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CASES IN OBLIGATIONS AND CONTRACTS

CHAPTER 2. NATURE AND EFFECT



1) BAYLA V. SILANG TRAFFIC CO. 73 PHIL 557
2) PICART V. SMITH, 37 PHIL 809
3) CANGCO V. MLA RAILROAD 38 PHIL 768
4) LUZON STEVEDORING V. REPUBLIC (21 SCRA
279)
AUSTRIA V. CA (39 SCRA 527)
5) LA MALLORCA V. DE JESUS (17 SCRA 23)
6) TUGADE V. CA (85 SCRA 226)
7) TANGUILIG V. CA & HERCE, January 2, 1997
8.) BISHOP OF JARO V. DE LA PEA, 26 PHIL 144
9) GUTIERREZ V. FUENTEBELLA, 13 PHIL 741
10) ALBERT V. UNIVERSITY PUBLISHING, 55 OG
1348
11) PSBA ET AL V. CA, Feb. 2, 1992
12) ONGSIAKO V. IAC, 152 SCRA 627
13) SANTOS VENTURA HACORMA FOUNDATION,
INC. V. ERNESTO SANTOS, ET AL , Nov. 5, 2004
14) DBP V. LICUANAN, Feb. 26, 2007, 516 SCRA
644
15) BARZAGA V. CA, 268 SCRA 105
16) PHIL. COMMUNICATION SATELLITE CORP. V.
GLOBE TELECOM, May 25, 2004
17) CO V. CA, 353 PHIL 305
SICAM, ET AL V. JORGE, August 8, 2007
18) NPC V. CA, May 16, 1998
19) RCPI V. VA, August 29, 1986
20) RURAL BANK OF STA. MARIA, PANGASINAN
V. CA (Sept. 14, 1999)
21) ARIETA V. NATIONAL RIVRE AND COMM
CORP, 10 SCRA 79
22) MAGUT V. MEDIALDEN, April 20, 1983
23) GERALDEZ V. CA, Feb. 23, 1994
24) PANTELEON V. AMERICAN EXPRESS, May 8,
2009
25) QUIROS V. TAN-GUINLAY, 5 PHIL 675
26) RCBC V. CA, March 25, 1999
27) LORENZO SHIPPING CORP. V. BJ MATHEL
INTERNATIONAL, Nov. 19, 2004
28) SOLAR HARVEST V. DAVAO CORRUGATED
CARTON CORP, July 26 2010
29) CATHAY PACIFIC AIRWAY V. VASQUEZ, 14
March 2003
30) MERALCO V. RAMOS, 4 March 2008
31) ARCOLA V. CA & PRUDENTIAL GUARANTEE &
INSURANCE
32) NAKPIL & SONS V. CA, 3 October 1986
33) FEBTC V. CA
34) SALAGADA V FEU, April 30, 2008
35) JUNTILLA V. FONTANAR, 136 SCRA 624






























SOFRONIO T. BAYLA, ET AL. vs. SILANG TRAFFIC
CO., INC.
EN BANC
[G.R. Nos. 48195 & 48196. May 1, 1942.]
SOFRONIO T. BAYLA, ET AL., petitioners,
vs.
SILANG TRAFFIC CO., INC., respondent. SILANG
TRAFFIC CO., INC. petitioner, vs. SOFRONIO
BAYLA, ET AL., respondents.
E. A. Beltran, for petitioners.
Conrado V. Sanchez, Melchor C.
Benitez, and Enrique M. Fernando, for respondent.
SYLLABUS
1.CORPORATIONS; DISTINCTION BETWEEN
SUBSCRIPTION TO CAPITAL STOCK AND
CONTRACT OF SALE OF SHARES OF STOCK.
Eight years after the corporation was
organized, it entered into an "agreement for
instalment sale" of its shares of stock with various
individuals. After the latter had paid several
instalments on account of the purchase price
agreed upon, and upon default in the payment of
the succeeding instalment, the board of directors
of the corporation passed a resolution authorizing
the refund of the amounts paid and the reversion
of the shares of stock to the corporation. Held:
That such resolution is valid because the contract
was not one of subscription but of purchase and
sale. In some particulars, the rules governing
subscriptions and sales of shares are different.
For instance, the provisions of our Corporation
Law regarding calls for unpaid subscriptions and
assessment of stock (sections 37-50) do not
apply to a purchase of stock. Likewise the rule
that the corporation has no legal capacity to
release an original subscriber to its capital stock
from the obligation to pay for his shares, is
inapplicable to a contract of purchase of shares.
2.ID.; ID. Whether a particular
contract is a subscription or a sale of stock is a
matter of construction and depends upon its
terms and the intention of the parties. In Salmon,
Dexter & Co. vs. Unson, 47 Phil. 649, it was held
that a subscription to stock in an existing
corporation is, as between the subscriber and the
corporation, simply a contract of purchase and
sale. A subscription, properly speaking, is the
mutual agreement of the subscribers to take and
pay for the stock of a corporation, while a
purchase is an independent agreement between
the individual and the corporation to buy shares
of stock from it at a stipulated price.
3.OBLIGATIONS AND CONTRACTS;
NECESSITY OF DEMAND UPON DEFAULT AS
REQUISITE TO FORFEITURE. The contract
here involved provides that if the purchaser fails
to pay any of the instalments when due, the
shares of stock which are the object of the sale
are to revert to the seller and the payments
already made are to be forfeited in favor of said
seller. The seller, through its board of directors,
annulled a previous resolution rescinding the sale
and declared the forfeiture of the payments
already made and the reversion of the shares of
stock to the corporation. Held: That such
forfeiture was ineffective. The contract did not
expressly provide that the failure of the purchaser
to pay any instalment would give rise to forfeiture
and cancellation without the necessity of any
demand from the seller; and under article 1100 of
the Civil Code persons obliged to deliver or do
something are not in default until the moment the
creditor demands of them judicially or
extrajudicially the fulfilment of their obligation,
unless (1) the obligation or the law expressly
provides that demand shall not be necessary in
order that default may arise, or (2) by reason of
the nature and circumstances of the obligation it
shall appear that the designation of the time at
which the thing was to be delivered or the service
rendered was the principal inducement to the
creation of the obligation.
D E C I S I O N
OZAETA, J p:
Petitioners in G. R. No. 48195 instituted
this action in the Court of First Instance of Cavite
against the respondent Silang Traffic Co., Inc.
(cross-petitioner in G. R. No. 48196), to recover
certain sums of money which they had paid
severally to the corporation on account of shares
of stock they individually agreed to take and pay
for under certain specified terms and conditions,
of which the following, referring to the petitioner
Josefa Naval, is typical:
"AGREEMENT FOR INSTALLMENT SALE
OFSHARES IN THE SILANG TRAFFIC
COMPANY, INC.,'
"Silang, Cavite, P. I.
"THIS AGREEMENT, made and entered into
between Mrs. Josefa Naval, of legal age,
married, and resident of the Municipality of
Silang, Province of Cavite, Philippine
Islands, party of the First Part, hereinafter
called the subscriber, and the 'Silang Traffic
Company, Inc.,' a corporation duly organized
and existing by virtue of and under the laws
of the Philippine Islands, with its principal
office in the Municipality of Silang, Province
of Cavite, Philippine Islands, party of the
Second Part, hereinafter called the seller,

"WITNESSETH:
"That the subscriber promises to pay
personally or by his duly authorized agent to
the seller at the Municipality of Silang,
Province of Cavite, Philippine Islands, the
sum of one thousand five hundred pesos
(P1,500), Philippine currency, as purchase
price of FIFTEEN (15) shares of capital
stock, said purchase price to be paid as
follows, to wit: five (5%) per cent upon the
execution of the contract, the receipt whereof
is hereby acknowledged and confessed, and
the remainder in installments of five per cent,
payable within the first month of each and
every quarter thereafter, commencing on the
1st day of July, 1935, with interest on
deferred payments at the rate of SIX (6%)
per cent per annum until paid.
"That the said subscriber further agrees that
if he fails to pay any of said installment when
due, or to perform any of the aforesaid
conditions, or if said shares shall be attached
or levied upon by creditors of the said
subscriber, then the said shares are to revert
to the seller and the payments already made
are to be forfeited in favor of said seller, and
the latter may then take possession, without
resorting to court proceedings.
"The said seller upon receiving full payment,
at the time and manner hereinbefore
specified, agrees to execute and deliver to
said subscriber, or to his heirs and assigns,
the certificate of title of said shares, free and
clear of all encumbrances.
"In testimony whereof, the parties have
hereunto set their hands in the Municipality
of Silang, Province of Cavite, Philippine
Islands, this 30th day of March, 1935.

"(Sgd.) JOSEFA NAVAL
"SILANG TRAFFIC COMPANY, INC.
Subscriber
"By (Sgd.) LINO GOMEZ
President."
(Exhibit 1. Notarial acknowledgment
omitted.)
The agreements signed by the other
petitioners were of the same date (March 30,
1935) and in identical terms as the foregoing
except as to the number of shares and the
corresponding purchase price. The
petitioners agreed to purchase the following
number of shares and, up to April 30, 1937,
had paid the following sums on account
thereof:.

Sofronio T. Bayla8
sharesP360
Venancio Toledo8
shares 375
Josefa Naval15
shares675
Paz Toledo15 shares
675
Petitioners' action for the
recovery of the sums above
mentioned is based on a
resolution approved by the board
of directors of the respondent
corporation on August 1, 1937, of
the following tenor:
"A mocion del Sr.
Marcos Caparas y secundado
por el Sr. Alejandro Bayla, que
para el bien de la corporacion y
la pronta terminacion del asunto
civil No. 3125 titulado 'Vicente F.
Villanueva et al. vs. Lino Gomez
et al.', en el Juzgado de Primera
Instancia de Cavite, donde se
gasto y se gastara no poca
cantidad de la Corporacion, se
resolvio y se aprobo por la Junta
Directiva los siguientes:
"(a)Que se dejara sin
efecto lo aprobado por la Junta
Directiva el 3 de marzo, 1935,
art. 11, sec. 162, sobre las
cobranzas que se haran por el
Secretario Tesorero de la
Corporacion a los accionistas
que habian tomado o suscrito
nuevas acciones y que se
permitia a estos pagar 20% del
valor de las acciones suscritas en
un ao, con interes de 6% y el
pago o jornal que se hara por
trimestre.
"(b)Se dejara sin efecto,
en vista de que aun no esta
pagado todo el valor de las 123
acciones, tomadas de las
acciones no expedidas (unissued
stock) de la Corporacion y que
fueron suscritas por los
siguientes:

Lino Gomez10 Acciones
Venancio Toledo8
Acciones
Melchor P. Benitez17
Acciones
Isaias Videa14
Acciones
Esteban Velasco10
Acciones
Numeriano S. Aldaba15
Acciones
Inocencio Cruz8
Acciones
Paz Toledo15 Acciones
Josefa Naval15
Acciones
Sofronio Bayla8
Acciones
Dionisio Dungca3
Acciones

y devolver a las personas arriba
descritas toda la cantidad que
estas habian pagado por las 123
acciones.
"(c)Que se dejara sin
efecto lo aprobado por la Junta
Directiva el 3 de marzo, 1935,
art. V. sec. 165, sobre el cambio
o trueque de las 31 acciones del
Treasury Stock, contra las 32
acciones del Sr. Numeriano
Aldaba, en la corporacion
Northern Luzon Transportation
Co. y que se devuelva al Sr.
Numeriano Aldaba las 32
acciones mencionadas despues
que el haya devuelto el
certificado de las 31 acciones de
la Silang Traffic Co., Inc.
"(d)Permitir al Tesorero
de la Corporacion para que
devuelva a las personas arriba
indicadas, las cantidades
pagadas por las 123 acciones."
(Exhibit A-1.)
The respondent corporation set up the
following defenses: (1) That the above-quoted
resolution is not applicable to the petitioners
Sofronio T. Bayla, Josefa Naval, and Paz Toledo
because on the date thereof "their subscribed
shares of stock had already automatically
reverted to the defendant, and the installments
paid by them had already been forfeited"; and (2)
that said resolution of August 1, 1937, was
revoked and canceled by a subsequent
resolution of the board of directors of the
defendant corporation dated August 22, 1937.
The trial court absolved the defendant
from the complaint and declared canceled
(forfeited) in favor of the defendant the shares of
stock in question. It held that the resolution of
August 1, 1937, was null and void, citing Velasco
vs. Poizat (37 Phil. 802), wherein this Court held
that "a corporation has no legal capacity to
release an original subscriber to its capital stock
from the obligation to pay for his shares; and any
agreement to this effect is invalid." Plaintiffs
below appealed to the Court of Appeals, which
modified the judgment of the trial court as follows:

"That part of the
judgment dismissing plaintiffs'
complaint is affirmed, but that
part thereof declaring their
subscription canceled is
reversed. Defendant is directed
to grant plaintiffs 30 days after
final judgment within which to pay
the arrears on their subscription.
Without pronouncement as to
costs."
Both parties appealed to this Court by
petition and cross-petition for certiorari.
Petitioners insist that they have the right to
recover the amounts involved under the
resolution of August 1, 1937, while the
respondent and cross-petitioner on its part
contends that said amounts have been
automatically forfeited and the shares of stock
have reverted to the corporation under the
agreement hereinabove quoted.
The parties litigant, the trial court, and
the Court of Appeals have interpreted or
considered the said agreement as a contract of
subscription to the capital stock of the respondent
corporation. It should be noted, however, that
said agreement is entitled "Agreement for
Installment Sale of Shares in the Silang Traffic
Company, Inc."; that while the purchaser is
designated as "subscriber," the corporation is
described as "seller"; that the agreement was
entered into on March 30, 1935, long after the
incorporation and organization of the corporation,
which took place in 1927; and that the price of
the stock was payable in quarterly installments
spread over a period of five years. It also appears
that in civil case No. 3125 of the Court of First
Instance of Cavite mentioned in the resolution of
August 1, 1937, the right of the corporation to sell
the shares of stock to the persons named in said
resolution (including the herein petitioners) was
impugned by the plaintiffs in said case, who
claimed a preferred right to buy said shares.
Whether a particular contract is a
subscription or a sale of stock is a matter of
construction and depends upon its terms and the
intention of the parties (4 Fletcher, Cyclopedia of
Corporations [permanent edition], 29, cited in
Salmon, Dexter & Co. vs. Unson (47 Phil. 649,
652). In the Unson case just cited, this Court held
that a subscription to stock in an existing
corporation is, as between the subscriber and the
corporation, simply a contract of purchase and
sale.
It seems clear from the terms of the
contracts in question that they are contracts of
sale and not of subscription. The lower courts
erred in overlooking the distinction between
subscription and purchase. "A subscription,
properly speaking, is the mutual agreement of the
subscribers to take and pay for the stock of a
corporation, while a purchase is an independent
agreement between the individual and the
corporation to buy shares of stock from it at a
stipulated price." (18 C. J. S., 760.) In some
particulars the rules governing subscriptions and
sales of shares are different. For instance, the
provisions of our Corporation Law regarding calls
for unpaid subscriptions and assessment of stock
(sections 37-50) do not apply to a purchase of
stock. Likewise the rule that the corporation has
no legal capacity to release an original subscriber
to its capital stock from the obligation to pay for
his shares, is inapplicable to a contract of
purchase of shares.
The next question to determine is
whether under the contract between the parties
the failure of the purchaser to pay any of the
quarterly installments on the purchase price
automatically gave rise to the forfeiture of the
amounts already paid and the reversion of the
shares to the corporation. The contract provides
for interest at the rate of six per centum per
annum on deferred payments. It also provides
that if the purchaser fails to pay any of said
installments when due, the said shares are to
revert to the seller and the payments already
made are to be forfeited in favor of said seller.
The respondent corporation contends that when
the petitioners failed to pay the installment which
fell due on or before July 31, 1937, forfeiture
automatically took place, that is to say, without
the necessity of any demand from the
corporation, and that therefore the resolution of
August 1, 1937, authorizing the refund of the
installments already paid was inapplicable to the
petitioners, who had already lost any and all
rights under said contract. That contention is, we
think, untenable. The provision regarding interest
on deferred payments would not have been
inserted if it had been the intention of the parties
to provide for automatic forfeiture and cancelation
of the contract. Moreover, the contract did not
expressly provide that the failure of the purchaser
to pay any installment would give rise to forfeiture
and cancelation without the necessity of any
demand from the seller; and under article 1100 of
the Civil Code persons obliged to deliver or do
something are not in default until the moment the
creditor demands of them, judicially or
extrajudicially the fulfilment of their obligation,
unless (1) the obligation or the law expressly
provides that demand shall not be necessary in
order that default may arise, or (2) by reason of
the nature and circumstances of the obligation it
shall appear that the designation of the time at
which the thing was to be delivered or the service
rendered was the principal inducement to the
creation of the obligation.
Is the resolution of August 1, 1937,
valid? The contract in question being one of
purchase and not subscription as we have
heretofore pointed out, we see no legal
impediment to its rescission by agreement of the
parties. According to the resolution of August 1,
1937, the rescission was made for the good of
the corporation and in order to terminate the then
pending civil case involving the validity of the sale
of the shares in question among others. To that
rescission the herein petitioners apparently
agreed, as shown by their demand for the refund
of the amounts they had paid as provided in said
resolution. It appears from the record that said
civil case was subsequently dismissed, and that
the purchasers of shares of stock, other than the
herein petitioners, who were mentioned in said
resolution were able to benefit by said resolution.
It would be an unjust discrimination to deny the
same benefit to the herein petitioners.
We may add that there is no intimation
in this case that the corporation was insolvent, or
that the right of any creditor of the same was in
any way prejudiced by the rescission.
The attempted revocation of said
rescission by the resolution of August 22, 1937,
was invalid, it not having been agreed to by the
petitioners.
Wherefore, the judgment of the Court of
Appeals is hereby reversed and another
judgment will be entered against the defendant
Silang Traffic Co., Inc., ordering it to pay to the
plaintiffs Sofronio T. Bayla, Venancio Toledo,
Josefa Naval, and Paz Toledo, the sums of P360,
P375, P675, and P675, respectively, with legal
interest on each of said sums from May 28, 1938,
the date of the filing of the complaint, until the
date of payment, and with costs in the three
instances. So ordered.
Yulo, C.J., Moran, Paras and Bocobo,
JJ., concur.

AMADO PICART vs. FRANK SMITH
EN BANC
[G.R. No. L-12219. March 15, 1918.]
AMADO PICART, plaintiff-
appellant, vs. FRANK SMITH,
jr., defendant-appellee.
Alejo Mabanag for appellant.
G. E. Campbell for appellee.
SYLLABUS
1.NEGLIGENCE; CRITERION FOR
DETERMINING EXISTENCE OF NEGLIGENCE.
The test for determining whether a person is
negligent in doing an act whereby injury or
damage results to the person or property of
another is this: Would a prudent man, in the
position of the person to whom negligence is
attributed, foresee harm to the person injured as
a reasonable consequence of the course about to
be pursued. If so, the law imposes a duty on the
actor to refrain from that course or to take
precaution against its mischievous results, and
the failure to do so constitutes negligence.
Reasonable foresight of harm, followed by the
ignoring of the admonition born of this prevision,
is the constitutive fact in negligence.
2.ID.; CONTRIBUTORY NEGLIGENCE;
SUCCESSIVE NEGLIGENT ACTS. Where
both parties are guilty of negligence, but the
negligent act of one succeeds that of the other by
an appreciable interval of time, the one who has
the last reasonable opportunity to avoid the
impending harm and fails to do so is chargeable
with the consequences, without reference to the
prior negligence of the other party.
3.ID.; ID.; CASE AT BAR. The
plaintiff was riding a pony on a bridge. Seeing an
automobile ahead he improperly pulled his horse
over to the railing on the right. The driver of the
automobile, however, guided his car toward the
plaintiff without diminution of speed until he was
only a few feet away. He then turned to the right
but passed so closely to the horse that the latter
being frightened, jumped around and was killed
by the passing car. Held: That although the
plaintiff was guilty of negligence in being on the
wrong side of the bridge, the defendant was
nevertheless civilly liable for the legal damages
resulting from the collision, as he had a fair
opportunity to avoid the accident after he realized
the situation created by the negligence of the
plaintiff and failed to avail himself of that
opportunity; while the plaintiff could by no means
then place himself in a position of greater safety.
D E C I S I O N
STREET, J p:
In this action the plaintiff, Amado Picart,
seeks to recover of the defendant, Frank Smith,
jr., the sum of P31,100, as damages alleged to
have been caused by an automobile driven by
the defendant. From a judgment of the Court of
First Instance of the Province of La Union
absolving the defendant from liability the plaintiff
has appealed.
The occurrence which gave rise to the
institution of this action took place on December
12, 1912, on the Carlatan Bridge, at San
Fernando, La Union. It appears that upon the
occasion in question the plaintiff was riding on his
pony over said bridge. Before he had gotten half
way across, the defendant approached from the
opposite direction in an automobile, going at the
rate of about ten or twelve miles per hour. As the
defendant neared the bridge he saw a horseman
on it and blew his horn to give warning of his
approach. He continued his course and after he
had taken the bridge he gave two more
successive blasts, as it appeared to him that the
man on horseback before him was not observing
the rule of the road.
The plaintiff, it appears, saw the
automobile coming and heard the warning
signals. However, being perturbed by the novelty
of the apparition or the rapidity of the approach,
he pulled the pony closely up against the railing
on the right side of the bridge instead of going to
the left. He says that the reason he did this was
that he thought he did not have sufficient time to
get over to the other side. The bridge is shown to
have a length of about 75 meters and a width of
4.08 meters. As the automobile approached, the
defendant guided it toward his left, that being the
proper side of the road for the machine. In so
doing the defendant assumed that the horseman
would move to the other side. The pony had not
as yet exhibited fright, and the rider had made no
sign for the automobile to stop. Seeing that the
pony was apparently quiet, the defendant,
instead of veering to the right while yet some
distance away or slowing down, continued to
approach directly toward the horse without
diminution of speed. When he had gotten quite
near, there being then no possibility of the horse
getting across to the other side, the defendant
quickly turned his car sufficiently to the right to
escape hitting the horse alongside of the railing
where it was then standing; but in so doing the
automobile passed in such close proximity to the
animal that it became frightened and turned its
body across the bridge with its head toward the
railing. In so doing, it was struck on the hock of
the left hind leg by the flange of the car and the
limb was broken. The horse fell and its rider was
thrown off with some violence. From the evidence
adduced in the case we believe that when the
accident occurred the free space where the pony
stood between the automobile and the railing of
the bridge was probably less than one and one
half meters. As a result of its injuries the horse
died. The plaintiff received contusions which
caused temporary unconsciousness and required
medical attention for several days.
The question presented for decision is
whether or not the defendant in maneuvering his
car in the manner above described was guilty of
negligence such as gives rise to a civil obligation
to repair the damage done; and we are of the
opinion that he is so liable. As the defendant
started across the bridge, he had the right to
assume that the horse and rider would pass over
to the proper side; but as he moved toward the
center of the bridge it was demonstrated to his
eyes that this would not be done; and he must in
a moment have perceived that it was too late for
the horse to cross with safety in front of the
moving vehicle. In the nature of things this
change of situation occurred while the automobile
was yet some distance away; and from this
moment it was not longer within the power of the
plaintiff to escape being run down by going to a
place of greater safety. The control of the
situation had then passed entirely to the
defendant; and it was his duty either to bring his
car to an immediate stop or, seeing that there
were no other persons on the bridge, to take the
other side and pass sufficiently far away from the
horse to avoid the danger of collision. Instead of
doing this, the defendant ran straight on until he
was almost upon the horse. He was, we think,
deceived into doing this by the fact that the horse
had not yet exhibited fright. But in view of the
known nature of horses, there was an
appreciable risk that, if the animal in question
was unacquainted with automobiles, he might get
excited and jump under the conditions which here
confronted him. When the defendant exposed the
horse and rider to this danger he was, in our
opinion, negligent in the eye of the law.
The test by which to determine the
existence of negligence in a particular case may
be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable
care and caution which an ordinarily prudent
person would have used in the same situation? If
not, then he is guilty of negligence. The law here
in effect adopts the standard supposed to be
supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not
determined by reference to the personal
judgment of the actor in the situation before him.
The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability
by that.
The question as to what would
constitute the conduct of a prudent man in a
given situation must of course be always
determined in the light of human experience and
in view of the facts involved in the particular case.
Abstract speculation cannot here be of much
value but his much can be profitably said:
Reasonable men govern their conduct by the
circumstances which are before them or known
to them. They are not, and are not supposed to
be, omniscient of the future. Hence they can be
expected to take care only when there is
something before them to suggest or warn of
danger. Could a prudent man, in the case under
consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of
the actor to take precautions to guard against
that harm. Reasonable foresight of harm,
followed by the ignoring of the suggestion born of
this prevision, is always necessary before
negligence can be held to exist. Stated in these
terms, the proper criterion for determining the
existence of negligence in a given case is this:
Conduct is said to be negligent when a prudent
man in the position of the tortfeasor would have
foreseen that an effect harmful to another was
sufficiently probable to warrant his foregoing the
conduct or guarding against its consequences.
Applying this test to the conduct of the
defendant in the present case we think that
negligence is clearly established. A prudent man,
placed in the position of the defendant, would, in
our opinion, have recognized that the course
which he was pursuing was fraught with risk, and
would therefore have foreseen harm to the horse
and rider as a reasonable consequence of that
course. Under these circumstances the law
imposed on the defendant the duty to guard
against the threatened harm.
It goes without saying that the plaintiff
himself was not free from fault, for he was guilty
of antecedent negligence in planting himself on
the wrong side of the road. But as we have
already stated, the defendant was also negligent;
and in such case the problem always is to
discover which agent is immediately and directly
responsible. It will be noted that the negligent
acts of the two parties were not
contemporaneous, since the negligence of the
defendant succeeded the negligence of the
plaintiff by an appreciable interval. Under these
circumstances the law is that the person who has
the last fair chance to avoid the impending harm
and fails to do so is chargeable with the
consequences, without reference to the prior
negligence of the other party.

The decision in the case of Rakes vs.
Atlantic, Gulf and Pacific Co.(7 Phil. Rep., 359)
should perhaps be mentioned in this connection.
This Court there held that while contributory
negligence on the part of the person injured did
not constitute a bar to recover, it could be
received in evidence to reduce the damages
which would otherwise have been assessed
wholly against the other party. The defendant
company had there employed the plaintiff, a
laborer, to assist in transporting iron rails from a
barge in Manila harbor to the company's yards
located not far away. The rails were conveyed
upon cars which were hauled along a narrow
track. At a certain spot near the water's edge the
track gave way by reason of the combined effect
of the weight of the car and the insecurity of the
road bed. The car was in consequence upset; the
rails slid off; and the plaintiff's leg was caught and
broken. It appeared in evidence that the accident
was due to the effects of a typhoon which had
dislodged one of the supports of the track. The
court found that the defendant company was
negligent in having failed to repair the bed of the
track and also that the plaintiff was, at the
moment of the accident, guilty of contributory
negligence in walking at the side of the car
instead of being in front or behind. It was held
that while the defendant was liable to the plaintiff
by reason of its negligence in having failed to
keep the track in proper repair, nevertheless the
amount of the damages should be reduced on
account of the contributory negligence of the
plaintiff. As will be seen the defendant's
negligence in that case consisted in an omission
only. The liability of the company arose from its
responsibility for the dangerous condition of its
track. In a case like the one now before us,
where the defendant was actually present and
operating the automobile which caused the
damage, we do not feel constrained to attempt to
weigh the negligence of the respective parties in
order to apportion the damage according to the
degree of their relative fault. It is enough to say
that the negligence of the defendant was in this
case the immediate and determining cause of the
accident and that the antecedent negligence of
the plaintiff was a more remote factor in the case.
A point of minor importance in the case
is indicated in the special defense pleaded in the
defendant's answer, to the effect that the subject
matter of the action had been previously
adjudicated in the court of a justice of the peace.
In this connection it appears that soon after the
accident in question occurred, the plaintiff caused
criminal proceedings to be instituted before a
justice of the peace charging the defendant with
the infliction of serious injuries (lesiones graves).
At the preliminary investigation the defendant
was discharged by the magistrate and the
proceedings were dismissed. Conceding that the
acquittal of the defendant at a trial upon the
merits in a criminal prosecution for the offense
mentioned would be res adjudicata upon the
question of his civil liability arising from
negligence a point upon which it is
unnecessary to express an opinion the action
of the justice of the peace in dismissing the
criminal proceeding upon the preliminary hearing
can have no such effect. (See U.S. vs. Banzuela
and Banzuela, 31 Phil. Rep., 564.)
From what has been said it results that
the judgment of the lower court must be
reversed, and judgment is here rendered that the
plaintiff recover of the defendant the sum of two
hundred pesos (P200), with costs of both
instances. The sum here awarded is estimated to
include the value of the horse, medical expenses
of the plaintiff, the loss or damage occasioned to
articles of his apparel, and lawful interest on the
whole to the date of this recovery. The other
damages claimed by the plaintiff are remote or
otherwise of such characters as not to be
recoverable. So ordered.
Arellano, C.J., Torres, Carson, Araullo,
Avancea, and Fisher, JJ., concur.
Johnson, J., reserves his vote.
Separate Opinions
MALCOLM, J., concurring:
After mature deliberation, I have finally
decided to concur with the judgment in this case.
I do so because of my understanding of the "last
clear chance" rule of the law of negligence as
particularly applied to automobile accidents. This
rule cannot be invoked where the negligence of
the plaintiff is concurrent with that of the
defendant. Again, if a traveller when he reaches
the point of collision is in a situation to extricate
himself and avoid injury, his negligence at that
point will prevent a recovery. But Justice Street
finds as a fact that the negligent act of the
defendant succeeded that of the plaintiff by an
appreciable interval of time, and that at that
moment the plaintiff had no opportunity to avoid
the accident. consequently, the "last clear
chance" rule is applicable. In other words, when a
traveller has reached a point where he cannot
extricate himself and vigilance on his part will not
avert the injury, his negligence in reaching that
position becomes the condition and not the
proximate cause of the injury and will not
preclude a recovery. (Note especially Aiken vs.
Metcalf [1917], 102 Atl., 330.)

JOSE CANGCO vs. MANILA RAILROAD CO.
EN BANC
[G.R. No. 12191. October 14, 1918.]
JOSE CANGCO, plaintiff-
appellant, vs. MANILA
RAILROAD CO., defendant-
appellee.
Ramon Sotelo, for appellant.
Kincaid & Hartigan, for appellee.
SYLLABUS
1.MASTER AND SERVANT;
CONTRACT; NEGLIGENCE. Failure to
perform a contract cannot be excused upon the
ground that the breach was due to the negligence
of a servant of the obligor, and that the latter
exercised due diligence in the selection and
control of the servant.
2.CONTRACTS; NEGLIGENCE:;
CULPA AQUILIANA; CULPA CONTRACTUAL.
The distinction between negligence as the
source of an obligation (culpa aquiliana) and
negligence in the performance of a contract
(culpa contractual ) pointed out.
3.CARRIERS; PASSENGERS;
NEGLIGENCE; ALIGHTING FROM MOVING
TRAIN. It is not negligence per se for a
traveler to alight from a slowly moving train.
D E C I S I O N
FISHER, J p:
At the time of the occurrence which
gave rise to this litigation the plaintiff, Jose
Cangco, was in the employment of the Manila
Railroad Company in the capacity of clerk, with a
monthly wage of P25. He lived in the pueblo of
San Mateo, in the province of Rizal, which is
located upon the line of the defendant railroad
company; and in coming daily by train to the
company's office in the city of Manila where he
worked, he used a pass, supplied by the
company, which entitled him to ride upon the
company's trains free of charge. Upon the
occasion in question, January 20, 1915, the
plaintiff was returning home by rail from his daily
labors; and as the train drew up to the station in
San Mateo the plaintiff arose from his seat in the
second class-car where he was riding and,
making his exit through the door, took his position
upon the steps of the coach, seizing the upright
guardrail with his right hand for support.
On the side of the train where
passengers alight at the San Mateo station there
is a cement platform which begins to rise with a
moderate gradient some distance away from the
company's office and extends along in front of
said office for a distance sufficient to cover the
length of several coaches. As the train slowed
down another passenger, named Emilio Zuniga,
also an employee of the railroad company, got off
the same car, alighting safely at the point where
the platform begins to rise from the level of the
ground. When the train had proceeded a little
farther the plaintiff Jose Cangco stepped off also,
but one or both of his feet came in contact with a
sack of watermelons with the result that his feet
slipped from under him and he fell violently on
the platform. His body at once rolled from the
platform and was drawn under the moving car,
where his right arm was badly crushed and
lacerated. It appears that after the plaintiff
alighted from the train the car moved forward
possibly six meters before it came to a full stop.
The accident occurred between 7 and 8
o'clock on a dark night, and as the railroad station
was lighted dimly by a single light located some
distance away, objects on the platform where the
accident occurred were difficult to discern,
especially to a person emerging from a lighted
car.
The explanation of the presence of a
sack of melons on the platform where the plaintiff
alighted is found in the fact that it was the
customary season for harvesting these melons
and a large lot had been brought to the station for
shipment to the market. They were contained in
numerous tow sacks which had been piled on the
platform in a row one upon another. The
testimony shows that this row of sacks was so
placed that there was a space of only about two
feet between the sacks of melons and the edge
of the platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted
upon one of these melons at the moment he
stepped upon the platform. His statement that he
failed to see these objects in the darkness is
readily to be credited.
The plaintiff was drawn from under the
car in an unconscious condition, and it appeared
that the injuries which he had received were very
serious. He was therefore brought at once to a
certain hospital in the city of Manila where an
examination was made and his arm was
amputated. The result of this operation was
unsatisfactory, and the plaintiff was then carried
to another hospital where a second operation
was performed and the member was again
amputated higher up near the shoulder. It
appears in evidence that the plaintiff expended
the sum of P790.25 in the form of medical and
surgical fees and for other expenses in
connection with the process of his curation.
Upon August 31, 1915, he instituted this
proceeding in the Court of First Instance of the
city of Manila to recover damages of the
defendant company, founding his action upon the
negligence of the servants and employees of the
defendant in placing the sacks of melons upon
the platform and in leaving them so placed as to
be a menace to the security of passenger
alighting from the company's trains. At the
hearing in the Court of First Instance, his Honor,
the trial judge, found the facts substantially as
above stated, and drew therefrom his conclusion
to the effect that, although negligence was
attributable to the defendant by reason of the fact
that the sacks of melons were so placed as to
obstruct passengers passing to and from the
cars, nevertheless, the plaintiff himself had failed
to use due caution in alighting from the coach
and was therefore precluded from recovering.
Judgment was accordingly entered in favor of the
defendant company, and the plaintiff appealed.
It can not be doubted that the
employees of the railroad company were guilty of
negligence in piling these sacks on the platform
in the manner above stated; that their presence
caused the plaintiff to fall as he alighted from the
train; and that they therefore constituted an
effective legal cause of the injuries sustained by
the plaintiff. It necessarily follow s that the
defendant company is liable for the damage
thereby occasioned unless recovery is barred by
the plaintiff's own contributory negligence. In
resolving this problem it is necessary that each of
these conceptions of liability, to-wit, the primary
responsibility of the defendant company and the
contributory negligence of the plaintiff should be
separately examined.
It is important to note that the foundation
of the legal liability of the defendant is the
contract of carriage, and that the obligation to
respond for the damage which plaintiff has
suffered arises, if at all, from the breach of that
contract by reason of the failure of defendant to
exercise due care in its performance. That is to
say, its liability is direct and immediate, differing
essentially, in the legal viewpoint from that
presumptive responsibility for the negligence of
its servants, imposed by article 1903 of the Civil
Code, which can be rebutted by proof of the
exercise of due care in their selection and
supervision. Article 1903 of the Civil Code is not
applicable to obligations arising ex contractu, but
only to extra-contractual obligations or to use
the technical form of expression, that article
relates only to culpa aquiliana and not to culpa
contractual.
Manresa (vol. 8, p. 67) in his
commentaries upon articles 1103 and 1104 of the
Civil Code, clearly points out this distinction,
which was also recognized by this Court in its
decision in the case of Rakes vs. Atlantic, Gulf
and Pacific Cc. (7 Phil. Rep., 359). In
commenting upon article 1093 (vol. 8, p. 30)
Manresa clearly points out the difference
between "culpa, substantive and independent,
which of itself constitutes the source of an
obligation between persons not formerly
connected by any legal tie" and culpa considered
as an "accident in the performance of an
obligation already existing . . .."
In the Rakes case (supra) the decision
of this court was made to rest squarely upon the
proposition that article 1903 of the Civil Code is
not applicable to acts of negligence which
constitute the breach of a contract.
Upon this point the Court said:
"The acts to which these
articles [1902 and 1903 of the
Civil Code] are applicable are
understood to be those not
growing out of pre-existing duties
of the parties to one another But
where relations already formed
give rise to duties, whether
springing from contract or quasi-
contract, then breaches of those
duties are subject to articles
1101, 1103 and 1104 of the same
code." (Rakes vs. Atlantic, Gulf
and Pacific Co., 7 Phil. Rep., 359
at p. 365.)
This distinction is of the utmost
importance. The liability, which, under the
Spanish law, is, in certain cases imposed upon
employers with respect to damages occasioned
by the negligence of their employees to persons
to whom they are not bound by contract, is not
based, as in the English Common Law, upon the
principle of respondent superior if it were, the
master would be liable in every case and
unconditionally but upon the principle
announced in article 1902 of the Civil Code,
which imposes upon all persons who by their
fault or negligence, do injury to another, the
obligation of making good the damage caused.
One who places a powerful automobile in the
hands of a servant whom he knows to be
ignorant of the method of managing such a
vehicle, is himself guilty of an act of negligence
which makes him liable for all the consequences
of his imprudence. The obligation to make good
the damage arises at the very instant that the
unskillful servant, while acting within the scope of
his employment, causes the injury. The liability of
the master is personal and direct. But, if the
master has not been guilty of any negligence
whatever in the selection and direction of the
servant, he is not liable for the acts of the latter,
whether done within the scope of his employment
or not, if the damage done by the servant does
not amount to a breach of the contract between
the master and the person injured.
It is not accurate to say that proof of
diligence and care in the selection and control of
the servant relieves the master from liability for
the latter's acts on the contrary, that proof
shows that the responsibility has never existed.
As Manresa says (vol. 8, p. 68) the liability arising
from extra-contractual culpa is always based
upon avoluntary act or omission which, without
willful intent, but by mere negligence or
inattention, has caused damage to another. A
master who exercises all possible care in the
selection of his servant, taking into consideration
the qualifications they should possess for the
discharge of the duties which it is his purpose to
confide to them, and directs them with equal
diligence, thereby performs his duty to third
persons to whom he is bound by no contractual
ties, and he incurs no liability whatever if, by
reason of the negligence of his servants, even
within the scope of their employment, such third
persons suffer damage. True it is that under
article 1903 of the Civil Code the law creates
apresumption that he has been negligent in the
selection or direction of his servant, but the
presumption is rebuttable and yields to proof of
due care and diligence in this respect.

The supreme court of Porto Rico, in
interpreting identical provisions, as found in the
Porto Rican Civil Code, has held that these
articles are applicable to cases of extra-
contractual culpa exclusively. (Carmona vs.
Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent
by this Court in its decision in the case of
Bahia vs. Litonjua and Leynes, (30 Phil. Rep.,
624), which was an action brought upon the
theory of the extra-contractual liability of the
defendant to respond for the damage caused by
the carelessness of his employee while acting
within the scope of his employment The Court,
after citing the last paragraph of article 1903 of
the Civil Code, said:
"From this article two
things are apparent: (1) That
when an injury is caused by the
negligence of a servant or
employee there instantly arises a
presumption of law that there was
negligence on the part of the
master or employer either in the
selection of the servant or
employee, or in supervision over
him after the selection, or both;
and (2) that presumption is juris
tantum and not juris et de jure,
and consequently, may be
rebutted. It follows necessarily
that if the employer shows to the
satisfaction of the court that in
selection and supervision he has
exercised the care and diligence
of a good father of a family, the
presumption is overcome and he
is relieved from liability.
"This theory bases the
responsibility of the master
ultimately on his own negligence
and not on that of his servant.
This is the notable peculiarity of
the Spanish law of negligence. It
is, of course, in striking contrast
to the American doctrine that, in
relations with strangers, the
negligence of the servant is
conclusively the negligence of the
master."
The opinion there expressed by this
Court, to the effect that in case of extra-
contractual culpa based upon negligence, it is
necessary that there shall have been some fault
attributable to the defendant personally, and that
the last paragraph of article 1903 merely
establishes a rebuttable presumption, is in
complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the
liability created by article 1903 is imposed by
reason of the breach of the duties inherent in the
special relations of authority or superiority
existing between the person called upon to repair
the damage and the one who, by his act or
omission, was the cause of it.
On the other hand, the liability of
masters and employers for the negligent acts or
omissions of their servants or agents, when such
acts or omissions cause damages which amount
to the breach of a contract, is not based upon a
mere presumption of the master's negligence in
their selection or control, and proof of exercise of
the utmost diligence and care in this regard does
not relieve the master of his liability for the
breach of his contract.
Every legal obligation must of necessity
be extra-contractual or contractual. Extra-
contractual obligation has its source in the breach
or omission of those mutual duties which civilized
society imposes upon its members, or which
arise from these relations, other than contractual,
of certain members of society to others, generally
embraced in the concept of status. The legal
rights of each member of society constitute the
measure of the corresponding legal duties,
mainly negative in character, which the existence
of those rights imposes upon all other members
of society. The breach of these general duties
whether due to willful intent or to mere
inattention, if productive of injury, gives rise to an
obligation to indemnify the injured party. The
fundamental distinction between obligations of
this character and those which arise from
contract, rests upon the fact that in cases of non-
contractual obligation it is the wrongful or
negligent act or omission itself which creates
the vinculum juris, whereas in contractual
relations the vinculum exists independently of the
breach of the voluntary duty assumed by the
parties when entering into the contractual
relation.
With respect to extra-contractual
obligation arising from negligence, whether of act
or omission, it is competent for the legislature to
elect and our Legislature has so elected to
limit such liability to cases in which the person
upon whom such an obligation is imposed is
morally culpable or, on the contrary, for reasons
of public policy, to extend that liability, without
regard to the lack of moral culpability, so as to
include responsibility for the negligence of those
persons whose acts or omissions are imputable,
by a legal fiction, to others who are in a position
to exercise an absolute or limited control over
them. The legislature which adopted our Civil
Code has elected to limit extra contractual liability
with certain well-defined exceptions to
cases in which moral culpability can be directly
imputed to the persons to be charged. This moral
responsibility may consist in having failed to
exercise due care in one's own acts, or in having
failed to exercise due care in the selection and
control of one's agents or servants, or in the
control of persons who, by reason of their status,
occupy a position of dependency with respect to
the person made liable for their conduct.
The position of a natural or juridical
person who has undertaken by contract to render
service to another, is wholly different from that to
which article 1903 relates. When the source of
the obligation upon which plaintiff's cause of
action depends is a negligent act or omission, the
burden of proof rests upon plaintiff to prove the
negligence if he does not his action fails. But
when the facts averred show a contractual
undertaking by defendant for the benefit of
plaintiff, and it is alleged that plaintiff has failed or
refused to perform the contract, it is not
necessary for plaintiff to specify in his pleadings
whether the breach of the contract is due to willful
fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of
the contract and of its nonperformance is
sufficient prima facie to warrant a recovery.
"As a general rule . . . it
is logical that in case of extra-
contractual culpa, a suing creditor
should assume the burden of
proof of its existence, as the only
fact upon which his action is
based; while on the contrary, in a
case of negligence which
presupposes the existence of a
contractual obligation, if the
creditor shows that it exists and
that it has been broken, it is not
necessary for him to prove the
negligence." (Manresa, vol. 8, p.
71 [1907 ed., p. 76].)
As it is not necessary for the plaintiff in
an action for the breach of a contract to show that
the breach was due to the negligent conduct of
defendant or of his servants, even though such
be in fact the actual cause of the breach, it is
obvious that proof on the part of defendant that
the negligence or omission of his servants or
agents caused the breach of the contract would
not constitute a defense to the action. If the
negligence of servants or agents could be
invoked as a means of discharging the liability
arising from contract, the anomalous result would
be that persons acting through the medium of
agents or servants in the performance of their
contracts, would be in a better position than
those acting in person. If one delivers a valuable
watch to a watchmaker who contracts to repair it,
and the bailee, by a personal negligent act
causes its destruction, he is unquestionably
liable. Would it be logical to free him from his
liability for the breach of his contract, which
involves the duty to exercise due care in the
preservation of the watch, if he shows that it was
his servant whose negligence caused the injury?
If such a theory could be accepted, juridical
persons would enjoy practically complete
immunity from damages arising from the breach
of their contracts if caused by negligent acts of
omission or commission on the part of their
servants, as such juridical persons can of
necessity only act through agents or servants,
and it would no doubt be true in most instances
that reasonable care had been taken in the
selection and direction of such servants. If one
delivers securities to a banking corporation as
collateral, and they are lost by reason of the
negligence of some clerk employed by the bank,
would it be just and reasonable to permit the
bank to relieve itself of liability for the breach of
its contract to return the collateral upon the
payment of the debt by proving that due care had
been exercised in the selection and direction of
the clerk?
This distinction between culpa
aquiliana, as the source of an obligation,
and culpa contractual as a mere incident to the
performance of a contract has frequently been
recognized by the supreme court of Spain.
(Sentenciasof June 27, 1894; November 20,
1896; and December 13 1896.) In the decision of
November 20, 1896, it appeared that plaintiff s
action arose ex contractu, but that defendant
sought to avail himself of the provisions of article
1902 of the Civil Code as a defense. The
Spanish Supreme Court rejected defendant's
contention, saying:
"These are not cases of
injury caused, without any pre-
existing obligation, by fault or
negligence, such as those to
which article 1902 of the Civil
Code relates, but of damages
caused by the defendant's failure
to carry out the undertakings
imposed by the contracts . . .."
A brief review of the earlier decision of
this court involving the liability of employers for
damage done by the negligent acts of their
servants will show that in no case has the court
ever decided that the negligence of the
defendant's servants [has] been held to constitute
a defense to an action for damages for breach of
contract.
In the case of Johnson vs. David (5 Phil.
Rep., 663), the court held that the owner of a
carriage was not liable for the damages caused
by the negligence of his driver. In that case the
court commented on the fact that no evidence
had been adduced in the trial court that the
defendant had been negligent in the employment
of the driver, or that he had any knowledge of his
lack of skill or carefulness.

In the case of Baer Senior & Co.'s
Successors vs. Compaia Maritima (6 Phil. Rep.,
215), the plaintiff sued the defendant for
damages caused by the loss of a barge
belonging to plaintiff which was allowed to get
adrift by the negligence of defendant's servants in
the course of the performance of a contract of
towage. The court held, citing Manresa (vol. 8,
pp. 29, 69) that if the "obligation of the defendant
grew out of a contract made between it and the
plaintiff . . . we do not think that the provisions of
articles 1902 and 1903 are applicable to the
case."
In the case of Chapman vs. Underwood
(27 Phil. Rep., 374), plaintiff sued the defendant
to recover damages for personal injuries caused
by the negligence of defendant's chauffeur while
driving defendant's automobile in which
defendant was riding at the time. The court found
that the damages were caused by the negligence
of the driver of the automobile, but held that the
master was not liable, although he was present at
the time, saying:
" . . . unless the
negligent acts of the driver are
continued for such a length of
time as to give the owner a
reasonable opportunity to
observe them and to direct the
driver to desist therefrom. . . .
The act complained of must be
continued in the presence of the
owner for such a length of time
that the owner by his
acquiescence, makes the driver's
acts his own."
In the case of Yamada vs. Manila
Railroad Co. and Rachrach Garage & Taxicab
Co. (33 Phil. Rep., 8), it is true that the court
rested its conclusion as to the liability of the
defendant upon article 1903, although the facts
disclosed that the injury complained of by plaintiff
constituted a breach of the duty to him arising out
of the contract of transportation. The express
ground of the decision in this case was that
article 1903, in dealing with the liability of a
master for the negligent acts of his servants
"makes the distinction between private individuals
and public enterprise;" that as to the latter the law
creates a rebuttable presumption of negligence in
the selection or direction of the servants; and that
in the particular case the presumption of
negligence had not been overcome.
It is evident, therefore, that in its
decision in the Yamada case, the court treated
plaintiff's action as though founded in tort rather
than as based upon the breach of the contract of
carriage, and an examination of the pleadings
and of the briefs shows that the questions of law
were in fact discussed upon this theory. Viewed
from the standpoint of the defendant the practical
result must have been the same in any event.
The proof disclosed beyond doubt that the
defendant's servant was grossly negligent and
that his negligence was the proximate cause of
plaintiff's injury. It also affirmatively appeared that
defendant had been guilty of negligence in its
failure to exercise proper discretion in the
direction of the servant. Defendant was therefore,
liable for the injury suffered by plaintiff, whether
the breach of the duty were to be regarded as
constituting culpa aquilina or culpa contractual.
As Manresa points out (vol. 8, pp. 29 and 69)
whether negligence occurs as an incident in the
course of the performance of a contractual
undertaking or is itself the source of an extra-
contractual obligation, its essential characteristics
are identical. There is always an act or omission
productive of damage due to carelessness or
inattention on the part of the defendant.
Consequently, when the court holds that a
defendant is liable in damages for having failed to
exercise due care, either directly, or in failing to
exercise proper care in the selection and
direction of his servants, the practical result is
identical in either ease. Therefore, it follows that it
is not to be inferred, because the court held in the
Yamada ease that the defendant was liable for
the damages negligently caused by its servant to
a person to whom it was bound by contract, and
made reference to the fact that the defendant
was negligent in the selection and control of its
servants, that in such a case the court would
have held that it would have been a good
defense to the action, if presented squarely upon
the theory of the breach of the contract, for
defendant to have proved that it did in fact
exercise care in the selection and control of the
servant.
The true explanation of such cases is to
be found by directing the attention to the relative
spheres of contractual and extra-contractual
obligations. The field of non-contractual
obligation is much more broader than that of
contractual obligation, comprising, as it does, the
whole extent of juridical human relations. These
two fields, figuratively speaking, concentric; that
is to say, the mere fact that a person is bound to
another by contract does not relieve him from
extra-contractual liability to such person. When
such a contractual relation exists the obligor may
break the contract under such conditions that the
same act which constitutes a breach of the
contract would have constituted the source of an
extra-contractual obligation had no contract
existed between the parties.
The contract of defendant to transport
plaintiff carried with it, by implication, the duty to
carry him in safety and to provide safe means of
entering and leaving its trains (Civil Code, article
1258). That duty, being contractual, was direct
and immediate, and its non-performance could
not be excused by proof that the fault was
morally imputable to defendant's servants.
The railroad company's defense
involves the assumption that even granting that
the negligent conduct of its servants in placing an
obstruction upon the platform was a breach of its
contractual obligation to maintain safe means of
approaching and leaving its trains, the direct and
proximate cause of the injury suffered by plaintiff
was his own contributory negligence in failing to
wait until the train had come to a complete stop
before alighting. Under the doctrine of
comparative negligence announced in the Rakes
case (supra), if the accident was caused by
plaintiff's own negligence, no liability is imposed
upon defendant, whereas if the accident was
caused by defendant's negligence and plaintiff's
negligence merely contributed to his injury, the
damages should be apportioned. It is, therefore,
important to ascertain if defendant was in fact
guilty of negligence.
It may be admitted that had plaintiff
waited until the train had come to a full stop
before alighting, the particular injury suffered by
him could not have occurred. Defendant
contends, and cites many authorities in support
of the contention, that it is negligence per se for a
passenger to alight from a moving train. We are
not disposed to subscribe to this doctrine n its
absolute form. We are of the opinion that this
proposition is too broadly stated and is at
variance with the experience of every-day life. In
this particular instance, tat the train was barely
moving when plaintiff alighted is shown
conclusively by the fact that it came to stop within
six meters from the place where he stepped from
it. Thousands of persons alight from trains under
these conditions every day of the year, and
sustain no injury where the company has kept its
platform free from dangerous obstructions. There
is no reason to believe that plaintiff would have
suffered any injury whatever in alighting as he did
had it not been for defendant's negligent failure to
perform its duty to provide a safe alighting place.
We are of the opinion that the correct
doctrine relating to this subject is that expressed
in Thompson's work on Negligence (vol. 3, sec.
3010) as follows:
"The test by which to
determine whether the passenger
has been guilty of negligence in
attempting to alight from a
moving railway train, is that of
ordinary or reasonable care. It is
to be considered whether an
ordinarily prudent person, of the
age, sex and condition of the
passenger, would have acted as
the passenger acted under the
circumstances disclosed by the
evidence. This care has been
defined to be, not the care which
may or should be used by the
prudent man generally, but the
care which a man of ordinary
prudence would use under similar
circumstances, to avoid injury."
(Thompson, Commentaries on
Negligence, vol. 3, sec. 3010.)
Or, if we prefer to adopt the mode of
exposition used by this court in Picart vs. Snith
(37 Phil. Rep., 809), we may say that the test is
this; Was there anything in the circumstances
surrounding the plaintiff at the time he alighted
from the train which would have admonished a
person of average prudence that to get off the
train under the conditions then existing was
dangerous ? If so, the plaintiff should have
desisted from alighting; and his failure so to
desist was contributory negligence.
As the case now before us presents
itself, the only fact from which a conclusion can
be drawn to the effect that the plaintiff was guilty
of contributory negligence is that he stepped off
the car without being able to discern clearly the
condition of the platform and while the train was
yet slowly moving. In considering the situation
thus presented, it should not be overlooked that
the plaintiff was, as we find, ignorant of the fact
that the obstruction which was caused by the
sacks of melons piled on the platform existed;
and as the defendant was bound by reason of its
duty as a public carrier to afford to its passengers
facilities for safe egress from its trains, the
plaintiff had a right to assume, in the absence of
some circumstance to warn him to the contrary,
that the platform was clear. The place, as we
have already stated, was dark, or dimly lighted,
and this also is proof of a failure upon the part of
the defendant in the performance of a duty owing
by it to the plaintiff; for if it were by any possibility
conceded that it had a right to pile these sacks in
the path of alighting passengers, the placing of
them in that position gave rise to the duty to light
the premises adequately so that their presence
would be revealed.

As pertinent to the question of
contributory negligence on the part of the plaintiff
in this case the following circumstances are to be
noted: The company's platform was constructed
upon a level higher than that of the roadbed and
the surrounding ground. The distance from the
steps of the car to the spot where the alighting
passenger would place his feet on the platform
was thus reduced, thereby decreasing the risk
incident to stepping off. The nature of the
platform, constructed as it was of cement
material, also assured to the passenger a stable
and even surface on which to alight.
Furthermore, the plaintiff was possessed of the
vigor and agility of young manhood, and it was by
no means so risky for him to get off while the
train was yet moving as the same act would have
been in an aged or feeble person. In determining
the question of contributory negligence in
performing such act that is to say, whether the
passenger acted prudently or recklessly the
age, sex, and physical condition of the passenger
are circumstances necessarily affecting the
safety of the passenger, and should be
considered. Women, it has been observed, as a
general rule, are less capable than men of
alighting with safety under such conditions, as
the nature of their wearing apparel obstructs the
free movement of the limbs. Again, it may be
noted that the place was perfectly familiar to the
plaintiff, as it was his daily custom to get on and
off the train at this station. There could, therefore,
be no uncertainty in his mind with regard either to
the length of the step which he was required to
take or the character of the platform where he
was alighting. Our conclusion is that the conduct
of the plaintiff in undertaking to alight while the
train was yet slightly under way was not
characterized by imprudence and that therefore
he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at
the time of the accident, was earning P25 a
month as a copyist clerk, and that the injuries he
has suffered have permanently disabled him from
continuing that employment. Defendant has not
shown that any other gainful occupation is open
to plaintiff. His expectancy of life, according to the
standard mortality tables, is approximately thirty-
three years. We are of the opinion that a fair
compensation for the damage suffered by him for
his permanent disability is the sum of P2,500,
and that he is also entitled to recover of
defendant the additional sum of P790.25 for
medical attention, hospital services, and other
incidental expenditures connected with the
treatment of his injuries.
The decision of the lower court is
reversed, and judgment is hereby rendered
plaintiff for the sum of P3,290.25, and for the
costs of both instances. So ordered.
Arellano, C.J., Torres,
Street and Avancea, JJ., concur.
Separate Opinions
MALCOLM, J., dissenting:
With one sentence in the majority
decision, we are of full accord, namely, "It may be
admitted that had plaintiff waited until the train
had come to a full stop before alighting, the
particular injury suffered by him could not have
occurred." With the general rule relative to a
passenger's contributory negligence, we are
likewise in full accord, namely, "An attempt to
alight from a moving train is negligence per
se." Adding these two points together, we have
the logical result the Manila Railroad Co.
should be absolved from the complaint, and
judgment affirmed.
Johnson, J., concurs.

EN BANC
[G.R. No. L-21749. September 29, 1967.]
REPUBLIC OF THE
PHILIPPINES, plaintiff-
appellee, vs. LUZON
STEVEDORING
CORPORATION,defendant-
appellant.
The Solicitor General for the plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-
appellant.
SYLLABUS
1.REMEDIAL LAW; APPEALS, EFFECT OF;
WAIVER; ESTOPPEL. The established rule in this
jurisdiction is that when a party appeals directly to the
Supreme Court and submits his case there for
decision, he is deemed to have waived the right to
dispute any finding of fact made by the trial court. The
only questions that may be raised are those of law. A
converso, a party who resorts to the Court of Appeals
and submits his case for decision there, is barred
from contending later that his claim was beyond the
jurisdiction of that Court.
2.CIVIL LAW; CULPA AQUILIANA;
PRESUMPTIONS; RES IPSA LOQUITUR. Where
an immovable and stationary object like the Nagtahan
bridge, uncontrovertedly provided with adequate
openings for passage of watercraft, is rammed by a
barge exclusively controlled by appellant, causing
damage to its supports, there arises a presumption of
negligence on appellant's part or its employees,
manning the barge or the tugs that towed it. In the
ordinary course of events, such a thing does not
happen if proper care is used. In Anglo-American
Jurisprudence, the inference arises by what is known
as the "res ipsa loquitur" rule.
3.ID; CASO FORTUITO. Caso fortuito or force
majeure (which in law are identical insofar as they
exempt an obligor from liability) by definition, means
extraordinary events not forseeable or avoidable,
"events that could not be forseen, or which though
foreseen, were inevitable." It is therefore not enough
that the event should not have been forseen or
anticipated, but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same:
"un hecho no constituye caso fortuito por la sola
circunstancia de que su existencia haga ms dificil o
ms onerosa la accin diligente del presnto
ofensor."
4.ID.; CASO FORTUITO, INVOCATION OF.
Where appellant adopted precautionary measures by
assigning two of its most powerful tugboats to tow its
barge down river and by assigning its more
competent and experienced patrons to take care of
the towlines, who were instructed to take precautions;
and where the engines and equipment had been
double-checked and unspected so that it had done all
it could do to prevent an accident, said appellant
cannot invoke caso fortuito or force majeure, as the
possibility of danger was not only foreseeable, but
actually foreseen. Otherwise stated, appellant,
knowing or appreciating the perils posed by the
swollen stream and its swift current, voluntarily
entered into a situation involving obvious danger; it
therefore assumed the risk, and cannot shed
responsibility merely because the precautions it
adopted turned out to be insufficient.
5.REMEDIAL LAW; EVIDENCE; DISCRETION OF
JUDGE. Whether or not further evidence will be
allowed after a party offering the evidence had rested
his case, lies within the sound discretion of the trial
judge, and this discretion will not be reviewed except
in clear case of abuse.
D E C I S I O N
REYES, J.B.L., J p:
The present case comes by direct appeal from a
decision of the Court of First Instance of Manila (Case
No. 44572) adjudging the defendant-appellant, Luzon
Stevedoring Corporation, liable in damages to the
plaintiff-appellee Republic of the Philippines.
In the early afternoon of August 17, 1960, barge L-
1892, owned by the Luzon Stevedoring Corporation
was being towed down the Pasig river by tugboats
"Bangus" and "Barbero," 1 also belonging to the same
corporation, when the barge rammed against one of
the wooden piles of the Nagtahan bailey bridge,
smashing the posts and causing the bridge to list. The
river, at the time, was swollen and the current swift,
on account of the heavy downpour in Manila and the
surrounding provinces on August 15 and 16, 1960.
Sued by the Republic of the Philippines for actual and
consequential damage caused by its employees,
amounting to P200,000 (Civil Case No. 44562, CFI of
Manila), defendant Luzon Stevedoring Corporation
disclaimed liability therefor, on the grounds that it had
exercised due diligence in the selection and
supervision of its employees; that the damages to the
bridge were caused by force majeure; that plaintiff
has no capacity to sue; and that the Nagtahan bailey
bridge is an obstruction to navigation.
After due trial, the court rendered judgment on June
11, 1963, holding the defendant liable for the damage
caused by its employees and ordering it to pay
plaintiff the actual cost of the repair of the Nagtahan
bailey bridge which amounted to P192,561.72, with
legal interest thereon from the date of the filing of the
complaint.
Defendant appealed directly to this Court assigning
the following errors allegedly committed by the court a
quo, to wit:
I The lower court erred in not
holding that the herein defendant-
appellant had exercised the
diligence required of it in the
selection and supervision of its
personnel to prevent damage or
injury to others.
II The lower court erred in not
holding that the ramming of the
Nagtahan bailey bridge by barge
L-1892 was caused by force
majeure.
III The lower court erred in not
holding that the Nagtahan bailey
bridge is an obstruction, if not a
menace, to navigation in the
Pasig river.
IV The lower court erred in not
blaming the damage sustained by
the Nagtahan bailey bridge to the
improper placement of the
dolphins.
V The lower court erred in
granting the plaintiff's motion to
adduce further evidence in chief
after it has rested its case.
VI The lower court erred in
finding the plaintiff entitled to the
amount of P192,561.72 for
damages which is clearly
exorbitant and without any factual
basis.
However, it must be recalled that the established rule
in this jurisdiction is that when a party appeals directly
to the Supreme Court, and submits his case there for
decision, he is deemed to have waived the right to
dispute any finding of fact made by the trial Court.
The only questions that may be raised are those of
law (Savellano vs. Diaz, L-17941, July 31, 1963;
Aballe vs. Santiago, L- 16307, April 30, 1963,
G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A
converso, a party who resorts to the Court of Appeals,
and submits his case for decision there, is barred
from contending later that his claim was beyond the
jurisdiction of the aforesaid Court. The reason is that
a contrary rule would encourage the undesirable
practice of appellants' submitting their cases for
decision to either court in expectation of favorable
judgment, but with intent of attacking its jurisdiction
should the decision be unfavorable (Tyson Tan et
al. vs. Filipinas Compaia de Seguros et al., L-10096,
Res. on Motion to Reconsider, March 23, 1966).
Consequently, we are limited in this appeal to the
issues of law raised in the appellant's brief.
Taking the aforesaid rules into account, it can be seen
that the only reviewable issues in this appeal are
reduced to two:
1)Whether or not the collision of appellant's barge
with the supports or piers of the Nagtahan bridge was
in law caused by fortuitous event or force majeure,
and
2)Whether or not it was error for the Court to have
permitted the plaintiff-appellee to introduce additional
evidence of damages after said party had rested its
case.
As to the first question considering that the Nagtahan
bridge was an immovable and stationary object and
uncontrovertedly provided with adequate openings for
the passage of water craft, including barges like of
appellant's, it is undeniable that the unusual event
that the barge, exclusively controlled by appellant,
rammed the bridge supports raises a presumption of
negligence on the part of appellant or its employees
manning the barge or the tugs that towed it. For in the
ordinary course of events, such a thing does not
happen if proper care is used. In Anglo American
Jurisprudence, the inference arises by what is known
as the "res ipsa loquitur" rule (Scott vs. London
Docks, Co., 2 H & C 596; San Juan Light & Transit
Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680;
Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299;
Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass.
130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d
719).
The appellant strongly stresses the precautions taken
by it on the day in question: that it assigned two of its
most powerful tugboats to tow down river its barge L-
1892; that it assigned to the task the more competent
and experienced among its patrons, had the towlines,
engines and equipment double-checked and
inspected' that it instructed its patronsto take extra
precautions; and concludes that it had done all it was
called to do, and that the accident, therefore, should
be held due to force majeure or fortuitous event.
These very precautions, however, completely destroy
the appellant's defense. For caso fortuito or force
majeure (which in law are identical in so far as they
exempt an obligor from liability) 2 by definition, are
extraordinary events not foreseeable or avoidable,
"events that could not be foreseen, or which, though
foreseen, were inevitable" (Art. 1174, Civ. Code of the
Philippines). It is therefore, not enough that the event
should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same:
"un hecho no constituye caso fortuito por la sola
circunstancia de que su existencia haga mas dificil o
mas onerosa la accion diligente del presento ofensor"
(Peirano Facio, Responsabilidad Extra-contractual, p.
465; Mazeaud, Trait de la Responsabilite Civil, Vol. 2,
sec. 1569). The very measures adopted by appellant
prove that the possibility of danger was not only
foreseeable, but actually foreseen, and was not caso
fortuito.
Otherwise state, the appellant, Luzon Stevedoring
Corporation, knowing and appreciating the perils
posed by the swollen stream and its swift current,
voluntarily entered into a situation involving obvious
danger; it therefore assumed the risk, and can not
shed responsibility merely because the precautions it
adopted turned out to be insufficient. Hence, the lower
Court committed no error in holding it negligent in not
suspending operations and in holding it liable for the
damages caused.
It avails the appellant naught to argue that the
dolphins, like the bridge, were improperly located.
Even if true, these circumstances would merely
emphasize the need of even higher degree of care on
appellant's part in the situation involved in the present
case. The appellant, whose barges and tugs travel up
and down the river everyday, could not safely ignore
the danger posed by these allegedly improper
constructions that had been erected and, in place, for
years.
On the second point: appellant charges the lower
court with having abused its discretion in the
admission of plaintiff's additional evidence after the
latter had rested its case. There is an insinuation that
the delay was deliberate to enable the manipulation of
evidence to prejudice defendant-appellant.
We find no merit in the contention. Whether or not
further evidence will be allowed after a party offering
the evidence has rested his case, lies within the
sound discretion of the trial Judge, and this discretion
will not be reviewed except in clear case of abuse. 3
In the present case, no abuse of that discretion is
shown. What was allowed to be introduced, after
plaintiff had rested its evidence in chief, were
vouchers and papers to support an item of P1,558,00
allegedly spent for the reinforcement of the panel of
the bailey bridge, and which item already appeared in
Exhibit GG. Appellant, in fact, has no reason to
charge the trial court of being unfair, because it was
also able to secure, upon written motion, a similar
order dated November 24, 1962, allowing reception of
additional evidence for the said defendant-
appellant. 4
WHEREFORE, finding no error in the decision of the
lower Court appealed from, the same is hereby
affirmed. Costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ., concur.
Footnotes
1.The lead - tugboat "Bangus" was pulling the
barge, while the tugboat "Barbero" was
holding or restraining it at the back.
2.Lasam vs. Smith, 45 Phil. 661.
3.Lopez vs. Liboro. 81 Phil. 429.
4.p. 89, Record on Appeal.
EN BANC
[G.R. No. L-29640. June 10, 1971.]
GUILLERMO AUSTRIA, petition
er, vs. THE COURT OF
APPEALS (Second Division),
PACIFICO ABAD and MARIA G.
ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.
SYLLABUS
1.CIVIL LAW; OBLIGATIONS; REQUISITES OF
FORTUITOUS EVENT. It is recognized in this
jurisdiction that to constitute a caso fortuito that would
exempt a person from responsibility, it is necessary
that (1) the event must be independent of the human
will (or rather, of the debtor's or obligor's); (2) the
occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and that (3)
the obligor must be free of participation in, or
aggravation of, the injury to the creditor. A fortuitous
event, therefore, can be produced by nature, e.g.,
earthquakes, storms, floods, etc., or by the act of
man, such as war, attack by bandits, robbery, etc.,
provided that the event has all the characteristics
enumerated above.
2.ID.; ID.; ID.; FOR ROBBERY TO CONSTITUTE A
FORTUITOUS EVENT, IT IS NOT REQUIRED THAT
THE ACCUSED IN THE ROBBERY CASE BE FIRST
CONVICTED; REASON. The point at issue in this
proceeding is how the fact of robbery is to be
established in order that a person may avail of the
exempting provision of Article 1174 of the new Civil
Code, which reads as follows: . . It may be noted
therefrom that the emphasis of the provision is on the
events, not on the agents or factors responsible for
them. To avail of the exemption granted in the law, it
is not necessary that the persons responsible for the
occurrence should be found or punished; it would only
be sufficient to establish that the unforeseeable event,
the robbery in this case, did take place without any
concurrent fault on the debtor's part, and this can be
done by preponderant evidence. To require in the
present action for recovery the prior conviction of the
culprits in the criminal case, in order to establish the
robbery as a fact, would be to demand proof beyond
reasonable doubt to prove a fact in a civil case.
3.ID.; ID.; ID.; ID.; THE COMMISSION AGENT WHO
TRAVELED ALONE AT NIGHT 1961 IS NOT
NEGLIGENT AND NOT RESPONSIBLE FOR THE
LOSS DUE TO ROBBERY OF JEWELRY RECEIVED
ON CONSIGNMENT; IT IS OTHER WISE IN 1971;
CASE AT BAR. It is undeniable that in order to
completely exonerate the debtor for reason of a
fortuitous event, such debtor must, in addition to
the casus itself, be free of any concurrent or
contributory fault or negligence. This is apparent from
Article 1170 of the Civil Code of the Philippines,
providing that: . . It is clear that under the
circumstances prevailing at present in the City of
Manila and its suburbs, with their high incidence of
crimes against persons and property, that renders
travel after nightfall a matter to be sedulously avoided
without suitable precaution and protection, the
conduct of respondent Maria G. Abad, in returning
alone to her house in the evening, carrying jewelry of
considerable value, would be negligent per se, and
would not exempt her from responsibility in the case
of a robbery. We are not persuaded, however, that
the same rule should obtain ten years previously, in
1961, when the robbery in question did take place, for
at that time criminality had not by far reached the
levels attained in the present day.
4.REMEDIAL LAW; EVIDENCE; THE RECOGNITION
IN THE CIVIL CASE FOR RECOVERY AGAINST
THE COMMISSION AGENT OF THE FACT OF
ROBBERY BEFORE CONVICTION IN THE
CRIMINAL CASE FOR ROBBERY WILL NOT
PREJUDICE THE LATTER CASE, NEITHER WILL IT
RESULT IN INCONSISTENCY SHOULD THE
ACCUSED OBTAIN AN ACQUITTAL OR SHOULD
THE CRIMINAL CASE BE DISMISSED; REASON.
There is likewise no merit in petitioner's argument that
to allow the fact of robbery to be recognized in the
civil case before conviction is secured in the criminal
action, would prejudice the latter case, or would result
in inconsistency should the accused obtain an
acquittal or should the criminal case be dismissed. It
must be realized that a court finding that a robbery
has happened would not necessarily mean that those
accused in the criminal action should be found guilty
of the crime; nor would a ruling that those actually
accused did not commit the robbery be inconsistent
with a finding that a robbery did take place. The
evidence to establish these facts would not
necessarily be the same.
D E C I S I O N
REYES, J.B.L., J p:
Guillermo Austria petitions for the review of the
decision rendered by the Court of Appeals (in CA-
G.R. No. 33572-R), on the sole issue of whether in a
contract of agency (consignment of goods for sale) it
is necessary that there be prior conviction for robbery
before the loss of the article shall exempt the
consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad
acknowledged having received
from Guillermo Austria one (1) pendant with diamonds
valued at P4,500.00, to be sold on commission basis
or to be returned on demand. On 1 February 1961,
however while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been
accosted by two men, one of whom hit her on the
face, while the other snatched her purse containing
jewelry and cash, and ran away. Among the pieces of
jewelry allegedly taken by the robbers was the
consigned pendant. The incident became the subject
of a criminal case filed in the Court of First Instance of
Rizal against certain persons (Criminal Case No.
10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value
notwithstanding demands, Austria brought in the
Court of First Instance of Manila an action against her
and her husband for recovery of the pendant or of its
value, and damages. Answering the allegations of the
complaint, defendants spouses set up the defense
that the alleged robbery had extinguished their
obligation.
After due hearing, the trial court rendered judgment
for the plaintiff, and ordered defendants spouses,
jointly and severally, to pay to the former the sum of
P4,500.00, with legal interest thereon, plus the
amount of P450.00 as reasonable attorneys' fees, and
the costs. It was held that defendants failed to prove
the fact of robbery, or, if indeed it was committed, that
defendant Maria Abad was guilty of negligence when
she went home without any companion, although it
was already getting dark and she was carrying a large
amount of cash and valuables on the day in question,
and such negligence did not free her from liability for
damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to
the Court of Appeals, and there secured a reversal of
the judgment. The appellate court, overruling the
finding of the trial court on the lack of credibility of the
two defense witnesses who testified on the
occurrence of the robbery, and holding that the facts
of robbery and defendant Maria Abad's possession of
the pendant on that unfortunate day have been duly
established, declared respondents not responsible for
the loss of the jewelry on account of a fortuitous
event, and relieved them from liability for damages to
the owner. Plaintiff thereupon instituted the present
proceeding.
It is now contended by herein petitioner that the Court
of Appeals erred in finding that there was robbery in
the case, although nobody has been found guilty of
the supposed crime. It is petitioner's theory that for
robbery to fall under the category of a fortuitous event
and relieve the obligor from is obligation under a
contract, pursuant to Article 1174 of the new Civil
Code, there ought to be prior finding on the guilt of the
persons responsible there for. In short, that the
occurrence of the robbery should be proved by a final
judgment of conviction in the criminal case. To adopt
a different view, petitioner argues, would be to
encourage persons accountable for goods or
properties received in trust or consignment to connive
with others, who would be willing to be accused in
court for the robbery, in order to be absolved from civil
liability for the lass or disappearance of the entrusted
articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute
a caso fortuito that would exempt a person from
responsibility, it is necessary that (1) the event must
be independent of the human will (or rather, of the
debtor's or obligor's); (2) the occurrence must render
it impossible for the debtor to fulfill the obligation, in a
normal manner; and that (3) the obligor must be free
of participation in, or aggravation of, the injury to the
creditor. 1 A fortuitous event, therefore, can be
produced by nature, e.g., earthquakes, storms, floods,
etc., or by the act of man, such as war, attack by
bandits, robbery, 2 etc., provided that the event has
all the characteristics enumerated above.
It is not here disputed that if respondent Maria Abad
were indeed the victim of robbery, and if it were really
true that the pendant, which she was obliged either to
sell on commission or to return to petitioner, were
taken during the robbery, then the occurrence of that
fortuitous event would have extinguished her liability.
The point at issue in this proceeding is how the fact of
robbery is to be established in order that a person
may avail of the exempting provision of Article 1174 of
the new Civil Code, which reads as follows:
"ART. 1174.Except in cases
expressly specified by law, or
when it is otherwise declared by
stipulation, or when the nature of
the obligation requires the
assumption of risk, no person
shall be responsible for those
events which could not be
foreseen, or which, though
foreseen, were inevitable."
It may be noted the reform that the emphasis of the
provision is on the events, not on the agents or
factors responsible for them. To avail of the
exemption granted in the law, it is not necessary that
the persons responsible for the occurrence should be
found or punished; it would only be sufficient to
establish that the enforceable event, the robbery in
this case, did take place without any concurrent fault
on the debtor's part, and this can be done by
preponderant evidence. To require in the present
action for recovery the prior conviction of the culprits
in the criminal case, in order to establish the robbery
as a fact, would be to demand proof beyond
reasonable doubt to prove a fact in a civil case.

