G.R. No.

176917 August 4, 2009

CONTINENTAL CEMENT CORP., Petitioner,

vs.
FILIPINAS (PREFAB) SYSTEMS, INC., Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 176919

FILIPINAS (PREFAB) SYSTEMS, INC., Petitioner,

vs.
CONTINENTAL CEMENT CORP., Respondent.

DECISION

NACHURA, J.:

Before this Court are two Petitions for Review on Certiorari assailing the Court of Appeals Decision 1 dated October 20, 2006 and
Resolution2 dated March 6, 2007 in CA G.R. CV No. 71593.

The antecedents, as summarized by the Court of Appeals, are as follows:

x x x [P]laintiff-appellee Continental Cement Corporation (CCC) entered into a construction agreement with defendant-appellant Filipinas
Systems, Inc. (FILSYSTEMS) for the civil works construction for its Cement Plant Expansion Project at Bo. Bigte, Norzagaray, Bulacan for and
in consideration of 82,300,00.00 (sic). Under the contract, the period for the projects completion should be 300 days from 22 February 1993 or
up to 18 December 1993. However, on 3 September 1993, CCC filed an action for Specific Performance with TRO and/or Preliminary
Mandatory Injunction against FILSYSTEMS to prevent the latter from pulling out its equipment from the site and stopping the construction of
the project. While the suit was pending, the parties entered into a Compromise Agreement which was approved by the trial court on 14 October
1993. Among others, the said agreement provided for new terms and conditions of payment. Under Item No. 5 thereof, the civil works was to be
paid in cash, cement, crushed aggregates (sic) as well as steel bars. The agreement, particularly Item No. 6, also admitted that FILSYSTEMS has
109 days [from 6 October 1993 or actual resumption of work, exclusive of contract time extensions for accomplished and future changes] to
finish the project. And under item no. 7, the parties further agreed that all future change orders, additional works and construction bulletins shall
be implemented by FILSYSTEMS only after CCC and its architect sign and the two agree on the price which will be billed separately. The
change orders, additional works and construction bulletins already accomplished prior to the Compromise Agreement were supposed to be
reconciled and paid immediately.

Thereafter, FILSYSTEMS and CCC filed their separate Motions for Execution based on the aforementioned Compromise Agreement on, (sic) 1
and 14 September 1994, respectively.

Banking on items no. 5 and 7 of the Compromise Agreement, FILSYSTEMS claimed that CCC failed to release the cement and crushed
aggregates as per the agreed schedules annexed to the Compromise Agreement and to pay FILSYSTEMS subsequent billings also in the form
of cement. Aside from this claim, the latter also asked for the fifteen percent (15%) liquidated damages and five percent (5%) attorneys fees
computed from the original price.

On the other hand, CCC advanced that FILSYSTEMS failed to finish the project after one hundred nine (109) days as provided in Item no. 6 of
the same compromise agreement. As such, it similarly prays for the fifteen percent (15%) liquidated damages and five percent (5%) attorneys
fees.3

After trial, the RTC issued a Decision,4 the dispositive portion of which reads:

WHEREFORE, premises considered, finding that the defendant failed to perform its obligation under the Compromise Agreement dated October
4, 1993, without any justification, the plaintiffs expansion project on time or within the 109 calendar days, from October 6, 1993 to January 23,
1994, as agreed and without fault on plaintiffs part, this Court hereby orders said defendant to pay the plaintiff the following:

1. The sum of Twelve Million Three Hundred Forty Five Thousand Pesos (Php 12,345,000.00) in liquidated damages pursuant to the
Compromise Agreement;

2. The sum of Fifty Million Three Hundred Thirty Eight Thousand Two Hundred Twenty One Pesos and Sixty One Centavos (Php
50,338,221.61) for the cost of finishing plaintiffs expansion cement plant, pursuant to Article 1167 of the Civil Code; and

3. Four Million One Hundred Fifteen Thousand Pesos (Php 4,115,000.00) for attorneys fees, as provided for in the Compromise
Agreement.

4. Plus costs.

SO ORDERED.5
FILSYSTEMS appealed the Decision to the Court of Appeals. On October 20, 2006, the CA issued the assailed Decision, 6 the dispositive
portion of which reads:

WHEREFORE, the instant appeal is AFFIRMED with these MODIFICATIONS:

(1) Appellant FILSYSTEMS is hereby ordered to pay appellee CCC the following:

(a) The sum of Six Million One Hundred Seventy-Two Thousand Five Hundred Pesos (PhP6,172,500.00) as liquidated
damages; and

(b) The sum of Six Million Six Hundred Thousand Seven Hundred Twenty-Three Pesos and Thirty-Six Centavos
(PhP6,600,723.36) as the cost of finishing CCCs expansion cement plant;

and

(2) Appellee CCC is hereby ordered to pay appellant FILSYSTEMS the following:

(a) The sum of Ten Million Four Hundred Twenty Thousand One Hundred Sixty-One Pesos and Seventeen Centavos
(PhP10,420,161.17) as the amount still due the latter based on the parties (sic) reconciliatory talks;

(b) The sum of Seven Hundred Seventy-Seven Thousand Seven Hundred Thirty-Five Pesos (PhP777,735.00) as liquidated
damages.

SO ORDERED.7

The CA found CCC to have defaulted in the payment of its obligations. On the other hand, FILSYSTEMS not only incurred in delay in
performing its obligation but, in fact, failed to finish the project.

The CA held that, under the Compromise Agreement, CCC was to pay FILSYSTEMS 3.5 million in cement for change orders, additional
works, and construction bulletins, even as the parties failed to reconcile their accounts.

The CA, likewise, held that, while FILSYSTEMS agreed that CCC would pay in kind, the payment was not to be made in advance. Under the
Compromise Agreement, CCC was to deliver the delivery receipts only and not the cement. These delivery receipts were to be given in advance
to allow FILSYSTEMS to withdraw cement from CCCs plants, but always against the value equivalent to the completed or accomplished work.

The CA also found that FILSYSTEMS was in fact lagging behind in its work schedule. It said that CCCs delay was not a sufficient excuse for
FILSYSTEMS to incur in delay and not finish the project. According to the CA, FILSYSTEMS failed to explain how the delay in CCCs
payment contributed to its own delay.

On the other hand, the CA upheld FILSYSTEMS claim that it was entitled to time extension. However, it said that FILSYSTEMS could not
unilaterally claim the time extension in order to excuse itself or justify the delay in the project. As such, FILSYSTEMS is still liable for the
delay. Hence, the CA made a tempered application of the penalty clause of the Construction Contract. It reduced the liquidated damages awarded
by the trial court by half, bringing down FILSYSTEMS liability to 6,172,500.00.

The CA also found that FILSYSTEMS had completed 92.839% of the project, based on the testimony of CCCs own accounting manager, 8 and
is, therefore, entitled to 10,420,161.17. This also proves, the CA said, that payments by CCC to FILSYSTEMS were also delayed. Hence, the
CA held that CCC is liable to pay FILSYSTEMS 777,735.00 as liquidated damages.

The CA also modified the trial courts award of 50,338,221.61 in favor of CCC, which was allegedly the cost incurred when CCC hired another
contractor to finish the project. The CA said that the amount was glaringly disproportionate to the unfinished part of the project. Considering that
the unfinished work is equivalent only to 7.161% of the project, the amount FILSYSTEMS should pay must be correspondingly reduced to
6,600,723.36.

CCC then filed the first of the two petitions at bar.9 It assails the part of the CAs Decision holding that FILSYSTEMS is entitled to 3.5 million
in cement. It claims that the payment of that amount is still subject to final reconciliation of accomplished change orders, additional works, and
construction bulletins.10

It also argues that the CA erred in reducing the award of liquidated damages, stressing that time is of the essence in the Construction Contract,
and that FILSYSTEMS delay and total failure to complete the project is a clear breach of the Compromise Agreement and renders the essence
of time under the Construction Contract moot.11 Thus, CCC posits that it is entitled to the full amount of liquidated damages.12

CCC likewise disputes the finding that it incurred in delay in paying FILSYSTEMS. It avers that nowhere in the Compromise Agreement did it
admit that it was in delay; that the Compromise Agreement stated, in fact, that the balance it is to pay FILSYSTEMS would be due only after the
completion of the project, a condition never fulfilled because of the latters breach.13
Then, CCC assails the CAs finding that FILSYSTEMS had finished 92.839% of the project, since no evidence was adduced to this effect before
FILSYSTEMS was deemed in delay. Instead, CCC claims that it was able to show that, because FILSYSTEMS was unable to finish the project,
the former was compelled to contract C.E. Construction to complete the same. 14

Lastly, CCC questions the deletion of the award of attorneys fees. It argues that the Compromise Agreement provided that attorneys fees
equivalent to five percent of the total original contract price, plus change orders/additional works/construction bulletins, must be paid by the
aggrieved party to the guilty party. Because FILSYSTEMS breached its obligation under the Compromise Agreement, CCC submits that the trial
court correctly awarded it 4,115,000.00 in attorneys fees.15

Hence, CCC prays that this Court partially reverse the CA Decision and affirm the trial courts Decision in toto. 16

Meanwhile, FILSYSTEMS filed its own Petition for Review17 of the CA Decision.

FILSYSTEMS claims that the CA erroneously considered all infractions committed by CCC prior to the signing of the Compromise Agreement
to have been set aside by the said agreement. It points to the CAs failure to appreciate that the former was authorized to suspend work in the
event CCC defaulted in the payment of submitted progress billings; 18 thus, FILSYSTEMS was not in delay. On the contrary, it was CCC that
was in delay in the payment of FILSYSTEMS approved progress billings, prompting the latter to invoke its right to stop work in accordance
with Article V of the Construction Agreement. According to FILSYSTEMS, CCCs delay totaled 77 days; but the CA refused to grant
FILSYSTEMS the equivalent time extension, because the infraction occurred before the Compromise Agreement. 19

Next, FILSYSTEMS posits that the CA misconstrued the Construction Agreement to be on a "turn key" basis, which means that the contractor
would initially finance the completion of the project. FILSYSTEMS argues that the agreement was the regular type of construction agreement,
where the owner was obligated to pay the contractor periodically based on the percentage of completion of work. 20 FILSYSTEMS emphasized
that its refusal to continue working was due to CCCs failure to promptly pay the formers submitted/approved progress billings. 21

Thus, FILSYSTEMS prays for modification of the CA Decision and the deletion of all monetary awards in favor of CCC.22

The resolution of these cases calls for a re-examination of facts. While generally, the Court is not a trier of facts, a recognized exception thereto
is a situation where the findings of fact of the Court of Appeals and the trial court are conflicting. 23

Indeed, the most fundamental rule in the interpretation of contracts is that, if the terms are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of the contract provisions shall control. However, where some ambiguity exists, in order to determine the
intention of the parties, their contemporaneous and subsequent acts should be considered. 24

Thus, to resolve the question of default by the parties, we must re-examine the terms of the Construction Contract and the Compromise
Agreement.

We sustain the finding of the CA holding CCC to have incurred in default in its payments to FILSYSTEMS.

Records show that CCC admitted it was in default. FILSYSTEMS had already completed 44% of the work at the time the parties entered into a
Compromise Agreement. This means that, by the terms of the Construction Contract, FILSYSTEMS should have been paid 36,212,000.00.
However, CCC admitted having paid only 27,006,028.04. Hence, it still owed FILSYSTEMS 9,205,971.96. CCC also admitted that it owed
FILSYSTEMS 3.5 million in cement for accomplished change orders/additional works/construction bulletins.

Conversely, CCCs contention that FILSYSTEMS was in default is bereft of merit.

The right of FILSYSTEMS to stop work is recognized by CCC, as the Construction Contract provides:

ARTICLE V
PAYMENTS

Upon signing of this Contract, the OWNER shall pay the CONTRACTOR a downpayment of twenty six and four over one hundred percent
(26.4%) of the Contract Price. The downpayment shall be liquidated by the CONTRACTOR from his monthly progress billings.

Ten percent (10%) of each monthly progress payment shall be retained by the OWNER until fifty (50%) (sic) completion of the contract work.
No additional retention shall be made.

The OWNER shall make payment to the CONTRACTOR on account of this Contract thirty (30) days after submission of each progress billing
in consideration of the work accomplished by the CONTRACTOR less ten percent (10%) retention and Expanded Withholding Tax (One
percent of the gross amount of accomplishment).

As required by Philippine Law, the Contractors Expanded Withholding Tax withheld from each payment to the CONTRACTOR shall be
transmitted by the OWNER to the Bureau of Internal Revenue in favor of the CONTRACTORS TIN Account No. 391-412.

