torts finalsset2

7/27/2019 Torts Finalsset2

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FIRST DIVISION

[G.R. No. 114118. August 28, 2001]

HEIRS OF SIMEON BORLADO, namely, ADELAIDA BORLADO, LORETO BORLADO,

REYNALDO BORLADO, RICARDO BORLADO, FRANCISCO BORLADO and ALADINODORADO,petitioners, vs. COURT OF APPEALS, and SALVACION VDA. DE BULAN,BIENVENIDO BULAN, JR., NORMA B. CLARITO and THE PROVINCIAL SHERIFF OFCAPIZ, respondents.

D E C I S I O N

PARDO,J.:

The case is an appeal via certiorari from a decisioni[1] of the Court of Appeals affirming thedecision of the trial court, the dispositive portion of which reads:

WHEREFORE,judgment is rendered dismissing plaintiffs complaint for lack of cause ofaction and ordering as vacated the restraining order and writ of preliminary injunction issued inthis case; and

1. Plaintiffs to be jointly and solidarily liable to defendants the quantity of one hundred (100)cavans of palay every year from 1972 until plaintiffs vacate the premises of the land in question;

2. Declaring defendants as owner of the land and entitled to possession;

3. Ordering plaintiffs to pay defendants the sum of P5,000.00 as attorneys fees and the sum of

P5,000.00 as litigation expenses; and

4. To pay the costs of the suit.

SO ORDERED.

Roxas City, Philippines, March 18, 1988.

(Sgd.) JONAS A.ABELLAR

J u d g eii[2]

The Facts

The facts, as found by the Court of Appeals, are as follows:

The records show that plaintiffs-appellantsiii[3] (petitioners) are the heirs of Simeon Borladowhose parents were Serapio Borlado and Balbina Bulan. The original owner of the lot in


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question, Lot No. 2097 of the Pontevedra Cadastre, Maayon, Capiz, was Serapio Borlado,grandfather of petitioners.

On 15 April 1942, Serapio sold the lot to Francisco Bacero (Exh. C, p. 247, MTC Record) forThree Hundred Pesos (P300.00). After the death of Francsico on 26 February 1948, his widow

Amparo Dionisio Vda. de Bacero, in her capacity as legal guardian of her minor children,namely: Nicolas, Valentin and Luzviminda, all surnamed Bacero and forced heirs of FranciscoBacero sold it (the lot) to the Spouses Bienvenido Bulan and Salvacion Borbon, through a Deedof Absolute Sale dated 27 August 1954 (Exh. 65, pp. 243-245, id.).

Upon the execution of the Deed of Sale and even prior thereto, actual possession of Lot No.2057 was with the vendees-spouses Bulans in view of a loan obtained by Francisco Bacero fromthem in December 1947 (Exh. 65, supra). Exercising their right of ownership under the Deedof Sale, Salvacion Borbon Vda. de Bulan declared the lot in her name in 1900 for taxationpurposes under Tax Declaration No. 2232 (Exh. F, p. 254, Record [MTC]). She paid thecorresponding taxes as evidenced by the Tax Receipts marked as Exhibits K, J, I, G, F

and H (pp. 248-253, Record, id.). Salvacion and her co-defendants-appelleesiv[4] possessionof the lot was continuous, peaceful, uninterrupted, adverse and exclusive until November 4,1972, when petitioners forcibly entered and wrested physical possession thereof from them.

On 23 November 1972, respondents filed with the Municipal Court of Maayon, Capiz acomplaint for ejectment docketed as Civil Case No. A-1, against petitioners (p. 1, id.). Theejectment case was decided in favor of the respondents whereby the petitioners, their agents,tenants, privies and members of their families were ordered to vacate Lot No. 2079 and deliverpossession to the respondents together with all improvements and standing crops; to pay saidrespondents One Hundred (100) cavans of palay annually from 1972 to the present or in the totalamount of One Thousand One Hundred (1,100) cavans of palay; and to pay the sum of Five

Thousand (P5,000.00) Pesos as reimbursement for the amount respondents had paid their lawyerto protect their rights; and, the costs of suit (Exh. 57, pp. 256-261, id.). Instead of appealingthe adverse decision to the Court of First Instance (now RTC), on 8 November 1983, petitionersfiled the present case with the Regional Trial Court, Branch 18, Roxas City, docketed as CivilCase No. V-4887. This case was dismissed for lack of cause of action in a decision, the decretalportion of which was quoted earlier.v[5]

On 24 November 1993, the Court of Appeals promulgated its decision affirming in toto theappealed decision.vi[6]

Hence, this appeal.vii[7]

The Issue

The issue raised is whether the Court of Appeals erred in ruling that respondents were the ownersof the lot in question.

The Courts Ruling


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We deny the petition. The issue is factual. In an appeal viacertiorari, we may not review thefindings of fact of the Court of Appeals.viii[8] When supported by substantial evidence, thefindings of fact of the Court of Appeals are conclusive and binding on the parties and are notreviewable by this Court,ix[9] unless the case falls under any of the exceptions to the rule.x[10]

Petitioner failed to prove that the case falls within the exceptions.xi[11] The Supreme Court isnot a trier of facts.xii[12] It is not our function to review, examine and evaluate or weigh theprobative value of the evidence presented.xiii[13] A question of fact would arise in suchevent.xiv[14] Questions of fact cannot be raised in an appeal viacertiorari before the SupremeCourt and are not proper for its consideration.xv[15]

Nevertheless, as a matter of law, the trial court and the Court of Appeals erred in holdingpetitioners liable to pay respondents one hundred (100) cavans of palay every year from 1972until they vacate the premises of the land in question.

The one hundred cavans of palay was awarded as a form of damages. We cannot sustain the

award. Palay is not legal tender currency in the Philippines.

El Fallo del Tribunal

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court ofAppeals in CA-G. R. CV No. 18980 with modification that petitioners liability to payrespondents one hundred (100) cavans of palay every year from 1972 until petitioners vacate theland in question is deleted, for lack of basis.

No costs.

SO ORDERED.


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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-18805 August 14, 1967

THE BOARD OF LIQUIDATORS1

representing THE GOVERNMENT OF THE

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.

HEIRS OF MAXIMO M. KALAW,2

JUAN BOCAR, ESTATE OF THE DECEASED

CASIMIRO GARCIA,3

and LEONOR MOLL, defendants-appellees.

Simeon M. Gopengco and Solicitor General for plaintiff-appellant.

L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, SiguionReyna, Montecillo and Belo for defendants-appellees.

SANCHEZ, J.:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit

governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the

protection, preservation and development of the coconut industry in the Philippines. On August

1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express

power "to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and

dessicated coconut, as well as their by-products, and to act as agent, broker or commissionmerchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to

stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to

cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens.4

General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and

Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on

December 22, 1947.

NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst

the scores of contracts executed by general manager Kalaw are the disputed contracts, for the

delivery of copra, viz:

(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b.,

delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co.

(Overseas) Ltd.


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(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton,

f.o.b., Philippine ports, to be shipped: September-October, 1947. This contract was also assigned

to Louis Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September,1947.

(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los

Angeles, California, delivery: November, 1947.

(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long

tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947.

(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per

ton, f.o.b., 3 Philippine ports, delivery: November, 1947.

(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November

and December, 1947. This contract was assigned to Pacific Vegetable Co.

(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports,

delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable

Co.