It is undeniable that in order to completely exonerate
the debtor for reason of a fortuitous event, such
debtor must, in addition to the casus itself, be free of
any concurrent or contributory fault or
negligence, 3 This is apparent from Article 1170 of the
Civil Code of the Philippines, providing that:
"ART. 1170.Those who in the
performance of their obligations
are guilty of fraud, negligence, or
delay, and those who in any
manner contravene the tenor
thereof, are liable for damages."
It is clear that under the circumstances prevailing at
present in the City of Manila and its suburbs, with
their high incidence of crimes against persons and
property, that renders travel after nightfall a matter to
be sedulously avoided without suitable precaution and
protection, the conduct of respondent Maria G. Abad,
in returning alone to her house in the evening,
carrying jewelry of considerable value, would be
negligent per se, and would not exempt her from
responsibility in the case of a robbery. We are not
persuaded, however, that the same rule should obtain
ten years previously, in 1961, when the robbery in
question did take place, for at that time criminality had
not by far reached the levels attained in the present
day.
There is likewise no merit in petitioner's argument that
to allow the fact of robbery to be recognized in the
civil case before conviction is secured in the criminal
action, would prejudice the latter case, or would result
in inconsistency should the accused obtain an
acquittal or should the criminal case be dismissed. It
must be realized that a court finding that a robbery
has happened would not necessarily mean that those
accused in the criminal action should be found guilty
of the crime; nor would a ruling that those actually
accused did not commit the robbery be inconsistent
with a finding that a robbery did take place. The
evidence to establish these facts would not
necessarily be the same.
WHEREFORE, finding no error in the decision of
the Court of Appeals under review, the petition in this
case is hereby dismissed, with costs against the
petitioner.
Concepcion, C.J., Dizon, Makalintal, Zaldivar,
Fernando, Teehankee, Barredo,
Villamor and Makasiar, JJ., concur.
Castro, J., did not take part.
EN BANC
[G.R. No. L-21486. May 14, 1966.]
LA MALLORCA and
PAMPANGA BUS
COMPANY, petitioners, vs. VAL
ENTIN DE JESUS, MANOLO
TOLENTINO and COURT OF
APPEALS, respondents.
Manuel O. Chan for petitioners.
Sixto T. Antonio for respondents.
SYLLABUS
1.DAMAGES, ACCIDENT CAUSED BY
MECHANICAL DEFECT; LIABILITY OF OWNER OF
VEHICLE. Where the cause of the blowout which
caused the accident was known in that the inner tube
of the left front tire was pressed between the inner
circle of the left wheel and the rim which had slipped
out of the wheel, a mechanical defect of the
conveyance or a fault in equipment which was easily
discoverable if the bus had been subjected to a more
thorough or rigid check-up before it took to the road,
the owner of the vehicle is liable accident.
2.MORAL DAMAGES; COMMON CARRIER;
BREACH OF CONTRACT. In this jurisdiction moral
damages are recoverable by reason of the death of a
passenger caused by the breach of contract of a
common carrier, as provided in Article 1764, in
relation to Article 2206, of the Civil Code.
D E C I S I O N
MAKALINTAL, J p:
La Mallorca and Pampanga Bus Company, Inc.,
commonly known as La Mallorca-Pambusco, filed this
appeal by certiorari from the decision of the Court of
Appeals which affirmed that rendered by the Court of
First Instance of Bulacan in its civil case No. 2100,
entitled Valentin de Jesus and Manolo Tolentino vs.
La Mallorca Pambusco." The court a quosentenced
the defendant now petitioner, "to pay to plaintiffs the
amount of P2,132.50 for actual damages; P14,400.00
as compensatory damages; P10,000.00 to each
plaintiff by way of moral damages; and P3,000.00 as
counsel fees."
Two errors are attributed to the appellate Court: (1) "in
sustaining the decision (of the court a quo) holding
that the petitioners were liable for the accident which
was caused by a blow-out of one of the tires of the
bus and in not considering the same as," and (2) in
holding petitioners liable for moral damages.
The suit arose by reason of the death of Lolita de
Jesus, 20-year old daughter of Valentin de Jesus and
wife of Manolo Tolentino, in a head-on collision
between petitioner's bus, on which she was a
passenger, and a freight truck travelling in the
opposite direction, in a barrio in Marilao, Bulacan, in
the morning of October 8, 1959. The immediate cause
of the collision was the fact that the driver of the bus
lost control of the wheel when its left front tire
suddenly exploded.
Petitioner maintains that a tire blowout is a fortuitous
event and gives rise to no liability for negligence,
citing the rulings of the Court of Appeals in Rodriguez
vs. Red Line Transportation Co., CA-G.R. No. 8136;
December 29, 1954, and vs. Palapad, CA-G.R. No.
18480, June 27, 1953. These rulings, however, not
only are not binding on this Court but were based on
considerations quite different from those that obtain in
the case at bar. The appellate Court there made no
findings of any specific acts of negligence on the part
of the defendants and confined itself to the question
of whether or not a tire blowout, by itself alone and
without a showing as to the causative factors, would
generate liability. In the present case, the cause of the
blowout was known. The inner tube of the left front
tire, according to petitioner's own evidence and as
found by the Court of Appeals, "was pressed between
the inner circle of the left wheel and the rim which had
slipped out of the wheel." This was, said Court
correctly held, a mechanical direct of the conveyance
or a fault in its equipment which was easily
discoverable if the bus had been subjected to a more
thorough or rigid check-up before it took to the road
that morning.
Then again both trial court and the Court of Appeals
found as a fact that the bus was running quite fast
immediately before the accident. Considering that the
tire which exploded was not new petitioner
describes it as "hindi masyadong kalbo," or not so
very worn out the plea of caso fortuito cannot be
entertained.
The second issue raised by petitioner is already a
settled one. In this jurisdiction moral damages are
recoverable by reason of the death of a passenger
cause by the breach of contract of a common carrier,
as provided in Article 1764, in relation to Article 2206,
of the Civil Code. These articles have been applied by
this Court in a number of cases, among them
Necessito, etc. vs. Paras, et al., 104 Phil. 75;
Mercado vs. Lira, 113 Phil. 112; Villa-Rey Transit vs.
Bello, 117 Phil. 745.
Wherefore, the judgment appealed from is affirmed,
with costs against petitioner.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes,
J.B.L., Barrera, Dizon, Regala, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.
SECOND DIVISION
[G.R. No. L-47772. August 31, 1978.]
INOCENCIO
TUGADE, petitioner, vs. COURT OF
APPEALS, and PEOPLE OF THE
PHILIPPINES,respondents.
Manuel M. Camacho for petitioner.
Solicitor General Estelito P. Mendoza,
Assistant Solicitor General Nathanael P. de
Pano, Jr. and Solicitor Francisco J. Bautista for
respondents.
SYNOPSIS
Respondent court affirmed the lower court's judgment
finding the accused Inocencio Tugade guilty beyond
reasonable doubt of the crime of reckless imprudence
resulting in damage to property. In this petition for
review, its application of the Supreme Court's
pronouncement in La Mallorca and Pampanga Bus
Co. vs. Jesus, L-21486, May 14, 1966 is assailed,
petitioner contending that in its stead, decisions of
respondent court maintaining that a mishap caused
by a fortuitous event does not give rise to liability for
negligence should have been taken into consideration
in rendering judgment.
The Supreme Court ruled that its decisions are
definitive, authoritative and binding on those
occupying the lower ranks in the judicial hierarchy;
that respondent lower court had no choice but to
abide by the doctrine laid down by the Supreme Court
decisions on the matter; and that the principle
enunciated in the La Mallorca case was but a
reiteration of previously settled rule that for an event
to be fortuitous in character, there should exist some
extraordinary circumstance independent of the will of
the obligor, or of his employee, an element absent in
the case at bar, which rightly called for the conviction
of the accused.
Judgment affirmed.
SYLLABUS
1.CONSTITUTIONAL LAW; JUDICIARY; DECISIONS
OF THE SUPREME COURT FINAL AND
AUTHORITATIVE. "The delicate task of
ascertaining the significance that attaches to a
constitutional or statutory provision, an executive
order, a procedural norm or a municipal ordinance is
committed to the judiciary. It discharges a role no less
crucial than that appertaining to the other two
departments in the maintenance of the rule of the law.
To assure stability in legal relations and avoid
confusion, it has to speak with one voice. It does so
with finality and rightly, through the highest judicial
organ, the Supreme Court. What it says should be
definitive and authoritative, binding on those
occupying the lower ranks in the judicial hierarchy.
They have to defer and to submit." (citing Barrera v.
Barrera, L-31589, July 31, 1970).
2.ID.; ID.; ID.; LOWER COURTS TO ABIDE BY
FINAL JUDGMENTS OF THE SUPREME COURT.
The Supreme Court, by tradition and in our system of
judicial administration, has the last word on what the
law is; it is the final arbiter of any justiciable
controversy. There is only one Supreme Court from
whose decisions all other courts should take their
bearings.
3.TORTS AND DAMAGES; FORTUITOUS EVENT;
MISHAP CAUSED BY DEFECTIVE BRAKES NOT
FORTUITOUS IN CHARACTER. An essential
element of a caso fortuito is the occurrence of some
extraordinary circumstance independent of the will of
the obligor, or of his employees. This element is
lacking in the present case. It is not suggested that
the accident in question was due to an act of God or
to adverse road conditions which could not have been
foreseen. As far as the record shows, the accident
was caused either by defects in the automobile or
else through the negligence of its driver. This is not
a caso fortuito which would call for an acquittal of the
driver.
D E C I S I O N
FERNANDO, J p:
There is nothing impressive about this petition
seeking to justify a review of a decision of respondent
Court of Appeals on the ground that instead of relying
on what counsel considers applicable rulings of
respondent Court. the judgment was based on a case
decided by this Tribunal. Moreover, counsel for
petitioner ignored earlier doctrines of this Court
consistently holding that a mishap caused by
defective brakes could not be considered as fortuitous
in character and thus called for an acquittal of the
driver if subsequently haled to court. This Court,
nonetheless, was persuaded to give due course to the
petition primarily for clarifying the state of the law and
thus hopefully avoid any further lurking doubt on the
matter. It is quite evident that a reversal of the
decision sought to be reviewed is not justified. cdll
The decision of respondent Court, with Justice Julia
Agrava as ponente, set forth the relevant facts thus:
"At about 9:15 o'clock in the morning of January 4,
1972, Rodolfo [Rayandayan] was driving a Holden
Kingswood car (the [Holden] car), bearing plate No.
52-19V (L-Rizal '71), owned by the Sta. Ines Mining
Corp. and assigned for use of its manager, on Ayala
Avenue in Makati, Rizal, going northwards. At the
intersection of Ayala Avenue and Makati Avenue,
[Rayandayan] was going to turn left on Makati Avenue
but he stopped to wait for the left turn signal and
because a jeep in front of him was also at a stop . . .
.While in that stop position, the [Holden] car was
bumped from behind by Blue Car Taxi, bearing Plate
No. 55-71R (TX-QC '71) and driven by Inocencio
[Tugade] causing damage to the [Holden] car, the
repairs of which cost P778.10 . . . [Tugade] was then
charged with Reckless Imprudence Resulting in
Damage to Property. He pleaded not guilty and while
admitting that the collision was caused by faulty
brakes of his taxicab, sought to exculpate himself with
the explanation that this fault could not and should not
be traced to him. After trial, the lower court held:
[Accordingly], the Court finds that accused Inocencio
Tugade guilty beyond reasonable doubt of the crime
of reckless imprudence resulting in damage to
property and hereby sentences him to pay a [fine of
one thousand (P1,000.00) pesos], with subsidiary
imprisonment in case of insolvency in accordance
with the provisions of Article 39 of the Revised Penal
Code, as amended, to indemnify the Sta. Ines Mining
Corporation in the amount of P778.10 by way of
actual damages; and to pay the costs.' While
[Tugade] admitted the facts of the case as set out
above, he nevertheless, appealed from the judgment
reiterating that `the malfunctioning of the brakes at the
time of accident was due to a mechanical defect
which even the exercise of due negligence of a good
father of a family cannot have prevented.' As the
lower court had found: `this witness ([Tugade])
testified that after the accident, he admitted that his
taxicab bumped the car on his front because the
brakes of his vehicle malfunctioned; and that the
document, . . . , is the handwritten statement he
prepared to this effect.'" 1 Respondent Court of
Appeals, after stating that upon review of the record, it
agreed with trial court, rendered its decision
affirming in toto the judgment appealed from. LLphil
As noted at the outset, petitioner is not entitled to
acquittal. His plea for the reversal of the decision
reached by respondent Court is not impressed with
merit. At the most, as was likewise previously
mentioned, the fine imposed could be reduced.
1.Counsel for petitioner vigorously contends that
respondent Court of Appeals ought not to have
applied the pronouncement in La Mallorca and
Pampanga Bus Co. vs. De Jesus 2 on the ground that
it was obiter dictum. That is not the case at all. A little
more time and attention in the study of the above
decision could have resulted in its correct appraisal. I
would have realized then that respondent Court acted
correctly. This Tribunal passed squarely on the
specific issue raise. The opinion penned by the then
Justice, later Chief Justice Makalintal, is categorical:
"Petitioner maintains that a tire blow-out is a fortuitous
event and gives rise to no liability for negligence,
citing the rulings of the Court of Appeals in Rodriguez
v. Red Line Transportation Co., CA-GR No. 8136,
December 29, 1954, and People v. Palapal, CA-GR
No. 18480, June 27, 1958. These rulings, however,
not only are not binding on this Court but were based
on considerations quite different from those that
obtain in the case at bar." 3 The above doctrine is
controlling. The reference to the Court of appeals
decisions is of no moment. 4 It may be printed out
that they were not ignored in the opinion of Justice
Agrava, six of its nine pages being devoted to
distinguishing them. Even without the La Mallorca
ruling then, the decision of respondent Court sought
to be reviewed can stand the test of strict scrutiny. It
is this Tribunal, not respondent Court of Appeals, that
speaks authoritatively.
2.Respondent Court of Appeals really was devoid of
any choice at all. It could not have ruled in any other
way on the legal question raised. This Tribunal having
spoken, its duty was to obey. It is as simple as that.
There is relevance to this excerpt from Barrera v.
Barrera: 5 "The delicate task of ascertaining the
significance that attaches to a constitutional or
statutory provision, an executive order, a procedural
norm or a municipal ordinance is committed to the
judiciary. It thus discharges a role no less crucial than
that appertaining to the other two departments in the
maintenance of the rule of law. To assure stability in
legal relations and avoid confusion, it has to speak
with one voice. It does so with finality, logically and
rightly, through the highest judicial organ, this Court.
What it says then should be definitive and
authoritative, binding on those occupying the lower
ranks in the judicial hierarchy. They have to defer and
to submit." 6 The ensuing paragraph of the opinion in
Barrera further emphasizes the point: "Such a thought
was reiterated in an opinion of Justice J.B.L. Reyes
and further emphasized in these words: 'Judge
Gaudencio Cloribel need not be reminded that the
Supreme Court, by tradition and in our system of
judicial administration, has the last word on what the
law is; it is the final arbiter of any justifiable
controversy. There is only one Supreme Court from
whose decisions all other courts should take their
bearings.'" 7
3.The lack of merit in this petition becomes even more
obvious when it is recalled that the La Mallorca
decision did not enunciate a new principle. As far
back as Lasam v. Smith, 8 promulgated more than
half a century ago, in 1924 to be exact, this Court has
been committed to such a doctrine. Thus; "As will be
seen, these authorities agree that some extraordinary
circumstance independent of the will of the obligor, or
of his employees, is an essential element of a caso
fortuito. Turning to the present case, it is at once
apparent that this element is lacking. It is not
suggested that the accident in question was due to an
act of God or to adverse road conditions which could
not have been foreseen. As far as the record shows,
the accident was caused either by defects in the
automobile or else through the negligence of its
driver. That is not a caso fortuito." 9 Lasam was cited
with approval in the two subsequent cases of Son v.
Cebu Autobus Co. 10 and Necesito v. Paras. 11
WHEREFORE, The decision of respondent Court of
Appeals of December 15, 1977 is affirmed. No costs.
Barredo, Antonio, Aquino, Concepcion
Jr., and Santos, JJ., concur.
FIRST DIVISION
[G.R. No. 117190. January 2, 1997.]
JACINTO TANGUILIG doing
business under the name and
style J.M.T. ENGINEERING
AND GENERAL
MERCHANDISING, petitioner, vs
. COURT OF APPEALS and
VICENTE HERCE
JR.,respondents.
Ricardo C. Valmonte for petitioner.
Restituto M. Mendoza for private respondent.
SYLLABUS
1.CIVIL LAW; CONTRACT; INTERPRETATION;
INTENTION OF THE PARTIES SHALL BE
ACCORDED PRIMORDIAL CONSIDERATION. It
is a cardinal rule in the interpretation of contracts that
the intention of the parties shall be accorded
primordial consideration and, in case of doubt, their
contemporaneous and subsequent acts shall be
principally considered. prLL
2.OBLIGATION; NATURE AND EFFECTS;
EXEMPTION FROM LIABILITY BY REASON OF
FORTUITOUS EVENTS; REQUISITES. This Court
has consistently held that in order for a party to claim
exemption from liability by reason of fortuitous event
under Art. 1174 of the Civil Code the event should be
the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil
vs. Court of Appeals, Nos. L-47851 and L- 47896, 3
October 1986, 144 SCRA 596, four (4) requisites
must concur: (a) the cause of the breach of the
obligation must be independent of the will of the
debtor; (b) the event must be either unforseeable or
unavoidable; (c) the event must be such as to render
it impossible for the debtor to fulfill his obligation in a
normal manner; and, (d) the debtor must be free from
any participation in or aggravation of the injury to the
creditor.
3.ID.; ID.; ID.; APPLICATION OF ART. 1167 OF THE
CIVIL CODE; WHEN A PERSON OBLIGED TO DO
SOMETHING FAILS TO DO IT, THE SAME SHALL
BE EXECUTED AT HIS COST. In reciprocal
obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. (Art. 1169,
last par., New Civil Code) When the windmill failed to
function properly it became incumbent upon petitioner
to institute the proper repairs in accordance with the
guaranty stated in the contract. Thus, respondent
cannot be said to have incurred in delay; instead, it is
petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil
Code is explicit on this point that if a person obliged to
do something fails to do it, the same shall be
executed at his cost. llcd
D E C I S I O N
BELLOSILLO, J p:
This case involves the proper interpretation of the
contract entered into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig
doing business under the name and style J.M.T.
Engineering and General Merchandising proposed to
respondent Vicente Herce Jr. to construct a windmill
system for him. After some negotiations they agreed
on the construction of the windmill for a consideration
of P60,000.00 with a one-year guaranty from the date
of completion and acceptance by respondent Herce
Jr. of the project. Pursuant to the agreement
respondent paid petitioner a down payment of
P30,000.00 and an installment payment of
P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of
respondent to pay the balance, petitioner filed a
complaint to collect the amount. In his Answer before
the trial court respondent denied the claim saying that
he had already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill
system was to be connected. According to
respondent, since the deep well formed part of the
system the payment he tendered to SPGMI should be
credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the
windmill system which caused the structure to
collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well
was included in the agreement to build the windmill
system, for the contract price of P60,000.00 was
solely for the windmill assembly and its installation,
exclusive of other incidental materials needed for the
project. He also disowned any obligation to repair or
reconstruct the system and insisted that he delivered
it in good and working condition to respondent who
accepted the same without protest. Besides, its
collapse was attributable to a typhoon, a force
majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the
construction of the deep well was not part of the
windmill project as evidenced clearly by the letter
proposals submitted by petitioner to respondent. 2 It
noted that "[i]f the intention of the parties is to include
the construction of the deep well in the project, the
same should be stated in the proposals. In the
absence of such an agreement, it could be safely
concluded that the construction of the deep well is not
a part of the project undertaken by the
plaintiff." 3 With respect to the repair of the windmill,
the trial court found that "there is no clear and
convincing proof that the windmill system fell down
due to the defect of the construction. " 4
The Court of Appeals reversed the trial court. It ruled
that the construction of the deep well was included in
the agreement of the parties because the term "deep
well" was mentioned in both proposals. It also gave
credence to the testimony of respondent's witness
Guillermo Pili, the proprietor of SPGMI which installed
the deep well, that petitioner Tanguilig told him that
the cost of constructing the deep well would be
deducted from the contract price of P60,000.00. Upon
these premises the appellate court concluded that
respondent's payment of P15,000.00 to SPGMI
should be applied to his remaining balance with
petitioner thus effectively extinguishing his contractual
obligation. However, it rejected petitioner's claim
of force majeure and ordered the latter to reconstruct
the windmill in accordance with the stipulated one-
year guaranty.
His motion for reconsideration having been denied by
the Court of Appeals, petitioner now seeks relief from
this Court. He raises two issues: firstly, whether the
agreement to construct the windmill system included
the installation of a deep well and, secondly, whether
petitioner is under obligation to reconstruct the
windmill after it collapsed.
We reverse the appellate court on the first issue but
sustain it on the second.
The preponderance of evidence supports the finding
of the trial court that the installation of a deep well
was not included in the proposals of petitioner to
construct a windmill system for respondent. There
were in fact two (2) proposals: one dated 19 May
1987 which pegged the contract price at P87,000.00
(Exh. "1"). This was rejected by respondent. The other
was submitted three days later, i.e., on 22 May 1987
which contained more specifications but proposed a
lower contract price of P60,000.00 (Exh. "A"). The
latter proposal was accepted by respondent and the
construction immediately followed. The pertinent
portions of the first letter-proposal (Exh. "1") are
reproduced hereunder
In connection with your Windmill
System and Installation, we
would like to quote to you as
follows:
One (1) Set Windmill suitable
for 2 inches diameter deepwell, 2
HP, capacity, 14 feet in diameter,
with 20 pieces blade, Tower 40
feet high, including mechanism
which is not advisable to operate
during extra-intensity wind.
Excluding cylinder pump.
UNI
T
CO
NT
RA
CT
PRI
CE
P87
,000
.00
The second letter-proposal (Exh. "A") provides as
follows:
In connection with your Windmill
system, Supply of Labor
Materials and Installation,
operated water pump, we would
like to quote to you as follows
One (1) set Windmill assembly
for 2 inches or 3 inches deep-well
pump, 6 Stroke, 14 feet diameter,
1-lot blade materials, 40 feet
Tower complete with standard
appurtenances up to Cylinder
pump, shafting U.S. adjustable
International Metal.
One (1) lot Angle bar, G. I.
pipe, Reducer Coupling, Elbow
Gate valve, cross Tee coupling.
One (1) lot Float valve.
One (1) lot Concreting
materials foundation.
F
.

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.

B
.

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t
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a
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P
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P
6
0
,
0
0
0
.
0
0
Notably, nowhere in either proposal is the installation
of a deep well mentioned, even remotely. Neither is
there an itemization or description of the materials to
be used in constructing the deep well. There is
absolutely no mention in the two (2) documents that a
deep well pump is a component of the proposed
windmill system. The contract prices fixed in both
proposals cover only the features specifically
described therein and no other. While the words
"deep well" and "deep well pump" are mentioned in
both, these do not indicate that a deep well is part of
the windmill system. They merely describe the type of
deep well pump for which the proposed windmill
would be suitable. As correctly pointed out by
petitioner, the words "deep well" preceded by the
prepositions "for" and "suitable for" were meant only
to convey the idea that the proposed windmill would
be appropriate for a deep well pump with a diameter
of 2 to 3 inches. For if the real intent of petitioner was
to include a deep well in the agreement to construct a
windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the
instruments are clear and leave no doubt as to their
meaning they should not be disturbed. aisadc
Moreover, it is a cardinal rule in the interpretation of
contracts that the intention of the parties shall be
accorded primordial consideration 5 and, in case of
doubt, their contemporaneous and subsequent acts
shall be principally considered. 6 An examination of
such contemporaneous and subsequent acts of
respondent as well as the attendant circumstances
does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that
the contract price of P60,000.00 covered the
installation of a deep well pump. He contends that
since petitioner did not have the capacity to install the
pump the latter agreed to have a third party do the
work the cost of which was to be deducted from the
contract price. To prove his point, he presented
Guillermo Pili of SPGMI who declared that petitioner
Tanguilig approached him with a letter from
respondent Herce Jr. asking him to build a deep well
pump as "part of the price/contract which Engineer
(Herce) had with Mr. Tanguilig." 7

We are disinclined to accept the version of
respondent. The claim of Pili that Herce Jr. wrote him
a letter is unsubstantiated. The alleged letter was
never presented in court by private respondent for
reasons known only to him. But granting that this
written communication existed, it could not have
simply contained a request for Pili to install a deep
well; it would have also mentioned the party who
would pay for the undertaking. It strains credulity that
respondent would keep silent on this matter and leave
it all to petitioner Tanguilig to verbally convey to Pili
that the deep well was part of the windmill
construction and that its payment would come from
the contract price of P60,000.00.
We find it also unusual that Pili would readily consent
to build a deep well the payment for which would
come supposedly from the windmill contract price on
the mere representation of petitioner, whom he had
never met before, without a written commitment at
least from the former. For if indeed the deep well were
part of the windmill project, the contract for its
installation would have been strictly a matter between
petitioner and Pili himself with the former assuming
the obligation to pay the price. That it was respondent
Herce Jr. himself who paid for the deep well by
handing over to Pili the amount of P15,000.00 clearly
indicates that the contract for the deep well was not
part of the windmill project but a separate agreement
between respondent and Pili. Besides, if the price of
P60,000.00 included the deep well, the obligation of
respondent was to pay the entire amount to petitioner
without prejudice to any action that Guillermo Pili or
SPGMI may take, if any, against the latter.
Significantly, when asked why he tendered payment
directly to Pili and not to petitioner, respondent
explained, rather lamely, that he did it "because he
has (sic) the money, so (he) just paid the money in his
possession. 8
Can respondent claim that Pili accepted his payment
on behalf of petitioner? No. While the law is clear that
"payment shall be made to the person in whose favor
the obligation has been constituted, or his successor
in interest, or any person authorized to receive it, " 9 it
does not appear from the record that Pili and/or
SPGMI was so authorized.
Respondent cannot claim the benefit of the law
"concerning payments made by a third
person." 10 The Civil Code provisions do not apply in
the instant case because no creditor-debtor
relationship between petitioner and Guillermo Pili
and/or SPGMI has been established regarding the
construction of the deep well. Specifically, witness Pili
did not testify that he entered into a contract with
petitioner for the construction of respondent's deep
well. If SPGMI was really commissioned by petitioner
to construct the deep well, an agreement particularly
to this effect should have been entered into.
The contemporaneous and subsequent acts of the
parties concerned effectively belie respondent's
assertions. These circumstances only show that the
construction of the well by SPGMI was for the sole
account of respondent and that petitioner merely
supervised the installation of the well because the
windmill was to be connected to it. There is no legal
nor factual basis by which this Court can impose upon
petitioner an obligation he did not expressly assume
nor ratify.
The second issue is not a novel one. In a long line of
cases 11 this Court has consistently held that in order
for a party to claim exemption from liability by reason
of fortuitous event under Art. 1174 of the Civil Code
the event should be the sole and proximate cause of
the loss or destruction of the object of the contract.
In Nakpil vs. Court of Appeals, 12 four (4) requisites
must concur: (a) the cause of the breach of the
obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render
it impossible for the debtor to fulfill his obligation in a
normal manner; and, (d) the debtor must be free from
any participation in or aggravation of the injury to the
creditor.
Petitioner failed to show that the collapse of the
windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that
there was actually a typhoon on the day the windmill
collapsed. Petitioner merely stated that there was a
"strong wind." But a strong wind in this case cannot
be fortuitous unforeseeable nor unavoidable. On
the contrary, a strong wind should be present in
places where windmills are constructed, otherwise the
windmills will not turn.
The appellate court correctly observed that "given the
newly-constructed windmill system, the same would
not have collapsed had there been no inherent defect
in it which could only be attributable to the
appellee." 13 It emphasized that respondent had in
his favor the presumption that "things have happened
according to the ordinary course of nature and the
ordinary habits of life." 14 This presumption has not
been rebutted by petitioner.
Finally, petitioner's argument that private respondent
was already in default in the payment of his
outstanding balance of P15,000.00 and hence should
bear his own loss, is untenable. In reciprocal
obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. 15 When
the windmill failed to function properly it became
incumbent upon petitioner to institute the proper
repairs in accordance with the guaranty stated in the
contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the
windmill. Article 1167 of the Civil Code is explicit on
this point that if a person obliged to do something fails
to do it, the same shall be executed at his cost
WHEREFORE, the appealed decision is MODIFIED.
Respondent VICENTE HERCE JR. is directed to pay
petitioner JACINTO M. TANGUILIG the balance of
P15,000.00 with interest at the legal rate from the
date of the filing of the complaint. In return, petitioner
is ordered to "reconstruct subject defective windmill
system, in accordance with the one-year
guaranty" 16 and to complete the same within three
(3) months from the finality of this decision.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr.,
JJ., concur.
FIRST DIVISION
[G.R. No. 6913. November 21, 1913.]
THE ROMAN CATHOLIC
BISHOP OF JARO, plaintiff-
appellee, vs. GREGORIO DE LA
PEA, administrator of the
estate of Father Agustin de la
Pea, defendant-appellant.
J. Lopez Vito for appellant.
Arroyo & Horrilleno for appellee.
SYLLABUS
1.TRUST FUNDS; LIABILITY OF
TRUSTEE. One who, having in his possession
trust funds, deposits them in his personal account
in a bank and mixes them with his own funds,
does not thereby assume an obligation different
from that under which he would have lain in such
deposit had not been made; not does he thereby
become liable to repay the money at all hazards;
and where such funds are taken from the bank
by fuerza mayor, he is relieved from responsibility
in relation thereto.
2.ID.; ID.; ENGLISH AND AMERICAN
LAW OF TRUSTS NOT APPLICABLE. That
branch of the law, known in England and America
as the law of trusts, has no counterpart in the
Roman law and none under the Spanish law.
D E C I S I O N
MORELAND, J p:
This is an appeal by the defendant from
a judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with
interest at the legal rate from the beginning of the
action.
It is established in this case that the
plaintiff is the trustee of a charitable bequest
made for the construction of a leper hospital and
that Father Agustin de la Pea was the duly
authorized representative of the plaintiff to
receive the legacy. The defendant is the
administrator of the estate of Father De la Pea.
In the year 1898 the books of Father de
la Pea, as trustee, shoed that he had on hand
as such trustee the sum of P6,641, collected by
him for the charitable purposes aforesaid. In the
same year he deposited in his personal account
P19,000 in the Hongkong and Shanghai Bank at
Iloilo. Shortly thereafter and during the war of the
revolution, Father dela Pea was arrested by the
military authorities as a political prisoner, and
while thus detained made an order on said bank
in favor of the United States Army officer under
whose charge he then was so for the sum thus
deposited in said bank. The arrest of Father de la
Pea and the confiscation of the funds in the
bank were the result of the claim of the military
authorities that he was an insurgent and that the
funds thus deposited had been collected by him
for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue
of such order, was confiscated and turned over to
the Government.
While there is considerable dispute in
the case over the question whether the P6,641 of
trust funds was included in the P19,000
deposited as aforesaid, nevertheless, a careful
examination of the case leads us to the
conclusion that said trust funds were a part of the
funds deposited and which were removed and
confiscated by the military authorities of the
United States.
Branch of the law know in England and
America as the law of the trusts had no exact
counterpart in the Roman law and is more has
none under the Spanish law, In this jurisdiction,
therefore, Father dela Pea's liability is
determined by those portions of the Civil Code
which relate to obligations (Book 4, Title 1.)
Although the Civil Code states that a
"person obliged to give something is also bound
to preserve it with the diligence pertaining to a
good father of a family" (art. 1094), it also
provides, following the principle of the Roman
law, major casus est, cui humana infirmitas
resistere non potest, that "no one shall be liable
for events which could not be foreseen, or which
having been foreseen were inevitable, with the
exceptions of the cases expressly mentioned in
the law of those in which the obligation so
declares." (Art. 1105).
By placing the money in the bank and
mixing it with his personal funds De la Pea did
not thereby assume an obligation different from
that under which he would have lain if such
deposit had not been made, nor did he thereby
make himself liable to repay the money at all
hazards. If the money had been forcibly take from
his pocket or from his house by the military forces
of one of the combatants during a state of war, it
is clear that under the provisions of the Civil
Code he would have been exempt from
responsibility. The fact that he placed the trust
fund in the bank is his personal account does not
add to his responsibility. Such deposit did not
make him a debtor who must respond at all the
hazards.
We do not enter into a discussion for the
purpose of determining whether he acted more or
less negligently by depositing the money in the
bank than he would if had left it in his home: or
whether he was more or less negligent by
depositing the money in his personal account
than he would have been if had deposited it in a
separate account as trustee. We regard such
discussion as substantially fruitless, inasmuch as
the precise question is not one of the negligence.
There was no law prohibiting him from depositing
it as he did and there was no law which changed
his responsibility by reason of the deposit, While
it may be true that one who is under obligation to
do or give a things is in duty bound, when he
sees events approaching the results of which will
be dangerous to his trust, to take all reasonable
means and measures to escape or, if
unavoidable, to temper the effects of those
events, we do not been constrained to hold that,
in choosing between two means equally legal, he
is culpably negligent in selecting negligent in
selecting one whereas he would not have been if
he had selected the other.
The court, therefore, finds and declares
that the money which is the subject matter of this
action was deposited by Father De la Pea in the
Hongkong and Shanghai Banking Corporation of
Iloilo; that said money was forcibly taken from the
bank by the armed forces of the United States
during the war of the insurrection; and that said
Father De la Pea was not responsible for its
loss.
The judgment is therefore reversed, and
it is decreed that the plaintiff shall take nothing by
his complaint.
Arellano, C.J. Torres and Carson,
JJ., concur.
Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether
Father De la Pea was a trustee or an agent of
the plaintiff his books showed that in 1898 he had
in his possessions as trustee or agent or a
trustee or an agent of the plaintiff his books
showed that in 1898 he had in his possession as
trustee or agent the sum of P6,641 belonging to
the plaintiff as the head of the church. This
money was then clothed with all the immunities
and protection with which the law seeks to invest
trust funds. But when De la Pea missed this
trust fund with his own and deposited the whole
in the bank to his personal account or credit, he
by this act stamped on the said funds his own
private marks and unclothed it of all the
protection it had. If this money had been
deposited in the name of De la Pea as trustee of
agent of the plaintiff, I think that it my presumed
that the military authorities would not have
confiscated it for the reason that they were
looking for insurgent funds only. Again, the
plaintiff had no reason to suppose that De la
Pea would attempt to strip the fund of its
identity, not had he said or done anything which
tended to relieve De la Pea from the legal
responsibility which pertains to the care and
custody of trust funds.
The Supreme Court of the United States
in United States vs. Thomas (82 U.S., 337), at
page 343, said: "Trustees are only bound to
exercise the same care and solicitude with regard
to their own. Equity will not exact more of them.
They are not liable for a loss by theft without their
fault. But this exemption ceases when they mix
the trust money with their own, whereby it loses
its identity, and they become mere debtors."
If this proposition is sound and
applicable to cases arising in this jurisdiction, and
I entertain no doubt on this point the liability of
the estate of De la Pea cannot be doubted. But
this court in the majority opinion says: "The fact
that he (Agustin de la Pea) placed the trust fund
in the bank in his personal account does not add
to his responsibility. Such deposit did not make
him a debtor who must respond at all hazards . . .
There was no law prohibiting him from depositing
it as he did, and there was no law which changed
his responsibility, by reason of the deposit."
I assume that the court in using the
language which appears in the latter part of the
above quotation meant to say that there was no
statutory law regulating the question. Questions
of this character are not usually governed by
statutory law. The law is to be found in the very
nature of the trust itself, and, as a general rule,
the courts say what facts are necessary to hold
the trustee as a debtor.
If De la Pea, after depositing the trust
fund in his personal account, had used this
money for speculative purposes, such as the
buying and selling of sugar or other products of
the country, thereby becoming a debtor, there
would have been no doubt as to the liability of his
estate. Whether he used this money for that
purpose the record is silent, but it will be noted
that a considerable length of time intervened from
the time of the deposit until the funds were
confiscated by the military authorities. In fact the
record shows that De la Pea deposited on June
27, 1898, P5,259, on June 28 of that year
P3,280, and on August 5 of the same year
P6,000. The record also shows that these funds
were withdrawn and again deposited all together
on the 29th of May, 1900, this last deposit
amounting to P18,970. These facts strongly
indicate that De la Pea had as a matter of fact
been using the money in violation of the trust
imposed in him.
If the doctrine announced in the majority
opinion be followed in cases hereafter arising in
this jurisdiction trust funds will be placed in a
precarious condition. The position of the trustee
will cease to be one of trust.
EN BANC
[G.R. No. 4761. March 2, 1909.]
GUTIERREZ
HERMANOS, plaintiffs-
appellees, vs. MARIANO
FUENTEBELLA, defendant-
appellant.
Chicote & Miranda and Ramon Zaldarriaga, for
appellant.
Sierra & Roco, for appellees.
SYLLABUS
1.SETTLEMENT OF ACCOUNTS;
CONSENT THROUGH ERROR; BURDEN OF
PROOF. When a person who has agreed in
writing to a settlement of accounts claims that he
did so through error, the burden of proof is on
him to show such error.
2.ID.; BALANCE DUE ON ACCOUNT-
CURRENT NOT A LOAN. The balance which
results from a settlement of an account-current,
between a commercial house in Manila and a
dealer in the provinces, does not constitute a
mercantile loan.
3.ID.; INTEREST ON BALANCE DUE.
The balance due on such a current account, in
the absence of agreement, bears interest only
from the date of a demand for its payment.
D E C I S I O N
WILLARD, J p:
On the 26th day of August, 1903, the
defendant signed the following document, which
at the trial in the court below was marked Exhibit
A:
"All my accounts with
the late Don Tomas R. Perez
having been settled this day, I
declare that I am indebted for the
balance of $22,509.03, Mexican
currency, resulting therefrom,
which sum I bind myself to pay to
his widow Dona Concepcion
Valero, and all the receipts and
vales dated prior to this are
hereby annulled by both parties,
the account of the business at
Goa carried on by Don Simon
Perfecto being the only one
which remains unsettled.
"Lagonoy, August 26,
1903.
(Signed) "MARIANO
FUENTEBELLA.
"$22,509.03.
"Note. Signed in
duplicate, one copy retained by
each."
When the plaintiffs as assignees of
Dona Concepcion Valero brought this action
against the amount mentioned in Exhibit A, he
claimed that, in the settlement of the accounts as
a result of which Exhibit A was signed, two
mistakes had been committed against him.
He claimed that on the 12th and 23d of
October, 1902, he had delivered hemp of the
value of 5,424.30 pesos, which amount, as he
said, had not been credited to him at the time
when he signed Exhibit A and never has been
credited to him. He himself produced at the trial a
statement of account which was marked Exhibit
1, delivered to him by the agent of Dona
Concepcion Valero some days before Exhibit A
was signed and which formed the basis of the
settlement. In the last item in this statement the
defendant is credited with two deliveries of hemp
on the 12th ad 23d of October of the value of
5,424.30 pesos. This entry shows that he was, in
fact, given credit for this hemp at the time of the
settlement and effectually disposes of his claim to
the contrary.
The other mistake relates to a delivery
of hemp on the 20th of November, 1901, of the
value of 1,612.20 pesos. He says that he never
was given credit for this amount. In Exhibit 1
there is an item crediting him with this amount,
but later on in the same exhibit the same amount
is charged to him, so that when Exhibit 1 was
delivered to the defendant for his examination it
did not appear that he had, in fact, been credited
with this delivery. The doubt entry of this amount
upon Exhibit 1 is explained by the witnesses for
the plaintiffs who testified that this particular
hemp was delivered by one Miguel Estela; that it
was credited to the defendant because it was at
first thought that it was his hemp, and that it was
afterwards charged back to him on the theory
that it was the hemp of Estela.
According to the defendant's own
testimony, he had Exhibit 1 in his possession for
several days. He testified that he and the agent
of the creditor spent several days in examining
the accounts; that he, the defendant, kept books
of account and kept books which showed the
amount of hemp which he had delivered to
Perez; and that he examined these books of his
during the process of the settlement. After this
examination he presented to the creditors' agent
a list of his objections to the account. The
balance against him, as shown by Exhibit 1 as it
originally was, amounted to 28,687.65 pesos. He
claimed that, by reason of mistakes and errors in
the account, it should be reduced by 6,178.62
pesos. The agent of the creditor allowed his
entire claim in this respect, subtracted this sum
from the original amount, 28,687.65 pesos, and
the account was liquidated at the difference,
namely, 22,509.03 pesos, which is the exact
amount contained in Exhibit A. The plaintiffs'
witnesses testified that the claim as presented in
the complaint was taken from the books kept by
the creditor and was correct according to those
books. The books themselves the plaintiffs
produced in court and offered to the defendant
for his examination. The defendant testifying as a
witness, admitted that he was allowed a
reduction of 6,178.62 pesos, but did not
undertake to say how that amount was made up.
We have no doubt that in it was included this sum
of 1,612.20 pesos.
The defendant having signed Exhibit A,
is bound by it unless at least he shows
affirmatively that there was some mistake or error
in the settlement. The burden of proof was on
him to show such mistake or error, and, if this
amount of 1,612.20 pesos was not included in
the 6,178.62 pesos it was his duty to show it as
he easily could have done. He testified that he
himself kept books of account, but he did not
offer them in evidence at the trial. Having before
him when he signed Exhibit A his own books,
showing the amount of hemp he had delivered, in
which book the amount represented by this
1,612.20 pesos must have appeared, it is
impossible to believe that he did not then make a
claim for an allowance on account of that
delivery.
It will have been observed that in Exhibit
A it is stated that all the accounts pending
between the parties had been arranged, except
that relating to the business at Goa in charge of
Don Simon Perfecto. On the 29th of August,
1903, the following document was signed by
Simon Perfecto:
"The accounts of the
business at Goa which I
represent on account and by
order of Don Mariano
Fuentebella, having been this day
settled with Don Tomas R. Perez,
I hereby acknowledge the
correctness of the balance of
7,434.95 pesos resulting against
my account in the business, the
sum of $647.03 as the purchase
commission on 647.03 piculs of
hemp only remaining unpaid;
which sum shall be paid to Don
Mariano Fuentebella as per
contract.
"San Jose, Lagonoy,
August 29, 1903.
(Signed) "SIMON
PERFECTO."
The plaintiffs included this amount in
their complaint in this action and claimed that the
defendant was responsible therefor. He denies
such responsibility, alleging that he had nothing
to do with the business of Perfecto at Goa except
to ask the creditor at one time to deliver to
Perfecto 2,000 pesos. The court found against
the defendant upon this point and the evidence is
entirely in favor of such finding. In the first place
Exhibit A itself is a strong indication that the
business at Goa belonged to the defendant. The
agent of the creditor testified that the defendant
told him, the agent, to settle the account with
Perfecto, and that he, Perfecto, was authorized to
make the settlement. The defendant himself
testified that Perfecto was his purchaser at Goa
and was in charge of the business there; that he,
the defendant, had authorized him to buy hemp,
giving him one-half of the commission which he
received from the creditor; and that the creditor
knew that Perfecto was the agent or purchaser of
the defendant at Goa.
The business between the parties was
entirely closed on the 20th of June, 1904. This
action was commenced on the 22nd of June,
1906. The defendant claims that the balance
which appeared against him on the 20th of June,
1904, constituted a mercantile loan made by the
creditor to him and that, in accordance with the
provisions of the Code of Commerce, no action
could be maintained upon it until a notarial
demand for its payment had been made by the
creditor, and no such demand having been
made, the action was prematurely brought. The
account between the parties was an ordinary
current account between a commercial house in
Manila and a dealer in the provinces and
embraces a great variety of transactions. It is
apparent that the balance which results from the
settlement of such a current account can in o
sense be called a mercantile loan. (Gutierrez
Hermanos vs. De la Riva, 7 Off. Gaz., 215.(1))
The court below allowed the plaintiffs
interest from the 20th of June, 1904. We think
that in this respect the court erred and that the
plaintiffs are entitled to interest only from the time
of the presentation of their complaint. There was
no agreement as to interest. The transaction did
not constitute a mercantile loan so as to fall
within the provisions of article 316 of the Code of
Commerce relating to interest. Nor can the
balance due on a current account be said to be
due for the sale of merchandise, so as to bring
the case within article 341 of the same code. It
rather falls under articles 1108 and 1100 of the
Civil Code. No demand for payment having been
made before the bringing of this suit, interest can
be allowed only from the presentation of the
complaint.
The judgment of the court below is
modified by providing for interest only from the
22nd day of June, 1906. In all other respects it is
affirmed, with the costs of this instance against
the appellant.
Arellano, C.J., Torres, Mapa,
Johnson and Carson, JJ., concur.

EN BANC
[G.R. No. L-19118. January 30, 1965.]
MARIANO A. ALBERT, plaintiff-
appellant, vs. UNIVERSITY
PUBLISHING CO.,
INC., defendant-appellee.
Uy & Artiaga and Antonio M. Molina for plaintiff-
appellant.
Aruego, Mamaril & Associates for defendant-appellee.
SYLLABUS
1.CORPORATION; PRINCIPLE OF CORPORATION
BY ESTOPPEL; NOT INVOCABLE BY ONE WHO
MISREPRESENTED CORPORATION AS DULY
ORGANIZED AGAINST HIS VICTIM. One who has
induced another to act upon his wilful
misrepresentation that a corporation was duly
organized and existing under the law, cannot
thereafter set up against his victim the principle of
corporation by estoppel.
2.ID.; PERSON ACTING FOR CORPORATION WITH
NO VALID EXISTENCE IS PERSONALLY LIABLE
FOR CONTRACTS ENTERED INTO AS SUCH
AGENT. A person acting or purporting to act on
behalf of a corporation which has no valid existence
assumes each privileges and obligations and
becomes personally liable for contracts entered into
or for other acts performed as such agent.
3.PARTIES TO ACTION; SUIT AGAINST
CORPORATION WITH NO VALID EXISTENCE;
REAL DEFENDANT IS PERSON WHO WAS
CONTROL OF ITS PROCEEDINGS. In a suit
against a corporation with no valid existence the
person who had and exercised the rights to control
the proceedings, to make defense, to adduce and
cross-examine witnesses, and to appeal from a
decision, is the real defendant, and the enforcement
of a judgment against the corporation upon him is
substantial observance of due process of law.
4.ID.; REAL PARTY IN INTEREST: PERSON WHO
ACTED AS REPRESENTATIVE OF NON-EXISTENT
PRINCIPAL AND WHO REAPED BENEFITS FROM
ITS CONTRACTS. A person who acted as
representative of a non-existent principal, who reaped
the benefits resulting from a contract entered into by
him as such, and who violated its terms, thereby
precipitating a suit, is the real party to the contract
sued upon.
5.DUE PROCESS OF LAW; PURPOSE IS TO
SECURE JUSTICE AND NOT TO SACRIFICE IT BY
TECHNICALITIES. The "due process" clause of
the Constitution is designed to secure justice as a
living reality, not to sacrifice it by paying undue
homage to formality. For substance must prevail
over form.
6.PARTIES IN INTEREST; REAL LITIGANT MAY BE
HELD LIABLE. Since the purpose of formally
impleading a party is to assure him a day in court,
once the protective mantle of due process of law has
in fact been accorded a litigant, whatever the
imperfection in form, the real litigant may be held
liable as a party.
7.PLEADINGS AND PRACTICE; LITIGANT NOT
ALLOWED TO SPECULATE ON DECISION OF
COURT. A litigant is not allowed to speculate on
the decision the court may render. Where it was only
after the receipt of the adverse decision of the
Supreme Court that a party disclosed its registration
papers, it is held that the same can no longer be
considered.
8.ID.; ORIGINAL PAPERS NOT PRESENTED
BEFORE COURT CANNOT BE TRANSMITTED ON
APPEAL; SEC. 7, RULE 48, RULES OF COURT
NOT APPLICABLE. Sec. 7 of Rule 48, Rules of
Court, refers to papers the originals of which are of
record in the lower court, which the appellate court
may require to be transmitted for inspection. Where
the original papers have not been presented in the
lower court as part of its record, the same cannot be
transmitted on appeal under the aforesaid section.
9.ID.; ORIGINAL PAPERS IN POSSESSION AND
CONTROL OF PARTY MOVANT NOT NEWLY
DISCOVERED EVIDENCE. For original papers not
part of the lower court's record, the applicable rule is
Sec 1 of Rule 58 on New Trial. Where the papers
could with due diligence have been presented in the
lower court, since they were in movant's possession
and control all the time it is held that under said Rule
said papers cannot be admitted because they are not
newly discovered evidence.
R E S O L U T I O N *
BENGZON, J.P., J p:
No less than three times have the parties here
appealed to this Court.
In Albert vs. University Publishing Co., Inc., L-9300,
April 18, 1958, we found plaintiff entitled to damages
(for breach of contract but reduced the amount from
P23,000.00 to P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-
15275, October 24, 1960, we held that the judgment
for P15,000.00 which had become final and
executory, should be executed to its full amount,
since in fixing it, payment already made had been
considered.
Now we are asked whether the judgment may be
executed against Jose M. Aruego, supposed
President of University Publishing Co., Inc., as the
real defendant.
Fifteen years ago, on September 24, 1949, Mariano
A. Albert sued University Publishing Co., Inc. Plaintiff
alleged inter alia that defendant was a corporation
duly organized and existing under the laws of the
Philippines; that on July 19, 1948, defendant, through
Jose M. Aruego, its President, entered into a contract
with plaintiff; that defendant had thereby agreed to
pay plaintiff P30,000.00 for the exclusive right to
publish his revised Commentaries on the Revised
Penal Code and for his share in previous sales of the
book's first edition; that defendant had undertaken to
pay in eight quarterly installments of P3,750.00
starting July 15, 1948; that per contract failure to pay
one installment would render the rest due; and that
defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's
corporate existence; admitted the execution and
terms of the contract dated July 19, 1948; but alleged
that it was plaintiff who breached their contract by
failing to deliver his manuscript. Furthermore,
defendant counterclaimed for damages.
Plaintiff died before trial and Justo R. Albert, his
estate's administrator, was substituted for him.
The Court of First Instance of Manila, after trial,
rendered decision on April 26, 1954, stating in the
dispositive portion
"IN VIEW OF ALL THE
FOREGOING, the Court renders
judgment in favor of the plaintiff
and against the defendant the
University Publishing Co. Inc.,
ordering the defendant to pay the
administrator Justo R. Albert, the
sum of P23,000.00 with legal
[rate] of interest from the date of
the filing of this complaint until
the whole amount shall have
been fully paid. The defendant
shall also pay the costs. The
counterclaim of the defendant is
hereby dismissed for lack of
evidence."
As aforesaid, we reduced the amount of damages to
P15,000.00, to be executed in full. Thereafter, on July
22, 1961, the court a quo ordered issuance of an
execution writ against University Publishing Co., Inc.
Plaintiff however, on August 10, 1961, petitioned for a
writ of execution against Jose M. Aruego, as the real
defendant, stating, "plaintiff's counsel and the Sheriff
of Manila discovered that there is no such entity as
University Publishing Co., Inc." Plaintiff annexed to his
petition a certification from the Security and Exchange
Commission dated July 31, 1961, attesting; "The
records of this Commission do not show the
registration of UNIVERSITY PUBLISHING CO., INC.,
either as a corporation or partnership." "University
Publishing Co., Inc." countered by filing, through
counsel (Jose M. Aruego's own law firm), a
"manifestation" stating that "Jose M. Aruego is not a
party to this case" and that, therefore, plaintiff's
petition should be denied.
Parenthetically, it is not hard to decipher why
"University Publishing Co., Inc.," through counsel,
would not want Jose M. Aruego to be considered a
party to the present case: should a separate action be
now instituted against Jose M. Aruego, the plaintiff will
have to reckon with the statute of limitations.
The court a quo denied the petition by order of
September 9, 1961, and from this, plaintiff has
appealed.
The fact of non-registration of University Publishing
Co., Inc., in the Securities and Exchange Commission
has not been disputed. Defendant would only raise
the point that "University Publishing Co., Inc.," and not
Jose M. Aruego, is the party defendant; thereby
assuming that "University Publishing Co., Inc." is an
existing corporation with an independent juridical
personality. Precisely, however, on account of the
non-registration it cannot be considered a corporation,
not even a corporation de facto (Hall vs. Piccio, 86
Phil. 603. It has therefore no personality separate
from Jose M. Aruego; it cannot be sued
independently.
The corporation-by estoppel doctrine has not been
invoked. At any rate, the same is inapplicable here.
Aruego represented a non-existent entity and induced
not only the plaintiff but even the court to believe in
such representation. He signed the contract as
"President" of "University Publishing Co., Inc.," stating
that this was "a corporation duly organized and
existing under the laws of the Philippines," and
obviously misled plaintiff (Mariano A. Albert) into
believing the same. One who has induced another to
act upon his wilful misrepresentation that a
corporation was duly organized and existing under the
law, cannot thereafter set up against his victim the
principle of corporation by estoppel (Salvatiera vs.
Garlitos, 56 Off. Gaz., 3069).
"University Publishing Co., Inc."
purported to come to court,
answering the complaint and
litigating upon the merits, But as
stated, "University Publishing
Co., Inc." has no independent
personality; it is just a name.
Jose M. Aruego was, in reality,
the one who answered and
litigated, through his own law firm
as counsel. He was in fact, if not
in name, the defendant.
Even with regard to corporations duly organized and
existing under the law, we have in many a case
pierced the veil of corporate fiction to administer the
ends of justice.* And in Salvatiera vs. Garlitos, supra,
p. 3073, we ruled: "A person acting or purporting to
act on behalf of a corporation which has no valid
existence assumes such privileges and obligations
and becomes personally liable for contracts entered
into or for other acts performed as such agent". Had
Jose M. Aruego been named as party defendant
instead of, or together with, "University Publishing
Co., Inc.," there would be no room for debate as to his
personal liability. Since he was not so named, the
matters of "day in court" and "due process' have
arisen.
In this connection, it must be realized that parties to a
suit are "persons who have a right to control the
proceedings, to make defense, to adduce and cross-
examine witnesses, and to appeal from a decision"
(67 C.J.S. 887) - and Aruego was, in reality, the
person who had and exercised these rights. Clearly,
then, Aruego had his day in court as the real
defendant; and due process of law has been
substantially observed.
"By 'due process of law' we mean
"a law which hears before it
condemns; which proceeds upon
inquiry, and renders judgment
only after trial. . . ." (4 Wheaton,
U.S. 518, 581.)'; or, as this Court
has said, "Due process of law"
contemplates notice and
opportunity to be heard before
Judgment is rendered, affecting
one's person or property' (Lopez
vs. Director of Lands, 47 Phil.,
23, 32)." Sicate vs. Reyes, 100
Phil. 504.) And it may not be
amiss to mention here also that
the "due process" clause of the
Constitution is designed to
secure justice as a living reality;
not to sacrifice it by paying undue
homage to formality. For
substance must prevail over
form. It may now be trite, but
none the less apt, to quote what
long ago we said in Alonso vs.
Villamor, 16 Phil. 315, 321-322:
"A litigation is not a game of
technicalities in which one, more
deeply schooled and skilled in the
subtle art of movement and
position, entraps and destroys
the other. It is, rather, a contest in
which each contending party fully
and fairly lays before the court
the facts in issue and then,
brushing aside as wholly trivial
and indecisive all imperfections of
form and technicalities of
procedure, asks that justice be
done upon the merits. Lawsuits,
unlike duels, are not to be won by
a rapier's thrust. Technicality,
when it deserts its proper office
as an aid to justice end becomes
its great hindrance and chief
enemy, deserves scant
consideration from courts. There
should be no vested rights in
technicalities."
The evidence is patently clear that Jose M. Aruego,
acting as representative of a non-existent principal,
was the real party to the contract sued upon; that he
was the one who reaped the benefits resulting from it,
so much so that partial payments of the consideration
were made by him; that he violated its terms, thereby
precipitating the suit in question; and that in the
litigation he was the real defendant. Perforce, in line
with the ends of justice, responsibility under the
judgment falls on him.
We need hardly state that should there be persons
who under the law are liable to Aruego for
reimbursement or contribution with respect to the
payment he makes under the judgment in question,
he may, of course, proceed against them through
proper remedial measures.
PREMISES CONSIDERED, the order appealed from
is hereby set aside and the case remanded ordering
the lower court to hold supplementary proceedings for
the purpose of carrying the judgment into effect
against University Publishing Co., Inc. and/or Jose M.
Aruego. So ordered.

SECOND DIVISION
[G.R. No. 84698. February 4, 1992.]
PHILIPPINE SCHOOL OF
BUSINESS ADMINISTRATION,
JUAN D. LIM, BENJAMIN P.
PAULINO, ANTONIO M.
MAGTALAS, COL. PEDRO
SACRO, AND LT. M.
SORIANO, petitioners, vs.COUR
T OF APPEALS, HON. REGINA
ORDOEZ-BENITEZ, in her
capacity as Presiding Judge of
Branch 47, Regional Trial
Court, Manila, SEGUNDA R.
BAUTISTA, and ARSENIA D.
BAUTISTA, respondents.
Balgos and Perez for petitioners.
Collantes, Ramirez & Associates for private
respondents.
SYLLABUS
1.CIVIL LAW; QUASI-DELICTS; DOCTRINE OF IN
LOCO PARENTIS. Article 2180, in conjunction with
Article 2176 of the Civil Code, establishes the rule
in in loco parentis. This Court discussed this doctrine
in the afore-cited cases ofExconde, (101
Phil. 843) Mendoza, (101
Phil. 414), Palisoc (G.R. No. L-29025, 4
October, 1971, 41 SCRA 548) and, more recently,
in Amadora vs. Court of Appeals, (G.R. No. L-
47745, 15 April 1988, 160 SCRA 315). In all such
cases, it had been stressed that the law (Article 2180)
plainly provides that the damage should have been
caused or inflicted bypupils or students of the
educational institution sought to be held liable for the
acts of its pupils or students while in its custody.
2.ID.; OBLIGATIONS AND CONTRACTS;
CONTRACTS RESULTING IN BILATERAL
OBLIGATIONS ESTABLISHED WHEN ACADEMIC
INSTITUTION ACCEPTS STUDENTS FOR
ENROLLMENT. When an academic institution
accepts students for enrollment, there is established
a contract between them, resulting in bilateral
obligations which both parties are bound to comply
with. For its part, the school undertakes to provide the
student with an education that would presumably
suffice to equip him with the necessary tools and skills
to pursue higher education or a profession. On the
other hand, the student covenants to abide by the
school's academic requirements and observe its rules
and regulations. Institutions of learning must also
meet the implicit or "built-in" obligation of providing
their students with an atmosphere that promotes or
assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can
absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and
other sciences when bullets are flying or grenades
exploding in the air or where there looms around the
school premises a constant threat to life and limb.
Necessarily, the school must ensure that adequate
steps are taken to maintain peace and order within
the campus premises and to prevent the breakdown
thereof.
3.ID.; QUASI-DELICTS; OBLIGATIONS ARISING
FROM QUASI-DELICTS OR TORTS ARISE ONLY
BETWEEN PARTIES NOT BOUND BY CONTRACT.
Because the circumstances of the present case
evince a contractual relation between the PSBA and
Carlitos Bautista, the rules on quasi-delict do not
really govern. A perusal of Article 2176 shows that
obligations arising from quasi-delicts or tort, also
known as extra-contractual obligations, arise only
between parties not otherwise bound by contract,
whether express or implied.
4.ID.; ID.; VIEW THAT LIABILITY FROM TORT MAY
EXIST EVEN IF THERE IS A CONTRACT. In Air
France vs.Carroscoso (124 Phil. 722), the private
respondent was awarded damages for his
unwarranted expulsion from a first-class seat aboard
the petitioner airline. It is noted, however, that the
Court referred to the petitioner-airline's liability as one
arising from tort, not one arising from a contract of
carriage. In effect, Air France is authority for the view
that liability from tort may exist even if there is a
contract, for the act that breaks the contract may be
also a tort. (Austro-America S.S. Co. vs. Thomas, 248
Fed. 231).
5.ID.; ID.; AN ACT WHICH BREACHES A
CONTRACT IN BAD FAITH AND IN VIOLATION OF
ART. 21 CONSTITUTES QUASI-DELICT. Air
France penalized the racist policy of the airline which
emboldened the petitioner's employee to forcibly oust
the private respondent to cater to the comfort of a
white man who allegedly "had a better right to the
seat." In Austro-American, supra, the public
embarrassment caused to the passenger was the
justification for the Circuit Court of Appeals, (Second
Circuit), to award damages to the latter. From the
foregoing, it can be concluded that should the act
which breaches a contract be done in bad faith and
be violative of Article 21, then there is a cause to view
the act as constituting a quasi-delict.
6.ID.; ID.; CONTRACTUAL RELATION, A
CONDITION SINE QUA NON TO SCHOOL'S
LIABILITY. A contractual relation is a
condition sine qua non to the school's liability. The
negligence of the school cannot exist independently
on the contract, unless the negligence occurs under
the circumstances set out in Article 21 of the Civil
Code.
7.ID.; ID.; ID.; SCHOOL MAY STILL AVOID
LIABILITY BY PROVING THAT THE BREACH OF
CONTRACTUAL OBLIGATION TO STUDENTS WAS
NOT DUE TO ITS NEGLIGENCE. Conceptually a
school, like a common carrier, cannot be an insurer of
its students against all risks. It would not be equitable
to expect of schools to anticipate alltypes of violent
trespass upon their premises, for notwithstanding the
security measures installed, the same may still fail
against an individual or group determined to carry out
a nefarious deed inside school premises and
environs. Should this be the case, the school may still
avoid liability by proving that the breach of its
contractual obligation to the students was not due to
its negligence.
8.ID.; ID.; NEGLIGENCE; DEFINED. Negligence is
statutorily defined to be the omission of that degree of
diligence which is required by the nature of the
obligation and corresponding to the circumstances of
persons, time and place.
D E C I S I O N
PADILLA, J p:
A stabbing incident on 30 August 1985 which caused
the death of Carlitos Bautista while on the second-
floor premises of the Philippine School of Business
Administration (PSBA) prompted the parents of the
deceased to file suit in the Regional Trial Court of
Manila (Branch 47) presided over by Judge (now
Court of Appeals justice) Regina Ordoez-Benitez, for
damages against the said PSBA and its corporate
officers. At the time of his death, Carlitos was enrolled
in the third year commerce course at the PSBA. It
was established that his assailants were not members
of the schools academic community but were
elements from outside the school.
Specifically, the suit impleaded the PSBA and the
following school authorities: Juan D. Lim (President),
Benjamin P. Paulino (Vice-President), Antonio M.
Magtalas (Treasurer/Cashier), Col. Pedro Sacro
(Chief of Security) and a Lt. M. Soriano (Assistant
Chief of Security). Substantially, the plaintiffs (now
private respondents) sought to adjudge them liable for
the victim's untimely demise due to their alleged
negligence, recklessness and lack of security
precautions, means and methods before, during and
after the attack on the victim. During the
proceedings a quo, Lt. M. Soriano terminated his
relationship with the other petitioners by resigning
from his position in the school.
Defendants a quo (now petitioners) sought to have
the suit dismissed, alleging that since they are
presumably sued under Article 2180 of the Civil Code,
the complaint states no cause of action against them,
as jurisprudence on the subject is to the effect
that academic institutions, such as the PSBA, are
beyond the ambit of the rule in the afore-stated article.
The respondent trial court, however, overruled
petitioners' contention and thru an order dated 8
December 1987, denied their motion to dismiss. A
subsequent motion for reconsideration was similarly
dealt with by an order dated 25 January 1988.
Petitioners then assailed the trial court's dispositions
before the respondent appellate court which, in a
decision *promulgated on 10 June 1988, affirmed the
trial court's orders. On 22 August 1988, the
respondent appellate court resolved to deny the
petitioners' motion for reconsideration. Hence, this
petition.
At the outset, it is to be observed that the respondent
appellate court primarily anchored its decision on the
law of quasi-delicts, as enunciated in Articles 2176
and 2180 of the Civil Code. 1 Pertinent portions of the
appellate court's now assailed ruling state:
"Article 2180 (formerly Article
1903) of the Civil Code is an
adoptation from the old Spanish
Civil Code. The comments of
Manresa and learned authorities
on its meaning should give way
to present day changes. The law
is not fixed and flexible (sic); it
must be dynamic. In fact, the
greatest value and significance of
law as a rule of conduct in (sic)
its flexibility to adopt to changing
social conditions and its capacity
to meet the new challenges of
progress.
Construed in the light of modern
day educational systems, Article
2180 cannot be construed in its
narrow concept as held in the old
case of Exconde vs.
Capuno 2 and Mercado vs. Court
of Appeals 3 ; hence, the ruling in
the Palisoc 4 case that it should
apply to all kinds of educational
institutions, academic or
vocational.
At any rate, the law holds the
teachers and heads of the school
staff liable unless they relieve
themselves of such liability
pursuant to the last paragraph of
Article 2180 by 'proving that they
observed all the diligence to
prevent damage.' This can only
be done at a trial on the merits of
the case." 5
While we agree with the respondent appellate
court that the motion to dismiss the complaint
was correctly denied and the complaint should be
tried on the merits, we do not however agree with
the premises of the appellate court's ruling.
Article 2180, in conjunction with Article 2176 of the
Civil Code, establishes the rule of in loco parentis.
This Court discussed this doctrine in the afore-cited
cases of Exconde, Mendoza, Palisoc and, more
recently, in Amadora vs. Court of Appeals. 6 In all
such cases, it had been stressed that the law (Article
2180) plainly provides that the damage should have
been caused or inflicted by pupils or students of the
educational institution sought to be held liable for the
acts of its pupils or students while in its custody.
However, this material situation does not exist in the
present case for, as earlier indicated, the assailants of
Carlitos were not students of the PSBA, for whose
acts the school could be made liable.

However, does the appellate court's failure to
consider such material facts mean the exculpation of
the petitioners from liability? It does not necessarily
follow.
When an academic institution accepts students for
enrollment, there is established a contract between
them, resulting in bilateral obligations which both
parties are bound to comply with. 7 For its part, the
school undertakes to provide the student with an
education that would presumably suffice to equip him
with the necessary tools and skills to pursue higher
education or a profession. On the other hand, the
student covenants to abide by the school's academic
requirements and observe its rules and regulations.
Institutions of learning must also meet the implicit or
"built-in" obligation of providing their students with an
atmosphere that promotes or assists in attaining its
primary undertaking of imparting knowledge.
Certainly, no student can absorb the intricacies of
physics or higher mathematics or explore the realm of
the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms
around the school premises a constant threat to life
and limb. Necessarily, the school must ensure that
adequate steps are taken to maintain peace and
order within the campus premises and to prevent the
breakdown thereof.
Because the circumstances of the present case
evince a contractual relation between the PSBA and
Carlitos Bautista, the rules on quasi-delict do not
really govern. 8 A perusal of Article 2176 shows that
obligations arising from quasi-delicts or tort, also
known as extra-contractual obligations, arise only
between parties not otherwise bound by contract,
whether express or implied. However, this impression
has not prevented this Court from determining the
existence of a tort even when there obtains a
contract. In Air France vs. Carroscoso (124 Phil. 722),
the private respondent was awarded damages for his
unwarranted expulsion from a first-class seat aboard
the petitioner airline. It is noted, however, that the
Court referred to the petitioner-airline's liability as one
arising from tort, not one arising from a contract of
carriage. In effect, Air France is authority for the view
that liability from tort may exist even if there is a
contract, for the act that breaks the contract may be
also a tort. (Austro-America S.S. Co. vs. Thomas, 248
Fed. 231).
This view was not all that revolutionary, for even as
early as 1918, this Court was already of a similar
mind. In Cangco vs. Manila Railroad (38 Phil. 780),
Mr. Justice Fisher elucidated thus:
"The field of non-contractual
obligation is much more broader
than that of contractual
obligation, comprising, as it does,
the whole extent of juridical
human relations. These two
fields, figuratively speaking,
concentric; that is to say, the
mere fact that a person is bound
to another by contract does not
relieve him from extra-contractual
liability to such person. When
such a contractual relation exists
the obligor may break the
contract under such conditions
that the same act which
constitutes a breach of the
contract would have constituted
the source of an extra-contractual
obligation had no contract existed
between the parties."
Immediately what comes to mind is the chapter of the
Civil Code on Human Relations, particularly Article
21, which provides:
"Any person who wilfully causes
loss or injury to another in a
manner that is contrary to morals,
good customs or public
policy shall compensate the latter
for the damage." (emphasis
supplied)
Air France penalized the racist policy of the airline
which emboldened the petitioner's employee to
forcibly oust the private respondent to cater to the
comfort of a white man who allegedly "had a better
right to the seat." In Austro-American, supra, the
public embarrassment caused to the passenger was
the justification for the Circuit Court of Appeals,
(Second Circuit), to award damages to the latter.
From the foregoing, it can be concluded that should
the act which breaches a contract be done in bad faith
and be violative of Article 21, then there is a cause to
view the act as constituting a quasi-delict.
In the circumstances obtaining in the case at bar,
however, there is, as yet, no finding that the contract
between the school and Bautista had been breached
thru the former's negligence in providing proper
security measures. This would be for the trial court to
determine. And, even if there be a finding of
negligence, the same could give rise generally to a
breach of contractual obligation only. Using the test
of Cangco, supra, the negligence of the school would
not be relevant absent a contract. In fact, that
negligence becomes material only because of the
contractual relation between PSBA and Bautista. In
other words, a contractual relation is a condition sine
qua non to the school's liability. The negligence of the
school cannot exist independently on the contract,
unless the negligence occurs under the
circumstances set out in Article 21 of the Civil Code.
This Court is not unmindful of the attendant difficulties
posed by the obligation of schools, above-mentioned,
for conceptually a school, like a common carrier,
cannot be an insurer of its students against all risks.
This is specially true in the populous student
communities of the so-called "university belt" in
Manila where there have been reported several
incidents ranging from gang wars to other forms of
hooliganism. It would not be equitable to expect of
schools to anticipate all types of violent trespass upon
their premises, for notwithstanding the security
measures installed, the same may still fail against an
individual or group determined to carry out a nefarious
deed inside school premises and environs. Should
this be the case, the school may still avoid liability by
proving that the breach of its contractual obligation to
the students was not due to its negligence, here
statutorily defined to be the omission of that degree of
diligence which is required by the nature of the
obligation and corresponding to the circumstances of
persons, time and place. 9
As the proceedings a quo have yet to commence on
the substance of the private respondents' complaint,
the record is bereft of all the material facts. Obviously,
at this stage, only the trial court can make such a
determination from the evidence still to unfold.
WHEREFORE, the foregoing premises considered,
the petition is DENIED. The Court of origin (RTC,
Manila, Br. 47) is hereby ordered to continue
proceedings consistent with this ruling of the Court.
Costs against the petitioners.
SO ORDERED.
Melencio-Herrera, Paras, Regalado and Nocon, JJ.,
concur.
Footnotes
*Penned by Justice Jose C. Campos, Jr. and
concurred in by Justices Ricardo J.
Francisco and Alfredo L. Benipayo.
1.Article 2176 provides:
"Whoever by act or omission causes
damage to another, there being fault or
negligence, is obliged to pay for the
damage done. Such fault or negligence,
if there is no pre-existing contractual
relation between the parties, is called a
quasi-delict and is governed by the
provisions of this Chapter."
Article 2180 provides:
"The obligation imposed by article 2176
is demandable not only for one's own
acts or omissions, but also for those of
persons for whom one is responsible.
xxx xxx xxx
"Lastly, teachers or heads of
establishments of arts and trades shall
be liable for damages caused by their
pupils and students or apprentices, so
long as they remain in their custody.
"The responsibility treated of in this
article shall cease when the persons
herein mentioned prove that they
observed all the diligence of a good
father of a family to prevent damage."
2.101 Phil. 843.
3.108 Phil. 414.
4.G.R. No. L-29025, 4 October 1971, 41 SCRA
548.
5.Rollo, p. 75.
6.G.R. No. L-47745, 15 April 1988, 160 SCRA 315.
7.In Non vs. Dames II , G.R. No. 89317, 20 May
1990, 185 SCRA 535, it was held that the
contract between school and student is
one "imbued with public interest" but a
contract nonetheless.
8.Article 2176, Civil Code is re-quoted for stress:
"Whoever by act or omission causes
damage to another, there being fault or
negligence, is obliged to pay for the
damage done. Such fault or
negligence, if there is no pre-existing
contractual relation between the parties,
is called a quasi-delict and is governed
by the provisions of this Chapter."
(emphasis supplied).
9.Article 1173, Civil Code provides:
"The fault or negligence of the obligor
consists in the omission of that diligence
which is required by the nature of the
obligation and corresponds with the
circumstances of the persons, of the
time and of the place. When negligence
shows bad faith, the provisions of
articles 1171 and 2201, paragraph 2,
shall apply."
FIRST DIVISION
[G.R. No. L-69901. July 31, 1987.]
ANTONIO RAMON
ONGSIAKO, petitioner, vs. INTE
RMEDIATE APPELLATE
COURT and THE PEOPLE OF
THE PHILIPPINES, respondents.
SYLLABUS
1.REMEDIAL LAW; EVIDENCE;
FINDINGS OF THE TRIAL AND APPELLATE
COURTS GENERALLY UPHELD ON APPEAL;
CASE AT BAR, AN EXCEPTION. While this
Court is ordinarily not a trier of facts, it has the
authority to review and reverse the factual
findings of the lower courts if it finds that they do
not conform to the evidence of record. We so find
in this case, for reasons to be discussed
presently. The trial court held, and the
respondent court affirmed, that "the jeep was still
about 150 meters away from the Philippine
Rabbit bus when the accused drove his car
toward the road shoulder to avoid the collision
with the oncoming bus. In other words, there was
sufficient time for Antonio Ramon Ongsiako to
avail of a feasible time to avert hitting the jeep."
The judge should have been more careful in
reaching this conclusion for it is not founded on
the facts as established. The evidence of record
is that the distance was not 150 meters but
150 feet, which makes quite a difference, indeed.
Another indication of carelessness, this time on
the part of the respondent court, is its
observation, in rejecting the petitioner's version of
the collision, that "the police sketch of the
collision scene fails to reveal any skidmarks of
the appellant's car," on the highway. What is
rather odd about this finding is that the trial court,
and the respondent court later, never considered
the fact that the sketch was made five days after
the collision, as clearly emphasized by the
petitioner in his brief. Apparently, it did not occur
to the courts below and this is also somewhat
puzzling that all skidmarks would have
disappeared by that time on the busy highway.
There was also apparent disregard of the record
when the respondent court observed that the
petitioner had not presented his companion to
testify on his behalf, concluding that "such failure
to present Heras raises the presumption that his
testimony, had it been presented, would have
been adverse to the appellant's cause (Orfanel v.
People, 30 SCRA 825)." This is another careless
conclusion. The premise is incorrect, and so the
conclusion must also be rejected. In fact, the
petitioner did present Heras, and Heras did testify
in support of the petitioner, substantially
corroborating the petitioner's account of the
collision. A reading of the transcript of the
stenographic notes in the hearing of the case on
July 27, 1983, will readily disclose this. At any
rate, it is the finding of the Court, in view of the
misappreciation of the evidence of record by the
respondent court and the trial court, that the guilt
of the petitioner has not been proved beyond
reasonable doubt. Consequently, he should not
have been held guilty of even simple negligence
and instead is entitled to be completely absolved
of criminal responsibility.
2.CIVIL LAW; QUASI-DELICT;
DAMAGES FOR INJURIES SUSTAINED;
NEGLIGENT DRIVER LIABLE FOR
HOSPITALIZATION EXPENSES AND
UNEARNED SALARIES OF VICTIM. While
the quantum of proof necessary for conviction
has not been established, there is, in our view, a
preponderance of evidence to hold the petitioner
liable in damages for the injuries sustained by the
victims of this accident. Although it is really
doubtful that he was criminally negligent, we find
there is enough evidence to sustain the
conclusion that a little more caution and
discretion on his part in reacting to the threat of a
head-on collision with the oncoming bus, could
have avoided the unfortunate accident. For this
shortcoming, we hold him liable for the
hospitalization expenses and unearned salaries
of the victims as itemized by the trial court and
affirmed by the respondent court. We absolve
him, however, from the payment of moral
damages and so reduce his total civil liability to
P46,131.04.
D E C I S I O N
CRUZ, J p:
Prosecuted for reckless
imprudence resulting in multiple physical
injuries and damage to property, the
petitioner was convicted by the trial
court 1 On appeal, the conviction was
affirmed but the respondent court 2Still not
satisfied, the petitioner has come to this
Court for a complete reversal of the
judgment below.
This case arose from a collision
between the car being driven by the
petitioner and the jeep of Robert Ha on
December 30, 1981, at about 4 o'clock in
the afternoon, at MacArthur Highway, in
Moncada, Tarlac. The petitioner had a
companion, Leon Miguel Heras, who was
seated beside him. Robert Ha was at the
wheel of his vehicle, which had seven
other passengers. It appears that the
petitioner was south-bound, toward
Manila, and the jeep was coming from the
opposite direction; that a Philippine Rabbit
bus ahead of the jeep swerved into the
petitioner's lane to overtake and bypass a
tricycle; and that as a result of this sudden
move, the petitioner, to avoid a head-on
collision, immediately veered his car to the
shoulder of the highway. The car went out
of control when it hit the soft shoulder,
moved back diagonally across the
cemented highway, then collided with Ha's
jeep, damaging it and causing multiple
injuries to its passengers. The Philippine
Rabbit bus sped away. 3
After considering the arguments
of the parties in the petition itself, the
comment thereon of the public respondent
and the reply thereto, we gave due course
to this petition and required the parties to
file simultaneous memoranda. The
petitioner complied in due time but the
Solicitor General, to avoid repetitiousness,
as he put it, merely adopted his sketchy
comment as the memorandum for the
respondent. 4
While this Court is ordinarily not
a trier of facts, it has the authority to
review and reverse the factual findings of
the lower courts if it finds that they do not
conform to the evidence of record. We so
find in this case, for reasons to be
discussed presently.
The trial court held, and the
respondent court affirmed, that "the jeep
was still about 150 meters away from the
Philippine Rabbit bus when the accused
drove his car toward the road shoulder to
avoid the collision with the oncoming bus.
In other words, there was sufficient time
for Antonio Ramon Ongsiako to avail of a
feasible time to avert hitting the
jeep." 5 The judge should have been more
careful in reaching this conclusion for it is
not founded on the facts as established.
The evidence of record is that the distance
was not 150 metersbut 150 feet, which
makes quite a difference, indeed. The
correct distance, incidentally, was
established by no less than the trial court
itself which, in its examination of Robert
Ha, the principal prosecution witness,
elicited from him the said information in
the following exchange: LLjur
"COURT:
"QHow far was the Philippine
Rabbit bus ahead of you
before the car swerved
to your lane?
"WITNESS
"A:Approximately about 150 feet
ahead of me, Your
Honor." 6
The Court considers this
discrepancy important because the finding
of negligence by the trial court is based on
whether or not the accused had enough
opportunity to avoid the collision. And that
opportunity depended on the distance
between the two vehicles. If the trial judge
had carefully considered the evidence and
discovered that the distance was
150 feet and not meters, it is doubtful that
he would have concluded as he did that
the accused was negligent. The distance
of 150 feet is less than one-third of
150 meters, which means that the
sufficient time imagined by the trial judge
would have been correspondingly and
significantly reduced by two thirds of
the actual period. The time as shortened
could not have, if we apply the trial judge's
own calculations, prevented the petitioner
from avoiding the collision.
Another indication of
carelessness, this time on the part of the
respondent court, is its observation, in
rejecting the petitioner's version of the
collision, that "the police sketch of the
collision scene fails to reveal any
skidmarks of the appellant's car." 7 on the
highway. What is rather odd about this
finding is that the trial court, and the
respondent court later, never considered
the fact that the sketch was
made five days after the collision, as
clearly emphasized by the petitioner in his
brief. Apparently, it did not occur to the
courts below and this is also somewhat
puzzling that all skidmarks would have
disappeared by that time on the busy
highway.
There was also apparent
disregard of the record when the
respondent court observed that the
petitioner had not presented his
companion to testify on his behalf,
concluding that "such failure to present
Heras raises the presumption that his
testimony, had it been presented, would
have been adverse to the appellant's
cause (Orfanel v. People, 30 SCRA
825)." 8 This is another careless
conclusion. The premise is incorrect, and
so the conclusion must also be rejected.
In fact, the petitioner did present Heras,
and Heras did testify in support of the
petitioner, substantially corroborating the
petitioner's account of the collision. A
reading of the transcript of the
stenographic notes in the hearing of the
case on July 27, 1983, will readily disclose
this. 9
The Court is also perplexed by
the following portion of the appealed
decision:
"If it was true that
appellant lost control of his
vehicle as early as when
his car hit the shoulder of
the road, it was extremely
stupid of him to move his
car back to the highway
while his car was still out
of control. This is
especially true in the face
of his own admission that
he saw the Rabbit bus for
the first time when it was
still about 200 meters
away overtaking a vehicle
(jeep of Robert Ha) which
was immediately behind a
tricycle' (p. 2, ibid.).
Assuming that appellant
indeed lost control of his
car as he hit the shoulder,
he should have applied full
not a little pressure upon
his brakes. He should
have stopped his vehicle
instead of driving it back to
the highway and risking
collision with oncoming
vehicles." 10

As the car was "still out of
control," why is it assumed that the
petitioner would nonetheless be able,
although this would be "extremely stupid,"
to move it back to the highway? It is really
mystifying that the respondent court would
still expect the petitioner to control the car
which, as it says so itself, was then "out of
control." "Assuming the appellant indeed
lost control of his car as he hit the
shoulder," the decision adds, "he should
have stopped his vehicle instead of driving
it back to the highway and risking collision
with oncoming vehicles." This is hardly
logical. The court cannot assume that the
petitioner lost control of his vehicle and on
that assumption fault him for not correctly
controlling it. That would be impossible, to
say the least. When one loses control of
his car, he cannot direct it the way he
wants, or move it in the direction he
chooses, or accelerate or stop it, for the
simple reason that it is precisely out of
control. A car out of control is simply out of
control, period. As for the "little pressure"
the petitioner says he applied on the
brakes, the purpose, according to him,
was to prevent his car from turning turtle
as a result of a sudden stop that would
have been caused by his jamming on the
brakes. prLL
The real culprit in this unfortunate
incident, as the Court sees it, could be the
driver of the Philippine Rabbit bus whose
recklessness was the cause of the
collision between the petitioner's car and
Robert Ha's jeep. We notice that the trial
court made the meaningful observation
that "the Philippine Rabbit bus may be
faulted," but added rather helplessly, that
"it is not here charged." 11 We hope it did
not mean by this that someone else had to
be made liable, to vindicate the victims'
rights.
It seems to us that a simple
investigation would have uncovered the
identity and whereabouts of the Rabbit
bus driver, with a view to his prosecution
for his involvement in the collision. Why
this was not done reflects on the sense of
duty of the law-enforcement officers who
investigated this matter and on the
resourcefulness of the petitioner and his
counsel whose cause could have
improved with the indictment of the said
driver.
At any rate, it is the finding of the
Court, in view of the misappreciation of
the evidence of record by the respondent
court and the trial court, that the guilt of
the petitioner has not been proved beyond
reasonable doubt. Consequently, he
should not have been held guilty of even
simple negligence and instead is entitled
to be completely absolved of criminal
responsibility.
The civil liability is, however, a
different question.
While the quantum of proof
necessary for conviction has not been
established, there is, in our view, a
preponderance of evidence to hold the
petitioner liable in damages for the injuries
sustained by the victims of this accident.
Although it is really doubtful that he was
criminally negligent, we find there is
enough evidence to sustain the conclusion
that a little more caution and discretion on
his part in reacting to the threat of a head-
on collision with the oncoming bus, could
have avoided the unfortunate accident.
For this shortcoming, we hold him liable
for the hospitalization expenses and
unearned salaries of the victims as
itemized by the trial court and affirmed by
the respondent court. We absolve him,
however, from the payment of moral
damages and so reduce his total civil
liability to P46,131.04.
We apply here the doctrine
announced in the recent case of People v.
Ligon, 12 where the accused was
acquitted of the crime of homicide for lack
of clear and convincing proof that he had
criminally caused a cigarette vendor to fall
to his death from the jeep where he was
hanging onto. Nevertheless, from the
totality of the facts presented, we declared
there was a preponderance of evidence to
hold the accused liable in damages for the
tragic mishap that befell the victim. We
make a similar finding in this case and
hold the petitioner civilly answerable for
his quasi-delict.
WHEREFORE, the petitioner is
ACQUITTED and his conviction is
REVERSED, but he is held liable in the
total sum of P46,131.04 for damages as
above specified. No costs.
SO ORDERED.