No payments shall be made unless payment requests are on the prescribed form and bear the approval of the Construction Manager of the
OWNER and concurred in by the ARCHITECT.
Should the OWNER be delayed in the payment of the monthly billings beyond five (5) days after it is due, the work schedule or timetable shall
be extended accordingly. If payment due is delayed for sixty (60) days, then the CONTRACTOR has the right to stop the work.25

In addition, in the Compromise Agreement, the parties recognized that the 109 days left in the original time frame was "exclusive of contract
time extensions for accomplished and future change orders, additional works and construction bulletins and whatever additional contract time
extensions provided in this Agreement and/or already earned or allowed under the original Construction Contract, dated January 23, 1993."26

Paragraph 6.b. of the Compromise Agreement is also instructive:

6.b. Defendant, on a best efforts basis and without prejudice to paragraph 6 above, shall finish the construction zones referred to in the
Construction Contract dated January 23, 1993 which shall be identified by the plaintiff as priority construction zones, taking into consideration
plaintiffs schedule of arrival of machineries and installation thereof on said zones.27

The Compromise Agreement must be interpreted as a whole. Its provisions must be construed collectively, and the meaning imputed to them
must give effect to all. As this Court has previously pronounced:

The intention of the contracting parties should be ascertained by looking at the words used to project their intention, that is, all the words, not
just a particular word or two or more words standing alone. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly. The parts and clauses must be interpreted in relation to one another to
give effect to the whole. The legal effect of a contract is to be determined from the whole read together. 28

Thus, FILSYSTEMS must be accorded the time extensions it is entitled to under the Compromise Agreement. As the CA correctly held, it would
go against the grain of equity and fair play to insist that FILSYSTEMS was limited to the non-extendible period of 109 days to complete the
project, as erroneously found by the trial court.29

Further, since CCC is in default, FILSYSTEMS is entitled to liquidated damages, pursuant to Paragraph 9 of the Compromise Agreement, which
states:

9. Should any party fail to comply with its obligation(s) as stipulated in this Compromise Agreement and/or violate any provisions of the
Construction Contract not otherwise amended, repealed and/or modified as aforestated, the aggrieved party shall be entitled to move for the
issuance by this Honorable Court of a writ of execution to enforce the provisions of this Compromise Agreement and/or the Compromise
Judgment to be rendered by the court based on this Compromise Agreement. In this connection, the guilty party hereby undertakes to pay the
aggrieved party additional liquidated damages in the amount equivalent to fifteen percent (15%) of the total original contract price of
82,300,000.00 and attorneys fees equivalent to five percent (5%) of the total original contract price plus change orders/additional
works/construction bulletins.30

However, we find that the CA erred in its computation of the liquidated damages CCC should pay FILSYSTEMS. In its Decision, the CA
computed the liquidated damages as follows:

The original cost of the project is Php82,300,000.00 while the additional works, as conceded by CCC (sic) 31 August 1994 letter, is
approximately 12% of the original project cost. Thus, the total project cost is PhP92,176,000.00. Considering that CCC was entitled to retain
10% of the first half of the construction cost, it was entitled to retain PhP4,608,800.00. Against the PhP10,420,161.17 CCC concededly owed
FILSYSTEMS, the latter was underpaid by Php5,811,361.17 or by 6.3% of the total project cost. As such, CCC must be made to 6.3% of the full
liquidated damages under the Compromise Agreement at PhP12,345,000.00. Hence, CCC is liable to pay FILSYSTEMS liquidated damages in
the amount of PhP777,735.00.31

This computation has no basis. The Compromise Agreement clearly stated that any liquidated damages due will be "fifteen percent (15%) of the
total original contract price of 82,300,000.00" regardless of any additional costs incurred by the parties. Thus, FILSYSTEMS is entitled to
12,345,000.00.

We likewise sustain the CAs decision holding CCC liable for P3.5 million in accomplished change orders and additional works.

Paragraph 7 of the Compromise Agreement reads in part:

x x x x It is understood that should the parties fail to reconcile the accomplished change orders, additional works and construction bulletins
within the 15-day period, just the same, plaintiff (CCC) shall immediately pay defendant the approximate amount of 3.5 Million in cement,
subject to final reconciliation not later than thirty (30) days from signing of this Agreement. x x x x

It is erroneous for CCC to claim that it is to pay the P3.5 million only after reconciliation. As the CA aptly held:

With this, CCC cannot simply dismiss the said 3.5 Million as being a mere "assigned value" for it is very clear that if the parties fail to
reconcile the accomplished additional works within fifteen (15) days from the signing of the Compromise Agreement, CCC must still pay the
said amount, which is the determined value of the change orders admitted in paragraphs 1 (a) and 7 of the Compromise Agreement. Thus, it is
incorrect for CCC to expect that it must first be billed and approved by CCC and CC Castro International before it can be required to pay for this
procedure applies to the subsequent additional works done after the signing of the Compromise Agreement.32

CCC itself recognized that it was liable to pay this amount to FILSYSTEMS in paragraph 1 (a) of the Compromise Agreement when it
acknowledged the latters accomplished change orders/additional works and construction bulletins in the approximate amount of 3.5 million.
Had it been the parties intention to make the payment subject to reconciliation, it would have been unnecessary to put the above-quoted portion
in paragraph 7 of the Compromise Agreement. The intent, to our mind, is simple, i.e., that even if there is no reconciliation within 15 days, CCC
will still pay "just the same" FILSYSTEMS 3.5 million in cement "subject to final reconciliation". The reconciliation will come after the
payment and not before.

FILSYSTEMS next argues that the CA erred in interpreting the Construction Contract as a "turn key" agreement 33and not a regular type of
construction agreement, where the owner is obligated to pay the contractor periodically based on percentage of completion, which, in this case,
would be within 30 days from submission of each billing progress.34

The CA based its conclusion on Article 1 (Scope of Work) of the contract, which reads in part:

That the CONTRACTOR, for and in consideration of the payment to be made by the CONTRACTOR of the sum of money hereinafter stated,
shall construct/perform and erect on a turnkey basis the following scope of work: x x x x 35

This denomination of the nature of the project notwithstanding, there is a specific provision in the agreement to the effect that the owner shall
pay the contractor "on account of this contract thirty (30) days after submission of each progress billing in consideration of the work
accomplished by the contractor less ten percent (10%) retention and Expanded Withholding Tax." 36 Further, that same article in the contract
provides that delay by CCC in the payment of the monthly billings beyond five days after they are due entitles FILSYSTEMS to an extension of
the work schedule. If the delay in payment extends to 60 days, FILSYSTEMS may then exercise the right to stop the work.37This was precisely
what FILSYSTEMS did. Thus, it cannot be said to have violated the terms of the contract.

Still, FILSYSTEMS cannot fully escape liability. It is a fact and FILSYSTEMS does not deny this that it failed to finish the project, in
contravention of its obligation under the Construction Contract and the Compromise Agreement.

The CA held that FILSYSTEMS failed to prove that the delay it incurred was attributable to CCCs failure to deliver the 3.5 million payment
in cement.38 It also held that FILSYSTEMS could not unilaterally declare or claim the time extensions in order to excuse itself or justify the
delay in the project.39

We agree with the CA.

FILSYSTEMS has not shown that it was CCCs delay that caused the former to fail to complete the project. On the contrary, it appears that
despite CCCs delays, FILSYSTEMS was able to accomplish 92.83% of the work. This proves that the completion of the project was not
entirely dependent on CCCs payment or prompt payment of its obligation. FILSYSTEMS failure to finish the project is, therefore,
unjustified. Accordingly, it must be held liable for the cost of completing the project. Article 1167 of the Civil Code provides:

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been
poorly done be undone.

We do not believe, however, that FILSYSTEMS should be made to pay the entire cost CCC paid to CE Construction, which finished the project.

It has been shown that at the time FILSYSTEMS stopped work, the project was 92.83% finished, although such work was accomplished beyond
the initial deadline of 23 January 1993. But, as already discussed above, FILSYSTEMS was entitled to time extensions equivalent to the delay in
the payment of its progress billings. Hence, FILSYSTEMS must be held liable only for the remaining 7.17% of the project. To make it answer
for more would unjustly enrich CCC, which has already benefited from the formers work.1awph!1

Finally, the issue of attorneys fees. We sustain the CAs deletion of the trial courts award thereof, because both parties failed to comply with
their obligations as stipulated in the Compromise Agreement.40

In sum, we hold that CCC defaulted in the payment of its obligation to FILSYSTEMS under the Compromise Agreement. On the other hand,
FILSYSTEMS was not in default; however, considering that it failed to perform the obligation incumbent upon it under the Compromise
Agreement, it must be held liable for the cost of completion of the unfinished portion of the project.

WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 176917 is DENIED for lack of merit, while the Petition in G.R. No.
176919 is PARTIALLY GRANTED. Accordingly, the Court of Appeals Decision dated October 20, 2006 in CA G.R. CV No. 71593 is hereby
PARTIALLY MODIFIED to read:

WHEREFORE, the instant appeal is AFFIRMED with MODIFICATIONS:

(1) Appellant FILSYSTEMS is hereby ordered to pay appellee CCC the sum of six Million Six hundred Thousand Seven Hundred
Twenty-Three Pesos and Thirty-Six Centavos (PhP6,600,723.36) as the cost of finishing CCCs expansion cement plant, plus legal
interest at the rate of 6% per annum from the time of the filing of CCCs Motion for Execution of the Compromise Agreement before
the trial court and, thereafter, at the rate of 12% from the finality of this Decision until the same is fully paid;

and
 (2) Appellee CCC is hereby ordered to pay appellant FILSYSTEMS the following:

(a) The sum of Ten Million Four Hundred Twenty Thousand One Hundred Sixty-One Pesos and Seventeen Centavos
(PhP10,420,161.17) as the amount still due the latter based on the parties reconciliatory talks, plus legal interest at the rate
of 6% per annum from the time of the filing of FILSYSTEMS Motion for Execution of the Compromise Agreement before
the trial court and, thereafter, at the rate of 12% from the finality of this Decision until the same is fully paid;

(b) The sum of Twelve Million Three Hundred Forty-Five Thousand Pesos (PhP12,345,000.00) as liquidated damages, plus
legal interest at the rate of 6% per annum from the time of the filing of FILSYSTEMS Motion for Execution of the
Compromise Agreement, before the trial court and, thereafter, at the rate of 12% from the finality of this Decision until the
same is fully paid.

SO ORDERED.

G.R. No. 119033 July 9, 2008

EK LEE STEEL WORKS CORPORATION, Petitioner,

vs.
MANILA CASTOR OIL CORPORATION, ROMY LIM, and THE COURT OF APPEALS, Respondents.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review1 of the Decision2 dated 7 February 1995 of the Court of Appeals in CA-G.R. CV No. 34743. The Court
of Appeals reversed the decision3 of the Regional Trial Court, Branch 123, Kalookan City in a collection suit filed by Ek Lee Steel Works
Corporation against Manila Castor Oil Corporation and Romy Lim.

The Antecedents

Ek Lee Steel Works Corporation (petitioner) is engaged in the construction business while Manila Castor Oil Corporation (respondent) claims to
be a pioneer in the castor oil industry with Romy Lim (Lim) as its President.

In November 1987, respondent contracted petitioner for the construction of respondents castor oil plant and office complex in Sasa, Davao City.
Petitioner agreed to undertake the construction of the following structures with their respective costs:

Project Price
I. Office Building (Building I) and Boiler Room 2,000,000
II. Concrete Fence 10-feet-high on three sides 283,6624
of the factory site
III. 20-meter x 52-meter Concrete Pavement 318,800
IV. 90,000-gallon Steel Oil Tank with Stand 472,500
V. 40-feet-high 10,000-gallon Water Tank 103,556.60
VI. Steel Oil Tank Foundation 175,650
VII. 40-ton Oil Tank 88,837

Under the seven letter-agreements, respondent would make various stipulated down payments upon approval of petitioners proposals.
The remaining balance of the contract prices was payable to petitioner through progress billings.

In April 1988, petitioner alleged that respondent verbally agreed to have another building (Building II-Warehouse) constructed on the project site
worth 349,249.25. Respondent denied the existence of this contract because it never approved such contract. Therefore, petitioner discontinued
its construction of Building II-Warehouse after finishing its foundation and two side walls.

On 16 May 1988, petitioner submitted a Statement of Account to respondent showing respondents accumulated payables totaling
764,466.5 Respondent paid 500,000 as shown in a letter of even date. In the same letter, respondent promised to pay certain amounts
thereafter upon the completion of specific portions of the project. The full text of the letter dated 16 May 1988 6 reads:

May 16, 1988

MR. DANNY ANG
General Manager
Ek Lee Steel Works Corp.
#171 5th St., 8th Avenue
Caloocan City, M.M.

SUBJECT: FIFTH PARTIAL PAYMENT OF 500,000.00

Dear Danny,

This is to confirm that upon payment of the subject above, the fifth (5) partial payment which represent 70.5% of the total project cost of 3.4
Million, you will have to accomplished [sic] all the contracted work by June 15, 1988, except the office building. Thereafter, we will pay you the
6th partial payment with the amount of 200,000.00. And upon the completion of the office building we will then pay you the amount of
460,000.00 which will represent 90% of the contracted work. As per the terms of our contract we will keep the 340,000.00 which represent
the 10% retention.

