Torts Assgn (1)

8/3/2019 Torts Assgn (1)

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Jam

1. Industrial Timber v Ababon2. Victory Liner v Gammad3. Premiere Devt Bank v CA

Industrial Timber v Ababon

Before us are two petitions for review under Rule 45 of the Rules of Court. G.R. No. 164518 assails

the October 21, 2002 Decision[1]

of the Court of Appeals, in CA-GR. SP No. 51966, which set aside the

May 24, 1995 Decision[2]

of the National Labor Relations Commission (NLRC), as well as the July 16, 2004

Resolution[3]

denying its motion for reconsideration. G.R. No. 164965 assails only the July 16, 2004

Resolution of the Court of Appeals which denied their partial motion for reconsideration. These caseswere consolidated because they arose out of the same facts set forth below.

Industrial Plywood Group Corporation (IPGC) is the owner of a plywood plant located at Agusan,

Pequeo, Butuan City, leased to Industrial Timber Corporation (ITC) on August 30, 1985 for a period of

five years.[4] Thereafter, ITC commenced operation of the plywood plant and hired 387 workers.

On March 16, 1990, ITC notified the Department of Labor and Employment (DOLE) and its workers

that effective March 19, 1990 it will undergo a no plant operation due to lack of raw materials and will

resume only after it can secure logs for milling.[5]

Meanwhile, IPGC notified ITC of the expiration of the lease contract in August 1990 and itsintention not to renew the same.

On June 26, 1990, ITC notified the DOLE and its workers of the plants shutdown due to the non-

renewal of anti-pollution permit that expired in April 1990.[6]

This fact and the alleged lack of logs for

milling constrained ITC to lay off all its workers until further notice. This was followed by a final notice of

closure or cessation of business operations on August 17, 1990 with an advice for all the workers to

collect the benefits due them under the law and CBA.[7]

On October 15, 1990, IPGC took over the plywood plant after it was issued a Wood Processing

Plant Permit No. WPR-1004-081791-042,[8]

which included the anti-pollution permit, by the Department

of Environment and Natural Resources (DENR) coincidentally on the same day the ITC ceased operation

of the plant.

This prompted Virgilio Ababon, et al. to file a complaint against ITC and IPGC for illegal dismissal,

unfair labor practice and damages. They alleged, among others, that the cessation of ITCs operation

was intended to bust the union and that both corporations are one and the same entity being controlled

by one owner.
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On January 20, 1992, after requiring both parties to submit their respective position papers,

Labor Arbiter Irving A. Petilla rendered a decision which refused to pierce the veil of corporate fiction for

lack of evidence to prove that it was used to perpetuate fraud or illegal act; upheld the validity of the

closure; and ordered ITC to pay separation pay of month for every year of service. The dispositive

portion of the decision reads:

PREMISES CONSIDERED, judgment is hereby rendered ordering respondent

Industrial Timber Corporation (ITC) to pay herein ninety-seven individual complainants

their separation pay at the rate of one-half (1/2) months pay for every year of service, a

fraction of at least six (6) months to be considered as one whole year, reckoned until

August 1990.

All other claims of complainants are hereby ordered DISMISSED for want of

merit.

SO ORDERED.

[9]

Ababon, et al. appealed to the NLRC. On May 20, 1993, the NLRC set aside the decision of the

Labor Arbiter and ordered the reinstatement of the employees to their former positions, and the

payment of full back wages, damages and attorneys fees.[10]

ITC and IPGC filed a Motion for Reconsideration through JRS, a private courier, on June 24,

1993.[11] However, it was dismissed for being filed out of time having been filed only on the date of

actual receipt by the NLRC on June 29, 1993, three days after the last day of the reglamentary

period.[12]

Thus, they filed a Petition for Relief from Resolution,[13]

which was treated as a second motion

for reconsideration by the NLRC and dismissed for lack of merit in a Resolution dated September 29,

1994.[14]

From said dismissal, petitioners filed a Notice of Appeal with the Supreme Court.[15] Subsequently,

they filed a Motion for Reconsideration/Second Petition for Relief with the NLRC.[16]

On December 7, 1994, the Supreme Court dismissed the Notice of Appeal for being a wrong

mode of appeal from the NLRC decision.[17]

On the other hand, the NLRC granted the Second Petition

for Relief and set aside all its prior decision and resolutions. The dispositive portion of the May 24, 1995

decision reads:

WHEREFORE, the decision of this Commission dated May 10, 1993 and its

subsequent resolutions dated June 22, 1994 and September 29, 1994 are Set Aside and

Vacated. Accordingly, the appeal of complainants is Dismissed for lack of merit and the

decision of the Labor Arbiter dated January 20, 1992 is Reinstated and hereby Affirmed.