Teehankee, (C.J.), Narvasa, Paras and Gancayco,
JJ., concur.
FIRST DIVISION
[G.R. No. 153004. November 5, 2004.]
SANTOS VENTURA HOCORMA
FOUNDATION,
INC., petitioner, vs. ERNESTO V.
SANTOS and RIVERLAND,
INC., respondents.
D E C I S I O N
QUISUMBING, J p:
Subject of the present petition for review
on certiorari is the Decision, 1 dated January 30,
2002, as well as the April 12, 2002, Resolution 2 of
the Court of Appeals in CA-G.R. CV No. 55122. The
appellate court reversed the Decision, 3 dated
October 4, 1996, of the Regional Trial Court of Makati
City, Branch 148, in Civil Case No. 95-811, and
likewise denied petitioner's Motion for
Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma
Foundation, Inc. (SVHFI) were the plaintiff and
defendant, respectively, in several civil cases filed in
different courts in the Philippines. On October 26,
1990, the parties executed a Compromise
Agreement 4 which amicably ended all their pending
litigations. The pertinent portions of the Agreement
read as follows:
1.Defendant Foundation shall pay
Plaintiff Santos P14.5
Million in the following
manner:
a.P1.5 Million
immediately
upon the
execution of
this agreement;
b.The balance of P13
Million shall be
paid, whether
in one lump
sum or in
installments, at
the discretion
of the
Foundation,
within a period
of not more
than two (2)
years from the
execution of
this agreement;
provided,
however, that
in the event
that the
Foundation
does not pay
the whole or
any part of
such balance,
the same shall
be paid with
the
corresponding
portion of the
land or real
properties
subject of the
aforesaid
cases and
previously
covered by the
notices of lis
pendens, under
such terms and
conditions as to
area, valuation,
and location
mutually
acceptable to
both
parties; but in
no case shall
the payment of
such balance
be later than
two (2) years
from the date
of this
agreement;
otherwise,
payment of any
unpaid portion
shall only be in
the form of land
aforesaid; SaE
TCI
2.Immediately upon the execution
of this agreement (and
[the] receipt of the P1.5
Million), plaintiff Santos
shall cause the
dismissal with prejudice
of Civil Cases Nos. 88-
743, 1413OR, TC-1024,
45366 and 18166 and
voluntarily withdraw the
appeals in Civil Cases
Nos. 4968 (C.A.-G.R.
No. 26598) and 88-
45366 (C.A.-G.R. No.
24304) respectively and
for the immediate lifting
of the aforesaid various
notices of lis pendens
on the real properties
aforementioned (by
signing herein attached
corresponding
documents, for such
lifting); provided,
however, that in the
event that defendant
Foundation shall sell or
dispose of any of the
lands previously subject
of lis pendens, the
proceeds of any such
sale, or any part thereof
as may be required,
shall be partially
devoted to the payment
of the Foundation's
obligations under this
agreement as may still
be subsisting and
payable at the time of
any such sale or sales;
xxx xxx xxx
5.Failure of compliance of any of
the foregoing terms and
conditions by either or
both parties to this
agreement shall ipso
facto and ipso
jure automatically entitle
the aggrieved party to a
writ of execution for the
enforcement of this
agreement. [Emphasis
supplied] 5
In compliance with the Compromise Agreement,
respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of the
notices of lis pendens on the real properties involved.
For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development
Exchange Livelihood Corporation two real properties,
which were previously subjects of lis pendens.
Discovering the disposition made by the petitioner,
respondent Santos sent a letter to the petitioner
demanding the payment of the remaining P13 million,
which was ignored by the latter. Meanwhile, on
September 30, 1991, the Regional Trial Court of
Makati City, Branch 62, issued a Decision 6 approving
the compromise agreement.
On October 28, 1992, respondent Santos sent
another letter to petitioner inquiring when it would pay
the balance of P13 million. There was no response
from petitioner. Consequently, respondent Santos
applied with the Regional Trial Court of Makati City,
Branch 62, for the issuance of a writ of execution of
its compromise judgment dated September 30, 1991.
The RTC granted the writ. Thus, on March 10, 1993,
the Sheriff levied on the real properties of petitioner,
which were formerly subjects of the lis pendens.
Petitioner, however, filed numerous motions to block
the enforcement of the said writ. The challenge of the
execution of the aforesaid compromise judgment
even reached the Supreme Court. All these efforts,
however, were futile.
On November 22, 1994, petitioner's real properties
located in Mabalacat, Pampanga were auctioned. In
the said auction, Riverland, Inc. was the highest
bidder for P12 million and it was issued a Certificate
of Sale covering the real properties subject of the
auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real
properties of petitioner in Bacolod City. Again,
Riverland, Inc. was the highest bidder. The
Certificates of Sale issued for both properties
provided for the right of redemption within one year
from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed
a Complaint for Declaratory Relief and
Damages 7 alleging that there was delay on the part
of petitioner in paying the balance of P13 million.
They further alleged that under the Compromise
Agreement, the obligation became due on October
26, 1992, but payment of the remaining P12 million
was effected only on November 22, 1994. Thus,
respondents prayed that petitioner be ordered to pay
legal interest on the obligation, penalty, attorney's
fees and costs of litigation. Furthermore, they prayed
that the aforesaid sales be declared final and not
subject to legal redemption.
In its Answer, 8 petitioner countered that respondents
have no cause of action against it since it had fully
paid its obligation to the latter. It further claimed that
the alleged delay in the payment of the balance was
due to its valid exercise of its rights to protect its
interests as provided under the Rules. Petitioner
counterclaimed for attorney's fees and exemplary
damages. aSADIC
On October 4, 1996, the trial court rendered
a Decision 9 dismissing herein respondents'
complaint and ordering them to pay attorney's fees
and exemplary damages to petitioner. Respondents
then appealed to the Court of Appeals. The appellate
court reversed the ruling of the trial court:
WHEREFORE, finding merit in
the appeal, the appealed
Decision is hereby REVERSED
and judgment is hereby rendered
ordering appellee SVHFI to pay
appellants Santos and Riverland,
Inc.: (1) legal interest on the
principal amount of P13 million at
the rate of 12% per annum from
the date of demand on October
28, 1992 up to the date of actual
payment of the whole obligation;
and (2) P20,000 as attorney's
fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where
petitioner assigns the following issues:
I
WHETHER OR NOT THE
COURT OF APPEALS
COMMITTED REVERSIBLE
ERROR WHEN IT AWARDED
LEGAL INTEREST IN FAVOR
OF THE RESPONDENTS, MR.
SANTOS AND RIVERLAND,
INC., NOTWITHSTANDING THE
FACT THAT NEITHER IN THE
COMPROMISE AGREEMENT
NOR IN THE COMPROMISE
JUDGMENT OF HON. JUDGE
DIOKNO PROVIDES FOR
PAYMENT OF INTEREST TO
THE RESPONDENT
II
WHETHER OF NOT THE
COURT OF APPEALS ERRED
IN AWARDING LEGAL
IN[T]EREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS
AND RIVERLAND, INC.,
NOTWITHSTANDING THE FACT
THAT THE OBLIGATION OF
THE PETITIONER TO
RESPONDENT SANTOS TO
PAY A SUM OF MONEY HAD
BEEN CONVERTED TO AN
OBLIGATION TO PAY IN KIND
DELIVERY OF REAL
PROPERTIES OWNED BY THE
PETITIONER WHICH HAD
BEEN FULLY PERFORMED
III
WHETHER OR NOT
RESPONDENTS ARE BARRED
FROM DEMANDING PAYMENT
OF INTEREST BY REASON OF
THE WAIVER PROVISION IN
THE COMPROMISE
AGREEMENT, WHICH BECAME
THE LAW AMONG THE
PARTIES 10
The only issue to be resolved is whether the
respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise
agreement or compromise judgment does not provide
for the payment of interest, the legal interest by way
of penalty on account of fault or delay shall not be due
and payable, considering that the obligation or loan,
on which the payment of legal interest could be
based, has been superseded by the compromise
agreement. 11 Furthermore, the petitioner argues that
the respondents are barred by res judicata from
seeking legal interest on account of the waiver clause
in the duly approved compromise
agreement. 12 Article 4 of the compromise agreement
provides:
Plaintiff Santos waives and
renounces any and all other
claims that he and his family may
have on the defendant
Foundation arising from and in
connection with the aforesaid civil
cases, and defendant
Foundation, on the other hand,
also waives and renounces any
and all claims that it may have
against plaintiff Santos in
connection with such
cases. 13 [Emphasis
supplied.] ETCcSa
Lastly, petitioner alleges that since the compromise
agreement did not provide for a period within which
the obligation will become due and demandable, it is
incumbent upon respondent Santos to ask for judicial
intervention for purposes of fixing the period. It is only
when a fixed period exists that the legal interests can
be computed.
Respondents profer that their right to damages is
based on delay in the payment of the obligation
provided in the Compromise Agreement. The
Compromise Agreement provides that payment must
be made within the two-year period from its execution.
This was approved by the trial court and became the
law governing their contract. Respondents posit that
petitioner's failure to comply entitles them to
damages, by way of interest. 14

The petition lacks merit.
A compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or
put an end to one already commenced. 15 It is an
agreement between two or more persons, who, for
preventing or putting an end to a lawsuit, adjust their
difficulties by mutual consent in the manner which
they agree on, and which everyone of them prefers in
the hope of gaining, balanced by the danger of
losing. 16
The general rule is that a compromise has upon the
parties the effect and authority of res judicata, with
respect to the matter definitely stated therein, or
which by implication from its terms should be deemed
to have been included therein.17 This holds true even
if the agreement has not been judicially approved. 18
In the case at bar, the Compromise Agreement was
entered into by the parties on October 26, 1990. 19 It
was judicially approved on September 30,
1991. 20 Applying existing jurisprudence, the
compromise agreement as a consensual contract
became binding between the parties upon its
execution and not upon its court approval. From the
time a compromise is validly entered into, it becomes
the source of the rights and obligations of the parties
thereto. The purpose of the compromise is precisely
to replace and terminate controverted claims. 21
In accordance with the compromise agreement, the
respondents asked for the dismissal of the pending
civil cases. The petitioner, on the other hand, paid the
initial P1.5 million upon the execution of the
agreement. This act of the petitioner showed that it
acknowledges that the agreement was immediately
executory and enforceable upon its execution.
As to the remaining P13 million, the terms and
conditions of the compromise agreement are clear
and unambiguous. It provides:
xxx xxx xxx
b.The balance of P13 Million shall
be paid, whether in one lump
sum or in installments, at the
discretion of the
Foundation, within a period of not
more than two (2) years from the
execution of this agreement. . .
. 22[Emphasis supplied.]
xxx xxx xxx
The two-year period must be counted from October
26, 1990, the date of execution of the compromise
agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991.
When respondents wrote a demand letter to petitioner
on October 28, 1992, the obligation was already due
and demandable. When the petitioner failed to pay its
due obligation after the demand was made, it incurred
delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do
something incur in delay from the
time the obligee judicially or
extrajudicially demands from
them the fulfillment of their
obligation. [Emphasis supplied]
Delay as used in this article is synonymous to default
or mora which means delay in the fulfillment of
obligations. It is the non-fulfillment of the obligation
with respect to time. 23
In order for the debtor to be in default, it is necessary
that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2)
that the debtor delays performance; and (3) that the
creditor requires the performance judicially or
extrajudicially. 24
In the case at bar, the obligation was already due and
demandable after the lapse of the two-year period
from the execution of the contract. The two-year
period ended on October 26, 1992. When the
respondents gave a demand letter on October 28,
1992, to the petitioner, the obligation was already due
and demandable. Furthermore, the obligation is
liquidated because the debtor knows precisely how
much he is to pay and when he is to pay it. ADcSHC
The second requisite is also present. Petitioner
delayed in the performance. It was able to fully settle
its outstanding balance only on February 8, 1995,
which is more than two years after the extra-judicial
demand. Moreover, it filed several motions and
elevated adverse resolutions to the appellate court to
hinder the execution of a final and executory
judgment, and further delay the fulfillment of its
obligation.
Third, the demand letter sent to the petitioner on
October 28, 1992, was in accordance with an extra-
judicial demand contemplated by law.
Verily, the petitioner is liable for damages for the
delay in the performance of its obligation. This is
provided for in Article 1170 25 of the New Civil Code.
When the debtor knows the amount and period when
he is to pay, interest as damages is generally allowed
as a matter of right. 26 The complaining party has
been deprived of funds to which he is entitled by
virtue of their compromise agreement. The goal of
compensation requires that the complainant be
compensated for the loss of use of those funds. This
compensation is in the form of interest. 27 In the
absence of agreement, the legal rate of interest shall
prevail. 28The legal interest for loan as forbearance of
money is 12% per annum 29 to be computed from
default, i.e., from judicial or extra-judicial demand
under and subject to the provisions of Article 1169 of
the Civil Code. 30
WHEREFORE, the petition is DENIED for lack of
merit. The Decision dated January 30, 2002 of the
Court of Appeals and its April 12, 2002 Resolution in
CA-G.R. CV No. 55122 are AFFIRMED. Costs
against petitioner.
SO ORDERED.
Davide, Jr., C.J ., Ynares-Santiago and Carpio, JJ .,
concur.
Azcuna, J ., is on leave.
FIRST DIVISION
[G.R. No. 150097. February 26, 2007.]
DEVELOPMENT BANK OF THE
PHILIPPINES, petitioner, vs.
ALEJANDRO and ADELAIDA
LICUANAN, respondents.
D E C I S I O N
CORONA, J p:
In this petition for review on certiorari, 1 petitioner
Development Bank of the Philippines assails the
February 9, 2001 decision 2 and September 17, 2001
resolution 3 of the Court of Appeals (CA) in CA-G.R.
CV No. 37784.
Respondent spouses Alejandro and Adelaida
Licuanan were granted a piggery loan in the amount
of P4,700 by petitioner, evidenced by a promissory
note dated September 20, 1974 and secured by a real
estate mortgage 4 over a 980-square meter parcel of
land with a two-storey building. The loan's maturity
date was September 23, 1979. 5
Petitioner granted respondents an additional loan of
P12,000 evidenced by a promissory note dated May
29, 1975 payable on or before the year 1980. This
was secured by a real estate mortgage over four
parcels of land situated in Pangasinan covered by
TCT Nos. 109825, 109762, 109763 and 109764. 6
On October 2, 1975, petitioner granted respondent
spouses another loan of P22,000 evidenced by a
promissory note maturing on October 3, 1985. This
was secured by a real estate mortgage executed in
favor of petitioner over three parcels of land covered
by TCT Nos. 112608, 112607 and 112609, all of the
Registry of Deeds of Pangasinan. 7
On August 6, 1979, petitioner and respondents
restructured the P12,000 loan, extending the maturity
date from June 22, 1979 to June 22, 1982. On the
same date, respondents executed a promissory note
for P12,320.73 and another for P6,519.90. 8
On July 6, 1981, petitioner sent a letter by registered
mail to respondents informing them that, since the
conditions of the mortgage had been breached,
petitioner would have the mortgaged properties sold
by the sheriff under Act 3135. The total amount due
from the three loans had by then ballooned to
P75,298.32. 9
On July 20, 1981, petitioner filed an application for
extrajudicial foreclosure. 10 The mortgaged properties
were sold in a public auction on December 16, 1981.
Petitioner, as the highest bidder, acquired them for a
total of P16,340. The certificate of sale was registered
on January 25, 1982. 11
On February 4, 1983, petitioner consolidated its
ownership over the properties. After more than a year
or on October 16, 1984, petitioner wrote respondents
by registered mail, informing them that the properties
(now acquired assets of the bank) would be disposed
of by public auction. On November 11, 1984,
petitioner published an advertisement stating that on
November 14, 1984, the properties would be sold by
oral bidding. On this date, however, there were no
bidders. 12
On November 16, 1984, petitioner sent respondents a
letter informing them that the properties could be
reacquired by negotiated sale for cash or
installment. 13 Three days later, however, on
November 19, 1984, the properties were sold through
negotiated sale to one Emelita A. Peralta.
Respondents were informed of the sale by petitioner
through a letter dated December 6, 1984. CIAcSa
On the same day, petitioner executed a deed of
conditional sale in favor of Peralta. 14 On December
11, 1984, respondents offered to repurchase the
properties from petitioner but they had already been
sold to Peralta. 15
Respondents then filed a complaint for recovery of
real properties and damages on July 18, 1985 in the
Regional Trial Court (RTC) of Lingayen, Pangasinan,
Branch 39 against petitioner and Peralta. 16 The RTC
rendered judgment dated September 17, 1991 in
favor of respondents.
The trial court found that there was no demand for
payment prior to the extrajudicial foreclosure. Thus,
the foreclosure proceedings were null and void. It
ordered Peralta to reconvey the properties to
respondents subject to Peralta's right to be paid by
respondents the amount of P104,000 in consideration
of such reconveyance. It also held that petitioner did
not deal fairly with respondents making it liable for
nominal and moral damages to the latter. The RTC
further ordered petitioner to pay respondents
attorney's fees and litigation expenses.
On appeal, the CA affirmed the RTC but decreased
the amount of nominal damages from P75,000 to
P50,000. 17
Hence this petition. 18
The main issues to be resolved are the following:
1)whether a demand for payment
of the loans was made
before the mortgage
was foreclosed;
2)whether demand is necessary
to make respondents
guilty of default;
3)whether or not respondents are
liable for the deficiency
claim of petitioner and
4)whether or not petitioner is
liable for damages.
The issue of whether demand was made before the
foreclosure was effected is essential. If demand was
made and duly received by the respondents and the
latter still did not pay, then they were already in
default and foreclosure was proper. However, if
demand was not made, then the loans had not yet
become due and demandable. This meant that
respondents had not defaulted in their payments and
the foreclosure by petitioner was premature.
Foreclosure is valid only when the debtor is in default
in the payment of his obligation. 19
Whether or not demand was made is a question of
fact. In petitions for review on certiorari under Rule
45, only questions of law may be raised by the parties
and passed upon by this Court. 20 Factual findings of
the trial court, when adopted and confirmed by the
CA, are binding and conclusive on this Court and will
generally not be reviewed on appeal.21 Inquiry into
the veracity of the CA's factual findings and
conclusions is not the function of the Supreme Court
for the Court is not a trier of facts. 22 Neither is it our
function to re-examine and weigh anew the respective
evidence of the parties. 23 While this Court has
recognized several exceptions to this rule, 24 none of
these exceptions finds application here.
Both the CA and RTC found that demand was never
made. No compelling reason whatsoever has been
shown by petitioner for this Court to review and
reverse the trial court's findings and conclusions, as
affirmed by the CA.
Petitioner asserts that demand was unnecessary
because the maturity dates of all loans were
specified, i.e., the notes expressly stated the specific
dates when the amortizations were to fall due. 25
We disagree.
Unless demand is proven, one cannot be held in
default. 26 Petitioner's cause of action did not accrue
on the maturity dates stated in the promissory notes.
It is only when demand to pay is made and
subsequently refused that respondents can be
considered in default and petitioner obtains the right
to file an action to collect the debt or foreclose the
mortgage. 27 As we held in China Banking
Corporation v. Court of Appeals: 28
Well-settled is the rule that since
a cause of action requires, as
essential elements, not only a
legal right of the plaintiff and a
correlative duty of the defendant
but also "an act or omission of
the defendant in violation of said
legal right," the cause of action
does not accrue until the party
obligated refuses, expressly or
impliedly, to comply with its duty.
Otherwise stated, a cause of
action has three elements, to wit,
(1) a right in favor of the plaintiff
by whatever means and under
whatever law it arises or is
created; (2) an obligation on the
part of the named defendant to
respect or not to violate such
right; and (3) an act or omission
on the part of such defendant
violative of the right of the plaintiff
or constituting a breach of the
obligation of the defendant to the
plaintiff.
It bears stressing that it is only
when the last element occurs that
a cause of action arises.
Accordingly, a cause of action on
a written contract accrues only
when an actual breach or
violation thereof occurs. EHTADa
Applying the foregoing principle
to the instant case, we rule that
private respondent's cause of
action accrued only on July 20,
1995, when its demand for
payment of the Home Notes
was refused by petitioner. It
was only at that time, and not
before that, when the written
contract was breached and
private respondent could properly
file an action in court.
The cause of action cannot be
said to accrue on the uniform
maturity date of the Home
Notes as petitioner posits
because at that point, the third
essential element of a cause of
action, namely, an act or
omission on the part of
petitioner violative of the right
of private respondent or
constituting a breach of the
obligation of petitioner to
private respondent, had not yet
occurred.29 (emphasis supplied)
The acceleration clause of the promissory notes
stated that "[i]n case of non-payment of this note or
any portion of iton demand, when due, on account of
this note, the entire obligation shall become due and
demandable . . . ." 30Hence, the maturity dates only
indicate when payment can be demanded. It is the
refusal to pay after demand that gives the creditor a
cause of action against the debtor.
Since demand, which is necessary to make
respondents guilty of default, was never made on
respondents, the CA and RTC correctly ruled that the
foreclosure was premature and therefore null and
void.
In arguing that the foreclosure was valid, petitioner
also avers that respondents are estopped from
questioning the validity of the foreclosure sale since
they offered to repurchase the foreclosed
properties. 31 We are not persuaded. The reason why
respondents offered to repurchase the properties was
clearly stated in their letter to petitioner:
I am very much interested in
repurchasing back these
properties because they are the
only properties which my family
have and because our house is
located inside this property and
for this matter I am willing to pay
[for] these properties in cash
which I already told the bank
when I went there. 32

Besides, we have already ruled that an offer to
repurchase should not be construed as a waiver
of the right to question the sale. 33 Instead, it
must be taken as an intention to avoid further
litigation and thus is in the nature of an offer to
compromise. 34 By offering to redeem the
properties, respondents can attain their ultimate
objective: to pay off their debt and regain
ownership of their lands. 35
Moreover, it was petitioner, in its November 16, 1984
letter, which informed respondents that the properties
were available for sale. Respondents merely took up
petitioner's offer for them to reacquire their properties.
Petitioner assigns as error the failure of the CA to rule
on its deficiency claim. It alleged that the price the
mortgaged property was sold for (P104,000) was less
than the amount of respondents' indebtedness
(P131,642.33), thus it is entitled to claim the
difference (P27,642.33) with interest. Respondents
cannot be held liable for the deficiency claim. While it
is true that in extrajudicial foreclosure of mortgage,
the mortgagee has the right to recover the deficiency
from the debtor, 36 this presupposes that the
foreclosure must first be valid. 37
The last issue is whether the award of moral and
nominal damages, expenses of litigation and
attorney's fees is proper. Crucial to the determination
of the propriety of the award of damages are the
findings of the RTC, which were affirmed by the CA,
on the matter of bad faith:
Apart from the precipitate
foreclosure proceedings, the
Court observes that certain acts
of [petitioner] were most certainly
less than fair and less than
honest, which negates the
rehabilitation (prior name of the
bank) or development aspect or
purpose of [petitioner]. These
certainly caused serious anxiety
and wounded feelings to
[respondents]. They are:
FIRST. [Petitioner] granted a
loan of P4,700.00; then a second
loan of P12,000.00 re-structured
to P18,840.61; and a third loan of
P22,200.00, or a total of
P45,740.61 during the period
from September 1974 to October
2, 1975. Obviously, these loans
were granted because the market
value of the collaterals exceeds
P100,000.00 and [petitioner's]
appraisal value is more or less
P80,000.00. However, six (6)
years later, when the value must
have appreciated in terms of
pesos, the [petitioner] bidded for
a [measly] P16,000.00 and
[claimed] a deficiency. That it was
[measly] and shocking to the
conscience was conclusively
proven by the fact that [Peralta]
offered and did in fact buy the
properties for P104,000.00 barely
three (3) years later. To the mind
of the Court, the actuations of the
bank must have been revolting to
[respondents] and to honest men,
especially considering that
[petitioner] is a government
financial institution, capitalized
with the money of the people,
and created principally "to assist
agricultural producers . . . in
developing their farms . . . to
accelerate national progress",
more than to realize
profit. DACaTI
SECOND. [Respondents] are
simple-minded persons in the
country side. It strikes the court
as odd and certainly less than
candid WHY on AUGUST 6,
1979, [petitioner] restructured the
second loan which will mature
on May 1980, but did not
restructure the first loan which
was due to mature on September
23, 1979 or barely one month
hence. It appears that the result
lulled [respondents] into a false
sense of security and a feeling of
relief that the entire loan
accommodation will mature in
1985. And then like a bolt of
lightning from a clear sky,
[respondents] were hit with
[foreclosure] proceedings,
causing them to suffer sleepless
nights.
THIRD. A letter dated
November 16, 1984 was
addressed to [respondents]
informing them practically that
they are given the priority to
recover their properties by
negotiated sale. And yet before
the letter was sent, or on
November 14, 1984 the
[petitioner] had already
negotiated with [Peralta] for the
latter to buy the assets for
P104,000.00 in installment and
as a matter of fact the Contract
for Conditional Sale was
executed on November 19, 1984
even before the letter was
received by [respondents].
[Heart-rending] was the plea of
[respondents] which we quote:
"I am very much
interested in
repurchasing back these
properties because they
are the only properties
which my family have
and because our house
is located inside this
property and for this
matter I am willing
to pay [for] these
properties in cash which
I already told the bank
when I went there."
(underscoring supplied)
Nevertheless, such supplications
fell on deaf ears and did not even
merit sympathy from a heartless
[petitioner]. At the very least, the
letter of 16 November 1984 was
a very bad joke gleefully made in
bad taste and foisted on the
hapless [respondents]. It added
insult to injury.
And to top it all, [petitioner] even
has the temerity to allege in
paragraph 2 of its compulsory
counterclaim "that as of
November 7, 1984 the total
obligations of [respondents] on
account of their loans with
[petitioner] amounted to
P131,642.33" and making a
deficiency claim of P27,642.33
plus daily interest of P9.61
beginning November 8, 1984
"which [respondents] are
allegedly still liable to pay the
[petitioner]". This is
unconscionable.
Certainly, there is abundant
evidence that the rights of
[respondents] have been violated
or invaded with unconcerned
ruthlessness by the
[petitioner]. 38
Both the RTC and CA found that there was factual
basis for the moral damages adjudged against
petitioner. They found that petitioner was guilty of bad
faith in its actuations against respondents. Again, this
is a factual matter binding and conclusive on this
Court:
It is settled that bad faith must be
duly proved and not merely
presumed. The existence of bad
faith, being a factual question,
and the Supreme Court not being
a trier of facts, the findings
thereon of the trial court as well
as of the Court of Appeals shall
not be disturbed on appeal and
are entitled to great weight and
respect. Said findings are final
and conclusive upon the
Supreme Court except, inter alia,
where the findings of the Court of
Appeals and the trial court are
contrary to each other. 39
The lower court also found that respondents'
property rights were invaded or
violated, 40 hence the grant of nominal damages
was also proper. aIAEcD
Respondents are likewise entitled to the award of
attorney's fees and expenses of litigation since the
premature foreclosure by petitioner compelled them to
incur expenses to protect their interest. 41
WHEREFORE, we hereby AFFIRM the decision of
the Court of Appeals in CA-G.R. CV No. 37784.
Costs against petitioner.
SO ORDERED.
Puno, C.J., Sandoval-Gutierrez and Garcia,
JJ., concur.
Azcuna, J., is on official leave.
FIRST DIVISION
[G.R. No. 115129. February 12, 1997.]
IGNACIO
BARZAGA, petitioner, vs.
COURT OF APPEALS and
ANGELITO
ALVIAR, respondents.
Franco L. Loyola for petitioners.
Monsod Valencia and Associates for private
respondent.
SYLLABUS
1.CIVIL LAW; OBLIGATION AND CONTRACTS;
EFFECT OF OBLIGATIONS; A PARTY GUILTY OF
NEGLIGENCE AND DELAY IN THE
PERFORMANCE OF HIS CONTRACTUAL
OBLIGATION IS LIABLE FOR DAMAGES. An
assiduous scrutiny of the record convinces us that
respondent Angelito Alviar was negligent and incurred
in delay in the performance of his contractual
obligation. This sufficiently entitles petitioner Ignacio
Barzaga to be indemnified for the damage he suffered
as a consequence of delay or a contractual breach.
The law expressly provides that those who in the
performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
2.ID.; ID.; ID.; ID.; THE ARGUMENT THAT THE
INVOICES NEVER INDICATED A SPECIFIC
DELIVERY TIME MUST FALL IN THE FACE OF THE
POSITIVE VERBAL COMMITMENT OF
RESPONDENT'S STOREKEEPER; CASE AT BAR.
Contrary to the appellate court's factual
determination, there was a specific time agreed upon
for the delivery materials to the cemetery. Petitioner
went to private respondent's store on 21 December
precisely to inquire if the materials he intended to
purchase could be delivered immediately. But he was
told by the storekeeper that if there were still
deliveries to be made that afternoon his order would
be delivered the following day. With this in mind
Barzaga decided to buy the construction materials the
following morning after he was assured of immediate
delivery according to his time frame. The argument
that the invoices never indicated a specific delivery
time must fall in the face of the positive verbal
commitment of respondent's storekeeper.
Consequently it was no longer necessary to indicate
in the invoices the exact time the purchased items
were to be brought to the cemetery. In fact,
storekeeper Boncales admitted that it was her custom
not to indicate the time of delivery whenever she
prepared invoices.
3.ID.; ID.; ID.; ID.; THE DELIBERATE
SUPPRESSION OF MATERIAL INFORMATION BY
ITSELF MANIFESTS A CERTAIN DEGREE OF BAD
FAITH. One piece of testimony by respondent's
witness Marina Boncales has caught our attention
that the delivery truck arrived a little late than usual
because it came from a delivery of materials in
Langcaan, Dasmarias, Cavite. Significantly, this
information was withheld by Boncales from petitioner
when the latter was negotiating with her for the
purchase of construction materials. Consequently, it is
not unreasonable to suppose that had she told
petitioner of this fact and that the delivery of the
materials would consequently be delayed, petitioner
would not have bought the materials from
respondent's hardware store but elsewhere which
would meet his time requirement. The deliberate
suppression of this information by itself manifests a
certain degree of bad faith on the part of respondent's
storekeeper.
4.ID.; ID.; ID.; ID.; CASE AT BAR; A CASE OF NON-
PERFORMANCE OF A RECIPROCAL OBLIGATION.
This case is clearly one of non-performance of a
reciprocal obligation. In their contract of purchase and
sale, petitioner had already complied fully with what
was required of him as purchaser, i.e., the payment of
the purchase price of P2,110.00. It was incumbent
upon respondent to immediately fulfill his obligation to
deliver the goods otherwise delay would attach.
5.ID.; DAMAGES; AWARD OF MORAL DAMAGES;
SUSTAINED. We sustain the award of moral
damages. It cannot be denied that petitioner and his
family suffered wounded feelings, mental anguish and
serious anxiety while keeping watch on Christmas day
over the remains of their loved one who could not be
laid to rest on the date she herself had chosen. There
is no gainsaying the inexpressible pain and sorrow
Ignacio Barzaga and his family bore at that moment
caused no less by the ineptitude, cavalier behavior
and bad faith of respondent and his employees in the
performance of an obligation voluntarily entered into.
6.ID.; ID.; GROSS NEGLIGENCE IN THE
FULFILLMENT OF ONE'S BUSINESS
OBLIGATIONS ENTITLES THE AGGRIEVED PARTY
TO EXEMPLARY DAMAGES. We also affirm the
grant of exemplary damages. The lackadaisical and
feckless attitude of the employees of respondent over
which he exercised supervisory authority indicates
gross negligence in the fulfillment of his business
obligations. Respondent Alviar and his employees
should have exercised fairness and good judgment in
dealing with petitioner who was then grieving over the
loss of his wife. Instead of commiserating with him,
respondent and his employees contributed to
petitioner's anguish by causing him to bear the agony
resulting from his inability to fulfill his wife's dying
wish.
7.ID.; ID.; TEMPERATE DAMAGES; MAY NOT BE
AWARDED IN CASES WHERE THE AMOUNT OF
PECUNIARY LOSSES, BY THEIR VERY NATURE,
COULD BE ESTABLISHED WITH CERTAINTY.
We delete the award of temperate damages. Under
Art. 2224 of the Civil Code, temperate damages are
more than nominal but less than compensatory, and
may be recovered when the court finds that some
pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with
certainty. In this case, the trial court found that plaintiff
suffered damages in the form of wages for the hired
workers for 22 December 1990 and expenses
incurred during the extra two (2) days of the wake.
The record however does not show that petitioner
presented proof of the actual amount of expenses he
incurred which seems to be the reason the trial court
awarded to him temperate damages instead. This is
an erroneous application of the concept of temperate
damages. While petitioner may have indeed suffered
pecuniary losses, these by their very nature could be
established with certainty by means of payment
receipts.
8.ID.; ID.; ACTUAL OR COMPENSATORY
DAMAGES; PARTY'S FAILURE TO PROVE ACTUAL
EXPENDITURE CONDUCES TO A FAILURE OF HIS
CLAIM. Petitioner's claim falls unequivocally within
the realm of actual or compensatory damages.
However, his failure to prove actual expenditure
consequently conduces to a failure of his claim. For in
determining actual damages, the court cannot rely on
mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and
on the best evidence obtainable regarding the actual
amount of loss.
D E C I S I O N
BELLOSILLO, J p:
The Fates ordained that Christmas 1990 be bleak for
Ignacio Barzaga and his family. On the nineteenth of
December Ignacio's wife succumbed to a debilitating
ailment after prolonged pain and suffering.
Forewarned by her attending physicians of her
impending death, she expressed her wish to be laid to
rest before Christmas day to spare her family from
keeping lonely vigil over her remains while the whole
of Christendom celebrate the Nativity of their
Redeemer.
Drained to the bone from the tragedy that befell his
family yet preoccupied with overseeing the wake for
his departed wife, Ignacio Barzaga set out to arrange
for her interment on the twenty-fourth of December in
obedience semper fidelisto her dying wish. But her
final entreaty, unfortunately, could not be carried out.
Dire events conspired to block his plans that forthwith
gave him and his family their gloomiest Christmas
ever.
This is Barzaga's story. On 21 December 1990, at
about three o'clock in the afternoon, he went to the
hardware store of respondent Angelito Alviar to
inquire about the availability of certain materials to be
used in the construction of a niche for his wife. He
also asked if the materials could be delivered at once.
Marina Boncales, Alviar's storekeeper, replied that
she had yet to verify if the store had pending
deliveries that afternoon because if there were then
all subsequent purchases would have to be delivered
the following day. With that reply petitioner left.
At seven o' clock the following morning, 22
December, Barzaga returned to Alviar's hardware
store to follow up his purchase of construction
materials. He told the store employees that the
materials he was buying would have to be delivered
at the Memorial Cemetery in Dasmarias, Cavite, by
eight o'clock that morning since his hired workers
were already at the burial site and time was of the
essence. Marina Boncales agreed to deliver the items
at the designated time, date and place. With this
assurance, Barzaga purchased the materials and paid
in full the amount of P2,110.00. Thereafter he joined
his workers at the cemetery, which was only a
kilometer away, to await the delivery.
The construction materials did not arrive at eight
o'clock as promised. At nine o' clock, the delivery was
still nowhere in sight. Barzaga returned to the
hardware store to inquire about the delay. Boncales
assured him that although the delivery truck was not
yet around it had already left the garage and that as
soon as it arrived the materials would be brought over
to the cemetery in no time at all. That left petitioner no
choice but to rejoin his workers at the memorial park
and wait for the materials.
By ten o'clock, there was still no delivery. This
prompted petitioner to return to the store to inquire
about the materials. But he received the same answer
from respondent's employees who even cajoled him
to go back to the burial place as they would just follow
with his construction materials.
After hours of waiting which seemed interminable
to him Barzaga became extremely upset. He
decided to dismiss his laborers for the day. He
proceeded to the police station, which was just
nearby, and lodged a complaint against Alviar. He
had his complaint entered in the police blotter. When
he returned again to the store he saw the delivery
truck already there but the materials he purchased
were not yet ready for loading. Distressed that Alviar's
employees were not the least concerned, despite his
impassioned pleas, Barzaga decided to cancel his
transaction with the store and look for construction
materials elsewhere.

In the afternoon of that day, petitioner was able to buy
from another store. But since darkness was already
setting in and his workers had left, he made up his
mind to start his project the following morning, 23
December. But he knew that the niche would not be
finished in time for the scheduled burial the following
day. His laborers had to take a break on Christmas
Day and they could only resume in the morning of the
twenty-sixth. The niche was completed in the
afternoon and Barzaga's wife was finally laid to rest.
However, it was two-and-a-half (2-1/2) days behind
schedule.
On 21 January 1991, tormented perhaps by his
inability to fulfill his wife's dying wish, Barzaga wrote
private respondent Alviar demanding recompense for
the damage he suffered. Alviar did not respond.
Consequently, petitioner sued him before the
Regional Trial Court. 1
Resisting petitioner's claim, private respondent
contended that legal delay could not be validly
ascribed to him because no specific time of delivery
was agreed upon between them. He pointed out that
the invoices evidencing the sale did not contain any
stipulation as to the exact time of delivery and that
assuming that the materials were not delivered within
the period desired by petitioner, the delivery truck
suffered a flat tire on the way to the store to pick up
the materials. Besides, his men were ready to make
the delivery by ten-thirty in the morning of 22
December but petitioner refused to accept them.
According to Alviar, it was this obstinate refusal of
petitioner to accept delivery that caused the delay in
the construction of the niche and the consequent
failure of the family to inter their loved one on the
twenty-fourth of December, and that, if at all, it was
petitioner and no other who brought about all his
personal woes. cda
Upholding the proposition that respondent incurred in
delay in the delivery of the construction materials
resulting in undue prejudice to petitioner, the trial
court ordered respondent Alviar to pay petitioner (a)
P2,110.00 as refund for the purchase price of the
materials with interest per annum computed at the
legal rate from the date of the filing of the complaint,
(b) P5,000.00 as temperate damages, (c) P20,000.00
as moral damages, (d) P5,000.00 as litigation
expenses, and (e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the
lower court and ruled that there was no contractual
commitment as to the exact time of delivery since this
was not indicated in the invoice receipts covering the
sale. 2
The arrangement to deliver the materials merely
implied that delivery should be made within a
reasonable time but that the conclusion that since
petitioner's workers were already at the graveyard the
delivery had to be made at that precise moment,
is non-sequitur. The Court of Appeals also held that
assuming that there was delay, petitioner still had
sufficient time to construct the tomb and hold his
wife's burial as she wished.
We sustain the trial court. An assiduous scrutiny of
the record convinces us that respondent Angelito
Alviar was negligent and incurred in delay in the
performance of his contractual obligation. This
sufficiently entitles petitioner Ignacio Barzaga to be
indemnified for the damage he suffered as a
consequence of delay or a contractual breach. The
law expressly provides that those who in the
performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for
damages. 3
Contrary to the appellate court's factual determination,
there was a specific time agreed upon for the delivery
of the materials to the cemetery. Petitioner went to
private respondent's store on 21 December precisely
to inquire if the materials he intended to purchase
could be delivered immediately. But he was told by
the storekeeper that if there were still deliveries to be
made that afternoon his order would be delivered the
following day. With this in mind Barzaga decided to
buy the construction materials the following morning
after he was assured of immediate delivery according
to his time frame. The argument that the invoices
never indicated a specific delivery time must fall in the
face of the positive verbal commitment of
respondent's storekeeper. Consequently it was no
longer necessary to indicate in the invoices the exact
time the purchased items were to be brought to the
cemetery. In fact, storekeeper Boncales admitted that
it was her custom not to indicate the time of delivery
whenever she prepared invoices. 4
Private respondent invokes fortuitous event as his
handy excuse for that "bit of delay" in the delivery of
petitioner's purchases. He maintains that Barzaga
should have allowed his delivery men a little more
time to bring the construction materials over to the
cemetery since a few hours more would not really
matter and considering that his truck had a flat tire.
Besides, according to him, Barzaga still had sufficient
time to build the tomb for his wife.
This is a gratuitous assertion that borders on
callousness. Private respondent had no right to
manipulate petitioner's timetable and substitute it with
his own. Petitioner had a deadline to meet. A few
hours of delay was no piddling matter to him who in
his bereavement had yet to attend to other pressing
family concerns. Despite this, respondent's
employees still made light of his earnest importunings
for an immediate delivery. As petitioner bitterly
declared in court " . . . they (respondent's employees)
were making a fool out of me." 5
We also find unacceptable respondent's justification
that his truck had a flat tire, for this event, if indeed it
happened, was foreseeable according to the trial
court, and as such should have been reasonably
guarded against. The nature of private respondent's
business requires that he should be ready at all times
to meet contingencies of this kind. One piece of
testimony by respondent's witness Marina Boncales
has caught our attention that the delivery truck
arrived a little late than usual because it came from a
delivery of materials in Langcaan, Dasmarias,
Cavite. 6 Significantly, this information was withheld
by Boncales from petitioner when the latter was
negotiating with her for the purchase of construction
materials. Consequently, it is not unreasonable to
suppose that had she told petitioner of this fact and
that the delivery of the materials would consequently
be delayed, petitioner would not have bought the
materials from respondent's hardware store but
elsewhere which could meet his time requirement.
The deliberate suppression of this information by itself
manifests a certain degree of bad faith on the part of
respondent's storekeeper.
The appellate court appears to have belittled
petitioner's submission that under the prevailing
circumstances time was of the essence in the delivery
of the materials to the grave site. However, we find
petitioner's assertion to be anchored on solid ground.
The niche had to be constructed at the very least on
the twenty-second of December considering that it
would take about two (2) days to finish the job if the
interment was to take place on the twenty-fourth of
the month. Respondent's delay in the delivery of the
construction materials wasted so much time that
construction of the tomb could start only on the
twenty-third. It could not be ready for the scheduled
burial of petitioner's wife. This undoubtedly prolonged
the wake, in addition to the fact that work at the
cemetery had to be put off on Christmas day.
This case is clearly one of non-performance of a
reciprocal obligation. 7 In their contract of purchase
and sale, petitioner had already complied fully with
what was required of him as purchaser, i.e., the
payment of the purchase price of P2,110.00. It was
incumbent upon respondent to immediately fulfill his
obligation to deliver the goods otherwise delay would
attach.
We therefore sustain the award of moral damages. It
cannot be denied that petitioner and his family
suffered wounded feelings, mental anguish and
serious anxiety while keeping watch on Christmas day
over the remains of their loved one who could not be
laid to rest on the date she herself had chosen. There
is no gainsaying the inexpressible pain and sorrow
Ignacio Barzaga and his family bore at that moment
caused no less by the ineptitude, cavalier behavior
and bad faith of respondent and his employees in the
performance of an obligation voluntarily entered into.
We also affirm the grant of exemplary damages. The
lackadaisical and feckless attitude of the employees
of respondent over which he exercised supervisory
authority indicates gross negligence in the fulfillment
of his business obligations. Respondent Alviar and his
employees should have exercised fairness and good
judgment in dealing with petitioner who was then
grieving over the loss of his wife. Instead of
commiserating with him, respondent and his
employees contributed to petitioner's anguish by
causing him to bear the agony resulting from his
inability to fulfill his wife's dying wish.
We delete however the award of temperate damages.
Under Art. 2224 of the Civil Code, temperate
damages are more than nominal but less than
compensatory, and may be recovered when the court
finds that some pecuniary loss has been suffered but
the amount cannot, from the nature of the case, be
proved with certainty. In this case, the trial court found
that plaintiff suffered damages in the form of wages
for the hired workers for 22 December 1990 and
expenses incurred during the extra two (2) days of the
wake. The record however does not show that
petitioner presented proof of the actual amount of
expenses he incurred which seems to be the reason
the trial court awarded to him temperate damages
instead. This is an erroneous application of the
concept of temperate damages. While petitioner may
have indeed suffered pecuniary losses, these by their
very nature could be established with certainty by
means of payment receipts. As such, the claim falls
unequivocally within the realm of actual or
compensatory damages. Petitioner's failure to prove
actual expenditure consequently conduces to a failure
of his claim. For in determining actual damages, the
court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on
competent proof and on the best evidence obtainable
regarding the actual amount of loss. 8
We affirm the award of attorney's fees and litigation
expenses. Award of damages, attorney's fees and
litigation costs is left to the sound discretion of the
court, and if such discretion be well exercised, as in
this case, it will not be disturbed on appeal. 9
WHEREFORE, the decision of the Court of Appeals is
REVERSED and SET ASIDE except insofar as it
GRANTED on a motion for reconsideration the refund
by private respondent of the amount of P2,110.00
paid by petitioner for the construction materials.
Consequently, except for the award of P5,000.00 as
temperate damages which we delete, the decision of
the Regional Trial Court granting petitioner (a)
P2,110.00 as refund for the value of materials with
interest computed at the legal rate per annum from
the date of the filing of the case; (b) P20,000.00 as
moral damages; (c) P10,000.00 as exemplary
damages; (d) P5,000.00 as litigation expenses; and
(4) P5,000.00 as attorney's fees, is AFFIRMED. No
costs.
SO ORDERED.
Padilla, Vitug, Kapunan, and Hermosisima, Jr.,
JJ., concur.
SECOND DIVISION
[G.R. No. 147324. May 25, 2004.]
PHILIPPINE
COMMUNICATIONS
SATELLITE
CORPORATION, petitioner, vs.
GLOBE TELECOM, INC.
(formerly and Globe Mckay
Cable and Radio
Corporation), respondents.
[G.R. No. 147334. May 25, 2004.]
GLOBE TELECOM,
INC., petitioner, vs. PHILIPPINE
COMMUNICATION SATELLITE
CORPORATION, respondent.
D E C I S I O N
TINGA, J p:
Before the Court are two Petitions for
Review assailing the Decision of the Court of
Appeals, dated 27 February 2001, in CA-G.R. CV No.
63619. 1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable
and Radio Corporation, now Globe Telecom, Inc.
(Globe), had been engaged in the coordination of the
provision of various communication facilities for the
military bases of the United States of America (US) in
Clark Air Base, Angeles, Pampanga and Subic Naval
Base in Cubi Point, Zambales. The said
communication facilities were installed and configured
for the exclusive use of the US Defense
Communications Agency (USDCA), and for security
reasons, were operated only by its personnel or those
of American companies contracted by it to operate
said facilities. The USDCA contracted with said
American companies, and the latter, in turn,
contracted with Globe for the use of the
communication facilities. Globe, on the other hand,
contracted with local service providers such as the
Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered into
an Agreement whereby Philcomsat obligated itself to
establish, operate and provide an IBS Standard B
earth station (earth station) within Cubi Point for the
exclusive use of the USDCA. 2 The term of the
contract was for 60 months, or five (5) years. 3 In
turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved. 4
At the time of the execution of the Agreement, both
parties knew that the Military Bases Agreement
between the Republic of the Philippines and the US
(RP-US Military Bases Agreement), which was the
basis for the occupancy of the Clark Air Base and
Subic Naval Base in Cubi Point, was to expire in
1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities,
which include those located at the US Naval Facility in
Cubi Point, shall not be allowed in the Philippines
unless a new treaty is duly concurred in by the Senate
and ratified by a majority of the votes cast by the
people in a national referendum when the Congress
so requires, and such new treaty is recognized as
such by the US Government.
Subsequently, Philcomsat installed and established
the earth station at Cubi Point and the USDCA made
use of the same.
On 16 September 1991, the Senate passed and
adopted Senate Resolution No. 141, expressing its
decision not to concur in the ratification of the Treaty
of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval
Base, among others. 5 The last two paragraphs of the
Resolution state:
FINDING that the Treaty
constitutes a defective framework
for the continuing relationship
between the two countries in the
spirit of friendship, cooperation
and sovereign equality: Now,
therefore, be it
Resolved by the Senate, as it is
hereby resolved, To express its
decision not to concur in the
ratification of the Treaty of
Friendship, Cooperation and
Security and its Supplementary
Agreements, at the same time
reaffirming its desire to continue
friendly relations with the
government and people of the
United States of America. 6
On 31 December 1991, the Philippine Government
sent a Note Verbale to the US Government through
the US Embassy, notifying it of the Philippines'
termination of the RP-US Military Bases Agreement.
The Note Verbale stated that since the RP-US Military
Bases Agreement, as amended, shall terminate on 31
December 1992, the withdrawal of all US military
forces from Subic Naval Base should be completed
by said date.
In a letter dated 06 August 1992, Globe notified
Philcomsat of its intention to discontinue the use of
the earth station effective 08 November 1992 in view
of the withdrawal of US military personnel from Subic
Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the
letter of termination Section 8 (Default) of the
Agreement, which provides: aTDcAH
Neither party shall be held liable
or deemed to be in default for any
failure to perform its obligation
under this Agreement if such
failure results directly or indirectly
from force majeure or fortuitous
event. Either party is thus
precluded from performing its
obligation until such force
majeure or fortuitous event shall
terminate. For the purpose of this
paragraph, force majeure shall
mean circumstances beyond the
control of the party involved
including, but not limited to, any
law, order, regulation, direction or
request of the Government of the
Philippines, strikes or other labor
difficulties, insurrection riots,
national emergencies, war, acts
of public enemies, fire, floods,
typhoons or other catastrophies
or acts of God.
Philcomsat sent a reply letter dated 10 August 1992
to Globe, stating that "we expect [Globe] to know its
commitment to pay the stipulated rentals for the
remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station
after November 08, 1992." 7 Philcomsat referred to
Section 7 of the Agreement, stating as follows:
7.DISCONTINUANCE OF
SERVICE
Should [Globe] decide to
discontinue with the use of the
earth station after it has been put
into operation, a written notice
shall be served to PHILCOMSAT
at least sixty (60) days prior to
the expected date of termination.
Notwithstanding the non-use of
the earth station, [Globe] shall
continue to pay PHILCOMSAT
for the rental of the actual
number of T1 circuits in use, but
in no case shall be less than the
first two (2) T1 circuits, for the
remaining life of the agreement.
However, should PHILCOMSAT
make use or sell the earth station
subject to this agreement, the
obligation of [Globe] to pay the
rental for the remaining life of the
agreement shall be at such
monthly rate as may be agreed
upon by the parties. 8
After the US military forces left Subic Naval Base,
Philcomsat sent Globe a letter dated 24 November
1993 demanding payment of its outstanding
obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorney's fees.
However, Globe refused to heed Philcomsat's
demand.
On 27 January 1995, Philcomsat filed with the
Regional Trial Court of Makati a Complaint against
Globe, praying that the latter be ordered to pay
liquidated damages under the Agreement, with legal
interest, exemplary damages, attorney's fees and
costs of suit. The case was raffled to Branch 59 of
said court.
Globe filed an Answer to the Complaint, insisting that
it was constrained to end the Agreement due to the
termination of the RP-US Military Bases Agreement
and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation, which events
constituted force majeure under the Agreement.
Globe explained that the occurrence of said events
exempted it from paying rentals for the remaining
period of the Agreement.
On 05 January 1999, the trial court rendered
its Decision, the dispositive portion of which reads:
WHEREFORE, premises
considered, judgment is hereby
rendered as follows:
1.Ordering the
defendant to
pay the plaintiff
the amount of
Ninety Two
Thousand Two
Hundred Thirty
Eight US
Dollars
(US$92,238.00
) or its
equivalent in
Philippine
Currency
(computed at
the exchange
rate prevailing
at the time of
compliance or
payment)
representing
rentals for the
month of
December
1992 with
interest thereon
at the legal rate
of twelve
percent (12%)
per annum
starting
December
1992 until the
amount is fully
paid;
2.Ordering the
defendant to
pay the plaintiff
the amount of
Three Hundred
Thousand
(P300,000.00)
Pesos as and
for attorney's
fees;
3.Ordering the
DISMISSAL of
defendant's
counterclaim
for lack of
merit; and
4.With costs against the
defendant.
SO ORDERED. 9
Both parties appealed the trial court's Decision to the
Court of Appeals.
Philcomsat claimed that the trial court erred in ruling
that: (1) the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its
obligations under the Agreement; (2) Globe is not
liable to pay the rentals for the remainder of the term
of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC
erred in holding it liable for payment of rent of the
earth station for December 1992 and of attorney's
fees. It explained that it terminated Philcomsat's
services on 08 November 1992; hence, it had no
reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals
promulgated its Decision dismissing Philcomsat's
appeal for lack of merit and affirming the trial court's
finding that certain events constituting force
majeure under Section 8 the Agreement occurred and
justified the non-payment by Globe of rentals for the
remainder of the term of the Agreement. CcaDHT
The appellate court ruled that the non-ratification by
the Senate of the Treaty of Friendship, Cooperation
and Security, and its Supplementary Agreements, and
the termination by the Philippine Government of the
RP-US Military Bases Agreement effective 31
December 1991 as stated in the Philippine
Government's Note Verbale to the US Government,
are acts, directions, or requests of the Government of
the Philippines which constitute force majeure. In
addition, there were circumstances beyond the control
of the parties, such as the issuance of a formal order
by Cdr. Walter Corliss of the US Navy, the issuance
of the letter notification from ATT and the complete
withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the
earth station under the Agreement.

However, the Court of Appeals ruled that although
Globe sought to terminate Philcomsat's services by
08 November 1992, it is still liable to pay rentals for
the December 1992, amounting to US$92,238.00 plus
interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only
on 31 December 1992. 10
Both parties filed their respective Petitions for
Review assailing the Decision of the Court of
Appeals.
In G.R. No. 147324, 11 petitioner Philcomsat raises
the following assignments of error:
A.THE HONORABLE COURT
OF APPEALS ERRED
IN ADOPTING A
DEFINITION
OF FORCE
MAJEUREDIFFERENT
FROM WHAT ITS
LEGAL DEFINITION
FOUND IN ARTICLE
1174 OF THE CIVIL
CODE, PROVIDES, SO
AS TO EXEMPT
GLOBE TELECOM
FROM COMPLYING
WITH ITS
OBLIGATIONS UNDER
THE SUBJECT
AGREEMENT.
B.THE HONORABLE COURT
OF APPEALS ERRED
IN RULING THAT
GLOBE TELECOM IS
NOT LIABLE TO
PHILCOMSAT FOR
RENTALS FOR THE
REMAINING TERM OF
THE AGREEMENT,
DESPITE THE CLEAR
TENOR OF SECTION 7
OF THE AGREEMENT.
C.THE HONORABLE COURT
OF APPEALS ERRED
IN DELETING THE
TRIAL COURT'S
AWARD OF
ATTORNEY'S FEES IN
FAVOR OF
PHILCOMSAT.
D.THE HONORABLE COURT
OF APPEALS ERRED
IN RULING THAT
GLOBE TELECOM IS
NOT LIABLE TO
PHILCOMSAT FOR
EXEMPLARY
DAMAGES. 12
Philcomsat argues that the termination of the RP-US
Military Bases Agreement cannot be considered a
fortuitous event because the happening thereof was
foreseeable. Although the Agreement was freely
entered into by both parties, Section 8 should be
deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view
that the validity of the parties' definition of force
majeure in Section 8 of the Agreement as
"circumstances beyond the control of the party
involved including, but not limited to, any law, order,
regulation, direction or request of the Government of
the Philippines, strikes or other labor difficulties,
insurrection riots, national emergencies, war, acts of
public enemies, fire, floods, typhoons or other
catastrophies or acts of God," should be deemed
subject to Article 1174 which defines fortuitous events
as events which could not be foreseen, or which,
though foreseen, were inevitable. 13
Philcomsat further claims that the Court of Appeals
erred in holding that Globe is not liable to pay for the
rental of the earth station for the entire term of the
Agreement because it runs counter to what was
plainly stipulated by the parties in Section 7 thereof.
Moreover, said ruling is inconsistent with the appellate
court's pronouncement that Globe is liable to pay
rentals for December 1992 even though it terminated
Philcomsat's services effective 08 November 1992,
because the US military and personnel completely
withdrew from Cubi Point only in December 1992.
Philcomsat points out that it was Globe which
proposed the five-year term of the Agreement, and
that the other provisions of the Agreement, such as
Section 4.1 14 thereof, evince the intent of Globe to
be bound to pay rentals for the entire five-year
term. 15
Philcomsat also maintains that contrary to the
appellate court's findings, it is entitled to attorney's
fees and exemplary damages. 16
In its Comment to Philcomsat's Petition, Globe
asserts that Section 8 of the Agreement is not
contrary to Article 1174 of the Civil Code because
said provision does not prohibit parties to a contract
from providing for other instances when they would be
exempt from fulfilling their contractual obligations.
Globe also claims that the termination of the RP-US
Military Bases Agreement constitutes force
majeure and exempts it from complying with its
obligations under the Agreement. 17On the issue of
the propriety of awarding attorney's fees and
exemplary damages to Philcomsat, Globe maintains
that Philcomsat is not entitled thereto because in
refusing to pay rentals for the remainder of the term of
the Agreement, Globe only acted in accordance with
its rights. 18
In G.R. No. 147334, 19 Globe, the petitioner therein,
contends that the Court of Appeals erred in finding it
liable for the amount of US$92,238.00, representing
rentals for December 1992, since Philcomsat's
services were actually terminated on 08 November
1992. 20
In its Comment, Philcomsat claims that Globe's
petition should be dismissed as it raises a factual
issue which is not cognizable by the Court in a
petition for review on certiorari. 21
On 15 August 2001, the Court issued
a Resolution giving due course to
Philcomsat's Petition in G.R. No. 147324 and required
the parties to submit their respective memoranda. 22
Similarly, on 20 August 2001, the Court issued
a Resolution giving due course to the Petition filed by
Globe in G.R. No.147334 and required both parties to
submit their memoranda. 23
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective
petitions.
The Court is tasked to resolve the following issues:
(1) whether the termination of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and
personnel from Cubi Point constitute force
majeure which would exempt Globe from complying
with its obligation to pay rentals under its Agreement
with Philcomsat; (2) whether Globe is liable to pay
rentals under the Agreement for the month of
December 1992; and (3) whether Philcomsat is
entitled to attorney's fees and exemplary damages.
No reversible error was committed by the Court of
Appeals in issuing the assailed Decision; hence the
petitions are denied.
There is no merit is Philcomsat's argument that
Section 8 of the Agreement cannot be given effect
because the enumeration of events constituting force
majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.
In support of its position, Philcomsat contends that
under Article 1174 of the Civil Code, an event must be
unforeseen in order to exempt a party to a contract
from complying with its obligations therein. It insists
that since the expiration of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from
Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they
entered into the Agreement, such events cannot
exempt Globe from performing its obligation of paying
rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from
liability on account of fortuitous events or force
majeure, refers not only to events that are
unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases
specified by the law, or when it is
otherwise declared by stipulation,
or when the nature of the
obligation requires the
assumption of risk, no person
shall be responsible for those
events which, could not be
foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either be an
"act of God," or natural occurrences such as floods or
typhoons,24 or an "act of man," such as riots, strikes
or wars. 25
Philcomsat and Globe agreed in Section 8 of the
Agreement that the following events shall be deemed
events constituting force majeure:
1.Any law, order, regulation,
direction or request of
the Philippine
Government; TIDHCc
2.Strikes or other labor
difficulties;
3.Insurrection;
4.Riots;
5.National emergencies;
6.War;
7.Acts of public enemies;
8.Fire, floods, typhoons or other
catastrophies or acts of
God;
9.Other circumstances beyond
the control of the
parties.
Clearly, the foregoing are either unforeseeable, or
foreseeable but beyond the control of the parties.
There is nothing in the enumeration that runs contrary
to, or expands, the concept of a fortuitous event under
Article 1174.
Furthermore, under Article 1306 26 of the Civil Code,
parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem fit,
as long as the same do not run counter to the law,
morals, good customs, public order or public
policy. 27
Article 1159 of the Civil Code also provides that
"[o]bligations arising from contracts have the force of
law between the contracting parties and should be
complied with in good faith." 28 Courts cannot
stipulate for the parties nor amend their agreement
where the same does not contravene law, morals,
good customs, public order or public policy, for to do
so would be to alter the real intent of the parties, and
would run contrary to the function of the courts to give
force and effect thereto. 29
Not being contrary to law, morals, good customs,
public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed
upon has the force of law between them. 30
In order that Globe may be exempt from non-
compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements
must be established: (1) the event must be
independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the
obligation in a normal manner; and (3) the obligor
must be free of participation in, or aggravation of, the
injury to the creditor. 31
The Court agrees with the Court of Appeals and the
trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had
no control over the non-renewal of the term of the RP-
US Military Bases Agreement when the same expired
in 1991, because the prerogative to ratify the treaty
extending the life thereof belonged to the Senate.
Neither did the parties have control over the
subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992:

Obviously the non-ratification by
the Senate of the RP-US Military
Bases Agreement (and its
Supplemental Agreements) under
its Resolution No. 141. (Exhibit
"2") on September 16, 1991 is
beyond the control of the parties.
This resolution was followed by
the sending on December 31,
1991 o[f] a "Note Verbale"
(Exhibit "3") by the Philippine
Government to the US
Government notifying the latter of
the former's termination of the
RP-US Military Bases Agreement
(as amended) on 31 December
1992 and that accordingly, the
withdrawal of all U.S. military
forces from Subic Naval Base
should be completed by said
date. Subsequently, defendant
[Globe] received a formal order
from Cdr. Walter F. Corliss II
Commander USN dated July 31,
1992 and a notification from ATT
dated July 29, 1992 to terminate
the provision of T1s services (via
an IBS Standard B Earth Station)
effective November 08, 1992.
Plaintiff [Philcomsat] was
furnished with copies of the said
order and letter by the defendant
on August 06, 1992.
Resolution No. 141 of the
Philippine Senate and the Note
Verbale of the Philippine
Government to the US
Government are acts, direction or
request of the Government of the
Philippines and circumstances
beyond the control of the
defendant. The formal order from
Cdr. Walter Corliss of the USN,
the letter notification from ATT
and the complete withdrawal of
all the military forces and
personnel from Cubi Point in the
year-end 1992 are also acts and
circumstances beyond the control
of the defendant.
Considering the foregoing, the
Court finds and so holds that the
afore-narrated circumstances
constitute "force majeure or
fortuitous event(s) as defined
under paragraph 8 of the
Agreement.
xxx xxx xxx
From the foregoing, the Court
finds that the defendant is
exempted from paying the rentals
for the facility for the remaining
term of the contract.
As a consequence of the
termination of the RP-US Military
Bases Agreement (as amended)
the continued stay of all US
Military forces and personnel
from Subic Naval Base would no
longer be allowed, hence, plaintiff
would no longer be in any
position to render the service it
was obligated under the
Agreement. To put it blantly (sic),
since the US military forces and
personnel left or withdrew from
Cubi Point in the year end
December 1992, there was no
longer any necessity for the
plaintiff to continue maintaining
the IBS facility . . .32 (Emphasis
in the original.)
The aforementioned events made impossible the
continuation of the Agreement until the end of its five-
year term without fault on the part of either party. The
Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe
exempt from payment of rentals for the remainder of
the term of the Agreement. SEIDAC
Moreover, it would be unjust to require Globe to
continue paying rentals even though Philcomsat
cannot be compelled to perform its corresponding
obligation under the Agreement. As noted by the
appellate court:
We also point out the sheer
inequity of PHILCOMSAT's
position. PHILCOMSAT would
like to charge GLOBE rentals for
the balance of the lease term
without there being any
corresponding
telecommunications service
subject of the lease. It will be
grossly unfair and iniquitous to
hold GLOBE liable for lease
charges for a service that was not
and could not have been
rendered due to an act of the
government which was clearly
beyond GLOBE's control. The
binding effect of a contract on
both parties is based on the
principle that the obligations
arising from contracts have the
force of law between the
contracting parties, and there
must be mutuality between them
based essentially on their
equality under which it is
repugnant to have one party
bound by the contract while
leaving the other party free
therefrom (Allied Banking
Corporation v. Court of Appeals,
284 SCRA 357) . . . 33
With respect to the issue of whether Globe is liable for
payment of rentals for the month of December 1992,
the Court likewise affirms the appellate court's ruling
that Globe should pay the same.
Although Globe alleged that it terminated the
Agreement with Philcomsat effective 08 November
1992 pursuant to the formal order issued by Cdr.
Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the
Agreement was not established during the
trial. 34 However, the trial court found that the US
military forces and personnel completely withdrew
from Cubi Point only on 31 December 1992. 35 Thus,
until that date, the USDCA had control over the earth
station and had the option of using the same.
Furthermore, Philcomsat could not have removed or
rendered ineffective said communication facility until
after 31 December 1992 because Cubi Point was
accessible only to US naval personnel up to that time.
Hence, the Court of Appeals did not err when it
affirmed the trial court's ruling that Globe is liable for
payment of rentals until December 1992.
Neither did the appellate court commit any error in
holding that Philcomsat is not entitled to attorney's
fees and exemplary damages.
The award of attorney's fees is the exception rather
than the rule, and must be supported by factual, legal
and equitable justifications. 36 In previously decided
cases, the Court awarded attorney's fees where a
party acted in gross and evident bad faith in refusing
to satisfy the other party's claims and compelled the
former to litigate to protect his rights;37 when the
action filed is clearly unfounded, 38 or where moral or
exemplary damages are awarded. 39 However, in
cases where both parties have legitimate claims
against each other and no party actually prevailed,
such as in the present case where the claims of both
parties were sustained in part, an award of attorney's
fees would not be warranted. 40
Exemplary damages may be awarded in cases
involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. 41 In the present
case, it was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsat's demands for
payment of rentals. It was established during the trial
of the case before the trial court that Globe had valid
grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of
merit. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
Quisumbing, Austria-Martinez and Callejo, Sr.,
JJ ., concur.
Puno, J ., is on official leave.
SECOND DIVISION
[G.R. No. 124922. June 22, 1998.]
JIMMY CO, doing business
under the name & style
DRAGON METAL
MANUFACTURING,petitioner, vs
. COURT OF APPEALS and
BROADWAY MOTOR SALES
CORPORATION,respondents.
Lorenzo G. Parungao for petitioner.
Samson S. Alcantara for private respondent.
SYNOPSIS
On July 18, 1990, petitioner entrusted his car to
private respondent for some repair including battery
replacement, the latter undertaking to return the
vehicle on July 21, 1990 fully serviced and supplied in
accordance with the job contract. But came July 21,
1990, the latter could not release the vehicle as its
battery was weak and was not yet replaced. Left with
no option, petitioner himself bought a new battery
nearby and delivered it to private respondent for
installation on the same day. However, the battery
was not installed and the delivery of the car was
rescheduled to July 24, 1990. When petitioner sought
to reclaim his car in the afternoon of July 24, 1990, he
was told that it was carnapped earlier that morning
while being road-tested by an employee of private
respondent.
The RTC, in a suit for damages filed by petitioner
against private respondent, found the latter guilty of
delay in the performance of its obligation and held it
liable to petitioner for the value of the lost vehicle and
its accessories plus interest and attorney's fees. On
appeal, the Court of Appeals reversed the lower
court's ruling. It ruled that the vehicle was lost due to
a fortuitous event. Hence this petition for review.
In reversing the Court of Appeals, the Supreme Court
held that carnapping per se cannot be considered as
a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking
of another's property. It must be proved and
established that the event was an act of God or was
done solely by third parties and that neither the
claimant nor the person alleged to be negligent has
any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due
to a fortuitous event rests on him who invokes it. Even
assuming arguendo that carnapping was duly
established as a fortuitous event, still private
respondent cannot escape liability. Article 1165 of the
New Civil Code makes an obligor who is guilty of
delay responsible even for a fortuitous event until he
has effected the delivery.
SYLLABUS
1.REMEDIAL LAW; CIVIL PROCEDURE, PRE-
TRIAL; RULE THAT THE DETERMINATION OF
ISSUES AT PRE-TRIAL CONFERENCE BARS THE
CONSIDERATION OF OTHER ISSUES ON APPEAL,
INAPPLICABLE IN CASE AT BAR. Contrary to the
CA's pronouncement, the rule that the determination
of issues at a pre-trial conference bars the
consideration of other issues on appeal, except those
that may involve privilege or impeaching matter, is
inapplicable to this case. The question of delay,
though not specifically mentioned as an issue at the
pre-trial may be tackled by the court considering that
it is necessarily intertwined and intimately connected
with the principal issue agreed upon by the
parties, i.e., who will bear the loss and whether there
was negligence. Petitioner's imputation of negligence
to private respondent is premised on delay which is
the very basis of the former's complaint. Thus, it was
unavoidable for the court to resolve the case,
particularly the question of negligence without
considering whether private respondent was guilty of
delay in the performance of its obligation. aDACcH
2.ID.; EVIDENCE; BURDEN OF PROOF; RESTS ON
HIM WHO INVOKES FORTUITOUS EVENT. It is a
not a defense for a repair shop of motor vehicles to
escape liability simply because the damage or loss of
a thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered
as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the
mere forceful taking of another's property. It must be
proved and established that the event was an act of
God or was done solely by third parties and that
neither the claimant nor the person alleged to be
negligent has any participation. In accordance with
the Rules of evidence, the burden of proving that the
loss was due to a fortuitous event rests on him who
invokes it which in this case is the private
respondent. However, other than the police report of
the alleged carnapping incident, no other evidence
was presented by private respondent to the effect that
the incident was not due to its fault. A police report of
an alleged crime, to which only private respondent is
privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the
part of private respondent notwithstanding the parties'
agreement at the pre-trial that the car was carnapped.
Carnapping does not foreclose the possibility of fault
or negligence on the part of private respondent.
3.CIVIL LAW; OBLIGATIONS AND CONTRACT; AN
OBLIGOR GUILTY OF DELAY IS RESPONSIBLE
EVEN FOR A FORTUITOUS EVENT UNTIL HE HAS
EFFECTED DELIVERY. Even
assuming arguendo that carnapping was duly
established as a fortuitous event, still private
respondent cannot escape liability. Article 1165 of the
New Civil Code makes an obligor who is guilty of
delay responsible even for a fortuitous event until he
has effected the delivery. In this case, private
respondent was already in delay as it was supposed
to deliver petitioner's car three (3) days before it was
lost. Petitioner's agreement to the rescheduled
delivery does not defeat his claim as private
respondent had already breached its obligation.
Moreover, such occasion cannot be construed as
waiver of petitioner's right to hold private respondent
liable because the car was unusable and thus,
petitioner had no option but to leave it.
4.ID.; ID.; LEGAL PRESUMPTION THAT THE LOSS
OF A THING WAS DUE TO THE FAULT OF THE
ONE IN POSSESSION AT THE TIME OF THE LOSS.
Assuming further that there was no delay, still
working against private respondent is the legal
presumption under Article 1265 that its possession of
the thing at the time it was lost was due to its fault.
This presumption is reasonable since he who has the
custody and care of the thing can easily explain the
circumstances of the loss. The vehicle owner has no
duty to show that the repair shop was at fault. All that
petitioner needs to prove, as claimant, is the simple
fact that private respondent was in possession of the
vehicle at the time it was lost. In this case, private
respondent's possession at the time of the loss is
undisputed. Consequently, the burden shifts to the
possessor who needs to present controverting
evidence sufficient enough to overcome that
presumption. Moreover, the exempting circumstances
earthquake, flood, storm or other natural calamity
when the presumption of fault is not applicable do
not concur in this case. Accordingly, having failed to
rebut the presumption and since the case does not
fall under the exceptions, private respondent is
answerable for the loss.
5.ID.; ID.; REPAIR SHOPS ARE REQUIRED TO
SECURE AN INSURANCE POLICY COVERING THE
MOTOR VEHICLE ENTRUSTED FOR REPAIR;
VIOLATION OF THIS STATUTORY DUTY
CONSTITUTES NEGLIGENCE PER SE. It must
likewise be emphasized that pursuant to Articles 1174
and 1262 of the New Civil Code, liability attaches
even if the loss was due to a fortuitous event if "the
nature of the obligation requires the assumption of
risk." Carnapping is a normal business risk for those
engaged in the repair of motor vehicles. For just as
the owner is exposed to that risk so is the repair shop
since the car was entrusted to it. That is why, repair
shops are required to first register with the
Department of Trade and Industry (DTI) and to secure
an insurance policy for the "shop covering the
property entrusted by its customer for repair, service
or maintenance" as an pre-requisite for such
registration/accreditation. Violation of this statutory
duty constitutes negligence per se. Having taken
custody of the vehicle, private respondent is obliged
not only to repair the vehicle but must also provide the
customer with some form of security for his property
over which he losses immediate control. An owner
who cannot exercise the seven (7) juses or attributes
of ownership the right to possess, to use and
enjoy, to abuse or consume, to accessories, to
dispose or alienate, to recover or vindicate and to the
fruits is a crippled owner. Failure of the repair shop
to provide security to a motor vehicle owner would
leave the latter at the mercy of the former. Moreover,
on the assumption that private respondent's repair
business is duly registered, it presupposes that its
shop is covered by insurance from which it may
recover the loss. If private respondent can recover
from its insurer, then it would be unjustly enriched if it
will not compensate petitioner to whom no fault can
be attributed. Otherwise, if the shop is not registered,
then the presumption of negligence applies.
6.ID.; ID.; LIABILITY OF REPAIR SHOP ON LOST
VEHICLES AND ACCESSORIES SHOULD BE
BASED ON ITS FAIR MARKET VALUE AT THE
TIME IT WAS ENTRUSTED OR SUCH VALUE AS
AGREED UPON SUBSEQUENT TO THE LOSS.
One last thing. With respect to the value of the lost
vehicle and its accessories for which the repair shop
is liable, it should be based on the fair market value
that the property would command at the time it was
entrusted to it or such other value as agreed upon by
the parties subsequent to the loss. Such recoverable
value is fair and reasonable considering that the value
of the vehicle depreciates. This value may be
recovered without prejudice to such other damages
that a claimant is entitled under applicable
laws. AECDHS
D E C I S I O N
MARTINEZ, J p:
On July 18, 1990, petitioner entrusted his Nissan pick-
up car 1988 model 1 to private respondent which is
engaged in the sale, distribution and repair of motor
vehicles for the following job repair services and
supply of parts:

Bleed injection pump and all
nozzles;
Adjust valve tappet;
Change oil and filter;
Open up and service four
wheel brakes, clean and
adjust;
Lubricate accelerator linkages;
Replace aircon belt; and
Replace battery 2
Private respondent undertook to return the vehicle on
July 21, 1990 fully serviced and supplied in
accordance with the job contract. After petitioner paid
in full the repair bill in the amount of
P1,397.00, 3 private respondent issued to him a gate
pass for the release of the vehicle on said date. But
came July 21, 1990, the latter could not release the
vehicle as its battery was weak and was not yet
replaced. Left with no option, petitioner himself bought
a new battery nearby and delivered it to private
respondent for installation on the same day. However,
the battery was not installed and the delivery of the
car was rescheduled to July 24, 1990 or three (3)
days later. When petitioner sought to reclaim his car
in the afternoon of July 24, 1990, he was told that it
was carnapped earlier that morning while being road-
tested by private respondent's employee along Pedro
Gil and Perez Streets in Paco, Manila. Private
respondent said that the incident was reported to the
police.
Having failed to recover his car and its accessories or
the value thereof, petitioner filed a suit for damages
against private respondent anchoring his claim on the
latter's alleged negligence. For its part, private
respondent contended that it has no liability because
the car was lost as a result of a fortuitous event the
carnapping. During pre-trial, the parties agreed that:
"(T)he cost of the Nissan Pick-up
four (4) door when the plaintiff
purchased it from the defendant
is P332,500.00 excluding
accessories which were installed
in the vehicle by the plaintiff
consisting of four (4) brand new
tires, magwheels, stereo speaker,
amplifier which amount all in all to
P20,000.00. It is agreed that the
vehicle was lost on July 24, 1990
'approximately two (2) years and
five (5) months from the date of
the purchase'. It was agreed that
the plaintiff paid the defendant
the cost of service and repairs as
early as July 21, 1990 in the
amount of P1,397.00 which
amount was received and duly
receipted by the defendant
company. It was also agreed that
the present value of a brand new
vehicle of the same type at this
time is P425,000.00 without
accessories." 4
They likewise agreed that the sole issue for trial was
who between the parties shall bear the loss of the
vehicle which necessitates the resolution of whether
private respondent was indeed negligent. 5 After trial,
the court a quo found private respondent guilty of
delay in the performance of its obligation and held it
liable to petitioner for the value of the lost vehicle and
its accessories plus interest and attorney's fees. 6 On
appeal, the Court of Appeals (CA) reversed the ruling
of the lower court and ordered the dismissal of
petitioner's damage suit. 7 The CA ruled that: (1) the
trial court was limited to resolving the issue of
negligence as agreed during pre-trial; hence it cannot
pass on the issue of delay; and (2) the vehicle was
lost due to a fortuitous event.
In a petition for review to this Court, the principal
query raised is whether a repair shop can be held
liable for the loss of a customer's vehicle while the
same is in its custody for repair or other job services?
The Court resolves the query in favor of the customer.
First, on the technical aspect involved. Contrary to the
CA's pronouncement, the rule that the determination
of issues at a pre-trial conference bars the
consideration of other issues on appeal, except those
that may involve privilege or impeaching matter, 8 is
inapplicable to this case. The question of delay,
though not specifically mentioned as an issue at the
pre-trial may be tackled by the court considering that
it is necessarily intertwined and intimately connected
with the principal issue agreed upon by the parties,
i.e. who will bear the loss and whether there was
negligence. Petitioner's imputation of negligence to
private respondent is premised on delay which is the
very basis of the former's complaint. Thus, it was
unavoidable for the court to resolve the case,
particularly the question of negligence without
considering whether private respondent was guilty of
delay in the performance of its obligation.
On the merits. It is a not a defense for a repair shop of
motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per
se cannot be considered as a fortuitous event. The
fact that a thing was unlawfully and forcefully taken
from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a
fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking
of another's property. It must be proved and
established that the event was an act of God or was
done solely by third parties and that neither the
claimant nor the person alleged to be negligent has
any participation. 9 In accordance with the Rules of
evidence, the burden of proving that the loss was due
to a fortuitous event rests on him who invokes it 10
which in this case is the private respondent. However,
other than the police report of the alleged carnapping
incident, no other evidence was presented by private
respondent to the effect that the incident was not due
to its fault. A police report of an alleged crime, to
which only private respondent is privy, does not
suffice to establish the carnapping. Neither does it
prove that there was no fault on the part of private
respondent notwithstanding the parties' agreement at
the pre-trial that the car was carnapped. Carnapping
does not foreclose the possibility of fault or
negligence on the part of private respondent.
Even assuming arguendo that carnapping was duly
established as a fortuitous event, still private
respondent cannot escape liability. Article 1165 11 of
the New Civil Code makes an obligor who is guilty of
delay responsible even for a fortuitous event until he
has effected the delivery. In this case, private
respondent was already in delay as it was supposed
to deliver petitioner's car three (3) days before it was
lost. Petitioner's agreement to the rescheduled
delivery does not defeat his claim as private
respondent had already breached its obligation.
Moreover, such accession cannot be construed as
waiver of petitioner's right to hold private respondent
liable because the car was unusable and thus,
petitioner had no option but to leave it.
Assuming further that there was no delay, still working
against private respondent is the legal presumption
under Article 1265 that its possession of the thing at
the time it was lost was due to its fault. 12 This
presumption is reasonable since he who has the
custody and care of the thing can easily explain the
circumstances of the loss. The vehicle owner has no
duty to show that the repair shop was at fault. All that
petitioner needs to prove, as claimant, is the simple
fact that private respondent was in possession of the
vehicle at the time it was lost. In this case, private
respondent's possession at the time of the loss is
undisputed. Consequently, the burden shifts to the
possessor who needs to present controverting
evidence sufficient enough to overcome that
presumption. Moreover, the exempting circumstances
earthquake, flood, storm or other natural calamity
when the presumption of fault is not
applicable 13 do not concur in this case. Accordingly,
having failed to rebut the presumption and since the
case does not fall under the exceptions, private
respondent is answerable for the loss.
It must likewise be emphasized that pursuant
to Articles 1174 and 1262 of the New Civil Code,
liability attaches even if the loss was due to a
fortuitous event if "the nature of the obligation requires
the assumption of risk". 14 Carnapping is a normal
business risk for those engaged in the repair of motor
vehicles. For just as the owner is exposed to that risk
so is the repair shop since car was entrusted to it.
That is why, repair shops are required to first register
with the Department of Trade and Industry
(DTI) 15 and to secure an insurance policy for the
"shop covering the property entrusted by customer for
repair, service or maintenance" as a pre-requisite for
such registration/accreditation. 16Violation of this
statutory duty constitutes negligence per
se. 17 Having taken custody of the vehicle, private
respondent is obliged not only to repair the vehicle but
must also provide the customer with some form of
security for his property over which he loses
immediate control. An owner who cannot exercise the
seven (7) juses or attributes of ownership the right
to possess, to use and enjoy, to abuse or consume, to
accessories, to dispose or alienate, to recover or
vindicate and to the fruits 18 is a crippled owner.
Failure of the repair shop to provide security to a
motor vehicle owner would leave the latter at the
mercy of the former. Moreover, on the assumption
that private respondent's repair business is duly
registered, it presupposes that its shop is covered by
insurance from which it may recover the loss. If
private respondent can recover from its insurer, then it
would be unjustly enriched if it will not compensate
petitioner to whom no fault can be attributed.
Otherwise, if the shop is not registered, then the
presumption of negligence applies.
One last thing. With respect to the value of the lost
vehicle and its accessories for which the repair shop
is liable, it should be based on the fair market value
that the property would command at the time it was
entrusted to it or such other value as agreed upon by
the parties subsequent to the loss. Such recoverable
value is fair and reasonable considering that the value
of the vehicle depreciates. This value may be
recovered without prejudice to such other damages
that a claimant is entitled under applicable laws.
WHEREFORE, premises considered, the decision of
the Court Appeals is REVERSED and SET ASIDE
and the decision of the court a quo is REINSTATED.
SO ORDERED.
Regalado, Puno and Mendoza, JJ ., concur.
Melo, J ., is on leave.
THIRD DIVISION
[G.R. No. 159617. August 8, 2007.]
ROBERTO C. SICAM and
AGENCIA de R.C. SICAM,
INC., petitioners, vs. LULU V.
JORGE and CESAR
JORGE, respondents.
D E C I S I O N
AUSTRIA-MARTINEZ, J p:
Before us is a Petition for Review on Certiorari filed by
Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia
de R.C. Sicam, Inc. (petitioner corporation) seeking to
annul the Decision 1 of the Court of Appeals dated
March 31, 2003, and its Resolution 2 dated August 8,
2003, in CA G.R. CV No. 56633. DcICEa
It appears that on different dates from September to
October 1987, Lulu V. Jorge (respondent Lulu)
pawned several pieces of jewelry with Agencia
de R.C. Sicam located at No. 17 Aguirre Ave., BF
Homes Paraaque, Metro Manila, to secure a loan in
the total amount of P59,500.00.
On October 19, 1987, two armed men entered the
pawnshop and took away whatever cash and jewelry
were found inside the pawnshop vault. The incident
was entered in the police blotter of the Southern
Police District, Paraaque Police Station as follows:
Investigation shows that at above
TDPO, while victims were inside
the office, two (2) male
unidentified persons entered into
the said office with guns drawn.
Suspects (sic) (1) went straight
inside and poked his gun toward
Romeo Sicam and thereby tied
him with an electric wire while
suspects (sic) (2) poked his gun
toward Divina Mata and Isabelita
Rodriguez and ordered them to
lay (sic) face flat on the floor.
Suspects asked forcibly the case
and assorted pawned jewelries
items mentioned above.
Suspects after taking the money
and jewelries fled on board a
Marson Toyota unidentified plate
number. 3
Petitioner Sicam sent respondent Lulu a letter dated
October 19, 1987 informing her of the loss of her
jewelry due to the robbery incident in the pawnshop.
On November 2, 1987, respondent Lulu then wrote a
letter 4 to petitioner Sicam expressing disbelief stating
that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the
pawnshop since it had been the practice that before
they could withdraw, advance notice must be given to
the pawnshop so it could withdraw the jewelry from
the bank. Respondent Lulu then requested petitioner
Sicam to prepare the pawned jewelry for withdrawal
on November 6, 1987 but petitioner Sicam failed to
return the jewelry.
On September 28, 1988, respondent Lulu joined by
her husband, Cesar Jorge, filed a complaint against
petitioner Sicam with the Regional Trial Court of
Makati seeking indemnification for the loss of pawned
jewelry and payment of actual, moral and exemplary
damages as well as attorney's fees. The case was
docketed as Civil Case No. 88-2035. DAEIHT
Petitioner Sicam filed his Answer contending that he
is not the real party-in-interest as the pawnshop was
incorporated on April 20, 1987 and known as Agencia
de R.C. Sicam, Inc; that petitioner corporation had
exercised due care and diligence in the safekeeping
of the articles pledged with it and could not be made
liable for an event that is fortuitous.
Respondents subsequently filed an Amended
Complaint to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss
as far as he is concerned considering that he is not
the real party-in-interest. Respondents opposed the
same. The RTC denied the motion in an Order dated
November 8, 1989. 5
After trial on the merits, the RTC rendered its
Decision 6 dated January 12, 1993, dismissing
respondents' complaint as well as petitioners'
counterclaim. The RTC held that petitioner Sicam
could not be made personally liable for a claim arising
out of a corporate transaction; that in the Amended
Complaint of respondents, they asserted that "plaintiff
pawned assorted jewelries in defendants' pawnshop";
and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or
credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation
could not be held liable for the loss of the pawned
jewelry since it had not been rebutted by respondents
that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by
armed robbery; that robbery is a fortuitous event
which exempts the victim from liability for the loss,
citing the case of Austria v. Court of Appeals; 7 and
that the parties' transaction was that of a pledgor and
pledgee and under Art. 1174 of the Civil Code, the
pawnshop as a pledgee is not responsible for those
events which could not be foreseen.
Respondents appealed the RTC Decision to the CA.
In a Decision dated March 31, 2003, the CA reversed
the RTC, the dispositive portion of which reads as
follows:
WHEREFORE, premises
considered, the instant Appeal is
GRANTED, and the Decision
dated January 12, 1993, of the
Regional Trial Court of Makati,
Branch 62, is hereby REVERSED
and SET ASIDE, ordering the
appellees to pay appellants the
actual value of the lost jewelry
amounting to P272,000.00, and
attorney' fees of
P27,200.00. 8 TAECaD
In finding petitioner Sicam liable together with
petitioner corporation, the CA applied the doctrine of
piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were
dealing with the pawnshop owned by petitioner Sicam
as all the pawnshop tickets issued to them bear the
words "Agencia de R.C. Sicam"; and that there was
no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which
explained why respondents had to amend their
complaint impleading petitioner corporation.
The CA further held that the corresponding diligence
required of a pawnshop is that it should take steps to
secure and protect the pledged items and should take
steps to insure itself against the loss of articles which
are entrusted to its custody as it derives earnings
from the pawnshop trade which petitioners failed to
do; that Austria is not applicable to this case since the
robbery incident happened in 1961 when the
criminality had not as yet reached the levels attained
in the present day; that they are at least guilty of
contributory negligence and should be held liable for
the loss of jewelries; and that robberies and hold-ups
are foreseeable risks in that those engaged in the
pawnshop business are expected to foresee.
The CA concluded that both petitioners should be
jointly and severally held liable to respondents for the
loss of the pawned jewelry.
Petitioners' motion for reconsideration was denied in a
Resolution dated August 8, 2003.
Hence, the instant petition for review with the
following assignment of errors:
THE COURT OF APPEALS
ERRED AND WHEN IT DID, IT
OPENED ITSELF TO
REVERSAL, WHEN IT
ADOPTED UNCRITICALLY (IN
FACT IT REPRODUCED AS ITS
OWN WITHOUT IN THE
MEANTIME ACKNOWLEDGING
IT) WHAT THE RESPONDENTS
ARGUED IN THEIR BRIEF,
WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS
ERRED, AND WHEN IT DID, IT
OPENED ITSELF TO
REVERSAL BY THIS
HONORABLE COURT, WHEN IT
AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT
ACKNOWLEDGING IT) THE
SUBMISSIONS OF THE
RESPONDENTS IN THEIR
BRIEF WITHOUT ADDING
ANYTHING MORE THERETO
DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE
RESPONDENTS COULD NOT
HAVE BEEN SUSTAINED IN
VIEW OF UNREBUTTED
EVIDENCE ON RECORD. 9
Anent the first assigned error, petitioners point out
that the CA's finding that petitioner Sicam is
personally liable for the loss of the pawned jewelries
is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants'
brief." 10
Petitioners argue that the reproduced arguments of
respondents in their Appellants' Brief suffer from
infirmities, as follows:
(1)Respondents conclusively
asserted in paragraph 2 of their
Amended Complaint that Agencia
de R.C. Sicam, Inc. is the present
owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA
cannot rule against said
conclusive assertion of
respondents;
(2)The issue resolved against
petitioner Sicam was not among
those raised and litigated in the
trial court; and
(3)By reason of the above
infirmities, it was error for the CA
to have pierced the corporate veil
since a corporation has a
personality distinct and separate
from its individual stockholders or
members. aSIETH
Anent the second error, petitioners point out that the
CA finding on their negligence is likewise an unedited
reproduction of respondents' brief which had the
following defects:
(1)There were unrebutted
evidence on record that
petitioners had observed the
diligence required of them, i.e,
they wanted to open a vault with
a nearby bank for purposes of
safekeeping the pawned articles
but was discouraged by the
Central Bank (CB) since CB rules
provide that they can only store
the pawned articles in a vault
inside the pawnshop premises
and no other place;
(2)Petitioners were adjudged
negligent as they did not take
insurance against the loss of the
pledged jewelries, but it is judicial
notice that due to high incidence
of crimes, insurance companies
refused to cover pawnshops and
banks because of high probability
of losses due to robberies;
(3)In Hernandez v. Chairman,
Commission on Audit (179 SCRA
39, 45-46), the victim of robbery
was exonerated from liability for
the sum of money belonging to
others and lost by him to robbers.
Respondents filed their Comment and petitioners filed
their Reply thereto. The parties subsequently
submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA
findings were exact reproductions of the arguments
raised in respondents' (appellants') brief filed with the
CA, we find the same to be not fatally infirmed. Upon
examination of the Decision, we find that it expressed
clearly and distinctly the facts and the law on which it
is based as required by Section 8, Article VIII of the
Constitution. The discretion to decide a case one way
or another is broad enough to justify the adoption of
the arguments put forth by one of the parties, as long
as these are legally tenable and supported by law and
the facts on records. 11

Our jurisdiction under Rule 45 of the Rules of Court is
limited to the review of errors of law committed by the
appellate court. Generally, the findings of fact of the
appellate court are deemed conclusive and we are
not duty-bound to analyze and calibrate all over again
the evidence adduced by the parties in the court a
quo. 12 This rule, however, is not without exceptions,
such as where the factual findings of the Court of
Appeals and the trial court are conflicting or
contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records,
we find no justification to absolve petitioner Sicam
from liability.
The CA correctly pierced the veil of the corporate
fiction and adjudged petitioner Sicam liable together
with petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a
shield to perpetrate fraud and/or confuse legitimate
issues. 14 The theory of corporate entity was not
meant to promote unfair objectives or otherwise to
shield them. 15
Notably, the evidence on record shows that at the
time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As
correctly observed by the CA, in all the pawnshop
receipts issued to respondent Lulu in September
1987, all bear the words "Agencia de R.C. Sicam,"
notwithstanding that the pawnshop was allegedly
incorporated in April 1987. The receipts issued after
such alleged incorporation were still in the name
of "Agencia deR.C. Sicam," thus inevitably
misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that
the pawnshop was owned solely by petitioner Sicam
and not by a corporation. SEDIaH
Even petitioners' counsel, Atty. Marcial T. Balgos, in
his letter 16 dated October 15, 1987 addressed to the
Central Bank, expressly referred to petitioner Sicam
as the proprietor of the pawnshop notwithstanding the
alleged incorporation in April 1987.
We also find no merit in petitioners' argument that
since respondents had alleged in their Amended
Complaint that petitioner corporation is the present
owner of the pawnshop, the CA is bound to decide
the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that
an admission, verbal or written, made by a party in
the course of the proceedings in the same case, does
not require proof. The admission may be contradicted
only by showing that it was made through palpable
mistake or that no such admission was made.
Thus, the general rule that a judicial admission is
conclusive upon the party making it and does not
require proof, admits of two exceptions, to wit: (1)
when it is shown that such admission was made
through palpable mistake, and (2) when it is shown
that no such admission was in fact made. The latter
exception allows one to contradict an admission
by denying that he made such an admission. 17
The Committee on the Revision of the Rules of Court
explained the second exception in this wise:
. . . if a party invokes an
"admission" by an adverse party,
but cites the admission "out of
context," then the one making the
"admission" may show that he
made no "such" admission,
or that his admission was
taken out of context.
. . . that the party can also
show that he made no "such
admission", i.e., not in the
sense in which the admission
is made to appear.
That is the reason for the modifier
"such" because if the rule simply
states that the admission may be
contradicted by showing that "no
admission was made," the rule
would not really be providing for a
contradiction of the admission but
just a denial. 18 (Emphasis
supplied).
While it is true that respondents alleged in their
Amended Complaint that petitioner corporation is the
present owner of the pawnshop, they did so only
because petitioner Sicam alleged in his Answer to the
original complaint filed against him that he was not
the real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and
petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed
to both the failure to observe due diligence
commensurate with the business which resulted in the
loss of their pawned jewelry. SACEca
Markedly, respondents, in their Opposition to
petitioners' Motion to Dismiss Amended Complaint,
insofar as petitioner Sicam is concerned, averred as
follows:
Roberto C. Sicam was named the
defendant in the original
complaint because the pawnshop
tickets involved in this case did
not show that the R.C. Sicam
Pawnshop was a corporation. In
paragraph 1 of his Answer, he
admitted the allegations in
paragraph 1 and 2 of the
Complaint. He merely added "that
defendant is not now the real
party in interest in this case."
It was defendant Sicam's
omission to correct the pawnshop
tickets used in the subject
transactions in this case which
was the cause of the instant
action. He cannot now ask for the
dismissal of the complaint against
him simply on the mere allegation
that his pawnshop business is
now incorporated. It is a matter of
defense, the merit of which can
only be reached after
consideration of the evidence to
be presented in due course. 19
Unmistakably, the alleged admission made in
respondents' Amended Complaint was taken "out
of context" by petitioner Sicam to suit his own
purpose. Ineluctably, the fact that petitioner
Sicam continued to issue pawnshop receipts
under his name and not under the corporation's
name militates for the piercing of the corporate
veil.
We likewise find no merit in petitioners' contention
that the CA erred in piercing the veil of corporate
fiction of petitioner corporation, as it was not an issue
raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with
the trial court that he was not the real party-in-interest
because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed
by petitioner Sicam, he submitted that as far as he
was concerned, the basic issue was whether he is the
real party in interest against whom the complaint
should be directed. 20 In fact, he subsequently moved
for the dismissal of the complaint as to him but was
not favorably acted upon by the trial court. Moreover,
the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this
manner:
. . . The defendant Roberto
Sicam, Jr. likewise denies liability
as far as he is concerned for the
reason that he cannot be made
personally liable for a claim
arising from a corporate
transaction. AaCEDS
This Court sustains the
contention of the defendant
Roberto C. Sicam, Jr. The
amended complaint itself asserts
that "plaintiff pawned assorted
jewelries in defendant's
pawnshop." It has been held that
" as a consequence of the
separate juridical personality of a
corporation, the corporate debt or
credit is not the debt or credit of
the stockholder, nor is the
stockholder's debt or credit that of
a corporation. 21
Clearly, in view of the alleged incorporation of the
pawnshop, the issue of whether petitioner Sicam is
personally liable is inextricably connected with the
determination of the question whether the doctrine of
piercing the corporate veil should or should not apply
to the case.
The next question is whether petitioners are liable for
the loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery
is a fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174.Except in cases
expressly specified by the law, or
when it is otherwise declared by
stipulation, or when the nature of
the obligation requires the
assumption of risk, no person
shall be responsible for those
events which could not be
foreseen or which, though
foreseen, were inevitable.
Fortuitous events by definition are extraordinary
events not foreseeable or avoidable. It is therefore,
not enough that the event should not have been
foreseen or anticipated, as is commonly believed but
it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not
impossibility to foresee the same. 22
To constitute a fortuitous event, the following
elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must
be independent of human will; (b) it must be
impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such
as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor
must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a
fortuitous event rests on him who invokes it. 24 And,
in order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned
the loss. 25
It has been held that an act of God cannot be invoked
to protect a person who has failed to take steps to
forestall the possible adverse consequences of such
a loss. One's negligence may have concurred with an
act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate
cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is
found to be partly the result of a person's participation
whether by active intervention, neglect or failure to
act the whole occurrence is humanized and
removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a
security guard in their pawnshop at the time of the
robbery. He likewise testified that when he started the
pawnshop business in 1983, he thought of opening a
vault with the nearby bank for the purpose of
safekeeping the valuables but was discouraged by
the Central Bank since pawned articles should only
be stored in a vault inside the pawnshop. The very
measures which petitioners had allegedly adopted
show that to them the possibility of robbery was not
only foreseeable, but actually foreseen and
anticipated. Petitioner Sicam's testimony, in effect,
contradicts petitioners' defense of fortuitous
event. acCITS

Moreover, petitioners failed to show that they were
free from any negligence by which the loss of the
pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a
fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v.
Court of Appeals, 27 the Court held:
It is not a defense for a repair
shop of motor vehicles to escape
liability simply because the
damage or loss of a thing lawfully
placed in its possession was due
to carnapping. Carnapping per se
cannot be considered as a
fortuitous event. The fact that a
thing was unlawfully and
forcefully taken from another's
rightful possession, as in
cases of carnapping, does not
automatically give rise to a
fortuitous event. To be
considered as such,
carnapping entails more than
the mere forceful taking of
another's property. It must be
proved and established that
the event was an act of God or
was done solely by third
parties and that neither the
claimant nor the person
alleged to be negligent has any
participation. In accordance
with the Rules of Evidence, the
burden of proving that the loss
was due to a fortuitous event
rests on him who invokes it
which in this case is the
private respondent. However,
other than the police report of the
alleged carnapping incident, no
other evidence was presented by
private respondent to the effect
that the incident was not due to
its fault. A police report of an
alleged crime, to which only
private respondent is privy, does
not suffice to establish the
carnapping. Neither does it prove
that there was no fault on the part
of private respondent
notwithstanding the parties'
agreement at the pre-trial that the
car was carnapped. Carnapping
does not foreclose the possibility
of fault or negligence on the part
of private respondent. 28
Just like in Co, petitioners merely presented the police
report of the Paraaque Police Station on the robbery
committed based on the report of petitioners'
employees which is not sufficient to establish robbery.
Such report also does not prove that petitioners were
not at fault.
On the contrary, by the very evidence of petitioners,
the CA did not err in finding that petitioners are guilty
of concurrent or contributory negligence as provided
in Article 1170 of the Civil Code, to wit:
Art. 1170.Those who in the
performance of their obligations
are guilty of fraud, negligence, or
delay, and those who in any
manner contravene the tenor
thereof, are liable for
damages. 29
Article 2123 of the Civil Code provides that with
regard to pawnshops and other establishments which
are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge,
mortgage and antichresis. aTHCSE
The provision on pledge, particularly Article 2099 of
the Civil Code, provides that the creditor shall take
care of the thing pledged with the diligence of a good
father of a family. This means that petitioners must
take care of the pawns the way a prudent person
would as to his own property.
In this connection, Article 1173 of the Civil Code
further provides:
Art. 1173.The fault or negligence
of the obligor consists in the
omission of that diligence which
is required by the nature of the
obligation and corresponds with
the circumstances of the persons,
of time and of the place. When
negligence shows bad faith, the
provisions of Articles 1171 and
2201, paragraph 2 shall apply.
If the law or contract does not
state the diligence which is to be
observed in the performance, that
which is expected of a good
father of a family shall be
required.
We expounded in Cruz v. Gangan 30 that negligence
is the omission to do something which a reasonable
man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do; or
the doing of something which a prudent and
reasonable man would not do. 31 It is want of care
required by the circumstances.
A review of the records clearly shows that petitioners
failed to exercise reasonable care and caution that an
ordinarily prudent person would have used in the
same situation. Petitioners were guilty of negligence
in the operation of their pawnshop business.
Petitioner Sicam testified, thus:
Court:
Q.Do you have security guards in
your pawnshop?
A.Yes, your honor.
Q.Then how come that the
robbers were able to
enter the premises when
according to you there
was a security guard?
A.Sir, if these robbers can rob a
bank, how much more a
pawnshop.
Q.I am asking you how were the
robbers able to enter
despite the fact that
there was a security
guard? TECIaH
A.At the time of the incident
which happened about
1:00 and 2:00 o'clock in
the afternoon and it
happened on a Saturday
and everything was
quiet in the area BF
Homes Paraaque they
pretended to pawn an
article in the pawnshop,
so one of my employees
allowed him to come in
and it was only when it
was announced that it
was a hold up.
Q.Did you come to know how the
vault was opened?
A.When the pawnshop is official
(sic) open your honor
the pawnshop is partly
open. The combination
is off.
Q.No one open (sic) the vault for
the robbers?
A.No one your honor it was open
at the time of the
robbery.
Q.It is clear now that at the time
of the robbery the vault
was open the reason
why the robbers were
able to get all the items
pawned to you inside
the vault.
A.Yes sir. 32
revealing that there were no security measures
adopted by petitioners in the operation of the
pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect
the pawnshop from unlawful intrusion. There was
no clear showing that there was any security
guard at all. Or if there was one, that he had
sufficient training in securing a pawnshop.
Further, there is no showing that the alleged
security guard exercised all that was necessary
to prevent any untoward incident or to ensure
that no suspicious individuals were allowed to
enter the premises. In fact, it is even doubtful that
there was a security guard, since it is quite
impossible that he would not have noticed that
the robbers were armed with caliber .45 pistols
each, which were allegedly poked at the
employees. 33 Significantly, the alleged security
guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners'
employees who were present during the robbery
incident testified in court.
Furthermore, petitioner Sicam's admission that the
vault was open at the time of robbery is clearly a proof
of petitioners' failure to observe the care, precaution
and vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was
open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took
place on a Saturday afternoon and the area in BF
Homes Paraaque at that time was quiet, there was
more reason for petitioners to have exercised
reasonable foresight and diligence in protecting the
pawned jewelries. Instead of taking the precaution to
protect them, they let open the vault, providing no
difficulty for the robbers to cart away the pawned
articles.
We, however, do not agree with the CA when it found
petitioners negligent for not taking steps to insure
themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374,
Rules and Regulations for Pawnshops, which took
effect on July 13, 1973, and which was issued
pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged
must be insured, to wit:
Sec. 17.Insurance of Office
Building and Pawns The place
of business of a pawnshop and
the pawns pledged to it must be
insured against fire and against
burglary as well as for the latter
(sic), by an insurance company
accredited by the Insurance
Commissioner.
However, this Section was subsequently amended by
CB Circular No. 764 which took effect on October 1,
1980, to wit:DTAIaH
Sec. 17Insurance of Office
Building and Pawns The office
building/premises and pawns of a
pawnshop must be
insured against fire. (emphasis
supplied).
where the requirement that insurance against
burglary was deleted. Obviously, the Central
Bank considered it not feasible to require
insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and
considering the above-quoted amendment, there is no
statutory duty imposed on petitioners to insure the
pawned jewelry in which case it was error for the CA
to consider it as a factor in concluding that petitioners
were negligent.
Nevertheless, the preponderance of evidence shows
that petitioners failed to exercise the diligence
required of them under the Civil Code.
The diligence with which the law requires the
individual at all times to govern his conduct varies
with the nature of the situation in which he is placed
and the importance of the act which he is to
perform. 34 Thus, the cases of Austria v. Court of
Appeals, 35 Hernandez v. Chairman, Commission on
Audit 36 and Cruz v. Gangan 37 cited by petitioners in
their pleadings, where the victims of robbery were
exonerated from liability, find no application to the
present case.
In Austria, Maria Abad received from Guillermo
Austria a pendant with diamonds to be sold on
commission basis, but which Abad failed to
subsequently return because of a robbery committed
upon her in 1961. The incident became the subject of
a criminal case filed against several persons. Austria
filed an action against Abad and her husband (Abads)
for recovery of the pendant or its value, but the Abads
set up the defense that the robbery extinguished their
obligation. The RTC ruled in favor of Austria, as the
Abads failed to prove robbery; or, if committed, that
Maria Abad was guilty of negligence. The CA,
however, reversed the RTC decision holding that the
fact of robbery was duly established and declared the
Abads not responsible for the loss of the jewelry on
account of a fortuitous event. We held that for the
Abads to be relieved from the civil liability of returning
the pendant under Art. 1174 of the Civil Code, it
would only be sufficient that the unforeseen event, the
robbery, took place without any concurrent fault on
the debtor's part, and this can be done by
preponderance of evidence; that to be free from
liability for reason of fortuitous event, the debtor must,
in addition to the casus itself, be free of any
concurrent or contributory fault or negligence. 38

We found in Austria that under the circumstances
prevailing at the time the Decision was promulgated in
1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that
rendered travel after nightfall a matter to be
sedulously avoided without suitable precaution and
protection; that the conduct of Maria Abad in returning
alone to her house in the evening carrying jewelry of
considerable value would have been negligence per
se and would not exempt her from responsibility in the
case of robbery. However we did not hold Abad liable
for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not
reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987
when robbery was already prevalent and petitioners in
fact had already foreseen it as they wanted to deposit
the pawn with a nearby bank for safekeeping.
Moreover, unlike in Austria, where no negligence was
committed, we found petitioners negligent in securing
their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and
special disbursing officer of the Ternate Beach Project
of the Philippine Tourism in Cavite. In the morning of
July 1, 1983, a Friday, he went to Manila to encash
two checks covering the wages of the employees and
the operating expenses of the project. However for
some reason, the processing of the check was
delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check
because the project employees would be waiting for
their pay the following day; otherwise, the workers
would have to wait until July 5, the earliest time, when
the main office would open. At that time, he had two
choices: (1) return to Ternate, Cavite that same
afternoon and arrive early evening; or (2) take the
money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the
following day. He chose the second option, thinking it
was the safer one. Thus, a little past 3 p.m., he took a
passenger jeep bound for Bulacan. While the jeep
was on Epifanio de los Santos Avenue, the jeep was
held up and the money kept by Hernandez was taken,
and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with
one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who
held the stolen money escaped. The Commission on
Audit found Hernandez negligent because he had not
brought the cash proceeds of the checks to his office
in Ternate, Cavite for safekeeping, which is the
normal procedure in the handling of funds. We held
that Hernandez was not negligent in deciding to
encash the check and bringing it home to Marilao,
Bulacan instead of Ternate, Cavite due to the
lateness of the hour for the following reasons: (1) he
was moved by unselfish motive for his co-employees
to collect their wages and salaries the following day, a
Saturday, a non-working, because to encash the
check on July 5, the next working day after July 1,
would have caused discomfort to laborers who were
dependent on their wages for sustenance; and (2)
that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the
trips to the two places, said decision seemed logical
at that time. We further held that the fact that two
robbers attacked him in broad daylight in the jeep
while it was on a busy highway and in the presence of
other passengers could not be said to be a result of
his imprudence and negligence. aSADIC
Unlike in Hernandez where the robbery happened in a
public utility, the robbery in this case took place in the
pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who
were allowed entrance to the premises and to protect
itself from unlawful intrusion. Petitioners had failed to
exercise precautionary measures in ensuring that the
robbers were prevented from entering the pawnshop
and for keeping the vault open for the day, which
paved the way for the robbers to easily cart away the
pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District
Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light
Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the
contents were stolen by an unidentified person.
Among those stolen were her wallet and the
government-issued cellular phone. She then reported
the incident to the police authorities; however, the
thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional
Director of TESDA, and she requested that she be
freed from accountability for the cellphone. The
Resident Auditor denied her request on the ground
that she lacked the diligence required in the custody
of government property and was ordered to pay the
purchase value in the total amount of P4,238.00. The
COA found no sufficient justification to grant the
request for relief from accountability. We reversed the
ruling and found that riding the LRT cannot per se be
denounced as a negligent act more so because
Cruz's mode of transit was influenced by time and
money considerations; that she boarded the LRT to
be able to arrive in Caloocan in time for her 3 pm
meeting; that any prudent and rational person under
similar circumstance can reasonably be expected to
do the same; that possession of a cellphone should
not hinder one from boarding the LRT coach as Cruz
did considering that whether she rode a jeep or bus,
the risk of theft would have also been present; that
because of her relatively low position and pay, she
was not expected to have her own vehicle or to ride a
taxicab; she did not have a government assigned
vehicle; that placing the cellphone in a bag away from
covetous eyes and holding on to that bag as she did
is ordinarily sufficient care of a cellphone while
traveling on board the LRT; that the records did not
show any specific act of negligence on her part and
negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case
happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly
demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the
Decision of the Court of Appeals dated March 31,
2003 and its Resolution dated August 8, 2003, are
AFFIRMED.
Costs against petitioners.
SO ORDERED.
Ynares-Santiago, Chico-Nazario and Nachura,
JJ., concur.
SECOND DIVISION
[G.R. No. 122195. July 23, 1998.]
NATIONAL POWER
CORPORATION, petitioner, vs.
COURT OF APPEALS and
DENNIS COO,respondents.
The Solicitor General for petitioner.
Segundo Y. Chua for private respondent.
SYNOPSIS
Private respondent Dennis Coo purchased six (6)
tons of assorted scrap aluminum wires and allied
accessories from the New Alloy Metal Company in
Manila. The goods, however, were seized by
elements of the 331st PC from Coos residence and
deposited in the PC headquarters. The PC Provincial
Commander filed a criminal complaint against Coo for
violation of the anti-fencing law. However, the
Investigating Fiscal dismissed it for insufficiency of
evidence. Upon representation of petitioner NPC, the
complaint was re-investigated, resulting in the filing of
an Information before the Regional Trial Court of
Bacolod City. The trial court rendered a decision
acquitting Coo on the ground that the wares belonged
to him. Notwithstanding this decision, petitioner got
the property from the PC Headquarters. Coo
demanded the return of the wares, which NPC
refused. Coo filed a complaint for replevin against
NPC and its officers. After trial, Coo was declared the
owner and possessor of the aluminum wires and
allied accessories. On appeal, the Court of Appeals
affirmed the trial courts decision with the modification
that the NPC's officers were absolved from any
liability in their personal capacity. NPC was ordered to
pay nominal damages and attorneys fees. NPC
moved for reconsideration but it was denied. Hence,
this petition for review on certiorari.
Anent the requirement that the personal property be
unlawfully detained by another not entitled to its
possession, it is to be remembered that petitioner
NPC was the complainant in the criminal case against
private respondent and, as such, knew of the decision
in the case. Because of the said decision, private
respondent Coo should have been given possession
of the subject property. However, petitioner NPC
refused to relinquish possession of the same after the
decision in the criminal case declaring Coo to be
owner of the goods. It is thus wrongfully withholding
possession of the property, thus entitling private
respondent to the writ of replevin. In view of the
foregoing, the contention that the Court of Appeals
erred in not awarding expenses of litigation and
attorneys fees in favor of petitioner NPC is clearly
without merit.
SYLLABUS
1.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT
OF THE COURT OF APPEALS; BINDING AND
CONCLUSIVE UPON THE SUPREME COURT, AS A
GENERAL RULE; EXCEPTION NOT PRESENT IN
CASE AT BAR. As a general rule, findings of fact
of the Court of Appeals are binding and conclusive
upon the Supreme Court, and the Court will not
normally disturb such factual findings unless the
findings of the court are palpably unsupported by the
evidence on record or unless the judgment itself is
based on a misapprehension of facts. The present
case not falling under the exceptions, the general rule
applies.
2.ID.; ID.; PREPONDERANCE OF EVIDENCE,
CONSTRUED. As against documents presented
by the private respondent and the judgment in the
criminal case acquitting him, the petitioner presented
only its employees whose testimonies consisted
merely of assumptions and opinions. By
preponderance of evidence is meant simply evidence
which is of greater weight, or more convincing than
that which is offered in opposition to it. Clearly, private
respondent Coo has provided evidence of greater
weight than the petitioner relevant to the
determination of who is entitled to the possession of
the subject property.
3.ID.; ACTION; REPLEVIN; NATURE THEREOF
CONSTRUED; CASE AT BAR. In a case for
replevin, it is sufficient that the plaintiff prove
entitlement to legal possession. It is not necessary to
prove ownership. It is worth stressing at this point,
that a suit for replevin is founded solely on the claim
that the defendant wrongfully withholds the property
sought to be recovered. It lies to recover possession
of personal chattels that are unlawfully detained. "To
detain" is defined as to mean "to hold or keep in
custody," and it has been held that there is tortious
taking whenever there is an unlawful meddling with
the property, or an exercise or claim of dominion over
it, without any pretense of authority or right; this,
without manual seizing of the property is sufficient.
Under the Rules of Court, it is indispensable in
replevin proceeding that the plaintiff must show by his
own affidavit that he is entitled to the possession of
property, that the property is wrongfully detained by
the defendant, alleging the cause of detention, that
the same has not been taken for tax assessment, or
seized under execution, or attachment, or if so seized,
that it is exempt from such seizure, and the actual
value of the property. A perusal of the way bill shows
that the consignee is private respondent. Hence, it is
sufficient to support the claim that private respondent
is entitled to a writ of replevin. It is evidence that he is
entitled to the possession of the property subject of
this case.
4.CIVIL LAW; DAMAGES; NOMINAL DAMAGES;
WHEN ENTITLED; CASE AT BAR. After private
respondent Coo had shown that he was entitled to
possession of the property, it became the duty of
petitioner to yield possession of the goods. Article
2221 of the Civil Code provides: Art. 2221. Nominal
damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any
loss suffered by him. Based on this provision,
petitioner is liable to private respondent for nominal
damages. Nor did the Court of Appeals err in
awarding attorney's fees to private respondent,
considering that petitioner's refusal to return the
property compelled private respondent to incur
expenses to protect his interest. Moreover, petitioner
acted in gross and evident bad faith in refusing to
satisfy private respondent's plainly valid, just, and
demandable claim.
D E C I S I O N
MENDOZA, J p:
Petitioner seeks a review of the decision 1 of the
Court of Appeals which affirmed with modification the
decision of the Regional Trial Court of Bacolod City,
Branch 51, and the subsequent resolution which
denied petitioner's motion for reconsideration. LLphil
It appears that on July 23, 1984, private respondent
Dennis Coo purchased six (6) tons of assorted scrap
aluminum wires and allied accessories from the New
Alloy Metal Company in Manila. The assorted goods
were shipped to Bacolod City and were there received
by Coo on July 30, 1984. However, the next day, July
31, 1984, the goods were seized by elements of the
331st PC from Coo's residence and deposited in the
PC headquarters. 2
On August 6, 1984, the PC Provincial Commander
filed a criminal complaint against Coo for violation of
the anti-fencing law. However, the Investigating Fiscal
dismissed it for insufficiency of evidence. 3 Upon
representation of petitioner NPC, the complaint was
re-investigated, 4 resulting in the filing of an
Information before the Regional Trial Court of Bacolod
City, Branch 48.
On August 23, 1985, the trial court rendered a
decision acquitting Coo on the ground that the wares
belonged to him. 5Notwithstanding this decision,
petitioner got the property from the PC
Headquarters. 6 Private respondent wrote petitioner
NPC demanding the return of the wares. Because of
petitioner's refusal to return the subject property,
private respondent Coo filed a complaint for replevin
against NPC and its officers in the Regional Trial
Court of Bacolod City. 7
After posting a surety bond for P120,000.00, Coo was
able to obtain possession of the seized items on
August 5, 1986. 8After trial, Coo was declared the
owner and possessor of the aluminum wires and
allied accessories. 9
On appeal, the Court of Appeals affirmed the trial
court's decision with the modification that Alfredo
Arzaga, Jr. and Zosimo Briones, NPC's Branch
Manager and NPC's officer-in-charge for Negros
Occidental, respectively, were absolved from any
liability in their personal capacity and the awards of
compensatory and moral damages were deleted.
Instead, NPC was ordered to pay nominal damages
and attorney's fees. 10
NPC moved for reconsideration but its motion was
denied. Hence, this petition for review on certiorari. 11
Petitioner contends that the Court of Appeals erred in
relying on the decision in the criminal case acquitting
Dennis Coo for its ruling that the aluminum conductor
wires in question belonged to him. Petitioner claims
that the acquittal was based on reasonable doubt
and, therefore, was not conclusive of the ownership of
the goods. On the other hand, according to petitioner,
the following facts support its claim that the aluminum
wires bought by Coo from the New Alloy Metal
Company were different from those seized by the PC
from Coo and delivered to NPC: 12
1.The sales invoice as well as the way bill submitted
by private respondent indicates that the assorted
scrap aluminum wires were delivered to private
respondent Coo's factory while the property seized by
the PC was found in Coo's residence.
2.The sales invoice covers only six (6) tons of scrap
aluminum wires while the property seized by the PC
weighs nine (9) tons.
3.The sales invoice only states "aluminum wires,"
while the property seized from Coo's residence
consisted not only of aluminum wires but included
transmission hardware as well.
4.The "fact" that in the entire Philippines only
petitioner NPC imports and uses aluminum conductor
wires rated 795 MCR ACSR and 336 MCR ACSR.
From these premises, NPC concludes that the
property seized by the PC and later turned over to it is
not the same as that covered by the sales invoice and
the way bill which private respondent presented in
court. 13 The Court of Appeals thus overlooked or
misapprehended the aforesaid material facts. 14

Petitioner also contends that although it may be
argued that private respondent uses aluminum wires
as raw materials in manufacturing kitchen utensils,
the business in which he is engaged, he has not
explained why he also purchased transmission line
hardware which his business obviously does not
need. It maintains that the aluminum conductor wires
and hardware were pilfered from its transmission
towers which had been blown down. 15
Private respondent denies petitioner's allegations and
argues that the issues raised by the petitioners are
factual and insubstantial.
We find the petition to be without merit.
First. It should be pointed out that the petitioner does
not dispute the value of the invoice and way bill either
here or in the court below. Neither does it question
their genuineness. What it questions is whether the
property subject of the case is the same property
covered by the said documents.
Petitioner calls attention to the fact that the goods
covered by the documents were delivered to private
respondent's warehouse, whereas the goods seized
by the PC were taken from his residence. 16 This
has, however, already been explained by Coo during
cross-examination 17 at the trial of the case: The
goods were moved to his residence because the
warehouse had already become overcrowded. In
addition, petitioner points out that the documents only
cover six (6) tons of scrap aluminum, while what was
seized weighed nine (9) tons. 18
In his Comment, private respondent Coo points out
that the receipt issued by the PC raiding team listed
the items seized from Coo as five (5) tons of assorted
aluminum conductor wires. 19
Indeed, the affidavit 20 of a member of the PC raiding
team, which is appended to the private respondent's
Rejoinder in this case, states that the property seized
weighed "about 5 tons." This has not been denied by
petitioner. Moreover, it is important to note that in the
stipulation of facts, both the petitioner and private
respondent agreed that the very same property
subject of the criminal case is the property subject of
the present civil case, without reference to its
weight. 21The records do not in fact show that this
question was ever raised in the court below. It was
only in the petitioner's Appellants-Brief 22 in the Court
of Appeals where such a question was raised.
Clearly, the records do not support the claim that the
property seized from private respondent's residence
weighed nine (9) tons. 23
Petitioner makes much of the fact that the documents
state "scrap aluminum" while the property seized
consisted of "aluminum conductor wires and
transmission hardware." 24 Thus, the invoice and way
bill show that they cover "Scrap asst. alum.
wire"/"Assorted Scrap alum. wires." 25 The word
"scrap" is defined as "manufactured articles or parts
rejected for imperfection or discarded because of
excessive wear or lack of demand and useful only as
raw material for reprocessing." 26 The term is broad
enough to cover different types of property as long as
they are rejected or discarded and useful only as raw
material for reprocessing. Indeed, the petitioner's own
witness, Rolando Bulfa, a property custodian of
petitioner, described the property turned over by the
PC to NPC as "all already broken." 27 Thus, the fact
that the documents describe the property as "scrap" is
consistent with the description given by petitioner's
own witness. It is of no moment that the seized
property consisted of aluminum wires and
transmission hardware. What is important is the
condition of the materials, that is, all broken up and
hence useful only as raw material for
reprocessing. cdrep
It should also be pointed out that it is common
practice for scrap material to be sold and bought by
lot. They are not normally bought sorted out. Hence, it
is quite possible that transmission hardware formed
part of the property sold to private respondent Coo. It
is not surprising that aluminum conductor wires are
attached to such hardware. As for the fact that the
documents refer specifically to said wires and not the
hardware, it is understandable since the wires were
the ones private respondent Coo primarily wanted to
buy from the establishment.
Lastly, petitioner points out that even if Coo claims the
property to be needed as raw material in the
manufacture of kitchen utensils, it cannot be argued
that transmission hardware would also be needed. 28
This is mere opinion. Moreover, as already pointed
out, it is a practice that scrap material is bought by lot.
Hence, assuming petitioner is correct that
transmission hardware is not needed in private
respondent's business, the fact that such type of ware
is found with the aluminum scrap wires seized from
private respondent's residence is not enough to find
that the subject property belonged to it and not to
private respondent.
As a general rule, findings of fact
of the Court of Appeals are
binding and conclusive upon the
Supreme Court, and the Court
will not normally disturb such
factual findings unless the
findings of the court are palpably
unsupported by the evidence on
record or unless the judgment
itself is based on a
misapprehension of facts.29
The present case not falling under the exceptions, the
general rule applies.
Petitioner claims to be the only entity in the
Philippines that imports and uses aluminum conductor
wires such as those subject of the present
controversy, 30 and that the purchase price for the
aluminum wires indicated in the invoice presented by
private respondent Coo was only P5.00 per kilo when
the going price for aluminum scrap during 1984 was
already P19.00 a kilo.
These are mere allegations of witnesses who are not
experts. They are not supported by any evidence. The
witnessescannot even state with certainty that the
property belongs to NPC . All they can say is that the
subject property issimilar to that used by petitioner
NPC in its power transmission lines.
Anent the claim that NPC has exclusive access to the
type of aluminum wires subject of the case, the Court
of Appeals found that the petitioner conducts public
biddings, 31 thus implying that petitioner does not
have exclusive access to the material in question.
The trial court correctly found that private respondent
Coo had proven by a preponderance of evidence that
he and not petitioner NPC is entitled to the
possession of the subject property. It pointed out that
while private respondent had consistently presented
his documentary evidence showing his purchase of
the property and its delivery to his residence,
petitioner merely relied on mere opinions and
assumptions unsupported by any concrete evidence.
It correctly observed that while there may be no
denying the fact that the petitioner may be using a
similar type of hardware as that involved in the
present case, no iota of evidence was ever presented
to show that the particular items involved in the case
belong to it. 32
As against documents presented by the private
respondent and the judgment in the criminal case
acquitting him, the petitioner presented only its
employees whose testimonies consisted merely of
assumptions and opinions.
By preponderance of evidence is
meant simply evidence which is
of greater weight, or more
convincing than that which is
offered in opposition to it. 33
Clearly, private respondent Coo has provided
evidence of greater weight than the petitioner
relevant to the determination of who is entitled to
the possession of the subject property.
At any rate, in a case for replevin, it is sufficient that
the plaintiff prove entitlement to legal possession. It is
not necessary to prove ownership.
It is worth stressing at this point,
that a suit for replevin is founded
solely on the claim that the
defendant wrongfully withholds
the property sought to be
recovered. It lies to recover
possession of personal chattels
that are unlawfully detained. "To
detain" is defined as to mean "to
hold or keep in custody," and it
has been held that there is
tortious taking whenever there is
an unlawful meddling with the
property, or an exercise or claim
of dominion over it, without any
pretense of authority or right; this,
without manual seizing of the
property is sufficient. Under the
Rules of Court, it is indispensable
in replevin proceeding that the
plaintiff must show by his own
affidavit that he is entitled to the
possession of property, that the
property is wrongfully detained by
the defendant, alleging the cause
of detention, that the same has
not been taken for tax
assessment, or seized under
execution, or attachment, or if so
seized, that it is exempt from
such seizure, and the actual
value of the property. 34
A perusal of the way bill shows that the consignee is
private respondent. Hence, it is sufficient to support
the claim that private respondent is entitled to a writ of
replevin. It is evidence that he is entitled to the
possession of the property subject of this case.
Anent the requirement that the personal property be
unlawfully detained by another not entitled to its
possession, it is to be remembered that petitioner
NPC was the complainant in the criminal case against
private respondent and, as such, knew of the decision
in the case. As a consequence of the said decision,
private respondent Coo should have been given
possession of the subject property. 35 However,
petitioner NPC refused to relinquish possession of the
same even after the decision in the criminal case
declaring Coo to be the owner of the goods. It is thus
wrongfully withholding possession of the property,
thus entitling private respondent to the writ of replevin.
Second. The petitioner also assigns as error
respondent Court of Appeals' order to pay respondent
Coo nominal damages and attorney's fees. Petitioner
contends that it cannot be held liable for damages
because the law requires that one be injured by a
wrongful act or omission of another in order to be
entitled to compensation. It argues that it was not
guilty of any wrongful act but that it was merely
exercising its legal right when it recovered possession
of the aluminum wires and the hardware. At any rate,
it is claimed, petitioner acted in good faith when it
refused to release the said property.36

As already discussed, after private respondent Coo
had shown that he was entitled to possession of the
property, it became the duty of petitioner to yield
possession of the goods. Article 2221 of the Civil
Code provides:
Art. 2221.Nominal damages are
adjudicated in order that a right of
the plaintiff, which has been
violated or invaded by the
defendant, may be vindicated or
recognized, and not for the
purpose of indemnifying the
plaintiff for any loss suffered by
him. LLjur
Based on this provision, petitioner is liable to
private respondent for nominal damages.
Nor did the Court of Appeals err in awarding
attorney's fees to private respondent, considering that
petitioner's refusal to return the property compelled
private respondent to incur expenses to protect his
interest. 37 Moreover, petitioner acted in gross and
evident bad faith in refusing to satisfy private
respondent's plainly valid, just, and demandable
claim.38
In view of the foregoing rulings, the contention that
the Court of Appeals erred in not awarding expenses
of litigation and attorney's fees in favor of petitioner
NPC is clearly without merit. 39
WHEREFORE, the decision dated March 28, 1995
and the resolution dated September 29, 1995 of the
Court of Appeals are AFFIRMED.
SO ORDERED.
Regalado, Melo, Puno and Martinez, JJ .,concur.
SECOND DIVISION
[G.R. No. L-44748. August 29, 1986.]
RADIO COMMUNICATIONS OF
THE PHILS., INC.
(RCPI), petitioner, vs. COURT
OF APPEALS and LORETO
DIONELA, respondents.
O. Pythogoras Oliver for respondents.
D E C I S I O N
PARAS, J p:
Before Us, is a Petition for Review by certiorari of the
decision of the Court of Appeals, modifying the
decision of the trial court in a civil case for recovery of
damages against petitioner corporation by reducing
the award to private respondent Loreto Dionela of
moral damages from P40,000 to P15,000, and
attorney's fees from P3,000 to P2,000.
The basis of the complaint against the defendant
corporation is a telegram sent through its Manila
Office to the offended party, Loreto Dionela, reading
as follows:
"176 AS JR 1215 PM 9 PAID
MANDALUYONG JUL 22-66
LORETO DIONELA
CABANGAN LEGASPI CITY.
WIRE ARRIVAL OF CHECK
FER.
LORETO DIONELA CABANGAN WIRE
ARRIVAL OF CHECK-PER.
115 PM.
SA IYO WALANG PAKINABANG DUMATING KA
DIYAN WALA KANG PADALA DITO KAHIT
BULBULMO" (p. 19, Annex "A")
Plaintiff-respondent Loreto Dionela alleges that the
defamatory words on the telegram sent to him not
only wounded his feelings but also caused him undue
embarrassment and affected adversely his business
as well because other people have come to know of
said defamatory words. Defendant-corporation as a
defense, alleges that the additional words in Tagalog
was a private joke between the sending and receiving
operators and that they were not addressed to or
intended for plaintiff and therefore did not form part of
the telegram and that the Tagalog words are not
defamatory. The telegram sent through its facilities
was received in its station at Legaspi City. Nobody
other than the operator manned the teletype machine
which automatically receives telegrams being
transmitted. The said telegram was detached from the
machine and placed inside a sealed envelope and
delivered to plaintiff, obviously as is. The additional
words in Tagalog were never noticed and were
included in the telegram when delivered.
The trial court in finding for the plaintiff ruled as
follows:
"There is no question that the
additional words in Tagalog are
libelous. They clearly impute a
vice or defect of the plaintiff.
Whether or not they were
intended for the plaintiff, the
effect on the plaintiff is the same.
Any person reading the additional
words in Tagalog will naturally
think that they refer to the
addressee, the plaintiff. There is
no indication from the face of the
telegram that the additional
words in Tagalog were sent as a
private joke between the
operators of the defendant.
"The defendant is sued directly
not as an employer. The
business of the defendant is to
transmit telegrams. It will open
the door to frauds and allow the
defendant to act with impunity if it
can escape liability by the simple
expedient of showing that its
employees acted beyond the
scope of their assigned tasks.
"The liability of the defendant is
predicated not only on Article 33
of the Civil Code of the
Philippines but on the following
articles of said Code:
"ART. 19. 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.
"ART. 20. Every person who,
contrary to law, wilfully or
negligently causes damage to
another, shall indemnify the latter
for the same."
"There is sufficient publication of
the libelous Tagalog words. The
office file of the defendant
containing copies of telegrams
received are open and held
together only by a metal fastener.
Moreover, they are open to view
and inspection by third parties.
"It follows that the plaintiff is
entitled to damages and
attorney's fees. The plaintiff is a
businessman. The libelous
Tagalog words must have
affected his business and social
standing in the community. The
Court fixes the amount of
P40,000.00 as the reasonable
amount of moral damages and
the amount of P3,000.00 as
attorney's fees which the
defendant should pay the
plaintiff." (pp. 15-16, Record on
Appeal).
The respondent appellate court in its assailed
decision confirming the aforegoing findings of the
lower court stated:
"The proximate cause, therefore,
resulting in injury to appellee,
was the failure of the appellant to
take the necessary or
precautionary steps to avoid the
occurrence of the humiliating
incident now complained of. The
company had not imposed any
safeguard against such
eventualities and this void in its
operating procedure does not
speak well of its concern for their
clientele's interests. Negligence
here is patent. This negligence is
imputable to appellant and not to
its employees.
"The claim that there was no
publication of the libelous words
in Tagalog is also without merit.
The fact that a carbon copy of the
telegram was filed among other
telegrams and left to hang for the
public to see, open for inspection
by a third party is sufficient
publication. It would have been
otherwise perhaps had the
telegram been placed and kept in
a secured place where no one
may have had a chance to read it
without appellee's permission.
"The additional Tagalog words at
the bottom of the telegram are,
as correctly found by the lower
court, libelous per se, and from
which malice may be presumed
in the absence of any showing of
good intention and justifiable
motive on the part of the
appellant. The law implies
damages in this instance
(Quemel vs. Court of Appeals, L-
22794, January 16, 1968; 22
SCRA 44). The award of
P40,000.00 as moral damages is
hereby reduced to P15,000.00
and for attorney's fees the
amount of P2,000.00 is
awarded." (pp. 22-23, record)
After a motion for reconsideration was denied by the
appellate court, petitioner came to Us with the
following:
ASSIGNMENT OF
ERRORS.
I
The Honorable Court of Appeals
erred in holding that Petitioner-
employer should answer directly
and primarily for the civil liability
arising from the criminal act of its
employee.
II
The Honorable Court of Appeals
erred in holding that there was
sufficient publication of the
alleged libelous telegram in
question, as contemplated by law
on libel.
III
The Honorable Court of Appeals
erred in holding that the liability of
petitioner-company-employer is
predicated on Articles 19 and 20
of the Civil Code, Articles on
Human Relations.
IV
The Honorable Court of Appeals
erred in awarding Atty's fees. (p.
4, Record).
Petitioner's contentions do not merit our
consideration. The action for damages was filed in the
lower court directly against respondent corporation
not as an employer subsidiarily liable under the
provisions of Article 1161 of the New Civil Code in
relation to Art. 103 of the Revised Penal Code. The
cause of action of the private respondent is based on
Arts. 19 and 20 of the New Civil Code (supra). As well
as on respondent's breach of contract thru the
negligence of its own employees. 1
Petitioner is a domestic corporation engaged in the
business of receiving and transmitting messages.
Everytime a person transmits a message through the
facilities of the petitioner, a contract is entered into.
Upon receipt of the rate or fee fixed, the petitioner
undertakes to transmit the message accurately. There
is no question that in the case at bar, libelous matters
were included in the message transmitted, without the
consent or knowledge of the sender. There is a clear
case of breach of contract by the petitioner in adding
extraneous and libelous matters in the message sent
to the private respondent. As a corporation, the
petitioner can act only through its employees. Hence
the acts of its employees in receiving and transmitting
messages are the acts of the petitioner. To hold that
the petitioner is not liable directly for the acts of its
employees in the pursuit of petitioner's business is to
deprive the general public availing of the services of
the petitioner of an effective and adequate remedy. In
most cases, negligence must be proved in order that
plaintiff may recover. However, since negligence may
be hard to substantiate in some cases, we may apply
the doctrine of RES IPSA LOQUITUR (the thing
speaks for itself), by considering the presence of facts
or circumstances surrounding the injury.
WHEREFORE, premises considered, the judgment of
the appellate court is hereby AFFIRMED.
SO ORDERED.
Feria (Chairman), Fernan Alampay, and Gutierrez,
Jr., JJ., concur.
THIRD DIVISION
[G.R. No. 110672. September 14, 1999.]
RURAL BANK OF STA. MARIA,
PANGASINAN, petitioner, vs.
THE HONORABLE COURT OF
APPEALS, ROSARIO R.
RAYANDAYAN, CARMEN R.
ARCEO, respondents.
[G.R. No. 111201. September 14, 1999.]
ROSARIO R. RAYANDAYAN
and CARMEN R.
ARCEO, petitioners, vs.
COURT OF APPEALS,
HALSEMA INC. and RURAL
BANK OF STA. MARIA,
PANGASINAN,
INC., respondents.
Stephen C. Arseno for R. Rayandayan and C.
Arceo.
Panganiban Benitez, Pulada Africa and Barinaga Law
Office for Halsema, Inc.
Gregorio T. Fabros for Rural Bank of Sta. Maria,
Pangasinan.
SYNOPSIS
On January 9, 1985 Manuel Behis mortgaged a
parcel of land in favor of the Rural Bank of Sta. Maria,
Pangasinan. After being delinquent in paying his
debts, Manuel sold the land to plaintiffs Rosario
Rayandayan and Carmen Arceo in a Deed of
Absolute Sale with Assumption of Mortgage. On the
same date, they executed another agreement
whereby the plaintiffs were indebted to Manuel in the
amount of P2,400,000.00, which was the real
consideration of the sale. The title to the land,
remained in the name of Manuel Behis. After Manuel
Behis died, plaintiffs Rayandayan and Arceo
negotiated with the rural bank for the assumption of
the indebtedness of Manuel Behis and the
subsequent release of the mortgage on the property
by the bank. The bank was not informed of the real
consideration of the sale. Subsequently, the bank
consented to the substitution of Rayandayan and
Arceo as mortgage debtors in place of Behis in a
Memorandum of Agreement with restructured and
liberalized terms for the payment of the mortgage
debt. When the bank came to know the real
consideration of the agreement, the bank changed
heart and transacted the Behis mortgage with
Halsema, Inc. The bank considered its contract with
Rayandayan and Arceo as cancelled. Hence,
Rayandayan and Arceo instituted a civil case against
the Rural Bank and Halsema, Inc. for specific
performance, declaration of nullity and/or annulment
of mortgage and damages. The lower court declared
that the Deed of Sale with Assumption of Mortgage
and the Agreement between the bank and plaintiffs
was valid until annulled or cancelled. However, the
plaintiffs were ordered to pay the bank damages as
litigation expenses because of plaintiffs' bad faith in
deceiving the bank to enter into the Memorandum of
Agreement by concealing the real purchase price of
the land sold to them by Manuel Behis. The plaintiffs
and defendant Halsema, Inc. appealed. The Court of
Appeals affirmed the validity of the Memorandum of
Agreement between the parties, but reversed the
finding that there was bad faith on the part of the
plaintiffs when the bank entered into the
Memorandum of Agreement.
The Supreme Court affirmed the decision of the Court
of Appeals. Rayandayan and Arceo had no duty to
disclose the real consideration of the sale between
them and Manuel Behis. The bank security remained
unimpaired regardless of the consideration of the
sale. Under the terms of the Agreement, the property
remains as security for the payment of the
indebtedness, in case of default of payment.
SYLLABUS
1.CIVIL LAW; CONTRACTS; FRAUD VITIATING
CONSENT; ELEMENTS; NOT ESTABLISHED IN
CASE AT BAR. All the elements of fraud vitiating
consent for purposes of annulling a contract must
concur, to wit: (a) It was employed by a contracting
party upon the other; (b) It induced the other party to
enter into the contract; (c) It was serious; and; (d) It
resulted in damages and injury to the party seeking
annulment. Petitioner bank has not sufficiently shown
that it was induced to enter into the agreement by the
non-disclosure of the purchase price and that the
same resulted in damages to the bank. Indeed, the
general rule is that whosoever alleges fraud or
mistake in any transaction must substantiate his
allegation, since it is presumed that a person takes
ordinary care for his concerns and that private
transactions have been fair and regular. Petitioner
bank's allegation of fraud and deceit have not been
established sufficiently and competently to rebut the
presumption of regularity and due execution of the
agreement. ESCcaT
2.ID.; ID.; ID.; MUST BE THE DETERMINING
CAUSE OF THE CONTRACT, OR MUST HAVE
CAUSED THE CONSENT TO BE GIVEN; NOT
PRESENT IN CASE AT BAR. The kind of fraud
that will vitiate a contract refers to those insidious
words or machinations resorted to by one of the
contracting parties to induce the other to enter into a
contract which without them he would not have
agreed to. Simply stated, the fraud must be the
determining cause of the contract, or must have
caused the consent to be given. It is believed that the
non-disclosure to the bank of the purchase price of
the sale of the land between private respondents and
Manuel Behis cannot be the "fraud" contemplated by
Article 1338 of the Civil Code. From the sole reason
submitted by the petitioner bank that it was kept in the
dark as to the financial capacity of private
respondents, the Court cannot see how the omission
or concealment of the real purchase price could have
induced the bank into giving its consent to the
agreement; or that the bank would not have otherwise
given its consent had it known of the real purchase
price. The bank had other means and opportunity of
verifying the financial capacity of private respondents
and cannot avoid the contract on the ground that they
were kept in the dark as to the financial capacity by
the non-disclosure of the purchase price. As correctly
pointed out by respondent court, the bank security
remained unimpaired regardless of the consideration
of the sale. Under the terms of the Memorandum of
Agreement, the property remains as security for the
payment of the indebtedness, in case of default of
payment. Thus, petitioner bank does not and can not
even allege that the agreement was operating to its
disadvantage. In fact, the bank admits that no
damages has been suffered by it.
3.ID.; ID.; ID.; SILENCE OR CONCEALMENT; WHEN
TO CONSTITUTE FRAUD. Pursuant to Article
1339 of the Civil Code, silence or concealment, by
itself, does not constitute fraud, unless there is a
special duty to disclose certain facts, or unless
according to good faith and the usages of commerce
the communication should be made.
4.REMEDIAL LAW; ACTIONS; APPEAL; A PARTY
WHO DOES NOT APPEAL FROM THE DECISION
MAY NOT OBTAIN ANY AFFIRMATIVE RELIEF
FROM THE APPELLATE COURT. It is well-settled
that a party who does not appeal from the decision
may not obtain any affirmative relief from the
appellate court other than what he has obtained from
the lower court, if any, whose decision is brought up
on appeal.
D E C I S I O N
GONZAGA-REYES, J p:
Before us are two consolidated 1 petitions for review
on certiorari under Rule 45 of the Revised Rules of
Court. In G.R. No. 110672, petitioner Rural Bank of
Sta. Maria, Pangasinan, assails portions of the
Decision dated March 17, 1993, and the Resolution
dated January 25, 1993, of the Court of Appeals 2 in
CA-G.R. CV No. 21918, which affirmed with
modification the Decision of the Regional Trial Court
(Branch 6, Baguio City) 3 in Civil Case No. 890-R
entitled "Rosario R. Rayandayan and Carmen
R. Arceo versus Rural Bank of
Sta. Maria, Pangasinan and Halsema, Inc." In G.R.
No. 111201, petitioners Rosario R. Rayandayan and
Carmen R. Arceo likewise assail portions of said
Decision adverse to it.cda
The facts as found by the trial court and adopted by
the Court of Appeals insofar as pertinent to the instant
petitions are as follows:
". . ., the Court Finds that a parcel
of land of about 49,969 square
meters, located in Residence
Section J, Camp 7, Baguio City,
covered by TCT T-29817 (land
for short) is registered in the
name of Manuel Behis, married
to Cristina Behis (Exhibit "B").
Said land originally was part of a
bigger tract of land owned by
Behis (one name), father of
Manuel Behis, covered by OCT-
0-33 (Exhibit "26", Halsema, for
history of the land). And upon the
latter's death on September 24,
1971, his children, namely: Saro
Behis, Marcelo Behis, Manuel
Behis, Lucia Behis, Clara Behis
and Arana Behis, in an
extrajudicial settlement with
Simultaneous Sale of Inheritance
dated September 28,
1978, agreed to sell the land to
Manuel Behis, married to Cristina
Behis (Exhibit '2', Halsema) but
which subsequently was
explained as only an
arrangement adopted by them to
facilitate transactions over the
land in a Confirmation of Rights
of Co-Ownership over real
Property dated September 26,
1983, showing that the Behis
brothers and sisters, including
Manuel Behis, are still co-owners
thereof (Exhibit '30', Halsema,
Exhibit 'AA').
Manuel Behis mortgaged said
land in favor of the Bank in a
Real Estate Mortgage
dated October 23, 1978(Exhibit
'Q-1') as security for loans
obtained, covered by six
promissory notes and trust
receipts under the Supervised
Credit Program in the total sum of
P156,750.00 (Exhibit 'Q-2' to 'Q-
7', Exhibits '4-A' to '4-F',
Halsema) and annotated at the
back of the title on February 13,
1979 as Entry No. 85538-10-231
(Exhibit "1-A-1", Halsema). The
mortgage, the promissory notes
and trust receipts bear the
signatures of both Manuel Behis
and Cristina Behis.
Unfortunately thereafter, Manuel
Behis was delinquent in paying
his debts. LibLex
On January 9, 1985, Manuel
Behis sold the land to the
plaintiffs 4 in a Deed of Absolute
Sale with Assumption of
Mortgage for the sum of
P250,000.00 (Exhibit 'A') which
bears the signature of his wife
Cristina Behis. Manuel Behis took
it upon himself to secure the
signature of his wife and came
back with it. On the same date of
January 9, 1985, plaintiffs and
Manuel Behis simultaneously
executed another Agreement
(Exhibit '15')whereby plaintiffs are
indebted to Manuel Behis for the
sum of P2,400,000.00 payable in
installments with P10,000.00 paid
upon signing and in case of
default in the installments,
Manuel Behis shall have legal
recourse to the portions of the
land equivalent to the unpaid
balance of the amounts in
installments. Obviously, the real
consideration of the sale of the
land of Manuel Behis to the
plaintiffs is contained in this
Agreement (Exhibit '15').

Plaintiffs did not present to the
Register of Deeds of Baguio said
two contracts and ask that the
title, TCT T-29817 in the name of
Manuel Behis be cancelled and a
new one issued in their name
which normally a buyer does.
Neither did plaintiffs annotate at
the back of the title the aforesaid
two contracts. Nor did they
immediately go to the Bank and
present said two contracts. Thus,
the title to the land, TCT No. T-
29817, remained in the name of
Manuel Behis.
Pursuant to their two contracts
with Manuel Behis, plaintiffs paid
him during his lifetime the sum of
P10,000.00 plus P50,000.00 plus
P145,800.00 (Exhibit 'U' as
stipulated in the hearing), and the
sum of P21,353.75 for the
hospitalization, medical and
burial expenses of Manuel Behis
when he died on June 21,
1985 (Exhibit 'II', 'JJ', 'KK', 'LL',
'PP', 'OO', and 'RR'). Obviously,
from the above payments, the
plaintiffs were unable to complete
their full payment to Manuel
Behis of the sale of the land as it
is nowhere near P2,400,000.00.
Meantime, the loan in the name
of Manuel Behis with the Bank
secured by the Real Estate
Mortgage on the land continued
to accumulate being delinquent.
By May 30, 1985, in a Statement
of Account (Exhibit 'D') sent to
Manuel Behis by the Bank thru
the Paredes Law Office for
collection, the debt of
P150,750.00 has ballooned into
P316,368.13, with interest and
other charges. In fact, the Bank,
thru its President, Vicente
Natividad, initiated foreclosure
proceedings. But after the usual
publication, the same was
discontinued since many parties
were interested to buy the land
outside the said procedure but
none materialized. cdasia
On June 19, 1985, Atty. William
Arceo, in behalf of Manuel
Behis, wrote a letter asking for a
more detailed Statement of
Account from the Bank broken
down as to principal, interest and
other charges (Exhibit 'E').
Thereafter, plaintiffs finally
presented the Deed of Absolute
Sale with Assumption of
Mortgage (Exhibit 'A') to the Bank
when negotiating with its principal
stockholder, Engr. Edilberto
Natividad, in Manila, but did not
showto the latter the Agreement
(Exhibit '15') with Manuel Behis
providing for the real
consideration of P2,400,000.00.
And thus, on August 1, 1985,
a Memorandum of
Agreement (Exhibit 'F') was
entered into between plaintiffs, as
assignees of Manuel Behis, and
the Bank, the salient features of
which are:
'xxx xxx xxx
'3.That during the
lifetime of Manuel Behis
he had executed a Deed
of Absolute Sale with
Assumption of Mortgage
in favor of Carmen
Arceo and Rosario
Rayandayan;
'4.That the total
obligation of the late
Manuel Behis to the
Bank amounts to
P343,782.22;
'5.That the assignees
hereby offer to redeem
the aforesaid real
property and the Bank
hereby agrees to
release the mortgage
thereon under the
following terms and
conditions: dctai
(a).That the
amount of
P35,000.00
shall be paid by
the assignees
to the Bank
upon execution
of this
Agreement;
(b).That the
amount of
P108,000.00
shall be paid by
the assignees
to the Bank at
the rate of
P36,000.00 a
month payable
on September
15, 1985,
October 15,
1985 and
November 15,
1985;
(c).That the
balance of
P200,000.00
shall be
renewed for
one year and
shall be
secured by
another
mortgage over
the same
property which
is renewable
every year
upon payment
of interests and
at least 10
percent of the
principal;
(d).That the
bank shall
release the
mortgage of
Manuel Behis
and a new
mortgage shall
be executed by
the assignees
and the bank
shall give its
consent for the
transfer of the
title under the
name of the
assignees.
"xxx xxx xxx."
Plaintiffs did not annotate the
Memorandum of Agreement in
the title, TCT T-29817.
Pursuant to the Memorandum of
Agreement, plaintiffs paid the
Bank the following:
(1)P35,000.00 on
August 1, 1985
as initial
deposit when
the Agreement
was signed
(Exhibits 'G'
and 'H');
(2)P15,000.00 on
September 16,
1985 (Exhibit
'I') and
P21,000.00 on
September 20,
1985 (Exhibit
'J') to cover the
obligation of
P36,000.00 on
September 15,
1985;
(3)P20,000.00 on
October 17,
1985 (Exhibit
'K') and
P16,000.00 on
October 25,
1985 (Exhibit
'L') to cover the
obligation to
pay
P36,000.00 on
October 15,
1985;
(4)P36,000.00 in the
form of dollars
remitted to
Engr. Edilberto
Natividad on
December 18,
1985 (Exhibit
'N') to cover the
obligation to
pay
P36,000.00 on
November 15,
1985. LLpr
After the last payment of
P36,000.00 on December 18,
1985, received in dollars (Exhibit
'N') which completed the
P143,000.00 under paragraphs 5
(a) and 5 (b) of the Memorandum
of Agreement Engr. Edilberto
Natividad, wrote a letter (Exhibit
'M') to Vicente Natividad, with
instructions that payment be duly
credited and Atty. Arceo will
communicate about the transfer
of title to them and to consult the
Bank's counsel on the matter,
and with instructions also to Ana
Acosta of the Rural Bank of Tuba
to debit said amount from the
savings of Edilberto Natividad . . .
. .
From the above payments made,
the total amount of P143,000.00
as required by paragraphs 5 (a)
and 5 (b) of the Memorandum of
Agreement was fully paid by
plaintiffs although they were not
paid on time.
Meanwhile, on September 5,
1985, Cristina Behis, widow of
Manuel Behis, wrote a letter to
the Bank (Exhibit '3', Halsema)
claiming the Real Estate
mortgage was without her
signature. And in another letter
dated October 28, 1985 to the
Bank (Exhibit 4, Halsema),
Cristina Behis stressed she did
not authorize anybody to redeem
the property in her behalf as one
of the mortgagors of the land.
On January 7, 1986, plaintiffs
demanded in a letter (Exhibit 'O')
that the Bank comply with its
obligation under the
Memorandum of Agreement to
(1) release the mortgage of
Manuel Behis, (2) give its
consent for the transfer of title in
the name of the plaintiffs, and (3)
execute a new mortgage with
plaintiffs for the balance of
P200,000.00 over the same land.
Meanwhile on January 18, 1986,
Cristina Behis went to the Bank
inquiring about her protest about
her signature. The Bank told her
it did not receive her two letters
and instead advised her to write
the Bank again as well as the
plaintiffs about her objections.
In a reply letter dated February
11, 1986, (Exhibit 'B') to the
demand of the plaintiffs, the Bank
said it cannot comply because of
supervening circumstances,
enclosing the two letters of
Cristina Behis dated September
5, 1985 and October 28, 1985
which they said were both self
explanatory, and suggested that
plaintiffs take up the matter with
Mrs. Cristina Behis. cda
On February 15, 1986, as
suggested by the Bank, Cristina
Behis wrote another letter to the
Bank claiming this time that she
was not a party to the Deed of
Absolute Sale with Assumption of
Mortgage and her signature was
forged (Exhibit '5', Halsema) and
requesting the Bank not to
release the title with copy
furnished to the plaintiffs (Exhibit
'5-B', Halsema).
Then, months passed, and
nothing was heard from the
plaintiffs by the Bank. On the first
week of July, 1986, Teodoro
Verzosa, President of Halsema,
Inc., heard about the land and got
interested and had preliminary
talks with Vicente Natividad,
President of the Bank, and with
Edilberto Natividad, the principal
stockholder of the bank.
xxx xxx xxx.
. . ., upon suggestion of the
lawyer of Halsema,
an Assignment of Mortgage was
entered into on July 28, 1986
between Halsema and the Bank
for the consideration of
P520,765.45 (Exhibit '1', Bank)
which amount was the total
indebtedness of Manuel Behis
with the Bank at the time (Exhibit
'7-A', Halsema). Note however,
that what was assigned was the
Mortgage made originally by
Manuel Behis and not the
Mortgage as assumed by
plaintiffs under a restructured and
liberalized terms.
As explained by Halsema lawyer,
she suggested the Assignment of
Mortgage as the cheapest and
fastest way for Halsema to
acquire the property of Manuel
Behis as (1) they assume the role
of the Bank as Mortgagee with
the assignment of mortgage
credit, (2) they acquire the
property for the amount only of
the mortgage debt at the time, (3)
after execution thereof, the Bank
is out of the picture, and (4) in
case of foreclosure, Halsema
controls the foreclosure
proceedings and is assured of its
legality. cda
In turn, the Bank explained it
entered into the Assignment of
Mortgage because at the time
it considered the Memorandum of
Agreement cancelled as first,
plaintiffs failed to settle the
objections of Cristina Behis
aforesaid on her signature being
forged in the Deed of Sale with
Assumption of Mortgage despite
the lapse of time from February,
1986 to July, 1986. Second, the
terms of the Memorandum of
Agreement have not been fully
complied with as the payments
were not made on time on the
dates fixed therein; and third,
their consent to the Memorandum
of Agreement was secured by the
plaintiffs thru fraud as the Bank
was not
shown theAgreement containing
the real consideration of
P2,400,000.00 of the sale of the
land of Manuel Behis to plaintiffs.
On the same date of July 28,
1986, Vicente Natividad of the
Bank sent notice of the
Assignment of Mortgage to the
debtor mortgagor, Manuel Behis
(already dead at the time) and
Cristina Behis. Notice of the
Assignment of Mortgage was not
sent to plaintiffs for as aforesaid
what was assigned was the
Mortgage originally made by
Manuel Behis and not the
Mortgage as assumed by
plaintiffs under the restructured
and liberalized terms in the
Memorandum of Agreement
which was considered by the
Bank as cancelled. cdphil
xxx xxx xxx.
After the assignment of
mortgage, the Bank returned the
P143,000.00 to plaintiffs (Exhibit
'13', Bank). But the latter rejected
the same maintaining the
Memorandum of Agreement is
valid until annulled by Court
Action. Subsequently, however,
the Bank paid plaintiffs
P143,000.00 and P90,000.00
interest in settlement of the
criminal case of Estafa against
Edilberto Natividad and Vicente
Natividad (Exhibit '14', Bank).