Yours truly,

R.T. LIM
President

Conforme:

Mr. Danny Ang

Date: signed

On 5 July 1988, respondent paid petitioner 70,000.

Sometime thereafter, petitioner allegedly demanded payment of respondents remaining balance, but to no avail. Hence, petitioner stopped its
construction in the project site. Thereafter, petitioner requested the Office of the City Engineer of Davao City to conduct an ocular inspection of
the project site to determine the percentage of its finished work. Engineer Demetrio C. Alindada of the Davao Engineering Office reported that
most of the scope of the work items were 100% completed.

On 4 November 1988, petitioner filed a collection suit against respondent and Lim, with an application for a writ of preliminary attachment. The
complaint prayed, among others, that respondent and Lim be held jointly and severally liable for the amount of 1,623,013.81 with interest.

In their answer filed on 23 December 1988, respondents jointly alleged, as an affirmative defense, that as of 16 May 1988, petitioner was already
in delay. They claimed that petitioner abandoned the project on 16 July 1988. Respondents further alleged that certain portions of the
construction work did not conform to the specifications agreed upon by the parties.1avvphi1

Then, on 8 May 1990, respondents filed a Supplemental Answer, alleging that sometime in July 1989, the 90,000-gallon capacity oil tank tilted
towards the sea resulting in the stoppage of respondents operations. Consequently, respondents were constrained to hire a contractor to remedy
the damage caused by the poor and substandard installation of the oil tank. Respondents prayed for the payment of surveyors fee, contractors
fee, operating expenses, and unrealized income during the shut-down period.

During the trial, respondents presented as evidence a Technical Verification Report submitted by Engineer Raul D. Moralizon to prove that the
project was incomplete and had no utility value at the time petitioner abandoned the project.

The Ruling of the Trial Court

The trial court ruled in favor of petitioner. The trial court held that petitioner was justified in abandoning its construction of the project. As of 5
July 1988, when respondent paid 70,000, petitioners billings reached 3,895,872.85, while payments totaled only 2,505,534, or short by
1,390,338.85, exclusive of other charges. Considering respondents non-payment of this remaining balance, petitioner was understandably
unwilling to proceed with the construction of the project. Respondents non-payment was a clear violation of the stipulated progress billings.

The trial court likewise noted petitioners request for an inspection from the Engineering Office of Davao City prior to the issuance of an
occupancy permit. The trial court declared that "no contractor who has unreasonably abandoned a job ever bothered itself making such a request;
an abandoning contractor just packs up and goes." In addition, the trial court found that respondent never reported the supposed "abandonment"
to the Engineering Office of Davao City. Neither did respondent send a notice or letter demanding the completion of the project. Had there been
abandonment, respondent would have filed a suit against petitioner.

On the "modifying" agreement dated 16 May 1988, the trial court found the parties diametrically-opposed versions equally true. Respondent
claimed that it gave petitioner an extension of the deadline until 15 June 1988. On the other hand, petitioner insisted that it gave respondent an
equivalent extension to raise enough funds to meet the accumulated bills. However, the trial court held that this particular agreement is not
crucial in this case.

The trial court also gave the Report of Engineer Demetrio C. Alindada of the Davao Engineering Office (Alindada Report) a higher probative
value than the Technical Verification Report submitted by respondents hired Civil Engineer, Raul D. Moralizon (Moralizon Report). The trial
court found the Moralizon Report self-serving. Based on the Alindada Report, most of the items contracted for construction were 100%
completed. Hence, the trial court applied Article 1234 of the Civil Code which states that "[i]f the obligation has been substantially performed in
good faith, the obligor may recover as though there had been a strict and complete fulfillment, less the damages suffered by the obligee."

The trial court disposed of the collection case, as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter, jointly and severally, as
follows:

1. To pay the plaintiff the amount of 1,426,176.45 with legal interest to be computed from the date of the filing of the complaint until
fully paid;

2. To pay the plaintiff the amount of 154,883.33 representing actual damages in the form of interest payment for loans;

3. To pay the amount of 100,000.00 as and for attorneys fees; and

4. Costs of the suit.

Defendants counterclaims are hereby dismissed for lack of merit.

SO ORDERED.7

The Ruling of the Court of Appeals

The Court of Appeals reversed the decision of the trial court. The appellate court ruled that the 16 May 1988 letter novated all the earlier
agreements between the parties. It held that the letter specified the scope of the remaining construction work, the amounts payable by
respondent, and the schedules for the completion of the remaining work and for the corresponding payments.

The Court of Appeals stated that petitioner was not entitled to further payments from respondent because petitioner failed to comply with its
obligation of finishing all the contracted work, except the office building, on 15 June 1988 as clearly stipulated in the 16 May 1988 letter.

The Court of Appeals found that the petitioners failure to complete the project rendered the same useless for the object which the parties had
intended it to be, specifically, an office, plant, and warehouse complex.

The Court of Appeals disagreed with the trial courts reliance on the Alindada Report. The appellate court stated that the Alindada Report should
rather have indicated the scope of work items enumerated in the parties seven letters-contracts and the percentage of work accomplished in each
of these items, instead of enumerating merely the scope of work items which Alindada found completed. The Alindada Report was therefore not
a reliable evidence in determining the percentage of accomplishment in the project.

The Court of Appeals went on to say that even assuming that Article 1234 of the Civil Code applies to this case, the trial court should have
correspondingly decreased the amount to be recovered by petitioner by the amount of damages suffered by respondent, as stated in the same
provision.

However, the Court of Appeals faulted respondent for the trial courts failure to correspondingly reduce the amount recoverable by petitioner.
There was no showing that respondent demanded that petitioner should finish the project; otherwise, respondent would hire another contractor to
complete it. Respondent did not report petitioners abandonment of the project to the Office of the Building Official of Davao City. Respondent
simply hired another contractor to complete the unfinished job left by petitioner. In addition, the building permits obtained for the supposed
continuation of the works indicated that they were for "new construction" instead of "addition," "repair," "renovation," or "others."

The Court of Appeals ordered petitioner to reimburse 70,000 as overpayment by respondent.

The dispositive portion of the Court of Appeals decision reads:

WHEREFORE, and for all the foregoing considerations, the Decision appealed from is hereby REVERSED and SET ASIDE, and another one
entered:

1. Dismissing the complaint;

2. Ordering the plaintiff:

(a) To reimburse the defendants the amount of 70,000.00;

(b) To pay defendant Manila Castor Oil Corporation the sum of 50,000.00 as damages for besmirched reputation;

(c) To pay defendant Romy Lim the amount of 50,000.00 for moral damages;
 (d) To pay defendants their attorneys fees in the amount of 10,000.00.

With costs in this instance against the plaintiff-appellee.

SO ORDERED.8

Hence, this petition.

The Issues

The issues in this case are:

1. Whether the 16 May 1988 letter novated the previous agreements of the parties;

2. Whether petitioner can validly collect from respondent the remaining balance of the total contract price;

3. Whether respondent is entitled to 70,000 allegedly as overpayment; and

4. Whether Lim is solidarily liable to petitioner for the alleged remaining balance.

The Ruling of the Court

The petition has no merit.

The resolution of the issues in this case requires a re-examination of the evidence presented by the contending parties during the trial. Generally,
the Court does not resolve questions of facts. However, this rule admits of several exceptions. The instant case falls under one of the recognized
exceptions, which is, when the findings of facts of the trial court and the Court of Appeals are conflicting. 9 Therefore, a review of the facts and
the pieces of evidence is proper.

We shall discuss jointly the first two issues as they are interrelated.

Respondent contends that the 16 May 1988 letter novated the parties previous agreements, thereby scrapping the system of progress billings.
Respondent posits that its obligation to pay petitioner the remaining balance of the contract price arises only upon the completion of the entire
project, except the office building, on 15 June 1988, pursuant to the terms of the 16 May 1988 letter. Since petitioner failed to finish this portion
of the project on 15 June 1988, its claim is not yet due and demandable.

The Court finds no novation of the previous agreements between the parties considering that the 16 May 1988 letter did not expressly extinguish
the parties obligations under their previous contracts. On the contrary, it expressly recognized the parties reciprocal obligations.10

It must be pointed out that as of 16 May 1988, respondents accumulated payables reached 764,466, but only 500,000 was paid. Respondent
was therefore not up to date with its payments. Petitioner, on the other hand, was behind schedule in its construction work because the project
should be fully operational by April 1988.11

To remedy the situation, the 16 May 1988 letter fixed a period for the completion of the other structures of the project, except the office
building.12 Petitioner was given a month to finish this portion of the project and the records show that it was aware of this deadline. Danny Ang
testified on this matter.

ATTY. GUNO

Can you stipulate as manifested by counsel then the new deadline for all the project on [sic] June 15 as indicated in the contract.

ATTY. SALVADOR

It is stated here in Exhibit 1, the complaint [sic] here has to finish not later June 15 of 1988.

ATTY. GUNO

We agree on that.

Q: And you were also informed by the defendants that they had to be operated [sic] by April 1988?

A: Yes, sir.13

At the same time, the 16 May 1988 letter specified the amounts still payable to petitioner conditioned upon the accomplishment of certain
portions of the project. The amount of 200,000 was payable on 15 June 1988 if petitioner finished the project, excluding the office building;
and 460,000 was payable after the completion of the office building. Thus, while the 16 May 1988 letter did not extinguish the parties
obligations under their previous contracts, it modified the manner of payment from the system of progress billings to a specific schedule of
payments.

The question now is whether petitioner complied with its obligation of finishing the project, except the office building, on 15 June 1988 to be
entitled to 200,000.

Contrary to petitioners claim of project completion, there is sufficient evidence on record showing peitioners failure to finish the project on 15
June 1988. Petitioner admitted in its complaint that Contracts I and III "failed to reach full accomplishment": Contract I 97% for Building I,
95% for Office Building, and 99% for Boiler Room, and Contract III 90%.14

The photographs15 presented by respondent show various areas of the construction which were not completed. Danny Ang, petitioners General
Manager, confirmed on the witness stand that the images in the photographs showed the incomplete status of the project, thus:

Q: Now Mr. Witness please tell us the date when you left the job site or you pulled out of the job site?

A: It could be in July 1988, sir.

Q: And during the direct testimony last July 17 you testified that the pictures attached in the answer of the defendants were the pictures
of unfinished portion of the project, is that correct?

A: Yes, sir.

Q: And these are the pictures after you had pulled out of the job site?

A: Yes, sir.

Q: These are the pictures on July 1988 when you pulled out of the construction?

A: I dont know when those pictures...

xxx

Q: Please tell us if these are the pictures?

A: This is the picture of the project which we were not able to finish, sir.16 (Emphasis supplied)

Further, the Moralizon Report found deficiencies in three construction contracts and concluded that petitioner abandoned the project.
Significantly, petitioner did not rebut the Moralizon Report.

Petitioner relied on the Alindada Report to support its claim of completion. The Alindada Report concluded that almost all the work items are
100% completed and that only two pieces of steel sliding doors in Building I were not yet installed.17 However, petitioners admissions and
respondents evidences clearly contradict the Alindada Report. This contradiction effectively destroyed the disputable presumption of the regular
issuance of the Alindada Report.18

The fact that the building permits obtained by respondent after petitioner stopped its construction were for "new construction" instead of
"addition," "repair," "renovation," or "others" does not conclusively prove that petitioner finished the project.

Considering the foregoing, there is no doubt that petitioner failed to comply with its undertaking to complete the project, except the office
building, on 15 June 1988. Consequently, respondents obligation to pay the 200,000 did not arise. Respondent could not be considered in
delay when it failed to pay petitioner at that time. According to the last paragraph of Article 1169 of the Civil Code, "[i]n reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins."

Furthermore, the loss of the probative value of the Alindada Report due to petitioners admissions and respondents unrefuted evidences, as
discussed above, renders petitioners claim for the remaining balance of the contract price unsubstantiated. Without any corroborating evidence,
petitioners allegations are plainly without weight. The plaintiff must rely on the strength of its own evidence and not upon the weakness of that
of the defendants.19 Hence, for its failure to discharge the burden of proof20 required in this case,21 petitioners complaint must be dismissed.

As regards the reimbursement of 70,000, suffice it to state that this figure was never specifically pleaded as an overpayment in the answer filed
by respondent before the trial court. Therefore, wanting any basis, the Court of Appeals erred in ordering the return of this particular amount to
respondent.

The foregoing discussion renders unnecessary the resolution of the last issue raised by petitioner.
WHEREFORE, we DENY the petition. We MODIFY the assailed Decision of the Court of Appeals by deleting the reimbursement of 70,000
in favor of respondent Manila Castor Oil Corporation. Costs against petitioner.

SO ORDERED.

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.:

This Petition for Review on Certiorari1 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

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.6Meanwhile, 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 Complaint7 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

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.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of which provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby REVERSED and SET ASIDE.
The complaint filed by Joseph Saludaga against appellant Far Eastern University and its President in Civil Case No. 98-89483 is
DISMISSED.

SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the following grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND JURISPRUDENCE IN RULING
THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

 5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A GUNSHOT WOUND
SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR OWN SECURITY GUARD IN
VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT
THAT TIME, TO PROVIDE HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, 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

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.

xxxx

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:

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

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; 16and 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.

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.

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

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.

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.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is reasonable in view of Article 2208 of the
Civil Code.25 However, the award of exemplary damages is deleted considering the absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton 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

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus should not be held solidarily liable with
respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-student contract, petitioner, in the alternative, also
holds respondents vicariously liable under Article 2180 of the Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.

xxxx

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.

xxxx
 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.

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.

xxxx

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:

The third-party complaint is, therefore, a procedural device whereby a 'third party' who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to
enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it
not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter
arising from one particular set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of petitioner's complaint. Evidence
duly supports the findings of the trial court that Galaxy is negligent not only in the selection of its employees but also in their supervision.
Indeed, no administrative sanction was imposed against Rosete despite the shooting incident; moreover, he was even allowed to go on leave of
absence which led eventually to his disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary assistance, other
than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse petitioner's medical expenses.

For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter's breach of
obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts
awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the
security agency. It was Imperial who assured petitioner that his medical expenses will be shouldered by Galaxy but said representations were not
fulfilled because they presumed that petitioner and his family were no longer interested in filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 87050 nullifying the
Decision of the trial court and dismissing the complaint as well as the August 23, 2007 Resolution denying the Motion for Reconsideration
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding
respondent FEU liable for damages for breach of its obligation to provide students with a safe and secure learning atmosphere,
is AFFIRMED with the following MODIFICATIONS:

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 ORDEREDto jointly and severally pay
respondent FEU damages equivalent to the above-mentioned amounts awarded to petitioner.

SO ORDERED.

G.R. No. 108129 September 23, 1999

AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner,

vs.
COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.

QUISUMBING, J.:

This petition for review assails the Decision 1 dated August 19, 1992, of the Court of Appeals, which set aside the judgment of the Regional
Trial Court of Pasig, Branch 151. The case stemmed from a complaint filed by the buyer (herein petitioner) against the seller (private
respondent) for alleged breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and instead found
petitioner guilty of delay and therefore liable for damages, as follows:

WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the complaint with costs
against the plaintiff (herein petitioner) and, on the counterclaim, ordering the plaintiff Aerospace Chemical Industries, Inc. to
pay the defendant, Philippine Phosphate Fertilizer Corporation the sum of P324,516.63 representing the balance of the
maintenance cost and tank rental charges incurred by the defendant for the failure of the plaintiff to haul the rest of the rest
of the sulfuric acid on the designated date.

Costs against plaintiff-appellee. 2

As gleaned from the records, the following are the antecedents:

On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private
respondent Philippine Phosphate Fertilizer Corporation (Philphos). The contract 3 was in letter-form as follows:

27 June 1986

AEROSPACE INDUSTRIES INC.

203 E. Fernandez St.

San Juan, Metro Manila

Attention: Mr. Melecio Hernandez

Manager

Subject : Sulfuric Acid Shipment

Gentlemen:

This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms and conditions:

A. Commodity : Sulfuric Acid in Bulk

B. Concentration : 98-99% H2SO4

C. Quantity : 500 MT-100 MT Ex-Basay

400 MT Ex-Sangi

D. Price : US$ 50.00/MT-FOB Cotcot,

 Basay, Negros Or.

US$ 54.00/MT-FOB Sangi, Cebu

E. Payment : Cash in Philippine currency

payable to Philippine Phosphate

Fertilizer Corp. (MAKATI) at

PCIB selling rate at the time of

payment at least five (5) days prior

to shipment date.

F. Shipping Conditions

1. Laycan : July

2. Load port : Cotcot, Basay, Negros Or. and

Atlas Pier, Sangi, Cebu

xxx xxx xxx

11. Other terms and Conditions: To be mutually agreed upon.

Very truly yours,

Philippine Phosphate Fertilizer Corp.

Signed: Herman J. Rustia

Sr. Manager, Materials & Logistics

CONFORME:

AEROSPACE INDUSTRIES, INC.

Signed: Mr. Melecio Hernandez

Manager

Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days
prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondent's
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while
the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.

On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the sulfuric acid purchased at Basay because private
respondent had been incurring incremental expense of two thousand (P2,000.00) pesos for each day of delay in shipment.

On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty (P553,280.00) pesos for 500 MT of sulfuric acid.

On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head Services. The vessel was assigned to carry the
agreed volumes of freight from designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said
vessel heavily tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter, the vessel underwent repairs.

In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve the remaining sulfuric acid in Basay tanks so that
said tanks could be emptied on or before December 15, 1986. Private respondent said that it would charge petitioner the storage and
consequential costs for the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted.
Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December
17, 1986 and January 2, 1987, attested to these occurrences.

Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board.1wphi1.nt

Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT. 6 On January 26 and March 20, 1987, Melecio
Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken
purchases, which letters are hereunder excerpted:

January 26, 1987

xxx xxx xxx

We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the balance approximately
272.49 MT.

We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and we are willing to pay the
additional order at the prevailing market price, provided the lifting of the total 500 MT be centered/confined to only one safe
berth which is Atlas Pier, Sangi, Cebu. 7

March 20, 1987

This refers to the remaining balance of the above product quantity which were not loaded to the authorized cargo vessel,
M/T Sultan Kayumanggi at your load port Sangi, Toledo City.

Please be advised that we will be getting the above product quantity within the month of April 1987 and we are arranging for
a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49 MT an additional product quantity thereof of
227.51 MT. 8

Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private respondent.

On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10 to private respondent for the delivery of the 272.49
MT of sulfuric acid paid by his client, or the return of the purchase price of three hundred seven thousand five hundred thirty (P307,530.00)
pesos. Private respondent in reply, 11 on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric acid from Basay, or pay
maintenance and storage expenses commencing August 1, 1986.

On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of 272.49 MT and an additional of 227.51 MT of
sulfuric acid. According to petitioner it had paid the chartered vessel for the full capacity of 500 MT, stating that:

With regard to our balance of sulfuric acid product at your shore tank/plant for 272.49 metric ton that was left by M/T
Sultana Kayumanggi due to her sinking, we request for an additional quantity of 227.51 metric ton of sulfuric acid, 98%
concentration.

The additional quantity is requested in order to complete the shipment, as the chartered vessel schedule to lift the high grade
sulfuric acid product is contracted for her full capacity/load which is 500 metric tons more or less.

We are willing to pay the additional quantity 227.51 metric tons high grade sulfuric acid in the prevailing price of the said
product. 12

xxx xxx xxx

By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get its additional order of 227.51 MT of sulfuric acid at
Isabel, Leyte. 13 Belen relayed the information to his associate, Herman Rustia, the Senior Manager for Imports and International Sales of private
respondent. In a letter dated July 22, 1988, Rustia replied:

Subject: Sulfuric Acid Ex-Isabel

Gentlemen:

Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot accommodate your request to lift
Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed arrival of imported Sulfuric Acid from Japan. 14

On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for the delivery of the purchases remaining, or suffer
tedious legal action his client would commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the Regional Trial Court of Pasig, Branch 151.
Private respondent filed its answer with counterclaim, stating that it was the petitioner who was remiss in the performance of its obligation in
arranging the shipping requirements of its purchases and, as a consequence, should pay damages as computed below:

Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00

Less Shipments

70.009 MT sulfuric acid P72,830.36

151.51 MT sulfuric acid 176,966.27 (249,796.63)

Balance P303,483.37

Less Charges

Basay Maintenance Expense

from Aug. 15 to Dec. 15, 1986

(P2,000.00/day x 122 days) P244,000.00

Sangi Tank Rental

from Aug. 15, 1986 to Aug. 15, 1987

(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)

Receivable/Counterclaim (P324,516.63)

===========

Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioner's favor, disposing as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the latter to pay the former
the following sums:

1. P306,060.77 representing the value of the undelivered 272.49 metric tons of sulfuric acid plaintiff
paid to defendant;

2. P91,818.23 representing unrealized profits, both items with 12% interest per annumfrom May 4,
1989, when the complaint was filed until fully paid;

3. P30,000.00 as exemplary damages; and

4. P30,000.00 as attorney's fees and litigation expenses, both last items also with 12% interest per
annum from date hereof until fully paid.

Defendant's counterclaims are hereby dismissed for lack of merit.

Costs against defendant. 15

In finding for

the petitioner, the trial court held that the petitioner was absolved in its obligation to pick-up the remaining sulfuric acid because its failure was
due to force majeure. According to the trial court, it was private respondent who committed a breach of contract when it failed to accommodate
the additional order of the petitioner, to replace those that sank in the sea, thus:

To begin with, even if we assume that it is incumbent upon the plaintiff to "lift" the sulfuric acid it ordered from defendant,
the fact that force majeure intervened when the vessel which was previouly (sic) listing, but which the parties, including a
 representative of the defendant, did not mind, sunk, has the effect of absolving plaintiff from "lifting" the sulfuric acid at the
designated load port. But even assuming the plaintiff cannot be held entirely blameless, the allegation that plaintiff agreed to
a payment of a 2,000-peso incremental expenses per day to defendant for delayed "lifting has not been proven." . . .

Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second additional order after the
transaction in litigation? Why also, did defendant not send plaintiff statements of account until after 3 years?

All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods which the latter did
not actually receive. 16

On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as follows:

Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation to withdraw the full
amount of 500 MT of sulfuric acid from the defendant's loadport at Basay and Sangi on or before August 15, 1986. As early
as August 6, 1986 it had been accordingly warned by the defendant that any delay in the hauling of the commodity would
mean expenses on the part of the defendant amounting to P2,000.00 a day. The plaintiff sent its vessel, the "M/T Sultan
Kayumanggi", only on November 19, 1987. The vessel, however; was not capable of loading the entire 500 MT and in fact,
with its load of only 227.519 MT, it sank.

Contrary to the position of the trial court, the sinking of the "M/T Sultan Kayumanggi" did not absolve the plaintiff from its
obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It was the plaintiff's duty to charter another
vessel for the purpose. It did contract for the services of a new vessel, the "M/T Don Victor", but did not want to lift the
balance of 272.481

MT only but insisted that its additional order of 227.51 MT be also given by the defendant to complete 500 MT. apparently
so that the vessel may be availed of in its full capacity.

xxx xxx xxx

We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only for the cost of the
sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as well as exemplary damages and
attorney's fees. 17

Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of its obligation. It dismissed the complaint
of petitioner and ordered it to pay damages representing the counterclaim of private respondent.

The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution dated December 21, 1992, for lack of merit.

Petitioner now comes before us, assigning the following errors:

I.

RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO HAVE

COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER PAID IN FULL THE
VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE RESPONDENT BUT THE LATTER WAS ABLE TO
DELIVER TO PETITIONER ONLY 227.51 M.T.

II.

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE FOR DAMAGES TO
PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN ALLEGED AGREEMENT TO HOLD
PETITIONER LIABLE FOR DAMAGES FOR THE DELAY WHEN PRIVATE RESPONDENT FAILED TO PRODUCE
THE ORIGINAL IN CONTRAVENTION OF THE RULES ON EVIDENCE.

III.

RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED FACTS THAT
PETITIONER'S PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE RESPONDENT WITHOUT ANY
QUALIFICATION AND THAT PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT TO SUPPLY
PETITIONER 227.519 MT OF SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF
THAT ANY DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.

IV.

RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN THE SALE
INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE AND MAINTENANCE ARE
FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL CODE).
 V.

RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR PETITIONER

AFFIRMING THE DECISION OF THE TRIAL COURT.

From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows:

1. Did the respondent court err in holding that the petitioner committed breach of contract, considering
that:

a) the petitioner allegedly paid the full value of its purchases, yet received only a
portion of said purchases?

b) petitioner and private respondent allegedly had also agreed for the purchase and
supply of an additional 227.519 MT of sulfuric acid, hence prior delay, if any, had
been waived?

2. Did the respondent court err in awarding damages to private respondent?

3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric
acid, be on seller's account pursuant to Article 1504 of the Civil Code?

To resolve these issues, petitioner urges us to review factual findings of respondent court and its conclusion that the petitioner was guilty of
delay in the performance of its obligation. According to petitioner, that conclusion is contrary to the factual evidence. It adds that respondent
court disregarded the rule that findings of the trial court are given weight, with the highest degree of respect. Claiming that respondent court's
findings conflict with those of the trial court, petitioner prays that the trial court's findings be upheld over those of the appellate court.

Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal thereof, or on October 3, 1986, hence, it had
complied with the primary condition set in the sales contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to
a storm, a force majeure, which sank the vessel. It thus claims exemption from liability to pay damages. Petitioner also contends that it was
actually the private respondent's shipping officer, who advised petitioner to buy the additional 227.51 MT of sulfuric acid, so as to fully utilize
the capacity of the vessel it chartered. Petitioner insists that when its ship was ready to pick-up the remaining balance of 272.49 MT of sulfuric
acid, private respondent could not comply with the contract commitment due to "pyrite limitation."

While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of the trial court, 18 this Court may review
those findings, we find the appellate court's conclusion that petitioner violated the subject contract amply supported by preponderant evidence.
Petitioner's claim was predicated merely on the allegations of its employee, Melecio Hernandez, that the storm or force majeure caused the
petitioner's delay and failure to lift the cargo of sulfuric acid at the designated loadports. In contrast, the appellate court discounted Hernandez'
assertions. For on record, the storm was not the proximate cause of petitioner's failure to transport its purchases on time. The survey report
submitted by a third party surveyor, SGS Far East Limited, revealed that the vessel, which was unstable, was incapable of carrying the full load
of sulfuric acid. Note that there was a premature termination of loading in Basay, Negros Oriental. The vessel had to undergo several repairs
before continuing its voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still failed to carry the whole lot of 500
MT of sulfuric acid due to ship defects like listing to one side. Its unfortunate sinking was not due to force majeure. It sunk because it was, based
on SGS survey report, unstable and unseaworthy.

Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros Oriental, elucidated this point:

Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was temporarily stopped by the
vessel's master due to ships stability was heavily tilted to port side, ship's had tried to transfer the loaded acid to stbdside but
failed to do so, due to their auxiliary pump on board does not work out for acid.

xxx xxx xxx

Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel Declared quantity
loaded onboard based on data's provided by PHILPHOS representative.

On November 26, two representative of shipping company arrived Basay to assist the situation, at 1300Hrs repairing and/or
welding of tank number 5 started at 1000Hrs November 27, repairing and/or welding was suspended due to the explosion of
tank no. 5. Explosion ripped about two feet of the double bottom tank.

November 27 up to date no progress of said vessel. 19

While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report therein noted:
 Declared quantity loaded on board was based on shore tank withdrawal due to ship's incomplete tank calibration table. Barge
displacement cannot be applied due to ship was listing to Stboard side which has been loaded with rocks to control her
stability. 20

These two vital pieces of information were totally ignored by trial court. The appellate court correctly took these into account, significantly. As
to the weather condition in Basay, the appellate court accepted surveyor Rabe's testimony, thus:

Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the loading
operation of sulfuric acid on board the Sultana Kayumanggi?

A. Fair, sir. 21

Since the third party surveyor was neither petitioner's nor private respondent's employee, his professional report should carry more weight than
that of Melecio Hernandez, an employee of petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping
requirements of the cargo from the private respondent's loadports to the petitioner's designated warehouse. It was petitioner which chartered M/T
Sultan Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was
incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy vessel. However, despite repeated demands,
petitioner did not comply seasonably.

Additionally, petitioner claims that private respondent's employee, Gil Belen, had recommended to petitioner to fully utilize the vessel, hence
petitioner's request for additional order to complete the vessel's 500 MT capacity. This claim has no probative pertinence nor solid basis. A party
who asserts that a contract of sale has been changed or modified has the burden of proving the change or modification by clear and convincing
evidence. 22 Repeated requests and additional orders were contained in petitioner's letters to private respondent. In contrast, Belen's alleged
action was only verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity could redound to petitioner's
advantage, not the other party's. If additional orders were at the instance of private respondent, the same must be properly proved together with
its relevance to the question of delay. Settled is the principle in law that proof of verbal agreements offered to vary the terms of written
agreements is inadmissible, under the parol evidence rule. 23 Belen's purported recommendation could not be taken at face value and, obviously,
cannot excuse petitioner's default.

Respondent court found petitioner's default unjustified, and on this conclusion we agree:

It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance of the original 500
MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as early as August 15, 1986. What the
defendant could not sell to the plaintiff was the additional 227.51 MT which said plaintiff was ordering, for the reason that
the defendant was short of the supply needed. The defendant, however, had no obligation to agree to this additional order
and may not be faulted for its inability to meet the said additional requirements of the plaintiff. And the defendant's
incapacity to agree to the delivery of another 227.51 MT is not a legal justification for the plaintiffs refusal to lift the
remaining 272.481.

It is clear from the plaintiff's letters to the defendant that it wanted to send the "M/T Don Victor" only if the defendant would
confirm that it was ready to deliver 500 MT. Because the defendant could not sell another 227.51 MT to the plaintiff, the
latter did not send a new vessel to pick up the balance of the 500 MT originally contracted for by the parties. This, inspite the
representations made by the defendant for the hauling thereof as scheduled and its reminders that any expenses for the delay
would be for the account of the plaintiff. 24

We are therefore constrained to declare that the respondent court did not err when it absolved private respondent from any breach of contract.

Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified delay in the performance of its obligation
under the contract. Where there has been breach of contract by the buyer, the seller has a right of action for damages. Following this rule, a cause
of action of the seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to remove them. 25 Article 1170
of the Civil Code provides:

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.

Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. 26 Art. 1169
states:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.

In order that the debtor may be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. 27

In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed, otherwise petitioner would be charged for
the consequential damages owing to any delay. As stated in private respondent's letter to petitioner, dated December 12, 1986:
 Subject: M/T "KAYUMANGGI"

Gentlemen:

This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986 regarding your sulfuric acid
vessel, M/T "KAYUMANGGI".

As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th December 1986 as we are
expecting the arrival of our chartered vessel purportedly to haul our equipments and all other remaining assets in Basay. This
includes our sulfuric acid tanks. We regret, therefore, that if these tanks are not emptied on or before the 15th of
December, we either have to charge you for the tanks waiting time at Basay and its consequential costs (i.e. chartering of
another vessel for its second pick-up at Basay, handling, etc.) as well as all other incremental costs on account of the
protracted loading delay. 28 (Emphasis supplied)

Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such delay begin? The above letter constitutes
private respondent's extrajudicial demand for the petitioner to fulfill its obligation, and its dateline is significant. Given its date, however, we
cannot sustain the finding of the respondent court that petitioner's delay started on August 6, 1986. The Court of Appeals had relied on private
respondent's earlier letter to petitioner of that date for computing the commencement of delay. But as averred by petitioner, said letter of August
6th is not a categorical demand. What it showed was a mere statement of fact, that "[F]for your information any delay in Sulfuric Acid
withdrawal shall cost us incremental expenses of P2,000.00 per day." Noteworthy, private respondent accepted the full payment by petitioner for
purchases on October 3, 1986, without qualification, long after the August 6th letter. In contrast to the August 6th letter, that of December 12th
was a categorical demand.

Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the remaining stocks in Sangi, Cebu. A period of
three days appears to us reasonable for a vessel to travel between Basay and Sangi. Logically, the computation of damages arising from the
shipping delay would then have to be from December 15, 1986, given said reasonable period after the December 12th letter. More important,
private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred before December 15, 1986, were
necessary and regular business expenses for which the petitioner should not be obliged to pay.

Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August 31, 1987, solely for petitioner's sulfuric acid.
It stands to reason that petitioner should reimburse private respondent's rental expenses of P32,000 monthly, commencing December 15, 1986,
up to August 31, 1987, the period of the extended lease. Note further that there is nothing on record refuting the amount of expenses abovecited.
Private respondent presented in court two supporting documents: first, the lease agreement pertaining to the equipment, and second a letter dated
June 15, 1987, sent by Atlas Fertilizer Corporation to private respondent representing the rental charges incurred. Private respondent is entitled
to recover the payment for these charges. It should be reimbursed the amount of two hundred seventy two thousand
(P272,000.00) 29 pesos, corresponding to the total amount of rentals from December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage
tank.

Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the
preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondent's account
until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is
still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil
Code clearly states:

Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when
the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or
not, except that:

xxx xxx xxx

(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the
party at fault. (emphasis supplied)

On this score, we quote with approval the findings of the appellate court, thus:

. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said
expenses for failure to lift the commodity for an unreasonable length of time.

But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable
for the damages sought by the defendant.

Art. 1170 of the Civil Code provides:

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.
 Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its obligation to lift the
sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-contract with the defendant. 30

As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial demand by requiring petitioner to
lift the cargo at its designated loadports. When petitioner failed to comply with its obligations under the contract it became liable for its
shortcomings. Petitioner is indubitably liable for proven damages.

Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the amount of three hundred three thousand, four
hundred eighty three pesos and thirty seven centavos (P303,483.37), it is proper to set-off this amount against the rental expenses initially paid
by private respondent. It is worth noting that the adjustment and allowance of private respondent's counterclaim or set-off in the present action,
rather than by another independent action, is encouraged by the law. Such practice serves to avoid circuitry of action, multiplicity of suits,
inconvenience, expense, and unwarranted consumption of the court's time. 31 The trend of judicial decisions is toward a liberal extension of the
right to avail of counterclaims or set-offs. 32 The rules on counterclaims are designed to achieve the disposition of a whole controversy involving
the conflicting claims of interested parties at one time and in one action, provided all parties can be brought before the court and the matter
decided without prejudicing the right of any party. 33 Set-off in this case is proper and reasonable. It involves deducting P272,000.00 (rentals)
from P303,483.37 (advance payment), which will leave the amount of P31,483.37 refundable to petitioner.

WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA G.R. CV No. 33802 is AFFIRMED, with
MODIFICATION that the amount of damages awarded in favor of private respondent is REDUCED to Two hundred seventy two thousand
pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET against petitioner's advance payment of Three hundred
three thousand four hundred eighty three pesos and thirty-seven centavos (P303,483.37) representing the price of the 272.481 MT of sulfuric
acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and thirty seven centavos
(P31,483.37) be RETURNED soonest by private respondent to herein petitioner.1wphi1.nt

Costs against the petitioner.

SO ORDERED.

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.:

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 Resolution3 dated July 1, 2003, denying petitioner's motion for reconsideration, be reversed and set aside.

The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized the facts as culled from the records, thus:

The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed with the MTC Quezon City a case for
ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the defendants in the ejectment case
was Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989 after the defendants failed to file an answer in spite of summons
duly served, the MTC Branch 36, Quezon City rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or
remove the building and structures they built on the land of the plaintiff and to vacate the premises." In the case of Leoncio Ramoy, the Court
found that he was occupying a portion of Lot No. 72-B-2-B with the exact location of his apartments indicated and encircled in the location map
as No. 7. A copy of the decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131, Record; TSN, July 2, 1993, p. 5).

On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric power supply to all residential and commercial
establishments beneath the NPC transmission lines along Baesa, Quezon City (Exh. 7, p. 143, Record). Attached to the letter was a list of
establishments affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After
deliberating on NPC's letter, Meralco decided to comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of
disconnection to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde Macabagdal
(Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).

In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine all the establishments which are considered under NPC
property in view of the fact that "the houses in the area are very close to each other" (Exh. 12). Shortly thereafter, a joint survey was conducted
and the NPC personnel pointed out the electric meters to be disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected (Exhibits D to G, with submarkings, pp. 86-
87, Record).

Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by TCT No. 326346, a portion of
which was occupied by plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado as lessees. When the Meralco employees
were disconnecting plaintiffs' power connection, plaintiff Leoncio Ramoy objected by informing the Meralco foreman that his property was
outside the NPC property and pointing out the monuments showing the boundaries of his property. However, he was threatened and told not to
interfere by the armed men who accompanied the Meralco employees. After the electric power in Ramoy's apartment was cut off, the plaintiffs-
lessees left the premises.

During the ocular inspection ordered by the Court and attended by the parties, it was found out that the residence of plaintiffs-spouses Leoncio
and Matilde Ramoy was indeed outside the NPC property. This was confirmed by defendant's witness R.P. Monsale III on cross-examination
(TSN, October 13, 1993, pp. 10 and 11). Monsale also admitted that he did not inform his supervisor about this fact nor did he recommend re-
connection of plaintiffs' power supply (Ibid., p. 14).

The record also shows that at the request of NPC, defendant Meralco re-connected the electric service of four customers previously disconnected
none of whom was any of the plaintiffs (Exh. 14).4

The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages, exemplary damages and attorney's fees.
However, the RTC ordered MERALCO to restore the electric power supply of respondents.

Respondents then appealed to the CA. In its Decision dated December 16, 2002, the CA faulted MERALCO for not requiring from National
Power Corporation (NPC) a writ of execution or demolition and in not coordinating with the court sheriff or other proper officer before
complying with the NPC's request. Thus, the CA held MERALCO liable for moral and exemplary damages and attorney's fees. MERALCO's
motion for reconsideration of the Decision was denied per Resolution dated July 1, 2003.

Hence, herein petition for review on certiorari on the following grounds:

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 admits6 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 x x x 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 x x x 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 Appeals10 that "as a public utility, MERALCO has the obligation to discharge its functions with utmost care
and diligence."11

The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the utmost degree of care and
diligence required of it. To repeat, it was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it
had become final and executory. Verily, only upon finality of said Decision can it be said with conclusiveness that respondents have no right or
proper interest over the subject property, thus, are not entitled to the services of MERALCO.