SO ORDERED.[18]

On October 2, 1995, Virgilio Ababon, et al. filed a Petition for Certiorari with the Supreme Court,

which was docketed as G.R. No. 121977.[19]

However, pursuant to our ruling in St. Martins Funeral
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Home v. NLRC, we referred the petition to the Court of Appeals for appropriate action and

disposition.[20]

On October 21, 2002, the Court of Appeals rendered a decision setting aside the May 24, 1995

decision of the NLRC and reinstated its May 20, 1993 decision and September 29, 1993 resolution, thus:

WHEREFORE, the petition is GRANTED. The decision dated May 24, 1995 of the

National Labor Relations Commission is ANNULLED and SET ASIDE, with the result that

its decision dated May 20, 1993 and resolution dated September 29, 1994 are

REINSTATED.

SO ORDERED.[21]

Both parties filed their respective motions for reconsideration which were denied, hence, the

present consolidated petitions for review based on the following assigned errors:

In G.R. No. 164518

THE COURT OF APPEALS ERRED IN LIBERALLY APPLYING THE RULES OF PROCEDURE

WITH RESPECT TO RESPONDENTS BUT BEING RIGID IN ITS APPLICATION AS REGARDS

PETITIONERS.[22]

In G.R. No. 164965

WITH DUE RESPECT, THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN

IT REFUSED TO APPLY SECTION 279 OF THE LABOR CODE AS AMENDED BY RA 6715 TO

MODIFY THE DECISION OF 20 MAY 1993 WITH RESPECT TO BACKWAGES FOR

PETITIONERS.[23]

ITC and IPGC contend that the Court of Appeals erred in reversing the May 24, 1995 decision of the

NLRC since its May 20, 1993 decision had become immutable for their failure to file motion for

reconsideration within the reglementary period. While they admit filing their motion for

reconsideration out of time due to excusable negligence of their counsels secretary, however, they

advance that the Court of Appeals should have relaxed the rules of technicality in the paramount

interest of justice, as it had done so in favor of the employees, and ruled on the merits of the case; after

all, the delay was just three days.

Ordinarily, once a judgment has become final and executory, it can no longer be disturbed,

altered or modified. However, this rule admits of exceptions in cases of special and exceptional natureas we held in Industrial Timber Corporation v. National Labor Relations Commission:

[24]

It is true that after a judgment has become final and executory, it can no longer

be modified or otherwise disturbed. However, this principle admits of exceptions, as

where facts and circumstances transpire which render its execution impossible or unjust

and it therefore becomes necessary, in the interest of justice, to direct its modification

in order to harmonize the disposition with the prevailing circumstances.
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A careful scrutiny of the facts and circumstances of these consolidated cases warrants liberality

in the application of technical rules and procedure. We agree with the NLRC that substantial justice is

best served by allowing the petition for relief despite procedural defect of filing the motion for

reconsideration three days late, for to rule otherwise, a greater injustice would be done to ITC by

ordering it to reinstate the employees to their former positions that no longer exist due to valid andlegitimate cessation of business and pay huge judgment award.

[25]

Moreover, under Article 218 (c) of the Labor Code, the NLRC may, in the exercise of its appellate

powers, correct, amend, or waive any error, defect or irregularity whether in substance or in

form. Further, Article 221 of the same code provides that in any proceeding before the Commission or

any of the Labor Arbiters, the rules of evidence prevailing in courts of law or equity shall not be

controlling and it is the spirit and intention of this Code that the Commission and its members and the

Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and

objectively and without regard to technicalities of law or procedure, all in the interest of due process.[26]

Also, the rule under Section 14 of Rule VII of the New Rules of Procedure of the NLRC that a motion

for reconsideration of any order, resolution or decision of the Commission shall not be entertained except

when based on palpable or patent errors, provided that the motion is under oath and filed within 10

calendar days from receipt of the order, resolution or decision should not be interpreted as to sacrifice

substantial justice to technicality. It should be borne in mind that the real purpose behind the limitation

of the period is to forestall or avoid an unreasonable delay in the administration of justice, from which

the NLRC absolved ITC and IPGC because the filing of their motion for reconsideration three days later

than the prescribed period was due to excusable negligence. Indeed, the Court has the power to

except a particular case from the operation of the rule whenever the purposes of justice requires it

because what should guide judicial action is that a party is given the fullest opportunity to establish the

merits of his action or defense rather than for him to lose life, honor, or property on meretechnicalities.[27]

We now come to the main issues of whether Ababon, et al. were illegally dismissed due to the

closure of ITCs business; and whether they are entitled to separation pay, backwages, and other

monetary awards.

Work is a necessity that has economic significance deserving legal protection. The social justice

and protection to labor provisions in the Constitution dictate so. On the other hand, employers are also

accorded rights and privileges to assure their self-determination and independence, and reasonable

return of capital. This mass of privileges comprises the so-called management prerogatives. Although

they may be broad and unlimited in scope, the State has the right to determine whether an employer'sprivilege is exercised in a manner that complies with the legal requirements and does not offend the

protected rights of labor. One of the rights accorded an employer is the right to close an establishment

or undertaking.[28]

The right to close the operation of an establishment or undertaking is one of the authorized

causes in terminating employment of workers, the only limitation being that the closure must not be for
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the purpose of circumventing the provisions on termination of employment embodied in the Labor

Code.

