of Trial Court Decision:

1. Case dismissed; injunction dissolved.

2. Scott ordered to pay Philrock:
o ₱800,000 actual damages,
o ₱300,000 moral damages,
o ₱50,000 exemplary damages,
o ₱50,000 attorney’s fees,
o Costs of suit.

Scott appealed to the Court of Appeals (CA-G.R. CV No. 31376), arguing the trial court erred
in its findings and conclusion.

Court of Appeals Decision (28 August 1992):

 Affirmed the trial court’s ruling except for the award of moral damages, which it
deleted due to lack of evidence showing besmirched reputation.
 Sustained the award of actual damages, relying on testimony from Philrock’s other
witnesses (not just its Accounting Manager), contradicting Scott’s claim that damages
were unproven.

In sum, the courts found that Scott had no valid operational rights, no easement entitlement,
and that its actions justified the award of damages to Philrock.

The petitioner filed a Supreme Court petition after the Court of Appeals denied its motion for
reconsideration. The petitioner raised three errors, challenging

(1) the requirement to prove its right to use access roads,

(2) the finding that private respondent Philrock was not liable for damages, and
(3) the ruling that the petitioner was liable for damages.

Supreme Court Ruling:

The Supreme Court partially granted the petition challenging the Court of Appeals' decision.

1. Access Rights & Damages (Denied):

o The Court rejected the petitioner’s argument that it had a legal right to use
access roads allegedly blocked by Philrock.
o The Court clarified that the legal provisions (P.D. 512, P.D. 463, and CMAO)
cited by the petitioner apply only to land where actual mining operations occur,
not to access roads leading to those areas.
o The petitioner failed to prove it had the right to use the respondent’s access
roads.
o Therefore, Philrock was not liable for damages for blocking access.
2. Award of Damages (Granted):
o The award of ₱800,000 in actual damages was deleted due to lack of concrete
evidence and specific findings by the trial court.
o Testimonies relied upon did not sufficiently prove the amount or extent of
damages.
3. Exemplary Damages (Deleted):
o The ₱50,000 in exemplary damages was also deleted, as the private respondent
was not legally entitled to moral, temperate, or compensatory damages—
requirements under the Civil Code to justify exemplary damages.
4. Attorney’s Fees (Deleted):
o The ₱50,000 attorney’s fees were struck down for lack of justification. Courts
can only award such fees in exceptional cases with clear factual and legal bases,
which were absent here.

Disposition:

The Supreme Court deleted the awards of actual damages, exemplary damages, and
attorney's fees, but affirmed the rest of the Court of Appeals' decision.

The petition was partly granted. The Supreme Court deleted the awards of actual damages,
exemplary damages, and attorney’s fees, but affirmed the rest of the Court of Appeals'
decision.