Oblicon Chapter2cases

(Pantaleon v.
American Express
International, Inc., G.R. No. 174269, May 08,
2009)
SECOND DIVISION
[G.R. No. 174269. May 8, 2009.]
POLO S. PANTALEON, petitioner, vs. AMERICAN
EXPRESS INTERNATIONAL, INC., respondent.
DECISION
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
1 | OBLICON_CHAPTER2CASES
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.
(Barzaga v. Court of Appeals, G.R. No.

115129, February 12, 1997)
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 nonperformance 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.
DECISION
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 twentyfourth of December in obedience semper fidelis
to 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

Christmas ever.
his
family
their
gloomiest
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,
attorney's fees.
and
(e)
P5,000.00
as
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 twentysecond 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.
(Lorenzo Shipping Corp. v. BJ Marthel

International, Inc., G.R. No. 145483,
November 19, 2004)
SECOND DIVISION
[G.R. No. 145483. November 19, 2004.]
LORENZO SHIPPING CORP., petitioner, vs. BJ
MARTHEL INTERNATIONAL, INC., respondent.
DECISION
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:
May 31, 1989
MINQ-6093
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.
Description Qty. Unit Price Total Price
Nozzle Tip 6 pcs. P5,520.00 33,120.00
Plunger & Barrel 6 pcs. 27,630.00 165,780.00
Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00
Cylinder Liner 1 set 477,000.00
10 | O B L I C O N _ C H A P T E R 2 C A S E S
TOTAL PRICE FOB P2,745,900.00

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.
Very truly yours,
(SGD) HENRY PAJARILLO
Sales Manager
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 cosigned by Jose Go, Jr., petitioner's vice-president,
and Henry Pajarillo. Quoted hereunder is the
pertinent portion of the purchase order:
Name of Description Qty. Amount
CYL. LINER M/E 1 SET P477,000.00
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
vicepresident, 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. 19 The 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, 38 withdrawn 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.
A: Supposed to be paid upon order. 40
Q: Why? Will you tell the court why you were not
able to confirm your order with your Japanese
supplier?
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.
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?
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, 45
respondent'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.
(Cathay Pacific Airways Ltd. v. Spouses

Vazquez, G.R. No. 150843, March 14, 2003)
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 CX905 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
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
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
DECISION
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 CX905, 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 rollon
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
P100,000.00 for each plaintiff;
amount
of
b)
Moral
damages
in
the
P2,000,000.00 for each plaintiff;
amount
of
c) Exemplary damages in the

P5,000,000.00 for each plaintiff;
amount
of
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 3 where
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.
upgrading, for it would mean a better

Vazquezes.
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
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
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.
(MERALCO v. Macabagdal-Ramoy, G.R. No.
158911, March 04, 2008)
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.
DECISION
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.
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).
The Regional Trial Court (RTC) of Quezon City,

Branch 81, accurately summarized the facts as
culled from the records, thus:
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.
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, 2C, 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. 3F), 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
In due time, the electric service connection of the

plaintiffs [herein respondents] was disconnected
(Exhibits D to G, with submarkings, pp. 86-87,
Record).
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
obligation unless he can show extenuating
circumstances, like proof of his exercise of due
diligence . . . or of the attendance 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
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 its provider 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,
Reyes, JJ., concur.
Nachura
and
(Areola v. Court of Appeals, G.R. No. 95641,

September 22, 1994)
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.
DECISION
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 petitionerinsured 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?
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.
(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?
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.
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
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-PABG-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 petitionerinsured'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 petitionerinsured 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 selfinterest 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.
(Tanguilig v. Court of Appeals, G.R. No.
117190, January 02, 1997)
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.
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
DECISION
BELLOSILLO, J p:
This case involves the proper interpretation of the
contract entered into between the parties.
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
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.
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
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
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.
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.
UNIT CONTRACT PRICE P87,000.00
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
One (1) lot Float valve.
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 Concreting materials foundation.