Article 283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. Theemployer may also terminate the employment of any employee due to the installation

of labor saving devices, redundancy, retrenchment to prevent losses or the closing or

cessation of operation of the establishment or undertaking unless the closing is for the

purpose of circumventing the provisions of this Title, by serving a written notice on the

workers and the Ministry of Labor and Employment at least one (1) month before the

intended date thereof. In case of termination due to the installation of labor saving

devices or redundancy, the worker affected thereby shall be entitled to a separation pay

equivalent to at least his one (1) month pay or to at least one (1) month pay for every

year of service, whichever is higher. In case of retrenchment to prevent losses and in

cases of closures or cessation of operations of establishment or undertaking not due to

serious business losses or financial reverses, the separation pay shall be equivalent to

one (1) month pay or to at least one-half (1/2) month pay for every year of service,

whichever is higher. A fraction of at least six (6) months shall be considered one (1)

whole year.

A reading of the foregoing law shows that a partial or total closure or cessation of operations of

establishment or undertaking may either be due to serious business losses or financial reverses or

otherwise. Under the first kind, the employer must sufficiently and convincingly prove its allegation of

substantial losses,[29]while under the second kind, the employer can lawfully close shop anytime [30]as

long as cessation of or withdrawal from business operations was bona fide in character and not impelled

by a motive to defeat or circumvent the tenurial rights of employees,[31]and as long as he pays his

employees their termination pay in the amount corresponding to their length of service.

[32]

Just as nolaw forces anyone to go into business, no law can compel anybody to continue the same. It would be

stretching the intent and spirit of the law if a court interferes with management's prerogative to close or

cease its business operations just because the business is not suffering from any loss or because of the

desire to provide the workers continued employment.[33]

In sum, under Article 283 of the Labor Code, three requirements are necessary for a valid

cessation of business operations: (a) service of a written notice to the employees and to the DOLE at

least one month before the intended date thereof; (b) the cessation of business must be bona fide in

character; and (c) payment to the employees of termination pay amounting to one month pay or at least

one-half month pay for every year of service, whichever is higher.

In these consolidated cases, we find that ITCs closure or cessation of business was done in good

faith and for valid reasons.

The records reveal that the decision to permanently close business operations was arrived at after

a suspension of operation for several months precipitated by lack of raw materials used for milling

operations, the expiration of the anti-pollution permit in April 1990, and the termination of the lease
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contract with IPGC in August 1990 over the plywood plant at Agusan, Pequeo, Butuan City. We quote

with approval the observation of the Labor Arbiter:

As borne out from the records, respondent ITC actually underwent no plant

operation since 19 March 1990 due to lack of log supply. This fact is admitted by

complainants (Minutes of hearing, 28 October 1991). Since then several subsequentincidents prevented respondent ITC to resume its business operations e.g. expiration

and non-renewal of the wood processing plant permit, anti-pollution permit, and the

lease contract on the plywood plant. Without the raw materials respondent ITC has

nothing to produce. Without the permits it cannot lawfully operate the plant. And

without the contract of lease respondent ITC has no option but to cease operation and

turn over the plant to the lessor.[34]

(Emphasis supplied)

Moreover, the lack of raw materials used for milling operations was affirmed in Industrial Timber

Corporation v. National Labor Relations Commission[35]as one of the reasons for the valid closure of ITCs

Butuan Logs Plant in 1989. In said case, we upheld the management prerogative to close the plant as

the only remedy available in order to prevent imminent heavy losses on account of high productioncosts, erratic supply of raw materials, depressed prices and poor market conditions for its wood

products.

In Shoppers Gain Supermarket v. National Labor Relations Commission ,[36]

we held that the non-

renewal of petitioner corporations lease contract and its consequent closure and cessation of

operations may be considered an event beyond petitioners control, in the nature of a

force majeure situation. As such, it amounts to an authorized cause for termination of the private

respondents.

Having established that ITCs closure of the plywood plant was done in good faith and that it was

due to causes beyond its control, the conclusion is inevitable that said closure is valid. Consequently,Ababon, et al. could not have been illegally dismissed to be entitled to full backwages. Thus, we find it

no longer necessary to discuss the issue regarding the computation of their backwages. However, they

are entitled to separation pay equivalent to one month pay or at least one-half month pay for every year

of service, whichever is higher.

Although the closure was done in good faith and for valid reasons, we find that ITC did not comply

with the notice requirement. While an employer is under no obligation to conduct hearings before

effecting termination of employment due to authorized cause,[37]

however, the law requires that it must

notify the DOLE and its employees at least one month before the intended date of closure.

In the case at bar, ITC notified its employees and the DOLE of the no plant operation on March

16, 1990 due to lack of raw materials. This was followed by a shut down notice dated June 26, 1990

due to the expiration of the anti-pollution permit. However, this shutdown was only temporary as ITC

assured its employees that they could return to work once the renewal is acted upon by the DENR. On

August 17, 1990, the ITC sent its employees a final notice of closure or cessation of business operations

to take effect on the same day it was released. We find that this falls short of the notice requirement

for termination of employment due to authorized cause considering that the DOLE was not furnished
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and the notice should have been furnished both the employees and the DOLE at least one month before

the intended date of closure.