(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports,

delivery: January, 1948. This contract was assigned to Pacific Vegetable Co.

An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Naturesupervened. Four devastating typhoons visited the Philippines: the first in October, the second

and third in November, and the fourth in December, 1947. Coconut trees throughout the country

suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were

destroyed. Cash requirements doubled. Deprivation of export facilities increased the time

necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a

problem.

When it became clear that the contracts would be unprofitable, Kalaw submitted them to the

board for approval. It was not until December 22, 1947 when the membership was completed.

Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a fulldisclosure of the situation, apprised the board of the impending heavy losses. No action was

taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948

following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO

head did his best to avert the losses, emphasized that government concerns faced the same risks

that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was

to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with


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Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts

hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the contracts, as follows:

Buyers Tons Delivered Undelivered

Pacific Vegetable Oil 2,386.45 4,613.55

Spencer Kellog None 1,000

Franklin Baker 1,000 500

Louis Dreyfus 800 2,200

Louis Dreyfus (Adamson contract of July 30, 1947) 1,150 850

Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 245

T O T A L S 7,091.45 9,408.55

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil

Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00;

Spencer Kellog & Sons, P159,040.00.

But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First

Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract

(Civil Case 4459); P287,028.00; for the balance on the August 14 contract (Civil Case 4398),

P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322,

appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court

amicable settlement when the Kalaw management was already out. The corporation thereunder

paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the

Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis

Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver

was due to force majeure, the typhoons. To project the utter unreasonableness of this

compromise, we reproduce in haec verba this finding below:


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x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas)

Ltd.] against Santiago Syjuco for non-delivery of copra also involving a claim of P345,654.68

wherein defendant set upsame defenses as above, plaintiff accepted apromise of P5,000.00 only

(Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO

should have been compromised for only P10,000.00, if at all. Now, why should defendants be

held liable for the large sum paid as compromise by the Board of Liquidators? This is just a

sample to show how unjust it would be to hold defendants liable for the readiness with which the

Board of Liquidators disposed of the NACOCO funds, although there was much possibility of

successfully resisting the claims, or at least settlement for nominal sums like what happened in

the Syjuco case.5

All the settlements sum up to P1,343,274.52.

In this suit started in February, 1949, NACOCO seeks to recover the above sum of

P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors JuanBocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902

of the old Civil Code (now Article 2176, new Civil Code); and defendant board members,

including Kalaw, with bad faith and/or breach of trust for having approved the contracts. The

fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants

resisted the action upon defenses hereinafter in this opinion to be discussed.

The lower court came out with a judgment dismissing the complaint without costs as well as

defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw

the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from

NACOCO.

Plaintiff appealed direct to this Court.

Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of

P2,601.94.

Right at the outset, two preliminary questions raised before, but adversely decided by, the court

below, arrest our attention. On appeal, defendants renew their bid. And this, upon established

jurisprudence that an appellate court may base its decision of affirmance of the judgment below

on a point or points ignored by the trial court or in which said court was in error.6

1. First of the threshold questions is that advanced by defendants that plaintiff Board of

Liquidators has lost its legal personality to continue with this suit.

Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs:

(1) under Section 3, Rule 104, of the Rules of Court [which superseded Section 66 of the

Corporation Law]7 whereby, upon voluntary dissolution of a corporation, the court may direct

"such disposition of its assets as justice requires, and may appoint a receiver to collect such


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assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law,

whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued

as a body corporate for three years after the time when it would have been so dissolved, for the

purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle

and close its affairs, to dispose of and convey its property and to divide its capital stock, but not

for the purpose of continuing the business for which it was established;" and (3) under Section

78 of the Corporation Law, by virtue of which the corporation, within the three year period just

mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit

of members, stockholders, creditors, and others interested."8

It is defendants' pose that their case comes within the coverage of the second method. They

reason out that suit was commenced in February, 1949; that by Executive Order 372, dated

November 24, 1950, NACOCO, together with other government-owned corporations, was

abolished, and the Board of Liquidators was entrusted with the function of settling and closing its

affairs; and that, since the three year period has elapsed, the Board of Liquidators may not now

continue with, and prosecute, the present case to its conclusion, because Executive Order 372

provides in Section 1 thereof that

Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the

National Tobacco Corporation, the National Food Producer Corporation and the former enemy-

owned or controlled corporations or associations, . . . are hereby abolished. The said corporations

shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as

the President of the Philippines may direct;Provided, however, That each of the said

corporations shall nevertheless be continued as a body corporate for a period of three (3) years

from the effective date of this Executive Order for the purpose of prosecuting and defending

suits by or against it and of enabling the Board of Liquidators gradually to settle and close its

affairs, to dispose of and, convey its property in the manner hereinafter provided.

Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found

impossible within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by

or against a corporation abate when it ceases to be an entity capable of suing or being sued"

(Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum

likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence

so that there must be statutory authority for prolongation of its life even for purposes of pending

litigation"9 and that suit "cannot be continued or revived; nor can a valid judgment be rendered

therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral

attack." 10 So it is, that abatement of pending actions follows as a matter of course upon the

expiration of the legal period for liquidation, 11 unless the statute merely requires a

commencement of suit within the added time. 12 For, the court cannot extend the time alloted by

statute. 13


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We, however, express the view that the executive order abolishing NACOCO and creating the

Board of Liquidators should be examined in context. The proviso in Section 1 of Executive

Order 372, whereby the corporate existence of NACOCO was continued for a period of three

years from the effectivity of the order for "the purpose of prosecuting and defending suits by or

against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to

dispose of and convey its property in the manner hereinafter provided", is to be read not as an

isolated provision but in conjunction with the whole. So reading, it will be readily observed that

no time limit has been tacked to the existence of the Board of Liquidators and its function of

closing the affairs of the various government owned corporations, including NACOCO.

By Section 2 of the executive order, while the boards of directors of the various corporations

were abolished, their powers and functions and duties under existing laws were to be assumed

and exercised by the Board of Liquidators. The President thought it best to do away with the

boards of directors of the defunct corporations; at the same time, however, the President had

chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the

executive order was there any mention of the lifespan of the Board of Liquidators. A glance at

the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the

Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the

executive order, "and/or in such manner as the President of the Philippines may direct." By

Section 4, when any property, fund, or project is transferred to any governmental instrumentality

"for administration or continuance of any project," the necessary funds therefor shall be taken

from the corresponding special fund created in Section 5. Section 5, in turn, talks of special

funds established from the "net proceeds of the liquidation" of the various corporations

abolished. And by Section, 7, fifty per centum of the fees collected from the copra

standardization and inspection service shall accrue "to the special fund created in section 5

hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is

that the term of life of the Board of Liquidators is without time limit. Contemporary history gives

us the fact that the Board of Liquidators still exists as an office with officials and numerous

employees continuing the job of liquidation and prosecution of several court actions.

Not that our views on the power of the Board of Liquidators to proceed to the final determination

of the present case is without jurisprudential support. The first judicial test before this Court is

National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case,

the corporation, already dissolved, commenced suit within the three-year extended period for

liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp

in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss,

questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-

party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted by

Executive Order372. Plaintiff failed to effect inclusion. The lower court dismissed the suit.

Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the


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amended complaint, as directed, and instructed the board's incoming and outgoing

correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and

a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the

original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We

there said that "the rule appears to be well settled that, in the absence of statutory provision to the

contrary, pending actions by or against a corporation are abated upon expiration of the period

allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law

contains no provision authorizing a corporation, after three (3) years from the expiration of its

lifetime, to continue in its corporate name actions instituted by it within said period of three (3)

years." 14 However, these precepts notwithstanding, we, in effect, held in that case that the Board

of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete

loss of plaintiff's corporate existence after the expiration of the period of three (3)years for the

settlement of its affairs is what impelled the President to create a Board of Liquidators, to

continue the management of such matters as may then be pending." 15 We accordingly directed

the record of said case to be returned to the lower court, with instructions to admit plaintiff's

amended complaint to include, as party plaintiff, the Board of Liquidators.

Defendants' position is vulnerable to attack from another direction.

By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed

its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the

trustee on behalf of the government. It was an express trust. The legal interest became vested in

the trusteethe Board of Liquidators. The beneficial interest remainedwith the sole

stockholderthe government. At no time had the government withdrawn the property, or the

authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we

cannot stay the hand of the Board of Liquidators from prosecuting this case to its final

conclusion. 16 The provisions of Section 78 of the Corporation Lawthe third method of

winding up corporate affairsfind application.

We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff

in this case.

2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw.

Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their

nineteenth special defense, that plaintiff's action is personal to the deceased Maximo M. Kalaw,

and may not be deemed to have survived after his death.18 They say that the controlling statute is

Section 5, Rule 87, of the 1940 Rules of Court.19 which provides that "[a]ll claims for money

against the decedent, arising from contract, express or implied", must be filed in the estate

proceedings of the deceased. We disagree.


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Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's

executors or administrators, and they are: (1) actions to recover real and personal property from

the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury

to person or property. The present suit is one for damages under the last class, it having been

held that "injury to property" is not limited to injuries to specific property, but extends to other

wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126;

also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged

in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31,

1953).

The ruling in the preceding case was hammered out of facts comparable to those of the present.

No cogent reason exists why we should break away from the views just expressed. And, the

conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of

Casimiro Garcia survives.

The preliminaries out of the way, we now go to the core of the controversy.

3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into

the controverted contracts without the prior approval of the corporation's directorate. Plaintiff

leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as

amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf

of the Corporation upon prior approval of the Board, all contracts necessary and essential to the

proper accomplishment for which the Corporation was organized."

Not ofde minimis importance in a proper approach to the problem at hand, is the nature of a

general manager's position in the corporate structure. A rule that has gained acceptance through

the years is that a corporate officer "intrusted with the general management and control of its

business, has implied authority to make any contract or do any other act which is necessary or

appropriate to the conduct of the ordinary business of the corporation. 21 As such officer, "he

may, without any special authority from the Board of Directors perform all acts of an ordinary

nature, which by usage or necessity are incident to his office, and may bind the corporation by

contracts in matters arising in the usual course of business. 22

The problem, therefore, is whether the case at bar is to be taken out of the general concept of the

powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior

directorate approval of NACOCO contracts.

The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this

enterprise are copra sales for future delivery. The movement of the market requires that sales

agreements be entered into, even though the goods are not yet in the hands of the seller. Known

in business parlance as forward sales, it is concededly the practice of the trade. A certain amount

of speculation is inherent in the undertaking. NACOCO was much more conservative than the


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exporters with big capital. This short-selling was inevitable at the time in the light of other

factors such as availability of vessels, the quantity required before being accepted for loading,

the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a

necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above

all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be

executed on short noticeat times within twenty-four hours. To be appreciated then is the

difficulty of calling a formal meeting of the board.

Such were the environmental circumstances when Kalaw went into copra trading.

Long before the disputed contracts came into being, Kalaw contractedby himself alone as

general managerfor forward sales of copra. For thefiscal year ending June 30, 1947, Kalaw

signed some 60 such contracts for the sale of copra to divers parties. During that period, from

those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's

board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him aspecialbonus "in recognition of the signal achievement rendered by him in putting the Corporation's

business on a self-sufficient basis within a few months after assuming office, despite numerous

handicaps and difficulties."

These previous contract it should be stressed, were signed by Kalaw without prior authority from

the board. Said contracts were known all along to the board members. Nothing was said by them.

The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties

attendant to forward sales by leaving the adoption of means to end, to the sound discretion of

NACOCO's general manager Maximo M. Kalaw.

Liberally spread on the record are instances of contracts executed by NACOCO's general

manager and submitted to the board after their consummation, not before. These agreements

were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after

NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then

general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of

a space in Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw,

sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22,

1947, when the controversy over the present contract cropped up, the board voted to approve a

lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto

covering a warehouse of the latter. On the same date, the board gave its nod to a contract forrenewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested

Kalaw to report for action all copra contracts signed by him "at the meeting immediately

following the signing of the contracts." This practice was observed in a later instance when, on

January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra

each to a certain "SCAP" and a certain "GNAPO".


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And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2%

of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government.

Such ratification was necessary because, as stated by Kalaw in that same meeting, "under an

existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made

through brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export

contracts, and 2% on three others, for the sale of copra were approved by the board with a

proviso authorizing the general manager to pay a commission up to the amount of 1-1/2%

"without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J.

Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On

March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific

Trading Corporation on the sale of 2,000 tons of copra.

It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon

by the board, notthe sales contracts themselves. And even those fee agreements were submitted

only when the commission exceeded the ceiling fixed by the board.

Knowledge by the board is also discernible from other recorded instances.1wph1.t

When the board met on May 10, 1947, the directors discussed the copra situation: There was a

slow downward trend but belief was entertained that the nadir might have already been reached

and an improvement in prices was expected. In view thereof, Kalaw informed the board that "he

intends to wait until he has signed contracts to sell before starting to buy copra ."23

In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current:

The copra market appeared to have become fairly steady; it was not expected that copra prices

would again rise very high as in the unprecedented boom during January-April, 1947; the prices

seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by

the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale

of copra generally with a margin of P5.00 to P7.00 per hundred kilos." 24

We now lift the following excerpts from the minutes of that same board meeting of July 29,

1947:

521. In connection with the buying and selling of copra the Board inquired whether it is the

practice of the management to close contracts of sale first before buying. The General Manager

replied that this practice is generally followedbut that it is not always possible to do so for tworeasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying

even when it does not have actual contracts of sale since the suspension of buying by the Nacoco

will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower

the prices to the detriment of the producers.


15/98

(2) The movement of the market is such that it may not be practical always to wait for the

consummation of contracts of sale before beginning to buy copra.

The General Manager explained that in this connection a certain amount of speculation is

unavoidable. However, he said that the Nacoco is much more conservative than the other bigexporters in this respect.25

Settled jurisprudence has it that where similar acts have been approved by the directors as a

matter of general practice, custom, and policy, the general manager may bind the company

without formal authorization of the board of directors. 26 In varying language, existence of such

authority is established, by proof ofthe course of business, the usage and practices of the

company and by the knowledge which the board of directors has, or must be presumedto have,

of acts and doings of its subordinates in and about the affairs of the corporation. 27 So also,

x x x authority to act for and bind a corporation may be presumed from acts of recognition in

other instances where the power was in fact exercised. 28

x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in

his official capacity to manage its affairs, his authority to represent the corporation may be

implied from the manner in which he has been permitted by the directors to manage its

business.29

In the case at bar, the practice of the corporation has been to allow its general manager to

negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf

withoutprior board approval. If the by-laws were to be literally followed, the board should give

its stamp of prior approval on all corporate contracts. But that board itself, by its acts andthrough acquiescence, practically laid aside the by-law requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

4. But if more were required, we need but turn to the board's ratification of the contracts in

dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is

nothing more than a mere formality.

