Arcinue vs. Baun

A claim for damages arising from tortious conduct—such as maliciously causing another to incur unnecessary expenses—survives the death of the claimant as an action to recover damages for an injury to person or property under Section 1, Rule 87 of the Rules of Court; the propriety of a damages award is a question of fact ordinarily not reviewable in a Rule 45 petition.

ACLC granted Oscar LL. Arcinue a ten-year franchise to operate a computer training school under ACLC's name in Dagupan City, Pangasinan, subject to strict compliance with their Agreement for Franchise Operations. Section 21 of the agreement permitted transfer of the franchise only with ACLC's prior approval and only within the unexpired term. Alice Ilalo S. Baun was the respondent and the alleged transferee of that franchise. The dispute concerns liability for damages under Articles 19, 20, and 21 of the Civil Code and whether such an action survives the claimant's death under Section 1, Rule 87 of the Rules of Court.

On October 1, 1990, ACLC granted Arcinue a franchise to operate a computer training school under ACLC's name in Dagupan City, Pangasinan for ten years, subject to strict compliance with the Agreement for Franchise Operations. Section 21 of the agreement allowed the franchisee to transfer the franchise to another entity or person within the ten-year term, provided the transferee was acceptable to ACLC and the transfer received ACLC's prior approval; the transferee would enjoy franchise rights only for the unexpired term.

Three years later, Arcinue had not commenced operation. He sold his franchise to Baun for P85,000.00 without ACLC's prior approval. After the sale, Baun immediately took steps to set up the computer school: she leased a building and hired an architect for renovations to conform with ACLC's specifications. Upon ACLC's inspection, the proposed school building did not meet ACLC's standards because its total floor area was inadequate. ACLC also discovered that Baun was a director of a school in San Carlos, Pangasinan that likewise offered computer courses.

By letter dated November 19, 1994, ACLC advised Arcinue that it still considered him the franchisee, not Baun, because it had not received any confirmation or document from him regarding the transfer. ACLC directed Arcinue to send the corresponding documents for transfer not later than January 1995; otherwise, it would be constrained to terminate the existing franchise. Arcinue did not respond. A year later, on November 20, 1995, Arcinue sent ACLC a handwritten note stating that Baun had two proposed buyers for the franchise. ACLC responded by letter dated November 29, 1995 that, since there was no document acknowledging Baun as franchisee, the sale or transfer should still be coursed through Arcinue; ACLC also furnished Arcinue with guidelines for sale or transfer of franchise. Arcinue again did not reply.

Consequently, in 1997, ACLC terminated Arcinue's franchise for his continuous failure to operate and for having assigned his franchise to Baun without ACLC's prior approval. On September 11, 1997, Baun filed a complaint against Arcinue and ACLC for specific performance and damages to enforce her rights as transferee of Arcinue's franchise. Trial on the merits ensued, and Baun completed her presentation of evidence on April 30, 2002. She died on June 21, 2009, survived by siblings whom the trial court allowed to substitute as plaintiff.

The trial court found that Arcinue's transfer of franchise to Baun was never approved by ACLC, so Baun had no right she could enforce against ACLC. Arcinue acted in bad faith in his dealings with ACLC and Baun: he failed to set up the computer school as stipulated in the franchise agreement, and he profited by selling his franchise to Baun without ACLC's prior approval. ACLC lost potential income during the seven-year period in which Arcinue failed to operate the computer school, and Baun suffered pecuniary loss when she paid Arcinue P85,000.00 for the transfer and incurred expenses in setting up the computer school without ACLC's approval. The trial court ruled that Arcinue's acts violated Articles 19, 20, and 21 of the Civil Code and warranted damages. The Court of Appeals found sufficient proof that Arcinue sold his franchise to Baun without prior notification and approval of ACLC, knowingly contravening the Agreement for Franchise Operations; it also found that ACLC never approved or granted a franchise in Baun's favor, making her a mere stranger or third party who could not be benefited by the franchise agreement, but that Baun suffered damages due to Arcinue's tortious acts.

• Bad Faith and Implied Approval: Arcinue argued that he did not act in bad faith in his dealings with ACLC and Baun; the transfer of his franchise to Baun was impliedly approved by ACLC when its employees, on several occasions, met with Baun and provided her assistance in setting up the computer school, including interviewing her, directing her to look for a school site in Dagupan City, surveying the proposed site, and giving her advertising materials. He maintained that ACLC still did not approve the transfer and thus ACLC, not he, acted in bad faith.
• Survival of Action: Arcinue argued that the case should have been dismissed when Baun died because an action for specific performance and damages is a personal action that did not survive Baun's death.
• Good Faith on Transfer: In his Reply, Arcinue claimed he acted in good faith when he transferred his franchise to Baun and therefore should not be held liable for damages.

• Entitlement to Damages: Respondent defended the award of damages to her, asserting that she had sufficiently established her entitlement thereto.