InAriola v. Philex Mining Corporation,[38]we held:

InAgabon v. National Labor Relations Commission andJaka Food ProcessingCorporation v. Pacot, the Court sustained the dismissals for just cause under Article 282

and for authorized cause under Article 283 of the Labor Code, respectively, despite non-

compliance with the statutory requirement of notice and hearing. The grounds for the

dismissals in those cases, namely, neglect of duty and retrenchment, remained valid

because the non-compliance with the notice and hearing requirement in the Labor Code

did not undermine the validity of the grounds for the dismissals. Indeed, to invalidate a

dismissal merely because of a procedural defect creates absurdity and runs counter to

public interest. We explained inAgabon:

The unfairness of declaring illegal or ineffectual dismissals for

valid or authorized causes but not complying with statutory due process

may have far-reaching consequences.

This would encourage frivolous suits, where even the most

notorious violators of company policy are rewarded by invoking due

process. This also creates absurd situations where there is a just or

authorized cause for dismissal but a procedural infirmity invalidates the

termination. Let us take for example a case where the employee is

caught stealing or threatens the lives of his co-employees or has

become a criminal, who has fled and cannot be found, or where serious

business losses demand that operations be ceased in less than a month.

Invalidating the dismissal would not serve public interest. It could also

discourage investments that can generate employment in the localeconomy.

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the

employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal

process was initiated by the employers exercise of his management prerogative, as opposed to a

dismissal based on a just cause under Article 282 with the same procedural infirmity where the sanction

to be imposed upon the employer should be tempered as the dismissal process was, in effect, initiated

by an act imputable to the employee.[39]

In light of the factual circumstances of the cases at bar, we deem it wise and reasonable to award

P50,000.00 to each employee as nominal damages.

WHEREFORE, in view of the foregoing, the October 21, 2002 Decision of the Court of Appeals in

CA-GR. SP No. 51966, which set aside the May 24, 1995 Decision of the NLRC, as well as the July 16,

2004 Resolution denying ITCs motion for reconsideration, are herebyREVERSED. The May 24, 1995

Decision of the NLRC reinstating the decision of the Labor Arbiter finding the closure or cessation of

ITCs business valid, isAFFIRMED with the MODIFICATIONS that ITC is ordered to pay separation pay
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equivalent to one month pay or to at least one-half month pay for every year of service, whichever is

higher, and P50,000.00 as nominal damages to each employee.

SO ORDERED.

CONSUELO YNARES-SANTIAGO

Associate Justice


9/23

Victory v Gamad

VICTORY LINER, INC.,petitioner, vs. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P.

GAMMAD and DIANA FRANCES P. GAMMAD, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Assailed in this petition for review on certiorariis the April 11, 2003 decision[1]

of the Court of

Appeals in CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision[2]

of

the Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for

breach of contract of carriage in Civil Case No. 5023.

The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie

Grace Pagulayan-Gammad,[3]was on board an air-conditioned Victory Liner bus bound for Tuguegarao,

Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine

somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace andphysical injuries to other passengers.[4]

On May 14, 1996, respondent heirs of the deceased filed a complaint[5]for damages arising

from culpa contractualagainst petitioner. In its answer,[6]the petitioner claimed that the incident was

purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation.

After several re-settings,[7]

pre-trial was set on April 10, 1997.[8]

For failure to appear on the said

date, petitioner was declared as in default.[9]

However, on petitioners motion[10]

to lift the order of

default, the same was granted by the trial court.[11]

At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the

deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued

Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioners proposal to payP50,000.00.[12]

After respondent Rosalito Gammad completed his direct testimony, cross-examination was

scheduled for November 17, 1997[13]but moved to December 8, 1997,[14]because the parties and the

counsel failed to appear. On December 8, 1997, counsel of petitioner was absent despite due notice

and was deemed to have waived right to cross-examine respondent Rosalito.[15]

Petitioners motion to reset the presentation of its evidence to March 25, 1998[16]was

granted. However, on March 24, 1998, the counsel of petitioner sent the court a telegram[17]

requesting

postponement but the telegram was received by the trial court on March 25, 1998, after it had issued an

order considering the case submitted for decision for failure of petitioner and counsel to appear.[18]

On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive

portion of which reads:

WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of

the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the

following:

1. Actual Damages -------------------- P 122,000.00
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2. Death Indemnity --------------------- 50,000.00

3. Exemplary and Moral Damages----- 400,000.00

4. Compensatory Damages ---------- 1,500,000.00

5. Attorneys Fees ------------ 10% of the total amount granted

6. Cost of the Suit.

SO ORDERED.[19]

On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with

modification as follows:

[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby

adjudged in favor of plaintiffs-appellees:

1. Actual Damages in the amount of P88,270.00;

2. Compensatory Damages in the amount of P1,135,536,10;

3. Moral and Exemplary Damages in the amount of P400,000.00; and

4. Attorneys fees equivalent to 10% of the sum of the actual, compensatory, moral, and

exemplary damages herein adjudged.

The court a quos judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.