Authorities, great in number, are one in the idea that "ratification by a corporation of an

unauthorized act or contract by its officers or others relates back to the time of the act or contract

ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to

the transaction are in precisely the same position as if the act or contract had been authorized at

the time." 30 The language of one case is expressive: "The adoption or ratification of a contract

by a corporation is nothing more or less than the making of an original contract. The theory of

corporate ratification ispredicated on the right of a corporation to contract, and any ratification

or adoption is equivalent to a grant of prior authority." 31


16/98

Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the

moment it was constituted." 32 By corporate confirmation, the contracts executed by Kalaw are

thus purged of whatever vice or defect they may have. 33

In sum, a case is here presented whereunder, even in the face of an express by-law requirementof prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to

recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts

remain valid.

5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or

breach of trust" in the board's ratification of the contracts without prior approval of the board.

For, in reality, all that we have on the government's side of the scale is that the board knew that

the contracts so confirmed would cause heavy losses.

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior

approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were

first thrown on the way only when the contracts turned out to be unprofitable for NACOCO.

Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it

imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means

breach of a known duty thru some motive or interest or ill will; it partakes of the nature of

fraud.34 Applying this precept to the given facts herein, we find that there was no "dishonest

purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known

duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud."

Nor was it even intimated here that the NACOCO directors acted for personal reasons, or toserve their own private interests, or to pocket money at the expense of the corporation. 35 We

have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating

with furtive design or with some motive of self-interest or ill will or for ulterior purposes." 36

Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from

Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all

the reported cases, although there are many dicta not easily reconcilable, yet I have found no

judgment or decree which has held directors to account, except when they have themselves been

personally guilty of some fraud on the corporation, or have known and connived at some fraud in

others, or where such fraud might have been prevented had they given ordinary attention to their

duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these

malevolent acts.

Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates

of fairness. They did not think of raising their voice in protest against past contracts which

brought in enormous profits to the corporation. By the same token, fair dealing disagrees with

the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or


17/98

loss resulting from business ventures is no justification for turning one's back on contracts

entered into. The truth, then, of the matter is thatin the words of the trial courtthe

ratification of the contracts was "an act of simple justice and fairness to the general manager and

the best interest of the corporation whose prestige would have been seriously impaired by a

rejection by the board of those contracts which proved disadvantageous." 37

The directors are not liable." 38

6. To what then may we trace the damage suffered by NACOCO.

The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions.

Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers

could not be expected. NACOCO was not alone in this misfortune. The record discloses that

private traders, old, experienced, with bigger facilities, were not spared; also suffered

tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about

P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department

of NACOCO, observed that from late 1947 to early 1948 "there were many who lost money in

the trade." 39 NACOCO was not immune from such usual business risk.

The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis

Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense and there

vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the

coconut trees in the copra producing regions of the Philippines and according to estimates of

competent authorities, it will take about one year until the coconut producing regions will be able

to produce their normal coconut yield and it will take some time until the price of copra will

reach normal levels;" and that "it had never been the intention of the contracting parties in

entering into the contract in question that, in the event of a sharp rise in the price of copra in the

Philippine market produce by force majeure or by caused beyond defendant's control, the

defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of

the plaintiff under the contract." 40

A high regard for formal judicial admissions made in court pleadings would suffice to deter us

from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was

because of Kalaw's negligence, or for that matter, by reason of the board's ratification of the

contracts. 41

Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual

obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread

throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts

involved delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO

was still able to deliver a little short of 50% of the tonnage required under the contracts.


18/98

As the trial court correctly observed, this is a case ofdamnum absque injuria. Conjunction of

damage and wrong is here absent. There cannot be an actionable wrong if either one or the other

is wanting. 43

7. On top of all these, is that no assertion is made and no proof is presented which would linkKalaw's actsratified by the boardto a matrix for defraudation of the government. Kalaw is

clear of the stigma of bad faith. Plaintiff's corporate counsel44 concedes that Kalaw all along

thought that he had authority to enter into the contracts, that he did so in the best interests of the

corporation; that he entered into the contracts in pursuance of an overall policy to stabilize

prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO

contracted in the disputed agreements, were at a level calculated to produce profits and higher

than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it

would be foolish to think that one would sign (a) contract when you are going to lose money"

and that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on the basis of

prices then prevailing, NACOCO envisioned a profit of around P752,440.00. 46

Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with

NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and

quotations from abroad were guideposts to him.

Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict

the coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not

remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National

Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the

loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank'sboard of directors. In frustration, on December 12, 1947, Kalaw turned to the President,

complained about the bank's short-sighted policy. In the end, nothing came out of the

negotiations with the bank. NACOCO eventually faltered in its contractual obligations.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would

seem to be supported by the fact that even as the contracts were being questioned in Congress

and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On

December 27, 1947, President Roxas expressed his desire "that the Board of Directors should

reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." 47

And, on January 7, 1948, at a time when the contracts had already been openly disputed, theboard, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the

corporation.

Well may we profit from the following passage fromMontelibano vs. Bacolod-Murcia Milling

Co., Inc., L-15092, May 18, 1962:


19/98

"They (the directors) hold such office charged with the duty to act for the corporation according

to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and

performance of such duty. Whether the business of a corporation should be operated at a loss

during a business depression, or closed down at a smaller loss, is a purely business and economic

problem to be determined by the directors of the corporation, and not by the court. It is a well

known rule of law that questions of policy of management are left solely to the honest decision

of officers and directors of a corporation, and the court is without authority to substitute its

judgment for the judgment of the board of directors; the board is the business manager of the

corporation, andsolong as it acts in good faith its orders are not reviewable by the courts."

(Fletcher on Corporations, Vol. 2, p. 390.) 48

Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49

Viewed in the light of the entire record, the judgment under review must be, as it is hereby,

affirmed.

Without costs. So ordered.

THIRD DIVISION

[G.R. No. 107518. October 8, 1998]

PNOC SHIPPING AND TRANSPORT CORPORATION,petitioner, vs. HONORABLE

COURT OF APPEALS and MARIA EFIGENIA FISHING CORPORATION, respondents.

D E C I S I O N

ROMERO,J.:

A party is entitled to adequate compensation only for such pecuniary loss actually suffered and

duly proved.ix[1] Indeed, basic is the rule that to recover actual damages, the amount of loss

must not only be capable of proof but must actually be proven with a reasonable degree of

certainty, premised upon competent proof or best evidence obtainable of the actual amount

thereof.ix[2] The claimant is duty-bound to point out specific facts that afford a basis for

measuring whatever compensatory damages are borne.ix[3] A court cannot merely rely on

speculations, conjectures, or guesswork as to the fact and amount of damagesix[4] as well as

hearsayix[5] or uncorroborated testimony whose truth is suspect.ix[6] Such are thejurisprudential precepts that the Court now applies in resolving the instant petition.

The records disclose that in the early morning of September 21, 1977, theM/V Maria Efigenia

XV, owned byprivate respondent Maria Efigenia Fishing Corporation, was navigating the waters

near Fortune Island in Nasugbu, Batangas on its way to Navotas, Metro Manila when it collided


20/98

with the vesselPetroparcelwhich at the time was owned by the Luzon Stevedoring Corporation

(LSC).