In the meantime, since the
account of the late Manuel Behis
has been delinquent and his
widow, Cristina Behis, and his
brothers and sisters could not
pay as in fact they have already
assigned their rights to redeem,
Halsema as Mortgage Creditor in
place of the Bank instituted
foreclosure proceedings by filing
an Application for Foreclosure of
Real Estate Mortgage in the
Office of the Sheriff on July 31,
1986 (Exhibit '37', Halsema)
setting the public auction sale on
September 2, 1986 and was
published and posted as required
by law. A Notice of Foreclosure
was sent directly to the
mortgagor (Exhibit '38', Halsema)
and the public auction sale was
held on September 2, 1986 at
10:00 a.m. at the City Hall,
Baguio City, with Halsema as the
only bidder to whom accordingly
the Sheriff's Certificate of Sale
was issued (Exhibit '8', Halsema).
At the auction sale, the lawyer of
Halsema was approached by the
plaintiff Rosario Rayandayan who
told the former that the land
foreclosed was also sold to the
plaintiffs. Since plaintiffs could
not do anything anymore, they
registered and annotated on the
title, TCT T-29817, their adverse
claim on September 3, 1986." 5
Since the Bank could not comply with the
Memorandum of Agreement, petitioners Rayandayan
and Arceo instituted Civil Case No. 890-R before the
Regional Trial Court of Baguio City (Branch 6) against
the Rural Bank of Sta. Maria, Pangasinan and
Halsema, Inc. for "Specific Performance, Declaration
of Nullity and/or Annulment of Assignment of
Mortgage and Damages" on September 5, 1986, and
caused a notice of lis pendens annotated at the back
of the title, TCT T-29817, on the same date. On
March 6, 1989, judgment was rendered, the
dispositive portion of the decision pertinent to this
case reads:
"WHEREFORE, in view of All the
Foregoing, Judgment is hereby
rendered, as follows:
1.. . .;
2.Declaring the Deed of Sale with
assumption of Mortgage
(Exhibit "A") and the
Agreement (Exhibit "15")
taken together valid until
annulled or
cancelled; LLjur
3.Ordering the Bank to pay the
plaintiffs the sum of
P30,000.00 as Moral
Damages, P10,000.00
as Exemplary Damages,
P20,000.00 as
Attorney's fees and
P5,000.00 as litigation
expenses for their bad
faith in violating the
Memorandum of
Agreement which took
place while the
Memorandum of
Agreement was still
valid there being no
court action first filed to
nullify it before entering
into the Assignment of
Mortgage;
4.Ordering the plaintiffs to pay
the Bank the sum of
P30,000.00 as Moral
Damages, P10,000.00
as Exemplary Damages,
P20,000.00 as
Attorney's fees and
P5,000.00 as litigation
expenses for plaintiffs'
bad faith in deceiving
the Bank to enter into
the Memorandum of
Agreement;
5.Ordering the setting off in
compensation the
Damages awarded to
plaintiffs and the Bank.
6.. . .;
7.Declaring the Memorandum of
Agreement as annulled
due to the fraud of
plaintiffs;
8.. . .;
9.. . .;
10.. . .;
Without pronouncement as to
costs.
SO ORDERED." 6
From the decision, plaintiffs Rayandayan and Arceo
and defendant Halsema, Inc. appealed. Defendant
Rural Bank of Sta. Maria, Pangasinan did not
appeal. 7 The Court of Appeals rendered herein
assailed decision, the dispositive portion insofar as
pertinent to this case reads: Cdpr
"WHEREFORE, premises
considered, decision is hereby
rendered:
1.. . .;
2.. . .;
3.. . .;
4.Declaring the Deed of Absolute
Sale with Assumption of
Mortgage, Exhibit A and
the Memorandum of
Agreement, Exhibit F,
valid as between the
parties thereto;
5.Ordering and sentencing
defendant Rural Bank of
Sta. Maria, Pangasinan
to pay plaintiffs-
appellants the sum of
P229,135.00 as actual
damages, the sum of
P30,000.00 as moral
damages, P10,000.00
as exemplary damages,
P20,000.00 as
attorney's fees and
P5,000.00 as litigation
expenses;
6.Affirming the dismissal of all
other counterclaims for
damages;
7.Reversing and setting aside all
other dispositions made
by the trial court
inconsistent with this
decision;
8.There is no pronouncement as
to costs.
SO ORDERED." 8
In sum, the Court of Appeals in its assailed decision:
(1) affirmed the validity of the Memorandum of
Agreement between the parties thereto; (2) reversed
and set aside the finding of the trial court on the bad
faith of Rayandayan and Arceo in concealing the
real purchase price of the land sold to them by
Manuel Behis during negotiations with the bank on
the assumption of the mortgage debt; (3) modified the
trial court's finding as to the damages due
Rayandayan and Arceo from the bank by adding
P229,135.00 as actual damages; (4) dismissed the
counterclaim for damages by the bank and deleted
the portion on the set-off of damages due between
the bank on the one hand, and Rayandayan and
Arceo on the other. cdtai
Motions for reconsideration were filed by plaintiffs-
appellants Rayandayan and Arceo and defendant
Rural Bank of Sta. Maria, Pangasinan which were
denied for lack of merit. 9
Hence, the instant consolidated petitions.
In a Resolution dated August 25, 1993, this Court
denied the petition for review on certiorari (G.R. No.
111201) filed by Rayandayan and Arceo for having
been filed out of time and for late payment of docket
fees. 10 Petitioners Rayandayan and Arceo moved
to reconsider; this Court in a Resolution dated
November 22, 1993, resolved to deny the same with
finality considering petitioners failed to show any
compelling reason and to raise any substantial
argument which would warrant a modification of the
said resolution. 11
What remains for resolution then is G.R. No. 110672,
wherein petitioner Rural Bank of Sta. Maria,
Pangasinan, contends that:
I
THE MEMORANDUM OF
AGREEMENT (EXH. "F")
ENTERED INTO BETWEEN
PRIVATE RESPONDENTS, AS
ALLEGED ASSIGNEES OF
MANUEL BEHIS, AND
PETITIONER BANK IS
VOIDABLE AND MUST BE
ANNULLED.
II
PRIVATE RESPONDENTS ARE
IN BAD FAITH, HENCE, THEY
ARE NOT ENTITLED TO THE
SUMS OF P30,000.00 AS
MORAL DAMAGES; P10,000.00
AS EXEMPLARY DAMAGES;
P20,000.00 AS ATTORNEY'S
FEES; AND P5,000.00 AS
LITIGATION EXPENSES. 12
The petition is devoid of merit. Cdpr
Briefly, the antecedents material to this appeal are as
follows: A Deed of Absolute Sale with Assumption of
Mortgage was executed between Manuel Behis as
vendor/assignor and Rayandayan and Arceo as
vendees/assignees for the sum of P250,000.00. On
the same day, Rayandayan and Arceo together with
Manuel Behis executed another Agreement
embodying the real consideration of the sale of the
land in the sum of P2,400,000.00. Thereafter,
Rayandayan and Arceo negotiated with the principal
stockholder of the bank, Engr. Edilberto Natividad in
Manila, for the assumption of the indebtedness of
Manuel Behis and the subsequent release of the
mortgage on the property by the bank. Rayandayan
and Arceo did not show to the bank the Agreement
with Manuel Behis providing for the real consideration
of P2,400,000.00 for the sale of the property to the
former. Subsequently, the bank consented to the
substitution of plaintiffs as mortgage debtors in place
of Manuel Behis in a Memorandum of Agreement
between private respondents and the bank with
restructured and liberalized terms for the payment of
the mortgage debt. Instead of the bank foreclosing
immediately for non-payment of the delinquent
account, petitioner bank agreed to receive only a
partial payment of P143,000.00 by installment on
specified dates. After payment thereof, the bank
agreed to release the mortgage of Manuel Behis; to
give its consent to the transfer of title to the private
respondents; and to the payment of the balance of
P200,000.00 under new terms with a new mortgage
to be executed by the private respondents over the
same land.
This brings us to the first issue raised by petitioner
bank that the Memorandum of Agreement is voidable
on the ground that its consent to enter said
agreement was vitiated by fraud because private
respondents withheld from petitioner bank the
material information that the real consideration for the
sale with assumption of mortgage of the property by
Manuel Behis to Rayandayan and Arceo is
P2,400,000.00, and not P250,000.00 as represented
to petitioner bank. According to petitioner bank, had it
known of the real consideration for the sale, i.e. P2.4
million, it would not have consented into entering the
Memorandum of Agreement with Rayandayan and
Arceo as it was put in the dark as to the real capacity
and financial standing of private respondents to
assume the mortgage from Manuel Behis. Petitioner
bank pointed out that it would not have assented to
the agreement, as it could not expect the private
respondents to pay the bank the approximately
P343,000.00 mortgage debt when private
respondents have to pay at the same time
P2,400,000.00 to Manuel Behis on the sale of the
land.
The kind of fraud that will vitiate a contract refers to
those insidious words or machinations resorted to by
one of the contracting parties to induce the other to
enter into a contract which without them he would not
have agreed to. 13Simply stated, the fraud must be
the determining cause of the contract, or must have
caused the consent to be given. It is believed that the
non-disclosure to the bank of the purchase price of
the sale of the land between private respondents and
Manuel Behis cannot be the "fraud" contemplated by
Article 1338 of the Civil Code. 14 From the sole
reason submitted by the petitioner bank that it was
kept in the dark as to the financial capacity of private
respondents, we cannot see how the omission or
concealment of the real purchase price could have
induced the bank into giving its consent to the
agreement; or that the bank would not have otherwise
given its consent had it known of the real purchase
price. cda
First of all, the consideration for the purchase of the
land between Manuel Behis and herein private
respondents Rayandayan and Arceo could not have
been the determining cause for the petitioner bank to
enter into the memorandum of agreement. To all
intents and purposes, the bank entered into said
agreement in order to effect payment on the
indebtedness of Manuel Behis. As correctly ruled by
the Court of Appeals:

". . . . The real consideration for
the sale with assumption of
mortgage, or the non-disclosure
thereof, was not the determining
influence on the consent of the
bank.
The bank received payments due
under the Memorandum of
Agreement, even if delayed. It
initially claimed that the sale with
assumption of mortgage was
invalid not because of the
concealment of the real
consideration of P2,400,000.00
but because of the information
given by Cristina Behis, the
widow of the mortgagor Manuel
Behis that her signature on the
deed of absolute sale with
assumption of mortgage was
forged. Thus, the alleged nullity
of the Memorandum of
Agreement, Exhibit F, is a clear
afterthought. It was raised by
defendant bank, by way of
counterclaim only after it was
sued.
The deceit which avoids the
contract exists where the party
who obtains the consent does so
by means of concealing or
omitting to state material facts,
with intent to deceive, by reason
of which omission or
concealment the other party was
induced to give a consent which
he would not otherwise have
given (Tolentino, Commentaries
and Jurisprudence on the Civil
Code, Vol. IV, p. 480). In this
case, the consideration for the
sale with assumption of mortgage
was not the inducement to
defendant bank to give a consent
which it would not otherwise have
given. cdtai
Indeed, whether the
consideration of the sale with
assumption of mortgage was
P250,000.00 as stated in Exhibit
A, or P2,400,000.00 as stated in
the Agreement, Exhibit 15,
should not be of importance to
the bank. Whether it was
P250,000.00 or P2,400,000.00
the bank's security remained
unimpaired.
The stipulation in Exhibit 15,
reading "in case of default in all of
the above, Manuel Behis shall
have legal recourse to the portion
of the parcel of land under TCT
No. T-29817 equivalent to the
unpaid balance of the amount
subject of this Agreement",
obviously even if revealed would
not have induced defendant bank
to withhold its consent. The legal
recourse to TCT No. T-29817
given to Manuel Behis, under the
Agreement, is subordinate and
inferior to the mortgage to the
bank.
We are, therefore, constrained to
uphold the validity of the
Memorandum of Agreement,
Exhibit F, and reverse and set
aside the ruling declaring the
same annulled allegedly due to
fraud of plaintiffs-appellants
(paragraph 7, dispositive portion).
With the above conclusion
reached, the award of moral and
exemplary damages, attorney's
fees and expenses of litigation in
favor of defendant bank and
against plaintiffs-appellants in
paragraph 4 of the dispositive
portion of the decision of the trial
court must likewise be reversed
and set aside; and similarly,
paragraph 5. The basis for the
award, which we quote "for
plaintiffs' bad faith in deceiving
the Bank to enter into the
Memorandum of Agreement" is
not correct as we have
discussed." 15
Secondly, pursuant to Article 1339 of the Civil
Code 16 , silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to
disclose certain facts, or unless according to good
faith and the usages of commerce the communication
should be made. Verily, private respondents
Rayandayan and Arceo had no duty, and therefore
did not act in bad faith, in failing to disclose the real
consideration of the sale between them and Manuel
Behis. LLpr
Thirdly, the bank had other means and opportunity of
verifying the financial capacity of private respondents
and cannot avoid the contract on the ground that they
were kept in the dark as to the financial capacity by
the non-disclosure of the purchase price. As correctly
pointed out by respondent court, the bank security
remained unimpaired regardless of the consideration
of the sale. Under the terms of the Memorandum of
Agreement, the property remains as security for the
payment of the indebtedness, in case of default of
payment. Thus, petitioner bank does not and can not
even allege that the agreement was operating to its
disadvantage. In fact, the bank admits that no
damages has been suffered by it. 17
Consequently, not all the elements of fraud vitiating
consent for purposes of annulling a contract concur,
to wit: (a) It was employed by a contracting party upon
the other; (b) It induced the other party to enter into
the contract; (c) It was serious; and, (d) It resulted in
damages and injury to the party seeking
annulment. 18 Petitioner bank has not sufficiently
shown that it was induced to enter into the agreement
by the non-disclosure of the purchase price, and that
the same resulted in damages to the bank. Indeed,
the general rule is that whosoever alleges fraud or
mistake in any transaction must substantiate his
allegation, since it is presumed that a person takes
ordinary care for his concerns and that private
transactions have been fair and regular. Petitioner
bank's allegation of fraud and deceit have not been
established sufficiently and competently to rebut the
presumption of regularity and due execution of the
agreement.
Based on the foregoing, the second issue raised by
petitioner bank must likewise fail. Petitioner bank's
imputation of bad faith to private respondents
premised on the same non-disclosure of the real
purchase price of the sale so as to preclude their
entitlement to damages must necessarily be resolved
in the negative. Petitioner bank does not question the
actual damages awarded to private respondents in
the amount of P229,135.00, but only the moral
damages of P30,000.00, exemplary damages of
P10,000.00, attorney's fees of P20,000.00 and
litigation expenses of P5,000.00. We may no longer
examine the amounts awarded by the trial court and
affirmed by the appellate court as petitioner bank did
not appeal from the decision of the trial court. It is
well-settled that a party who does not appeal from the
decision may not obtain any affirmative relief from the
appellate court other than what he has obtained from
the lower court, if any, whose decision is brought up
on appeal. 19
WHEREFORE, the petition is hereby DENIED and the
decision of the Court of Appeals, dated March 17,
1993 is AFFIRMED. No costs.
SO ORDERED.
Melo, Vitug and Purisima, JJ., concur.
Panganiban, J., took no part; former counsel of a
party.
EN BANC
[G.R. No. L-15645. January 31, 1964.]
PAZ P. ARRIETA and
VITALIADO ARRIETA, plaintiffs-
appellees, vs. NATIONAL RICE
AND CORN
CORPORATION, defendant-
appellant, MANILA
UNDERWRITERS INSURANCE
CO., INC.,defendant-appellee.
Teehankee & Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-
appellant.
Isidro A. Vera for defendant-appellee.
SYLLABUS
1.OBLIGATIONS AND CONTRACTS; LIABILITY
FOR NON-PERFORMANCE; FAILURE TO PUT UP
LETTER OF CREDIT WITHIN AGREED PERIOD.
One who assumes a contractual obligation and fails to
perform the same on account of his inability to meet
certain bank requirements, which inability he knew
and was aware of when he entered into the contract,
should be held liable in damages for breach of
contract.
2.OBLIGATIONS AND CONTRACTS; LIABILITY OF
NON-PERFORMANCE. Under Article 1170 of the
Civil Code, not only debtors guilty of fraud, negligence
or default but also every debtor, in general, who fails
in the performance of his obligations is bound to
indemnify for the losses and damages caused
thereby.
3.ID.; ID.; MEANING OF PHRASE "IN ANY MANNER
CONTRAVENE THE TENOR" OF THE OBLIGATION
IN ART. 1170, CIVIL CODE. The phrase "in any
manner contravene the tenor" of the obligation in Art.
1170, Civil Code, includes any illicit task which
impairs the strict and faithful fulfillment of the
obligation, or every kind of defective performance.
4.ID.; ID.; WAIVER OF BREACH OF CONTRACT
NOT PRESUMED. Waivers are not presumed, but
must be clearly and convincingly shown, either by
express stipulation or acts admitting of no other
reasonable explanation.
5.ID.; PAYMENT OF AWARD; PHILIPPINE
CURRENCY. In view of Republic Act 529 which
specifically requires the discharge of obligations only
"in any coin or currency which at the time of payment
is legal tender for public and private debt", the award
of damages in U.S. dollars made by the lower court in
the case at bar is modified by converting it into
Philippine pesos at the rate of exchange prevailing at
the time the obligation was incurred or when the
contract in question was executed.
D E C I S I O N
REGALA, J p:
This is an appeal of the defendant-
appellant NARIC from the decision of the trial
court dated February 20, 1958, awarding to the
plaintiffs-appellees the amount of $286,000.00 as
damages for breach of contract and dismissing
the counterclaim and third party complaint of the
defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No.
3452, "the National Rice and Corn Administration
(NARIC) is hereby abolished and all its assets,
liabilities, functions, powers which are not inconsistent
with the provisions of this Act, and all personnel are
transferred" to the Rice and Corn Administration
(RCA).
All references, therefore, to the NARIC in this decision
must accordingly be adjusted and read as RCA
pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the
public bidding called by the NARIC for the supply of
20,000 metric tons of Burmese rice. As her bid of
$203.00 per metric ton was the lowest, she was
awarded the contract for the same. Accordingly, on
July 1, 1952, plaintiff-appellee Paz P. Arrieta and the
appellant corporation entered into a Contract of Sale
of Rice, under the terms of which the former obligated
herself to deliver to the latter 20,000 metric tons of
Burmese Rice at $203.00 per metric ton, CIF Manila.
In turn, the defendant Corporation committed itself to
pay for the imported rice "by means of an irrevocable,
confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or
supplier in Burma, immediately."
Despite the commitment to pay immediately "by
means of an irrevocable, confirmed and assignable
Letter of Credit," however, it was only on July 30,
1952, or a full month from the execution of the
contract, that the defendant corporation, thru its
general manager, took the first step to open a letter of
credit by forwarding to the Philippine National Bank its
Application for Commercial Letter of Credit. The
application was accompanied by a transmittal letter,
the relevant paragraphs of which read:
"In view of the fact that we do not
have sufficient deposit with your
institution with which to cover the
amount required to be deposited
as a condition for the opening of
letters of credit, we will
appreciate it if this application
could be considered a special
case.
"We understand that our supplier,
Mrs. Paz P. Arrieta, has a
deadline to meet which is August
4, 1952, and in order to comply
therewith, it is imperative that the
L/C be opened prior to that date.
We would therefore request your
full cooperation on this matter."
On the same day, July 30, 1952, Mrs. Paz P. Arrieta,
thru counsel, advised the appellant corporation of the
extreme necessity for the immediate opening of the
letter of credit since she had by then made a tender to
her supplier in Rangoon, Burma "equivalent to 5% of
the F.O.B. price of 20,000 tons at $180.70 and in
compliance with the regulations in Rangoon this 5%
will be confiscated if the required letter of credit is not
received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank
informed the appellant corporation that its application,
"for a letter of credit for $3,614,000.00 in favor of Thiri
Setkya has been approved by the Board of Directors
with the condition that 50% marginal cash deposit be
paid and that drafts are to be paid upon presentment"
(Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits)
Furthermore, the Bank represented that it "will hold
your application in abeyance pending compliance with
the above stated requirement."
As it turned out, however, the appellant corporation
was not in any financial position to meet the condition.
As a matter of fact, in a letter dated August 2, 1952,
the NARIC bluntly confessed to the appellee its
dilemma: "In this connection, please be advised that
our application for the opening of the letter of credit
has been presented to the bank since July 30th but
the latter requires that we first deposit 50% of the
value of the letter amounting to approximately
$3,614,000.00 which we are not in a position to
meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-Pl., p.
18, Folder of Exhibits)
Consequently, the credit instrument applied for was
opened only on September 8, 1952 "in favor of Thiri
Setkya, Rangoon, Burma, and/or assignee for
$3,614,000.00," (which is more than two months from
the execution of the contract) the party named by the
appellee as beneficiary of the letter of credit.
As a result of the delay, the allocation of appellee's
supplier in Rangoon was cancelled and the 5%
deposit, amounting to 524,000 kyats or approximately
P200,000.00 was forfeited. In this connection, it must
be made of record that although the Burmese
authorities had set August 4, 1952 as the deadline for
the remittance of the required letter of credit, the
cancellation of the allocation and the confiscation of
the 5% deposit were not effected until August 20,
1952, or, a full half month after the expiration of the
deadline. And yet, even with that 15-day grace,
appellant corporation was unable to make good its
commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the
cancelled Burmese rice allocation. When the futility of
reinstating the same became apparent, she offered to
substitute Thailand rice instead to the defendant
NARIC, communicating at the same time that the offer
was "a solution which should be beneficial to the
NARIC and to us at the same time." (Exh. Y-Pl.; Exh.
25Def., p. 38, Folder of Exhibits) This offer for
substitution, however, was rejected by the appellant in
a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the
appellant, demanding compensation for the damages
caused her in the sum of $286,000.00, U.S. currency,
representing unrealized profit. The demand having
been rejected, she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was
filed and the Manila Underwriters Insurance Company
was brought to the suit as a third party defendant to
hold it liable on the performance bond it executed in
favor of the plaintiff-appellees.
We find for the appellee.
It is clear upon the records that the sole and principal
reason for the cancellation of the allocation contracted
by the appellee herein in Rangoon, Burma was the
failure of the letter of credit to be opened within the
contemplated period. This failure must, therefore, be
taken as the immediate cause for the consequent
damage which resulted. As it is then, the disposition
of this case depends on a determination of who was
responsible for such failure. Stated differently, the
issue is whether appellant's failure to open
immediately the letter of credit in dispute amounted to
a breach of the contract of July 1, 1952 for which it
may be held liable in damages.
Appellant corporation disclaims responsibility for the
delay in the opening of the letter of credit. On the
contrary, it insists that the fault lies with the appellee.
Appellant contends that the disputed negotiable
instrument was not promptly secured because the
appellee failed to seasonably furnish data necessary
and required for opening the same, namely, "(1) the
amount of the letter of credit, (2) the person, company
or corporation in whose favor it is to be opened, and
(3) the place and bank where it may be negotiated."
Appellant would have this Court believe, therefore,
that had these information been forthwith furnished it,
there would have been no delay in securing the
instrument.
Appellant's explanation has neither force nor merit. In
the first place, the explanation reaches into an area of
the proceedings into which We are not at liberty to
encroach. The explanation refers to a question of fact.
Nothing in the record suggests any arbitrary or
abusive conduct on the part of the trial judge in the
formulation of the ruling. His conclusion on the matter
is sufficiently borne out by the evidence presented.
We are denied, therefore, the prerogative to disturb
that finding, consonant to the time honored tradition of
this Tribunal to hold trial judges better situated to
make conclusions on questions of fact. For the
record, We quote hereunder the lower court's ruling
on the point:

"The defense that the delay, if
any in opening the letter of credit
was due to the failure of plaintiff
to name the supplier, the amount
and the bank is not tenable.
Plaintiff stated in Court that these
facts were known to defendant
even before the contract was
executed because these facts
were necessarily revealed to the
defendant before she could
qualify as a bidder. She stated
too that she had given the
necessary data immediately after
the execution of Exh. "A" (the
contract of July 1, 1952) to Mr.
GABRIEL BELMONTE, General
Manager of the NARIC, both
orally and in writing and that she
also pressed for the opening of
the letter of credit on these
occasions. These statements
have not been controverted and
defendant NARIC,
notwithstanding its previous
intention to do so, failed to
present Mr. Belmonte to testify or
refute this. . . ."
Secondly, from the correspondence and
communications which form part of the record of this
case, it is clear that what singularly delayed the
opening of the stipulated letter of credit and which, in
turn, caused the cancellation of the allocation in
Burma, was the inability of the appellant corporation
to meet the condition imposed by the Bank for
granting the same.
We do not think the appellant corporation can refute
the fact that had it been able to put up the 50%
marginal cash deposit demanded by the bank, then
the letter of credit would have been approved, opened
and released as early as August 4, 1952. The letter of
the Philippine National Bank to the NARIC was plain
and explicit that as of the said date, appellant's
"application for a letter of credit . . . has been
approved by the Board of Directors with the condition
that 50% marginal cash deposit be paid and that
drafts are to be paid upon presentment." (Emphasis
supplied)
The liability of the appellant, however, stems not
alone from this failure or inability to satisfy the
requirements of the bank. Its culpability arises from its
willful and deliberate assumption of contractual
obligations even as it was well aware of its financial
incapacity to undertake the presentation. We base
this judgment upon the letter which accompanied the
application filed by the appellant with the bank, a part
of which letter was quoted earlier in this decision. In
the said accompanying correspondence, appellant
admitted and owned that it did "not have sufficient
deposit with your institution (the PNB) with which to
cover the amount required to be deposited as a
condition for the opening of letters of credit. . . ."
A number of logical inferences may be drawn from the
aforementioned admission. First, that the appellant
knew the bank requirements for opening letters of
credit; second, that appellant also knew it could not
meet those requirements. When, therefore, despite
this awareness that it was financially incompetent to
open a letter of credit immediately, appellant agreed
in paragraph 8 of the contract to pay immediately "by
means of an irrevocable, confirmed and assignable
letter of credit," it must be similarly be held to have
bound itself too answer far all and every
consequences that would result from the
representation. As aptly observed by the trial court:
". . . Having called for bids for the
importation of rice involving
millions, $4,260,000.00 to be
exact, it should have ascertained
its ability and capacity to comply
with the inevitable requirements
in cash to pay for such
importation. Having announced
the bid, it must be deemed to
have impliedly assured suppliers
of its capacity and facility to
finance the importation within the
required period, especially since
it had imposed on the supplier
the 90-day period within which
the shipment of the rice must be
brought into the Philippines.
Having entered into the contract,
it should have taken steps
immediately to arrange for the
letter of credit for the large
amount involved and inquired into
the possibility of its issuance."
In relation to the aforequoted observation of the trial
court, We would like to make reference also to Article
1170 of the Civil Code which provides:
"Those who in the performance of
their obligation are guilty of fraud,
negligence, or delay, and those
who in any manner contravene
the tenor thereof, are liable in
damages."
Under this provision, not only debtors guilty of fraud,
negligence or default in the performance of
obligations are decreed liable: in general, every
debtor who fails in the performance of his obligations
is bound to indemnify for the losses and damages
caused thereby (De la Cruz v. Seminary of Manila, 18
Phil. 330; Municipality of Moncada v. Cajuigan, 21
Phil. 184; De la Cavada v. Diaz, 37 Phil. 982;
Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil
v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil.
459; Acme Films v. Theaters Supply, 63 Phil. 657.)
The phrase "in any manner contravene the tenor" of
the obligation includes any illicit act which impairs the
strict and faithful fulfillment of the obligation, or every
kind of defective performance. (IV Tolentino, Civil
Code of the Philippines, citing authorities, p. 103)
The NARIC would also have this Court hold that the
subsequent offer to substitute Thailand rice for the
originally contracted Burmese rice amounted to a
waiver by the appellee of whatever rights she might
have derived from the breach of the contract. We
disagree. Waivers are not presumed, but must be
clearly and convincingly shown, either by express
stipulation or acts admitting no other reasonable
explanation. (Ramirez v. Court of Appeals, 98 Phil.,
225; 52 O. G. 779). In the case at bar, no such intent
to waive has been established.
We have carefully examined and studied the oral and
documentary evidence presented in this case and
upon which the lower court based its award. Under
the contract, the NARIC bound itself to buy 20,000
metric tons of Burmese rice at "$203.00 U. S. Dollars
per metric ton, all net shipped weight, and all in U. S.
currency, C.I.F. Manila. . . ." On the other hand,
documentary and other evidence establish with equal
certainty that the plaintiff-appellee was able to secure
the contracted commodity at the cost price of $180.70
per metric ton from her supplier in Burma.
Considering freights, insurance and charges incident
to its shipment here and the forfeiture of the 5%
deposit, the award granted by the lower court is fair
and equitable. For a clearer view of the equity of the
damages awarded, We reproduce below the
testimony of the appellee, adequately supported by
the evidence and record:
"Q.Will you please tell the court,
how much is the
damage you suffered?
"ABecause the selling price of my
rice is $203.00 per
metric ton, and the cost
price of my rice is
$180.00. We had to pay
also $6.25 for shipping
and about $164 for
insurance. So adding
the cost of the rice, the
freight, the insurance,
the total would be about
$187.99 that would be
$15.01 gross profit per
metric ton, multiply by
20,000 equals
$300,200, that is my
supposed profit if I went
through with the
contract."
The above testimony of the plaintiff was a general
approximation of the actual figures involved in the
transaction. A precise and more exact demonstration
of the equity of the award herein is provided by
Exhibit HH of the plaintiff and Exhibit 34 of the
defendant, hereunder quoted so far as germane:
"It is equally of record of now that
as shown in her request, dated
July 29, 1959, and other
communications subsequent
thereto for the opening by your
corporation of the required letter
of credit, Mrs. Arrieta was
supposed to pay her supplier in
Burma at the rate of One
Hundred Eighty Dollars and
Seventy Cents ($180.70) in U.S.
Currency, per ton plus Eight
Dollars ($8.00) in the same
currency per ton for shipping and
other handling expenses, so that
she is already assured of a net
profit of Fourteen Dollars and
Thirty Cents ($14.30), U.S.
Currency, per ton or a total of
Two Hundred and Eighty Six
Thousand Dollars ($286,000.00),
U.S. Currency, in the aforesaid
transaction. . . ."
Lastly, herein appellant filed a counterclaim asserting
that it has suffered, likewise by way of unrealized
profit, damages in the total sum of $406,000 from the
failure of the projected contract to materialize. This
counterclaim was supported by a cost study made
and submitted by the appellant itself and wherein it
was illustrated how indeed, had the importation
pushed thru, NARIC would have realized in profit the
amount asserted in the counterclaim. And yet, the
said amount of P406,000.00 was realizable by the
appellant despite a number of expenses which the
appellee, under the contract, did not have to incur.
Thus, under the cost study submitted by the
appellant, banking and unloading charges were to be
shouldered by it, including an Import License Fee of
2% and superintendence fee of $0.25 per metric ton.
If the NARIC stood to profit over P400,000.00 from
the disputed transaction in spite of the above extra
expenditures from which the herein appellee was
exempt, We are convinced of the fairness of the
judgment presently under appeal.
In the premises, however, a minor modification must
be effected in the dispositive portion of the decision
appealed from insofar as it expresses the amount of
damages in U.S. currency and not in Philippine Peso.
Republic Act 529 specifically requires the discharge of
obligations only "in any coin or currency which at the
time of payment is legal tender for public and private
debts." In view of that law, therefore, the award
should be converted into and expressed in Philippine
Peso.
This brings us to a consideration of what rate of
exchange should apply in the conversion here
decreed. Should it be at the time of the breach, at the
time the obligation was incurred or at the rate of
exchange prevailing on the promulgation of this
decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115,
We ruled that in an action for recovery of damages for
breach of contract, even if the obligation assumed by
the defendant was to pay the plaintiff a sum of money
expressed in American currency, the indemnity to be
allowed should be expressed in Philippine currency at
the rate of exchange at the time of the judgment
rather than at the rate of exchange prevailing on the
date of defendant's breach. This ruling, however, can
either be applied nor extended to the case at bar for
the same was laid down when there was no law
against stipulating foreign currencies in Philippine
contracts. But now we have Republic Act No. 529
which expressly declares such stipulations as
contrary to public policy, void and of no effect. And, as
We already pronounced in the case of Eastboard
Navigation, Ltd., v. Juan Ysmael & Co., Inc., G.R. No.
L-9090, September 10, 1957, if there is any
agreement to pay an obligation in the currency other
than Philippine legal tender, the same is null and void
as contrary to public policy (Republic Act 529), and
the most that could be demanded is to pay said
obligation in Philippine currency "to be measured in
the prevailing rate of exchange at the time the
obligation was incurred (Sec. 1, Idem.)"

UPON ALL THE FOREGOING, the decision appealed
from is hereby affirmed, with the sole modification that
the award should be converted into the Philippine
peso at the rate of exchange prevailing at the time the
obligation was incurred or on July 1, 1952 when the
contract was executed. The appellee insurance
company, in the light of this judgment, is relieved of
any liability under this suit. No pronouncement as to
costs.
Bengzon, C.J., Padilla, Concepcion, Paredes,
Dizon, and Makalintal, JJ., concur.
Reyes, J.B.L., J., reserves his vote.
Barrera, J., took no part.
SECOND DIVISION
[G.R. No. L-37120. April 20, 1983.]
VICTORINO D.
MAGAT, petitioner, vs. HON. LEO D.
MEDIALDEA and SANTIAGO A.
GUERRERO,respondents.
Sinesio S. Vergara for petitioner.
Eladio B. Samson for respondents.
SYLLABUS
1.REMEDIAL LAW; ACTION; CAUSE OF ACTION;
SUFFICIENCY THEREOF DETERMINED ON BASIS
OF FACTS ALLEGED IN THE COMPLAINT;
REQUISITES; CASE AT BAR. Both parties are in
accord with the view that when a motion to dismiss is
based on the ground of lack of cause of action, the
sufficiency of the cause of action can only be
determined on the basis of the facts alleged in the
complaint; that the facts alleged are deemed
hypothetically admitted, including those which are
fairly deducible therefrom; and that, admitting the
facts as alleged, whether or not the court can render a
valid judgment against the defendant upon said facts
in accordance with the prayer in the complaint. After a
thorough examination of the complaint at bar, the
Supreme Court finds the test of legal sufficiency of the
cause of action adequately satisfied. In a methodical
and logical sequence, the complaint recites the
circumstances that led to the perfection of the
contract entered into by the parties. It further avers
that while petitioner had fulfilled his part of the bargain
(paragraph 8 of the Complaint), private respondent
failed to comply with his correlative obligation by
refusing to open a letter of credit to cover payment of
the goods ordered by him (paragraphs 11 & 12 of the
Complainant), and that consequently, petitioner
suffered not only loss of his expected profits, but
moral and exemplary damages as well. From these
allegations, the essential elements of a cause of
action are present, to wit: (1) the existence of a legal
right of the plaintiff; (2) a correlative duty of the
defendant; and (3) an act or omission of the
defendant in violation of the plaintiff's right, with
consequent injury or damage to the latter for which he
may maintain an action for recovery of damages or
other appropriate relief. In fine, the Supreme Court
holds that on the basis of the facts alleged in the
complaint, the Court could render a valid judgment in
accordance with the prayer thereof.
2.CIVIL LAW; DAMAGES; BREACH OF CONTRACT;
LOSS SUFFERED BY VIRTUE THEREOF
BECOMES REAL, FIXED AND VESTED AT THE
VERY MOMENT OF BREACH. Indisputably, the
parties, both businessman, entered into the aforesaid
contract with the evident intention of deriving some
profits therefrom. Upon breach of the contract by
either of them, the other would necessarily suffer loss
of his expected profits. Since the loss comes into
being at the very moment of breach, such loss is real,
"fixed and vested'' and therefore, recoverable under
the law.
3.ID.; ID.; ARTICLE 11700 of N.C.C.; PROVIDES
FOR RECOVERY OF DAMAGES; PHRASE "IN ANY
MANNER CONTRAVENE THE TENOR"
CONSTRUED. Article 1170 of the Civil Code
provides: "Those who in the performance of their
obligation are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor
thereof are liable for damages." The phrase "in any
manner contravene the tenor" of the obligation
includes any illicit act or omission which impairs the
strict and faithful fulfillment of the obligation and every
kind of defective performance.
4.ID.; ID.; EXTENT OF DAMAGES RECOVERABLE
DEPENDS ON THE PRESENCE OR ABSENCE OF
BAD FAITH ATTENDANT IN THE BREACH. The
damages which the obligor is liable for includes not
only the value of the loss suffered by the obligee
(dao emergente) but also the profits which the latter
failed to obtain (lucro cesante). If the obligor acted in
good faith, he shall be liable for those damages that
are the natural and probable consequences of the
breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the
time the obligation was constituted; and in case of
fraud, bad faith, malice or wanton attitude, he shall be
liable for all damages which may be reasonably
attributed to the non- performance of the obligation.
5.ID.; ID.; MORAL AND EXEMPLARY DAMAGES;
RECOVERABLE IN CASES OF BAD FAITH. The
same is true with respect to moral and exemplary
damages. The applicable legal provisions on the
matter, Articles 2220 and 2232 of the Civil Code,
allow the award of such damages in breaches of
contract where the defendant acted in bad faith. The
Supreme Court finds that the complaint sufficiently
alleges bad faith on the part of the defendant.
D E C I S I O N
ESCOLIN, J p:
Put to test in this petition for review on certiorari is the
sufficiency of the averments contained in the
complaint for alleged breach of contract filed by
petitioner Victorino D. Magat against respondent
Santiago A. Guerrero in Civil Case No. 17827 of the
Court of First Instance of Rizal, presided by
respondent Judge Leo D. Medialdea, now Deputy
Judicial Administrator, which complaint was dismissed
for failure to state a cause of action. cdrep
The pertinent allegations in the complaint, subject of
inquiry, are as follows: 1
"3.That sometime in September
1972, the defendant entered into
a contract with the U.S. Navy
Exchange, Subic Bay,
Philippines, for the operation of a
fleet of taxicabs, each taxicab to
be provided with the necessary
taximeter and a radio transceiver
for receiving and sending of
messages from mobile taxicab to
fixed base stations within the
Naval Base at Subic Bay,
Philippines;
"4.That Isidro Q. Aligada, acting
as agent of the defendant herein
conducted the necessary project
studies on how best the
defendant may meet the
requirements of his contract with
the U.S. Navy Exchange, Subic
Bay, Philippines, and because of
the experience of the plaintiff in
connection with his various
contracts with the U.S. Navy,
Subic Bay, Philippines, and his
goodwill already established with
the Naval personnel of Subic
Bay, Philippines, especially in
providing the U.S. Navy with
needed materials or goods on
time as specified by the U.S.
Navy, be they of local origin or
imported either from the United
States or from Japan, the said
Isidro Q. Aligada approached the
plaintiff herein in behalf of the
defendant and proposed to
import from Japan thru the
plaintiff herein or thru plaintiff's
Japanese business associates,
all taximeters and radio
transceivers needed by the
defendant in connection with his
contract with the U.S. Navy
Exchange, Subic Bay,
Philippines;
"5.That the defendant herein and
his aforesaid agent Isidro Q.
Aligada were able to import from
Japan with the assistance of the
plaintiff and his Japanese
business associates the
necessary taximeters for
defendant's taxicabs in partial
fulfillment of defendant's
commitments with the U.S. Navy
Exchange, Subic Bay,
Philippines, the plaintiff's
assistance in this matter having
been given to the defendant
gratis et amore;
"6.That Isidro Q. Aligada, also
acting as agent of the defendant,
made representations with the
plaintiff herein to the effect that
defendant desired to procure
from Japan thru the plaintiff
herein the needed radio
transceivers and to this end,
Isidro Q. Aligada secured a firm
offer in writing dated September
25, 1972, a copy of which is
hereto attached marked as
Annex 'A' and made an integral
part of this complaint, wherein the
plaintiff quoted in his offer a total
price of $77,620.59 [U.S. dollars]
FOB Yokohama, the goods or
articles therein offered for sale by
the plaintiff to the defendant to be
delivered sixty to ninety [60-90]
days after receipt of advice from
the defendant of the radio
frequency assigned to the
defendant by the proper
authorities;
"7.That the plaintiff received
notice of the fact that the
defendant accepted plaintiff's
offer to sell to the defendant the
items specified in Annex 'A', as
well as the terms and conditions
of said offer, as shown by the
signed conformity of the
defendant appearing on Annex
'A' which was duly delivered by
the defendant's agent to the
plaintiff herein, whereupon all that
the plaintiff had to do in the
meantime was to await advice
from the defendant as to the
radio frequency to be assigned
by the proper authorities to the
defendant;
"8.That believing that the
defendant would faithfully fulfill
his contract with the plaintiff
herein, considering his signed
conformity appearing in Annex 'A'
hereof as well as the letter dated
October 4, 1972, of his agent
aforementioned which is attached
hereto and marked as Annex 'B'
and made an integral part of this
complaint, and in order that
plaintiff's promised delivery would
not be delayed, the plaintiff
herein took steps to advise the
Japanese entity entrusted with
the manufacture of the items
listed in Annex 'A' to the effect
that the contract between the
defendant herein and the plaintiff
has been perfected and that
advice with regards to radio
frequency would follow as soon
as same is received by the
plaintiff from the defendant;
"9.That in his letter dated October
6, 1972, a copy of which is hereto
attached marked as Annex 'C',
the defendant advised his
aforementioned agent to the
effect that the U.S. Navy provided
him with the radio frequency of
34.2 MHZ [Megahertz] and
defendant requested his said
agent to proceed with his order
placed with the plaintiff herein,
which fact was duly
communicated to the plaintiff by
the defendant's aforementioned
agent;
"10.That by his letter dated
October 7, 1972, addressed to
the plaintiff by the defendant's
agent, a copy of which is hereto
attached and marked as Annex
'D', defendant's agent qualified
defendant's instructions
contained in his letter of October
6, 1972 [Annex 'C'] in the sense
that plaintiff herein should
proceed to fulfill defendant's
order only upon receipt by the
plaintiff of the defendant's letter of
credit;
"11.That it being normal business
practice in case of foreign
importation that the buyer opens
a letter of credit in favor of the
foreign supplier before delivery of
the goods sold, the plaintiff herein
awaited the opening of such a
letter of credit by the defendant;

"12.That the defendant and his
agent have repeatedly assured
plaintiff herein of the defendant's
financial capabilities to pay for
the goods ordered by him and in
fact he accomplished the
necessary application for a letter
of credit with his banker, but he
subsequently instructed his
banker not to give due course to
his application for a letter of credit
and that for reasons only known
to the defendant, he fails and
refuses to open the necessary
letter of credit to cover payment
of the goods ordered by him;
"13.That it has come to the
knowledge of the plaintiff herein
that the defendant has been
operating his taxicabs without the
required radio transceivers and
when the U.S. Navy Authorities of
Subic Bay, Philippines, were
pressing defendant for
compliance with his commitments
with respect to the installations of
radio transceivers on his
taxicabs, he impliedly laid the
blame for the delay upon the
plaintiff herein, thus destroying
the reputation of the plaintiff
herein with the said Naval
Authorities of Subic Bay,
Philippines, with whom plaintiff
herein transacts business;
"14.That on March 27, 1973,
plaintiff wrote a letter thru his
counsel, copy attached marked
as Annex 'E', to ascertain from
the defendant as to whether it is
his intention to fulfill his part of
the agreement with the plaintiff
herein or whether he desired to
have the contract between them
definitely cancelled, but
defendant did not even have the
courtesy to answer plaintiff's
demand;
"15.That the defendant herein
entered into a contract with the
plaintiff herein as set forth in
Annex 'A' without the least
intention of faithfully complying
with his obligations thereunder,
but he did so only in order to
obtain the concession from the
U.S. Navy Exchange, Subic Bay,
Philippines, of operating a fleet of
taxicabs inside the U.S. Naval
Base to hi financial benefit and at
the expense and prejudice of
third parties such as the plaintiff
herein;
"16.That in view of the
defendant's failure to fulfill his
contractual obligations with the
plaintiff herein, the plaintiff will
suffer the following damages:.
[a]As the radio transceivers ordered by the defendant
are now in the hands of the plaintiff's Japanese
representative, the plaintiff will have to pay for them,
thus he will have to suffer as total loss to him the
amount of P523,938.98 (converting the amount of
$77,620.59 to pesos at the rate of P6.75 to the dollar)
as said radio transceivers were purposely made or
manufactured solely for the use of the defendant
herein and cannot possibly be marketed by the
plaintiff herein to the general public;
[b]The amount of P52,393.89 or 10% of the purchase
price by way of loss of expected profits from the
transaction or contract between plaintiff and the
defendant;
[c]Loss of confidence in him and goodwill of the
plaintiff which will result in the impairment of his
business dealings with Japanese firms, thereby
resulting also in loss of possible profits in the future
which plaintiff assess at no less than P200,000.00;
[d]That in view of the defendant's bad faith in inducing
plaintiff to enter into the contract with him as set forth
hereinabove, defendant should be assessed by this
Honorable Court in favor of the plaintiff the sum of
P200,000.00 as moral and exemplary damages;
[e]That in view of the defendant's fault and to protect
his interests, plaintiff herein is constrained to retain
the services of counsel with whom he agreed to pay
by way of attorney's fees the sum of P50,000.00".
Respondent Guerrero filed a motion to dismiss said
complaint for lack of cause of action, which ground is
propounded by respondent's counsel thus: 2
". . . it is clear that plaintiff was
merely anticipating his loss or
damage which might result from
the alleged failure of defendant to
comply with the terms of the
alleged contract. Hence, plaintiff's
right of recovery under his cause
of action is premised not on any
loss or damage which he is
expecting to incur in the near
future. Plaintiff's right therefore
under his cause of action is not
yet fixed or vested.
"Inasmuch as there is no other
allegation in the present
Complaint wherein the same
could be maintained against
defendant, the present Complaint
should be dismissed for its failure
to state a cause of action against
defendant".
The respondent judge, over petitioner's opposition,
issued a minute order dismissing the complaint as
follow: 3
"Acting upon the 'Motion to
Dismiss' filed by the defendant,
through counsel, date June 7,
1973, as well as the opposition
thereto filed by the plaintiff,
through counsel, dated June 14,
1973, for the reasons therein
alleged, this Court hereby grants
said motion and, as prayed for,
the complaint in the above-
entitled case is dismissed.
"SO ORDERED".
Both parties are in accord with the view that when a
motion to dismiss is based on the ground of lack of
cause of action, the sufficiency of the case of action
can only be determined on the basis of the facts
alleged in the complaint 4 ; that the facts alleged are
deemed hypothetically admitted, including those
which are fairly deducible therefrom 5 ; and that,
admitting the facts as alleged, whether or not the
Court can render a valid judgment against the
defendant upon said facts in accordance with the
prayer in the complaint 6
After a thorough examination of the complaint at bar,
We find the test of legal sufficiency of the cause of
action adequately satisfied. In a methodical and
logical sequence, the complaint recites the
circumstances that led to the perfection of the
contract entered into by the parties. It further avers
that while petitioner had fulfilled his part of the bargain
[paragraph 8 of the Complaint], private respondent
failed to comply with his correlative obligation by
refusing to open a letter of credit to cover payment of
the goods ordered by him [paragraphs 11 & 12 of the
Complaint], and that consequently, petitioner suffered
not only loss of his expected profits, but moral and
exemplary damages as well. From these allegations,
the essential elements of a cause of action are
present, to wit: [1] the existence of a legal right to the
plaintiff; [2] a correlative duty of the defendant and [3]
an act or omission of the defendant in violation of the
plaintiff's right, with consequent injury or damage to
the latter for which he may maintain an action for
recovery of damages or other appropriate relief. 7
Indisputably, the parties, both businessmen, entered
into the aforesaid contract with the evident intention of
deriving some profits therefrom. Upon breach of the
contract by either of them, the other would necessarily
suffer loss of his expected profits. Since the loss
comes into being at the very moment of breach, such
loss is real, "fixed and vested" and, therefore,
recoverable under the law. LibLex
Article 1170 of the Civil Code provides:
"Those who in the performance of
their obligation are guilty of fraud,
negligence, or delay, and those
who in any manner contravene
the tenor thereof are liable for
damages."
The phrase "in any manner contravene the tenor" of
the obligation includes any illicit act or omission which
impairs the strict and faithful fulfillment of the
obligation and every kind of defective performance. 8
The damages which the obligor is liable for includes
not only the value of the loss suffered by the obligee
[dao emergente] but also the profits which the latter
failed to obtain [lucro cesante] 9 . If the obligor acted
in good faith, he shall be liable for those damages that
are the natural and probable consequences of the
breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the
time the obligation was constituted; and in case of
fraud, bad faith, malice or wanton attitude, he shall be
liable for all damages which may be reasonably
attributed to the nonperformance of the obligation 10
The same is true with respect to moral and exemplary
damages. The applicable legal provisions on the
matter, Articles 2220 and 2232 of the Civil Code,
allow the award of such damages in breaches of
contract where the defendant acted in bad faith. To
Our mind, the complaint sufficiently alleges bad faith
on the part of the defendant.
In fine, We hold that on the basis of the facts alleged
in the complaint, the court could render a valid
judgment in accordance with the prayer
thereof. LLphil
ACCORDINGLY, the questioned order of dismissal is
hereby set aside and the case ordered remanded to
the court of origin for further proceedings. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr.,
Guerrero and Abad Santos, JJ., concur.
Aquino, J., is on leave.
De Castro, J., took no part.
SECOND DIVISION
[G.R. No. 108253. February 23, 1994.]
LYDIA L.
GERALDEZ, petitioner, vs. HON.
COURT OF APPEALS and
KENSTAR TRAVEL
CORPORATION, respondents.
D E C I S I O N
REGALADO, J p:
Our tourism industry is not only big business; it is a
revenue support of the nation's economy. It has
become a matter of public interest as to call for its
promotion and regulation on a cabinet level. We have
special laws and policies for visiting tourists, but such
protective concern has not been equally extended to
Filipino tourists going abroad. Thus, with the limited
judicial relief available within the ambit of present
laws, our tourists often prefer to forget their
grievances against local tour operators who fail to
deliver on their undertakings. This case illustrates the
recourse of one such tourist who refused to forget.
An action for damages by reason of contractual
breach was filed by petitioner Lydia L. Geraldez
against private respondent Kenstar Travel
Corporation, docketed as Civil Case No. Q-90-4649 of
the Regional Trial Court of Quezon City, Branch
80.

1 After the parties failed to arrive at an amicable
settlement, trial on the merits ensued.
Culling from the records thereof, we find that
sometime in October, 1989, Petitioner came to know
about private respondent from numerous
advertisements in newspapers of general circulation
regarding tours in Europe. She then contacted private
respondent by phone and the latter sent its
representative, Alberto Vito Cruz, who gave her the
brochure for the tour and later discussed its
highlights. The European tours offered were classified
into four, and petitioner chose the classification
denominated as "VOLARE 3" covering a 22-day tour
of Europe for $2,990.00. She paid the total equivalent
amount of P190,000.00 charged by private
respondent for her and her sister, Dolores. prLL
Petitioner claimed that, during the tour, she was very
uneasy and disappointed when it turned out that,
contrary to what was stated in the brochure, there
was no European tour manager for their group of
tourists, the hotels in which she and the group were
billeted were not first-class, the UGC Leather Factory
which was specifically added as a highlight of the tour
was not visited, and the Filipino lady tour guide by
private respondent was a first timer, that is, she was
performing her duties and responsibilities as such for
the first time.

2
In said action before the Regional Trial Court of
Quezon City, petitioner likewise moved for the
issuance of a writ of preliminary attachment against
private respondent on the ground that it committed
fraud in contracting an obligation, as contemplated in
Section 1 (d), Rule 57 of the Rules of Court, to which
no opposition by the latter appears on the record. This
was granted by the court a quo

3 but the preliminary
attachment was subsequently lifted upon the filing by
private respondent of a counterbond amounting to
P990,000.00.

4
During the pendency of said civil case for damages,
petitioner also filed other complaints before the
Department of Tourism in DOT Case No. 90-121 and
the Securities and Exchange Commission in PED
Case No. 90-3738, 5 wherein, according to petitioner,
herein private respondent was meted out a fine of
P10,000.00 by the Commission and P5,000.00 by the
Department,

6 which facts are not disputed by private
respondent in its comment on the present petition.
On July 9, 1991, the court a quo rendered its
decision

7 ordering private respondent to pay
petitioner P500.000.00 as moral damages,
P200,000.00 as nominal damages, P300,000.00 as
exemplary damages, P50,000.00 as and for attorney's
fees, and the costs of the suit.

8 On appeal,
respondent court

9 deleted the award for moral and
exemplary damages, and reduced the awards for
nominal damages and attorney's fees to P30,000.00
and P10,000.00, respectively.10
Hence, the instant petition from which, after sifting
through the blades of contentions alternately thrust
and parried in the exchanges of the parties, the
pivotal issue that emerges is whether or not private
respondent acted in bad faith or with gross negligence
in discharging its obligations under the contract.
Both the respondent court and the court a quo agree
that private respondent failed to comply faithfully with
its commitments under the Volare 3 tour program,
more particularly in not providing the members of the
tour group with a European tour manger whose
duty, inter alia, was to explain the points of interest of
and familiarize the tour group with the places they
would visit in Europe, and in assigning instead a first
timer Filipino tour guide, in the person of Rowena
Zapanta, 11 to perform that role which definitely
requires experience and knowledge of such places. It
is likewise undisputed that while the group was able
to pay a visit to the site of the UGC Leather Factory,
they were brought there at a very late hour such that
the factory was already closed and they were unable
to make purchases at supposedly discounted
prices. 12 As to the first-class hotels, however, while
the court a quo found that the hotels were not fist-
class, respondent court believed otherwise, or that, at
least, there was substantial compliance with such a
representation.
While clearly there was therefore a violation of the
rights of petitioner under the aforementioned
circumstances, respondent court, contrary to the
findings of the trial court, ruled that no malice or bad
faith could be imputed to private respondent, hence
there is no justification for the award of moral and
exemplary damages. Furthermore, it held that while
petitioner is entitled to nominal damages, the amount
awarded by the trial court was unconscionable since
petitioner did not suffer actual or substantial damage
from the breach of contract, 13 hence its reduction of
such award as hereinbefore stated. LibLex
After thorough and painstaking scrutiny of the case
records of both the trial and appellate courts, we are
satisfactorily convinced, and so hold, that private
respondent did commit fraudulent misrepresentations
amounting to bad faith, to the prejudice of petitioner
and the members of the tour group.
By providing the Volare 3 tourist group, of which
petitioner was a member, with an inexperienced and a
first timer tour escort, private respondent manifested
its indifference to the convenience, satisfaction and
peace of mind of its clients during the trip, despite its
express commitment to provide such facilities under
the Volare 3 Tour Program which had the grandiose
slogan "Let your heart sing." 14
Evidently, an inexperienced tour escort, who
admittedly had not even theretofore been to Europe,
15 cannot effectively acquaint the tourists with the
interesting areas in the cities and places included in
the program, or to promptly render necessary
assistance, especially where the latter are complete
strangers thereto, like witnesses Luz Sui Haw and her
husband who went to Europe for their honeymoon.

16
We agree with petitioner that the selection of Zapanta
as the group's tour guide was deliberate and
conscious choice on the part of private respondent in
order to afford her an on-the-job training and equip
her with the proper opportunities so as to later qualify
her as an "experienced" tour guide and eventually be
an asset of respondent corporation. 17 Unfortunately,
this resulted in a virtual project experimentation with
petitioner and the members of the tour as the
unwitting participants.
We are, therefore, one with respondent court in
faulting private respondent's choice of Zapanta as a
qualified tour guide for the Volare 3 tour package. It
brooks no argument that to be true to its
undertakings, private respondent should have
selected an experienced European tour guide, or it
could have allowed Zapanta to go merely as an
understudy under the guidance, control and
supervision of an experienced and competent
European or Filipino tour guide, 18 who could give her
the desired training. LexLib
Moreover, a tour guide is supposed to attend to the
routinary needs of the tourists, not only when the
latter ask for the assistance but at the moment such
need becomes apparent. In other words, the tour
guide, especially by reason of her experience in
previous tours, must be able to anticipate the possible
needs and problems of the tourists instead of waiting
for them to bring it to her attention. While this is
stating the obvious, it is her duty to see to it that basic
personal necessities such as soap, towels and other
daily amenities are provided by the hotels. It is also
expected of her to see to it that the tourists are
provided with sanitary surroundings and to actively
arrange for medical attention in case of accidents, as
what befell petitioner's sister and wherein the siblings
had to practically fend for themselves since, after
merely calling for an ambulance, Zapanta left with the
other tour participants. 19
Zapanta fell far short of the performance expected by
the tour group, her testimony in open court being
revelatory of her inexperience even on the basic
function of a tour guide, to wit:
"QNow, are you aware that there
were times that the
tourists under the
'Volare 3' were not
provided with soap and
towels?
AThey did not ell me that but I
was able to ask them
later on but then nobody
is complaining."

20
The inability of the group to visit the leather factory is
likewise reflective of the neglect and ineptness of
Zapanta in attentively following the itinerary of the
day. This incompetence must necessarily be traced to
the lack of due diligence on the part of private
respondent in the selection of its employees. It is true
that among the thirty-two destinations, which included
twenty-three cities and special visits to nine tourist
spots, this was the only place that was not
visited.21 It must be noted, however, that the visit to
the UGC Leather Factory was one of the highlights 22
of the Volare 3 program which even had to be
specifically inserted in the itinerary, hence it was
incumbent upon the organizers of the tour to take
special efforts to ensure the same. Besides, Petitioner
did expect much from the visit to that factory since it
was represented by private respondent that quality
leather goods could be bought there at lower
prices.

23

Private respondent represents Zapanta's act of
making daily overseas calls to Manila as an exercise
of prudence and diligence on the latter's part as a tour
guide. 24 It further claims that these calls were
needed so that it could monitor the progress of the
tour and respond to any problem immediately. 25 We
are not persuaded. The truth of the matter is that
Zapanta, as an inexperienced trainee-on-the-job, was
required to make these calls to private respondent for
the latter to gauge her ability in coping with her first
assignment and to provide instructions to her.

26
Clearly, therefore, private respondent's choice of
Zapanta as the tour guide is a manifest disregard of
its specific assurance to the tour group, resulting in
agitation and anxiety on their part, and which
deliberate omission is contrary to the elementary rules
of good faith and fair play. It is extremely doubtful if
any group of Filipino tourists would knowingly agree
to be used in effect as guinea pigs in an employees'
training program of a travel agency, to be conducted
in unfamiliar European countries with their diverse
cultures, lifestyles and languages. LexLib
On the matter of the European tour manager, private
respondent's advertisement in its tour contract
declares and represents as follows:
"FILIPINO TOUR ESCORT!
He will accompany you
throughout Europe. He speaks
your language, shares your
culture and feels your excitement.
He won't be alone because you
will also be accompanied by a . . .
EUROPEAN TOUR MANAGER!
You get the best of both worlds.
Having done so many tours in the
past with people like you, he
knows your sentiments, too. So
knowledgeable about Europe,
there is hardly a question he can't
answer." 27
Private respondent contends that the term "European
Tour Manager" does not refer to an individual but to
an organization, allegedly the Kuoni Travel of
Switzerland which supposedly prepared the itinerary
for its "Volare Europe Tour," negotiated with all the
hotels in Europe, selected tourist spots and historical
places to visit, and appointed experienced local tour
guides for the tour group. 28
We regret this unseemly quibbling which perforce
cannot be allowed to pass judicial muster.
A cursory reading of said advertisement will readily
reveal the express representation that the
contemplated European tour manager is a natural
person, and not a juridical one as private respondent
asserts. A corporate entity could not possibly
accompany the members of the tour group to places
in Europe; neither can it answer questions from the
tourist during the tour. Of course, it is absurd that if a
tourist would want to know how he could possibly go
to the nearest store or supermarket, he would still
have to call Kuoni Travel of Switzerland. LexLib
Furthermore, both lower courts observed, and we
uphold their observations, that indeed private
respondent had the obligation to provide the tour
group not only with a European tour manager, but
also with local European tour guides. The latter,
parenthetically, were likewise never made
available. 29 Zapanta claims that she was
accompanied by a European local tour guide in most
of the major cities in Europe. We entertain serious
doubts on, and accordingly reject, this pretension for
she could not even remember the name of said
European tour guide. 30 If such a guide really existed,
it is incredible why she could not even identify the
former when she testified a year later, despite the
length of their sojourn and the duration of their
association.
As to why the word "he" was used in the aforequoted
advertisement, private respondent maintains that the
pronoun "he" also includes the word "it," as where it is
used as a "nominative case form in general
statements (as in statutes) to include females,
fictitious persons (as corporations)." 31 We are
constrained to reject this submission as patently
strained and untenable. As already demonstrated, it is
incredible that the word "he" was used by private
respondent to denote an artificial or corporate being.
From its advertisement, it is beyond cavil that the
import of the word "he" is a natural and not a juridical
person. There is no need for further interpretation
when the wordings are clear. The meaning that will
determine the legal effect of a contract is that which is
arrived at by objective standards; one is bound, not by
what he subjectively intends, but by what he leads
others reasonably to think he intends.

32
In an obvious but hopeless attempt to arrive at a
possible justification, private respondent further
contends that it explained the concept of a European
tour manager to its clients at the pre-departure
briefing, which petitioner did not
attend. 33 Significantly, however, private respondent
failed to present even one member of the tour group
to substantiate its claim. It is a basic rule of evidence
that a party must prove his own affirmative
allegations. 34 Besides, if it was really its intention to
provide a juridical European tour manager, it could
not have kept on promising its tourists during the tour
that a European tour manager would
come, 35 supposedly to join and assist them. LLjur
Veering to another line of defense, private respondent
seeks sanctuary in the delimitation of its responsibility
as printed on the face of its brochure on the Volare 3
program, to wit:
"RESPONSIBILITIES:
KENSTAR TRAVEL
CORPORATION, YOUR
TRAVEL AGENT, THEIR
EMPLOYEES OR SUB-AGENTS
SHALL BE RESPONSIBLE
ONLY FOR BOOKING AND
MAKING ARRANGEMENTS AS
YOUR AGENTS. Kenstar Travel
Corporation, your Travel Agent,
their employees or sub-agents
assume no responsibility or
liability arising out of or in
connection with the services or
lack of services, of any train,
vessel, other conveyance or
station whatsoever in the
performance of their duty to the
passengers or guests, neither will
they be responsible for any act,
error or omission, or of any
damages, injury, loss, accident,
delay or irregularity which may be
occasioned by reason (of) or any
defect in . . . lodging place or any
facilities. . . . (Emphasis by
private respondent.) 36
While, generally, the terms of a contract result from
the mutual formulation thereof by the parties thereto,
it is of common knowledge that there are certain
contracts almost all the provisions of which have been
drafted by only one party, usually a corporation. Such
contracts are called contracts of adhesion, because
the only participation of the party is the affixing of his
signature or his "adhesion" thereto. 37 In situations
like these, when a party imposes upon another a
ready-made form of contract, 38 and the other is
reduced to the alternative of taking it or leaving it,
giving no room for negotiation and depriving the latter
of the opportunity to bargain on equal footing, a
contract of adhesion results. While it is true that an
adhesion contract is not necessarily void, it must
nevertheless be construed strictly against the one
who drafted the same. 39 This is especially true
where the stipulations are printed in fine letters and
are hardly legible, as is the case of the tour
contract 40 involved in the present controversy.
Yet, even assuming arguendo that the contractual
limitation aforequoted is enforceable, private
respondent still cannot be exculpated for the reason
that responsibility arising from fraudulent acts, as in
the instant case, cannot be stipulated against by
reason of public policy. Consequently, for the
foregoing reasons, private respondent cannot rely on
its defense of "substantial compliance" with the
contract.
Private respondent submits likewise that the tour was
satisfactory, considering that only petitioner, out of
eighteen participants in the Volare 3 Tour Program,
actually complained. 41 We cannot accept this
argument. Section 28, Rule 130 of the Rules of Court
declares that the rights of a party cannot be
prejudiced by an act, declaration, or omission of
another, a statutory adaptation of the first branch of
the hornbook rule of res inter alios acta 42 which we
do not have to belabor here.
Besides, it is a commonly known fact that there are
tourists who, although the tour was far from what the
tour operator undertook under the contract, choose to
remain silent and forego recourse to a suit just to
avoid the expenses, hassle and rancor of litigation,
and not because the tour was in accord with what was
promised. One does not relish adding to the bitter
memory of a misadventure the unpleasantness of
another extended confrontation. Furthermore,
contrary to private respondent's assertion, not only
petitioner but two other members of the tour group.
Luz Sui Haw and Ercilla Ampil, confirmed petitioner's
complaints when they testified as witnesses for her as
plaintiff in the court below. 43
Private respondent likewise committed a grave
misrepresentation when it assured in its Volare 3 tour
package that the hotels it had chosen would provide
the tourists complete amenities and were
conveniently located along the way for the daily
itineraries. 44 It turned out that some of the hotels
were not sufficiently equipped with even the basic
facilities and were at a distance from the cities
covered by the projected tour. Petitioner testified on
her disgust with the conditions and locations of the
hotels, thus: prcd
"QAnd that these bathrooms
ha(ve) bath tub(s) and
hot and cold shower(s)?
ANot all, sir.
QDid they also provide soap and
towels?
ANot all, sir, some (had) no toilet
paper. 45
QWhich one?
AThe 2 stars, the 3 stars and
some 4 stars (sic)
hotels.
QWhat I am saying . . .
AYou are asking a question? I
am answering you. 2
stars, 3 stars and some
4 stars (sic) hotels, no
soap, toilet paper and
(the) bowl stinks. . . .
xxx xxx xxx
QAnd that except for the fact that
some of these four star
hotels were outside the
city they provided you
with the comfort?

ANot all, sir.
QCan you mention some which
did not provide you that
comfort?
AFor example, if Ramada Hotel
Venezia is in Quezon
City, our hotel is in
Meycauayan. And if
Florence or Ferenze is
in Manila, our hotel is in
Muntinlupa. 46
xxx xxx xxx
AOne more hotel, sir, in
Barcelona, Hotel Saint
Jacques is also outside
the city. Suppose
Barcelona is in Quezon
City, our hotel is in
Marilao. We looked for
this hotel inside the city
of Barcelona for three
(3) hours. We wasted
our time looking for
almost all the hotels and
places where to eat.
That is the kind of tour
that you have." 47
Luz Sui Haw, who availed of the Volare 3 tour
package with her husband for their honeymoon,
shared the sentiments of petitioner and testified as
follows:
Q. . . Will you kindly tell us why
the hotels where you
stayed are not
considered first class
hotels? LLpr
ABecause the hotels where we
went, sir, (are) far from
the City and the
materials used are not
first class and at times
there were no towels
and soap. And the two
(2) hotels in Nevers and
Florence the conditions
(are) very worse
(sic). 48
QConsidering that you are
honeymooners together
with your husband, what
(were) your feelings
when you found out that
the condition were not
fulfilled by the
defendant?
AI would like to be very honest. I
got sick when I reached
Florence and half of my
body got itch (sic). I
think for a honeymooner
I would like to
emphasize that we
should enjoy that day of
our life and it seems my
feet kept on itching
because of the condition
of the hotel. And I was
so dissatisfied because
the European Tour
Manger was not around
there (were) beautiful
promises. They kept on
telling us that a
European Tour Manager
will come over; until our
Paris tour was ended
there was no European
tour manager. 49
xxx xxx xxx
QYou will file an action against
the defendant because
there was a disruption of
your happiness, in your
honeymoon, is that
correct?
AThat is one of my causes of
(sic) coming up here.
Secondly, I was very
dissatisfied (with) the
condition. Thirdly, that
Volare 89 it says it will
let your heart sing. That
is not true. There was
no European tour
(manager) and the
highlights of the tour
(were) very poor. The
hotels were worse (sic)
hotels. 50
QAll the conditions of the hotels
as you . . .
ANot all but as stated in the
brochure that it is first
class hotel. The first
class hotels state that all
things are beautiful and
it is neat and clean with
complete amenities and
I encountered the
Luxembourg hotel which
is quite very dilapidated
because of the flooring
when you step on the
side 'kumikiring' and the
cabinets (are) antiques
and as honeymooners
we don't want to be
disturbed or seen. 51
xxx xxx xxx
QNone of these are first class
hotels?
AYes, sir.
QSo, for example Ramada Hotel
Venezia which
according to Miss
Geraldez is first class
hotel is not first class
hotel?
AYes, sir.
QYou share the opinion of Miss
Geraldez?
AYes, sir.
QThe same is true with Grand
Hotel Palatino which is
not a first class hotel?
AYes, sir.
QAnd Hotel Delta Florence is not
first class hotel?
AThat is how I got my itch, sir.
Seven (7) days of itch.
QHow about Hotel Saint-
Jacquez, Paris?
AIt is far from the city. It is not
first class hotel.
QSo with Hotel Le Prieure Du
Coeur de Jesus neither
a first class hotel?
AYes, sir.
QHotel De Nevers is not a first
class hotel?
AYes, sir.
QHotel Roc Blanc Andorra is not
a first class hotel?
AYes, sir.
QSaint Just Hotel, Barcelona is
not a first class hotel?
AYes, sir.
QHotel Pullman Nice neither is
not a first class hotel?
AYes, sir.
QHotel Prinz Eugen and
Austrotel are not first
class hotels?
AYes, sir."

52
Private respondent cannot escape responsibility by
seeking refuge under the listing of first-class hotels in
publications like the "Official Hotel and Resort Guide"
and "Worldwide Hotel Guide." 53 Kuoni Travel, its tour
operator, 54 which prepared the hotel listings, is a
European-based travel agency 55 and, as such, could
have easily verified the matter of first-class
accommodations. Nor can it logically claim that the
first-class hotels in Europe may not necessarily be the
first-class hotels here in the Philippines. 56 It is
reasonable for petitioner to assume that the promised
first-class hotels are equivalent to what are
considered first-class hotels in Manila. Even
assuming arguendo that there is indeed a difference
in classifications, it cannot be gainsaid that a first-
class hotel could at the very least provide basic
necessities and sanitary accommodations. We are
accordingly not at all impressed by private
respondent's attempts to trivialize the complaints
thereon by petitioner and her companions. cdphil
In a last ditch effort to justify its choice of the hotels,
private respondent contends that it merely provided
such "first class" hotels which were commensurate to
the tourists' budget, or which were, under the given
circumstances, the "best for their money." It
postulated that it could not have offered better
hostelry when the consideration paid for hotel
accommodations by the tour participants was only so
much, 57 and the tour price of $2,990.00 covers a
European tour for 22 days inclusive of lower room
rates and meals. 58 This is implausible, self-serving
and borders on sophistry.
The fact that the tourists were to pay a supposedly
lower amount, such that private respondent allegedly
retained hardly enough as reasonable profit, 59 does
not justify a substandard form of service in return. It
was private respondent, in the first place, which fixed
the charges for the package tour and determined the
services that could be availed of corresponding to
such price. Hence, it cannot now be heard to
complain that it only made a putative marginal profit
out of the transaction. If it could not provide the tour
participants with first-class lodgings on the basis of
the amount that they paid, it could and should have
instead increased the price to enable it to arrange for
the promised first-class accommodations.
On the foregoing considerations, respondent court
erred in deleting the award for moral and exemplary
damages. Moral damages may be awarded in
breaches of contract where the obligor acted
fraudulently or in bad faith. 60 From the facts earlier
narrated, private respondent can be faulted with fraud
in the inducement, which is employed by a party to a
contract in securing the consent of the other. llcd
This fraud or dolo which is present or employed at the
time of birth or perfection of a contract may either
be dolocausante or dolo incidente. The first, or causal
fraud referred to in Article 1338, are those deceptions
or misrepresentations of a serious character
employed by one party and without which the other
party would not have entered into the contract. Dolo
incidente, or incidental fraud which is referred to
in Article 1344, are those which are not serious in
character and without which the other party would still
have entered into the contract. 61 Dolo
causantedetermines or is the essential cause of the
consent, while dolo incidente refers only to some
particular or accident of the obligations. 62 The
effects of dolo causante are the nullity of the contract
and the indemnification of damages, 63 anddolo
incidente also obliges the person employing it to pay
damages. 64
In either case, whether private respondent has
committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and
other members of the tour group, which deceptions
became patent in the light of after-events when,
contrary to its representations, it employed an
inexperienced tour guide, housed the tourist group in
substandard hotels, and reneged on its promise of a
European tour manager and the visit to the leather
factory, it is indubitably liable for damages to
petitioner.
In the belief that an experienced tour escort and a
European tour manager would accompany them, with
the concomitant reassuring and comforting thought of
having security and assistance readily at hand,
petitioner was induced to join the Volare 3 tourists,
instead of travelling alone. 65 She likewise suffered
serious anxiety and distress when the group was
unable to visit the leather factory and when she did
not receive first-class accommodations in their
lodgings which were misrepresented as first-class
hotels. These, to our mind, justify the award for moral
damages, which are in the category of an award
designed to compensate the claimant for that injury
which she had suffered, and not as a penalty on the
wrongdoer, 66 we believe that an award of
P100,000.00 is sufficient and reasonable. cdphil
When moral damages are awarded, especially for
fraudulent conduct, exemplary damages may also be
decreed. Exemplary damages are imposed by way of
example or correction for the public good, in addition
to moral, temperate, liquidated or compensatory
damages. According to the Code Commission,
exemplary damages are required by public policy, for
wanton acts must be suppressed. 67 An award,
therefore, of P50,000.00 is called for to deter travel
agencies from resorting to advertisements and
enticements with the intention of realizing
considerable profit at the expense of the public,
without ensuring compliance with their express
commitments. While, under the present state of the
law, extraordinary diligence is not required in travel or
tour contracts, such as that in the case at bar, the
travel agency acting as tour operator must
nevertheless be held to strict accounting for
contracted services, considering the public interest in
tourism, whether in the local or in the international
scene. Consequently, we have to likewise reject the
theory of private respondent that the promise it made
in the tour brochure may be regarded only as
"commendatory trade talk."

68
With regard to the honorarium for counsel as an item
of damages, since we are awarding moral and
exemplary damages, 69 and considering the legal
importance of the instant litigation and the efforts of
counsel evident from the records of three levels of the
judicial hierarchy, we favorably consider the amount
of P20,000.00 therefor.
WHEREFORE, premises considered, the decision of
respondent Court of Appeals is hereby SET ASIDE,
and another one rendered, ordering private
respondent Kenstar Travel Corporation to pay
petitioner Lydia L. Geraldez the sums of P100,000.00
by way of moral damages, P50,000.00 as exemplary
damages, and P20,000.00 as and for attorney's fees,
with costs against private respondent. The award for
nominal damages is hereby deleted. llcd
SO ORDERED.
Padilla, Nocon and Puno, JJ ., concur.
Narvasa, C .J ., took no part.
SECOND DIVISION
[G.R. No. 174269. May 8, 2009.]
POLO S.
PANTALEON, petitioner, vs.
AMERICAN EXPRESS
INTERNATIONAL,
INC., respondent.
D E C I S I O N
TINGA, J p:
The petitioner, lawyer Polo Pantaleon, his wife
Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe
organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in
Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had
arrived late in the city, they failed to engage in any
sight-seeing. Instead, it was agreed upon that they
would start early the next day to see the entire city
before ending the tour.
The following day, the last day of the tour, the group
arrived at the Coster Diamond House in Amsterdam
around 10 minutes before 9:00 a.m. The group had
agreed that the visit to Coster should end by 9:30
a.m. to allow enough time to take in a guided city tour
of Amsterdam. The group was ushered into Coster
shortly before 9:00 a.m., and listened to a lecture on
the art of diamond polishing that lasted for around ten
minutes. 1 Afterwards, the group was led to the
store's showroom to allow them to select items for
purchase. Mrs. Pantaleon had already planned to
purchase even before the tour began a 2.5 karat
diamond brilliant cut, and she found a diamond close
enough in approximation that she decided to
buy. 2 Mrs. Pantaleon also selected for purchase a
pendant and a chain, 3 all of which totaled U.S.
$13,826.00.
To pay for these purchases, Pantaleon presented his
American Express credit card together with his
passport to the Coster sales clerk. This occurred at
around 9:15 a.m., or 15 minutes before the tour group
was slated to depart from the store. The sales clerk
took the card's imprint, and asked Pantaleon to sign
the charge slip. The charge purchase was then
referred electronically to respondent's Amsterdam
office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon
that his AmexCard had not yet been approved. His
son, who had already boarded the tour bus, soon
returned to Coster and informed the other members of
the Pantaleon family that the entire tour group was
waiting for them. As it was already 9:40 a.m., and he
was already worried about further inconveniencing the
tour group, Pantaleon asked the store clerk to cancel
the sale. The store manager though asked plaintiff to
wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had
demanded bank references. Pantaleon supplied the
names of his depositary banks, then instructed his
daughter to return to the bus and apologize to the tour
group for the delay. CAIaDT
At around 10:00 a.m., or around 45 minutes after
Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have
left the store, Coster decided to release the items
even without respondent's approval of the purchase.
The spouses Pantaleon returned to the bus. It is
alleged that their offers of apology were met by their
tourmates with stony silence. 4 The tour group's
visible irritation was aggravated when the tour guide
announced that the city tour of Amsterdam was to be
canceled due to lack of remaining time, as they had to
catch a 3:00 p.m. ferry at Calais, Belgium to
London. 5 Mrs. Pantaleon ended up weeping, while
her husband had to take a tranquilizer to calm his
nerves.
It later emerged that Pantaleon's purchase was first
transmitted for approval to respondent's Amsterdam
office at 9:20 a.m., Amsterdam time, then referred to
respondent's Manila office at 9:33 a.m., then finally
approved at 10:19 a.m., Amsterdam time. 6 The
Approval Code was transmitted to respondent's
Amsterdam office at 10:38 a.m., several minutes after
petitioner had already left Coster, and 78 minutes
from the time the purchases were electronically
transmitted by the jewelry store to respondent's
Amsterdam office.
After the star-crossed tour had ended, the Pantaleon
family proceeded to the United States before
returning to Manila on 12 November 1992. While in
the United States, Pantaleon continued to use his
AmEx card, several times without hassle or delay, but
with two other incidents similar to the Amsterdam
brouhaha. On 30 October 1991, Pantaleon purchased
golf equipment amounting to US $1,475.00 using his
AmEx card, but he cancelled his credit card purchase
and borrowed money instead from a friend, after more
than 30 minutes had transpired without the purchase
having been approved. On 3 November 1991,
Pantaleon used the card to purchase children's shoes
worth $87.00 at a store in Boston, and it took 20
minutes before this transaction was approved by
respondent.
On 4 March 1992, after coming back to Manila,
Pantaleon sent a letter 7 through counsel to the
respondent, demanding an apology for the
"inconvenience, humiliation and embarrassment he
and his family thereby suffered" for respondent's
refusal to provide credit authorization for the
aforementioned purchases. 8 In response,
respondent sent a letter dated 24 March
1992, 9 stating among others that the delay in
authorizing the purchase from Coster was attributable
to the circumstance that the charged purchase of US
$13,826.00 "was out of the usual charge purchase
pattern established".10 Since respondent refused to
accede to Pantaleon's demand for an apology, the
aggrieved cardholder instituted an action for damages
with the Regional Trial Court (RTC) of Makati City,
Branch 145. 11 Pantaleon prayed that he be awarded
P2,000,000.00, as moral damages; P500,000.00, as
exemplary damages; P100,000.00, as attorney's fees;
and P50,000.00 as litigation expenses. 12
On 5 August 1996, the Makati City RTC rendered a
decision 13 in favor of Pantaleon, awarding him
P500,000.00 as moral damages, P300,000.00 as
exemplary damages, P100,000.00 as attorney's fees,
and P85,233.01 as expenses of litigation. Respondent
filed a Notice of Appeal, while Pantaleon moved for
partial reconsideration, praying that the trial court
award the increased amount of moral and exemplary
damages he had prayed for. 14 The RTC denied
Pantaleon's motion for partial reconsideration, and
thereafter gave due course to respondent's Notice of
Appeal. 15
On 18 August 2006, the Court of Appeals rendered a
decision 16 reversing the award of damages in favor
of Pantaleon, holding that respondent had not
breached its obligations to petitioner. Hence, this
petition.
The key question is whether respondent, in
connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In
addition, Pantaleon submits that even assuming that
respondent had not been in breach of its obligations,
it still remained liable for damages under Article 21 of
the Civil Code.
The RTC had concluded, based on the testimonial
representations of Pantaleon and respondent's credit
authorizer, Edgardo Jaurigue, that the normal
approval time for purchases was "a matter of
seconds". Based on that standard, respondent had
been in clear delay with respect to the three subject
transactions. As it appears, the Court of Appeals
conceded that there had been delay on the part of
respondent in approving the purchases. However, it
made two critical conclusions in favor of respondent.
First, the appellate court ruled that the delay was not
attended by bad faith, malice, or gross negligence.
Second, it ruled that respondent "had exercised
diligent efforts to effect the approval" of the
purchases, which were "not in accordance with the
charge pattern" petitioner had established for himself,
as exemplified by the fact that at Coster, he was
"making his very first single charge purchase of
US$13,826", and "the record of [petitioner]'s past
spending with [respondent] at the time does not
favorably support his ability to pay for such
purchase." 17 SHaIDE
On the premise that there was an obligation on the
part of respondent "to approve or disapprove with
dispatch the charge purchase", petitioner argues that
the failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of
respondent in the performance of its obligation. For its
part, respondent characterizes the depiction by
petitioner of its obligation to him as "to approve
purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the
three requisites for a finding of default are that the
obligation is demandable and liquidated; the debtor
delays performance; and the creditor judicially or
extrajudicially requires the debtor's
performance. 18 Petitioner asserts that the Court of
Appeals had wrongly applied the principle of mora
accipiendi, which relates to delay on the part of the
obligee in accepting the performance of the obligation
by the obligor. The requisites of mora accipiendi are:
an offer of performance by the debtor who has the
required capacity; the offer must be to comply with the
prestation as it should be performed; and the creditor
refuses the performance without just cause. 19 The
error of the appellate court, argues petitioner, is in
relying on the invocation by respondent of "just
cause" for the delay, since while just cause is
determinative of mora accipiendi, it is not so with the
case of mora solvendi.
We can see the possible source of confusion as to
which type of mora to appreciate. Generally, the
relationship between a credit card provider and its
card holders is that of creditor-debtor, 20 with the card
company as the creditor extending loans and credit to
the card holder, who as debtor is obliged to repay the
creditor. This relationship already takes exception to
the general rule that as between a bank and its
depositors, the bank is deemed as the debtor while
the depositor is considered as the
creditor. 21 Petitioner is asking us, not baselessly, to
again shift perspectives and again see the credit card
company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act
promptly on its purchases on credit.