Although MERALCO insists that the MTC Decision is final and executory, it never showed any documentary evidence to support this
allegation. Moreover, if it were true that the decision was final and executory, the most prudent thing for MERALCO to have done was to
coordinate with the proper court officials in determining which structures are covered by said court order. Likewise, there is no evidence on
record to show that this was done by MERALCO.

The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its part, and failure to exercise the diligence
required means that MERALCO was at fault and negligent in the performance of its obligation. In Ridjo Tape,12 the Court explained:

[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain obligations towards its customers and any
omission on its part to perform such duties would be prejudicial to its interest. For in the final analysis, the bottom line is that those who do not
exercise such prudence in the discharge of their duties shall be made to bear the consequences of such oversight.13

This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.

The next question is: Are respondents entitled to moral and exemplary damages and attorney's fees?

Article 2220 of the Civil Code provides:

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances,
such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.

In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to
which they were entitled under the Service Contract. This is contrary to public policy because, as discussed above, MERALCO, being a vital
public utility, is expected to exercise utmost care and diligence in the performance of its obligation. It was incumbent upon MERALCO to do
everything within its power to ensure that the improvements built by respondents are within the NPCs right of way before disconnecting their
power supply. The Court emphasized in Samar II Electric Cooperative, Inc. v. Quijano14 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 defendants 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, x x x social humiliation, wounded feelings, grave anxiety, etc. that resulted therefrom."

x x x 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.1avvphi1

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, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendants 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 plaintiffs 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 workmens compensation and employers 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 attorneys fees and expenses of litigation should be recovered.

In all cases, the attorneys 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.
G.R. No. 176697 September 10, 2014

CESAR V. AREZA and LOLITA B. AREZA, Petitioners,

vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets.

DECISION

PEREZ, J.:

Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court, which seeks to reverse the Decision1 and
Resolution2 dated 29 June 2006 and 12 February 2007 of the Court of Appeals in CAG.R. CV No. 83192. The Court of Appeals affirmed with
modification the 22 April 2004 Resolution 3 of the Regional Trial Court (RTC) of Calamba, Laguna, Branch 92, in Civil Case No. B-5886.

The factual antecedents follow.

Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent Express Savings Banks Bian branch: 1) Savings
Account No. 004-01-000185-5 and 2) Special Savings Account No. 004-02-000092-3.

They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles. On 2 May 2000, they received an order from
a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different payees and drawn
against the Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (200,000.00) for a total of One Million Eight
Hundred Thousand Pesos (1,800,000.00).

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch manager of respondent Express Savings Bank (the
Bank) was present during the transaction and immediately offered the services of the Bank for the processing and eventual crediting of the said
checks to petitioners account.4 On the other hand,Potenciano countered that he was prevailed upon to accept the checks by way of
accommodation of petitioners who were valued clients of the Bank. 5

On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, inturn, deposited the checks with its
depositary bank, Equitable-PCI Bank, in Bian,Laguna. Equitable-PCI Bank presented the checks to the drawee, the Philippine Veterans Bank,
which honored the checks.

On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank werehonored. He allegedly warned petitioners that
the clearing of the checks pertained only to the availability of funds and did not mean that the checks were not infirmed. 6 Thus, the entire amount
of 1,800,000.00 was credited to petitioners savings account. Based on this information, petitioners released the two cars to the buyer.

Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground that the amount on the face of the checks was
altered from the original amount of 4,000.00 to 200,000.00. The drawee returned the checks to Equitable-PCI Bank by way of Special
Clearing Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank that the drawee dishonored the checks onthe ground of
material alterations. Equitable-PCI Bank initially filed a protest with the Philippine Clearing House. In February 2001, the latter ruled in favor of
the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the Bank in the amount of 1,800,000.00.

The Bank insisted that they informed petitioners of said development in August 2000 by furnishing them copies of the documents given by its
depositary bank.7 On the other hand, petitioners maintained that the Bank never informed them of these developments.

On 9 March 2001, petitioners issued a check in the amount of 500,000.00. Said check was dishonored by the Bank for the reason "Deposit
Under Hold." According topetitioners, the Bank unilaterally and unlawfully put their account with the Bank on hold. On 22 March 2001,
petitioners counsel sent a demand letter asking the Bank to honor their check. The Bank refused to heed their request and instead, closed the
Special Savings Account of the petitioners with a balance of 1,179,659.69 and transferred said amount to their savings account. The Bank then
withdrew the amount of 1,800,000.00representing the returned checks from petitioners savings account.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and unilateral withdrawal from their savings
account, petitioners filed a Complaint for Sum of Money with Damages against the Bank and Potenciano with the RTC of Calamba.

On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The dispositive portion of the Decision reads:

WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of plaintiffs and against the defendants jointly and
severally to pay plaintiffs as follows, to wit:

1. 1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the account of plaintiffs;
 2. 500,000.00 as moral damages; and

3. 300,000.00 as attorneys fees.8

The trial court reduced the issue to whether or not the rights of petitioners were violated by respondents when the deposits of the former were
debited by respondents without any court order and without their knowledge and consent. According to the trial court, it is the depositary bank
which should safeguard the right ofthe depositors over their money. Invoking Article 1977 of the Civil Code, the trial court stated that the
depositary cannot make use of the thing deposited without the express permission of the depositor. The trial court also held that respondents
should have observed the 24-hour clearing house rule that checks should be returned within 24-hours after discovery of the forgery but in no
event beyond the period fixed by law for filing a legal action. In this case, petitioners deposited the checks in May 2000, and respondents
notified them of the problems on the check three months later or in August 2000. In sum, the trial court characterized said acts of respondents as
attended with bad faith when they debited the amount of 1,800,000.00 from the account of petitioners.

Respondents filed a motion for reconsideration while petitioners filed a motion for execution from the Decision of the RTC on the ground that
respondents motion for reconsideration did not conform with Section 5, Rule 16 of the Rules of Court; hence, it was a mere scrap of paper that
did not toll the running of the period to appeal.

On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration, set aside the Pozas Decision, and
dismissed the complaint. The trial court awarded respondents their counterclaim of moral and exemplary damages of 100,000.00 each. The trial
court first applied the principle of liberality when it disregarded the alleged absence of a notice of hearing in respondents motion for
reconsideration. On the merits, the trial court considered the relationship of the Bank and petitioners with respect to their savings account
deposits as a contract of loan with the bank as the debtor and petitioners as creditors. As such, Article 1977 of the Civil Code prohibiting the
depository from making use of the thing deposited without the express permission of the depositor is not applicable. Instead, the trial court
applied Article 1980 which provides that fixed, savings and current deposits ofmoney in banks and similar institutions shall be governed by the
provisions governing simple loan. The trial court then opined thatthe Bank had all the right to set-off against petitioners savings deposits the
value of their nine checks that were returned.

On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of damages. The appellate court made the following
ratiocination:

Any argument as to the notice of hearing has been resolved when the pairing judge issued the order on February 24, 2004 setting the hearing on
March 26, 2004. A perusal of the notice of hearing shows that request was addressed to the Clerk of Court and plaintiffs counsel for hearing to
be set on March 26, 2004.

The core issues in this case revolve on whether the appellee bank had the right to debit the amount of 1,800,000.00 from the appellants
accounts and whether the banks act of debiting was done "without the plaintiffs knowledge."

We find that the elements of legal compensation are all present in the case at bar. Hence, applying the case of the Bank of the Philippine Islands
v. Court of Appeals, the obligors bound principally are at the same time creditors of each other. Appellee bank stands as a debtor of appellant, a
depositor. At the same time, said bank is the creditor of the appellant with respect to the dishonored treasury warrant checks which amount were
already credited to the account of appellants. When the appellants had withdrawn the amount of the checks they deposited and later on said
checks were returned, they became indebted to the appellee bank for the corresponding amount.

It should be noted that [G]erry Mambuay was the appellants walkin buyer. As sellers, appellants oughtto have exercised due diligence in
assessing his credit or personal background. The 24-hour clearing house rule is not the one that governs in this case since the nine checks were
discovered by the drawee bank to contain material alterations.

Appellants merely allege that they were not informed of any development on the checks returned. However, this Court believes that the bank and
appellants had opportunities to communicate about the checks considering that several transactions occurred from the time of alleged return of
the checks to the date of the debit.

However, this Court agrees withappellants that they should not pay moral and exemplary damages to each of the appellees for lack of basis. The
appellants were not shown to have acted in bad faith.9

Petitioners filed the present petition for review on certiorariraising both procedural and substantive issues, to wit:

1. Whether or not the Honorable Court of Appeals committed a reversible error of law and grave abuse of discretion in upholding the
legality and/or propriety of the Motion for Reconsideration filed in violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;

2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in declaring that the private respondents "had
the right to debit the amount of 1,800,000.00 from the appellants accounts" and the banks act of debiting was done with the
plaintiffs knowledge.10

Before proceeding to the substantive issue, we first resolve the procedural issue raised by petitioners.

Sections 5, Rule 15 of the Rules of Court states:

Section 5. Notice of hearing. The notice of hearing shall be addressed to all parties concerned, and shall specify the time and date of the
hearing which must not be later than ten (10) days after the filing of the motion.

Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the adverse party as the rules require. Petitioners add
that the hearing on the motion for reconsideration was scheduled beyond 10 days from the date of filing.

As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the adverse party has beensubstantially complied with when a
copy of the motion for reconsideration was furnished to the counsel of the adverse party, coupled with the fact that the trial court acted on said
notice of hearing and, as prayed for, issued an order12 setting the hearing of the motion on 26 March 2004.

We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of the said motion for reconsideration was
furnished to the counsel of the adverse party.13

Now to the substantive issues to which procedural imperfection must, in this case, give way.

The central issue is whether the Bank had the right to debit 1,800,000.00 from petitioners accounts.

On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus, the amountof 1,800,000.00 was accordingly
credited to petitioners accounts, prompting them to release the purchased cars to the buyer.

Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI Bank. Three months had passed when the Bank
was informed by its depositary bank that the drawee had dishonored the checks on the ground of material alterations.

The return of the checks created a chain of debiting of accounts, the last loss eventually falling upon the savings account of petitioners with
respondent bank. The trial court inits reconsidered decision and the appellate court were one in declaring that petitioners should bear the loss.

We reverse.

The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is undisputed. In this case, before the alteration was
discovered, the checks were already cleared by the drawee bank, the Philippine Veterans Bank. Three months had lapsed before the drawee
dishonored the checks and returned them to Equitable-PCI Bank, the respondents depositary bank. And itwas not until 10 months later when
petitioners accounts were debited. A question thus arises: What are the liabilities of the drawee, the intermediary banks, and the petitioners for
the altered checks?

LIABILITY OF THE DRAWEE

Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by accepting the instrument, engages that he will pay it
according to the tenor of his acceptance. The acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of Appeals,14 the
payment of the amount of a check implies not only acceptance but also compliance with the drawees obligation.

In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original or the altered tenor of acceptance? There are
two divergent intepretations proffered by legal analysts.15 The first view is supported by the leading case of National City Bank ofChicago v.
Bank of the Republic.16 In said case, a certain Andrew Manning stole a draft and substituted his name for that of the original payee. He offered it
as payment to a jeweler in exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which collectedthe equivalent
amount from the drawee. Upon learning of the alteration, the drawee sought to recover from the defendant bank the amount of the draft, as
money paid by mistake. The court denied recovery on the ground that the drawee by accepting admitted the existence of the payee and his
capacity to endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy, 18 the court echoed the courts interpretation in National
City Bank of Chicago, in this wise:

We think the construction placed upon the section by the Illinois court is correct and that it was not the legislative intent that the obligation of the
acceptor should be limited to the tenorof the instrument as drawn by the maker, as was the rule at common law,but that it should be enforceable
in favor of a holder in due course against the acceptor according to its tenor at the time of its acceptance or certification.

The foregoing opinion and the Illinois decision which it follows give effect to the literal words of the Negotiable Instruments Law. As stated in
the Illinois case: "The court must take the act as it is written and should give to the words their natural and common meaning . . . ifthe language
of the act conflicts with statutes or decisions in force before its enactment the courts should not give the act a strained construction in order to
make it harmonize with earlier statutes or decisions." The wording of the act suggests that a change in the common law was intended. A careful
reading thereof, independent of any common-law influence, requires that the words "according to the tenor of his acceptance" be construed as
referring to the instrument as it was at the time it came into the hands of the acceptor for acceptance, for he accepts no other instrument than the
one presented to him the altered form and it alone he engages to pay. This conclusion is in harmony with the law of England and the
continental countries. It makes for the usefulness and currency of negotiable paper without seriously endangering accepted banking practices, for
banking institutions can readily protect themselves against liability on altered instruments either by qualifying their acceptance or certification or
by relying on forgery insurance and specialpaper which will make alterations obvious. All of the arguments advanced against the conclusion
herein announced seem highly technical in the face of the practical facts that the drawee bank has authenticated an instrument in a certain form,
and that commercial policy favors the protection of anyone who, in due course, changes his position on the faith of that authentication.19
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior to alteration.20 This
view appears to be in consonance with Section 124 of the Negotiable Instruments Law which statesthat a material alteration avoids an instrument
except as against an assenting party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor.
Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty tocharge its clients account
only for bona fide disbursements he had made. If the drawee did not pay according to the original tenor of the instrument, as directed by the
drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the
drawers account which it was expected to treat with utmost fidelity.21 The drawee, however, still has recourse to recover its loss. It may pass the
liability back to the collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the
altered amount of the checks.