After investigation was conducted by the Board of Marine Inquiry, Philippine Coast Guard

Commandant Simeon N. Alejandro rendered a decision finding thePetroparcelat fault. Basedon this finding by the Board and after unsuccessful demands on petitioner,ix[7] private

respondent sued the LSC and thePetroparcelcaptain, Edgardo Doruelo, before the then Court of

First Instance of Caloocan City, paying thereto the docket fee of one thousand two hundred fifty-

two pesos (P1,252.00) and the legal research fee of two pesos (P2.00).ix[8] In particular, private

respondent prayed for an award of P692,680.00, allegedly representing the value of the fishing

nets, boat equipment and cargoes ofM/V Maria Efigenia XV, with interest at the legal rate plus

25% thereof as attorneys fees. Meanwhile, during the pendency of the case, petitioner PNOC

Shipping and Transport Corporation sought to be substituted in place of LSC as it had already

acquired ownership of thePetroparcel.ix[9]

For its part, private respondent later sought the amendment of its complaint on the ground that

the original complaint failed to plead for the recovery of the lost value of the hull ofM/V Maria

Efigenia XV.ix[10]Accordingly, in the amended complaint, private respondent averred that M/V

Maria Efigenia XVhad an actual value of P800,000.00 and that, after deducting the insurance

payment of P200,000.00, the amount of P600,000.00 should likewise be claimed. The amended

complaint also alleged that inflation resulting from the devaluation of the Philippine peso had

affected the replacement value of the hull of the vessel, its equipment and its lost cargoes, such

that there should be a reasonable determination thereof. Furthermore, on account of the sinking

of the vessel, private respondent supposedly incurred unrealized profits and lost business

opportunities that would thereafter be proven.ix[11]

Subsequently, the complaint was further amended to include petitioner as a defendantix[12]

which the lower court granted in its order of September 16, 1985.ix[13] After petitioner had filed

its answer to the second amended complaint, on February 5, 1987, the lower court issued a pre-

trial orderix[14] containing, among other things, a stipulations of facts, to wit:

1. On 21 September 1977, while the fishing boat `M/V MARIA EFIGENIA owned by

plaintiff was navigating in the vicinity of Fortune Island in Nasugbu, Batangas, on its way to

Navotas, Metro Manila, said fishing boat was hit by the LSCO tanker Petroparcel causing the

former to sink.

2. The Board of Marine Inquiry conducted an investigation of this marine accident and on

21 November 1978, the Commandant of the Philippine Coast Guard, the Honorable Simeon N.

Alejandro, rendered a decision finding the cause of the accident to be the reckless and imprudent

manner in which Edgardo Doruelo navigated the LSCO Petroparcel and declared the latter

vessel at fault.


21/98

3. On 2 April 1978, defendant Luzon Stevedoring Corporation (LUSTEVECO), executed in

favor of PNOC Shipping and Transport Corporation a Deed of Transfer involving several

tankers, tugboats, barges and pumping stations, among which was the LSCO Petroparcel.

4. On the same date on 2 April 1979 (sic), defendant PNOC STC again entered into anAgreement of Transfer with co-defendant Lusteveco whereby all the business properties and

other assets appertaining to the tanker and bulk oil departments including the motor tanker LSCO

Petroparcel of defendant Lusteveco were sold to PNOC STC.

5. The aforesaid agreement stipulates, among others, that PNOC-STC assumes, without

qualifications, all obligations arising from and by virtue of all rights it obtained over the LSCO

`Petroparcel.

6. On 6 July 1979, another agreement between defendant LUSTEVECO and PNOC-STC

was executed wherein Board of Marine Inquiry Case No. 332 (involving the sea accident of 21

September 1977) was specifically identified and assumed by the latter.

7. On 23 June 1979, the decision of Board of Marine Inquiry was affirmed by the Ministry

of National Defense, in its decision dismissing the appeal of Capt. Edgardo Doruelo and Chief

mate Anthony Estenzo of LSCO `Petroparcel.

8. LSCO `Petroparcel is presently owned and operated by PNOC-STC and likewise Capt.

Edgardo Doruelo is still in their employ.

9. As a result of the sinking of M/V Maria Efigenia caused by the reckless and imprudent

manner in which LSCO Petroparcel was navigated by defendant Doruelo, plaintiff sufferedactual damages by the loss of its fishing nets, boat equipments (sic) and cargoes, which went

down with the ship when it sank the replacement value of which should be left to the sound

discretion of this Honorable Court.

After trial, the lower courtix[15] rendered on November 18, 1989 its decision disposing of Civil

Case No. C-9457 as follows:

WHEREFORE, and in view of the foregoing, judgment is hereby rendered in favor of the

plaintiff and against the defendant PNOC Shipping & Transport Corporation, to pay the plaintiff:

a. The sum of P6,438,048.00 representing the value of the fishing boat with interest fromthe date of the filing of the complaint at the rate of 6% per annum;

b. The sum of P50,000.00 as and for attorneys fees; and

c. The costs of suit.


22/98

The counterclaim is hereby DISMISSED for lack of merit. Likewise, the case against defendant

Edgardo Doruelo is hereby DISMISSED, for lack of jurisdiction.

SO ORDERED.

In arriving at the above disposition, the lower court cited the evidence presented by private

respondent consisting of the testimony of its general manager and sole witness, Edilberto del

Rosario. Private respondents witness testified thatM/V Maria Efigenia XVwas owned by

private respondent per Exhibit A, a certificate of ownership issued by the Philippine Coast Guard

showing thatM/V Maria Efigenia XVwas a wooden motor boat constructed in 1965 with 128.23

gross tonnage. According to him, at the time the vessel sank, it was then carrying 1,060 tubs

(baeras) of assorted fish the value of which was never recovered. Also lost with the vessel

were two cummins engines (250 horsepower), radar,pathometer and compass. He further added

that with the loss of his flagship vessel in his fishing fleet of fourteen (14) vessels, he was

constrained to hire the services of counsel whom he paid P10,000 to handle the case at the Boardof Marine Inquiry and P50,000.00 for commencing suit for damages in the lower court.

As to the award of P6,438,048.00 in actual damages, the lower court took into account the

following pieces of documentary evidence that private respondent proffered during trial:

(a) Exhibit Acertified xerox copy of the certificate of ownership ofM/V Maria Efigenia

XV;

(b) Exhibit Ba document titled Marine Protest executed by Delfin Villarosa, Jr. on

September 22, 1977 stating that as a result of the collision, theM/V Maria Efigenia XVsustained

a hole at its left side that caused it to sink with its cargo of 1,050 baeras valued at P170,000.00;

(c) Exhibit Ca quotation for the construction of a 95-footer trawler issued by Isidoro A.