Ultimately, petitioner's perspective appears more
sensible than if we were to still regard respondent as
the creditor in the context of this cause of action. If
there was delay on the part of respondent in its
normal role as creditor to the cardholder, such delay
would not have been in the acceptance of the
performance of the debtor's obligation (i.e., the
repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay
would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such
as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt
itself (purchases on credit of the jewelry) had not yet
been perfected, as it remained pending the approval
or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was
in mora solvendi, we will have to first recognize that
there was indeed an obligation on the part of
respondent to act on petitioner's purchases with
"timely dispatch", or for the purposes of this case,
within a period significantly less than the one hour it
apparently took before the purchase at Coster was
finally approved.
The findings of the trial court, to our mind, amply
established that the tardiness on the part of
respondent in acting on petitioner's purchase at
Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its
customer's purchase request, whether such action be
favorable or unfavorable. We quote the trial court,
thus:
As to the first issue, both parties
have testified that normal
approval time for purchases was
a matter of seconds.
Plaintiff testified that his personal
experience with the use of the
card was that except for the three
charge purchases subject of this
case, approvals of his charge
purchases were always obtained
in a matter of seconds.cDCIHT
Defendant's credit authorizer
Edgardo Jaurique likewise
testified:
Q.You also testified that
on normal occasions,
the normal approval
time for charges would
be 3 to 4 seconds?
A.Yes, Ma'am.
Both parties likewise presented
evidence that the processing and
approval of plaintiff's charge
purchase at the Coster Diamond
House was way beyond the
normal approval time of a "matter
of seconds".
Plaintiff testified that he
presented his AmexCard to the
sales clerk at Coster, at 9:15 a.m.
and by the time he had to leave
the store at 10:05 a.m., no
approval had yet been received.
In fact, the Credit Authorization
System (CAS) record of
defendant at Phoenix Amex
shows that defendant's
Amsterdam office received the
request to approve plaintiff's
charge purchase at 9:20 a.m.,
Amsterdam time or 01:20,
Phoenix time, and that the
defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam
time, or 2:38, Phoenix time, or a
total time lapse of one hour and
[18] minutes. And even then, the
approval was conditional as it
directed in
computerese [sic] "Positive
Identification of Card holder
necessary further charges require
bank information due to high
exposure. By Jack Manila".
The delay in the processing is
apparent to be undue as shown
from the frantic successive
queries of Amexco Amsterdam
which reads: "US$13,826.
Cardmember buying jewels. ID
seen. Advise how long will this
take?" They were sent at 01:33,
01:37, 01:40, 01:45, 01:52 and
02:08, all times Phoenix. Manila
Amexco could be unaware of the
need for speed in resolving the
charge purchase referred to it,
yet it sat on its hand,
unconcerned.
xxx xxx xxx
To repeat, the Credit
Authorization System (CAS)
record on the Amsterdam
transaction shows how Amexco
Netherlands viewed the delay as
unusually frustrating. In sequence
expressed in Phoenix time from
01:20 when the charge
purchased was referred for
authorization, defendants own
record shows:
01:22 the
authorization is
referred to
Manila Amexco
01:32 Netherlands
gives
information that
the
identification of
the
cardmember
has been
presented and
he is buying
jewelries worth
US $13,826.
01:33 Netherlands
asks "How long
will this take?"
02:08 Netherlands is
still asking
"How long will
this take?"
The Court is convinced that
defendants delay constitute[s]
breach of its contractual
obligation to act on his use of the
card abroad "with special
handling". 22 (Citations omitted)
xxx xxx xxx
Notwithstanding the popular notion that credit card
purchases are approved "within seconds", there really
is no strict, legally determinative point of demarcation
on how long must it take for a credit card company to
approve or disapprove a customer's purchase, much
less one specifically contracted upon by the parties.
Yet this is one of those instances when "you'd know it
when you'd see it", and one hour appears to be an
awfully long, patently unreasonable length of time to
approve or disapprove a credit card purchase. It is
long enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter,
and return to the store. cIaHDA
Notably, petitioner frames the obligation of
respondent as "to approve or disapprove" the
purchase "in timely dispatch", and not "to approve the
purchase instantaneously or within seconds".
Certainly, had respondent disapproved petitioner's
purchase "within seconds" or within a timely manner,
this particular action would have never seen the light
of day. Petitioner and his family would have returned
to the bus without delay internally humiliated
perhaps over the rejection of his card yet spared
the shame of being held accountable by newly-made
friends for making them miss the chance to tour the
city of Amsterdam.
We do not wish do * dispute that respondent has the
right, if not the obligation, to verify whether the credit it
is extending upon on a particular purchase was
indeed contracted by the cardholder, and that the
cardholder is within his means to make such
transaction. The culpable failure of respondent herein
is not the failure to timely approve petitioner's
purchase, but the more elemental failure to timely act
on the same, whether favorably or unfavorably. Even
assuming that respondent's credit authorizers did not
have sufficient basis on hand to make a judgment, we
see no reason why respondent could not have
promptly informed petitioner the reason for the delay,
and duly advised him that resolving the same could
take some time. In that way, petitioner would have
had informed basis on whether or not to pursue the
transaction at Coster, given the attending
circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a
foreign land and soon forced to confront the wrath of
foreign folk.
Moral damages avail in cases of breach of contract
where the defendant acted fraudulently or in bad faith,
and the court should find that under the
circumstances, such damages are due. The findings
of the trial court are ample in establishing the bad
faith and unjustified neglect of respondent,
attributable in particular to the "dilly-dallying" of
respondent's Manila credit authorizer, Edgardo
Jaurique. 23 Wrote the trial court:
While it is true that the
Cardmembership Agreement,
which defendant prepared, is
silent as to the amount of time it
should take defendant to grant
authorization for a charge
purchase, defendant
acknowledged that the normal
time for approval should only be
three to four seconds. Specially
so with cards used abroad which
requires "special handling",
meaning with priority. Otherwise,
the object of credit or charge
cards would be lost; it would be
so inconvenient to use that
buyers and consumers would be
better off carrying bundles of
currency or traveller's checks,
which can be delivered and
accepted quickly. Such right was
not accorded to plaintiff in the
instances complained off * for
reasons known only to defendant
at that time. This, to the Court's
mind, amounts to a wanton and
deliberate refusal to comply with
its contractual obligations, or at
least abuse of its rights, under
the contract. 24
xxx xxx xxx
The delay committed by
defendant was clearly attended
by unjustified neglect and bad
faith, since it alleges to have
consumed more than one hour to
simply go over plaintiff's past
credit history with defendant, his
payment record and his credit
and bank references, when all
such data are already stored and
readily available from its
computer. This Court also takes
note of the fact that there is
nothing in plaintiff's billing history
that would warrant the imprudent
suspension of action by
defendant in processing the
purchase. Defendant's witness
Jaurique admits:
Q.But did you discover
that he did not have any
outstanding account?
A.Nothing in arrears at
that time.
Q.You were well aware
of this fact on this very
date?
A.Yes, sir. HaTISE
Mr. Jaurique further testified that
there were no "delinquencies" in
plaintiff's account. 25
It should be emphasized that the reason why
petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for
which culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the Civil Code
for which moral damages are remunerative. 26 Moral
damages do not avail to soothe the plaints of the
simply impatient, so this decision should not be cause
for relief for those who time the length of their credit
card transactions with a stopwatch. The somewhat
unusual attending circumstances to the purchase at
Coster that there was a deadline for the completion
of that purchase by petitioner before any delay would
redound to the injury of his several traveling
companions gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded
by the RTC. 27 Those circumstances are fairly
unusual, and should not give rise to a general
entitlement for damages under a more mundane set
of facts.

We sustain the amount of moral damages awarded to
petitioner by the RTC. There is no hard-and-fast rule
in determining what would be a fair and reasonable
amount of moral damages, since each case must be
governed by its own peculiar facts, however, it must
be commensurate to the loss or injury
suffered. 28 Petitioner's original prayer for
P5,000,000.00 for moral damages is excessive under
the circumstances, and the amount awarded by the
trial court of P500,000.00 in moral damages more
seemly.
Likewise, we deem exemplary damages available
under the circumstances, and the amount of
P300,000.00 appropriate. There is similarly no cause
though to disturb the determined award of
P100,000.00 as attorney's fees, and P85,233.01 as
expenses of litigation.
WHEREFORE, the petition is GRANTED. The
assailed Decision of the Court of Appeals
is REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Makati, Branch 145 in Civil
Case No. 92-1665 is hereby REINSTATED. Costs
against respondent. TCIDSa
SO ORDERED.
Carpio Morales, Velasco, Jr., Leonardo-de
Castro * and Brion, JJ., concur.
EN BANC
[G.R. No. 1904. March 3, 1906.]
FRANCISCO GONZALEZ
QUIROS, plaintiff-appellee, vs.
CARLOS PALANCA TAN-
GUINLAY,defendant-appellant.
Chicote, Miranda & Sierra, for appellant.
Joaquin R. Serra, for appellee.
SYLLABUS
1.BILL OF EXCHANGE; PROTEST.
In order to pay for merchandise sold by the
plaintiff to the defendant the latter delivered to the
former a bill of exchange drawn by A. on B. in
favor of C., indorsed by C. and the defendant,
and accepted apparently by B. When the
acceptance matured. B. refused to pay the bill on
its being presented by the plaintiff, alleging that
the acceptance was a forgery. The plaintiff
neglected to have the bill protested. Held, That
by reason of this neglect the delivery of the bill by
the defendant to the plaintiff operated as a
payment for the merchandise. (Civil Code, art.
1170)
2.CIVIL PROCEDURE (OLD); "LIS
PENDENS." Under the Spanish Law of Civil
Procedure there was no lis pendens until the
complaint had been answered.
3.CRIMINAL LAW; MALICIOUS
PROSECUTION; CIVIL ACTION. No civil
action for damages non account of malicious
prosecution can be maintained unless the court,
in acquitting the defendant of the criminal charge
orders a criminal prosecution to be commenced
against the complaining witness for false
accusation. (Penal Code, art. 326)
4.OBLIGATIONS, NONFULFILLMENT
OF; DAMAGES. Damages for nonfulfillment of
an obligation to pay money are those only which
are provided for in article 11808 of the Civil Code.
5.ORDER OF THE COURT;
REOPENING OF THE CASE. An order of the
court refusing to open the case and allow further
evidence to be introduced is not subject to
exception. (Section 141, Code of Civil
Procedure.)
D E C I S I O N
WILLARD, J p:
The plaintiff brought this action to
recover the sum of 10,217.75 pesos, the value of
goods sold by him to the defendant, and the sum
of 64,984.89 pesos, as damages caused to
plaintiff by the failure of the defendant to pay for
the goods at the time agreed upon. The
defendant in his answer denied all the allegations
of the complaint, and further, alleged the
pendency of another action for the same cause; a
counterclaim to the amount of 40,000 pesos, for
damages suffered by the defendant by reason of
an attachment wrongfully secured by the plaintiff
in 1893; and a further counterclaim for damages
caused by reason of a prosecution
for estafa instituted against him maliciously by
the plaintiff. The court below ordered judgment in
favor of the plaintiff for the value of the goods
sold and delivered to the defendant, with interest
thereon. He sustained the first counterclaim of
the defendant, and assessed the damages
suffered by the defendant by reason of the
attachment referred to in the answer, at 6,347.75
pesos. The other defenses and counterclaims of
the defendant the court held not to have been
proven, and final judgment was entered for the
plaintiff and against the defendant for 10,000
pesos and costs. Both parties have appealed
from the judgment.
(1)It is claimed by the defendant that
there is no evidence to show the value of the
goods sold by the plaintiff to the defendant, and
that the documents introduced for the purpose of
proving the value were not properly received. It is
not necessary to pass upon the question as to
the admissibility of this evidence, since the
plaintiff testifying at the trial, stated that the value
of the goods so sold by him to the defendant was
the amount which the court named in its
judgment.
(2)The goods referred to in the
complaint were sold to the defendant in two
parcels. The value of the first lot was 2,235.95
pesos. For the purpose of paying this sum the
defendant delivered to the plaintiff a bill of
exchange for 2,700 pesos, purporting to be
drawn by Juan Vy-Teco to the order of Chua-
Sengco on Lucio Icaza. When this bill of
exchange was delivered to the plaintiff by the
defendant it had been indorsed by Chua-Sengco,
and by the defendant, and apparently accepted
by Lucio Icaza. By the terms of the acceptance
the bill of exchange was payable on the 26th of
December, 1893. The plaintiff took the bill of
exchange and paid the defendant in cash the
difference between 2,700 pesos and the value of
the goods sold, 2,235.95 pesos. At the maturity
of the acceptance Icaza refused to pay the bill of
exchange, on the ground that his signature
thereto was a forgery, and nothing was over
realized thereon. The plaintiff neglected to have
the bill of exchange protested for this
nonpayment. The defendant claims that the court
committed an error in ordering judgment for the
full value of the goods sold, inasmuch as the
plaintiff, by reason of his failure to protest the bill
of exchange, must suffer the loss occasioned by
its nonpayment. This contention, we think, should
be sustained. Article 1170 of the Civil Code is as
follows:
"Payments of debts of
money shall be made in the
specie stipulated and, should it
not be possible to deliver the
specie, then in legal silver or gold
coin current in Spain.
"The delivery of
promissory notes to order or
drafts or other commercial paper
shall only produce the effects of
payment when collected or when,
by the fault of the creditor, their
value has been affected.
"In the meantime the
action arising from the original
obligation shall be suspended."
We have already held, in the case of
Compania General de Tobacos vs Molina 1 (No.
2091, 3 Off Gaz., 678) that this section applies
both to mercantile documents executed by the
debtors themselves, and to those executed by
third persons and delivered by the debtor to the
creditor. The bill of exchange in this case comes
within the second class, and by the terms of the
second paragraph of article 1170 it must be
considered as a payment of the debt, inasmuch
as its value has been affected by the fault of the
of the creditor (the plaintiff) in failing to have the
bill of exchange protested for nonpayment. There
should be deducted, therefore, from the sum
allowed the plaintiff, 2,235.95 pesos.
(3)In order to prove the first special
defense set out by the defendant in his answer,
viz, the pendency of another suit for the same
cause of action, he presented in evidence a
certified copy of a complaint presented in 1895
by the plaintiff against the defendant. No
evidence was presented to show that the
complaint had ever been answered. Under the
former practice there was no lis pendens until the
defendant had answered the complaint, and
although it appears that various proceedings
were taken in this suit relating to the attachment
of the goods of the defendant, yet it nowhere
appears that the defendant ever answered the
complaint. This assignment of error can not,
therefore, be sustained.
(4)In December, 1893, the plaintiff
procured an attachment of the defendant's
goods. This attachment was dissolved in 1897,
and judgment ordered in favor of the defendant
and against the plaintiff for damages suffered by
the defendant by reason of the attachment. No
proceedings were ever had to assess the
damages until the defendant presented his
counterclaim in the present case. It appears from
the evidence that the goods of the defendant
were seized under the plaintiff's attachment upon
the 5th of December, 1893; that upon the 28th of
January, 1894, the same goods were again
attached in a suit by Germann & Co. against this
defendant. What became of the goods does not
appear, although there are indications that they
were sold upon the attachment secured by
Germann & Co. Under these circumstances the
plaintiff can not be held responsible for the value
of the goods. His responsibility would be limited
to the damages suffered by the goods while they
were held under his own attachment from the 5th
day of December, 1893, until the 28th day of
January, 1894, and for the time elapsing after the
28th of January he would incur certain
responsibility in connection with Germann & Co.,
but under the evidence in the case there is no
ground for holding that he is responsible for th
value of the goods. There was no evidence to
show how much the goods had been damages, if
at all, while they were in the possession of the
plaintiff, nor was there any evidence to show how
much they had been damaged after the 28th of
January, and while they were subject to both
attachment. The only evidence in regard to
damages which the defendant offered was
evidence relating to the value of the goods when
they were seized under the plaintiff's attachment.
As we have said, that, is not the measure of
damages in this case, and the defendant having
failed to prove any other kind of damages, the
decision of the court below allowing him the sum
of 6,347 pesos as damages, can not be
sustained.
(5)In 1894 the plaintiff presented a
criminal complaint against the defendant
for estafa, by reason whereof the defendant was
arrested and kept in confinement for nearly two
years and a half. He was released by an order of
the United States military authorities on the 13th
of April, 1899, but there does not appear in the
record any order issued by any court authorizing
this release. On the 27th of November, 1900, the
plaintiff presented another criminal complaint for
estafa against the defendant, based upon the
same facts as was the first one. This complaint
was later dismissed by the court, and the
defendant discharged from custody. Article 326
of the Penal Code provides, as we have held in
the case of United States vs. Agustina
Barrera 2 (3 Off. Gaz., 411), that no prosecution
for a false accusation or complaint in a criminal
case can be commenced unless the judge, in
dismissing the first complaint, orders a complaint
to be filed against the complaining witness for
false accusation. The judgment dismissing the
complaint against this defendant contained no
such provision. We hold that this article applies
not only to a criminal proceeding against the
complaining witness, but also to civil
proceedings, and that no action to recover
damages in a civil suit can be maintained by the
person arrested against the person presenting
the complaint, unless in the order acquitting the
person arrested the judge certifies that the
complaint was malicious, as required by said
article 326. The defendant in this case, therefore,
is not entitled to recover any damages by reason
of the criminal prosecution against him.

This disposes of all the errors assigned
by the defendant.
(6)The plaintiff also appealed, and
claims that he is entitled to recover 60,000 pesos
as damages which he suffered by reason of the
nonpayment by the defendant of the amount due
for goods sold to him by the plaintiff, saying that if
the defendant had paid for the goods as he
agreed to do, the plaintiff could, by using the
money so paid, have made 60,000 pesos in his
business. This claim is based upon article 1101
of the Civil Code, which is as follows:
"Those who in fulfilling
their obligations are guilty of
fraud, negligence, or delay, and
those who in any manners
whatsoever act in contravention
of the stipulations of the same,
shall be subject to indemnify for
the losses and damages caused
thereby."
Plaintiff says that the defendant in
refusing to pay for these goods acted in a
fraudulent manner. We do not think this article is
at all applicable to the case at bar. Damages may
be recovered under this article when the
obligation is to do something other than the
payment of money, but when the obligation which
the defendant has failed to perform consists only
in the payment of money the rule of damages is
that laid down by article 1108 of the Civil Code,
which is as follows:
"Should the obligation
consist in the payment of a sum
of money, and the debtor should
be in default, the indemnity for
losses and damages, should
there not be a stipulation to the
contrary, shall consist in the
payment of the interest agreed
upon, and should there be no
agreement, in that of the legal
interest.
"Until another rate is
fixed by the Government interest
at the rate of six per cent per
annum shall be considered as
legal."
And the only damages which the plaintiff
can recover in this case for the nonpayment of
the debt are those declared in this article, viz,
interest at the rate of 6 per cent per annum. This
being a mercantile contract the interest should
commence to run from the time the debt became
due. (Art. 341 of the Code of Commerce.)
It is to be observed, moreover, that the
plaintiff introduced no evidence showing the
amount of his damages. The two mercantile
experts whom he presented as witnesses
testified that, from the examination they had
already made, it would not be possible for them
to state how much the plaintiff's damages were.
The plaintiff, after they had testified, caused them
to make a further examination of his books, and
after the evidence in the case had been closed,
made an application to the court to be allowed to
present the result of this examination. The court
refused to open the case for this purpose, to
which refusal the plaintiff excepted. The order
made by the court in this respect falls within
section 141 of the Code of Civil Procedure, and
was not subject to exception.
The result of an examination of the
whole case is that from the sum of 10,217.75
pesos, the value of the goods sold and delivered
by the plaintiff to the defendant, there should be
deducted the sum of 2,235.95 pesos, on account
of the bill of exchange hereinbefore referred to.
The defendant is not entitled to recover any
damages on account of the attachment of the
goods procured by the plaintiff, for which he was
allowed by the court below 6,347.75 pesos. The
plaintiff therefore, is entitled to judgment against
the defendant for the sum of 7,981.80 pesos, with
interest at the rate of six per cent per annum from
the 1st day of January,, 1894, until the amount is
paid, and the costs of this suit.
The judgment of the court below is
reversed and the case remanded, with
instructions to enter judgment for the plaintiff for
7, 981.80 pesos, with thereon at 6 per cent per
annum from the 1st day of January, 1894, and for
costs. No costs will be allowed to either party in
this court. So ordered.
Arellano, C.J., Torres,
Johnson and Carson, JJ., concur.
Mapa, J., I concur with the result.
FIRST DIVISION
[G.R. No. 133107. March 25, 1999.]
RIZAL COMMERCIAL
BANKING
CORPORATION, petitioner, vs.
COURT OF APPEALS and
FELIPE LUSTRE, respondents.
Valdez Gonzales Lucero & Associates for petitioner.
F. Washington Lustre for private respondent.
SYNOPSIS
In March 1991, private respondent Atty. Felipe Lustre
purchased a Toyota Corolla. He made a down
payment of P164,620.00, the balance of which was to
be paid in 24 equal monthly installments thru RCBC
as the financing agent. He issued 24 postdated
checks in the amount of P14,976.00 each. All the
checks were thereafter encashed and debited from
private respondent's account, except for the check
representing the payment for August 1991 which was
unsigned and because of which the amount
representing it was recalled and re-credited to private
respondent's account. Because of the recall, the last
two checks dated February 10, 1993 and March 10,
1993 were no longer presented for payment,
purportedly in conformity with petitioner bank's
procedure. It demanded payment of the balance
including liquidated damages, but private respondent
refused to pay, prompting petitioner to file an action
for replevin and damages before the RTC. Private
respondent in his answer interposed a counterclaim
for damages. The RTC decided against petitioner
(plaintiff) and granted the counterclaim of private
respondent for moral and exemplary damages and
attorney's fees. The Court of Appeals affirmed the
RTC decision. In its appeal before the Supreme
Court, petitioner contended that private respondent's
check representing the fifth installment was "not
encashed," such that the installment for August 1991
was not paid, hence, by virtue of the acceleration
clause in the Chattel Mortgage executed by private
respondent, petitioner was justified in treating the
entire balance as due and demandable, and despite
its demand private respondent refused to pay. In sum,
petitioner imputed delay on private respondents.
Article 1170 of the Civil Code states that those who in
the performance of their obligations are guilty of delay
are liable for damages. The delay in the performance
of the obligation, however, must either be malicious or
negligent. Thus, assuming that private respondent
was guilty of delay in the payment of the value of the
unsigned check, private respondent can not be held
liable for damages. There is no imputation, much less
evidence, that private respondent acted with malice or
negligence in failing to sign the check. If there was
omission on his part, such was a mere "inadvertence."
SYLLABUS
1.CIVIL LAW; OBLIGATIONS AND CONTRACTS;
CONTRACTS OF ADHESION; JUST AS BINDING
AS ORDINARY CONTRACTS. It bears stressing
that a contract of adhesion is just as binding as
ordinary contracts. It is true that we have, on
occasion, struck down such contracts as void when
the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal
footing. Nevertheless, contracts of adhesion are not
invalid per se; they are not entirely prohibited. The
one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.
2.ID.; ID.; ID.; IF TERMS THEREOF ARE CLEAR,
LITERAL MEANING OF ITS STIPULATION SHALL
CONTROL. While ambiguities in a contract of
adhesion are to be construed against the party that
prepared the same, this rule applies only if the
stipulations in such contract are obscure or
ambiguous. If the terms thereof are clear and leave
no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control. In
the latter case, there would be no need for
construction.
3.ID.; ID.; DELAY; MUST BE EITHER MALICIOUS
OR NEGLIGENT. Article 1170 of the Civil Code
states that those who in the performance of their
obligations are guilty of delay are liable for damages.
The delay in the performance of the obligation,
however, must be either malicious or negligent. Thus,
assuming that private respondent was guilty of delay
in the payment of the value of the unsigned check,
private respondent cannot be held liable for damages.
There is no imputation, much less evidence, that
private respondent acted with malice or negligence in
failing to sign the check.
4.ID.; DAMAGES; LACK OF GOOD FAITH MADE
PETITIONER LIABLE FOR DAMAGES IN CASE AT
BAR. As pointed out by the trial court, this whole
controversy could have been avoided if only petitioner
bothered to call up private respondent and ask him to
sign the check. Good faith not only in compliance with
its contractual obligations, but also in observance of
the standard in human relations, for every person "to
act with justice, give everyone his due, and observe
honesty and good faith," behooved the bank to do so.
Failing thus, petitioner is liable for damages caused to
private respondent. These include moral damages for
the mental anguish, serious anxiety, besmirched
reputation, wounded feelings and social humiliation
suffered by the latter. To deter others from emulating
petitioner's callous example, we affirm the award of
exemplary damages. As exemplary damages are
warranted, so are attorney's fees.
5.ID.; ID.; AWARDED DAMAGES IN CASE AT BAR
IS EXCESSIVE. We, however, find excessive the
amount of damages awarded by the trial court in favor
of private respondent with respect to his
counterclaims and, accordingly, reduce the same as
follows: (a) Moral damages - from P200,000.00 to
P100,000.00, (b) Exemplary damages - from
P100,000.00 to P75,000.00, (c) Attorney's fees - from
P50,000.00 to P30,000.00.
D E C I S I O N
KAPUNAN, J p:
A simple telephone call and an ounce of good faith on
the part of petitioner could have prevented the
present controversy.
On March 10, 1993, private respondent Atty. Felipe
Lustre purchased a Toyota Corolla from Toyota
Shaw, Inc. for which he made a down payment of
P164,620.00, the balance of the purchase price to be
paid in 24 equal monthly installments. Private
respondent thus issued 24 postdated checks for the
amount of P14,976.00 each. The first was dated April
10, 1991; subsequent checks were dated every 10th
day of each succeeding month.
To secure the balance, private respondent executed a
promissory note 1 and a contract of chattel
mortgage 2 over the vehicle in favor of Toyota Shaw,
Inc. The contract of chattel mortgage, in paragraph 11
thereof, provided for an acceleration clause stating
that should the mortgagor default in the payment of
any installment, the whole amount remaining unpaid
shall become due. In addition, the mortgagor shall be
liable for 25% of the principal due as liquidated
damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its
rights and interests in the chattel mortgage to
petitioner Rizal Commercial Banking Corporation
(RCBC).
All the checks dated April 10, 1991 to January 10,
1993 were thereafter encashed and debited by RCBC
from private respondent's account, except for RCBC
Check No. 279805 representing the payment for
August 10, 1991, which was unsigned. Previously, the
amount represented by RCBC Check No. 279805
was debited from private respondent's account but
was later recalled and re-credited to him. Because of
the recall, the last two checks, dated February 10,
1993 and March 10, 1993, were no longer presented
for payment. This was purportedly in conformity with
petitioner bank's procedure that once a client's
account was forwarded to its account representative,
all remaining checks outstanding as of the date the
account was forwarded were no longer presented for
payment.
On the theory that respondent defaulted in his
payments, the check representing the payment for
August 10, 1991 being unsigned, petitioner, in a letter
dated January 21, 1993, demanded from private
respondent the payment of the balance of the debt,
including liquidated damages. The latter refused,
prompting petitioner to file an action for replevin and
damages before the Pasay City Regional Trial Court
(RTC). Private respondent, in his Answer, interposed
a counterclaim for damages.
After trial, the RTC 3 rendered a decision disposing of
the case as follows:
WHEREFORE, in view of the
foregoing, judgment is hereby
rendered as follows:
I.The complaint, for lack of cause
of action, is hereby DISMISSED
and plaintiff RCBC is hereby
ordered,
A.To accept the
payment
equivalent to
the three
checks
amounting to a
total of
P44,938.00,
without interest
B.To release/cancel the
mortgage on
the car . . .
upon payment
of the amount
of P44,938.00
without
interest.
C.To pay the cost of suit
II.On The Counterclaim
A.Plaintiff RCBC to pay
Atty. Lustre the
amount of
P200,000.00
as moral
damages.
B.RCBC to pay
P100,000.00
as exemplary
damages.
C.RCBC to pay Atty.
Obispo
P50,000.00 as
Attorney's fees.
Atty. Lustre is
not entitled to
any fee for
lawyering for
himself.
All awards for damages are
subject to payment of fees to be
assessed by the Clerk of Court,
RTC, Pasay City.
SO ORDERED.
On appeal by petitioner, the Court of Appeals affirmed
the decision of the RTC, thus:
We . . . concur with the trial
court's ruling that the Chattel
Mortgage contract being a
contract of adhesion that is,
one wherein a party, usually a
corporation, prepares the
stipulations in the contract, while
the other party merely affixes his
signature or his "adhesion"
thereto . . . is to be strictly
construed against appellant bank
which prepared the form Contract
. . . . Hence . . . paragraph 11 of
the Chattel Mortgage contract
[containing the acceleration
clause] should be construed to
cover only deliberate and
advertent failure on the part of
the mortgagor to pay an
amortization as it became due in
line with the consistent holding of
the Supreme Court construing
obscurities and ambiguities in the
restrictive sense against the
drafter thereof . . . in the light of
Article 1377 of the Civil Code.
In the case at bench, plaintiff-
appellant's imputation of default
to defendant-appellee rested
solely on the fact that the 5th
check issued by appellee . . . was
recalled for lack of signature.
However, the check was recalled
only after the amount covered
thereby had been deducted from
defendant-appellee's account, as
shown by the testimony of
plaintiff's own witness Francisco
Bulatao who was in charge of the
preparation of the list and trial
balances of bank customers . . . .
The "default" was therefore not a
case of failure to pay, the check
being sufficiently funded, and
which amount was in fact already
debitted [sic] from appellee's
account by the appellant bank
which subsequently re-credited
the amount to defendant-
appellee's account for lack of
signature. All these actions
RCBC did on its own without
notifying defendant until sixteen
(16) months later when it wrote
its demand letter dated January
21, 1993.

Clearly, appellant bank was
remiss in the performance of its
functions for it could have easily
called the defendant's attention to
the lack of signature on the check
and sent the check to, or
summoned, the latter to affix his
signature. It is also to be noted
that the demand letter contains
no explanation as to how
defendant-appellee incurred
arrearages in the amount of
P66,255.70, which is why
defendant-appellee made a
protest notation thereon.
Notably, all the other checks
issued by the appellee dated
subsequent to August 10, 1991
and dated earlier than the
demand letter, were duly
encashed. This fact should have
already prompted the appellant
bank to review its action relative
to the unsigned check. . . . 4
We take exception to the application by both the trial
and appellate courts of Article 1377 of the Civil Code,
which states:
The interpretation of obscure
words or stipulations in a contract
shall not favor the party who
caused the obscurity.
It bears stressing that a contract of adhesion is just as
binding as ordinary contracts. 5 It is true that we have,
on occasion, struck down such contracts as void
when the weaker party is imposed upon in dealing
with the dominant bargaining party and is reduced to
the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal
footing. 6 Nevertheless, contracts of adhesion are not
invalid per se; 7 they are not entirely prohibited. 8The
one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. 9
While ambiguities in a contract of adhesion are to be
construed against the party that prepared the
same, 10 this rule applies only if the stipulations in
such contract are obscure or ambiguous. If the terms
thereof are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning
of its stipulations shall control. 11 In the latter case,
there would be no need for construction. 12
Here, the terms of paragraph 11 of the Chattel
Mortgage Contract 13 are clear. Said paragraph
states:
11.In case the MORTGAGOR
fails to pay any of the
installments, or to pay the interest
that may be due as provided in
the said promissory note, the
whole amount remaining unpaid
therein shall immediately become
due and payable and the
mortgage on the property (ies)
herein-above described may be
foreclosed by the MORTGAGEE,
or the MORTGAGEE may take
any other legal action to enforce
collection of the obligation hereby
secured, and in either case the
MORTGAGOR further agrees to
pay the MORTGAGEE an
additional sum of 25% of the
principal due and unpaid, as
liquidated damages, which said
sum shall become part thereof.
The MORTGAGOR hereby
waives reimbursement of the
amount heretofore paid by him/it
to the MORTGAGEE.
The above terms leave no room for construction. All
that is required is the application thereof.
Petitioner claims that private respondent's check
representing the fifth installment was "not
encashed," 14 such that the installment for August
1991 was not paid. By virtue of paragraph 11 above,
petitioner submits that it "was justified in treating the
entire balance of the obligation as due and
demandable." 15 Despite demand by petitioner,
however, private respondent refused to pay the
balance of the debt. Petitioner, in sum, imputes delay
on the part of private respondent.
We do not subscribe to petitioner's theory.
Article 1170 of the Civil Code states that those who in
the performance of their obligations are guilty of delay
are liable for damages. The delay in the performance
of the obligation, however, must be either malicious or
negligent. 16 Thus, assuming that private respondent
was guilty of delay in the payment of the value of the
unsigned check, private respondent cannot be held
liable for damages. There is no imputation, much less
evidence, that private respondent acted with malice or
negligence in failing to sign the check. Indeed, we
agree with the Court of Appeals' finding that such
omission was mere "inadvertence" on the part of
private respondent. Toyota salesperson Jorge
Geronimo testified that he even verified whether
private respondent had signed all the checks and in
fact returned three or four unsigned checks to him for
signing:
Atty. Obispo:
After these receipts
were issued, what else
did you do about the
transaction?
A:During our transaction with
Atty. Lustre, I found out
when he issued to me
the 24 checks, I found
out 3 to 4 checks are
unsigned and I asked
him to sign these
checks.
Atty. Obispo:
What did you do?
A:I asked him to sign the checks.
After signing the checks,
I reviewed again all the
documents, after I
reviewed all the
documents and found
out that all are
completed and the
downpayments was
completed, we released
to him the car. 17
Even when the checks were delivered to
petitioner, it did not object to the unsigned check.
In view of the lack of malice or negligence on the
part of private respondent, petitioner's blind and
mechanical invocation of paragraph 11 of the
contract of chattel mortgage was unwarranted.
Petitioner's conduct, in the light of the circumstances
of this case, can only be described as mercenary.
Petitioner had already debited the value of the
unsigned check from private respondent's account
only to re-credit it much later to him. Thereafter,
petitioner encashed checks subsequently dated, then
abruptly refused to encash the last two. More than a
year after the date of the unsigned check, petitioner,
claiming delay and invoking paragraph 11, demanded
from private respondent payment of the value of said
check and that of the last two checks, including
liquidated damages. As pointed out by the trial court,
this whole controversy could have been avoided if
only petitioner bothered to call up private respondent
and ask him to sign the check. Good faith not only in
compliance with its contractual obligations, 18 but
also in observance of the standard in human
relations, for every person "to act with justice, give
everyone his due, and observe honesty and good
faith," 19 behooved the bank to do so. cdasia
Failing thus, petitioner is liable for damages caused to
private respondent. 20 These include moral damages
for the mental anguish, serious anxiety, besmirched
reputation, wounded feelings and social humiliation
suffered by the latter.21 The trial court found that
private respondent was
[a] client who has shared
transactions for over twenty years
with a bank . . . . The shabby
treatment given the defendant is
unpardonable since he was put to
shame and embarrassment after
the case was filed in Court. He is
a lawyer in his own right, married
to another member of the bar. He
sired children who are all
professionals in their chosen
field. He is known to the
community of golfers with whom
he gravitates. Surely, the filing of
the case made defendant feel
bad and bothered.
To deter others from emulating petitioner's callous
example, we affirm the award of exemplary
damages. 22 As exemplary damages are warranted,
so are attorney's fees. 23
We, however, find excessive the amount of damages
awarded by the trial court in favor of private
respondent with respect to his counterclaims and,
accordingly, reduce the same as follows:
(a)Moral damagesfrom
P200,000.00 to P100,000.00,
(b)Exemplary damagesfrom
P100,000.00 to P75,000.00,
(c)Attorney's feesfrom
P50,000.00 to P30,000.00.
WHEREFORE, subject to these modifications, the
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Melo and Pardo, JJ., concur.
SECOND DIVISION
[G.R. No. 145483. November 19, 2004.]
LORENZO SHIPPING
CORP., petitioner, vs. BJ
MARTHEL INTERNATIONAL,
INC., respondent.
D E C I S I O N
CHICO-NAZARIO, J p:
This is a petition for review seeking to set aside the
Decision 1 of the Court of Appeals in CA-G.R. CV No.
54334 and its Resolution denying petitioner's motion
for reconsideration.
The factual antecedents of this case are as follows:
Petitioner Lorenzo Shipping Corporation is a domestic
corporation engaged in coastwise shipping. It used to
own the cargo vessel M/V Dadiangas Express.
Upon the other hand, respondent BJ Marthel
International, Inc. is a business entity engaged in
trading, marketing, and selling of various industrial
commodities. It is also an importer and distributor of
different brands of engines and spare parts.
From 1987 up to the institution of this case,
respondent supplied petitioner with spare parts for the
latter's marine engines. Sometime in 1989, petitioner
asked respondent for a quotation for various machine
parts. Acceding to this request, respondent furnished
petitioner with a formal quotation, 2 thus:
M
a
y

3
1
,

1
9
8
9
M
I
N
Q
-
6
0
9
3
LORENZO SHIPPING LINES
Pier 8, North Harbor
Manila
SUBJECT: PARTS FOR ENGINE
MODEL
MITSUBISHI 6UET 52/60
Dear Mr. Go:
We are pleased to submit our
offer for your above subject
requirements.
DescriptionQty.Unit PriceTotal
Price
Nozzle Tip6
pcs.P5,520.0033,120.00
Plunger & Barrel6
pcs.27,630.00165,780.00
Cylinder Head2
pcs.1,035,000.002,070,000.00
Cylinder Liner1 set477,000.00

TOTAL PRICE
FOBP2,745,900.00
MANILA
DELIVERY: Within 2 months after
receipt of firm order. cAaDCE
TERMS: 25% upon delivery,
balance payable in 5 bi-
monthly equal
Installment[s] not to
exceed 90 days.
We trust you find our above offer
acceptable and look forward to
your most valued order.
V
e
r
y

t
r
u
l
y

y
o
u
r
s
,
(
S
G
D
)

H
E
N
R
Y

P
A
J
A
R
I
L
L
O
S
a
l
e
s

M
a
n
a
g
e
r
Petitioner thereafter issued to respondent Purchase
Order No. 13839, 3 dated 02 November 1989, for the
procurement of one set of cylinder liner, valued at
P477,000, to be used for M/V Dadiangas Express.
The purchase order was co-signed by Jose Go, Jr.,
petitioner's vice-president, and Henry Pajarillo.
Quoted hereunder is the pertinent portion of the
purchase order:
Name of DescriptionQty.Amount
CYL. LINER M/E1 SETP477,000.00
NOTHING FOLLOW
INV. #
TERM OF PAYMENT:25% DOWN
PAYMENT
5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first
cylinder liner, petitioner issued in favor of respondent
ten postdated checks 4 to be drawn against the
former's account with Allied Banking Corporation. The
checks were supposed to represent the full payment
of the aforementioned cylinder liner.
Subsequently, petitioner issued Purchase Order No.
14011, 5 dated 15 January 1990, for yet another unit
of cylinder liner. This purchase order stated the term
of payment to be "25% upon delivery, balance
payable in 5 bi-monthly equal installment[s]." 6 Like
the purchase order of 02 November 1989, the second
purchase order did not state the date of the cylinder
liner's delivery.
On 26 January 1990, respondent deposited
petitioner's check that was postdated 18 January
1990, however, the same was dishonored by the
drawee bank due to insufficiency of funds. The
remaining nine postdated checks were eventually
returned by respondent to petitioner.
The parties presented disparate accounts of what
happened to the check which was previously
dishonored. Petitioner claimed that it replaced said
check with a good one, the proceeds of which were
applied to its other obligation to respondent. For its
part, respondent insisted that it returned said
postdated check to petitioner.
Respondent thereafter placed the order for the two
cylinder liners with its principal in Japan, Daiei
Sangyo Co. Ltd., by opening a letter of credit on 23
February 1990 under its own name with the First
Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder
liners at petitioner's warehouse in North Harbor,
Manila. The sales invoices 7 evidencing the delivery
of the cylinder liners both contain the notation "subject
to verification" under which the signature of Eric Go,
petitioner's warehouseman, appeared.
Respondent thereafter sent a Statement of Account
dated 15 November 1990 8 to petitioner. While the
other items listed in said statement of account were
fully paid by petitioner, the two cylinder liners
delivered to petitioner on 20 April 1990 remained
unsettled. Consequently, Mr. Alejandro Kanaan, Jr.,
respondent's vice-president, sent a demand letter
dated 02 January 1991 9 to petitioner requiring the
latter to pay the value of the cylinder liners subjects of
this case. Instead of heeding the demand of
respondent for the full payment of the value of the
cylinder liners, petitioner sent the former a letter dated
12 March 1991 10 offering to pay only P150,000 for
the cylinder liners. In said letter, petitioner claimed
that as the cylinder liners were delivered late and due
to the scrapping of the M/V Dadiangas Express, it
(petitioner) would have to sell the cylinder liners in
Singapore and pay the balance from the proceeds of
said sale.
Shortly thereafter, another demand letter dated 27
March 1991 11 was furnished petitioner by
respondent's counsel requiring the former to settle its
obligation to respondent together with accrued
interest and attorney's fees. THcaDA
Due to the failure of the parties to settle the matter,
respondent filed an action for sum of money and
damages before the Regional Trial Court (RTC) of
Makati City. In its complaint, 12 respondent (plaintiff
below) alleged that despite its repeated oral and
written demands, petitioner obstinately refused to
settle its obligations. Respondent prayed that
petitioner be ordered to pay for the value of the
cylinder liners plus accrued interest of P111,300 as of
May 1991 and additional interest of 14% per annum
to be reckoned from June 1991 until the full payment
of the principal; attorney's fees; costs of suits;
exemplary damages; actual damages; and
compensatory damages.
On 25 July 1991, and prior to the filing of a responsive
pleading, respondent filed an amended complaint with
preliminary attachment pursuant to Sections 2 and 3,
Rule 57 of the then Rules of Court. 13 Aside from the
prayer for the issuance of writ of preliminary
attachment, the amendments also pertained to the
issuance by petitioner of the postdated checks and
the amounts of damages claimed.
In an Order dated 25 July 1991, 14 the court a
quo granted respondent's prayer for the issuance of a
preliminary attachment. On 09 August 1991, petitioner
filed an Urgent Ex-Parte Motion to Discharge Writ of
Attachment 15 attaching thereto a counter-bond as
required by the Rules of Court. On even date, the trial
court issued an Order 16 lifting the levy on petitioner's
properties and the garnishment of its bank accounts.
Petitioner afterwards filed its Answer 17 alleging
therein that time was of the essence in the delivery of
the cylinder liners and that the delivery on 20 April
1990 of said items was late as respondent committed
to deliver said items "within two (2) months after
receipt of firm order" 18 from petitioner. Petitioner
likewise sought counterclaims for moral damages,
exemplary damages, attorney's fees plus appearance
fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended
Complaint with Preliminary Attachment dated 25
October 1991. 19The amendment introduced dealt
solely with the number of postdated checks issued by
petitioner as full payment for the first cylinder liner it
ordered from respondent. Whereas in the first
amended complaint, only nine postdated checks were
involved, in its second amended complaint,
respondent claimed that petitioner actually issued ten
postdated checks. Despite the opposition by
petitioner, the trial court admitted respondent's
Second Amended Complaint with Preliminary
Attachment. 20
Prior to the commencement of trial, petitioner filed a
Motion (For Leave To Sell Cylinder Liners) 21 alleging
therein that "[w]ith the passage of time and with no
definite end in sight to the present litigation, the
cylinder liners run the risk of obsolescence and
deterioration" 22 to the prejudice of the parties to this
case. Thus, petitioner prayed that it be allowed to sell
the cylinder liners at the best possible price and to
place the proceeds of said sale in escrow. This
motion, unopposed by respondent, was granted by
the trial court through the Order of 17 March 1991. 23
After trial, the court a quo dismissed the action, the
decretal portion of the Decision stating:
WHEREFORE, the complaint is
hereby dismissed, with costs
against the plaintiff, which is
ordered to pay P50,000.00 to the
defendant as and by way of
attorney's fees. 24
The trial court held respondent bound to the quotation
it submitted to petitioner particularly with respect to
the terms of payment and delivery of the cylinder
liners. It also declared that respondent had agreed to
the cancellation of the contract of sale when it
returned the postdated checks issued by petitioner.
Respondent's counterclaims for moral, exemplary,
and compensatory damages were dismissed for
insufficiency of evidence. IaCHTS
Respondent moved for the reconsideration of the trial
court's Decision but the motion was denied for lack of
merit. 25
Aggrieved by the findings of the trial court, respondent
filed an appeal with the Court of Appeals 26 which
reversed and set aside the Decision of the court a
quo. The appellate court brushed aside petitioner's
claim that time was of the essence in the contract of
sale between the parties herein considering the fact
that a significant period of time had lapsed between
respondent's offer and the issuance by petitioner of its
purchase orders. The dispositive portion of the
Decision of the appellate court states:

WHEREFORE, the decision of
the lower court is REVERSED
and SET ASIDE. The appellee is
hereby ORDERED to pay the
appellant the amount of
P954,000.00, and accrued
interest computed at 14% per
annum reckoned from May,
1991. 27
The Court of Appeals also held that respondent could
not have incurred delay in the delivery of cylinder
liners as no demand, judicial or extrajudicial, was
made by respondent upon petitioner in contravention
of the express provision of Article 1169 of the Civil
Code which provides:
Those obliged to deliver or to do
something incur in delay from the
time the obligee judicially or
extrajudicially demands from
them the fulfillment of their
obligation.
Likewise, the appellate court concluded that there
was no evidence of the alleged cancellation of orders
by petitioner and that the delivery of the cylinder liners
on 20 April 1990 was reasonable under the
circumstances.
On 22 May 2000, petitioner filed a motion for
reconsideration of the Decision of the Court of
Appeals but this was denied through the resolution of
06 October 2000. 28 Hence, this petition for review
which basically raises the issues of whether or not
respondent incurred delay in performing its obligation
under the contract of sale and whether or not said
contract was validly rescinded by petitioner.
That a contract of sale was entered into by the parties
is not disputed. Petitioner, however, maintains that its
obligation to pay fully the purchase price was
extinguished because the adverted contract was
validly terminated due to respondent's failure to
deliver the cylinder liners within the two-month period
stated in the formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late
delivery of the subjects of the contract of sale to justify
petitioner to disregard the terms of the contract
considering that time was of the essence thereof?
In determining whether time is of the essence in a
contract, the ultimate criterion is the actual or
apparent intention of the parties and before time may
be so regarded by a court, there must be a sufficient
manifestation, either in the contract itself or the
surrounding circumstances of that
intention. 29 Petitioner insists that although its
purchase orders did not specify the dates when the
cylinder liners were supposed to be delivered,
nevertheless, respondent should abide by the term of
delivery appearing on the quotation it submitted to
petitioner. 30 Petitioner theorizes that the quotation
embodied the offer from respondent while the
purchase order represented its (petitioner's)
acceptance of the proposed terms of the contract of
sale. 31 Thus, petitioner is of the view that these two
documents "cannot be taken separately as if there
were two distinct contracts." 32 We do not agree.
It is a cardinal rule in interpretation of contracts that if
the terms thereof are clear and leave no doubt as to
the intention of the contracting parties, the literal
meaning shall control. 33 However, in order to
ascertain the intention of the parties, their
contemporaneous and subsequent acts should be
considered. 34 While this Court recognizes the
principle that contracts are respected as the law
between the contracting parties, this principle is
tempered by the rule that the intention of the parties is
primordial 35 and "once the intention of the parties
has been ascertained, that element is deemed as an
integral part of the contract as though it has been
originally expressed in unequivocal terms."36
In the present case, we cannot subscribe to the
position of petitioner that the documents, by
themselves, embody the terms of the sale of the
cylinder liners. One can easily glean the significant
differences in the terms as stated in the formal
quotation and Purchase Order No. 13839 with regard
to the due date of the down payment for the first
cylinder liner and the date of its delivery as well as
Purchase Order No. 14011 with respect to the date of
delivery of the second cylinder liner. While the
quotation provided by respondent evidently stated
that the cylinder liners were supposed to be delivered
within two months from receipt of the firm order of
petitioner and that the 25% down payment was due
upon the cylinder liners' delivery, the purchase orders
prepared by petitioner clearly omitted these significant
items. The petitioner's Purchase Order No. 13839
made no mention at all of the due dates of delivery of
the first cylinder liner and of the payment of 25%
down payment. Its Purchase Order No. 14011
likewise did not indicate the due date of delivery of the
second cylinder liner. cIECaS
In the case of Bugatti v. Court of Appeals, 37 we
reiterated the principle that "[a] contract undergoes
three distinct stages preparation or negotiation, its
perfection, and finally, its
consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest
in the contract and ends at the moment of agreement
of the parties. The perfection or birth of the contract
takes place when the parties agree upon the essential
elements of the contract. The last stage is
the consummation of the contract wherein the parties
fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof."
In the instant case, the formal quotation provided by
respondent represented the negotiation phase of the
subject contract of sale between the parties. As of
that time, the parties had not yet reached an
agreement as regards the terms and conditions of the
contract of sale of the cylinder liners. Petitioner could
very well have ignored the offer or tendered a
counter-offer to respondent while the latter could
have, under the pertinent provision of the Civil
Code, 38withdrawn or modified the same. The parties
were at liberty to discuss the provisions of the
contract of sale prior to its perfection. In this
connection, we turn to the testimonies of Pajarillo and
Kanaan, Jr., that the terms of the offer were, indeed,
renegotiated prior to the issuance of Purchase Order
No. 13839.
During the hearing of the case on 28 January 1993,
Pajarillo testified as follows:
Q:You testified Mr. Witness, that
you submitted a
quotation with defendant
Lorenzo Shipping
Corporation dated rather
marked as Exhibit A
stating the terms of
payment and delivery of
the cylinder liner, did
you not?
A:Yes sir.
Q:I am showing to you the
quotation which is
marked as Exhibit A
there appears in the
quotation that the
delivery of the cylinder
liner will be made in two
months' time from the
time you received the
confirmation of the
order. Is that correct?
A:Yes sir.
Q:Now, after you made the
formal quotation which
is Exhibit A how long a
time did the defendant
make a confirmation of
the order?
A:After six months.
Q:And this is contained in the
purchase order given to
you by Lorenzo
Shipping Corporation?
A:Yes sir.
Q:Now, in the purchase order
dated November 2,
1989 there appears only
the date the terms of
payment which you
required of them of 25%
down payment, now, it is
stated in the purchase
order the date of
delivery, will you explain
to the court why the date
of delivery of the
cylinder liner was not
mentioned in the
purchase order which is
the contract between
you and Lorenzo
Shipping Corporation?
A:When Lorenzo Shipping
Corporation inquired
from us for that cylinder
liner, we have inquired
[with] our supplier in
Japan to give us the
price and delivery of that
item. When we received
that quotation from our
supplier it is stated there
that they can deliver
within two months but
we have to get our
confirmed order within
June.
Q:But were you able to confirm
the order from your
Japanese supplier on
June of that year?
A:No sir.
Q:Why? Will you tell the court
why you were not able
to confirm your order
with your Japanese
supplier?
A:Because Lorenzo Shipping
Corporation did not give
us the purchase order
for that cylinder liner.
Q:And it was only on November
2, 1989 when they gave
you the purchase order?
A:Yes sir.
Q:So upon receipt of the
purchase order from
Lorenzo Shipping Lines
in 1989 did you confirm
the order with your
Japanese supplier after
receiving the purchase
order dated November
2, 1989?
A:Only when Lorenzo Shipping
Corporation will give us
the down payment of
25%. 39
For his part, during the cross-examination conducted
by counsel for petitioner, Kanaan, Jr., testified in the
following manner:
WITNESS:
This term said 25% upon
delivery. Subsequently,
in the final contract,
what was agreed upon
by both parties was 25%
down payment. HTcDEa
Q:When?
A:Upon confirmation of the order.
xxx xxx xxx
Q:And when was the down
payment supposed to be
paid?
A:It was not stated when we were
supposed to receive
that. Normally, we
expect to receive at the
earliest possible time.
Again, that would
depend on the
customers. Even after
receipt of the purchase
order which was what
happened here, they re-
negotiated the terms
and sometimes we do
accept that.
Q:Was there a re-negotiation of
this term?
A:This offer, yes. We offered a
final requirement of 25%
down payment upon
delivery.
Q:What was the re-negotiated
term?
A:25% down payment.
Q:To be paid when?
A:Supposed to be paid upon
order. 40
The above declarations remain unassailed. Other
than its bare assertion that the subject contracts of
sale did not undergo further renegotiation, petitioner
failed to proffer sufficient evidence to refute the above
testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the
preparation of Purchase Orders No. 13839 and No.
14011 yet it utterly failed to adduce any justification as
to why said documents contained terms which are at
variance with those stated in the quotation provided
by respondent. The only plausible reason for such
failure on the part of petitioner is that the parties had,
in fact, renegotiated the proposed terms of the
contract of sale. Moreover, as the obscurity in the
terms of the contract between respondent and
petitioner was caused by the latter when it omitted the
date of delivery of the cylinder liners in the purchase
orders and varied the term with respect to the due
date of the down payment, 41 said obscurity must be
resolved against it. 42

Relative to the above discussion, we find the case
of Smith, Bell & Co., Ltd. v. Matti, 43 instructive.
There, we held that
When the time of delivery is not
fixed or is stated in general and
indefinite terms, time is not of the
essence of the contract. . . .
In such cases, the delivery must
be made within a reasonable
time.
The law implies, however, that if
no time is fixed, delivery shall be
made within a reasonable time, in
the absence of anything to show
that an immediate delivery
intended. . . .
We also find significant the fact that while petitioner
alleges that the cylinder liners were to be used for dry
dock repair and maintenance of its M/V Dadiangas
Express between the later part of December 1989 to
early January 1990, the record is bereft of any
indication that respondent was aware of such fact.
The failure of petitioner to notify respondent of said
date is fatal to its claim that time was of the essence
in the subject contracts of sale.
In addition, we quote, with approval, the keen
observation of the Court of Appeals:
. . . It must be noted that in the
purchase orders issued by the
appellee, dated November 2,
1989 and January 15, 1990, no
specific date of delivery was
indicated therein. If time was
really of the essence as claimed
by the appellee, they should have
stated the same in the said
purchase orders, and not merely
relied on the quotation issued by
the appellant considering the
lapse of time between the
quotation issued by the appellant
and the purchase orders of the
appellee. DSacAE
In the instant case, the appellee
should have provided for an
allowance of time and made the
purchase order earlier if indeed
the said cylinder liner was
necessary for the repair of the
vessel scheduled on the first
week of January, 1990. In fact,
the appellee should have
cancelled the first purchase order
when the cylinder liner was not
delivered on the date it now says
was necessary. Instead it issued
another purchase order for the
second set of cylinder liner. This
fact negates appellee's claim that
time was indeed of the essence
in the consummation of the
contract of sale between the
parties. 44
Finally, the ten postdated checks issued in November
1989 by petitioner and received by the respondent as
full payment of the purchase price of the first cylinder
liner supposed to be delivered on 02 January 1990
fail to impress. It is not an indication of failure to honor
a commitment on the part of the respondent. The
earliest maturity date of the checks was 18 January
1990. As delivery of said checks could produce the
effect of payment only when they have been
cashed, 45respondent's obligation to deliver the first
cylinder liner could not have arisen as early as 02
January 1990 as claimed by petitioner since by that
time, petitioner had yet to fulfill its undertaking to fully
pay for the value of the first cylinder liner. As
explained by respondent, it proceeded with the
placement of the order for the cylinder liners with its
principal in Japan solely on the basis of its previously
harmonious business relationship with petitioner.
As an aside, let it be underscored that "[e]ven where
time is of the essence, a breach of the contract in that
respect by one of the parties may be waived by the
other party's subsequently treating the contract as still
in force." 46 Petitioner's receipt of the cylinder liners
when they were delivered to its warehouse on 20 April
1990 clearly indicates that it considered the contract
of sale to be still subsisting up to that time. Indeed,
had the contract of sale been cancelled already as
claimed by petitioner, it no longer had any business
receiving the cylinder liners even if said receipt was
"subject to verification." By accepting the cylinder
liners when these were delivered to its warehouse,
petitioner indisputably waived the claimed delay in the
delivery of said items.
We, therefore, hold that in the subject contracts, time
was not of the essence. The delivery of the cylinder
liners on 20 April 1990 was made within a reasonable
period of time considering that respondent had to
place the order for the cylinder liners with its principal
in Japan and that the latter was, at that time, beset by
heavy volume of work. 47
There having been no failure on the part of the
respondent to perform its obligation, the power to
rescind the contract is unavailing to the
petitioner. Article 1191 of the New Civil Code runs as
follows:
The power to rescind obligations
is implied in reciprocal ones, in
case one of the obligors should
not comply with what is
incumbent upon him.
The law explicitly gives either party the right to rescind
the contract only upon the failure of the other to
perform the obligation assumed thereunder. 48 The
right, however, is not an unbridled one. This Court in
the case of University of the Philippines v. De los
Angeles, 49 speaking through the eminent civilist
Justice J.B.L. Reyes, exhorts:
Of course, it must be understood
that the act of a party in treating a
contract as cancelled or resolved
on account of infractions by the
other contracting party must be
made known to the other and is
always provisional, being ever
subject to scrutiny and review by
the proper court. If the other party
denied that rescission is justified,
it is free to resort to judicial action
in its own behalf, and bring the
matter to court. Then, should the
court, after due hearing, decide
that the resolution of the contract
was not warranted, the
responsible party will be
sentenced to damages; in the
contrary case, the resolution will
be affirmed, and the consequent
indemnity awarded to the party
prejudiced. (Emphasis supplied)
In other words, the party who
deems the contract violated may
consider it resolved or rescinded,
and act accordingly, without
previous court action, but
it proceeds at its own risk. For it
is only the final judgment of the
corresponding court that will
conclusively and finally settle
whether the action taken was or
was not correct in law. But the
law definitely does not require
that the contracting party who
believes itself injured must first
file suit and wait for a judgment
before taking extrajudicial steps
to protect its interest. Otherwise,
the party injured by the other's
breach will have to passively sit
and watch its damages
accumulate during the pendency
of the suit until the final judgment
of rescission is rendered when
the law itself requires that he
should exercise due diligence to
minimize its own damages. 50
Here, there is no showing that petitioner notified
respondent of its intention to rescind the contract of
sale between them. Quite the contrary, respondent's
act of proceeding with the opening of an irrevocable
letter of credit on 23 February 1990 belies petitioner's
claim that it notified respondent of the cancellation of
the contract of sale. Truly, no prudent businessman
would pursue such action knowing that the contract of
sale, for which the letter of credit was opened, was
already rescinded by the other party. THaDAE
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals, dated 28 April 2000,
and its Resolution, dated 06 October 2000, are
hereby AFFIRMED. No costs.
SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr. and Tinga, JJ .,
concur.
SECOND DIVISION
[G.R. No. 176868. July 26, 2010.]
SOLAR HARVEST,
INC., petitioner, vs. DAVAO
CORRUGATED CARTON
CORPORATION,respondent.
DECISION
NACHURA, J p:
Petitioner seeks a review of the Court of Appeals (CA)
Decision 1 dated September 21, 2006 and
Resolution 2 dated February 23, 2007, which denied
petitioner's motion for reconsideration. The assailed
Decision denied petitioner's claim for reimbursement
for the amount it paid to respondent for the
manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest,
Inc., entered into an agreement with respondent,
Davao Corrugated Carton Corporation, for the
purchase of corrugated carton boxes, specifically
designed for petitioner's business of exporting fresh
bananas, at US$1.10 each. The agreement was not
reduced into writing. To get the production underway,
petitioner deposited, on March 31, 1998,
US$40,150.00 in respondent's US Dollar Savings
Account with Westmont Bank, as full payment for the
ordered boxes.
Despite such payment, petitioner did not receive any
boxes from respondent. On January 3, 2001,
petitioner wrote a demand letter for reimbursement of
the amount paid. 3 On February 19, 2001, respondent
replied that the boxes had been completed as early
as April 3, 1998 and that petitioner failed to pick them
up from the former's warehouse 30 days from
completion, as agreed upon. Respondent mentioned
that petitioner even placed an additional order of
24,000 boxes, out of which, 14,000 had been
manufactured without any advanced payment from
petitioner. Respondent then demanded petitioner to
remove the boxes from the factory and to pay the
balance of US$15,400.00 for the additional boxes and
P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for
sum of money and damages against respondent. The
Complaint averred that the parties agreed that the
boxes will be delivered within 30 days from payment
but respondent failed to manufacture and deliver the
boxes within such time. It further alleged: AEScHa
6.That repeated follow-up was
made by the plaintiff for the
immediate production of the
ordered boxes, but every time,
defendant [would] only show
samples of boxes and ma[k]e
repeated promises to deliver the
said ordered boxes.
7.That because of the failure of
the defendant to deliver the
ordered boxes, plaintiff ha[d] to
cancel the same and demand
payment and/or refund from the
defendant but the latter refused
to pay and/or refund the
US$40,150.00 payment made by
the former for the ordered
boxes. 4
In its Answer with Counterclaim, 5 respondent
insisted that, as early as April 3, 1998, it had already
completed production of the 36,500 boxes, contrary to
petitioner's allegation. According to respondent,
petitioner, in fact, made an additional order of 24,000
boxes, out of which, 14,000 had been completed
without waiting for petitioner's payment. Respondent
stated that petitioner was to pick up the boxes at the
factory as agreed upon, but petitioner failed to do so.
Respondent averred that, on October 8, 1998,
petitioner's representative, Bobby Que (Que), went to
the factory and saw that the boxes were ready for pick
up. On February 20, 1999, Que visited the factory
again and supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the unpaid
14,000 boxes, because petitioner's transaction to ship
bananas to China did not materialize. Respondent
claimed that the boxes were occupying warehouse
space and that petitioner should be made to pay
storage fee at P60.00 per square meter for every
month from April 1998. As counterclaim, respondent
prayed that judgment be rendered ordering petitioner
to pay $15,400.00, plus interest, moral and exemplary
damages, attorney's fees, and costs of the suit.
In reply, petitioner denied that it made a second order
of 24,000 boxes and that respondent already
completed the initial order of 36,500 boxes and
14,000 boxes out of the second order. It maintained
that respondent only manufactured a sample of the
ordered boxes and that respondent could not have
produced 14,000 boxes without the required pre-
payments. 6
During trial, petitioner presented Que as its sole
witness. Que testified that he ordered the boxes from
respondent and deposited the money in respondent's
account. 7 He specifically stated that, when he visited
respondent's factory, he saw that the boxes had no
print of petitioner's logo. 8 A few months later, he
followed-up the order and was told that the company
had full production, and thus, was promised that
production of the order would be rushed. He told
respondent that it should indeed rush production
because the need for the boxes was urgent.
Thereafter, he asked his partner, Alfred Ong, to
cancel the order because it was already late for them
to meet their commitment to ship the bananas to
China. 9 On cross-examination, Que further testified
that China Zero Food, the Chinese company that
ordered the bananas, was sending a ship to Davao to
get the bananas, but since there were no cartons, the
ship could not proceed. He said that, at that time,
bananas from Tagum Agricultural Development
Corporation (TADECO) were already there. He
denied that petitioner made an additional order of
24,000 boxes. He explained that it took three years to
refer the matter to counsel because respondent
promised to pay. 10 HIaAED
For respondent, Bienvenido Estanislao (Estanislao)
testified that he met Que in Davao in October 1998 to
inspect the boxes and that the latter got samples of
them. In February 2000, they inspected the boxes
again and Que got more samples. Estanislao said
that petitioner did not pick up the boxes because the
ship did not arrive. 11 Jaime Tan (Tan), president of
respondent, also testified that his company finished
production of the 36,500 boxes on April 3, 1998 and
that petitioner made a second order of 24,000 boxes.
He said that the agreement was for respondent to
produce the boxes and for petitioner to pick them up
from the warehouse. 12 He also said that the reason
why petitioner did not pick up the boxes was that the
ship that was to carry the bananas did not
arrive. 13 According to him, during the last visit of
Que and Estanislao, he asked them to withdraw the
boxes immediately because they were occupying a
big space in his plant, but they, instead, told him to
sell the cartons as rejects. He was able to sell 5,000
boxes at P20.00 each for a total of P100,000.00. They
then told him to apply the said amount to the unpaid
balance.
In its March 2, 2004 Decision, the Regional Trial
Court (RTC) ruled that respondent did not commit any
breach of faith that would justify rescission of the
contract and the consequent reimbursement of the
amount paid by petitioner. The RTC said that
respondent was able to produce the ordered boxes
but petitioner failed to obtain possession thereof
because its ship did not arrive. It thus dismissed the
complaint and respondent's counterclaims, disposing
as follows:
WHEREFORE, premises
considered, judgment is hereby
rendered in favor of defendant
and against the plaintiff and,
accordingly, plaintiff's complaint
is hereby ordered DISMISSED
without pronouncement as to
cost. Defendant's counterclaims
are similarly dismissed for lack of
merit.
SO ORDERED. 14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for
lack of merit. 15 The appellate court held that
petitioner failed to discharge its burden of proving
what it claimed to be the parties' agreement with
respect to the delivery of the boxes. According to the
CA, it was unthinkable that, over a period of more
than two years, petitioner did not even demand for the
delivery of the boxes. The CA added that even
assuming that the agreement was for respondent to
deliver the boxes, respondent would not be liable for
breach of contract as petitioner had not yet demanded
from it the delivery of the boxes. 16
Petitioner moved for reconsideration, 17 but the
motion was denied by the CA in its Resolution of
February 23, 2007. 18
In this petition, petitioner insists that respondent did
not completely manufacture the boxes and that it was
respondent which was obliged to deliver the boxes to
TADECO. cCTESa
We find no reversible error in the assailed Decision
that would justify the grant of this petition.
Petitioner's claim for reimbursement is actually one for
rescission (or resolution) of contract under Article
1191 of the Civil Code, which reads:
Art. 1191.The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him.
The injured party may choose
between the fulfillment and the
rescission of the obligation, with
the payment of damages in either
case. He may also seek
rescission, even after he has
chosen fulfillment, if the latter
should become impossible.
The court shall decree the
rescission claimed, unless there
be just cause authorizing the
fixing of a period.
This is understood to be without
prejudice to the rights of third
persons who have acquired the
thing, in accordance with Articles
1385 and 1388 and the Mortgage
Law.
The right to rescind a contract arises once the other
party defaults in the performance of his obligation. In
determining when default occurs, Art. 1191 should be
taken in conjunction with Art. 1169 of the same law,
which provides:
Art. 1169.Those obliged to deliver
or to do something incur in delay
from the time the obligee
judicially or extrajudicially
demands from them the
fulfillment of their obligation.
However, the demand by the
creditor shall not be necessary in
order that delay may exist:
(1)When the obligation
or the law expressly so
declares; or
(2)When from the nature
and the circumstances
of the obligation it
appears that the
designation of the time
when the thing is to be
delivered or the service
is to be rendered was a
controlling motive for the
establishment of the
contract; or
(3)When demand would
be useless, as when the
obligor has rendered it
beyond his power to
perform.
In reciprocal obligations, neither
party incurs in delay if the other
does not comply or is not ready
to comply in a proper manner
with what is incumbent upon him.
From the moment one of the
parties fulfills his obligation, delay
by the other begins.
In reciprocal obligations, as in a contract of sale, the
general rule is that the fulfillment of the parties'
respective obligations should be simultaneous.
Hence, no demand is generally necessary because,
once a party fulfills his obligation and the other party
does not fulfill his, the latter automatically incurs in
delay. But when different dates for performance of the
obligations are fixed, the default for each obligation
must be determined by the rules given in the first
paragraph of the present article, 19 that is, the other
party would incur in delay only from the moment the
other party demands fulfillment of the former's
obligation. Thus, even in reciprocal obligations, if the
period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the
obligor can be considered in default and before a
cause of action for rescission will accrue. cEDaTS
Evident from the records and even from the
allegations in the complaint was the lack of demand
by petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint
only alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation.
Petitioner's witness also testified that they made a
follow-up of the boxes, but not a demand. Note is
taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the
witness testified that a demand letter was sent to
respondent. Without a previous demand for the
fulfillment of the obligation, petitioner would not have
a cause of action for rescission against respondent as
the latter would not yet be considered in breach of its
contractual obligation.
Even assuming that a demand had been previously
made before filing the present case, petitioner's claim
for reimbursement would still fail, as the
circumstances would show that respondent was not
guilty of breach of contract.
The existence of a breach of contract is a factual
matter not usually reviewed in a petition for review
under Rule 45. 20The Court, in petitions for review,
limits its inquiry only to questions of law. After all, it is
not a trier of facts, and findings of fact made by the
trial court, especially when reiterated by the CA, must
be given great respect if not considered as final. 21 In
dealing with this petition, we will not veer away from
this doctrine and will thus sustain the factual findings
of the CA, which we find to be adequately supported
by the evidence on record.
As correctly observed by the CA, aside from the
pictures of the finished boxes and the production
report thereof, there is ample showing that the boxes
had already been manufactured by respondent. There
is the testimony of Estanislao who accompanied Que
to the factory, attesting that, during their first visit to
the company, they saw the pile of petitioner's boxes
and Que took samples thereof. Que, petitioner's
witness, himself confirmed this incident. He testified
that Tan pointed the boxes to him and that he got a
sample and saw that it was blank. Que's absolute
assertion that the boxes were not manufactured is,
therefore, implausible and suspicious.
In fact, we note that respondent's counsel manifested
in court, during trial, that his client was willing to
shoulder expenses for a representative of the court to
visit the plant and see the boxes. 22 Had it been true
that the boxes were not yet completed, respondent
would not have been so bold as to challenge the court
to conduct an ocular inspection of their warehouse.
Even in its Comment to this petition, respondent prays
that petitioner be ordered to remove the boxes from
its factory site, 23 which could only mean that the
boxes are, up to the present, still in respondent's
premises.
We also believe that the agreement between the
parties was for petitioner to pick up the boxes from
respondent's warehouse, contrary to petitioner's
allegation. Thus, it was due to petitioner's fault that
the boxes were not delivered to TADECO. HCacTI
Petitioner had the burden to prove that the agreement
was, in fact, for respondent to deliver the boxes within
30 days from payment, as alleged in the Complaint.
Its sole witness, Que, was not even competent to
testify on the terms of the agreement and, therefore,
we cannot give much credence to his testimony. It
appeared from the testimony of Que that he did not
personally place the order with Tan, thus:
Q.No, my question is, you went to
Davao City and placed
your order there?
A.I made a phone call.
Q.You made a phone call to Mr.
Tan?
A.The first time, the first call to
Mr. Alf[re]d Ong. Alfred
Ong has a contact with
Mr. Tan.
Q.So, your first statement that
you were the one who
placed the order is not
true?
A.That's true. The Solar Harvest
made a contact with Mr.
Tan and I deposited the
money in the bank.
Q.You said a while ago [t]hat you
were the one who called
Mr. Tan and placed the
order for 36,500 boxes,
isn't it?
A.First time it was Mr. Alfred Ong.
Q.It was Mr. Ong who placed the
order[,] not you?
A.Yes, sir. 24
Q.Is it not a fact that the cartons
were ordered through
Mr. Bienvenido
Estanislao?
A.Yes, sir. 25
Moreover, assuming that respondent was obliged to
deliver the boxes, it could not have complied with
such obligation. Que, insisting that the boxes had not
been manufactured, admitted that he did not give
respondent the authority to deliver the boxes to
TADECO:
Q.Did you give authority to Mr.
Tan to deliver these
boxes to TADECO?
A.No, sir. As I have said, before
the delivery, we must
have to check the
carton, the quantity and
quality. But I have not
seen a single carton.
Q.Are you trying to impress upon
the [c]ourt that it is only
after the boxes are
completed, will you give
authority to Mr. Tan to
deliver the boxes to
TADECO[?] DAEcIS
A.Sir, because when I checked
the plant, I have not
seen any carton. I asked
Mr. Tan to rush the
carton but not. . . 26
Q.Did you give any authority for
Mr. Tan to deliver these
boxes to TADECO?
A.Because I have not seen any of
my carton.
Q.You don't have any authority
yet given to Mr. Tan?
A.None, your Honor. 27
Surely, without such authority, TADECO would
not have allowed respondent to deposit the
boxes within its premises.
In sum, the Court finds that petitioner failed to
establish a cause of action for rescission, the
evidence having shown that respondent did not
commit any breach of its contractual obligation. As
previously stated, the subject boxes are still within
respondent's premises. To put a rest to this dispute,
we therefore relieve respondent from the burden of
having to keep the boxes within its premises and,
consequently, give it the right to dispose of them, after
petitioner is given a period of time within which to
remove them from the premises.
WHEREFORE, premises considered, the petition
is DENIED. The Court of Appeals Decision dated
September 21, 2006 and Resolution dated February
23, 2007 are AFFIRMED. In addition, petitioner is
given a period of 30 days from notice within which to
cause the removal of the 36,500 boxes from
respondent's warehouse. After the lapse of said
period and petitioner fails to effect such removal,
respondent shall have the right to dispose of the
boxes in any manner it may deem fit.
SO ORDERED.
Carpio, Peralta, Abad and Mendoza, JJ., concur.
FIRST DIVISION
[G.R. No. 150843. March 14, 2003.]
CATHAY PACIFIC AIRWAYS,
LTD., petitioner, vs. SPOUSES
DANIEL VAZQUEZ and MARIA
LUISA MADRIGAL
VAZQUEZ, respondents.
Quasha Ancheta Pea Nolasco for petitioner.
Candelaria Candelaria & Candelaria Law
Firm and Bello Gozon Elma Parel Asuncion &
Lucila for private respondents.
SYNOPSIS
Respondents-spouses Dr. Daniel
Earnshaw Vazquez and Maria Luisa Madrigal
Vazquez are frequent flyers of petitioner Cathay
Pacific Airways, Ltd., and are Gold Card
members of its Marco Polo Club. The
Vazquezes, together with their maid and two
friends, Pacita Cruz and Josefina Vergel de Dios,
went to Hongkong for pleasure and business. For
their return flight to Manila, they were booked on
Cathay's Flight CX-905 Business Class Section.
When boarding time was announced, a ground
attendant approached Dr. Vazquez and told him
that the Vazquezes' accommodations were
upgraded to First Class. Dr. Vazquez refused the
upgrade, reasoning that it would not look nice for
them as hosts to travel in First Class and their
guests, in the Business Class; and moreover,
they were going to discuss business matters
during the flight. Dr. Vazquez continued to refuse,
so the ground stewardess told them that if they
would not avail themselves of the privilege, they
would not be allowed to take the flight.
Eventually, after talking to his two friends, Dr.
Vazquez gave in. Upon their return to Manila, the
Vazquezes instituted before the Regional Trial
Court of Makati City an action for damages
against Cathay. In its answer, Cathay alleged
that it is a practice among commercial airlines to
upgrade passengers to the next better class of
accommodation, whenever an opportunity arises,
such as when a certain section is fully booked.
Priority in upgrading is given to its frequent flyers,
who are considered favored passengers, like the
Vazquezes. The trial court found for the
Vazquezes and awarded them damages. On
appeal by the petitioner, the Court of Appeals
deleted the award for exemplary damages; and it
reduced the awards for moral and nominal
damages for each of the Vazquezes to P250,000
and P50,000, respectively, and the attorney's
fees and litigation expenses to P50,000 for both
of them. Hence this petition.
The Supreme Court partly granted the
petition. According to the Court, the Vazquezes
should have been consulted first whether they
wanted to avail themselves of the privilege or
would consent to a change of seat
accommodation before their seat assignments
were given to other passengers. Normally, one
would appreciate and accept an upgrading, for it
would mean a better accommodation. But,
whatever their reason was and however odd it
might be, the Vazquezes had every right to
decline the upgrade and insist on the Business
Class accommodation they had booked for and
which was designated in their boarding passes.
They clearly waived their priority or preference
when they asked that other passengers be given
the upgrade. It should not have been imposed on
them over their vehement objection. By insisting
on the upgrade, Cathay breached its contract of
carriage with the Vazquezes. The Court,
however, was not convinced that the upgrading
or the breach of contract was attended by fraud
or bad faith. The Vazquezes were not induced to
agree to the upgrading through insidious words
or deceitful machination or through willful
concealment of material facts. The attendant was
honest in telling them that their seats were
already given to other passengers and the
Business Class Section was fully booked. The
attendant might have failed to consider the
remedy of offering the First. Class seats to other
passengers. But, the Court found no bad faith in
her failure to do so, even if that amounted to an
exercise of poor judgment. The Court set aside
and deleted the award of moral damages and
attorney's fees and reduced the award for
nominal damages to P5,000.
SYLLABUS
1.CIVIL LAW; CONTRACTS; BREACH OF
CONTRACT; DEFINED. A contract is a meeting of
minds between two persons whereby one agrees to
give something or render some service to another for
a consideration. There is no contract unless the
following requisites concur: (1) consent of the
contracting parties; (2) an object certain which is the
subject of the contract; and (3) the cause of the
obligation which is established. Undoubtedly, a
contract of carriage existed between Cathay and the
Vazquezes. They voluntarily and freely gave their
consent to an agreement whose object was the
transportation of the Vazquezes from Manila to Hong
Kong and back to Manila, with seats in the Business
Class Section of the aircraft, and whose cause or
consideration was the fare paid by the Vazquezes to
Cathay. The only problem is the legal effect of the
upgrading of the seat accommodation of the
Vazquezes. Did it constitute a breach of
contract? Breach of contract is defined as the "failure
without legal reason to comply with the terms of a
contract." It is also defined as the "[f]ailure, without
legal excuse, to perform any promise which forms the
whole or part of the contract." acIASE
2.ID.; ID.; ID.; BY INSISTING ON THE UPGRADE,
PETITIONER BREACHED ITS CONTRACT OF
CARRIAGE WITH THE RESPONDENTS. The
contract between the parties was for Cathay to
transport the Vazquezes to Manila on a Business
Class accommodation in Flight CX-905. After
checking-in their luggage at the Kai Tak Airport in
Hong Kong, the Vazquezes were given boarding
cards indicating their seat assignments in the
Business Class Section. However, during the
boarding time, when the Vazquezes presented their
boarding passes, they were informed that they had a
seat change from Business Class to First Class. It
turned out that the Business Class was overbooked in
that there were more passengers than the number of
seats. Thus, the seat assignments of the Vazquezes
were given to waitlisted passengers, and the
Vazquezes, being members of the Marco Polo Club,
were upgraded from Business Class to First Class.
We note that in all their pleadings, the Vazquezes
never denied that they were members of Cathay's
Marco Polo Club. They knew that as members of the
Club, they had priority for upgrading of their seat
accommodation at no extra cost when an opportunity
arises. But, just like other privileges, such priority
could be waived. The Vazquezes should have been
consulted first whether they wanted to avail
themselves of the privilege or would consent to a
change of seat accommodation before their seat
assignments were given to other passengers.
Normally, one would appreciate and accept an
upgrading, for it would mean a better accommodation.
But, whatever their reason was and however odd it
might be, the Vazquezes had every right to decline
the upgrade and insist on the Business Class
accommodation they had booked for and which was
designated in their boarding passes. They clearly
waived their priority or preference when they asked
that other passengers be given the upgrade. It should
not have been imposed on them over their vehement
objection. By insisting on the upgrade, Cathay
breached its contract of carriage with the Vazquezes.
3.ID.; ID.; NO PROOF OF FRAUD OR BAD FAITH
ON THE PART OF PETITIONER AIRLINE'S
EMPLOYEE. Bad faith and fraud are allegations of
fact that demand clear and convincing proof. They are
serious accusations that can be so conveniently and
casually invoked, and that is why they are never
presumed. They amount to mere slogans or
mudslinging unless convincingly substantiated by
whoever is alleging them. Fraud has been defined to
include an inducement through insidious machination.
Insidious machination refers to a deceitful scheme or
plot with an evil or devious purpose. Deceit exists
where the party, with intent to deceive, conceals or
omits to state material facts and, by reason of such
omission or concealment, the other party was induced
to give consent that would not otherwise have been
given. Bad faith does not simply connote bad
judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing
of a wrong, a breach of a known duty through some
motive or interest or ill will that partakes of the nature
of fraud. We find no persuasive proof of fraud or bad
faith in this case. The Vazquezes were not induced to
agree to the upgrading through insidious words or
deceitful machination or through willful concealment
of material facts. Upon boarding, Ms. Chiu told the
Vazquezes that their accommodations were upgraded
to First Class in view of their being Gold Card
members of Cathay's Marco Polo Club. She was
honest in telling them that their seats were already
given to other passengers and the Business Class
Section was fully booked. Ms. Chiu might have failed
to consider the remedy of offering the First Class
seats to other passengers. But, we find no bad faith in
her failure to do so, even if that amounted to an
exercise of poor judgment. Neither was the transfer of
the Vazquezes effected for some evil or devious
purpose. As testified to by Mr. Robson, the First Class
Section is better than the Business Class Section in
terms of comfort, quality of food, and service from the
cabin crew; thus, the difference in fare between the
First Class and Business Class at that time was $250.
Needless to state, an upgrading is for the better
condition and, definitely, for the benefit of the
passenger.
4.CIVIL LAW; DAMAGES; MORAL DAMAGES; NOT
APPLICABLE IN CASE AT BAR; AIRLINE NOT
SHOWN TO HAVE ACTED FRAUDULENTLY OR IN
BAD FAITH. Moral damages include physical
suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Although
incapable of pecuniary computation, moral damages
may be recovered if they are the proximate result of
the defendant's wrongful act or omission. Thus, case
law establishes the following requisites for the award
of moral damages: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental
or psychological; (2) there must be a culpable act or
omission factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) the
award for damages is predicated on any of the cases
stated in Article 2219 of the Civil Code. Moral
damages predicated upon a breach of contract of
carriage may only be recoverable in instances where
the carrier is guilty of fraud or bad faith or where the
mishap resulted in the death of a passenger. Where
in breaching the contract of carriage the airline is not
shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and
probable consequences of the breach of the
obligation which the parties had foreseen or could
have reasonably foreseen. In such a case the liability
does not include moral and exemplary damages. In
this case, we have ruled that the breach of contract of
carriage, which consisted in the involuntary upgrading
of the Vazquezes' seat accommodation, was not
attended by fraud or bad faith. The Court of Appeals'
award of moral damages has, therefore, no leg to
stand on.