SO ORDERED.[20]

Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration

praying that the case be remanded to the trial court for cross- examination of respondents witness andfor the presentation of its evidence; or in the alternative, dismiss the respondents

complaint.[21]InvokingAPEX Mining, Inc. v. Court of Appeals,[22]petitioner argues, inter alia, that the

decision of the trial court should be set aside because the negligence of its former counsel, Atty. Antonio

B. Paguirigan, in failing to appear at the scheduled hearings and move for reconsideration of the orders

declaring petitioner to have waived the right to cross-examine respondents witness and right to present

evidence, deprived petitioner of its day in court.

On August 21, 2003, the Court of Appeals denied petitioners motion for reconsideration.[23]

Hence, this petition for review principally based on the fact that the mistake or gross negligence of

its counsel deprived petitioner of due process of law. Petitioner also argues that the trial courts award

of damages were without basis and should be deleted.

The issues for resolution are: (1) whether petitioners counsel was guilty of gross negligence; (2)

whether petitioner should be held liable for breach of contract of carriage; and (3) whether the award of

damages was proper.

It is settled that the negligence of counsel binds the client. This is based on the rule that any act

performed by a counsel within the scope of his general or implied authority is regarded as an act of his

client. Consequently, the mistake or negligence of counsel may result in the rendition of an unfavorable
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judgment against the client. However, the application of the general rule to a given case should be

looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the

foregoing have been recognized by the court in cases where reckless or gross negligence of counsel

deprives the client of due process of law, or when its application will result in outright deprivation of the

clients liberty or property or where the interests of justice so require, and accord relief to the client

who suffered by reason of the lawyers gross or palpable mistake or negligence.[24]

The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed

an Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan

successfully moved for the setting aside of the order of default. In fact, petitioner was represented by

Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan

failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to

cross-examine respondents witness and to present evidence, he nevertheless, filed a timely appeal with

the Court of Appeals assailing the decision of the trial court. Hence, petitioners claim that it was denied

due process lacks basis.

Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default

for not appearing at the pre-trial, three notices (dated October 23, 1996,[25]

January 30, 1997,[26]

and

March 26, 1997,[27]) requiring attendance at the pre-trial were sent and duly received bypetitioner. However, it was only on April 27, 1997, after the issuance of the April 10, 1997 order of

default for failure to appear at the pre-trial when petitioner, through its finance and administrative

manager, executed a special power of attorney[28]authorizing Atty. Paguirigan or any member of his law

firm to represent petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory negligence

and fault cannot be imputed solely on previous counsel.

The case ofAPEX Mining, Inc.,invoked by petitioner is not on all fours with the case at

bar. InAPEX, the negligent counsel not only allowed the adverse decision against his client to become

final and executory, but deliberately misrepresented in the progress report that the case was still

pending with the Court of Appeals when the same was dismissed 16 months ago .[29]

These

circumstances are absent in this case because Atty. Paguirigan timely filed an appeal from the decision

of the trial court with the Court of Appeals.

In Gold Line Transit, Inc. v. Ramos,[30]

the Court was similarly confronted with the issue of whether

or not the client should bear the adverse consequences of its counsels negligence. In that case, Gold

Line Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial despite notice and was

declared as in default. After the plaintiffs presentation of evidenceex parte, the trial court rendered

decision ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became

final and executory because counsel of Gold Line did not file any appeal. Finding that Goldline was not

denied due process of law and is thus bound by the negligence of its lawyer, the Court held as follows

This leads us to the question of whether the negligence of counsel was so gross and reckless that

petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied that

the requirements of due process were observed in the instant case. Petitioner was never deprived of its

day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that notices

were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint, an

answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its

opportunity to participate in the trial of the case and to adduce evidence in its behalf because of

negligence.
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In the application of the principle of due process, what is sought to be safeguarded against is not the

lack of previous notice but the denial of the opportunity to be heard. The question is not whether

petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity to

present its side of the controversy. Verily, as petitioner retained the services of counsel of its choice, it

should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea

that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor

sympathy.

To cater to petitioners arguments and reinstate its petition for relief from judgment would put a

premium on the negligence of its former counsel and encourage the non-termination of this case by

reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsels

act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter

be heard to complain that the result might have been different had his counsel proceeded

differently. The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a

reason for opening cases, there would never be an end to a suit so long as a new counsel could be hired

every time it is shown that the prior counsel had not been sufficiently diligent, experienced or

learned.[31]

Similarly, inMacalalag v. Ombudsman,[32]

a Philippine Postal Corporation employee charged with

dishonesty was not able to file an answer and position paper. He was found guilty solely on the basis of

complainants evidence and was dismissed with forfeiture of all benefits and disqualification from

government service. Challenging the decision of the Ombudsman, the employee contended that the

gross negligence of his counsel deprived him of due process of law. In debunking his contention, the

Court said

Neither can he claim that he is not bound by his lawyers actions; it is only in case of gross or palpable

negligence of counsel when the courts can step in and accord relief to a client who would have suffered

thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient legal

knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be noend to controversy. Fundamental to our judicial system is the principle that every litigation must come

to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there

must be a limit to it.