Magalong of I. A. Magalong Engineering and Construction on January 26, 1987 to Del Rosario

showing that construction of such trawler would cost P2,250,000.00;

(d) Exhibit Dpro forma invoice No. PSPI-05/87-NAV issued by E.D. Daclan of Power

Systems, Incorporated on January 20, 1987 to Del Rosario showing that two (2) units of

CUMMINS Marine Engine model N855-M, 195 bhp. at 1800 rpm. would cost P1,160,000.00;

(e) Exhibit Equotation of prices issued by Scan Marine Inc. on January 20, 1987 to Del

Rosario showing that a unit of Furuno Compact Daylight Radar, Model FR-604D, would cost

P100,000.00 while a unit of Furuno Color Video Sounder, Model FCV-501 would cost

P45,000.00 so that the two units would cost P145,000.00;

(f) Exhibit Fquotation of prices issued by Seafgear Sales, Inc. on January 21, 1987 to Del

Rosario showing that two (2) rolls of nylon rope (5 cir. X 300fl.) would cost P140,000.00; two


23/98

(2) rolls of nylon rope (3 cir. X 240fl.), P42,750.00; one (1) binocular (7 x 50), P1,400.00, one

(1) compass (6), P4,000.00 and 50 pcs. of floats, P9,000.00 or a total of P197, 150.00;

(g) Exhibit Gretainer agreement between Del Rosario and F. Sumulong Associates Law

Offices stipulating an acceptance fee of P5,000.00, per appearance fee of P400.00, monthlyretainer of P500.00, contingent fee of 20% of the total amount recovered and that attorneys fee

to be awarded by the court should be given to Del Rosario; and

(h) Exhibit Hprice quotation issued by Seafgear Sales, Inc. dated April 10, 1987 to Del

Rosario showing the cost of poly nettings as: 50 rolls of 400/18 3kts. 100md x 100mtrs.,

P70,000.00; 50 rolls of 400/18 5kts. 100md x 100mtrs., P81,500.00; 50 rolls of 400/18 8kts.

100md x 100mtrs., P116,000.00, and 50 rolls of 400/18 10kts. 100md x 100mtrs., P146,500 and

banera (tub) at P65.00 per piece or a total of P414,065.00

The lower court held that the prevailing replacement value of P6,438,048.00 of the fishing boat

and all its equipment would regularly increase at 30% every year from the date the quotations

were given.

On the other hand, the lower court noted that petitioner only presented Lorenzo Lazaro, senior

estimator at PNOC Dockyard & Engineering Corporation, as sole witness and it did not bother at

all to offer any documentary evidence to support its position. Lazaro testified that the price

quotations submitted by private respondent were excessive and that as an expert witness, he

used the quotations of his suppliers in making his estimates. However, he failed to present such

quotations of prices from his suppliers, saying that he could not produce a breakdown of the

costs of his estimates as it was a sort of secret scheme. For this reason, the lower court

concluded:

Evidently, the quotation of prices submitted by the plaintiff relative to the replacement value of

the fishing boat and its equipments in the tune of P6,438,048.00 which were lost due to the

recklessness and imprudence of the herein defendants were not rebutted by the latter with

sufficient evidence. The defendants through their sole witness Lorenzo Lazaro relied heavily on

said witness bare claim that the amount afore-said is excessive or bloated, but they did not

bother at all to present any documentary evidence to substantiate such claim. Evidence to be

believed, must not only proceed from the mouth of the credible witness, but it must be credible

in itself. (Vda. de Bonifacio vs. B. L. T. Bus Co., Inc. L-26810, August 31, 1970).

Aggrieved, petitioner filed a motion for the reconsideration of the lower courts decision

contending that: (1) the lower court erred in holding it liable for damages; that the lower court

did not acquire jurisdiction over the case by paying only P1,252.00 as docket fee; (2) assuming

that plaintiff was entitled to damages, the lower court erred in awarding an amount greater than

that prayed for in the second amended complaint; and (3) the lower court erred when it failed to

resolve the issues it had raised in its memorandum.ix[16] Petitioner likewise filed a supplemental


24/98

motion for reconsideration expounding on whether the lower court acquired jurisdiction over the

subject matter of the case despite therein plaintiffs failure to pay the prescribed docket

fee.ix[17]

On January 25, 1990, the lower court declined reconsideration for lack of merit.ix[18]Apparently not having received the order denying its motion for reconsideration, petitioner still

filed a motion for leave to file a reply to private respondents opposition to said motion.ix[19]

Hence, on February 12, 1990, the lower court denied said motion for leave to file a reply on the

ground that by the issuance of the order of January 25, 1990, said motion had become moot and

academic.ix[20]

Unsatisfied with the lower courts decision, petitioner elevated the matter to the Court of

Appeals which, however, affirmed the same in toto on October 14, 1992.ix[21] On petitioners

assertion that the award of P6,438,048.00 was not convincingly proved by competent and

admissible evidence, the Court of Appeals ruled that it was not necessary to qualify Del Rosarioas an expert witness because as the owner of the lost vessel, it was well within his knowledge

and competency to identify and determine the equipment installed and the cargoes loaded on the

vessel. Considering the documentary evidence presented as in the nature of market reports or

quotations, trade journals, trade circulars and price lists, the Court of Appeals held, thus:

Consequently, until such time as the Supreme Court categorically rules on the admissibility or

inadmissibility of this class of evidence, the reception of these documentary exhibits (price

quotations) as evidence rests on the sound discretion of the trial court. In fact, where the lower

court is confronted with evidence which appears to be of doubtful admissibility, the judge should

declare in favor of admissibility rather than of non-admissibility (The Collector of Palakadhari,124 [1899], p. 43, cited in Francisco, Revised Rules of Court, Evidence, Volume VII, Part I,

1990 Edition, p. 18). Trial courts are enjoined to observe the strict enforcement of the rules of

evidence which crystallized through constant use and practice and are very useful and effective

aids in the search for truth and for the effective administration of justice. But in connection with

evidence which may appear to be of doubtful relevancy or incompetency or admissibility, it is

the safest policy to be liberal, not rejecting them on doubtful or technical grounds, but admitting

them unless plainly irrelevant, immaterial or incompetent, for the reason that their rejection

places them beyond the consideration of the court. If they are thereafter found relevant or

competent, can easily be remedied by completely discarding or ignoring them. (Banaria vs.

Banaria, et al., C.A. No. 4142, May 31, 1950; cited in Francisco, Supra). [Underscoring

supplied].

Stressing that the alleged inadmissible documentary exhibits were never satisfactorily rebutted

by appellants own sole witness in the person of Lorenzo Lazaro, the appellate court found that

petitioner ironically situated itself in an inconsistent posture by the fact that its own witness,


25/98

admittedly an expert one, heavily relies on the very same pieces of evidence (price quotations)

appellant has so vigorously objected to as inadmissible evidence. Hence, it concluded:

x x x. The amount ofP6,438,048.00 was duly established at the trial on the basis of appellees

documentary exhibits (price quotations) which stood uncontroverted, and which already includedthe amount by way of adjustment as prayed for in the amended complaint. There was therefore

no need for appellee to amend the second amended complaint in so far as to the claim for

damages is concerned to conform with the evidence presented at the trial. The amount of

P6,438,048.00 awarded is clearly within the relief prayed for in appellees second amended

complaint.

On the issue of lack of jurisdiction, the respondent court held that following the ruling in Sun

Insurance Ltd. v. Asuncion,ix[22] the additional docket fee that may later on be declared as still

owing the court may be enforced as a lien on the judgment.

Hence, the instant recourse.