5.ID.; ID.; EXEMPLARY DAMAGES; REQUISITE
THAT THE ACT OF THE OFFENDER WAS
ACCOMPANIED BY BAD FAITH OR DONE IN
WANTON, FRAUDULENT OR MALEVOLENT
MANNER, ABSENT IN CASE AT BAR. The
deletion of the award for exemplary damages by the
Court of Appeals is correct. It is a requisite in the
grant of exemplary damages that the act of the
offender must be accompanied by bad faith or done in
wanton, fraudulent or malevolent manner. Such
requisite is absent in this case. Moreover, to be
entitled thereto the claimant must first establish his
right to moral, temperate, or compensatory damages.
Since the Vazquezes are not entitled to any of these
damages, the award for exemplary damages has no
legal basis. And where the awards for moral and
exemplary damages are eliminated, so must the
award for attorney's fees.
6.ID.; ID.; NOMINAL DAMAGES; REDUCED. The
most that can be adjudged in favor of the Vazquezes
for Cathay's breach of contract is an award for
nominal damages under Article 2221 of the Civil
Code. Worth noting is the fact that in Cathay's
Memorandum filed with this Court, it prayed only for
the deletion of the award for moral damages. It
deferred to the Court of Appeals' discretion in
awarding nominal damages; thus: As far as the award
of nominal damages is concerned, petitioner
respectfully defers to the Honorable Court of Appeals'
discretion. Aware as it is that somehow, due to the
resistance of respondents-spouses to the normally-
appreciated gesture of petitioner to upgrade their
accommodations, petitioner may have disturbed the
respondents-spouses' wish to be with their
companions (who traveled to Hong Kong with them)
at the Business Class on their flight to Manila.
Petitioner regrets that in its desire to provide the
respondents-spouses with additional amenities for the
one and one-half (1 1/2) hour flight to Manila,
unintended tension ensued. Nonetheless,
considering, that the breach was intended to give
more benefit and advantage to the Vazquezes by
upgrading their Business Class accommodation to
First Class because of their valued status as Marco
Polo members, we reduce the award for nominal
damages to P5,000. EIAaDC
D E C I S I O N
DAVIDE, JR., C.J p:
Is an involuntary upgrading of an airline passenger's
accommodation from one class to a more superior
class at no extra cost a breach of contract of carriage
that would entitle the passenger to an award of
damages? This is a novel question that has to be
resolved in this case.
The facts in this case, as found by the Court of
Appeals and adopted by petitioner Cathay Pacific
Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business
of transporting passengers and goods by air. Among
the many routes it services is the Manila-Hongkong-
Manila course. As part of its marketing strategy,
Cathay accords its frequent flyers membership in its
Marco Polo Club. The members enjoy several
privileges, such as priority for upgrading of booking
without any extra charge whenever an opportunity
arises. Thus, a frequent flyer booked in the Business
Class has priority for upgrading to First Class if the
Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez
and Maria Luisa Madrigal Vazquez are frequent flyers
of Cathay and are Gold Card members of its Marco
Polo Club. On 24 September 1996, the Vazquezes,
together with their maid and two friends Pacita Cruz
and Josefina Vergel de Dios, went to Hongkong for
pleasure and business.
For their return flight to Manila on 28 September
1996, they were booked on Cathay's Flight CX-905,
with departure time at 9:20 p.m. Two hours before
their time of departure, the Vazquezes and their
companions checked in their luggage at Cathay's
check-in counter at Kai Tak Airport and were given
their respective boarding passes, to wit, Business
Class boarding passes for the Vazquezes and their
two friends, and Economy Class for their maid. They
then proceeded to the Business Class passenger
lounge.
When boarding time was announced, the Vazquezes
and their two friends went to Departure Gate No. 28,
which was designated for Business Class
passengers. Dr. Vazquez presented his boarding
pass to the ground stewardess, who in turn inserted it
into an electronic machine reader or computer at the
gate. The ground stewardess was assisted by a
ground attendant by the name of Clara Lai Han Chiu.
When Ms. Chiu glanced at the computer monitor, she
saw a message that there was a "seat change" from
Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that
the Vazquezes' accommodations were upgraded to
First Class. Dr. Vazquez refused the upgrade,
reasoning that it would not look nice for them as hosts
to travel in First Class and their guests, in the
Business Class; and moreover, they were going to
discuss business matters during the flight. He also
told Ms. Chiu that she could have other passengers
instead transferred to the First Class Section. Taken
aback by the refusal for upgrading, Ms. Chiu
consulted her supervisor, who told her to handle the
situation and convince the Vazquezes to accept the
upgrading. Ms. Chiu informed the latter that the
Business Class was fully booked, and that since they
were Marco Polo Club members they had the priority
to be upgraded to the First Class. Dr. Vazquez
continued to refuse, so Ms. Chiu told them that if they
would not avail themselves of the privilege, they
would not be allowed to take the flight. Eventually,
after talking to his two friends, Dr. Vazquez gave in.
He and Mrs. Vazquez then proceeded to the First
Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter
of 2 October 1996 addressed to Cathay's Country
Manager, demanded that they be indemnified in the
amount of P1million for the "humiliation and
embarrassment" caused by its employees. They also
demanded "a written apology from the management
of Cathay, preferably a responsible person with a rank
of no less than the Country Manager, as well as the
apology from Ms. Chiu" within fifteen days from
receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the
assistant to Cathay's Country Manager Argus Guy
Robson, informed the Vazquezes that Cathay would
investigate the incident and get back to them within a
week's time.
On 8 November 1996, after Cathay's failure to give
them any feedback within its self-imposed deadline,
the Vazquezes instituted before the Regional Trial
Court of Makati City an action for damages against
Cathay, praying for the payment to each of them the
amounts of P250,000 as temperate damages;
P500,000 as moral damages; P500,000 as exemplary
or corrective damages; and P250,000 as attorney's
fees.
In their complaint, the Vazquezes alleged that when
they informed Ms. Chiu that they preferred to stay in
Business Class, Ms. Chiu "obstinately,
uncompromisingly and in a loud, discourteous and
harsh voice threatened" that they could not board and
leave with the flight unless they go to First Class,
since the Business Class was overbooked. Ms. Chiu's
loud and stringent shouting annoyed, embarrassed,
and humiliated them because the incident was
witnessed by all the other passengers waiting for
boarding. They also claimed that they were
unjustifiably delayed to board the plane, and when
they were finally permitted to get into the aircraft, the
forward storage compartment was already full. A flight
stewardess instructed Dr. Vazquez to put his roll-on
luggage in the overhead storage compartment.
Because he was not assisted by any of the crew in
putting up his luggage, his bilateral carpal tunnel
syndrome was aggravated, causing him extreme pain
on his arm and wrist. The Vazquezes also averred
that they "belong to the uppermost and absolutely top
elite of both Philippine Society and the Philippine
financial community, [and that] they were among the
wealthiest persons in the Philippine[s]."
In its answer, Cathay alleged that it is a practice
among commercial airlines to upgrade passengers to
the next better class of accommodation, whenever an
opportunity arises, such as when a certain section is
fully booked. Priority in upgrading is given to its
frequent flyers, who are considered favored
passengers like the Vazquezes. Thus, when the
Business Class Section of Flight CX-905 was fully
booked, Cathay's computer sorted out the names of
favored passengers for involuntary upgrading to First
Class. When Ms. Chiu informed the Vazquezes that
they were upgraded to First Class, Dr. Vazquez
refused. He then stood at the entrance of the
boarding apron, blocking the queue of passengers
from boarding the plane, which inconvenienced other
passengers. He shouted that it was impossible for him
and his wife to be upgraded without his two friends
who were traveling with them. Because of Dr.
Vazquez's outburst, Ms. Chiu thought of upgrading
the traveling companions of the Vazquezes. But when
she checked the computer, she learned that the
Vazquezes' companions did not have priority for
upgrading. She then tried to book the Vazquezes
again to their original seats. However, since the
Business Class Section was already fully booked, she
politely informed Dr. Vazquez of such fact and
explained that the upgrading was in recognition of
their status as Cathay's valued passengers. Finally,
after talking to their guests, the Vazquezes eventually
decided to take the First Class accommodation.
Cathay also asserted that its employees at the Hong
Kong airport acted in good faith in dealing with the
Vazquezes; none of them shouted, humiliated,
embarrassed, or committed any act of disrespect
against them (the Vazquezes). Assuming that there
was indeed a breach of contractual obligation, Cathay
acted in good faith, which negates any basis for their
claim for temperate, moral, and exemplary damages
and attorney's fees. Hence, it prayed for the dismissal
of the complaint and for payment of P100,000 for
exemplary damages and P300,000 as attorney's fees
and litigation expenses.

During the trial, Dr. Vazquez testified to support the
allegations in the complaint. His testimony was
corroborated by his two friends who were with him at
the time of the incident, namely, Pacita G. Cruz and
Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence
and the testimonies of Mr. Yuen; Ms. Chiu; Norma
Barrientos, Comptroller of its retained counsel; and
Mr. Robson. Yuen and Robson testified on Cathay's
policy of upgrading the seat accommodation of its
Marco Polo Club members when an opportunity
arises. The upgrading of the Vazquezes to First Class
was done in good faith; in fact, the First Class Section
is definitely much better than the Business Class in
terms of comfort, quality of food, and service from the
cabin crew. They also testified that overbooking is a
widely accepted practice in the airline industry and is
in accordance with the International Air Transport
Association (IATA) regulations. Airlines overbook
because a lot of passengers do not show up for their
flight. With respect to Flight CX-905, there was no
overall overbooking to a degree that a passenger was
bumped off or downgraded. Yuen and Robson also
stated that the demand letter of the Vazquezes was
immediately acted upon. Reports were gathered from
their office in Hong Kong and immediately forwarded
to their counsel Atty. Remollo for legal advice.
However, Atty. Remollo begged off because his
services were likewise retained by the Vazquezes;
nonetheless, he undertook to solve the problem in
behalf of Cathay. But nothing happened until Cathay
received a copy of the complaint in this case. For her
part, Ms. Chiu denied that she shouted or used foul or
impolite language against the Vazquezes. Ms.
Barrientos testified on the amount of attorney's fees
and other litigation expenses, such as those for the
taking of the depositions of Yuen and Chiu.
In its decision 1 of 19 October 1998, the trial court
found for the Vazquezes and decreed as follows:
WHEREFORE, finding
preponderance of evidence to
sustain the instant complaint,
judgment is hereby rendered in
favor of plaintiffs Vazquez
spouses and against defendant
Cathay Pacific Airways, Ltd.,
ordering the latter to pay each
plaintiff the following:
a)Nominal damages in
the amount of
P100,000.00
for each
plaintiff;
b)Moral damages in the
amount of
P2,000,000.00
for each
plaintiff;
c)Exemplary damages
in the amount
of
P5,000,000.00
for each
plaintiff;
d)Attorney's fees and
expenses of
litigation in the
amount of
P1,000,000.00
for each
plaintiff; and
e)Costs of suit.
SO ORDERED.
According to the trial court, Cathay offers various
classes of seats from which passengers are allowed
to choose regardless of their reasons or motives,
whether it be due to budgetary constraints or whim.
The choice imposes a clear obligation on Cathay to
transport the passengers in the class chosen by them.
The carrier cannot, without exposing itself to liability,
force a passenger to involuntarily change his choice.
The upgrading of the Vazquezes' accommodation
over and above their vehement objections was due to
the overbooking of the Business Class. It was a
pretext to pack as many passengers as possible into
the plane to maximize Cathay's revenues. Cathay's
actuations in this case displayed deceit, gross
negligence, and bad faith, which entitled the
Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in
its decision of 24 July 2001, 2 deleted the award for
exemplary damages; and it reduced the awards for
moral and nominal damages for each of the
Vazquezes to P250,000 and P50,000, respectively,
and the attorney's fees and litigation expenses to
P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading
the Vazquezes to First Class, Cathay novated the
contract of carriage without the former's consent.
There was a breach of contract not because Cathay
overbooked the Business Class Section of Flight CX-
905 but because the latter pushed through with the
upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced
that Ms. Chiu shouted at, or meant to be discourteous
to, Dr. Vazquez, although it might seemed that way to
the latter, who was a member of the elite in Philippine
society and was not therefore used to being
harangued by anybody. Ms. Chiu was a Hong Kong
Chinese whose fractured Chinese was difficult to
understand and whose manner of speaking might
sound harsh or shrill to Filipinos because of cultural
differences. But the Court of Appeals did not find her
to have acted with deliberate malice, deceit, gross
negligence, or bad faith. If at all, she was negligent in
not offering the First Class accommodations to other
passengers. Neither can the flight stewardess in the
First Class Cabin be said to have been in bad faith
when she failed to assist Dr. Vazquez in lifting his
baggage into the overhead storage bin. There is no
proof that he asked for help and was refused even
after saying that he was suffering from "bilateral
carpal tunnel syndrome." Anent the delay of Yuen in
responding to the demand letter of the Vazquezes,
the Court of Appeals found it to have been sufficiently
explained.
The Vazquezes and Cathay separately filed motions
for a reconsideration of the decision, both of which
were denied by the Court of Appeals.
Cathay seasonably filed with us this petition in this
case. Cathay maintains that the award for moral
damages has no basis, since the Court of Appeals
found that there was no "wanton, fraudulent, reckless
and oppressive" display of manners on the part of its
personnel; and that the breach of contract was not
attended by fraud, malice, or bad faith. If any damage
had been suffered by the Vazquezes, it was damnum
absque injuria, which is damage without injury,
damage or injury inflicted without injustice, loss or
damage without violation of a legal right, or a wrong
done to a man for which the law provides no remedy.
Cathay also invokes our decision in United Airlines,
Inc. v. Court of Appeals 3where we recognized that, in
accordance with the Civil Aeronautics Board's
Economic Regulation No. 7, as amended, an
overbooking that does not exceed ten percent cannot
be considered deliberate and done in bad faith. We
thus deleted in that case the awards for moral and
exemplary damages, as well as attorney's fees, for
lack of proof of overbooking exceeding ten percent or
of bad faith on the part of the airline carrier.
On the other hand, the Vazquezes assert that the
Court of Appeals was correct in granting awards for
moral and nominal damages and attorney's fees in
view of the breach of contract committed by Cathay
for transferring them from the Business Class to First
Class Section without prior notice or consent and over
their vigorous objection. They likewise argue that the
issuance of passenger tickets more than the seating
capacity of each section of the plane is in itself
fraudulent, malicious and tainted with bad faith.
The key issues for our consideration are whether (1)
by upgrading the seat accommodation of the
Vazquezes from Business Class to First Class Cathay
breached its contract of carriage with the Vazquezes;
(2) the upgrading was tainted with fraud or bad faith;
and (3) the Vazquezes are entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons
whereby one agrees to give something or render
some service to another for a consideration. There is
no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) an object
certain which is the subject of the contract; and (3) the
cause of the obligation which is
established. 4 Undoubtedly, a contract of carriage
existed between Cathay and the Vazquezes. They
voluntarily and freely gave their consent to an
agreement whose object was the transportation of the
Vazquezes from Manila to Hong Kong and back to
Manila, with seats in the Business Class Section of
the aircraft, and whose cause or consideration was
the fare paid by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading
of the seat accommodation of the Vazquezes. Did it
constitute a breach of contract?
Breach of contract is defined as the "failure without
legal reason to comply with the terms of a
contract." 5 It is also defined as the "[f]ailure, without
legal excuse, to perform any promise which forms the
whole or part of the contract." 6
In previous cases, the breach of contract of carriage
consisted in either the bumping off of a passenger
with confirmed reservation or the downgrading of a
passenger's seat accommodation from one class to a
lower class. In this case, what happened was the
reverse. The contract between the parties was for
Cathay to transport the Vazquezes to Manila on a
Business Class accommodation in Flight CX-905.
After checking-in their luggage at the Kai Tak Airport
in Hong Kong, the Vazquezes were given boarding
cards indicating their seat assignments in the
Business Class Section. However, during the
boarding time, when the Vazquezes presented their
boarding passes, they were informed that they had a
seat change from Business Class to First Class. It
turned out that the Business Class was overbooked in
that there were more passengers than the number of
seats. Thus, the seat assignments of the Vazquezes
were given to waitlisted passengers, and the
Vazquezes, being members of the Marco Polo Club,
were upgraded from Business Class to First Class.
We note that in all their pleadings, the Vazquezes
never denied that they were members of Cathay's
Marco Polo Club. They knew that as members of the
Club, they had priority for upgrading of their seat
accommodation at no extra cost when an opportunity
arises. But, just like other privileges, such priority
could be waived. The Vazquezes should have been
consulted first whether they wanted to avail
themselves of the privilege or would consent to a
change of seat accommodation before their seat
assignments were given to other passengers.
Normally, one would appreciate and accept an
upgrading, for it would mean a better accommodation.
But, whatever their reason was and however odd it
might be, the Vazquezes had every right to decline
the upgrade and insist on the Business Class
accommodation they had booked for and which was
designated in their boarding passes. They clearly
waived their priority or preference when they asked
that other passengers be given the upgrade. It should
not have been imposed on them over their vehement
objection. By insisting on the upgrade, Cathay
breached its contract of carriage with the Vazquezes.

We are not, however, convinced that the upgrading or
the breach of contract was attended by fraud or bad
faith. Thus, we resolve the second issue in the
negative.
Bad faith and fraud are allegations of fact that
demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually
invoked, and that is why they are never presumed.
They amount to mere slogans or mudslinging unless
convincingly substantiated by whoever is alleging
them.
Fraud has been defined to include an inducement
through insidious machination. Insidious machination
refers to a deceitful scheme or plot with an evil or
devious purpose. Deceit exists where the party, with
intent to deceive, conceals or omits to state material
facts and, by reason of such omission or
concealment, the other party was induced to give
consent that would not otherwise have been given. 7
Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a
breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud. 8
We find no persuasive proof of fraud or bad faith in
this case. The Vazquezes were not induced to agree
to the upgrading through insidious words or deceitful
machination or through willful concealment of material
facts. Upon boarding, Ms. Chiu told the Vazquezes
that their accommodations were upgraded to First
Class in view of their being Gold Card members of
Cathay's Marco Polo Club. She was honest in telling
them that their seats were already given to other
passengers and the Business Class Section was fully
booked. Ms. Chiu might have failed to consider the
remedy of offering the First Class seats to other
passengers. But, we find no bad faith in her failure to
do so, even if that amounted to an exercise of poor
judgment.
Neither was the transfer of the Vazquezes effected for
some evil or devious purpose. As testified to by Mr.
Robson, the First Class Section is better than the
Business Class Section in terms of comfort, quality of
food, and service from the cabin crew; thus, the
difference in fare between the First Class and
Business Class at that time was $250. 9 Needless to
state, an upgrading is for the better condition and,
definitely, for the benefit of the passenger.
We are not persuaded by the Vazquezes' argument
that the overbooking of the Business Class Section
constituted bad faith on the part of Cathay. Section 3
of the Economic Regulation No. 7 of the Civil
Aeronautics Board, as amended, provides:
Sec 3.Scope. This regulation
shall apply to every Philippine
and foreign air carrier with
respect to its operation of flights
or portions of flights originating
from or terminating at, or serving
a point within the territory of the
Republic of the Philippines
insofar as it denies boarding to a
passenger on a flight, or portion
of a flight inside or outside the
Philippines, for which he holds
confirmed reserved space.
Furthermore, this Regulation is
designed to cover only honest
mistakes on the part of the
carriers and excludes deliberate
and willful acts of non-
accommodation. Provided,
however, that overbooking not
exceeding 10% of the seating
capacity of the aircraft shall not
be considered as a deliberate
and willful act of non-
accommodation.
It is clear from this section that an overbooking that
does not exceed ten percent is not considered
deliberate and therefore does not amount to bad
faith. 10 Here, while there was admittedly an
overbooking of the Business Class, there was no
evidence of overbooking of the plane beyond ten
percent, and no passenger was ever bumped off or
was refused to board the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the
Vazquezes moral damages in the amount of
P250,000. Article 2220 of the Civil Code provides:
Article 2220.Willful injury to
property may be a legal ground
for awarding moral damages if
the court should find that, under
the circumstances, such
damages are justly due. The
same rule applies to breaches of
contract where the defendant
acted fraudulently or in bad faith.
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Although incapable of
pecuniary computation, moral damages may be
recovered if they are the proximate result of the
defendant's wrongful act or omission. 11 Thus, case
law establishes the following requisites for the award
of moral damages: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental
or psychological; (2) there must be a culpable act or
omission factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) the
award for damages is predicated on any of the cases
stated in Article 2219 of the Civil Code. 12
Moral damages predicated upon a breach of contract
of carriage may only be recoverable in instances
where the carrier is guilty of fraud or bad faith or
where the mishap resulted in the death of a
passenger. 13 Where in breaching the contract of
carriage the airline is not shown to have acted
fraudulently or in bad faith, liability for damages is
limited to the natural and probable consequences of
the breach of the obligation which the parties had
foreseen or could have reasonably foreseen. In such
a case the liability does not include moral and
exemplary damages. 14
In this case, we have ruled that the breach of contract
of carriage, which consisted in the involuntary
upgrading of the Vazquezes' seat accommodation,
was not attended by fraud or bad faith. The Court of
Appeals' award of moral damages has, therefore, no
leg to stand on.
The deletion of the award for exemplary damages by
the Court of Appeals is correct. It is a requisite in the
grant of exemplary damages that the act of the
offender must be accompanied by bad faith or done in
wanton, fraudulent or malevolent manner. 15 Such
requisite is absent in this case. Moreover, to be
entitled thereto the claimant must first establish his
right to moral, temperate, or compensatory
damages. 16 Since the Vazquezes are not entitled to
any of these damages, the award for exemplary
damages has no legal basis. And where the awards
for moral and exemplary damages are eliminated, so
must the award for attorney's fees. 17
The most that can be adjudged in favor of the
Vazquezes for Cathay's breach of contract is an
award for nominal damages under Article 2221 of the
Civil Code, which reads as follows:
Article 2221 of the Civil Code provides:
Article 2221.Nominal damages
are adjudicated in order that a
right of the plaintiff, which has
been violated or invaded by the
defendant, may be vindicated or
recognized, and not for the
purpose of indemnifying the
plaintiff for any loss suffered by
him.
Worth noting is the fact that in Cathay's Memorandum
filed with this Court, it prayed only for the deletion of
the award for moral damages. It deferred to the Court
of Appeals' discretion in awarding nominal damages;
thus:
As far as the award of nominal
damages is concerned, petitioner
respectfully defers to the
Honorable Court of Appeals'
discretion. Aware as it is that
somehow, due to the resistance
of respondents-spouses to the
normally-appreciated gesture of
petitioner to upgrade their
accommodations, petitioner may
have disturbed the respondents-
spouses' wish to be with their
companions (who traveled to
Hong Kong with them) at the
Business Class on their flight to
Manila. Petitioner regrets that in
its desire to provide the
respondents-spouses with
additional amenities for the one
and one-half (1 1/2) hour flight to
Manila, unintended tension
ensued. 18
Nonetheless, considering, that the breach was
intended to give more benefit and advantage to
the Vazquezes by upgrading their Business
Class accommodation to First Class because of
their valued status as Marco Polo members, we
reduce the award for nominal damages to
P5,000.
Before writing finis to this decision, we find it well-
worth to quote the apt observation of the Court of
Appeals regarding the awards adjudged by the trial
court:
We are not amused but alarmed
at the lower court's unbelievable
alacrity, bordering on the
scandalous, to award excessive
amounts as damages. In their
complaint, appellees asked for
P1 million as moral damages but
the lower court awarded P4
million; they asked for
P500,000.00 as exemplary
damages but the lower court
cavalierly awarded a whooping
P10 million; they asked for
P250,000.00 as attorney's fees
but were awarded P2 million;
they did not ask for nominal
damages but were awarded
P200,000.00. It is as if the lower
court went on a rampage, and
why it acted that way is beyond
all tests of reason. In fact the
excessiveness of the total award
invites the suspicion that it was
the result of "prejudice or
corruption on the part of the trial
court."
The presiding judge of the lower
court is enjoined to hearken to
the Supreme Court's admonition
in Singson vs. CA (282 SCRA
149 [1997]), where it said:
The well-entrenched
principle is that the grant
of moral damages
depends upon the
discretion of the court
based on the
circumstances of each
case. This discretion is
limited by the principle
that the amount
awarded should not be
palpably and
scandalously excessive
as to indicate that it was
the result of prejudice or
corruption on the part of
the trial court . . .
and in Alitalia Airways vs.
CA (187 SCRA 763 [1990],
where it was held:
Nonetheless, we agree
with the injunction
expressed by the Court
of Appeals that
passengers must not
prey on international
airlines for damage
awards, like "trophies in
a safari." After all neither
the social standing nor
prestige of the
passenger should
determine the extent to
which he would suffer
because of a wrong
done, since the dignity
affronted in the
individual is a quality
inherent in him and not
conferred by these
social indicators. 19

We adopt as our own this observation of the Court of
Appeals.
WHEREFORE, the instant petition is hereby partly
GRANTED. The Decision of the Court of Appeals of
24 July 2001 in CA-G.R. CV No. 63339 is hereby
MODIFIED, and as modified, the awards for moral
damages and attorney's fees are set aside and
deleted, and the award for nominal damages is
reduced to P5,000. DSCIEa
No pronouncement on costs.
SO ORDERED.
Vitug, Carpio and Azcuna, JJ., concur.
Ynares-Santiago, J., is on leave.
THIRD DIVISION
[G.R. No. 158911. March 4, 2008.]
MANILA ELECTRIC
COMPANY, petitioner, vs.
MATILDE MACABAGDAL
RAMOY, BIENVENIDO RAMOY,
ROMANA RAMOY-RAMOS,
ROSEMARIE RAMOY, OFELIA
DURIAN and CYRENE
PANADO, respondents.
D E C I S I O N
AUSTRIA-MARTINEZ, J p:
This resolves the Petition for Review
on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision 1 of the Court of Appeals
(CA) dated December 16, 2002, ordering petitioner
Manila Electric Company (MERALCO) to pay Leoncio
Ramoy 2 moral and exemplary damages and
attorney's fees, and the CA Resolution 3 dated July 1,
2003, denying petitioner's motion for reconsideration,
be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City,
Branch 81, accurately summarized the facts as culled
from the records, thus:
The evidence on record has
established that in the year 1987
the National Power Corporation
(NPC) filed with the MTC Quezon
City a case for ejectment against
several persons allegedly illegally
occupying its properties in Baesa,
Quezon City. Among the
defendants in the ejectment case
was Leoncio Ramoy, one of the
plaintiffs in the case at bar. On
April 28, 1989 after the
defendants failed to file an
answer in spite of summons duly
served, the MTC Branch 36,
Quezon City rendered judgment
for the plaintiff [MERALCO] and
"ordering the defendants to
demolish or remove the building
and structures they built on the
land of the plaintiff and to vacate
the premises." In the case of
Leoncio Ramoy, the Court found
that he was occupying a portion
of Lot No. 72-B-2-B with the
exact location of his apartments
indicated and encircled in the
location map as No. 7. A copy of
the decision was furnished
Leoncio Ramoy (Exhibits 2, 2-A,
2-B, 2-C, pp. 128-131, Record;
TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote
Meralco requesting for the
"immediate disconnection of
electric power supply to all
residential and commercial
establishments beneath the NPC
transmission lines along Baesa,
Quezon City (Exh. 7, p. 143,
Record). Attached to the letter
was a list of establishments
affected which included plaintiffs
Leoncio and Matilde Ramoy
(Exh. 9), as well as a copy of the
court decision (Exh. 2). After
deliberating on NPC's letter,
Meralco decided to comply with
NPC's request (Exhibits 6, 6-A, 6-
A-1, 6-B) and thereupon issued
notices of disconnection to all
establishments affected including
plaintiffs Leoncio Ramoy (Exhs.
3, 3-A to 3-C), Matilde
Ramoy/Matilde Macabagdal
(Exhibits 3-D to 3-E), Rosemarie
Ramoy (Exh. 3-F), Ofelia Durian
(Exh. 3-G), Jose Valiza (Exh. 3-
H) and Cyrene S. Panado (Exh.
3-I).
In a letter dated August 17, 1990
Meralco requested NPC for a
joint survey to determine all the
establishments which are
considered under NPC property
in view of the fact that "the
houses in the area are very close
to each other" (Exh. 12). Shortly
thereafter, a joint survey was
conducted and the NPC
personnel pointed out the electric
meters to be disconnected (Exh.
13; TSN, October 8, 1993, p. 7;
TSN, July 1994, p. 8).
In due time, the electric service
connection of the plaintiffs [herein
respondents] was disconnected
(Exhibits D to G, with
submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified
that he and his wife are the
registered owners of a parcel of
land covered by TCT No.
326346, a portion of which was
occupied by plaintiffs Rosemarie
Ramoy, Ofelia Durian, Jose
Valiza and Cyrene S. Panado as
lessees. When the Meralco
employees were disconnecting
plaintiffs' power connection,
plaintiff Leoncio Ramoy objected
by informing the Meralco foreman
that his property was outside the
NPC property and pointing out
the monuments showing the
boundaries of his property.
However, he was threatened and
told not to interfere by the armed
men who accompanied the
Meralco employees. After the
electric power in Ramoy's
apartment was cut off, the
plaintiffs-lessees left the
premises.
During the ocular inspection
ordered by the Court and
attended by the parties, it was
found out that the residence of
plaintiffs-spouses Leoncio and
Matilde Ramoy was indeed
outside the NPC property. This
was confirmed by defendant's
witness R.P. Monsale III on
cross-examination (TSN, October
13, 1993, pp. 10 and 11).
Monsale also admitted that he did
not inform his supervisor about
this fact nor did he recommend
re-connection of plaintiffs' power
supply (Ibid., p. 14).
The record also shows that at the
request of NPC, defendant
Meralco re-connected the electric
service of four customers
previously disconnected none of
whom was any of the plaintiffs
(Exh. 14). 4
The RTC decided in favor of MERALCO by
dismissing herein respondents' claim for moral
damages, exemplary damages and attorney's fees.
However, the RTC ordered MERALCO to restore the
electric power supply of respondents.
Respondents then appealed to the CA. In its Decision
dated December 16, 2002, the CA faulted MERALCO
for not requiring from National Power Corporation
(NPC) a writ of execution or demolition and in not
coordinating with the court sheriff or other proper
officer before complying with the NPC's request.
Thus, the CA held MERALCO liable for moral and
exemplary damages and attorney's fees. MERALCO's
motion for reconsideration of the Decision was denied
per Resolution dated July 1, 2003.
Hence, herein petition for review on certiorari on the
following grounds:
I
THE COURT OF APPEALS
GRAVELY ERRED WHEN IT
FOUND MERALCO NEGLIGENT
WHEN IT DISCONNECTED THE
SUBJECT ELECTRIC SERVICE
OF RESPONDENTS.
II
THE COURT OF APPEALS
GRAVELY ERRED WHEN IT
AWARDED MORAL AND
EXEMPLARY DAMAGES AND
ATTORNEY'S FEES AGAINST
MERALCO UNDER THE
CIRCUMSTANCES THAT THE
LATTER ACTED IN GOOD
FAITH IN THE
DISCONNECTION OF THE
ELECTRIC SERVICES OF THE
RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits 6 that respondents are its
customers under a Service Contract whereby it is
obliged to supply respondents with electricity.
Nevertheless, upon request of the NPC, MERALCO
disconnected its power supply to respondents on the
ground that they were illegally occupying the NPC's
right of way. Under the Service Contract, "[a]
customer of electric service must show his right or
proper interest over the property in order that he will
be provided with and assured a continuous electric
service." 7 MERALCO argues that since there is a
Decision of the Metropolitan Trial Court (MTC) of
Quezon City ruling that herein respondents were
among the illegal occupants of the NPC's right of way,
MERALCO was justified in cutting off service to
respondents.
Clearly, respondents' cause of action against
MERALCO is anchored on culpa contractual or
breach of contract for the latter's discontinuance of its
service to respondents under Article 1170 of the Civil
Code which provides:
Article 1170.Those who in the
performance of their
obligations are guilty of fraud,
negligence, or delay, and those
who in any manner contravene
the tenor thereof, are liable for
damages.
In Radio Communications of the Philippines, Inc. v.
Verchez, 8 the Court expounded on the nature
of culpa contractual,thus:
"In culpa contractual . . . the
mere proof of the existence of
the contract and the failure of
its compliance justify, prima
facie, a corresponding right of
relief. The law, recognizing the
obligatory force of contracts, will
not permit a party to be set free
from liability for any kind of
misperformance of the
contractual undertaking or a
contravention of the tenor
thereof. A breach upon the
contract confers upon the injured
party a valid cause for recovering
that which may have been lost or
suffered. The remedy serves to
preserve the interests of the
promissee that may include
his "expectation
interest," which is his interest in
having the benefit of his bargain
by being put in as good a position
as he would have been in had the
contract been performed, or his
"reliance interest," which is his
interest in being reimbursed for
loss caused by reliance on the
contract by being put in as good
a position as he would have been
in had the contract not been
made; or his "restitution
interest," which is his interest in
having restored to him any
benefit that he has conferred on
the other party. Indeed,
agreements can accomplish little,
either for their makers or for
society, unless they are made the
basis for action. The effect of
every infraction is to create a new
duty, that is, to make
recompense to the one who has
been injured by the failure of
another to observe his
contractual obligationunless he
can show extenuating
circumstances, like proof of his
exercise of due diligence . . . or
of theattendance of fortuitous
event, to excuse him from his
ensuing liability. 9 (Emphasis
supplied)
Article 1173 also provides that the fault or negligence
of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of
the time and of the place. The Court emphasized
in Ridjo Tape & Chemical Corporation v. Court of
Appeals 10 that "as a public utility, MERALCO has the
obligation to discharge its functions with utmost care
and diligence." 11
The Court agrees with the CA that under the factual
milieu of the present case, MERALCO failed to
exercise the utmost degree of care and diligence
required of it. To repeat, it was not enough for
MERALCO to merely rely on the Decision of the MTC
without ascertaining whether it had become final and
executory. Verily, only upon finality of said Decision
can it be said with conclusiveness that respondents
have no right or proper interest over the subject
property, thus, are not entitled to the services of
MERALCO.
Although MERALCO insists that the MTC Decision is
final and executory, it never showed any documentary
evidence to support this allegation. Moreover, if it
were true that the decision was final and executory,
the most prudent thing for MERALCO to have done
was to coordinate with the proper court officials in
determining which structures are covered by said
court order. Likewise, there is no evidence on record
to show that this was done by MERALCO.

The utmost care and diligence required of MERALCO
necessitates such great degree of prudence on its
part, and failure to exercise the diligence required
means that MERALCO was at fault and negligent in
the performance of its obligation. In Ridjo
Tape, 12 the Court explained:
[B]eing a public utility vested with
vital public interest, MERALCO is
impressed with certain
obligations towards its customers
and any omission on its part to
perform such duties would be
prejudicial to its interest. For in
the final analysis, the bottom line
is that those who do not exercise
such prudence in the discharge
of their duties shall be made to
bear the consequences of such
oversight. 13
This being so, MERALCO is liable for damages
under Article 1170 of the Civil Code.
The next question is: Are respondents entitled to
moral and exemplary damages and attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220.Willful injury to
property may be a legal ground
for awarding moral damages if
the court should find that, under
the circumstances, such
damages are justly due. The
same rule applies to breaches of
contract where the defendant
acted fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury
to Leoncio Ramoy by withholding from him and his
tenants the supply of electricity to which they were
entitled under the Service Contract. This is contrary to
public policy because, as discussed above,
MERALCO, being a vital public utility, is expected to
exercise utmost care and diligence in the
performance of its obligation. It was incumbent upon
MERALCO to do everything within its power to ensure
that the improvements built by respondents are within
the NPC's right of way before disconnecting their
power supply. The Court emphasized in Samar II
Electric Cooperative, Inc. v. Quijano 14 that:
Electricity is a basic necessity the
generation and distribution of
which is imbued with public
interest, and itsprovider is a
public utility subject to strict
regulation by the State in the
exercise of police power.Failure
to comply with these
regulations will give rise to the
presumption of bad faith or
abuse of right. 15 (Emphasis
supplied)
Thus, by analogy, MERALCO's failure to exercise
utmost care and diligence in the performance of its
obligation to Leoncio Ramoy, its customer, is
tantamount to bad faith. Leoncio Ramoy testified that
he suffered wounded feelings because of
MERALCO's actions. 16 Furthermore, due to the lack
of power supply, the lessees of his four apartments on
subject lot left the premises. 17 Clearly, therefore,
Leoncio Ramoy is entitled to moral damages in the
amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents,
was the only one who testified regarding the effects
on him of MERALCO's electric service disconnection.
His co-respondents Matilde Ramoy, Rosemarie
Ramoy, Ofelia Durian and Cyrene Panado did not
present any evidence of damages they suffered.
It is a hornbook principle that damages may be
awarded only if proven. In Mahinay v. Velasquez,
Jr., 18 the Court held thus:
In order that moral damages may
be awarded, there must be
pleading and proof of moral
suffering, mental anguish,
fright and the like. While
respondent alleged in his
complaint that he suffered mental
anguish, serious anxiety,
wounded feelings and moral
shock, he failed to prove them
during the trial. Indeed,
respondent should have taken
the witness stand and should
have testified on the mental
anguish, serious anxiety,
wounded feelings and other
emotional and mental suffering
he purportedly suffered to sustain
his claim for moral damages.
Mere allegations do not suffice;
they must be substantiated by
clear and convincing proof. No
other person could have
proven such damages except
the respondent himself as they
were extremely personal to
him.
In Keirulf vs. Court of
Appeals, we held:
"While
no proof of
pecuniary loss is
necessary in
order that moral
damages may be
awarded, the
amount of
indemnity being
left to the
discretion of the
court, it is
nevertheless
essential that the
claimant should
satisfactorily
show the
existence of the
factual basis of
damages and its
causal
connection to
defendant's acts.
This is so
because moral
damages, though
incapable of
pecuniary
estimation, are in
the category of
an award
designed to
compensate the
claimant for
actual injury
suffered and not
to impose a
penalty on the
wrongdoer.
In Francisco vs.
GSIS, the Court
held that there
must be clear
testimony on
the anguish and
other forms of
mental
suffering. Thus,
if the plaintiff fails
to take the
witness stand
and testify as to
his/her social
humiliation,
wounded feelings
and anxiety,
moral damages
cannot be
awarded.
In Cocoland
Development
Corporation vs.
National Labor
Relations
Commission, the
Court held that
"additional facts
must be pleaded
and proven to
warrant the grant
of moral
damages under
the Civil Code,
these being, . . .
social humiliation,
wounded
feelings, grave
anxiety, etc. that
resulted
therefrom."
. . . The award of moral damages
must be anchored to a clear
showing that respondent actually
experienced mental anguish,
besmirched reputation, sleepless
nights, wounded feelings or
similar injury. There was no
better witness to this experience
than respondent himself. Since
respondent failed to testify on
the witness stand, the trial
court did not have any factual
basis to award moral damages
to him. 19(Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified
as to his wounded feelings, may be awarded moral
damages. 20
With regard to exemplary damages, Article 2232 of
the Civil Code provides that in contracts and quasi-
contracts, the court may award exemplary damages if
the defendant, in this case MERALCO, acted in a
wanton, fraudulent, reckless, oppressive, or
malevolent manner, while Article 2233 of the same
Code provides that such damages cannot be
recovered as a matter of right and the adjudication
of the same is within the discretion of the court.
The Court finds that MERALCO fell short of exercising
the due diligence required, but its actions cannot be
considered wanton, fraudulent, reckless, oppressive
or malevolent. Records show that MERALCO did take
some measures, i.e., coordinating with NPC officials
and conducting a joint survey of the subject area, to
verify which electric meters should be disconnected
although these measures are not sufficient,
considering the degree of diligence required of it.
Thus, in this case, exemplary damages should not be
awarded.
Since the Court does not deem it proper to award
exemplary damages in this case, then the CA's award
for attorney's fees should likewise be deleted, as
Article 2208 of the Civil Code states that in the
absence of stipulation, attorney's fees cannot be
recovered except in cases provided for in said
Article, to wit:
Article 2208.In the absence of
stipulation, attorney's fees and
expenses of litigation, other than
judicial costs, cannot be
recovered, except:
(1)When exemplary damages are
awarded;
(2)When the defendant's act or
omission has compelled the
plaintiff to litigate with third
persons or to incur expenses to
protect his interest;
(3)In criminal cases of malicious
prosecution against the plaintiff;
(4)In case of a clearly unfounded
civil action or proceeding against
the plaintiff;
(5)Where the defendant acted in
gross and evident bad faith in
refusing to satisfy the plaintiff's
plainly valid, just and
demandable claim;
(6)In actions for legal support;
(7)In actions for the recovery of
wages of household helpers,
laborers and skilled workers;
(8)In actions for indemnity under
workmen's compensation and
employer's liability laws;
(9)In a separate civil action to
recover civil liability arising from a
crime;
(10)When at least double judicial
costs are awarded;
(11)In any other case where the
court deems it just and equitable
that attorney's fees and expenses
of litigation should be recovered.
In all cases, the attorney's fees
and expenses of litigation must
be reasonable.
None of the grounds for recovery of attorney's fees
are present.
WHEREFORE, the petition is PARTLY GRANTED.
The Decision of the Court of Appeals is AFFIRMED
with MODIFICATION. The award for exemplary
damages and attorney's fees is DELETED.
No costs.
SO ORDERED.
Ynares-Santiago, Chico-Nazario,
Nachura and Reyes, JJ., concur.
THIRD DIVISION
[G.R. No. 95641. September 22, 1994.]
SANTOS B. AREOLA and
LYDIA D. AREOLA, petitioners-
appellants, vs. COURT OF
APPEALS and PRUDENTIAL
GUARANTEE AND
ASSURANCE,
INC., respondents-appellees.
D E C I S I O N
ROMERO, J p:
On June 29, 1985, seven months after the issuance
of petitioner Santos Areola's Personal Accident
Insurance Policy No. PA-20015, respondent
insurance company unilaterally cancelled the same
since company records revealed that petitioner-
insured failed to pay his premiums.
On August 3, 1985, respondent insurance company
offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime to
December 17, 1985, upon a finding that the
cancellation was erroneous and that the premiums
were paid in full by petitioner-insured but were not
remitted by Teofilo M. Malapit, respondent insurance
company's branch manager. LLphil
These, in brief, are the material facts that gave rise to
the action for damages due to breach of contract
instituted by petitioner-insured before Branch 40 RTC,
Dagupan City against respondent insurance
company.
There are two issues for resolution in this case:
(1)Did the erroneous act of cancelling subject
insurance policy entitle petitioner-insured to payment
of damages?
(2)Did the subsequent act of reinstating the wrongfully
cancelled insurance policy by respondent insurance
company, in an effort to rectify such error, obliterate
whatever liability for damages it may have to bear,
thus absolving it therefrom?
From the factual findings of the trial court, it appears
that petitioner-insured, Santos Areola, a lawyer from
Dagupan City, bought, through the Baguio City
branch of Prudential Guarantee and Assurance, Inc.
(hereinafter referred to as Prudential), a personal
accident insurance policy covering the one-year
period between noon of November 28, 1984 and noon
of November 28, 1985. 1 Under the terms of the
statement of account issued by respondent insurance
company, petitioner-insured was supposed to pay the
total amount of P1,609.65 which included the
premium of P1,470.00, documentary stamp of
P110.25 and 2% premium tax of P29.40. 2 At the
lower left-hand corner of the statement of account, the
following is legibly printed: llcd
"This Statement of Account must
not be considered a receipt.
Official Receipt will be issued to
you upon payment of this
account.
If payment is made to our
representative, demand for a
Provisional Receipt and if our
Official Receipts is (sic) not
received by your within 7 days
please notify us.
If payment is made to our office,
demand for an OFFICIAL
RECEIPT."
On December 17, 1984, respondent insurance
company issued collector's provisional receipt No.
9300 to petitioner-insured for the amount of
P1,609.65. 3 On the lower portion of the receipt the
following is written in capital letters:
"Note: This collector's provisional
receipt will be confirmed by our
official receipt. If our official
receipt is not received by you
within 7 days, please notify us." 4
On June 29, 1985, respondent insurance company,
through its Baguio City manager, Teofilo M. Malapit,
sent petitioner-insured Endorsement No. BG-002/85
which "cancelled flat" Policy No. PA BG-20015 "for
non-payment of premium effective as of inception
dated." 5 The same endorsement also credited "a
return premium of P1,609.65 plus documentary
stamps and premium tax" to the account of the
insured.
Shocked by the cancellation of the policy, petitioner-
insured confronted Carlito Ang, agent of respondent
insurance company, and demanded the issuance of
an official receipt. Ang told petitioner-insured that the
cancellation of the policy was a mistake but he would
personally see to its rectification. However, petitioner-
insured failed to receive any official receipt from
Prudential.
Hence, on July 15, 1985, petitioner-insured sent
respondent insurance company a letter demanding
that he be insured under the same terms and
conditions as those contained in Policy No. PA-BG-
20015 commencing rate of increase on the payment
he had made under provisional receipt No. 9300 be
returned within five days. 6 Areola also warned that
should his demands be unsatisfied, he would sue for
damages.
On July 17, 1985, he received a letter from production
manager Malapit informing him that the "partial
payment" of P1,000.00 he had made on the policy
had been "exhausted pursuant to the provisions of the
Short Period Rate Scale" printed at the back of the
policy. Malapit warned Areola that should he fail to
pay the balance, the company's liability would cease
to operate. 7
In reply to the petitioner-insured's letter of July 15,
1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote
Areola a letter dated July 25, 1985 stating that the
company was verifying whether the payment had in
fact been remitted to said company and why no
official receipt had been issued therefor. Ampil
emphasized that the official receipt should have been
issued seven days from the issuance of the
provisional receipt but because no official receipt had
been issued in Areola's name, there was reason to
believe that no payment had been made. Apologizing
for the inconvenience, Ampil expressed the
company's concern by agreeing "to hold you cover
(sic) under the terms of the referenced policy until
such time that this matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter
confirming that the amount of P1,609.65 covered by
provisional receipt No. 9300 was in fact received by
Prudential on December 17, 1984. Hence, Ampil
informed Areola that Prudential was "amenable to
extending PGA-PA-BG-20015 up to December 17,
1985 or one year from the date when payment was
received." Apologizing again for the inconvenience
caused Areola, Ampil exhorted him to indicate his
conformity to the proposal by signing on the space
provided for in the letter. 9
The letter was personally delivered by Carlito Ang to
Areola on August 13, 1985 10 but unfortunately,
Areola and his wife, Lydia, as early as August 6, 1985
had filed a complaint for breach of contract with
damages before the lower court.
In its Answer, respondent insurance company
admitted that the cancellation of petitioner-insured's
policy was due to the failure of Malapit to turn over the
premiums collected, for which reason no official
receipt was issued to him. However, it argued that, by
acknowledging the inconvenience caused on
petitioner-insured and after taking steps to rectify its
omission by reinstating the cancelled policy prior to
the filing of the complaint, respondent insurance
company had complied with its obligation under the
contract. Hence, it concluded that petitioner-insured
no longer has a cause of action against it. It insists
that it cannot be held liable for damages arising from
breach of contract, having demonstrated fully well its
fulfillment of its obligation. LLjur
The trial court, on June 30, 1987, rendered a
judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former the
following:
"a)P1,703.65
as actual damages;
b)P200,000.00
as moral damages; and
c)P50,000.00
as exemplary damages;
2.To pay to the plaintiff, as and
for attorney's fees the amount of
P10,000.00; and
3.To pay the costs."
In its decision, the court below declared that
respondent insurance company acted in bad faith in
unilaterally cancelling subject insurance policy, having
done so only after seven months from the time that it
had taken force and effect and despite the fact of full
payment of premiums and other charges on the
issued insurance policy. Cancellation from the date of
the policy's inception, explained the lower court,
meant that the protection sought by petitioner-insured
from the risks insured against was never extended by
respondent insurance company. Had the insured met
an accident at the time, the insurance company would
certainly have disclaimed any liability because
technically, the petitioner could not have been
considered insured. Consequently, the trial court held
that there was breach of contract on the part of
respondent insurance company, entitling petitioner-
insured to an award of the damages prayed for. cdll
This ruling was challenged on appeal by respondent
insurance company, denying bad faith on its part in
unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court
issued a reversal of the decision of the trial court,
convinced that the latter had erred in finding
respondent insurance company in bad faith for the
cancellation of petitioner-insured's policy. According
to the Court of Appeals, respondent insurance
company was not motivated by negligence, malice or
bad faith in cancelling subject policy. Rather, the
cancellation of the insurance policy was based on
what the existing records showed, i.e., absence of an
official receipt issued to petitioner-insured confirming
payment of premiums. Bad faith, said the Court of
Appeals, is some motive of self-interest or ill-will; a
furtive design or ulterior purpose, proof of which must
be established convincingly. On the contrary, it further
observed, the following acts indicate that respondent
insurance company did not act precipitately or willfully
to inflict a wrong on petitioner-insured: (a) the
investigation conducted by Alfredo Bustamante to
verify if petitioner-insured had indeed paid the
premium; (b) the letter of August 3, 1985 confirming
that the premium had been paid on December 17,
1984; (c) the reinstatement of the policy with a
proposal to extend its effective period to December
17, 1985; and (d) respondent insurance company's
apologies for the "inconvenience" caused upon
petitioner-insured. The appellate court added that
respondent insurance company even relieved Malapit,
its Baguio City manager, of his job by forcing him to
resign.
Petitioner-insured moved for the reconsideration of
the said decision which the Court of Appeals denied.
Hence, this petition for review on certiorari anchored
on these arguments:

"I
Respondent Court of Appeals is
guilty of grave abuse of discretion
and committed a serious and
reversible error in not holding
Respondent Prudential liable for
the cancellation of the insurance
contract which was admittedly
caused by the fraudulent acts
and bad faith of its own officers.
II
Respondent Court of Appeals
committed serious and reversible
error and abused its discretion in
ruling that the defenses of good
faith and honest mistake can co-
exist with the admitted fraudulent
acts and evident bad faith.
III
Respondent Court of Appeals
committed a reversible error in
not finding that even without
considering the fraudulent acts of
its own officer in misappropriating
the premium payment, the act
itself in cancelling the insurance
policy was done with bad faith
and/or gross negligence and
wanton attitude amounting to bad
faith, because among others, it
was Mr. Malapit the person
who committed the fraud who
sent and signed the notice of
cancellation.
IV
Respondent Court of Appeals
has decided a question of
substance contrary to law and
applicable decision of the
Supreme Court when it refused to
award damages in favor of herein
Petitioner-Appellants."
It is petitioner-insured's submission that the fraudulent
act of Malapit, manager of respondent insurance
company's branch office in Baguio, in
misappropriating his premium payments is the
proximate cause of the cancellation of the insurance
policy. Petitioner-insured theorized that Malapit's act
of signing and even sending the notice of cancellation
himself, notwithstanding his personal knowledge of
petitioner-insured's full payment of premiums, further
reinforces the allegation of bad faith. Such fraudulent
act committed by Malapit, argued petitioner-insured,
is attributable to respondent insurance company, an
artificial corporate being which can act only through
its officers or employees. Malapit's actuation,
concludes petitioner-insured, is therefore not separate
and distinct from that of respondent-insurance
company, contrary to the view held by the Court of
Appeals. It must, therefore, bear the consequences of
the erroneous cancellation of subject insurance policy
caused by the non-remittance by its own employee of
the premiums paid. Subsequent reinstatement,
according to petitioner-insured, could not possibly
absolve respondent insurance company from liability,
there being an obvious breach of contract. After all,
reasoned out petitioner-insured, damage had already
been inflicted on him and no amount of rectification
could remedy the same. LLphil
Respondent insurance company, on the other hand,
argues that where reinstatement, the equitable relief
sought by petitioner-insured was granted at an
opportune moment i.e. prior to the filing of the
complaint, petitioner-insured is left without a cause of
action on which to predicate his claim for damages.
Reinstatement, it further explained, effectively
restored petitioner-insured to all his rights under the
policy. Hence, whatever cause of action there might
have been against it, no longer exists and the
consequent award of damages ordered by the lower
court is unsustainable.
We uphold petitioner-insured's submission. Malapit's
fraudulent act of misappropriating the premiums paid
by petitioner-insured is beyond doubt directly
imputable to respondent insurance company. A
corporation, such as respondent insurance company,
acts solely thru its employees. The latters' acts are
considered as its own for which it can be held to
account. 11 The facts are clear as to the relationship
between private respondent insurance company and
Malapit. As admitted by private respondent insurance
company in its answer, 12 Malapit was the manager
of its Baguio branch. It is beyond doubt that he
represented its interests and acted in its behalf. His
act of receiving the premiums collected is well within
the province of his authority. Thus, his receipt of said
premiums is receipt by private respondent insurance
company who, by provision of law, particularly under
Article 1910 of the Civil Code, is bound by the acts of
its agent.
Article 1910 thus reads:
"ART. 1910.The principal must
comply with all the obligations
which the agent may have
contracted within the scope of his
authority.
As for any obligation wherein the
agent has exceeded his power,
the principal is not bound except
when he ratifies it expressly or
tacitly."
Malapit's failure to remit the premiums he received
cannot constitute a defense for private respondent
insurance company; no exoneration from liability
could result therefrom. The fact that private
respondent insurance company was itself defrauded
due to the anomalies that took place in its Baguio
branch office, such as the non-accrual of said
premiums to its account, does not free the same from
its obligation to petitioner Areola. As held in Prudential
Bank v. Court of Appeals 13 citing the ruling
in McIntosh v. Dakota Trust Co.: 14
"A bank is liable for wrongful acts
of its officers done in the interests
of the bank or in the course of
dealings of the officers in their
representative capacity but not
for acts outside the scope of their
authority. A bank holding out its
officers and agent as worthy of
confidence will not be permitted
to profit by the frauds they may
thus be enable to perpetrate in
the apparent scope of their
employment; nor will it be
permitted to shirk its
responsibility for such frauds,
even though no benefit may
accrue to the bank therefrom.
Accordingly, a banking
corporation is liable to innocent
third persons where the
representation is made in the
course of its business by an
agent acting within the general
scope of his authority even
though, in the particular case, the
agent is secretly abusing his
authority and attempting to
perpetrate a fraud upon his
principal or some other person,
for his own ultimate benefit."
Consequently, respondent insurance company is
liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the
erroneous cancellation of subject insurance policy. Its
earlier act of reinstating the insurance policy can not
obliterate the injury inflicted on petitioner-insured.
Respondent company should be reminded that a
contract of insurance creates reciprocal obligations for
both insurer and insured. Reciprocal obligations are
those which arise from the same cause and in which
each party is both a debtor and a creditor of the other,
such that the obligation of one is dependent upon the
obligation of the other. 15
Under the circumstances of instant case, the
relationship as creditor and debtor between the
parties arose from a common cause; i.e., by reason of
their agreement to enter into a contract of insurance
under whose terms, respondent insurance company
promised to extend protection to petitioner-insured
against the risk insured for a consideration in the form
of premiums to be paid by the latter. Under the law
governing reciprocal obligations, particularly
the second paragraph of Article 1191, 16 the injured
party, petitioner-insured in this case, is given a choice
between fulfillment or rescission of the obligation in
case one of the obligors, such as respondent
insurance company, fails to comply with what is
incumbent upon him. However, said article entitles the
injured party to payment of damages, regardless of
whether he demands fulfillment or rescission of the
obligation. Untenable then is respondent insurance
company's argument, namely, that reinstatement
being equivalent to fulfillment of its obligation, divests
petitioner-insured of a rightful claim for payment of
damages. Such a claim finds no support in our laws
on obligations and contracts. cdphil
The nature of damages to be awarded, however,
would be in the form of nominal damages 17 contrary
to that granted by the court below. Although the
erroneous cancellation of the insurance policy
constituted a breach of contract, private respondent
insurance company, within a reasonable time took
steps to rectify the wrong committed by reinstating the
insurance policy of petitioner. Moreover, no actual or
substantial damage or injury was inflicted on
petitioner Areola at the time the insurance policy was
cancelled. Nominal damages are "recoverable where
a legal right is technically violated and must be
vindicated against an invasion that has produced no
actual present loss of any kind, or where there has
been a breach of contract and no substantial injury or
actual damages whatsoever have been or can be
shown." 18
WHEREFORE, the petition for review on certiorari is
hereby GRANTED and the decision of the Court of
Appeals in CA-G.R. No. 16902 on May 31, 1990,
REVERSED. The decision of Branch 40, RTC
Dagupan City, in Civil Case No. D-7972 rendered on
June 30, 1987 is hereby REINSTATED subject to the
following modifications: (a) that nominal damages
amounting to P30,000.00 be awarded petitioner in lieu
of the damages adjudicated by court a quo; and (b)
that in the satisfaction of the damages awarded
therein, respondent insurance company is ORDERED
to pay the legal rate of interest computed from date of
filing of complaint until final payment thereof. cdrep
SO ORDERED.
Feliciano, Melo and Vitug, JJ., concur.
Bidin, J., is on leave.
SECOND DIVISION
[G.R. No. L-47851. October 3, 1986.]
JUAN F. NAKPIL & SONS, and
JUAN F.
NAKPIL, petitioners, vs. THE
COURT OF APPEALS, UNITED
CONSTRUCTION COMPANY,
INC., JUAN J. CARLOS, and
the PHILIPPINE BAR
ASSOCIATION, respondents.
[G.R. No. L-47863. October 3, 1986.]
THE UNITED CONSTRUCTION
CO., INC., petitioner, vs. COURT
OF APPEALS, ET
AL., respondents.
[G.R. No. L-47896. October 3, 1986.]
PHILIPPINE BAR
ASSOCIATION, ET
AL., petitioners, vs. COURT OF
APPEALS, ET AL.,respondents.
SYLLABUS
1.CIVIL LAW; ACT OF GOD; DEFINED. An act of
God has been defined as an accident, due directly
and exclusively to natural causes without human
intervention, which by no amount of foresight, pains or
care, reasonably to have been expected, could have
been prevented. (1 Corpus Juris 1174).
2.ID.; ID.; GENERAL RULE; REQUISITES TO
EXEMPT OBLIGOR FROM LIABILITY. The
general rule is that no person shall be responsible for
events which could not be foreseen or which, though
foreseen, were inevitable (Article 1174, New Civil
Code). To exempt the obligor from liability under this
Article, for a breach of an obligation due to an "act of
God", the following must concur: (a) the cause of the
breach of the obligation must be independent of the
will of the debtor; (b) the event must be either
unforeseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill
his obligation in a normal manner; and (d) the debtor
must be free from any participation in, or aggravation
of the injury to the creditor. (Vasquez v. Court of
Appeals, 138 SCRA 553; Estrada v. Consolacion, 71
SCRA 423; Austria v. Court of Appeals, 39 SCRA
527; Republic of the Phil. v. Luzon Stevedoring Corp.,
21 SCRA 279; Lasam v. Smith, 45 Phil. 657). The
principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned
exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering
into the cause of the mischief.
3.ID.; ID.; INSTANCES WHEN THE RULE DOES
NOT APPLY. When the effect, the cause of which
is to be considered, is found to be in part the result of
the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God.
(1 Corpus Juris, pp. 1174-1175) Thus, if upon the
happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence,
delay or violation or contravention in any manner of
the tenor of the obligation as provided for in Article
1170 of the Civil Code, which results in loss or
damage, the obligor cannot escape liability. It has
also been held that when the negligence of a person
concurs with an act of God in producing a loss, such
person is not exempt from liability by showing that the
immediate cause of the damage was the act of God.
To be exempt from liability for loss because of an act
of God, he must be free from any previous negligence
or misconduct by which that loss or damage may
have been occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil.
594, 604; Lasam v. Smith, 45 Phil. 657)
4.ID.; QUASI-DELICTS; NEGLIGENCE
EQUIVALENT TO BAD FAITH; The afore-
mentioned facts clearly indicate the wanton
negligence of both the defendant and the third-party
defendants in effecting the plans, designs,
specifications, and construction of the PBA building
and We hold such negligence as equivalent to bad
faith in the performance of their respective tasks.
Relative thereto, the ruling of the Supreme Court in
Tucker v. Milan (49 O.G. 4379 ,4380) which may be in
point in this case, reads: "One who negligently
creates a dangerous condition cannot escape liability
for the natural and probable consequences thereof,
although the act of a third person, or an act of God for
which he is not responsible, intervenes to precipitate
the loss."
5.REMEDIAL LAW; COURT OF APPEALS;
FINDINGS OF FACTS CONCLUSIVE ON THE
PARTIES AND ON THE SUPREME COURT;
EXCEPTIONS. It is well settled that the findings of
facts of the Court of Appeals are conclusive on the
parties and on this Court (cases cited in Tolentino vs.
de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan,
January 17, 1985, 134 SCRA 105, 121), unless (1)
the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) the
inference made is manifestly mistaken; (3) there is
grave abuse of discretion; (4) the judgment is based
on misapprehension of facts; (5) the findings of fact
are conflicting; (6) the Court of Appeals went beyond
the issues of the case and its findings are contrary to
the admissions of both appellant and appellees
(Ramos vs. Pepsi-Cola Bottling Co., February 8,
1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct.
31, 1967, 21 SCRA 648, 651); (7) the findings of facts
of the Court of Appeals are contrary to those of the
trial court; (8) said findings of facts are conclusions
without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as
in the petitioner's main and reply briefs are not
disputed by the respondents (Garcia vs. CA, June 30,
1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals,
July 30, 1979, 92 SCRA 322, 366); (10) the finding of
fact of the Court of Appeals is premised on the
supposed absence of evidence and is contradicted by
evidence on record (Salazar vs. Gutierrez, May 29,
1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-
98, Sacay v. Sandiganbayan, July 10, 1986).
D E C I S I O N
PARAS, J p:
These are petitions for review on certiorari of the
November 28, 1977 decision of the Court of Appeals
in CA G.R. No. 51771-R modifying the decision of the
Court of First Instance of Manila, Branch V, in Civil
Case No. 74958 dated September 21, 1971 as
modified by the Order of the lower court dated
December 8, 1971. The Court of Appeals in modifying
the decision of the lower court included an award of
an additional amount of P200,000.00 to the Philippine
Bar Association to be paid jointly and severally by the
defendant United Construction Co. and by the third-
party defendants Juan F. Nakpil and Sons and Juan
F. Nakpil.
The dispositive portion of the modified decision of the
lower court reads: cdll
"WHEREFORE, judgment is
hereby rendered:
"(a)Ordering defendant United
Construction Co., Inc. and third-
party defendants (except Roman
Ozaeta) to pay the plaintiff, jointly
and severally, the sum of
P989,335.68 with interest at the
legal rate from November 29,
1968, the date of the filing of the
complaint until full payment;
"(b)Dismissing the complaint with
respect to defendant Juan J.
Carlos;
"(c)Dismissing the third-party
complaint;
"(d)Dismissing the defendant's
and third-party defendants'
counterclaims for lack of merit;
"(e)Ordering defendant United
Construction Co., Inc. and third-
party defendants (except Roman
Ozaeta) to pay the costs in equal
shares.
"SO ORDERED." (Record on
Appeal, p. 521; Rollo, L-47851, p.
169).
The dispositive portion of the decision of the Court of
Appeals reads:
"WHEREFORE, the judgment
appealed from is modified to
include an award of P200,000.00
in favor of plaintiff-appellant
Philippine Bar Association, with
interest at the legal rate from
November 29, 1968 until full
payment to be paid jointly and
severally by defendant United
Construction Co., Inc. and third
party defendants (except Roman
Ozaeta). In all other respects, the
judgment dated September 21,
1971 as modified in the
December 8, 1971 Order of the
lower court is hereby affirmed
with COSTS to be paid by the
defendant and third party
defendant (except Roman
Ozaeta) in equal shares.
"SO ORDERED."
Petitioners Juan F. Nakpil & Sons in L-47851 and
United Construction Co., Inc. and Juan J. Carlos in L-
47863 seek the reversal of the decision of the Court
of Appeals, among other things, for exoneration from
liability while petitioner Philippine Bar Association in
L-47896 seeks the modification of aforesaid decision
to obtain an award of P1,830,000.00 for the loss of
the PBA building plus four (4) times such amount as
damages resulting in increased cost of the building;
P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees. cdrep
These petitions arising from the same case filed in the
Court of First Instance of Manila were consolidated by
this Court in the resolution of May 10, 1978 requiring
the respective respondents to comment. (Rollo, L-
47851, p. 172).
The facts as found by the lower court (Decision, C.C.
No. 74958; Record on Appeal, pp. 269-348; pp. 520-
521; Rollo, L-47851, p. 169) and affirmed by the Court
of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-
profit association, incorporated under the Corporation
Law, decided to construct an office building on its 840
square meters lot located at the corner of Aduana and
Arzobispo Streets, Intramuros, Manila. The
construction was undertaken by the United
Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and
general manager of said corporation. The proposal
was approved by plaintiff's board of directors and
signed by its president Roman Ozaeta, a third-party
defendant in this case. The plans and specifications
for the building were prepared by the other third-party
defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually
strong earthquake hit Manila and its environs and the
building in question sustained major damage. The
front columns of the building buckled, causing the
building to tilt forward dangerously. The tenants
vacated the building in view of its precarious
condition. As a temporary remedial measure, the
building was shored up by United Construction, Inc. at
the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this
action for the recovery of damages arising from the
partial collapse of the building against United
Construction, Inc. and its President and General
Manager Juan J. Carlos as defendants. Plaintiff
alleges that the collapse of the building was accused
by defects in the construction, the failure of the
contractors to follow plans and specifications and
violations by the defendants of the terms of the
contract.

Defendants in turn filed a third-party complaint against
the architects who prepared the plans and
specifications, alleging in essence that the collapse of
the building was due to the defects in the said plans
and specifications. Roman Ozaeta, the then president
of the plaintiff Bar Association was included as a third-
party defendant for damages for having included Juan
J. Carlos, President of the United Construction Co.,
Inc. as party defendant. LLjur
On March 3, 1969, the plaintiff and third-party
defendants Juan F. Nakpil & Sons and Juan F. Nakpil
presented a written stipulation which reads:
"1.That in relation to defendants'
answer with counterclaims and
third-party complaints and the
third-party defendants Nakpil &
Sons' answer thereto, the plaintiff
need not amend its complaint by
including the said Juan F. Nakpil
& Sons and Juan F. Nakpil
personally as parties defendant.
2.That in the event (unexpected
by the undersigned) that the
Court should find after the trial
that the above-named defendants
Juan J. Carlos and United
Construction Co., Inc. are free
from any blame and liability for
the collapse of the PBA Building,
and should further find that the
collapse of said building was due
to defects and/or inadequacy of
the plans, designs, and
specifications prepared by the
third-party defendants, or in the
event that the Court may find
Juan F. Nakpil and Sons and/or
Juan F. Nakpil contributorily
negligent or in any way jointly
and solidarily liable with the
defendants, judgment may be
rendered in whole or in part, as
the case may be, against Juan F.
Nakpil & Sons and/or Juan F.
Nakpil in favor of the plaintiff to all
intents and purposes as if
plaintiff's complaint has been duly
amended by including the said
Juan F. Nakpil & Sons and Juan
F. Nakpil as parties defendant
and by alleging causes of action
against them including, among
others, the defects or inadequacy
of the plans, designs, and
specifications prepared by them
and/or failure in the performance
of their contract with plaintiff.
3.Both parties hereby jointly
petition this Honorable Court to
approve this stipulation." (Record
on Appeal, pp. 274-275; Rollo, L-
47851, p. 169).
Upon the issues being joined, a pre-trial was
conducted on March 7, 1969, during which among
others, the parties agreed to refer the technical issues
involved in the case to a Commissioner. Mr. Andres
O. Hizon, who was ultimately appointed by the trial
court, assumed his office as Commissioner, charged
with the duty to try the following issues:
"1.Whether the damage
sustained by the PBA building
during the August 2, 1968
earthquake had been caused,
directly or indirectly, by:
(a)The
inadequacies or defects
in the plans and
specifications prepared
by third-party
defendants;
(b)The
deviations, if any, made
by the defendants from
said plans and
specifications and how
said deviations
contributed to the
damage sustained;
(c)The alleged
failure of defendants to
observe the requisite
quality of materials and
workmanship in the
construction of the
building;
(d)The alleged
failure to exercise the
requisite degree of
supervision expected of
the architect, the
contractor and/or the
owner of the building;
(e)An act of
God or a fortuitous
event; and
(f)Any other
cause not herein above
specified.
2.If the cause of the damage
suffered by the building arose
from a combination of the above-
enumerated factors, the degree
or proportion in which each
individual factor contributed to the
damage sustained;
3.Whether the building is now a
total loss and should be
completely demolished or
whether it may still be repaired
and restored to a tenantable
condition. In the latter case, the
determination of the cost of such
restoration or repair, and the
value of any remaining
construction, such as the
foundation, which may still be
utilized or availed of." (Record on
Appeal pp. 275-276; Rollo, L-
47851, p. 169).
Thus, the issues of this case were divided into
technical issues and non-technical issues. As
aforestated the technical issues were referred to the
Commissioner. The non-technical issues were tried
by the Court. prcd
Meanwhile, plaintiff moved twice for the demolition of
the building on the ground that it may topple down in
case of a strong earthquake. The motions were
opposed by the defendants and the matter was
referred to the Commissioner. Finally, on April 30,
1979 the building was authorized to be demolished at
the expense of the plaintiff, but not another
earthquake of high intensity on April 7, 1970 followed
by other strong earthquakes on April 9, and 12, 1970,
caused further damage to the property. The actual
demolition was undertaken by the buyer of the
damaged building. (Record on Appeal, pp. 278-
280; Ibid.).
After the protracted hearings, the Commissioner
eventually submitted his report on September 25,
1970 with the findings that while the damage
sustained by the PBA building was caused directly by
the August 2, 1968 earthquake whose magnitude was
estimated at 7.3 they were also caused by the defects
in the plans and specifications prepared by the third-
party defendants' architects, deviations from said
plans and specifications by the defendant contractors
and failure of the latter to observe the requisite
workmanship in the construction of the building and of
the contractors, architects and even the owners to
exercise the requisite degree of supervision in the
construction of subject building.
All the parties registered their objections to aforesaid
findings which in turn were answered by the
Commissioner.
The trial court agreed with the findings of the
Commissioner except as to the holding that the owner
is charged with full time supervision of the
construction. The Court sees no legal or contractual
basis for such conclusion. (Record on Appeal, pp.
309-328; Ibid.).
Thus, on September 21, 1971, the lower court
rendered the assailed decision which was modified by
the Intermediate Appellate Court on November 28,
1977.
All the parties herein appealed from the decision of
the Intermediate Appellate Court. Hence, these
petitions.
On May 11, 1978, the United Architects of the
Philippines, the Association of Civil Engineers, and
the Philippine Institute of Architects filed with the
Court a motion to intervene as amicus curiae. They
proposed to present a position paper on the liability of
architects when a building collapses and to submit
likewise a critical analysis with computations on the
divergent views on the design and plans as submitted
by the experts procured by the parties. The motion
having been granted, the amicus curiae were granted
a period of 60 days within which to submit their
position.
After the parties had all filed their comments, We
gave due course to the petitions in Our Resolution of
July 21, 1978.
The position papers of the amicus curiae (submitted
on November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans
and specifications of the Nakpils were not defective.
But the Commissioner, when asked by Us to
comment, reiterated his conclusion that the defects in
the plans and specifications indeed existed. LLpr
Using the same authorities availed of by the amicus
curiae such as the Manila Code (Ord. No. 4131) and
the 1966 Asep Code, the Commissioner added that
even if it can be proved that the defects in
the construction alone (and not in the plans and
design) caused the damage to the building, still the
deficiency in the original design and lack of specific
provisions against torsion in the original plans and the
overload on the ground floor columns (found by all the
experts including the original designer) certainly
contributed to the damage which occurred. (Ibid, p.
174).
In their respective briefs petitioners, among others,
raised the following assignments of errors: Philippine
Bar Association claimed that the measure of damages
should not be limited to P1,100,000.00 as estimated
cost of repairs or to the period of six (6) months for
loss of rentals while United Construction Co., Inc. and
the Nakpils claimed that it was an act of God that
caused the failure of the building which should
exempt them from responsibility and not the defective
construction, poor workmanship, deviations from
plans and specifications and other imperfections in
the case of United Construction Co., Inc. or the
deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils.
Both UCCI and the Nakpils object to the payment of
the additional amount of P200,000.00 imposed by the
Court of Appeals. UCCI also claimed that it should be
reimbursed the expenses of shoring the building in
the amount of P13,661.28 while the Nakpils opposed
the payment of damages jointly and solidarily with
UCCI. cdll
The pivotal issue in this case is whether or not an act
of God, an unusually strong earthquake which
caused the failure of the building, exempts from
liability, parties who are otherwise liable because of
their negligence.
The applicable law governing the rights and liabilities
of the parties herein is Article 1723 of the New Civil
Code, which provides:
"Art. 1723.The engineer or
architect who drew up the plans
and specifications for a building is
liable for damages if within fifteen
years from the completion of the
structure the same should
collapse by reason of a defect in
those plans and specifications, or
due to the defects in the ground.
The contractor is likewise
responsible for the damage if the
edifice falls within the same
period on account of defects in
the construction or the use of
materials of inferior quality
furnished by him, or due to any
violation of the terms of the
contract. If the engineer or
architect supervises the
construction, he shall be solidarily
liable with the contractor.
Acceptance of the building, after
completion, does not imply
waiver of any of the causes of
action by reason of any defect
mentioned in the preceding
paragraph.
The action must be brought
within ten years following the
collapse of the building."