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK

A depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is presented for immediate payment over
the counter.22 It is also the bank to which a check is transferred for deposit in an account at such bank, evenif the check is physically received
and indorsed first by another bank.23 A collecting bank is defined as any bank handling an item for collection except the bank on which the
check is drawn.24

When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank. This is in consonance with the rule
that a negotiable instrument, such as a check, whether a manager's check or ordinary check, is not legal tender. As such, after receiving the
deposit, under its own rules, the Bank shall credit the amount in petitioners account or infuse value thereon only after the drawee bank shall
have paid the amount of the check or the check has been cleared for deposit. 25

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser.
Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to
be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting." It has been repeatedly held that in check transactions, the depositary/collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements.26 If any of the
warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the
check.27

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds
it to a high standard of conduct.28

As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since Equitable-PCI Bank
is not a party to this case and the Bank allowed its account with EquitablePCI Bank to be debited, it has the option toseek recourse against the
latter in another forum.

24-HOUR CLEARING RULE

Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only in August 2000 that the drawee bank
notified Equitable-PCI that there were material alterations in the checks.

We do not subscribe to the position taken by petitioners that the drawee bank was at fault because it did not follow the 24-hour clearing period
which provides that when a drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the
collecting bank is absolved from liability.

Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special Return Items Beyond The Reglementary Clearing
Period.- Items which have been the subject of material alteration or items bearing forged endorsement when such endorsement is necessary for
negotiation shall be returned by direct presentation or demand to the Presenting Bank and not through the regular clearing house facilities within
the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending the same.

Antonio Viray, in his book Handbook on Bank Deposits, elucidated:

It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai vs. Peoples Bank reiterated in Metropolitan
Bank and Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour rule under which the drawee bank forever loses the right to claim
against presenting/collecting bank if the check is not returned at the next clearing day orwithin 24 hours. Apparently, the commercial banks felt
strict enforcement of the 24-hour rule is too harsh and therefore made representations and obtained modification of the rule, which modification
is now incorporated in the Manual of Regulations. Since the same commercial banks controlled the Philippine Clearing House Corporation,
incorporating the amended rule in the PCHC Rules naturally followed.

As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused by the drawee bank in accordance with long
standing and accepted banking practices shall be returned through the PCHC/local clearing office, as the case may be, not later than the next
regular clearing (24-hour). The modification, however, is that items which have been the subject of material alteration or bearing forged
endorsement may be returned even beyond 24 hours so long that the same is returned within the prescriptive period fixed by law. The consensus
among lawyers is that the prescriptiveperiod is ten (10)years because a check or the endorsement thereon is a written contract. Moreover, the
item need not be returned through the clearing house but by direct presentation to the presenting bank. 29

In short, the 24-hour clearing ruledoes not apply to altered checks.

LIABILITY OF PETITIONERS

The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co. 30 is in point. A foreigner purchased several pieces of jewelry
from Gold Palace Jewellery using a United Overseas Bank (Malaysia) issued draft addressed to the Land Bank of the Philippines (LBP). Gold
Palace Jewellery deposited the draft in the companys account with Far East Bank. Far East Bank presented the draft for clearing to LBP. The
latter cleared the same and Gold Palace Jewellerys account was credited with the amount stated in the draft. Consequently, Gold Palace
Jewellery released the pieces of jewelries to the foreigner. Three weeks later, LBP informed Far East Bank that the amount in the foreign draft
had been materially altered from 300,000.00 to 380,000.00. LBP returnedthe check to Far East Bank. Far East Bank refunded LBP the
380,000.00 paid by LBP. Far East Bank initially debited 168,053.36 from Gold Palace Jewellerys account and demanded the payment of the
difference between the amount in the altered draft and the amount debited from Gold Palace Jewellery.

However, for the reasons already discussed above, our pronouncement in the Far East Bank and Trust Companycase that "the drawee is liable on
its payment of the check according to the tenor of the check at the time of payment, which was the raised amount"31 is inapplicable to the factual
milieu obtaining herein.

We only adopt said decision in so far as it adjudged liability on the part of the collecting bank, thus:

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have debited the
money paid by the drawee bank from respondent company's account. When Gold Palace deposited the check with Far East, the latter, under the
terms of the deposit and the provisions of the NIL, became an agent of the former for the collection of the amount in the draft. The subsequent
payment by the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the drawee and the holder
of the check or his agent are concerned, converted the check into a mere voucher, and, as already discussed, foreclosed the recovery by the
drawee of the amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and
annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check.

As the transaction in this case had been closed and the principalagent relationship between the payee and the collecting bank had already ceased,
the latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. x x x
Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought
upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive
indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it
for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are
available only to holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far
East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the
drawee bank.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit the account of Gold Palace, and
for doing so, it must return what it had erroneously taken. 32

Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A depositary/collecting bank may resist or defend
against a claim for breach of warranty if the drawer, the payee, or either the drawee bank or depositary bank was negligent and such negligence
substantially contributed tothe loss from alteration. In the instant case, no negligence can be attributed to petitioners. We lend credence to their
claim that at the time of the sales transaction, the Banks branch manager was present and even offered the Banks services for the processing
and eventual crediting of the checks. True to the branch managers words, the checks were cleared three days later when deposited by petitioners
and the entire amount ofthe checks was credited to their savings account.

ON LEGAL COMPENSATION

Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should have made a claim of the amount of
1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the collecting bank in this case and not from them.

The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners savings account. Under Art. 1278 of the New Civil Code,
compensation shall take place when two persons, in their own right, are creditors and debtors of each other. And the requisites for legal
compensation are:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
 (3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the
debtor.

It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-debtor. Article 1980 of the New Civil
Code provides that fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning
simple loans. The bank is the debtorand the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.33

But as previously discussed, petitioners are not liable for the deposit of the altered checks. The Bank, asthe depositary and collecting bank
ultimately bears the loss. Thus, there being no indebtedness to the Bank on the part of petitioners, legal compensation cannot take place.
DAMAGES

The Bank incurred a delay in informing petitioners of the checks dishonor. The Bank was informed of the dishonor by Equitable-PCI Bank as
early as August 2000 but it was only on 7 March 2001 when the Bank informed petitioners that it will debit from their account the altered
amount. This delay is tantamount to negligence on the part of the collecting bank which would entitle petitioners to an award for damages under
Article 1170 of the New Civil Code which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages.

The damages in the form of actual or compensatory damages represent the amount debited by the Bank from petitioners account.

We delete the award of moral damages. Contrary to the lower courts finding, there was no showing that the Bank acted fraudulently or in bad
faith. It may have been remiss in its duty to diligently protect the account of its depositors but its honest but mistaken belief that petitioners
account should be debited is not tantamount to bad faith. We also delete the award of attorneys fees for it is not a sound public policy to place a
premium on the right to litigate. No damages can becharged to those who exercise such precious right in good faith, even if done erroneously.34

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior to alteration.1wphi1 Since
Philippine Veterans Bank paid the altered amount of the check, it may pass the liability back as it did, to Equitable-PCI Bank,the collecting
bank. The collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the materially altered check. It cannot
further pass the liability back to the petitioners absent any showing in the negligence on the part of the petitioners which substantially
contributed to the loss from alteration.

Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to jointly and severally pay petitioners
1,800,000.00, representing the amount withdrawn from the latters account. We do not conform with said ruling regarding the finding of bad
faith on the part of respondents, as well as its failure toobserve the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12 February 2007 respectively of the Court of
Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15 January 2004 Decision of the Regional Trial Court of Calamba
City, Branch 92 in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is REINSTATEDonly insofar as it ordered respondents to jointly
and severally pay petitioners 1,800,000.00 representing the amount withdrawn from the latters account. The award of moral damages and
attorneys fees are DELETED.

SO ORDERED.

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and COMPANY,
CPAs, respondents.

DECISION
CARPIO, J.:

The Case
 Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May
1999. The assailed decision reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank
and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court
denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages, attorneys fees,
expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company,
CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990 and a
savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with
Solidbank. Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the
deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE
and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz
with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that somebody got the passbook. [3] Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to
Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6
SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya
that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got
the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine Banking
Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed.[4] PBC subsequently dishonored the check because of
insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya
went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any
transaction using the same passbook until L.C. Diaz could open a new account. [5] On the same day, Diaz formally wrote Solidbank to make the
same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000
from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with
Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor
filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of
Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the decision of
the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate court,
however, modified its decision by deleting the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that possession of this
book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry
therein of the withdrawal shall have the same effect as if made to the depositor personally. [9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip with
the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature cards. The teller
stamped the withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for
authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared the
signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and
observed the rules on savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were
forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the authenticity
of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it is derogatory
to its action.
Another provision of the rules on savings account states that the depositor must keep the passbook under lock and key. [10] When another
person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is considered as the
owner of the passbook. The trial court ruled that the passbook presented during the questioned transaction was now out of the lock and key and
presumptively ready for a business transaction.[11]
 Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbanks act of allowing
the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diazs negligence caused the
unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person other than the depositor
L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized person of a
PBC check long closed by L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed by the two parties
whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany withdrawals of more
than P20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a managers check. The bearer must also have
a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk from
Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past
withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization or any communication with Solidbank
that the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to
recover P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.

The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00)
as attorneys fees.

With costs against plaintiff.

SO ORDERED.[12]

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal of P300,000 from the
savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions
of this chapter.

The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff; (b) fault
or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and effect between the
fault or negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal
without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial, should have
called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have
known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the
appellate court found Solidbank liable for its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving
the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could have averted the
injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The business
and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with meticulous care, always
having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its
fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred
Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing of the complaint
until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and expenses of litigation as well
as the cost of suit; and

2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees.

SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of damages. The
appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the Civil Code, the appellate court ruled
that exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of simple negligence only,
the award of exemplary damages was not justified. Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of
the Civil Code. The expenses of litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of exemplary
damages and attorneys fees, expenses of litigation and cost of suit.

SO ORDERED.[15]

Hence, this petition.

The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE
ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED
THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO
AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY
BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR
BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING
THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL
WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE
GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE
RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF
PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.

IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER
UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS
NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]

The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C.
Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C. Diaz, the
latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who between the two
parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractual
relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. [17] Article 1980 of the
Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the
bank and the depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA
8791),[18]which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of
integrity and performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[21]
This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written into
every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed
by law or contract, and absent such stipulation then the diligence of a good father of a family. [22] Section 2 of RA 8791 prescribes the statutory
diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA
8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the
time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a
simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a
breach of trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under
the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the
highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are
not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation
that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is
demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction.The
passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank.Solidbanks rules on
savings account require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if possible. When the
passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his
authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the
passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent.The
burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving
that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the
passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent
in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the
passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of the person
who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving
the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense
of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa
aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise because
this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to return to
Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance required of Solidbanks
employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The trial court
believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to
withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first
verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury
and without which the result would not have occurred.[26] Proximate cause is determined by the facts of each case upon mixed considerations of
logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the
authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of
the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of ownership. It was the
negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen into the
hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks
negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure to call up
L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement
between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that the parties
must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their
accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a
large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal
of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently deposited a large
amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred when it imposed
on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to
be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C.
Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on the following
statements in the Booking and Information Sheet of Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited in favor of
L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the
loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly
and lavishly spent his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly admitted
his guilt.[28] (Emphasis supplied.)

L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo. Both the
trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of
facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed the
deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that Ilagan
deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan
presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the
other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the
loss but failed to do so, is chargeable with the loss.[29] Stated differently, the antecedent negligence of the plaintiff does not preclude him from
recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the
exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of the
plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. [31] Such contributory negligence or last clear
chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of
contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if the
defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence,
then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip
signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must
shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay
private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the
actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.

G.R. No. 112160 February 28, 2000

OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner,

vs.
COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C. CONTRARES and VICENTE MAOSCA,respondents.

PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to review and set aside the Decision 1 of the Court of
Appeals in CA-G.R. CV No. 25242, which reversed the Decision2 of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-
028; the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and a new one is hereby entered DISMISSING
the complaint of the spouses Osmundo and Angelina Canlas. On the counterclaim of defendant Asian Savings Bank, the plaintiffs
Canlas spouses are hereby ordered to pay the defendant Asian Savings Bank the amount of P50,000.00 as moral and exemplary
damages, plus P15,000.00 as and for attorney's fees.