In assailing the Court of Appeals decision, petitioner posits the view that the award of

P6,438,048 as actual damages should have been in light of these considerations, namely: (1) the

trial court did not base such award on the actual value of the vessel and its equipment at the time

of loss in 1977; (2) there was no evidence on extraordinary inflation that would warrant an

adjustment of the replacement cost of the lost vessel, equipment and cargo; (3) the value of the

lost cargo and the prices quoted in respondents documentary evidence only amount to

P4,336,215.00; (4) private respondents failure to adduce evidence to support its claim for

unrealized profit and business opportunities; and (5) private respondents failure to prove the

extent and actual value of damages sustained as a result of the 1977 collision of the

vessels.ix[23]

Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded in

satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of

natural justice and are designed to repair the wrong that has been done, to compensate for the

injury inflicted and not to impose a penalty.ix[24] In actions based on torts or quasi-delicts,

actual damages include all the natural and probable consequences of the act or omission

complained of.ix[25] There are two kinds of actual or compensatory damages: one is the loss of

what a person already possesses (dao emergente), and the other is the failure to receive as a

benefit that which would have pertained to him (lucro cesante).ix[26] Thus:

Where goods are destroyed by the wrongful act of the defendant the plaintiff is entitled to their

value at the time of destruction, that is, normally, the sum of money which he would have to pay

in the market for identical or essentially similar goods, plus in a proper case damages for the loss

of use during the period before replacement. In other words, in the case of profit-earning

chattels, what has to be assessed is the value of the chattel to its owner as a going concern at the


26/98

time and place of the loss, and this means, at least in the case of ships, that regard must be had to

existing and pending engagements.x x x.

x x x. If the market value of the ship reflects the fact that it is in any case virtually certain of

profitable employment, then nothing can be added to that value in respect of charters actuallylost, for to do so would bepro tanto to compensate the plaintiff twice over. On the other hand, if

the ship is valued without reference to its actual future engagements and only in the light of its

profit-earning potentiality, then it may be necessary to add to the value thus assessed the

anticipated profit on a charter or other engagement which it was unable to fulfill. What the court

has to ascertain in each case is the `capitalised value of the vessel as a profit-earning machine not

in the abstract but in view of the actual circumstances, without, of course, taking into account

considerations which were too remote at the time of the loss.ix[27] [Underscoring supplied].

As stated at the outset, to enable an injured party to recover actual or compensatory damages, he

is required to prove the actual amount of loss with reasonable degree of certainty premised uponcompetent proof and on the best evidence available.ix[28] The burden of proof is on the party

who would be defeated if no evidence would be presented on either side. He must establish his

case by a preponderance of evidence which means that the evidence, as a whole, adduced by one

side is superior to that of the other.ix[29] In other words, damages cannot be presumed and

courts, in making an award must point out specific facts that could afford a basis for measuring

whatever compensatory or actual damages are borne.ix[30]

In this case, actual damages were proven through the sole testimony of private respondents

general manager and certain pieces of documentary evidence. Except for Exhibit B where the

value of the 1,050 baeras of fish were pegged at their September 1977 value when the collisionhappened, the pieces of documentary evidence proffered by private respondent with respect to

items and equipment lost show similar items and equipment with corresponding prices in early

1987 or approximately ten (10) years after the collision. Noticeably, petitioner did not object to

the exhibits in terms of the time index for valuation of the lost goods and equipment. In

objecting to the same pieces of evidence, petitioner commented that these were not duly

authenticated and that the witness (Del Rosario) did not have personal knowledge on the contents

of the writings and neither was he an expert on the subjects thereof.ix[31] Clearly ignoring

petitioners objections to the exhibits, the lower court admitted these pieces of evidence and gave

them due weight to arrive at the award of P6,438,048.00 as actual damages.

The exhibits were presented ostensibly in the course of Del Rosarios testimony. Private

respondent did not present any other witnesses especially those whose signatures appear in the

price quotations that became the bases of the award. We hold, however, that the price quotations

are ordinary private writings which under the Revised Rules of Court should have been proffered

along with the testimony of the authors thereof. Del Rosario could not have testified on the

veracity of the contents of the writings even though he was the seasoned owner of a fishing fleet


27/98

because he was not the one who issued the price quotations. Section 36, Rule 130 of the Revised

Rules of Court provides that a witness can testify only to those facts that he knows of his

personal knowledge.

For this reason, Del Rosarios claim that private respondent incurred losses in the total amount ofP6,438,048.00 should be admitted with extreme caution considering that, because it was a bare

assertion, it should be supported by independent evidence. Moreover, because he was the owner

of private respondent corporationix[32] whatever testimony he would give with regard to the

value of the lost vessel, its equipment and cargoes should be viewed in the light of his self-

interest therein. We agree with the Court of Appeals that his testimony as to the equipment

installed and the cargoes loaded on the vessel should be given credenceix[33] considering his

familiarity thereto. However, we do not subscribe to the conclusion that his valuationof such

equipment, cargo and the vessel itself should be accepted as gospel truth.ix[34] We must,

therefore, examine the documentary evidence presented to support Del Rosarios claim as

regards the amount of losses.

The price quotations presented as exhibits partake of the nature of hearsay evidence considering

that the persons who issued them were not presented as witnesses.ix[35] Any evidence, whether

oral or documentary, is hearsay if its probative value is not based on the personal knowledge of

the witness but on the knowledge of another person who is not on the witness stand. Hearsay

evidence, whether objected to or not, has no probative value unless the proponent can show that

the evidence falls within the exceptions to the hearsay evidence rule.ix[36] On this point, we

believe that the exhibits do not fall under any of the exceptions provided under Sections 37 to 47

of Rule 130.ix[37]

It is true that one of the exceptions to the hearsay rule pertains to commercial lists and the like

under Section 45, Rule 130 of the Revised Rules on Evidence. In this respect, the Court of

Appeals considered private respondents exhibits as commercial lists. It added, however, that

these exhibits should be admitted in evidence until such time as the Supreme Court

categorically rules on the admissibility or inadmissibility of this class of evidence because the

reception of these documentary exhibits (price quotations) as evidence rests on the sound

discretion of the trial court.ix[38] Reference to Section 45, Rule 130, however, would show that

the conclusion of the Court of Appeals on the matter was arbitrarily arrived at. This rule states:

Commercial lists and the like.Evidence of statements of matters of interest to personsengaged in an occupation contained in a list, register, periodical, or other published compilation

is admissible as tending to prove the truth of any relevant matter so stated if that compilation is

published for use by persons engaged in that occupation and is generally used and relied upon by

them there.


28/98

Under Section 45 of the aforesaid Rule, a document is a commercial list if: (1) it is a statement

of matters of interest to persons engaged in an occupation; (2) such statement is contained in a

list, register, periodical or other published compilation; (3) said compilation is published for the

use of persons engaged in that occupation, and (4) it is generally used and relied upon by

persons in the same occupation.

Based on the above requisites, it is our considered view that Exhibits B, C, D, E, F and Hix[39]

are not commercial lists for these do not belong to the category of other published

compilations under Section 45 aforequoted. Under the principle ofejusdem generis, (w)here

general words follow an enumeration of persons or things, by words of a particular and specific

meaning, such general words are not to be construed in their widest extent, but are to be held as

applying only to persons or things of the same kind or class as those specifically

mentioned.ix[40] The exhibits mentioned are mere price quotations issued personally to Del

Rosario who requested for them from dealers of equipment similar to the ones lost at the

collision of the two vessels. These are not published in any list, register, periodical or other

compilation on the relevant subject matter. Neither are these market reports or quotations

within the purview of commercial lists as these are not standard handbooks or periodicals,

containing data of everyday professional need and relied upon in the work of the

occupation.ix[41] These are simply letters responding to the queries of Del Rosario. Thus, take

for example Exhibit D which reads:

January 20, 1987

PROFORMA INVOICE NO. PSPI-05/87-NAV

MARIA EFIGINIA FISHING CORPORATION

Navotas, Metro Manila

Attention: MR. EDDIE DEL ROSARIO

Gentlemen:

In accordance to your request, we are pleased to quote our Cummins Marine Engine, to wit.