On the other hand, the general rule is that no person
shall be responsible for events which could not be
foreseen or which, though foreseen, were inevitable
(Article 1174, New Civil Code).
An act of God has been defined as an accident, due
directly and exclusively to natural causes without
human intervention, which by no amount of foresight,
pains or care, reasonably to have been expected,
could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2,
1968 is a fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174
of the Civil Code, for a breach of an obligation due to
an "act of God, " the following must concur: (a) the
cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event
must be either unforseeable or unavoidable; (c) the
event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and
(d) the debtor must be free from any participation in,
or aggravation of the injury to the creditor. (Vasquez
v. Court of Appeals, 138 SCRA 553; Estrada v.
Consolacion, 71 SCRA 423; Austria v. Court of
Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon
Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45
Phil. 657).
Thus, if upon the happening of a fortuitous event or
an act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any
manner of the tenor of the obligation as provided for
in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine
strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering
into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in
part the result of the participation of man, whether it
be from active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it
were, and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a
person concurs with an act of God in producing a
loss, such person is not exempt from liability by
showing that the immediate cause of the damage was
the act of God. To be exempt from liability for loss
because of an act of God, he must be free from any
previous negligence or misconduct by which that loss
or damage may have been occasioned. (Fish &
Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v.
Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45
Phil. 657). LLjur
The negligence of the defendant and the third-party
defendants petitioners was established beyond
dispute both in the lower court and in the Intermediate
Appellate Court. Defendant United Construction Co.,
Inc. was found to have made substantial deviations
from the plans and specifications, and to have failed
to observe the requisite workmanship in the
construction as well as to exercise the requisite
degree of supervision; while the third-party
defendants were found to have inadequacies or
defects in the plans and specifications prepared by
them. As correctly assessed by both courts, the
defects in the construction and in the plans and
specifications were the proximate causes that
rendered the PBA building unable to withstand the
earthquake of August 2, 1968. For this reason the
defendant and third-party defendants cannot claim
exemption from liability. (Decision, Court of Appeals,
pp. 30-31).
It is well settled that the findings of facts of the Court
of Appeals are conclusive on the parties and on this
court (cases cited in Tolentino vs. de Jesus, 56 SCRA
67; Cesar vs. Sandiganbayan, January 17, 1985, 134
SCRA 105, 121), unless (1) the conclusion is a finding
grounded entirely on speculation surmise and
conjectures; (2) the inference made is manifestly
mistaken; (3) there is grave abuse of discretion; (4)
the judgment is based on misapprehension of facts;
(5) the findings of fact are conflicting; (6) the Court of
Appeals went beyond the issues of the case and its
findings are contrary to the admissions of both
appellant and appellees (Ramos vs. Pepsi-Cola
Bottling Co., February 8, 1967, 19 SCRA 289, 291-
292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648,
651); (7) the findings of facts of the Court of Appeals
are contrary to those of the trial court; (8) said findings
of facts are conclusions without citation of specific
evidence on which they are based; (9) the facts set
forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondents
(Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-
Bett vs. Court of Appeals, July 30, 1979, 92 SCRA
322, 366); (10) the finding of fact of the Court of
Appeals is premised on the supposed absence of
evidence and is contradicted by evidence on record
(Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243,
247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under
any of the exceptions above-mentioned. On the
contrary, the records show that the lower court spared
no effort in arriving at the correct appreciation of facts
by the referral of technical issues to a Commissioner
chosen by the parties whose findings and conclusions
remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to
intervene in the Supreme Court.
In any event, the relevant and logical observations of
the trial court as affirmed by the Court of Appeals that
"while it is not possible to state with certainty that the
building would not have collapsed were those defects
not present, the fact remains that several buildings in
the same area withstood the earthquake to which the
building of the plaintiff was similarly subjected,"
cannot be ignored.
The next issue to be resolved is the amount of
damages to be awarded to the PBA for the partial
collapse (and eventual complete collapse) of its
building.
The Court of Appeals affirmed the finding of the trial
court based on the report of the Commissioner that
the total amount required to repair the PBA building
and to restore it to tenantable condition was
P900,000.00 inasmuch as it was not initially a total
loss. However, while the trial court awarded the PBA
said amount as damages, plus unrealized rental
income for one-half year, the Court of Appeals
modified the amount by awarding in favor of PBA an
additional sum of P200,000.00 representing the
damage suffered by the PBA building as a result of
another earthquake that occurred on April 7, 1970 (L-
47896, Vol. I, p. 92). LLphil
The PBA in its brief insists that the proper award
should be P1,830,000.00 representing the total value
of the building (L-47896, PBA's No. 1 Assignment of
Error, p. 19), while both the NAKPILS and UNITED
question the additional award of P200,000.00 in favor
of the PBA (L-47851, NAKPIL's Brief as Petitioner, p.
6, UNITED's Brief as Petitioner, p, 25). The PBA
further urges that the unrealized rental income
awarded to it should not be limited to a period of one-
half year but should be computed on a continuing
basis at the rate of P178,671.76 a year until the
judgment for the principal amount shall have been
satisfied (L-47896, PBA's No. 11 Assignment of
Errors, p. 19).
The collapse of the PBA building as a result of the
August 2, 1968 earthquake was only partial and it is
undisputed that the building could then still be
repaired and restored to its tenantable condition. The
PBA, however, in view of its lack of needed funding,
was unable, thru no fault of its own, to have the
building repaired. UNITED, on the other hand, spent
P13,661.28 to shore up the building after the August
2, 1968 earthquake (L-47896, CA Decision, p. 46).
Because of the earthquake on April 7, 1970, the trial
court after the needed consultations, authorized the
total demolition of the building (L-47896, Vol. 1, pp.
53-54).
There should be no question that the NAKPILS and
UNITED are liable for the damage resulting from the
partial and eventual collapse of the PBA building as a
result of the earthquakes.
We quote with approval the following from the erudite
decision penned by Justice Hugo E. Gutierrez (now
an Associate Justice of the Supreme Court) while still
an Associate Justice of the Court of, Appeals:
"There is no question that an
earthquake and other forces of
nature such as cyclones, drought,
floods, lightning, and perils of the
sea are acts of God. It does not
necessarily follow, however, that
specific losses and suffering
resulting from the occurrence of
these natural force are also acts
of God. We are not convinced on
the basis of the evidence on
record that from the thousands of
structures in Manila, God singled
out the blameless PBA building in
Intramuros and around six or
seven other buildings in various
parts of the city for collapse or
severe damage and that God
alone was responsible for the
damages and losses thus
suffered.
The record is replete with
evidence of defects and
deficiencies in the designs and
plans, defective construction,
poor workmanship, deviation
from plans and specifications and
other imperfections. These
deficiencies are attributable to
negligent men and not to a
perfect God.
The act-of-God arguments of the
defendants-appellants and third
party defendants-appellants
presented in their briefs are
premised on legal generalizations
or speculations and on
theological fatalism both of which
ignore the plain facts. The
lengthy discussion of United on
ordinary earthquakes and
unusually strong earthquakes
and on ordinary fortuitous events
and extraordinary fortuitous
events leads to its argument that
the August 2, 1968 earthquake
was of such an overwhelming
and destructive character that by
its own force and independent of
the particular negligence alleged,
the injury would have been
produced. If we follow this line of
speculative reasoning, we will be
forced to conclude that under
such a situation scores of
buildings in the vicinity and in
other parts of Manila would have
toppled down. Following the
same line of reasoning, Nakpil
and Sons alleges that the
designs were adequate in
accordance with pre-August 2,
1968 knowledge and appear
inadequate only in the light of
engineering information acquired
after the earthquake. If this were
so, hundreds of ancient buildings
which survived the earthquake
better than the two-year old PBA
building must have been
designed and constructed by
architects and contractors whose
knowledge and foresight were
unexplainably auspicious and
prophetic. Fortunately, the facts
on record allow a more down to
earth explanation of the collapse.
The failure of the PBA building,
as a unique and distinct
construction with no reference or
comparison to other buildings, to
weather the severe earthquake
forces was traced to design
deficiencies and defective
construction, factors which are
neither mysterious nor esoteric.
The theological allusion of
appellant United that God acts in
mysterious ways His wonders to
perform impresses us to be
inappropriate. The evidence
reveals defects and deficiencies
in design and construction. There
is no mystery about these acts of
negligence. The collapse of the
PBA building was no wonder
performed by God. It was a result
of the imperfections in the work of
the architects and the people in
the construction company. More
relevant to our mind is the lesson
from the parable of the wise man
in the Sermon on the Mount,
"which built his house upon a
rock; and the rain descended and
the floods came and the winds
blew and beat upon that house:
and it fell not; for it was founded
upon a rock" and of the "foolish
man which built his house upon
the sand. And the rain descended
and the floods came, and the
winds blew, and beat upon that
house; and it fell and great was
the fall of it. (St. Matthew 7: 24-
27)." The requirement that a
building should withstand rains,
floods, winds, earthquakes, and
natural forces is precisely the
reason why we have professional
experts like architects, and
engineers. Designs and
constructions vary under varying
circumstances and conditions but
the requirement to design and
build well does not change.

The findings of the lower Court
on the cause of the collapse are
more rational and accurate.
Instead of laying the blame solely
on the motions and forces
generated by the earthquake, it
also examined the ability of the
PBA building, as designed and
constructed, to withstand and
successfully weather those
forces.
The evidence sufficiently
supports a conclusion that the
negligence and fault of both
United and Nakpil and Sons, not
a mysterious act of an inscrutable
God, were responsible for the
damages. The Report of the
Commissioner, Plaintiff's
Objections to the Report, Third
Party Defendants' Objections to
the Report, Defendants'
Objections to the Report,
Commissioner's Answer to the
various Objections, Plaintiffs'
Reply to the Commissioner's
Answer, Defendants' Reply to the
Commissioner's Answer,
Counter-Reply to Defendants'
Reply, and Third-Party
Defendants' Reply to the
Commissioner's Report not to
mention the exhibits and the
testimonies show that the main
arguments raised on appeal were
already raised during the trial and
fully considered by the lower
Court. A reiteration of these same
arguments on appeal fails to
convince us that we should
reverse or disturb the lower
Court's factual findings and its
conclusions drawn from the facts,
among them:
"The
Commissioner also
found merit in the
allegations of the
defendants as to the
physical evidence
before and after the
earthquake showing the
inadequacy of design, to
wit:
"
Physical
evidenc
e before
the
earthqu
ake,
providin
g (sic)
inadequ
acy of
design;
1
.Inadeq
uate
design
was the
cause of
the
failure of
the
building.
2
.Sub-
baffles
on the
two
sides
and in
front of
the
building;
a
.
I
n
c
r
e
a
s
e

t
h
e

i
n
e
r
t
i
a

f
o
r
c
e
s

t
h
a
t

m
o
v
e

t
h
e

b
u
i
l
d
i
n
g

l
a
t
e
r
a
l
l
y

t
o
w
a
r
d

t
h
e

M
a
n
i
l
a

F
i
r
e

D
e
p
a
r
t
m
e
n
t
.
b
.
C
r
e
a
t
e

a
n
o
t
h
e
r

s
t
i
f
f
n
e
s
s
-
i
m
b
a
l
a
n
c
e
.
3
.The
embedd
ed 4"
diamete
r cast
iron
downsp
out on
all
exterior
columns
reduces
the
cross-
sectiona
l area of
each of
the
columns
and the
strength
thereof.
4
.Two
front
corners,
A7 and
D7
columns
were
very
much
less
reinforc
ed.
P
hysical
Evidenc
e After
the
Earthqu
ake,
Proving
Inadequ
acy of
design;
1
.Column
A7
suffered
the
severest
fracture
and
maximu
m
sagging
Also D7.
2
.There
are
more
damage
s in the
front
part of
the
building
than
towards
the rear,
not only
in
columns
but also
in slabs.
3
.Building
leaned
and
sagged
more on
the front
part of
the
building.
4
.Floors
showed
maximu
m
sagging
on the
sides
and
toward
the front
corner
parts of
the
building.
5
.There
was a
lateral
displace
ment of
the
building
of about
8",
Maximu
m
sagging
occurs
at the
column
A7
where
the floor
is lower
by 80
cm. than
the
highest
slab
level.
6
.Slab at
the
corner
column
D7
sagged
by 38
cm."
The Commissioner concluded
that there were deficiencies or
defects in the design, plans and
specifications of the PBA building
which involved appreciable risks
with respect to the accidental
forces which may result from
earthquake shocks. He
conceded, however, that the fact
that those deficiencies or defects
may have arisen from an
obsolete or not too conservative
code or even a code that does
not require a design for
earthquake forces mitigates in a
large measure the responsibility
or liability of the architect and
engineer designer.
The Third-party defendants, who
are the most concerned with this
portion of the Commissioner's
report, voiced opposition to the
same on the grounds that (a) the
finding is based on a basic
erroneous conception as to the
design concept of the building, to
wit, that the design is essentially
that of a heavy rectangular box
on stilts with shear wall at one
end; (b) the finding that there
were defects and a deficiency in
the design of the building would
at best be based on an
approximation and, therefore,
rightly belonged to the realm of
speculation, rather than of
certainty and could very possibly
be outright error; (c) the
Commissioner has failed to back
up or support his finding with
extensive, complex and highly
specialized computations and
analyzes which he himself
emphasizes are necessary in the
determination of such a highly
technical question; and (d) the
Commissioner has analyzed the
design of the PBA building not in
the light of existing and available
earthquake engineering
knowledge at the time of the
preparation of the design, but in
the light of recent and current
standards.
The Commissioner answered the
said objections alleging that third-
party defendants' objections were
based on estimates or exhibits
not presented during the hearing;
that the resort to engineering
references posterior to the date
of the preparation of the plans
was induced by the third-party
defendants themselves who
submitted computations of the
third-party defendants are
erroneous.'
The issue presently considered is
admittedly a technical one of the
highest degree. It involves
questions not within the ordinary
competence of the bench and the
bar to resolve by themselves.
Counsel for the third-party
defendants has aptly remarked
that "engineering, although
dealing in mathematics, is not an
exact science and that the
present knowledge as to the
nature of earthquakes and the
behavior of forces generated by
them still leaves much to be
desired; so much so "that the
experts of the different parties,
who are all engineers, cannot
agree on what equation to use,
as to what earthquake co-
efficients are, on the codes to be
used and even as to the type of
structure that the PBA building
(is) was" (p. 29, Memo, of third-
party defendants before the
Commissioner).
The difficulty expected by the
Court if this technical matter were
to be tried and inquired into by
the Court itself, coupled with the
intrinsic nature of the questions
involved therein, constituted the
reason for the reference of the
said issues to a Commissioner
whose qualifications and
experience have eminently
qualified him for the task, and
whose competence had not been
questioned by the parties until he
submitted his report. Within the
pardonable limit of the Court's
ability to comprehend the
meaning of the Commissioner's
report on this issue, and the
objections voiced to the same,
the Court sees no compelling
reasons to disturb the findings of
the Commissioner that there
were defects and deficiencies in
the design, plans and
specifications prepared by third-
party defendants, and that said
defects and deficiencies involved
appreciable risks with respect to
the accidental forces which may
result from earthquake shocks.
(2)(a) The deviations, if any,
made by the defendants from the
plans and specifications, and how
said deviations contributed to the
damage sustained by the
building.
(b)The alleged failure of
defendants to observe the
requisite quality of materials and
workmanship in the construction
of the building.
These two issues, being
interrelated with each other, will
be discussed together.
The findings of the Commissioner
on these issues were as follows:
"We now turn
to the construction of the
PBA Building and the
alleged deficiencies or
defects in the
construction and
violations or deviations
from the plans and
specifications. All these
may be summarized as
follows:
a.Summary of
alleged defects as
reported by Engineer
Mario M. Bundalian.
(
1)Wrong
ful and
defectiv
e
placing
of
reinforci
ng bars.
(
2)Absen
ce of
effective
and
desirabl
e
integrati
on of
the 3
bars in
the
cluster.
(
3)Oversi
ze
coarse
aggrega
tes: 1-
1/4 to 2"
were
used.
Specific
ation
requires
no
larger
than 1
inch.
(
4)Reinfo
rcement
assembl
y is not
concentr
ic with
the
column,
eccentri
city
being 3"
off when
on one
face the
main
bars are
only 1
1/2"
from the
surface.
(
5)Preval
ence of
honeyco
mbs,
(
6)Contr
aband
construc
tion
joints,
(
7)Absen
ce, or
omissio
n, or
over
spacing
of spiral
hoops,
(
8)Delibe
rate
severan
ce of
spirals
into
semi-
circles
in noted
on Col.
A5,
ground
floor,
(
9)Defect
ive
construc
tion
joints in
Column
s A3,
C7, D7
and D4,
ground
floor.
(
10)Unde
rgraduat
e
concrete
is
evident,
(
11)Big
cavity in
core of
Column
2A-4,
second
floor,
(
12)Colu
mns
buckled
at
different
planes.
Column
s
buckled
worst
where
there
are no
spirals
or
where
spirals
are cut.
Column
s
suffered
worst
displace
ment
where
the
eccentri
city of
the
columna
r
reinforc
ement
assembl
y is
more
acute.
b.Summary of
alleged defects as
reported by Engr.
Antonio Avecilla.
Columns are
first (or ground) floor,
unless otherwise stated.
(
1)Colum
n D4
Spacing
of spiral
is
changed
from 2"
to 5" on
centers,
(
2)Colum
n D5
No
spiral up
to a
height of
22" from
the
ground
floor,
(
3)Colum
n D6
Spacing
of spiral
over 4
1/2,(4)
Column
D7 -
Lack of
lateral
ties,
(
5)Colum
n C7
Absenc
e of
spiral to
a height
of 20"
from the
ground
level,
Spirals
are at 2"
from the
exterior
column
face and
6" from
the
inner
column
face,
(
6)Colum
n B6
Lack of
spiral on
2 feet
below
the floor
beams,
(
7)Colum
n B5
Lack of
spirals
at a
distance
of 26"
below
the
beam,
(
8)Colum
n B7
Spirals
not tied
to
vertical
reinforci
ng bars,
Spirals
are
uneven
2" to 4",
(
9)Colum
n A3
Lack of
lateral
ties,
(
10)Colu
mn A4

Spirals
cut off
and
welded
to two
separat
e
clustere
d
vertical
bars,
(
11)Colu
mn A4

(second
floor)
Column
is
complet
ely
hollow
to a
height of
30"
(
12)Colu
mn A5

Spirals
were cut
from the
floor
level to
the
bottom
of the
spandrel
beam to
a height
of 6
feet,
(
13)Colu
mn A6
No
spirals
up to a
height of
30"
above
the
ground
floor
level,
(
14)Colu
mn A7
Lack
of lateral
ties or
spirals,
c.Summary of
alleged defects as
reported by the experts
of the Third-Party
defendants.
Ground floor
columns.
(
1)Colum
n A4
Spirals
are cut,
(
2)Colum
n A5
Spirals
are cut,
(
3)Colum
n A6
At lower
18"
spirals
are
absent,
(
4)Colum
n A7
Ties are
too far
apart,
(
5)Colum
n B5
At upper
fourth of
column
spirals
are
either
absent
or
imprope
rly
spliced,
(
6)Colum
n B6
At upper
2 feet
spirals
are
absent,
(
7)Colum
n B7
At upper
fourth of
column
spirals
missing
or
imprope
rly
spliced.
(
8)Colum
n C7
Spirals
are
absent
at
lowest
18"
(
9)Colum
n D5
At
lowest 2
feet
spirals
are
absent,
(
10)Colu
mn D6

Spirals
are too
far apart
and
apparen
tly
imprope
rly
spliced,

(
11)Colu
mn D7

Lateral
ties are
too far
apart,
spaced
16" on
centers.
There is merit
in many of these
allegations. The
explanations given by
the engineering experts
for the defendants are
either contrary to
general principles of
engineering design for
reinforced concrete or
not applicable to the
requirements for ductility
and strength of
reinforced concrete in
earthquake-resistant
design and construction.
We shall first
classify and consider
defects which may have
appreciable bearing or
relation to the
earthquake-resistant
property of the building.
As heretofore
mentioned, details which
insure ductility at or near
the connections
between columns and
girders are desirable in
earthquake-resistant
design and construction.
The omission of spirals
and ties or hoops at the
bottom and/or tops of
columns contributed
greatly to the loss of
earthquake-resistant
strength. The plans and
specifications required
that these spirals and
ties be carried from the
floor level to the bottom
reinforcement of the
deeper beam (p. 1,
Specifications, p. 970,
Reference 11). There
were several clear
evidences where this
was not done especially
in some of the ground
floor columns which
failed.
There were
also unmistakable
evidences that the
spacings of the spirals
and ties in the columns
were in many cases
greater than those
called for in the plans
and specifications
resulting again in loss of
earthquake-resistant
strength. The assertion
of the engineering
experts for the
defendants that the
improper spacings and
the cutting of the spirals
did not result in loss of
strength in the column
cannot be maintained
and is certainly contrary
to the general principles
of column design and
construction. And even
granting that there be no
loss in strength at the
yield point (an
assumption which is
very doubtful) the cutting
or improper spacings of
spirals will certainly
result in the loss of the
plastic range or ductility
in the column and it is
precisely this plastic
range or ductility which
is desirable and needed
for earthquake-resistant
strength. Cdpr
There is no
excuse for the cavity or
hollow portion in the
column A4, second
floor, and although this
column did not fail, this
is certainly an evidence
on the part of the
contractor of poor
construction.
The effect of
eccentricities in the
columns which were
measured at about 2 1/2
inches maximum may
be approximated in
relation to column loads
and column and beam
moments. The main
effect of eccentricity is to
change the beam or
girder span. The effect
on the measured
eccentricity of 2 1/2
inches, therefore, is to
increase or diminish the
column load by a
maximum of about 1%
and to increase or
diminish the column or
beam movements by
about a maximum of
2%. While these can
certainly be absorbed
within the factor of
safety, they
nevertheless diminish
said factor of safety.
The cutting of
the spirals in column A5,
ground floor is the
subject of great
contention between the
parties and deserves
special consideration.
The proper
placing of the main
reinforcements and
spirals in column A5,
ground floor, is the
responsibility of the
general contractor which
is the UCCI. The burden
of proof, therefore that
this cutting was done by
others is upon the
defendants. Other than
a strong allegation and
assertion that it is the
plumber or his men who
may have done the
cutting (and this was
flatly denied by the
plumber) no conclusive
proof was presented.
The engineering experts
for the defendants
asserted that they could
have no motivation for
cutting the bar because
they can simply replace
the spirals by wrapping
around a new set of
spirals. This is not quite
correct. There is
evidence to show that
the pouring of concrete
for columns was
sometimes done
through the beam and
girder reinforcements
which were already in
place as in the case of
column A4 second floor.
If the reinforcement for
the girder and column is
to subsequently wrap
around the spirals, this
would not do for the
elasticity of steel would
prevent the making of
tight column spirals and
loose or improper spirals
would result. The proper
way is to produce
correct spirals down
from the top of the main
column bars, a
procedure which can not
be done if either the
beam or girder
reinforcement is already
in place. The
engineering experts for
the defendants strongly
assert and apparently
believe that the cutting
of the spirals did not
materially diminish the
strength of the column.
This belief together with
the difficulty of slipping
the spirals on the top of
the column once the
beam reinforcement is in
place may be a
sufficient motivation for
the cutting of the spirals
themselves. The
defendants, therefore,
should be held
responsible for the
consequences arising
from the loss of strength
or ductility in column A5
which may have
contributed to the
damages sustained by
the building.
The lack of
proper length of splicing
of spirals was also
proven in the visible
spirals of the columns
where spalling of the
concrete cover had
taken place. This lack of
proper splicing
contributed in a small
measure to the loss of
strength.
The effects of
all the other proven and
visible defects although
minor can certainly be
accumulated so that
they can contribute to an
appreciable loss in
earthquake-resistant
strength. The
engineering experts for
the defendants
submitted an estimate
on some of these
defects in the amount of
a few percent. If
accumulated, therefore,
including the effect of
eccentricity in the
column the loss in
strength due to these
minor defects may run
to as much as ten
percent.
To recapitulate:
the omission or lack of
spirals and ties at the
bottom and/or at the top
of some of the ground
floor columns
contributed greatly to
the collapse of the PBA
building since it is at
these points where the
greater part of the failure
occurred. The liability for
the cutting of the spirals
in column A5, ground
floor, in the considered
opinion of the
Commissioner rests on
the shoulders of the
defendants and the loss
of strength in this
column contributed to
the damage which
occurred.
It is reasonable
to conclude, therefore,
that the proven defects,
deficiencies and
violations of the plans
and specifications of the
PBA building contributed
to the damages which
resulted during the
earthquake of August 2,
1968 and the vice of
these defects and
deficiencies is that they
not only increase but
also aggravate the
weakness mentioned in
the design of the
structure. In other
words, these defects
and deficiencies not only
tend to add but also to
multiply the effects of
the shortcomings in the
design of the building.
We may say, therefore,
that the defects and
deficiencies in the
construction contributed
greatly to the damage
which occurred.
Since the
execution and
supervision of the
construction work in the
hands of the contractor
is direct and positive,
the presence of
existence of all the
major defects and
deficiencies noted and
proven manifests an
element of negligence
which may amount to
imprudence in the
construction work." (pp.
42-49, Commissioner's
Report).
As the parties most directly
concerned with this portion of the
Commissioner's report, the
defendants voiced their
objections to the same on the
grounds that the Commissioner
should have specified the defects
found by him to be "meritorious";
that the Commissioner failed to
indicate the number of cases
where the spirals and ties were
not carried from the floor level to
the bottom reinforcement of the
deeper beam, or where the
spacing of the spirals and ties in
the columns were greater than
that called for in the
specifications; that the hollow in
column A-4, second floor, the
eccentricities in the columns, the
lack of proper length of splicing of
spirals, and the cut in the spirals
in column A-5, ground floor, did
not aggravate or contribute to the
damage suffered by the building;
that the defects in the
construction were within the
tolerable margin of safety; and
that the cutting of the spirals in
column A-5, ground floor, was
done by the lumber or his men,
and not by the defendants.
Answering the said objections,
the Commissioner stated that,
since many of the defects were
minor only the totality of the
defects was considered. As
regards the objection as to failure
to state the number of cases
where the spirals and ties were
not carried from the floor level to
the bottom reinforcement, the
Commissioner specified
groundfloor columns B-6 and C-
5, the first one without spirals for
03 inches at the top, and in the
latter, there were no spirals for 10
inches at the bottom. The
Commissioner likewise specified
the first storey columns where the
spacings were greater than that
called for in the specifications to
be columns B-5, B-6, C-7, C-6,
C-5, D-5 and B-7. The objection
to the failure of the Commissioner
to specify the number of columns
where there was lack of proper
length of splicing of spirals, the
Commissioner mentioned
groundfloor columns B-6 and B-5
where all the splices were less
than 1-1/2 turns and were not
welded, resulting in some loss of
strength which could be critical
near the ends of the columns. He
answered the supposition of the
defendants that the spirals and
the ties must have been looted,
by calling attention to the fact that
the missing spirals and ties were
only in two out of the 25 columns,
which rendered said supposition
to be improbable.
The Commissioner conceded that
the hollow in column A-4, second
floor, did not aggravate or
contribute to the damage, but
averred that it is "evidence of
poor construction." On the claim
that the eccentricity could be
absorbed within the factor of
safety, the Commissioner
answered that, while the same
may be true, it also contributed to
or aggravated the damage
suffered by the building.
The objection regarding the
cutting of the spirals in Column A-
5, groundfloor, was answered by
the Commissioner by reiterating
the observation in his report that
irrespective of who did the cutting
of the spirals, the defendants
should be held liable for the same
as the general contractor of the
building. The Commissioner
further stated that the loss of
strength of the cut spirals and
inelastic deflections of the
supposed lattice work defeated
the purpose of the spiral
containment in the column and
resulted in the loss of strength, as
evidenced by the actual failure of
this column.

Again, the Court concurs in the
findings of the Commissioner on
these issues and fails to find any
sufficient cause to disregard or
modify the same. As found by the
Commissioner, the "deviations
made by the defendants from the
plans and specifications caused
indirectly the damage sustained
and that those deviations not only
added but also aggravated the
damage caused by the defects in
the plans and specifications
prepared by third-party
defendants." (Rollo, Vol. I, pp.
128-142)
The afore-mentioned facts clearly indicate the wanton
negligence of both the defendant and the third-party
defendants in effecting the plans, designs,
specifications, and construction of the PBA building
and We hold such negligence as equivalent to bad
faith in the performance of their respective tasks.
Relative thereto, the ruling of the Supreme Court in
Tucker v. Milan (49 O.G. 4379, 4380) which may be in
point in this case, reads:
"One who negligently creates a
dangerous condition cannot
escape liability for the natural and
probable consequences thereof,
although the act of a third person,
or an act of God for which he is
not responsible, intervenes to
precipitate the loss."
As already discussed, the destruction was not purely
an act of God. Truth to tell hundreds of ancient
buildings in the vicinity were hardly affected by the
earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith,
without which the damage would not have occurred.
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and
environmental circumstances of this case, We deem it
reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-
party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p.
10) indemnity in favor of the Philippine Bar
Association of FIVE MILLION (P5,000,000.00) Pesos
to cover all damages (with the exception of attorney's
fees) occasioned by the loss of the building (including
interest charges and lost rentals) and an additional
ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable
upon the finality of this decision. Upon failure to pay
on such finality, twelve (12%) per cent interest per
annum shall be imposed upon afore-mentioned
amounts from finality until paid. Solidary costs against
the defendant and third-party defendants (except
Roman Ozaeta).
SO ORDERED
Feria (Chairman), Fernan, Alampay and Cruz,
JJ., concur.
EN BANC
[G.R. No. 108164. February 23, 1995.]
FAR EAST BANK AND TRUST
COMPANY, petitioner, vs. THE
HONORABLE COURT OF
APPEALS, LUIS A. LUNA and
CLARITA S.
LUNA, respondents.
SYLLABUS
1.CIVIL LAW; DAMAGES; MORAL DAMAGES;
WHEN MAY BE RECOVERED IN CASE OF CULPA
CONTRACTUAL; RULE; CASE AT BAR. In culpa
contractual, moral damages may be recovered where
the defendant is shown to have acted in bad faith or
with malice in the breach of the contract. Bad faith, in
this context, includes gross, but not simple,
negligence. Exceptionally, in contract
of carriage, moral damages are also allowed in case
of death of a passenger attributable to the fault (which
is presumed) of the common carrier. Concededly, the
bank was remiss in indeed neglecting to personally
inform Luis of his own card's cancellation. Nothing in
the findings of the trial court and the appellate court,
however, can sufficiently indicate any deliberate intent
on the part of FEBTC to cause harm to private
respondents. Neither could FEBTC's negligence in
failing to give personal notice to Luis be considered
so gross as to amount to malice or bad faith. Malice
or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral
obliquity; it is different from the negative idea of
negligence in that malice or bad faith contemplates a
state of mind affirmatively operating with furtive
design or ill-will. Article 21 of the Code, it should be
observed, contemplates a conscious act to cause
harm. Thus, even if we are to assume that the
provision could properly relate to a breach of contract,
its application can be warranted only when the
defendant's disregard of his contractual obligation is
so deliberate as to approximate a degree of
misconduct certainly no less worse than fraud or bad
faith. Most importantly, Article 21 is a mere
declaration of a general principle in human relations
that clearly must, in anycase, give way to the specific
provision of Article 2220 of the Civil Code authorizing
the grant of moral damages in culpa contractual solely
when the breach is due to fraud or bad faith.
2.ID.; ID.; ID.; ID.; ID.; APPLICATION OF THE
PROVISION ON QUASI-DELICT. The Court has
not in the process overlooked another rule that a
quasi-delict can be the cause for breaching a contract
that might thereby permit the application of applicable
principles on tort even where there is a pre-existing
contract between the plaintiff and the defendant (Phil.
Airlines vs. Court of Appeals, 106 SCRA 143; Singson
vs. Bank of the Phil. Islands, 23 SCRA 1117; andAir
France vs. Carrascoso, 18 SCRA 155). This doctrine,
unfortunately, cannot improve private respondents'
case for it can aptly govern only where the act or
omission complained of would constitute an
actionable tort independently of the contract. The test
(whether a quasi-delict can be deemed to underlie the
breach of a contract) can be stated thusly: Where,
without a pre-existing contract between two parties,
an act or omission can nonetheless amount to an
actionable tort by itself, the fact that the parties are
contractually bound is no bar to the application of
quasi-delict provisions to the case. Here, private
respondents' damage claim is predicated solely on
their contractual relationship; without such agreement,
the act or omission complained of cannot by itself be
held to stand as a separate cause of action or as an
independent actionable tort.
3.ID.; ID.; EXEMPLARY OR CORRECTIVE
DAMAGES; WHEN AVAILABLE. Exemplary or
corrective damages, in turn, are intended to serve as
an example or as correction for the public good in
addition to moral, temperate, liquidated or
compensatory damages (Art. 2229, Civil Code;
see Prudenciado vs. Alliance Transport System, 148
SCRA 440; Lopez vs. Pan American World Airways,
16 SCRA 431). In criminal offenses, exemplary
damages are imposed when the crime is committed
with one or more aggravating circumstances (Art.
2230, Civil Code). In quasi-delicts, such damages are
granted if the defendant is shown to have been so
guilty of gross negligence as to approximate malice
(See Art. 2231, Civil Code; CLLC E.G. Gochangco
Workers Union vs. NLRC, 161 SCRA 655; Globe
Mackay Cable and Radio Corp. vs. CA, 176 SCRA
778. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant is found
to have acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner (Art. 2232, Civil
Code; PNB vs. Gen. Acceptance and Finance Corp.,
161 SCRA 449).
4.ID.; ID.; NOMINAL DAMAGES; WHEN AVAILABLE;
APPLICATION IN CASE AT BAR. The bank's
failure, even perhaps inadvertent, to honor its credit
card issued to private respondent Luis should entitle
him to recover a measure of damages sanctioned
under Article 2221 of the Civil Code providing thusly:
"Art. 2221. Nominal damages are adjudicated in order
that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying
the plaintiff for any loss suffered by him."
D E C I S I O N
VITUG, J p:
Some time in October 1986, private
respondent Luis A. Luna applied for, and was
accorded, a FAREASTCARD issued by petitioner
Far East Bank and Trust Company ("FEBTC") at
its Pasig Branch. Upon his request, the bank also
issued a supplemental card to private respondent
Clarita S. Luna.
In August 1988, Clarita lost her credit
card. FEBTC was forthwith informed. In order to
replace the lost card, Clarita submitted an
affidavit of loss. In cases of this nature, the
banks internal security procedures and policy
would appear to be to meanwhile so record the
lost card, along with the principal card, as a "Hot
Card" or "Cancelled Card" in its master file.
On 06 October 1988, Luis tendered
a despedida lunch for a close friend, a Filipino-
American, and another guest at the Bahia
Rooftop Restaurant of the Hotel Intercontinental
Manila. To pay for the lunch, Luis presented his
FAREASTCARD to the attending waiter who
promptly had it verified through a telephone call
to the bank's Credit Card Department. Since the
card was not honored, Luis was forced to pay in
cash the bill amounting to P588.13. Naturally,
Luis felt embarrassed by this incident.
In a letter, dated 11 October 1988,
private respondent Luis Luna, through counsel,
demanded from FEBTC the payment of
damages. Adrian V. Festejo, a vice-president of
the bank, expressed the bank's apologies to Luis.
In his letter, dated 03 November 1988, Festejo, in
part, said:
"In cases when a card is reported
to our office as lost,
FAREASTCARD undertakes the
necessary action to avert its
unauthorized use (such as
tagging the card as hotlisted), as
it is always our intention to
protect our cardholders.
"An investigation of your case
however, revealed that
FAREASTCARD failed to inform
you about its security policy.
Furthermore, an overzealous
employee of the Bank's Credit
Card Department did not
consider the possibility that it may
have been you who was
presenting the card at that time
(for which reason, the unfortunate
incident occurred)."

1
Festejo also sent a letter to the Manager
of the Bahia Rooftop Restaurant to assure the
latter that private respondents were "very valued
clients" of FEBTC. William Anthony King, Food
and Beverage Manager of the Intercontinental
Hotel, wrote back to say that the credibility of
private respondent had never been "in question."
A copy of this reply was sent to Luis by Festejo.
Still evidently feeling aggrieved, private
respondents, on 05 December 1988, filed a
complaint for damages with the Regional Trial
Court ("RTC") of Pasig against FEBTC.
On 30 March 1990, the RTC of Pasig,
given the foregoing factual settings, rendered a
decision ordering FEBTC to pay private
respondents (a) P300,000.00 moral damages; (b)
P50,000.00 exemplary damages; and (c)
P20,000.00 attorney's fees.
On appeal to the Court of Appeals, the
appellate court affirmed the decision of the trial
court.
Its motion for reconsideration having
been denied by the appellate court, FEBTC has
come to this Court with this petition for review.
There is merit in this appeal.
In culpa contractual, moral damages
may be recovered where the defendant is shown
to have acted in bad faith or with malice in the
breach of the contract.

2 The Civil Code provides:
"Art. 2220.Willful injury to
property may be a legal ground
for awarding moral damages if
the court should find that, under
the circumstances, such
damages are justly due. The
same rule applies to breaches of
contract where the defendant
acted fraudulently or in bad faith."
(Emphasis supplied)cdasia
Bad faith, in this context, includes gross, but not
simple, negligence. 3 Exceptionally, in a contract
of carriage, moral damages are also allowed in
case of death of a passenger attributable to the
fault (which is presumed 4 ) of thecommon
carrier.

5
Concededly, the bank was remiss in
indeed neglecting to personally inform Luis of his
own cards cancellation. Nothing in the findings of
the trial court and the appellate court, however,
can sufficiently indicate any deliberate intent on
the part of FEBTC to cause harm to private
respondents. Neither could FEBTC's negligence
in failing to give personal notice to Luis be
considered so gross as to amount to malice or
bad faith. llcd
Malice or bad faith implies a conscious
and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is
different from the negative idea of negligence in
that malice or bad faith contemplates a state of
mind affirmatively operating with furtive design or
ill will.

6
We are not unaware of the previous
rulings of this Court, such as in American
Express International, Inc. vs. Intermediate
Appellate Court (167 SCRA 209) and Bank of
Philippine Islands vs. Intermediate Appellate
Court (206 SCRA 408), sanctioning the
application of Article 21, in relation to Article 2217
and Article 2219

7

of the Civil Code to a
contractual breach similar to the case at
bench. Article 21 states:

"Art. 21.Any person who willfully
causes loss or injury to another in
a manner that is contrary to
morals, good customs or public
policy shall compensate the latter
for the damage."
Article 21 of the Code, it should be
observed, contemplates a conscious act to cause
harm. Thus, even if we are to assume that the
provision could properly relate to a breach of
contract, its application can be warranted only
when the defendant's disregard of his contractual
obligation is so deliberate as to approximate a
degree of misconduct certainly no less worse
than fraud or bad faith. Most importantly, Article
21 is a mere declaration of a general principle in
human relations that clearly must, in any case,
give way to the specific provision of Article 2220
of the Civil Code authorizing the grant of moral
damages in culpa contractual solely when the
breach is due to fraud or bad faith.
Mr. Justice Jose B.L. Reyes, in
his ponencia in Fores vs. Miranda 8 explained
with great clarity the predominance that we
should give to Article 2220 in contractual
relations; we quote:
"Anent the moral damages
ordered to be paid to the
respondent, the same must be
discarded. We have repeatedly
ruled (Cachero vs. Manila Yellow
Taxicab Co. Inc., 101 Phil. 523;
54 Off. Gaz., [26], 6599;Necesito,
et al. vs. Paras, 104 Phil., 75; 56
Off. Gaz., [23] 4023, that moral
damages are not recoverable in
damage actions predicated on a
breach of the contract of
transportation, in view of Articles
2219 and 2220 of the new Civil
Code, which provide as
follows:cdasia
"'ART. 2219. Moral
damages may be
recovered in the
following and analogous
cases:
'(1)A criminal offense
resulting in physical
injuries;
'(2)Quasi-delicts causing
physical injuries;
xxx xxx xxx
'ART.2220.Willful injury
to property may be a
legal ground for
awarding moral
damages if the court
should find that, under
the circumstances, such
damages are justly due.
The same rule applies to
breaches of contract
where the defendant
acted fraudulently or in
bad faith.'
"By contrasting the
provisions of these two
articles it immediately
becomes apparent that:
"(a)In case of breach of
contract
(including one
of
transportation)
proof of bad
faith or fraud
(dolus), i.e.,
wanton or
deliberately
injurious
conduct, is
essential to
justify an award
of moral
damages; and
"(b)That a breach of
contract can
not be
considered
included in the
descriptive
term
'analogous
cases' used in
Art. 2219; not
only because
Art. 2220
specifically
provides for the
damages that
are caused
contractual
breach, but
because the
definition
of quasi-
delict in Art.
2176 of the
Code
expressly exclu
des the cases
where there is
a 'pre-exisiting
contractual
relations
between the
parties.' LexLib
"'Art. 2176.Whoever by
act or omission causes
damage to another,
there being fault or
negligence, is obliged to
pay for the damage
done. Such fault or
negligence, if there is no
pre-existing contractual
relation between the
parties, is called a
quasi-delict and is
governed by the
provisions of this
Chapter.'
"The exception to the basic rule
of damages now under
consideration is a mishap
resulting in the death of a
passenger, in which case Article
1764 makes the common carrier
expressly subject to the rule of
Art. 2206, that entitles the
spouse, descendants and
ascendants of the deceased
passenger to 'demand moral
damages for mental anguish by
reason of the death of the
deceased' (Necesito vs. Paras,
104 Phil. 84, Resolution on
Motion to Reconsider, September
11, 1958). But the exceptional
rule of Art. 1764 makes it all the
more evident that where the
injured passenger does not die,
moral damages are not
recoverable unless it is proved
that the carrier was guilty of
malice or bad faith. We think it is
clear that the mere carelessness
of the carrier's driver does not per
se constitute or justify an
inference of malice or bad faith
on the part of the carrier; and in
the case at bar there is no other
evidence of such malice to
support the award of moral
damages by the Court of
Appeals. To award moral
damages for breach of contract,
therefore, without proof of bad
faith or malice on the part of the
defendant, as required by Art.
2220, would be to violate the
clear provisions of the law, and
constitute unwarranted judicial
legislation.
"xxx xxx xxx.
"The distinction between fraud,
bad faith or malice in the sense of
deliberate or wanton wrong doing
and negligence (as mere
carelessness) is too fundamental
in our law to be ignored (Arts.
1170-1172); their consequences
being clearly differentiated by the
Code. cdasia
"'ART. 2201. In
contracts and quasi-
contracts, the damages
for which the obligor
who acted in good faith
is liable shall be those
that are the natural and
probable consequences
of the breach of the
obligation, and which
the parties have
foreseen or could have
reasonably foreseen at
the time the obligation
was constituted.
'In case of fraud, bad
faith, malice or wanton
attitude, the obligor shall
be responsible for all
damages which may be
reasonably attributed to
the non-performance of
the obligation."
"It is to be presumed, in the
absence of statutory provision to
the contrary, that this difference
was in the mind of the lawmakers
when in Art. 2220 they limited
recovery of moral damages to
breaches of contract in bad faith.
It is true that negligence may be
occasionally so gross as to
amount to malice; but the fact
must be shown in evidence, and
a carrier's bad faith is not to be
lightly inferred from a mere
finding that the contract was
breached through negligence of
the carriers employees." LLphil
The Court has not in the process
overlooked another rule that a quasi-delict can be
the cause for breaching a contract that might
thereby permit the application of applicable
principles on tort 9 even where there is a pre-
existing contract between the plaintiff and the
defendant (Phil. Airlines vs. Court of Appeals,
106 SCRA 143; Singson vs. Bank of Phil.
Islands, 23 SCRA 1117; and Air France vs.
Carrascoso, 18 SCRA 155). This doctrine,
unfortunately, cannot improve private
respondents' case for it can aptly govern only
where the act or omission complained of would
constitute an actionable tort independently of the
contract. The test (whether a quasi-delict can be
deemed to underlie the breach of a contract) can
be stated thusly: Where, without a pre-existing
contract between two parties, an act or omission
can nonetheless amount to an actionable tort by
itself, the fact that the parties are contractually
bound is no bar to the application of quasi-delict
provisions to the case. Here, private respondents'
damage claim is predicated solely on their
contractual relationship; without such agreement,
the act or omission complained of cannot by itself
be held to stand as a separate cause of action or
as an independent actionable tort. cdll
The Court finds, therefore, the award of
moral damages made by the court a quo,
affirmed by the appellate court, to be inordinate
and substantially devoid of legal basis.
Exemplary or corrective damages, in
turn, are intended to serve as an example or as
correction for the public good in addition to moral,
temperate, liquidated or compensatory damages
(Art. 2229, Civil Code; see Prudenciado vs.
Alliance Transport System, 148 SCRA
440; Lopez vs. Pan American World Airways, 16
SCRA 431). In criminal offenses, exemplary
damages are imposed when the crime is
committed with one or more aggravating
circumstances (Art. 2230, Civil Code). In quasi-
delicts, such damages are granted if the
defendant is shown to have been so guilty of
gross negligence as to approximate malice
(See Art. 2231, Civil Code; CLLC E.G.
Gochangco Workers Union vs. NLRC, 161 SCRA
655; Globe Mackay Cable and Radio Corp. vs.
CA, 176 SCRA 778. In contracts and quasi-
contracts, the court may award exemplary
damages if the defendant is found to have acted
in a wanton, fraudulent, reckless, oppressive, or
malevolent manner (Art. 2232, Civil Code; PNB
vs. Gen. Acceptance and Finance Corp., 161
SCRA 449).cdasia
Given the above premises and the
factual circumstances here obtaining, it would
also be just as arduous to sustain the exemplary
damages granted by the courts below (see De
Leon vs. Court of Appeals, 165 SCRA 166).
Nevertheless, the bank's failure, even
perhaps inadvertent, to honor its credit card
issued to private respondent Luis should entitle
him to recover a measure of damages sanctioned
under Article 2221 of the Civil Code providing
thusly:
"Art. 2221.Nominal damages are
adjudicated in order that a right of
the plaintiff, which has been
violated or invaded by the
defendant, may be vindicated or
recognized, and not for the
purpose of indemnifying the
plaintiff for any loss suffered by
him." llcd
Reasonable attorney's fees may be
recovered where the court deems such recovery
to be just and equitable (Art. 2208, Civil Code).
We see no misuse of sound discretion on the part
of the appellate court in allowing the award
thereof by the trial court.
WHEREFORE, the petition for review is
given due course. The appealed decision is
MODIFIED by deleting the award of moral and
exemplary damages to private respondents; in its
stead, petitioner is ordered to pay private
respondent Luis A. Luna an amount of P5,000.00
by way of nominal damages. In all other respects,
the appealed decision is AFFIRMED. No costs.
SO ORDERED.
Narvasa, C.J ., Feliciano, Padilla, Bidin,
Regalado, Davide, Jr ., Romero, Bellosillo, Melo,
Quiason, Puno, Kapunan,
Mendoza and Francisco, JJ., concur.

THIRD DIVISION
[G.R. No. 179337. April 30, 2008.]
JOSEPH
SALUDAGA, petitioner, vs. FAR
EASTERN UNIVERSITY and
EDILBERTO C. DE JESUS in
his capacity as President of
FEU, respondents.
D E C I S I O N
YNARES-SANTIAGO, J p:
This Petition for Review on Certiorari 1 under Rule 45
of the Rules of Court assails the June 29, 2007
Decision 2 of the Court of Appeals in CA-G.R. CV No.
87050, nullifying and setting aside the November 10,
2004 Decision 3 of the Regional Trial Court of Manila,
Branch 2, in Civil Case No. 98-89483 and dismissing
the complaint filed by petitioner; as well as its August
23, 2007 Resolution 4 denying the Motion for
Reconsideration. 5 cAEaSC
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law
student of respondent Far Eastern University (FEU)
when he was shot by Alejandro Rosete (Rosete), one
of the security guards on duty at the school premises
on August 18, 1996. Petitioner was rushed to FEU-Dr.
Nicanor Reyes Medical Foundation (FEU-NRMF) due
to the wound he sustained. 6 Meanwhile, Rosete was
brought to the police station where he explained that
the shooting was accidental. He was eventually
released considering that no formal complaint was
filed against him.
Petitioner thereafter filed a complaint for damages
against respondents on the ground that they
breached their obligation to provide students with a
safe and secure environment and an atmosphere
conducive to learning. Respondents, in turn, filed a
Third-Party Complaint 7 against Galaxy Development
and Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security
services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner, if
any; and to pay attorney's fees and cost of the suit.
On the other hand, Galaxy and Imperial filed a Fourth-
Party Complaint against AFP General
Insurance. 8 AECacS
On November 10, 2004, the trial court rendered a
decision in favor of petitioner, the dispositive portion
of which reads:
WHEREFORE, from the
foregoing, judgment is hereby
rendered ordering:
1.FEU and Edilberto de
Jesus, in his
capacity as
president of
FEU to pay
jointly and
severally
Joseph
Saludaga the
amount of
P35,298.25 for
actual
damages with
12% interest
per annum
from the filing
of the
complaint until
fully paid;
moral damages
of
P300,000.00,
exemplary
damages of
P500,000.00,
attorney's fees
of P100,000.00
and cost of the
suit;
2.Galaxy Management
and
Development
Corp. and its
president, Col.
Mariano
Imperial to
indemnify
jointly and
severally 3rd
party plaintiffs
(FEU and
Edilberto de
Jesus in his
capacity as
President of
FEU) for the
above-
mentioned
amounts;
3.And the 4th party
complaint is
dismissed for
lack of cause of
action. No
pronouncement
as to
costs. cSEAHa
SO ORDERED. 9
Respondents appealed to the Court of Appeals which
rendered the assailed Decision, the decretal portion of
which provides, viz:
WHEREFORE, the appeal is
hereby GRANTED. The Decision
dated November 10, 2004 is
hereby REVERSED and SET
ASIDE. The complaint filed by
Joseph Saludaga against
appellant Far Eastern University
and its President in Civil Case
No. 98-89483 is DISMISSED.
SO ORDERED. 10
Petitioner filed a Motion for Reconsideration which
was denied; hence, the instant petition based on the
following grounds: DaTICc
THE COURT OF APPEALS
SERIOUSLY ERRED IN
MANNER CONTRARY TO LAW
AND JURISPRUDENCE IN
RULING THAT:
5.1.THE SHOOTING INCIDENT
IS A FORTUITOUS EVENT;
5.2.RESPONDENTS ARE NOT
LIABLE FOR DAMAGES FOR
THE INJURY RESULTING
FROM A GUNSHOT WOUND
SUFFERED BY THE
PETITIONER FROM THE
HANDS OF NO LESS THAN
THEIR OWN SECURITY GUARD
IN VIOLATION OF THEIR
BUILT-IN CONTRACTUAL
OBLIGATION TO PETITIONER,
BEING THEIR LAW STUDENT
AT THAT TIME, TO PROVIDE
HIM WITH A SAFE AND
SECURE EDUCATIONAL
ENVIRONMENT;
5.3.SECURITY GUARD,
ALEJANDRO ROSETE, WHO
SHOT PETITIONER WHILE HE
WAS WALKING ON HIS WAY
TO THE LAW LIBRARY OF
RESPONDENT FEU IS NOT
THEIR EMPLOYEE BY VIRTUE
OF THE CONTRACT FOR
SECURITY SERVICES
BETWEEN GALAXY AND FEU
NOTWITHSTANDING THE FACT
THAT PETITIONER, NOT BEING
A PARTY TO IT, IS NOT BOUND
BY THE SAME UNDER THE
PRINCIPLE OF RELATIVITY OF
CONTRACTS; and CTaSEI
5.4.RESPONDENT EXERCISED
DUE DILIGENCE IN
SELECTING GALAXY AS THE
AGENCY WHICH WOULD
PROVIDE SECURITY
SERVICES WITHIN THE
PREMISES OF RESPONDENT
FEU. 11
Petitioner is suing respondents for damages based on
the alleged breach of student-school contract for a
safe learning environment. The pertinent portions of
petitioner's Complaint read:
6.0.At the time of plaintiff's
confinement, the defendants or
any of their representative did not
bother to visit and inquire about
his condition. This abject
indifference on the part of the
defendants continued even after
plaintiff was discharged from the
hospital when not even a word of
consolation was heard from
them. Plaintiff waited for more
than one (1) year for the
defendants to perform their moral
obligation but the wait was
fruitless. This indifference and
total lack of concern of
defendants served to exacerbate
plaintiff's miserable
condition. SaCIDT
xxx xxx xxx
11.0.Defendants are responsible
for ensuring the safety of its
students while the latter are
within the University premises.
And that should anything
untoward happens to any of its
students while they are within the
University's premises shall be the
responsibility of the defendants.
In this case, defendants, despite
being legally and morally bound,
miserably failed to protect plaintiff
from injury and thereafter, to
mitigate and compensate plaintiff
for said injury;
12.0.When plaintiff enrolled with
defendant FEU, a contract was
entered into between them.
Under this contract, defendants
are supposed to ensure that
adequate steps are taken to
provide an atmosphere
conducive to study and ensure
the safety of the plaintiff while
inside defendant FEU's premises.
In the instant case, the latter
breached this contract when
defendant allowed harm to befall
upon the plaintiff when he was
shot at by, of all people, their
security guard who was tasked to
maintain peace inside the
campus. 12
In Philippine School of Business Administration v.
Court of Appeals, 13 we held that: cCTAIE
When an academic institution
accepts students for enrollment,
there is established a contract
between them, resulting in
bilateral obligations which both
parties are bound to comply with.
For its part, the school
undertakes to provide the student
with an education that would
presumably suffice to equip him
with the necessary tools and
skills to pursue higher education
or a profession. On the other
hand, the student covenants to
abide by the school's academic
requirements and observe its
rules and regulations.
Institutions of learning must also
meet the implicit or "built-in"
obligation of providing their
students with an atmosphere that
promotes or assists in attaining
its primary undertaking of
imparting knowledge. Certainly,
no student can absorb the
intricacies of physics or higher
mathematics or explore the realm
of the arts and other sciences
when bullets are flying or
grenades exploding in the air or
where there looms around the
school premises a constant threat
to life and limb. Necessarily, the
school must ensure that
adequate steps are taken to
maintain peace and order within
the campus premises and to
prevent the breakdown
thereof. 14 ICASEH
It is undisputed that petitioner was enrolled as a
sophomore law student in respondent FEU. As such,
there was created a contractual obligation between
the two parties. On petitioner's part, he was obliged to
comply with the rules and regulations of the school.
On the other hand, respondent FEU, as a learning
institution is mandated to impart knowledge and equip
its students with the necessary skills to pursue higher
education or a profession. At the same time, it is
obliged to ensure and take adequate steps to
maintain peace and order within the campus.
It is settled that in culpa contractual, the mere proof of
the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right
of relief. 15 In the instant case, we find that, when
petitioner was shot inside the campus by no less the
security guard who was hired to maintain peace and
secure the premises, there is a prima facie showing
that respondents failed to comply with its obligation to
provide a safe and secure environment to its
students.
In order to avoid liability, however, respondents aver
that the shooting incident was a fortuitous event
because they could not have reasonably foreseen nor
avoided the accident caused by Rosete as he was not
their employee; 16 and that they complied with their
obligation to ensure a safe learning environment for
their students by having exercised due diligence in
selecting the security services of Galaxy. EDCcaS
After a thorough review of the records, we find that
respondents failed to discharge the burden of proving
that they exercised due diligence in providing a safe
learning environment for their students. They failed to
prove that they ensured that the guards assigned in
the campus met the requirements stipulated in the
Security Service Agreement. Indeed, certain
documents about Galaxy were presented during trial;
however, no evidence as to the qualifications of
Rosete as a security guard for the university was
offered.
Respondents also failed to show that they undertook
steps to ascertain and confirm that the security
guards assigned to them actually possess the
qualifications required in the Security Service
Agreement. It was not proven that they examined the
clearances, psychiatric test results, 201 files, and
other vital documents enumerated in its contract with
Galaxy. Total reliance on the security agency about
these matters or failure to check the papers stating
the qualifications of the guards is negligence on the
part of respondents. A learning institution should not
be allowed to completely relinquish or abdicate
security matters in its premises to the security agency
it hired. To do so would result to contracting away its
inherent obligation to ensure a safe learning
environment for its students. aCATSI

Consequently, respondents' defense of force
majeure must fail. In order for force majeure to be
considered, respondents must show that no
negligence or misconduct was committed that may
have occasioned the loss. An act of God cannot be
invoked to protect a person who has failed to take
steps to forestall the possible adverse consequences
of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a
person's participation whether by active
intervention, neglect or failure to act the whole
occurrence is humanized and removed from the rules
applicable to acts of God. 17
Article 1170 of the Civil Code provides that those who
are negligent in the performance of their obligations
are liable for damages. Accordingly, for breach of
contract due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for
damages. It is essential in the award of damages that
the claimant must have satisfactorily proven during
the trial the existence of the factual basis of the
damages and its causal connection to defendant's
acts.18 SECATH
In the instant case, it was established that petitioner
spent P35,298.25 for his hospitalization and other
medical expenses. 19 While the trial court correctly
imposed interest on said amount, however, the case
at bar involves an obligation arising from a contract
and not a loan or forbearance of money. As such, the
proper rate of legal interest is six percent (6%) per
annum of the amount demanded. Such interest shall
continue to run from the filing of the complaint until
the finality of this Decision. 20 After this Decision
becomes final and executory, the applicable rate shall
be twelve percent (12%) per annum until its
satisfaction.
The other expenses being claimed by petitioner, such
as transportation expenses and those incurred in
hiring a personal assistant while recuperating were
however not duly supported by receipts. 21 In the
absence thereof, no actual damages may be
awarded. Nonetheless, temperate damages under
Art. 2224 of the Civil Code may be recovered where it
has been shown that the claimant suffered some
pecuniary loss but the amount thereof cannot be
proved with certainty. Hence, the amount of
P20,000.00 as temperate damages is awarded to
petitioner. HAICTD
As regards the award of moral damages, there is no
hard and fast rule in the determination of what would
be a fair amount of moral damages since each case
must be governed by its own peculiar
circumstances. 22 The testimony of petitioner about
his physical suffering, mental anguish, fright, serious
anxiety, and moral shock resulting from the shooting
incident 23 justify the award of moral damages.
However, moral damages are in the category of an
award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the
wrongdoer. The award is not meant to enrich the
complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or
amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate
to the suffering inflicted. Trial courts must then guard
against the award of exorbitant damages; they should
exercise balanced restrained and measured
objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the trial
court. 24 We deem it just and reasonable under the
circumstances to award petitioner moral damages in
the amount of P100,000.00. HcISTE
Likewise, attorney's fees and litigation expenses in
the amount of P50,000.00 as part of damages is
reasonable in view of Article 2208 of the Civil
Code. 25 However, the award of exemplary damages
is deleted considering the absence of proof that
respondents acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus
solidarily liable with respondent FEU. InPowton
Conglomerate, Inc. v. Agcolicol, 26 we held that:
[A] corporation is invested by law
with a personality separate and
distinct from those of the persons
composing it, such that, save for
certain exceptions, corporate
officers who entered into
contracts in behalf of the
corporation cannot be held
personally liable for the liabilities
of the latter. Personal liability of a
corporate director, trustee or
officer along (although not
necessarily) with the corporation
may so validly attach, as a rule,
only when (1) he assents to a
patently unlawful act of the
corporation, or when he is guilty
of bad faith or gross negligence
in directing its affairs, or when
there is a conflict of interest
resulting in damages to the
corporation, its stockholders or
other persons; (2) he consents to
the issuance of watered down
stocks or who, having knowledge
thereof, does not forthwith file
with the corporate secretary his
written objection thereto; (3) he
agrees to hold himself personally
and solidarily liable with the
corporation; or (4) he is made by
a specific provision of law
personally answerable for his
corporate action. 27 aDcEIH
None of the foregoing exceptions was established in
the instant case; hence, respondent De Jesus should
not be held solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the
instant case is the breach of the school-student
contract, petitioner, in the alternative, also holds
respondents vicariously liable under Article 2180 of
the Civil Code, which provides:
Art. 2180.The obligation imposed
by Article 2176 is demandable
not only for one's own acts or
omissions, but also for those of
persons for whom one is
responsible.
xxx xxx xxx
Employers shall be liable for the
damages caused by their
employees and household
helpers acting within the scope of
their assigned tasks, even though
the former are not engaged in
any business or industry.
xxx xxx xxx
The responsibility treated of in
this article shall cease when the
persons herein mentioned prove
that they observed all the
diligence of a good father of a
family to prevent
damage. CADSHI
We agree with the findings of the Court of Appeals
that respondents cannot be held liable for damages
under Art. 2180 of the Civil Code because
respondents are not the employers of Rosete. The
latter was employed by Galaxy. The instructions
issued by respondents' Security Consultant to Galaxy
and its security guards are ordinarily no more than
requests commonly envisaged in the contract for
services entered into by a principal and a security
agency. They cannot be construed as the element of
control as to treat respondents as the employers of
Rosete. 28
As held in Mercury Drug Corporation v. Libunao: 29
In Soliman, Jr. v. Tuazon, 30 we
held that where the security
agency recruits, hires and
assigns the works of its
watchmen or security guards to a
client, the employer of such
guards or watchmen is such
agency, and not the client, since
the latter has no hand in selecting
the security guards. Thus, the
duty to observe the diligence of a
good father of a family cannot be
demanded from the said client:
. . . [I]t is settled in our
jurisdiction that where
the security agency, as
here, recruits, hires and
assigns the work of its
watchmen or security
guards, the agency is
the employer of such
guards or watchmen.
Liability for illegal or
harmful acts committed
by the security guards
attaches to the employer
agency, and not to the
clients or customers of
such agency. As a
general rule, a client or
customer of a security
agency has no hand in
selecting who among
the pool of security
guards or watchmen
employed by the agency
shall be assigned to it;
the duty to observe the
diligence of a good
father of a family in the
selection of the guards
cannot, in the ordinary
course of events, be
demanded from the
client whose premises
or property are
protected by the security
guards. aETAHD
xxx xxx xxx
The fact that a client company
may give instructions or
directions to the security guards
assigned to it, does not, by itself,
render the client responsible as
an employer of the security
guards concerned and liable for
their wrongful acts or
omissions. 31
We now come to respondents' Third Party Claim
against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko, 32 we
held that: HTScEI
The third-party complaint is,
therefore, a procedural device
whereby a 'third party' who is
neither a party nor privy to the act
or deed complained of by the
plaintiff, may be brought into the
case with leave of court, by the
defendant, who acts as third-
party plaintiff to enforce against
such third-party defendant a right
for contribution, indemnity,
subrogation or any other relief, in
respect of the plaintiff's claim.
The third-party complaint is
actually independent of and
separate and distinct from the
plaintiff's complaint. Were it not
for this provision of the Rules of
Court, it would have to be filed
independently and separately
from the original complaint by the
defendant against the third-party.
But the Rules permit defendant to
bring in a third-party defendant or
so to speak, to litigate his
separate cause of action in
respect of plaintiff's claim against
a third-party in the original and
principal case with the object of
avoiding circuitry of action and
unnecessary proliferation of law
suits and of disposing
expeditiously in one litigation the
entire subject matter arising from
one particular set of facts. 33

Respondents and Galaxy were able to litigate their
respective claims and defenses in the course of the
trial of petitioner's complaint. Evidence duly supports
the findings of the trial court that Galaxy is negligent
not only in the selection of its employees but also in
their supervision. Indeed, no administrative sanction
was imposed against Rosete despite the shooting
incident; moreover, he was even allowed to go on
leave of absence which led eventually to his
disappearance. 34 Galaxy also failed to monitor
petitioner's condition or extend the necessary
assistance, other than the P5,000.00 initially given to
petitioner. Galaxy and Imperial failed to make good
their pledge to reimburse petitioner's medical
expenses. aIcDCT
For these acts of negligence and for having supplied
respondent FEU with an unqualified security guard,
which resulted to the latter's breach of obligation to
petitioner, it is proper to hold Galaxy liable to
respondent FEU for such damages equivalent to the
above-mentioned amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be
solidarily liable with Galaxy for being grossly negligent
in directing the affairs of the security agency. It was
Imperial who assured petitioner that his medical
expenses will be shouldered by Galaxy but said
representations were not fulfilled because they
presumed that petitioner and his family were no
longer interested in filing a formal complaint against
them. 35
WHEREFORE, the petition is GRANTED. The June
29, 2007 Decision of the Court of Appeals in CA-G.R.
CV No. 87050 nullifying the Decision of the trial court
and dismissing the complaint as well as the August
23, 2007 Resolution denying the Motion for
Reconsideration are REVERSED and SET ASIDE.
The Decision of the Regional Trial Court of Manila,
Branch 2, in Civil Case No. 98-89483 finding
respondent FEU liable for damages for breach of its
obligation to provide students with a safe and secure
learning atmosphere, is AFFIRMED with the following
MODIFICATIONS: cSTDIC
a.respondent Far Eastern
University (FEU) is
ORDERED to pay
petitioner actual
damages in the amount
of P35,298.25, plus 6%
interest per annum from
the filing of the
complaint until the
finality of this Decision.
After this decision
becomes final and
executory, the
applicable rate shall be
twelve percent (12%)
per annum until its
satisfaction;
b.respondent FEU is also
ORDERED to pay
petitioner temperate
damages in the amount
of P20,000.00; moral
damages in the amount
of P100,000.00; and
attorney's fees and
litigation expenses in the
amount of P50,000.00;
c.the award of exemplary
damages is DELETED.
The Complaint against respondent Edilberto C. De
Jesus is DISMISSED. The counterclaims of
respondents are likewise DISMISSED.
Galaxy Development and Management Corporation
(Galaxy) and its president, Mariano D. Imperial are
ORDERED to jointly and severally pay respondent
FEU damages equivalent to the above-mentioned
amounts awarded to petitioner. ScAIaT
SO ORDERED.
Austria-Martinez, Chico-Nazario, Nachura and Reyes,
JJ., concur.
FIRST DIVISION
[G.R. No. L-45637. May 31, 1985.]
ROBERTO
JUNTILLA, petitioner, vs. CLEM
ENTE FONTANAR, FERNANDO
BANZON and BERFOL
CAMORO, respondents.
Valentin A. Zozobrado for petitioner.
Ruperto N. Alfarara for respondents.
D E C I S I O N
GUTIERREZ, JR., J p:
This is a petition for review, on questions of law, of
the decision of the Court of First Instance of Cebu
which reversed the decision of the City Court of Cebu
and exonerated the respondents from any liability
arising from a vehicular accident.
The background facts which led to the filing of a
complaint for breach of contract and damages against
the respondents are summarized by the Court of First
Instance of Cebu as follows:
"The facts established after trial
show that the plaintiff was a
passenger of the public utility
jeepney bearing plate No. PUJ-
71-7 on the course of the trip
from Danao City to Cebu City.
The jeepney was driven by
defendant Berfol Camoro. It was
registered under the franchise of
defendant Clemente Fontanar but
was actually owned by defendant
Fernando Banzon. When the
jeepney reached Mandaue City,
the right rear tire exploded
causing the vehicle to turn turtle.
In the process, the plaintiff who
was sitting at the front seat was
thrown out of the vehicle. Upon
landing on the ground, the
plaintiff momentarily lost
consciousness. When he came to
his senses, he found that he had
a lacerated wound on his right
palm. Aside from this, he suffered
injuries on his left arm, right thigh
and on his back. (Exh. "D").
Because of his shock and
injuries, he went back to Danao
City but on the way, he
discovered that his `Omega' wrist
watch was lost. Upon his arrival
in Danao City, he immediately
entered the Danao City Hospital
to attend to his injuries, and also
requested his father-in-law to
proceed immediately to the place
of the accident and look for the
watch. In spite of the efforts of his
father-in-law, the wrist watch,
which he bought for P852.70
(Exh. "B") could no longer be
found."
xxx xxx xxx
Petitioner Roberto Juntilla filed Civil Case No. R-
17378 for breach of contract with damages before the
City Court of Cebu City, Branch I against Clemente
Fontanar, Fernando Banzon and Berfol Camoro. prcd
The respondents filed their answer, alleging inter
alia that the accident that caused losses to the
petitioner was beyond the control of the respondents
taking into account that the tire that exploded was
newly bought and was only slightly used at the time it
blew up.
After trial, Judge Romulo R. Senining of the City Court
of Cebu rendered judgment in favor of the petitioner
and against the respondents. The dispositive portion
of the decision reads:
"WHEREFORE, judgment is
hereby rendered in favor of the
plaintiff and against the
defendants and the latter are
hereby ordered, jointly and
severally, to pay the plaintiff the
sum of P750.00 as
reimbursement for the lost
Omega wrist watch, the sum of
P246.64 as unrealized salary of
the plaintiff from his employer,
the further sum of P100.00 for the
doctor's fees and medicine, an
additional sum of P300.00 for
attorney's fees and the costs."
The respondents appealed to the Court of First
Instance of Cebu, Branch XIV.
Judge Leonardo B. Caares reversed the judgment of
the City Court of Cebu upon a finding that the
accident in question was due to a fortuitous event.
The dispositive portion of the decision reads:
"WHEREFORE, judgment is
hereby rendered exonerating the
defendants from any liability to
the plaintiff without
pronouncement as to costs."
A motion for reconsideration was denied by the Court
of First Instance.
The petitioner raises the following alleged errors
committed by the Court of First Instance of Cebu on
appeal
"a.The Honorable Court below
committed grave abuse of
discretion in failing to take
cognizance of the fact that
defendants and/or their employee
failed to exercise 'utmost and/or
extraordinary diligence' required
of common carriers contemplated
under Art. 1755 of the Civil Code
of the Philippines.
"b.The Honorable Court below
committed grave abuse of
discretion by deciding the case
contrary to the doctrine laid down
by the Honorable Supreme Court
in the case of Necesito et al. v.
Paras, et al."
We find the petition impressed with merit.
The City Court and the Court of First Instance of Cebu
found that the right rear tire of the passenger jeepney
in which the petitioner was riding blew up causing the
vehicle to fall on its side. The petitioner questions the
conclusion of the respondent court drawn from this
finding of fact. cdphil
The Court of First Instance of Cebu erred when it
absolved the carrier from any liability upon a finding
that the tire blow out is a fortuitous event. The Court
of First Instance of Cebu ruled that:
"After reviewing the records of
the case, this Court finds that the
accident in question was due to a
fortuitous event. A tire blow-out,
such as what happened in the
case at bar, is an inevitable
accident that exempts the carrier
from liability, there being absence
of a showing that there was
misconduct or negligence on the
part of the operator in the
operation and maintenance of the
vehicle involved. The fact that the
right rear tire exploded, despite
being brand new, constitutes a
clear case of caso fortuito which
can be a proper basis for
exonerating the defendants from
liability. . . ."
The Court of First Instance relied on the ruling of the
Court of Appeals in Rodriguez v. Red Line
Transportation Co., CA-G.R. No. 8136, December 29,
1954, where the Court of Appeals ruled that:
"A tire blow-out does not
constitute negligence unless the
tire was already old and should
not have been used at all.
Indeed, this would be a clear
case of fortuitous event."
The foregoing conclusions of the Court of First
Instance of Cebu are based on a misapprehension of
overall facts from which a conclusion should be
drawn. The reliance of the Court of First Instance on
the Rodriguez case is not in order. InLa Mallorca and
Pampanga Bus Co. v. De Jesus, et al. (17 SCRA 23),
we held that:
"Petitioner maintains that a tire
blow-out is a fortuitous event and
gives rise to no liability for
negligence, citing the rulings of
the Court of Appeals in
Rodriguez v. Red Line
Transportation Co., CA-G.R. No.
8136, December 29, 1954, and
People v. Palapad, CA-G.R. No.
18480, June 27, 1958. These
rulings, however, not only are not
binding on this Court but were
based on considerations quite
different from those that obtain in
the case at bar. The appellate
court there made no findings of
any specific acts of negligence on
the part of the defendants and
confined itself to the question of
whether or not a tire blow-out, by
itself alone and without a showing
as to the causative factors, would
generate liability. . . ."
In the case at bar, there are specific acts of
negligence on the part of the respondents. The
records show that the passenger jeepney turned turtle
and jumped into a ditch immediately after its right rear
tire exploded. The evidence shows that the passenger
jeepney was running at a very fast speed before the
accident. We agree with the observation of the
petitioner that a public utility jeep running at a regular
and safe speed will not jump into a ditch when its right
rear tire blows up. There is also evidence to show that
the passenger jeepney was overloaded at the time of
the accident. The petitioner stated that there were
three (3) passengers in the front seat and fourteen
(14) passengers in the rear. Cdpr
While it may be true that the tire that blew-up was still
good because the grooves of the tire were still visible,
this fact alone does not make the explosion of the tire
a fortuitous event. No evidence was presented to
show that the accident was due to adverse road
conditions or that precautions were taken by the
jeepney driver to compensate for any conditions liable
to cause accidents. The sudden blowing-up,
therefore, could have been caused by too much air
pressure injected into the tire coupled by the fact that
the jeepney was overloaded and speeding at the time
of the accident.
In Lasam v. Smith (45 Phil. 657), we laid down the
following essential characteristics of caso fortuito:
xxx xxx xxx
". . . 'In a legal
sense and, consequently,
also in relation to
contracts, a caso
fortuito presents the
following essential
characteristics: (1) The
cause of the unforeseen
and unexpected
occurrence, or of the
failure of the debtor to
comply with his obligation,
must be independent of
the human will. (2) It must
be impossible to foresee
the event which
constitutes the caso
fortuito, or if it can be
foreseen, it must be
impossible to avoid. (3)
The occurrence must be
such as to render it
impossible for the debtor
to fulfill his obligation in a
normal manner. And (4)
the obligor (debtor) must
be free from any
participation in the
aggravation of the injury
resulting to the creditor.'
(5 Encyclopedia Juridica
Espaola, 309.)"
In the case at bar, the cause of the unforeseen and
unexpected occurrence was not independent of the
human will. The accident was caused either through
the negligence of the driver or because of mechanical
defects in the tire. Common carriers should teach
their drivers not to overload their vehicles, not to
exceed safe and legal speed limits, and to know the
correct measures to take when a tire blows up thus
insuring the safety of passengers at all times. Relative
to the contingency of mechanical defects, we held
in Necesito, et al. v. Paras, et al. (104 Phil. 75),
that: cdphil
". . . 'The
preponderance of
authority is in favor of the
doctrine that a passenger
is entitled to recover
damages from a carrier for
an injury resulting from a
defect in an appliance
purchased from a
manufacturer, whenever it
appears that the defect
would have been
discovered by the carrier if
it had exercised the
degree of care which
under the circumstances
was incumbent upon it,
with regard to inspection
and application of the
necessary tests. For the
purposes of this doctrine,
the manufacturer is
considered as being in law
the agent or servant of the
carrier, as far as regards
the work of constructing
the appliance. According
to this theory, the good
repute of the manufacturer
will not relieve the carrier
from liability' (10 Am. Jur.
205, s, 1324; see also
Pennsylvania R. Co. v.
Roy, 102 U.S. 451; 20 L.
Ed. 141; Southern R. Co.
v. Hussey, 74 ALR 1172;
42 Fed. 2d 70; and Ed
Note, 29 ALR 788; Ann.
Cas. 1916E 929).

"The rationale of the carrier's
liability is the fact that the
passenger has neither choice nor
control over the carrier in the
selection and use of the
equipment and appliances in use
by the carrier. Having no privity
whatever with the manufacturer
or vendor of the defective
equipment, the passenger has no
remedy against him, while the
carrier usually has. It is but
logical, therefore, that the carrier,
while not an insurer of the safety
of his passengers, should
nevertheless be held to answer
for the flaws of his equipment if
such flaws were at all
discoverable. . . ."
It is sufficient to reiterate that the source of a common
carrier's legal liability is the contract of carriage, and
by entering into the said contract, it binds itself to
carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of a
very cautious person, with a due regard for all the
circumstances. The records show that this obligation
was not met by the respondents.
The respondents likewise argue that the petitioner
cannot recover any amount for failure to prove such
damages during the trial. The respondents submit that
if the petitioner was really injured, why was he treated
in Danao City and not in Mandaue City where the
accident took place. The respondents argue that the
doctor who issued the medical certificate was not
presented during the trial, and hence not cross-
examined. The respondents also claim that the
petitioner was not wearing any wrist watch during the
accident. LibLex
It should be noted that the City Court of Cebu found
that the petitioner had a lacerated wound on his right
palm aside from injuries on his left arm, right thigh
and on his back, and that on his way back to Danao
City, he discovered that his "Omega" wrist watch was
lost. These are findings of facts of the City Court of
Cebu which we find no reason to disturb. More so
when we consider the fact that the Court of First
Instance of Cebu impliedly concurred in these matters
when it confined itself to the question of whether or
not the tire blow out was a fortuitous event.
WHEREFORE, the decision of the Court of First
Instance of Cebu, Branch IV appealed from is hereby
REVERSED and SET ASIDE, and the decision of the
City Court of Cebu, Branch I is REINSTATED, with
the modification that the damages shall earn interest
at 12% per annum and the attorney's fees are
increased to SIX HUNDRED PESOS (P600.00).
Damages shall earn interests from January 27, 1975.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana,
Relova, De la Fuente and Alampay, JJ., concur.