SILVERIO MARCHAN AND PHILIPPINE RABBIT BUS CO., INC., PETITIONERS, VS. ARSENIO MENDOZA, LEONARDA ILAYA, AND ZENAIDA MENDOZA, RESPONDENTS.

Marchan versus Mendoza

The Case

This is Silverio Marchan and the Philippine Rabbit Bus Company against Arsenio Mendoza, Leonarda Ilaya, and Zenaida Mendoza. The bus company and its driver ask the Supreme Court to reconsider a decision already rendered against them in a claim for damages arising from a vehicular accident. The heart of the motion is the award of exemplary damages, because the petitioners concede that if that award falls, the award of attorney's fees must fall with it. The case matters because it draws a clean line between exemplary damages founded on a criminal offense and exemplary damages founded on a breach of contract or quasi-contract, and it tells the reviewee exactly when a carrier may be made to pay damages by way of example.

Procedural History

The claim for damages was filed against the petitioners and reached the Court of Appeals, which rendered a resolution on the thirty-first of March, 1965, holding the petitioners liable for exemplary damages. The Supreme Court, in a decision promulgated on the thirtieth of August, 1968, sustained that resolution and condemned the petitioners to pay exemplary damages of 30,000 pesos, attorney's fees of 5,000 pesos, interest on the awards of compensatory and exemplary damages and attorney's fees, and the costs of the proceedings. The petitioners then filed a motion for reconsideration on the eighteenth of November, 1968, and later a further pleading inviting the Court's attention to another decision. The Court resolved the motion in the decision now before us.

Facts

The petitioners were held liable for injuries sustained by the respondents in a vehicular accident, and the Court of Appeals found gross negligence on the part of the driver of the vehicle. On that finding the appellate court imposed exemplary damages, relying on the ruling in Singson versus Aragon, and the Supreme Court sustained it in its decision of August, 1968.

The petitioners moved for reconsideration, insisting that no exemplary damages could be awarded against them. They invoked Rotea versus Halili, where exemplary damages had been claimed as part of a subsidiary liability under the Revised Penal Code, and Munsayac versus De Lara, where the alleged basis for exemplary damages was the defendant's failure, after the breach, to placate the sufferings of the plaintiff.

The respondents, in their comments, pointed the Court to Laguna-Tayabas Bus Company versus Diasanta, where the driver of the vehicle had likewise been found grossly negligent. The Court examined each of the cited cases and found that none of them supported the petitioners' plea.

Issues

• Whether or not the Court of Appeals correctly awarded exemplary damages to the respondents against the bus company and its driver.
• Whether or not the award of attorney's fees may stand once the award of exemplary damages is sustained.
• Whether or not the petitioners may be relieved of liability for interest and for the costs of the proceedings.

Applicable Provisions

Article 2232 of the Civil Code of the Philippines provides:

In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

This is the provision on which the award rests, because the liability of the carrier arises from contract and quasi-contract, and the driver's recklessness supplies the manner the article requires.

Article 2230 of the Civil Code of the Philippines provides:

In criminal offenses, exemplary damages as a part of the civil liability may be imposed when the crime is committed with one or more aggravating circumstances.

This is the provision the Court used to distinguish Rotea versus Halili, where the exemplary damages sprang from a criminal offense and could be imposed only with an aggravating circumstance.

Ruling

On the first issue, the Court denied reconsideration and sustained the award of exemplary damages. It held that the petitioners had misread Rotea versus Halili. The exemplary damages sought in that case arose from a subsidiary liability under Articles 102 and 103 of the Revised Penal Code, and the broad statement there that punitive damages cannot be applied to a master or employer except to the extent of his participation or ratification is limited by the more specific ruling in the same paragraph, that exemplary damages may only be imposed when the crime is committed with one or more aggravating circumstances. The Court likewise found Munsayac versus De Lara inapplicable, because the act from which exemplary damages was there predicated was the defendant's failure, after the breach, to placate the sufferings of the plaintiff, an act with no causal connection to the breach. What governs, the Court said, is Laguna-Tayabas Bus Company versus Diasanta, where, as in this case, there was a finding of gross negligence on the part of the driver of the vehicle. The Court quoted its own ruling there:

As regards the exemplary damages, Article 2232 of the Civil Code of the Philippines provides that, in contracts and quasi-contracts the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the case at bar, petitioner's driver and, hence, its agent has been found guilty of recklessness.

On the second issue, the Court held that since the award of exemplary damages stands, attorney's fees should likewise be imposed, and it found no reason to exempt the petitioners from that liability. On the third issue, the Court held that the claim that the petitioners should not be liable for interest as well as for costs is insubstantial, and it rejected the claim.

Doctrine

Exemplary damages in contracts and quasi-contracts may be awarded under Article 2232 of the Civil Code when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Where the defendant is a carrier and its driver has been found grossly negligent or reckless, that recklessness is the recklessness of the carrier's agent, and exemplary damages may be imposed on the carrier. The rule in Rotea versus Halili, that punitive damages cannot be visited on a master or employer absent his participation or ratification, is confined to subsidiary liability arising from a criminal offense, where Article 2230 of the Civil Code requires an aggravating circumstance. Exemplary damages cannot rest on an act done after the breach and having no causal connection with it, as in Munsayac versus De Lara. Finally, where exemplary damages are properly awarded, attorney's fees may follow, and interest and costs may be imposed.

Disposition

The motion for reconsideration filed by the petitioners on the eighteenth of November, 1968, was denied, and the earlier judgment against them stands in full.

Remember This

The line to memorize is that exemplary damages in a contract or quasi-contract need only the wanton, fraudulent, reckless, oppressive, or malevolent manner of Article 2232, and the recklessness of the carrier's own driver fastens that liability on the carrier. Examiners use this case to test the distinction between exemplary damages under Article 2232 and exemplary damages under Article 2230, and to test whether a candidate knows that attorney's fees fall when the exemplary award falls.