Two (2) units CUMMINS Marine Engine model N855-M, 195 bhp.

at 1800 rpm., 6-cylinder in-line, 4-stroke cycle, natural aspirated, 5 in. x 6 in. bore and stroke,

855 cu. In. displacement, keel-cooled, electric starting coupled with Twin-Disc Marine gearbox

model MG-509, 4.5:1 reduction ratio, includes oil cooler, companion flange, manual and

standard accessories as per attached sheet.

Price FOB Manila - - - - - - - - - - - - - - - P 580,000.00/unit


29/98

Total FOB Manila - - - - - - - - - - - - - - - P 1,160,000.00

v v v v v v v v v

T E R M S : CASH

DELIVERY : 60-90 days from date of order.

VALIDITY : Subject to our final confirmation.

WARRANTY : One (1) full year against factory defect.

Very truly yours,

POWER SYSTEMS, INC.

(Sgd.)

E. D. Daclan

To be sure, letters and telegrams are admissible in evidence but these are, however, subject to the

general principles of evidence and to various rules relating to documentary evidence.ix[42]

Hence, in one case, it was held that a letter from an automobile dealer offering an allowance for

an automobile upon purchase of a new automobile after repairs had been completed, was not a

price current or commercial list within the statute which made such items presumptive

evidence of the value of the article specified therein. The letter was not admissible in evidence

as a commercial list even though the clerk of the dealer testified that he had written the letter in

due course of business upon instructions of the dealer.ix[43]

But even on the theory that the Court of Appeals correctly ruled on the admissibilityof those

letters or communications when it held that unless plainly irrelevant, immaterial or

incompetent, evidence should better be admitted rather than rejected on doubtful or technical

grounds,ix[44] the same pieces of evidence, however, should not have been given probative

weight. This is a distinction we wish to point out. Admissibility of evidence refers to the

question of whether or not the circumstance (or evidence) is to considered at all.ix[45] On the

other hand, the probative value of evidence refers to the question of whether or not it proves an

issue.ix[46] Thus, a letter may be offered in evidence and admittedas such but its evidentiary

weight depends upon the observance of the rules on evidence. Accordingly, the author of the

letter should be presented as witness to provide the other party to the litigation the opportunity to

question him on the contents of the letter. Being mere hearsay evidence, failure to present the

author of the letter renders its contents suspect. As earlier stated, hearsay evidence, whether

objected to or not, has no probative value. Thus:


30/98

The courts differ as to the weight to be given to hearsay evidence admitted without objection.

Some hold that when hearsay has been admitted without objection, the same may be considered

as any other properly admitted testimony. Others maintain that it is entitled to no more

consideration than if it had been excluded.

The rule prevailing in this jurisdiction is the latter one. Our Supreme Court held that although

the question of admissibility of evidence can not be raised for the first time on appeal, yet if the

evidence is hearsay it has no probative value and should be disregarded whether objected to or

not. Ìf no objection is made quoting Jones on Evidence - ìt (hearsay) becomes evidence by

reason of the want of such objection even though its admission does not confer upon it any new

attribute in point of weight. Its nature and quality remain the same, so far as its intrinsic

weakness and incompetency to satisfy the mind are concerned, and as opposed to direct primary

evidence, the latter always prevails.

The failure of the defense counsel to object to the presentation of incompetent evidence, likehearsay evidence or evidence that violates the rules ofres inter alios acta, or his failure to ask

for the striking out of the same does not give such evidence any probative value. But

admissibility of evidence should not be equated with weight of evidence. Hearsay evidence

whether objected to or not has no probative value.ix[47]

Accordingly, as stated at the outset, damages may not be awarded on the basis of hearsay

evidence.ix[48]

Nonetheless, the non-admissibility of said exhibits does not mean that it totally deprives private

respondent of any redress for the loss of its vessel. This is because in Luf thansa German

Ai rl ines v. Court of Appeals,ix[49] the Court said:

In the absence of competent proof on the actual damage suffered, private respondent is èntitled

to nominal damages which, as the law says, is adjudicated in order that a right of the plaintiff,

which has been violated or invaded by defendant, may be vindicated and recognized, and not for

the purpose of indemnifying the plaintiff for any loss suffered. [Underscoring supplied].

Nominal damages are awarded in every obligation arising from law, contracts, quasi-contracts,

acts or omissions punished by law, and quasi-delicts, or in every case where property right has

been invaded.ix[50] Under Article 2223 of the Civil Code, (t)he adjudication of nominal

damages shall preclude further contest upon the right involved and all accessory questions, asbetween the parties to the suit, or their respective heirs and assigns.

Actually, nominal damages are damages in name only and not in fact. Where these are allowed,

they are not treated as an equivalent of a wrong inflicted but simply in recognition of the

existence of a technical injury.ix[51] However, the amount to be awarded as nominal damages

shall be equal or at least commensurate to the injury sustained by private respondent considering


31/98

the concept and purpose of such damages.ix[52] The amount of nominal damages to be awarded

may also depend on certain special reasons extant in the case.ix[53]

Applying now such principles to the instant case, we have on record the fact that petitioners

vesselPetroparcelwas at fault as well as private respondents complaint claiming the amount ofP692,680.00 representing the fishing nets, boat equipment and cargoes that sunk with theM/V

Maria Efigenia XV. In its amended complaint, private respondent alleged that the vessel had an

actual value of P800,000.00 but it had been paid insurance in the amount of P200,000.00 and,

therefore, it claimed only the amount of P600,000.00. Ordinarily, the receipt of insurance

payments should diminish the total value of the vessel quoted by private respondent in his

complaint considering that such payment is causally related to the loss for which it claimed

compensation. This Court believes that such allegations in the original and amended complaints

can be the basis for determination of a fair amount of nominal damages inasmuch as a complaint

alleges the ultimate facts constituting the plaintiff's cause of action.ix[54] Private respondent

should be bound by its allegations on the amount of its claims.

With respect to petitioners contention that the lower court did not acquire jurisdiction over the

amended complaint increasing the amount of damages claimed to P600,000.00, we agree with

the Court of Appeals that the lower court acquired jurisdiction over the case when private

respondent paid the docket fee corresponding to its claim in its original complaint. Its failure to

pay the docket fee corresponding to its increased claim for damages under the amended

complaint should not be considered as having curtailed the lower courts jurisdiction. Pursuant

to the ruling in Sun I nsurance Off ice, Ltd. (SIOL) v. Asuncion,ix[55]the unpaid docket fee

should be considered as a lien on the judgment even though private respondent specified the

amount of P600,000.00 as its claim for damages in its amended complaint.

Moreover, we note that petitioner did not question at all the jurisdiction of the lower court on the

ground of insufficient docket fees in its answers to both the amended complaint and the second

amended complaint. It did so only in its motion for reconsideration of the decision of the lower

court after it had received an a

torts finalsset2

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