• Liability for Damages: Whether the Court of Appeals erred in affirming petitioner's liability for damages.
• Survival of Action: Whether Baun's death rendered her complaint for specific performance and damages dismissible.
• Legal Interest: Whether the monetary awards should be modified to conform with the guidelines on legal interest.

• Liability for Damages: No. The Court of Appeals did not err in affirming liability; the propriety of the award of damages is a question of fact, and a Rule 45 petition is confined to legal issues, with no exception obtaining.
• Survival of Action: No. The action survived Baun's death because an action to recover damages for an injury to person or property may be commenced against the executor or administrator under Section 1, Rule 87 of the Rules of Court.
• Legal Interest: Modified. The awards are affirmed, but the interest is adjusted to 12% per annum from judicial demand on September 11, 1997 until June 30, 2013 and 6% per annum from July 1, 2013 until full payment, with interest on the interest due also earning legal interest.

• Liability for Damages: In a Rule 45 petition, review is narrowly confined to legal issues; the Court will not take cognizance of factual issues or recalibrate evidence already evaluated by the tribunals below. The propriety of an award of damages is a question of fact, as are questions on preponderance of evidence, causal connection between the facts and damage, and existence of the act from which civil liability might arise. Arcinue's claim that he did not act in bad faith required re-examination of trial evidence, especially because the trial court's findings were adopted and affirmed by the Court of Appeals; no recognized exception applied. Both lower courts found Arcinue acted in bad faith to Baun's damage and prejudice, and his tortious acts violated Articles 19, 20, and 21 of the Civil Code, warranting damages.
• Survival of Action: Section 1, Rule 87 of the Rules of Court permits actions to recover damages for an injury to person or property, real or personal, to be commenced against an executor or administrator. Board of Liquidators vs. Heirs of Kalaw held that an action for damages caused by tortious conduct survives the death of a party because it falls under suits to recover damages for injury to person or property; injury to property is not limited to injuries to specific property but extends to other wrongs by which personal estate is injured or diminished, and maliciously causing a party to incur unnecessary expenses is injury to that party's property. Here, both lower courts found Arcinue acted in bad faith to Baun's damage and prejudice, and his tortious acts violated Articles 19, 20, and 21 of the Civil Code, so the action survived.
• Legal Interest: Lara's Gift Shop & Decors, Inc. vs. Midtown Industrial Sales, Inc. laid down guidelines: absent stipulated interest, the rate on the principal is the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas, computed from default or judicial demand under Article 1169 of the Civil Code until full payment, without compounding unless expressly stipulated; interest due on the principal accruing as of judicial demand separately earns legal interest at the prevailing rate from judicial demand until full payment. Estores vs. Spouses Supangan defined forbearance of money as arrangements other than loans where a person acquiesces to the temporary use of his money, goods, or credits pending certain events or conditions; the respondent-spouses parted with money before conditions were fulfilled and were entitled to return of principal and compensation for use. Here, Baun paid P85,000.00 conditioned on the supposed transfer of Arcinue's franchise rights; the transfer never took place, but Arcinue retained the payment. She was thus entitled to return of principal and compensation for its use. Because the complaint was filed on September 11, 1997, the legal interest rate of 12% per annum applies from judicial demand on September 11, 1997 until June 30, 2013; beginning July 1, 2013, under BSP-Monetary Board Circular No. 799, the rate is 6% per annum until full payment. The interest due on the principal also earns 12% per annum from judicial demand on September 11, 1997 until June 30, 2013, and 6% per annum from July 1, 2013 until full payment.

• Rule 45 confines review to questions of law — In a petition for review on certiorari under Rule 45, the Court reviews only legal issues and will not re-examine factual issues or recalibrate evidence, especially where the trial court's findings were adopted and affirmed by the Court of Appeals. The propriety of a damages award is a question of fact. Applied here to reject Arcinue's bad-faith challenge.
• Survival of actions for damages for injury to person or property — Under Section 1, Rule 87 of the Rules of Court, an action to recover damages for an injury to person or property, real or personal, survives the death of a party and may be commenced against the executor or administrator. Injury to property includes wrongs by which personal estate is injured or diminished, such as maliciously causing a party to incur unnecessary expenses. Applied to allow Baun's damages action to continue after her death.
• Liability under Articles 19, 20, and 21 of the Civil Code — Article 19 requires every person to act with justice, give everyone his due, and observe honesty and good faith; Article 20 requires indemnification for damage willfully or negligently caused contrary to law; Article 21 requires compensation for willful loss or injury caused contrary to morals, good customs, or public policy. The Court applied these provisions to Arcinue's bad-faith transfer of the franchise without ACLC's prior approval and retention of Baun's payment.
• Legal interest on forbearance of money — Absent stipulated interest, the principal earns the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas from default or judicial demand until full payment, without compounding unless expressly stipulated; interest due on the principal accruing as of judicial demand separately earns legal interest. Forbearance of money includes arrangements other than loans where a person acquiesces to the temporary use of his money pending fulfillment of conditions. Applied to award Baun's estate 12% per annum from September 11, 1997 to June 30, 2013 and 6% per annum from July 1, 2013 until full payment, with interest on the interest.