F. O. B. Laguna
Contract Price P60,000.00
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.
(Republic v. Luzon Stevedoring Corp., G.R.
No. L-21749, September 29, 1967)
EN BANC
[G.R. No. L-21749. September 29, 1967.]
REPUBLIC OF THE PHILIPPINES, plaintiffappellee, vs. LUZON STEVEDORING
CORPORATION, defendant-appellant.
The Solicitor General for the plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendantappellant.
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 AngloAmerican 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.
DECISION
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 defendantappellant, 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, L22236, 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 patrons to 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 defendantappellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ.,
concur.
(Far East Bank and Trust Co. v. Court of
Appeals, G.R. No. 108164, February 23,
1995)
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 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.
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; 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.
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."
DECISION
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
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 the common
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
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 excludes 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 preexisting contractual relation between the parties,
is called a quasi-delict and is governed by the

provisions of this Chapter.'
contract was breached through negligence of the

carriers employees." LLphil
"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.
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,
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
"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
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.
(Saludaga v. Far Eastern University, G.R. No.
179337, April 30, 2008)
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.
DECISION
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. 9889483 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 BUILTIN 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,
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 schoolstudent 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 thirdparty. 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 CAG.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. 9889483 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.

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(Pantaleon v.

group, Pantaleon asked the store clerk to cancel

"inconvenience, humiliation and embarrassment

negligence. Second, it ruled that respondent "had

the customer as creditor/obligee to act promptly

Both parties likewise presented evidence that the

The Court is convinced that defendants delay

Moral damages avail in cases of breach of

Mr. Jaurique further testified that there were no

(Barzaga v. Court of Appeals, G.R. No.

Franco L. Loyola for petitioners.

withheld by Boncales from petitioner when the

AMOUNT OF PECUNIARY LOSSES, BY THEIR

gave him and

This is Barzaga's story. On 21 December 1990, at

already there but the materials he purchased

On appeal, respondent Court of Appeals reversed

that Barzaga should have allowed his delivery

only on the twenty-third. It could not be ready for

While petitioner may have indeed suffered

(Lorenzo Shipping Corp. v. BJ Marthel

TOTAL PRICE FOB P2,745,900.00

The parties presented disparate accounts of what

accrued interest of P111,300 as of May 1991 and

petitioner prayed that it be allowed to sell the

WHEREFORE, the decision of the lower court is

extrajudicially demands from them the fulfillment

acts should be considered. 34 While this Court

modified the same. The parties were at liberty to

A: Supposed to be paid upon order. 40

The above declarations remain unassailed. Other

A: Because Lorenzo Shipping Corporation did not

Notably, petitioner was the one who caused the

essence as claimed by the appellee, they should

We, therefore, hold that in the subject contracts,

the final judgment of rescission is rendered when

(Cathay Pacific Airways Ltd. v. Spouses

First Class and their guests, in the Business Class;

award of moral damages and attorney's fees and

consulted first whether they wanted to avail

testified to by Mr. Robson, the First Class Section

must first establish his right to moral, temperate,

priority for upgrading of booking without any

they would not be allowed to take the flight.

In its answer, Cathay alleged that it is a practice

During the trial, Dr. Vazquez testified to support

retained counsel; and Mr. Robson. Yuen and

c) Exemplary damages in the

d) Attorney's fees and expenses of litigation in

Vazquezes, the Court of Appeals found it to have

contracting parties; (2) an object certain which is

upgrading, for it would mean a better

The only problem is the legal effect of the

We are not, however, convinced that the

bad faith in her failure to do so, even if that

Moral damages include physical suffering, mental

Article 2221 of the Civil Code provides:

The presiding judge of the lower court is enjoined

We adopt as our own this observation of the

NPC property in view of the fact that "the houses

The Regional Trial Court (RTC) of Quezon City,

Plaintiff Leoncio Ramoy testified that he and his

The evidence on record has established that in