Viewed vis--visthe foregoing jurisprudence, to sustain petitioners argument that it was denied

due process of law due to negligence of its counsel would set a dangerous precedent. It would enable

every party to render inutile any adverse order or decision through the simple expedient of alleging

gross negligence on the part of its counsel. The Court will not countenance such a farce which

contradicts long-settled doctrines of trial and procedure.[33]

Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A

common carrier is bound to carry its passengers safely as far as human care and foresight can provide,using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a

contract of carriage, it is presumed that the common carrier was at fault or was negligent when a

passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an

express finding of fault or negligence on the part of the common carrie r. This statutory presumption

may only be overcome by evidence that the carrier exercised extraordinary diligence.[34]
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In the instant case, there is no evidence to rebut the statutory presumption that the proximate

cause of Marie Graces death was the negligence of petitioner. Hence, the courts below correctly ruled

that petitioner was guilty of breach of contract of carriage.

Nevertheless, the award of damages should be modified.

Article 1764[35]in relation to Article 2206[36]of the Civil Code, holds the common carrier in breach of

its contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity

for death, (2) indemnity for loss of earning capacity, and (3) moral damages.

In the present case, respondent heirs of the deceased are entitled to indemnity for the death of

Marie Grace which under current jurisprudence is fixed at P50,000.00.[37]

The award of compensatory damages for the loss of the deceaseds earning capacity should be

deleted for lack of basis. 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 of earning capacity may

be awarded despite the absence of documentary evidence when (1) the deceased is self-employed

earning less than the minimum wage under current labor laws, and judicial notice may be taken of the

fact that in the deceaseds line of work no documentary evidence is available; or (2) the deceased is

employed as a daily wage worker earning less than the minimum wage under current labor laws.[38]

In People v. Oco,[39]the evidence presented by the prosecution to recover damages for loss of

earning capacity was the bare testimony of the deceaseds wife that her husband was earning P8,000.00

monthly as a legal researcher of a private corporation. Finding that the deceased was neither self-

employed nor employed as a daily-wage worker earning less than the minimum wage under the labor

laws existing at the time of his death, the Court held that testimonial evidence alone is insufficient to

justify an award for loss of earning capacity.

Likewise, inPeople v. Caraig,[40]

damages for loss of earning capacity was not awarded because the

circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the

testimony of their wives, no documentary proof about their income was presented by the

prosecution. Thus

The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not

self-employed or employed as daily-wage workers earning less than the minimum wage under the labor

laws existing at the time of their death. Placido Agustin was a Social Security System employee who

received a monthly salary of P5,000. Roberto Raagas was the President of Sinclair Security and Allied

Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro Jr.

was a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of

P7,500. Clearly, these cases do not fall under the exceptions where indemnity for loss of earning

capacity can be given despite lack of documentary evidence. Therefore, for lack of documentary proof,

no indemnity for loss of earning capacity can be given in these cases. (Emphasis supplied)

Here, the trial court and the Court of Appeals computed the award of compensatory damages for

loss of earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was

39 years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a

salary of P83,088.00 per annum when she died.[41]

No other evidence was presented. The award is

clearly erroneous because the deceaseds earnings does not fall within the exceptions.

However, the fact of loss having been established, temperate damages in the amount of

P500,000.00 should be awarded to respondents. Under Article 2224 of the Civil Code, temperate or
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moderate damages, which are more than nominal but less than compensatory damages, may be

recovered when the court finds that some pecuniary loss has been suffered but its amount can not,

from the nature of the case, be proved with certainty.

In Pleno v. Court of Appeals,[42]

the Court sustained the trial courts award of P200,000.00 as

temperate damages in lieu of actual damages for loss of earning capacity because the income of the

victim was not sufficiently proven, thus

The trial court based the amounts of damages awarded to the petitioner on the following

circumstances:

As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent*re+preneur and

the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an

industrious and resourceful person with several projects in line, and were it not for the incident, might

have pushed them through. On the day of the incident, Pleno was driving homeward with geologist

Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual incomehowever has not been sufficiently established so that this Court cannot award actual damages, but, an

award of temperate or moderate damages may still be made on loss or impairment of earning capacity.

That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from

double vision in his left eye is also established. Because of this, he suffers from some inferiority complex

and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila

Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta,

et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given.

We rule that the lower courts awards of damages are more consonant with the factual circumstances of

the instant case. The trial courts findings of facts are clear and well-developed. Each item of damages is

adequately supported by evidence on record.

Article 2224 of the Civil Code was likewise applied in the recent cases ofPeople v.

Singh[43]

andPeople v. Almedilla,[44]

to justify the award of temperate damages in lieu of damages for

loss of earning capacity which was not substantiated by the required documentary proof.