• "For the same reason, we would ordinarily disregard the petitioner's allegation as to the propriety of the award of moral damages and attorney's fees in favor of the respondent as it is a question of fact. Thus, questions on whether or not there was a preponderance of evidence to justify the award of damages or whether or not there was a causal connection between the given set of facts and the damage suffered by the private complainant or whether or not the act from which civil liability might arise exists are questions of fact." — The Court quoted this passage from Lorzano vs. Tabayag, Jr. to support the rule that the propriety of damages is a factual question and is generally beyond Rule 45 review.
• "Here, both the trial court and the Court of Appeals found petitioner to have acted in bad faith to the damage and prejudice of respondent. The lower courts thus ruled that petitioner's tortious acts were in violation of Articles 19, 20, and 21 of the Civil Code warranting payment of damages." — This passage states the factual and legal basis for affirming Arcinue's liability for damages.
• "In Board of Liquidators v. Heirs of Kalaw, the Court ruled that an action for damages caused by tortious conduct survives the death of a party. For it falls under suits to recover damages for an injury to person or property, real or personal. The Court further emphasized 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. To maliciously cause a party to incur unnecessary expenses, as in this case, is certainly injury to that party's property." — This is the ratio for the survival of Baun's damages action notwithstanding her death.
• "Here, respondent paid petitioner P85,000.00 conditioned upon the supposed transfer of petitioner's franchise rights to operate ACLC's computer school. The transfer, however, never took place albeit petitioner retained respondent's payment. Respondent is thus entitled not only to the return of the principal amount she paid, but also to compensation for the use of her money." — This passage applies the forbearance-of-money doctrine and supports the award of legal interest on the principal amount.

• Lorzano vs. Tabayag, Jr., 681 Phil. 39, 49-50 (2012) — Cited for the rule that the propriety of an award of damages is a question of fact, including questions on preponderance of evidence, causal connection, and the existence of the act from which civil liability might arise.
• Gatan vs. Vinarao, G.R. No. 205912, October 18, 2017, 842 SCRA 602, 610 — Cited for the rule that a Rule 45 petition confines the Court to legal issues and that factual issues are not reviewed, especially where the trial court's findings are adopted and affirmed by the Court of Appeals.
• Clemente vs. Court of Appeals, 771 Phil. 113, 121 (2015) — Cited for the recognized exceptions to the general rule that only questions of law may be entertained in a Rule 45 petition; none obtained in this case.
• Board of Liquidators vs. Heirs of Kalaw, 127 Phil. 399, 414 (1967) — Controlling precedent that an action for damages caused by tortious conduct survives the death of a party; injury to property extends to wrongs by which personal estate is injured or diminished, and maliciously causing unnecessary expenses is injury to property.
• Lara's Gift Shop & Decors, Inc. vs. Midtown Industrial Sales, Inc., G.R. No. 225433, August 28, 2019 — Cited for the guidelines on legal interest, which the Court applied to modify the interest rate on the monetary awards.
• Estores vs. Spouses Supangan, 686 Phil. 86, 96-97 (2012) — Cited for the meaning of forbearance of money and the rule that compensation for the use of money, absent stipulation, should be the same rate of legal interest applicable to a loan.

• Section 1, Rule 87, Rules of Court — Provides that no action upon a claim for recovery of money or debt or interest thereon shall be commenced against an executor or administrator, but actions to recover real or personal property, or an interest therein, from the estate, or to enforce a lien thereon, and actions to recover damages for an injury to person or property, real or personal, may be commenced against him. Applied to hold that Baun's damages action survived her death.
• Article 19, Civil Code — Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Applied to Arcinue's bad faith.
• Article 20, Civil Code — Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Applied to warrant damages.
• Article 21, Civil Code — Any person who willfully causes loss or injury to another in a manner contrary to morals, good customs or public policy shall compensate the latter for the damage. Applied to warrant damages.
• Article 1169, Civil Code — Cited in the legal-interest guidelines as the basis for computing interest from default, i.e., from extrajudicial or judicial demand. Applied to compute interest from judicial demand on September 11, 1997.
• BSP-Monetary Board Circular No. 799 — Effective July 1, 2013, prescribed a new legal interest rate of six percent (6%) per annum. Applied from July 1, 2013 until full payment.

Peralta, C.J., J. Reyes, Jr., and Inting, JJ., concur. Caguioa, J., was on official leave. Inting, J., was an additional member per Special Order No. 2726, October 25, 2019.