Anent the award of moral damages, the same cannot be lumped with exemplary damages because

they are based on different jural foundations.[45]

These damages are different in nature and require

separate determination.[46]

In culpa contractualor breach of contract, moral damages may be recovered

when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in

wanton disregard of contractual obligations and, as in this case, when the act of breach of contract itselfconstitutes the tort that results in physical injuries. By special rule in Article 1764 in relation to Article

2206 of the Civil Code, moral damages may also be awarded in case the death of a passenger results

from a breach of carriage.[47]

On the other hand, exemplary damages, which are awarded by way of

example or correction for the public good may be recovered in contractual obligations if the defendant

acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.[48]

Respondents in the instant case should be awarded moral damages to compensate for the grief

caused by the death of the deceased resulting from the petitioners breach of contract of
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carriage. Furthermore, the petitioner failed to prove that it exercised the extraordinary diligence

required for common carriers, it is presumed to have acted recklessly.[49]

Thus, the award of exemplary

damages is proper. Under the circumstances, we find it reasonable to award respondents the amount

of P100,000.00 as moral damages and P100,000.00 as exemplary damages. These amounts are not

excessive.[50]

The actual damages awarded by the trial court reduced by the Court of Appeals should be furtherreduced. InPeople v. Duban,

[51]it was held that only substantiated and proven expenses or those that

appear to have been genuinely incurred in connection with the death, wake or burial of the victim will

be recognized. A list of expenses (Exhibit J),[52]and the contract/receipt for the construction of the

tomb (Exhibit F)[53]in this case, cannot be considered competent proof and cannot replace the official

receipts necessary to justify the award. Hence, actual damages should be further reduced to

P78,160.00,[54]which was the amount supported by official receipts.

Pursuant to Article 2208[55]

of the Civil Code, attorneys fees may also be recovered in the case at

bar where exemplary damages are awarded. The Court finds the award of attorneys fees equivalent to

10% of the total amount adjudged against petitioner reasonable.

Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,

[56]

it was held that when an obligation,regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the

contravenor can be held liable for payment of interest in the concept of actual and compensatory

damages, subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or

forbearance of money, the interest due should be that which may have been stipulated in writing.

Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In

the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,

i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil

Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per

annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or

until the demand can be established with reasonable certainty. Accordingly, where the demand is

established with reasonable certainty, the interest shall begin to run from the time the claim is made

judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably

established at the time the demand is made, the interest shall begin to run only from the date the

judgment of the court is made (at which time the quantification of damages may be deemed to have

been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,

be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, therate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12%

per annum from such finality until its satisfaction, this interim period being deemed to be by then an

equivalent to a forbearance of credit. (Emphasis supplied).

In the instant case, petitioner should be held liable for payment of interest as damages for breach

of contract of carriage. Considering that the amounts payable by petitioner has been determined with
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certainty only in the instant petition, the interest due shall be computed upon the finality of this

decision at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule.[57]

WHEREFORE, in view of all the foregoing, the petition is PARTIALLY GRANTED. The April 11, 2003

decision of the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional

Trial Court of Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As

modified, petitioner Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00 asindemnity for the death of Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3)

P100,000.00 as exemplary damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate

damages; (6) 10% of the total amount as attorneys fees; and the costs of suit.

Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12%

per annum computed from the finality of this decision until fully paid.

SO ORDERED.

Quisumbing, Carpio, and Azcuna, JJ., concur.

Davide, Jr., C.J., (Chairman), on official leave.

PREMIERE DEVELOPMENT BANK,petitioner, vs. COURT OF APPEALS, PANACOR MARKETING

CORPORATION and ARIZONA TRANSPORT CORPORATION, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the 1997 Rules on Civil Procedure seeking the

annulment of the Decision dated June 18, 2003of the Court of Appeals[1]

which affirmed the Decision of

the Regional Trial Court[2]

in Civil Case No. 65577.

The undisputed facts show that on or about October 1994, Panacor Marketing Corporation(Panacor for brevity), a newly formed corporation, acquired an exclusive distributorship of products

manufactured by Colgate Palmolive Philippines, Inc. (Colgate for short). To meet the capital

requirements of the exclusive distributorship, which required an initial inventory level of P7.5 million,

Panacor applied for a loan of P4.1 million with Premiere Development Bank. After an extensive study of

Panacors creditworthiness, Premiere Bank rejected the loan application and suggested that its affiliate

company, Arizona Transport Corporation (Arizona for short),[3]should instead apply for the loan on

condition that the proceeds thereof shall be made available to Panacor. Eventually, Panacor was granted

a P4.1 million credit line as evidenced by a Credit Line Agreement.[4]As suggested, Arizona, which was an

existing loan client, applied for and was granted a loan of P6.1 million, P3.4 million of which would be

used to pay-off its existing loan accounts and the remaining P2.7 million as credit line of Panacor. As

security for the P6.1 million loan,Arizona, represented by its Chief Executive Officer Pedro Panaligan and

spouses Pedro and Marietta Panaligan in their personal capacities, executed a Real Estate Mortgageagainst a parcel of land covered by TCT No. T-3475 as per Entry No. 49507 dated October 2, 1995.

[5]

Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was

previously approved, Panacor negotiated for a take-out loan with Iba Finance Corporation (hereinafter

referred to as Iba-Finance) in the sum of P10 million, P7.5 million of which will be released outright in

order to take-out the loan from Premiere Bank and the balance of P2.5 million (to complete the needed

capital of P4.1 million with Colgate) to be released after the cancellation by Premiere of the collateral
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mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-

Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizonain an amount

not to exceed P6 million.

On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of

Premiere Banks San Juan Branch, informing her of the approved loan in favor of Panacor and Arizona,

and requesting for the release of TCT No. T-3475. Martillano, after reading the letter, affixed hersignature of conformity thereto and sent the original copy to Premiere Banks legal office. The full text

of the letter reads:[6]

Please be informed that we have approved the loan application of ARIZONA TRANSPORT CORP. and

PANACOR MARKETING CORPORATION. Both represented by MR. PEDRO P. PANALIGAN (hereinafter the

BORROWERS) in the principal amount of PESOS: SEVEN MILLION FIVE HUNDRED THOUSAND ONLY

(P7,500,000.00) Philippine Currency. The loan shall be secured by a Real Estate Mortgage over a parcel

of land located at #777 Nueve de Pebrero St. Bo. Mauway, Mandaluyong City, Metro Manila covered by

TCT No. 3475 and registered under the name of Arizona Haulers, Inc. which is presently mortgaged with

your bank.

The borrowers have authorized IBA FINANCE CORP. to pay Premiere Bank from the proceeds of their

loan. The disbursement of the loan, however is subject to the annotation of our mortgage lien on the

said property and final verification that said title is free from any other lien or encumbrance other than

that of your company and IBA Finance Corporation.

In order to register the mortgage, please entrust to us the owners duplicate copy of TCT No. 3475,

current tax declaration, realty tax receipts for the current year and other documents necessary to affect

annotation thereof.

Upon registration of our mortgage, we undertake to remit directly to you or your authorized

representative the amount equivalent to the Borrowers outstanding indebtedness to Premiere Bank as

duly certified by your goodselves provided such an amount shall not exceed PESOS: SIX MILLION ONLY

(P6,000,000.00) and any amount in excess of the aforestated shall be for the account of the borrowers.

It is understood that upon receipt of payment, you will release to us the corresponding cancellation of

your mortgage within five (5) banking days therefrom.

If the foregoing terms and conditions are acceptable to you, please affix your signature provided below

and furnish us a copy of the Statement of Account of said borrowers.

On October 12, 1995, Premiere Bank sent a letter-reply[7]

to Iba-Finance, informing the latter of its

refusal to turn over the requested documents on the ground that Arizona had existing unpaid loan

obligations and that it was the banks policy to require full payment of all outstanding loan obligations

prior to the release of mortgage documents. Thereafter, Premiere Bank issued to Iba-Finance a FinalStatement of Account[8]showing Arizonas total loan indebtedness. On October 19, 1995, Panacor

and Arizona executed in favor of Iba-Finance a promissory note in the amount of 7.5 million. Thereafter,

Iba-Finance paid to Premiere Bank the amount of P6,235,754.79 representing the full outstanding loan

account of Arizona. Despite such payment, Premiere Bank still refused to release the requested

mortgage documents specifically, the owners duplicate copy of TCT No. T-3475.[9]
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On November 2, 1995, Panacor requested Iba-Finance for the immediate approval and release of

the remaining P2.5 million loan to meet the required monthly purchases from Colgate. Iba-Finance

explained however, that the processing of the P2.5 million loan application was conditioned, among

others, on the submission of the owners duplicate copy of TCT No. 3475 and the canc ellation by

Premiere Bank ofArizonas mortgage. Occasioned by Premiere Banks adamant refusal to release the

mortgage cancellation document, Panacor failed to generate the required capital to meet its distribution

and sales targets. On December 7, 1995, Colgate informed Panacor of its decision to terminate their

distribution agreement.

On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and damages

against Premiere Bank before theRegional Trial Court of Pasig City, docketed as Civil Case No. 65577.

On June 11, 1996, Iba-Finance filed a complaint-in-intervention praying that judgment be rendered

ordering Premiere Bank to pay damages in its favor.

On May 26, 1998, the trial court rendered a decision in favor of Panacor and Iba-Finance, the

decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Panacor Marketing Corporation andagainst the defendant Premiere Bank, ordering the latter to pay the former the following sums, namely:

1) P4,520,000.00 in addition to legal interest from the time of filing of the complaint until

full payment;

2) P1,000,000.00 as and for exemplary damages;

3) P100,000.00 as and for reasonable attorneys fees; and

4) Costs of suit.

Similarly, judgment is hereby rendered in favor of plaintiff-in-intervention IBA-Finance Corporation as

against defendant Premiere bank, as follows, namely:

1) Ordering defendant Premiere Bank to release to plaintiff-intervenor IBA-Finance

Corporation the owners duplicate copy of Transfer Certificate of Title No. 3475

registered in the name of Arizona Haulers, Inc. including the deed of cancellation of the

mortgage constituted thereon;

2) Ordering the defendant Premiere Bank to pay to Intervenor IBA-Finance, the following

sums, to wit:

3) P1,000,000.00 as and by way of exemplary damages; and

4) P100,000.00 as and for reasonable attorneys fees; and

5) Costs of suit.

For lack of sufficient legal and factual basis, the counterclaim of defendant Premiere Bank is DISMISSED.
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Documents

Torts Assgn (1)