With costs against appellees.

SO ORDERED.3

The facts that matter:

Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private respondent, Vicente Maosca, decided to venture in business and to
raise the capital needed therefor. The former then executed a Special Power of Attorney authorizing the latter to mortgage two parcels of land
situated in San Dionisio, (BF Homes) Paranaque, Metro Manila, each lot with semi-concrete residential house existing thereon, and respectively
covered by Transfer Certificate of Title No. 54366 in his (Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of his
wife Angelina Canlas.

Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente Maosca, for and in consideration of P850,000.00, P500,000.00
of which payable within one week, and the balance of P350,000.00 to serve as his (Osmundo's) investment in the business. Thus, Osmundo
Canlas delivered to Vicente Maosca the transfer certificates of title of the parcels of land involved. Vicente Maosca, as his part of the
transaction, issued two postdated checks in favor of Osmundo Canlas in the amounts of P40,000.00 and P460,000.00, respectively, but it turned
out that the check covering the bigger amount was not sufficiently funded. 4

On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of land for P100,000.00 to a certain Attorney Manuel Magno,
with the help of impostors who misrepresented themselves as the spouses, Osmundo Canlas and Angelina Canlas. 5

On September 29, 1982, private respondent Vicente Maosca was granted a loan by the respondent Asian Savings Bank (ASB) in the amount of
P500,000.00, with the use of subject parcels of land as security, and with the involvement of the same impostors who again introduced
themselves as the Canlas spouses.6 When the loan it extended was not paid, respondent bank extrajudicially foreclosed the mortgage.

On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank that the execution of subject mortgage over the two parcels
of land in question was without their (Canlas spouses) authority, and request that steps be taken to annul and/or revoke the questioned mortgage.
On January 18, 1983, petitioner Osmundo Canlas also wrote the office of Sheriff Maximo O. Contreras, asking that the auction sale scheduled
on February 3, 1983 be cancelled or held in abeyance. But respondents Maximo C. Contreras and Asian Savings Bank refused to heed petitioner
Canlas' stance and proceeded with the scheduled auction sale.7

Consequently, on February 3, 1983 the herein petitioners instituted the present case for annulment of deed of real estate mortgage with prayer for
the issuance of a writ of preliminary injunction; and on May 23, 1983, the trial court issued an Order restraining the respondent sheriff from
issuing the corresponding Certificate of Sheriff's Sale.8

For failure to file his answer, despite several motions for extension of time for the filing thereof, Vicente Maosca was declared in default.9

On June 1, 1989, the lower court a quo came out with a decision annulling subject deed of mortgage and disposing, thus:

Premises considered, judgment is hereby rendered as follows.1wphi1.nt

1. Declaring the deed of real estate mortgage (Exhibit "L") involving the properties of the plaintiffs as null and void;

2. Declaring the public auction sale conducted by the defendant Sheriff, involving the same properties as illegal and without
binding effect;

3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of P20,000.00 representing attorney's fees;

4. On defendant ASB's crossclaim: ordering the cross-defendant Vicente Maosca to pay the defendant ASB the sum of
P350,000.00, representing the amount which he received as proceeds of the loan secured by the void mortgage, plus interest
at the legal rate, starting February 3, 1983, the date when the original complaint was filed, until the amount is fully paid;

5. With costs against the defendants.

SO ORDERED.10
From such Decision below, Asian Savings Bank appealed to the Court of Appeals, which handed down the assailed judgment of reversal, dated
September 30, 1983, in CA-G.R. CV No. 25242. Dissatisfied therewith, the petitioners found their way to this Court via the present Petition;
theorizing that:

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE MORTGAGE OF THE PROPERTIES SUBJECT OF THIS CASE
WAS VALID.

II

RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS ARE NOT ENTITLED TO RELIEF BECAUSE
THEY WERE NEGLIGENT AND THEREFORE MUST BEAR THE LOSS.

III

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB EXERCISED DUE DILIGENCE IN
GRANTING THE LOAN APPLICATION OF RESPONDENT.

IV

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB DID NOT ACT WITH BAD FAITH IN
PROCEEDING WITH THE FORECLOSURE SALE OF THE PROPERTIES.

RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB MORAL DAMAGES. 11

The Petition is impressed with merit.

Art. 1173 of the Civil Code, provides:

Art. 1173. The fault or negligence of the obligor consist in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of
a family shall be required. (1104)

The degree of diligence required of banks is more than that of a good father of a family;12 in keeping with their responsibility to exercise the
necessary care and prudence in dealing even on a registered or titled property. The business of a bank is affected with public interest, holding in
trust the money of the depositors, which bank deposits the bank should guard against loss due to negligence or bad faith, by reason of which the
bank would be denied the protective mantle of the land registration law, accorded only to purchasers or mortgagees for value and in good faith.13

In the case under consideration, from the evidence on hand it can be gleaned unerringly that respondent bank did not observe the requisite
diligence in ascertaining or verifying the real identity of the couple who introduced themselves as the spouses Osmundo Canlas and Angelina
Canlas. It is worthy to note that not even a single identification card was exhibited by the said impostors to show their true identity; and yet, the
bank acted on their representations simply on the basis of the residence certificates bearing signatures which tended to match the signatures
affixed on a previous deed of mortgage to a certain Atty. Magno, covering the same parcels of land in question. Felizado Mangubat, Assistant
Vice President of Asian Savings Bank, thus testified inter alia:

xxx xxx xxx

Q: According to you, the basis for your having recommended for the approval of MANASCO's (sic) loan particularly that one
involving the property of plaintiff in this case, the spouses OSMUNDO CANLAS and ANGELINA CANLAS, the basis for such
approval was that according to you all the signatures and other things taken into account matches with that of the document previously
executed by the spouses CANLAS?

Q: That is the only basis for accepting the signature on the mortgage, the basis for the recommendation of the approval of the
loan are the financial statement of MAOSCA?

A: Yes; among others the signature and TAX Account Number, Residence Certificate appearing on the previous loan executed
by the spouses CANLAS, I am referring to EXHIBIT 5, mortgage to ATTY. MAGNO, those were made the basis.
 A: That is just the basis of accepting the signature, because at that time the loan have been approved already on the basis of the
financial statement of the client the Bank Statement. Wneh (sic) it was approved we have to base it on the Financial statement of the
client, the signatures were accepted only for the purpose of signing the mortgage not for the approval, we don't (sic) approve loans on
the signature.

ATTY. CLAROS:

Would you agree that as part of ascertaining the identify of the parties particularly the mortgage, you don't consider also the
signature, the Residence Certificate, the particular address of the parties involved.

A: I think the question defers (sic) from what you asked a while ago.

Q: Among others?

A: We have to accept the signature on the basis of the other signatures given to us it being a public instrument.

ATTY. CARLOS:

You mean to say the criteria of ascertaining the identity of the mortgagor does not depend so much on the signature on the
residence certificate they have presented.

A: We have to accept that.

xxx xxx xxx

A: We accepted the signature on the basis of the mortgage in favor of ATTY. MAGNO duly notarized which I have been
reiterrting (sic) entitled to full faith considering that it is a public instrument.

ATTY. CARLOS:

What other requirement did you take into account in ascertaining the identification of the parties particularly the mortgagor
in this case.

A: Residence Certificate.

Q: Is that all, is that the only requirement?

A: We requested for others but they could not produce, and because they presented to us the Residence Certificate which
matches on the signature on the Residence Certificate in favor of Atty. Magno. 14

Evidently, the efforts exerted by the bank to verify the identity of the couple posing as Osmundo Canlas and Angelina Canlas fell short of the
responsibility of the bank to observe more than the diligence of a good father of a family. The negligence of respondent bank was magnified by
the fact that the previous deed of mortgage (which was used as the basis for checking the genuineness of the signatures of the supposed Canlas
spouses) did not bear the tax account number of the spouses,15 as well as the Community Tax Certificate of Angelina Canlas.16 But such fact
notwithstanding, the bank did not require the impostors to submit additional proof of their true identity.

Under the doctrine of last clear chance, which is applicable here, the respondent bank must suffer the resulting loss. In essence, the doctrine of
last clear chance is to the effect that where both parties are negligent but the negligent act of one is appreciably later in point of time than that of
the other, or where it is impossible to determine whose fault or negligence brought about the occurrence of the incident, the one who had the last
clear opportunity to avoid the impending harm but failed to do so, is chargeable with the consequences arising therefrom. Stated differently, the
rule is that the antecedent negligence of a person does not preclude recovery of damages caused by the supervening negligence of the latter, who
had the last fair chance to prevent the impending harm by the exercise of due diligence. 17

Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the opportunity to perpetrate the fraud, by entrusting to latter the
owner's copy of the transfer certificates of title of subject parcels of land, it cannot be denied that the bank had the last clear chance to prevent
the fraud, by the simple expedient of faithfully complying with the requirements for banks to ascertain the identity of the persons transacting
with them.

For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, respondent Asian
Savings Bank has to bear the loss sued upon.

In ruling for respondent bank, the Court of Appeals concluded that the petitioner Osmundo Canlas was a party to the fraudulent scheme of
Maosca and therefore, estopped from impugning the validity of subject deed of mortgage; ratiocinating thus:
 xxx xxx xxx

Thus, armed with the titles and the special power of attorney, Maosca went to the defendant bank and applied for a loan. And when
Maosca came over to the bank to submit additional documents pertinent to his loan application, Osmundo Canlas was with him,
together with a certain Rogelio Viray. At that time, Osmundo Canlas was introduced to the bank personnel as "Leonardo Rey".

When he was introduced as "Leonardo Rey" for the first time Osmundo should have corrected Maosca right away. But he did not.
Instead, he even allowed Maosca to avail of his (Osmundo's) membership privileges at the Metropolitan Club when Maosca invited
two officers of the defendant bank to a luncheon meeting which Osmundo also attended. And during that meeting, Osmundo did not
say who he really is, but even let Maosca introduced him again as "Leonardo Rey", which all the more indicates that he connived
with Maosca in deceiving the defendant bank.

Finally after the loan was finally approved, Osmundo accompanied Maosca to the bank when the loan was released. At that time, a
manger's check for P200,000.00 was issued in the name of Oscar Motorworks, which Osmundo admits he owns and operates.

Collectively, the foregoing circumstances cannot but conjure to a single conclusion that Osmundo active participated in the loan
application of defendant Asian Savings Bank, which culminated in his receiving a portion of the process thereof: 18

A meticulous and painstaking scrutiny of the Records on hand, reveals, however, that the findings arrived at by the Court of Appeals are barren
of any sustainable basis. For instance, the execution of the deeds of mortgages constituted by Maosca on subject pieces of property of
petitioners were made possible not by the Special Power of Attorney executed by Osmundo Canlas in favor of Maosca but through the use of
impostors who misrepresented themselves as the spouses Angelina Canlas and Osmundo Canlas. It cannot be said therefore, that the petitioners
authorized Vicente Maosca to constitute the mortgage on their parcels of land.

What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente Maosca, only on the occasion of the luncheon meeting at the
Metropolitan Club.19 Thereat, the failure of Osmundo Canlas to rectify Maosca's misrepresentations could not be taken as a fraudulent act. As
well explained by the former, he just did not want to embarrass Maosca, so that he waited for the end of the meeting to correct Maosca.20

Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they did not talk about the security or collateral for the loan of
Maosca with ASB.21 So also, Mrs. Josefina Rojo, who was the Account Officer of Asian Savings Bank when Maosca applied for subject loan,
corroborated the testimony of Osmundo Canlas, she testified:

xxx xxx xxx

QUESTION: Now could you please describe out the lunch conference at the Metro Club in Makati?

ANSWER: Mr. Mangubat, Mr. Maosca and I did not discuss with respect to the loan application and discuss primarily his
business.

xxx xxx xxx

QUESTION: So, what is the main topic of your discussion during the meeting?

ANSWER: The main topic war then, about his business although, Mr. Leonardo Rey, who actually turned out as Mr. Canlas,
supplier of Mr. Maosca.

QUESTION: I see . . . other than the business of Mr. Maosca, were there any other topic discussed?

ANSWER: YES.

QUESTION: And what was the topic:

ANSWER: General Economy then.

xxx xxx x x x22

Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining thus why he (Osmundo) did not bother to correct what
Maosca misrepresented and to assert ownership over the two parcels of land in question.

Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when the latter submitted the documents needed for his loan
application, and when the check of P200,000.00 was released, the former did not know that the collateral used by Maosca for the said loan were
their (Canlas spouses') properties. Osmundo happened to be with Maosca at the time because he wanted to make sure that Maosca would
make good his promise to pay the balance of the purchase price of the said lots out of the proceeds of the loan.23
The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop him from assailing the validity of the mortgage because the
said amount was in payment of the parcels of land he sold to Maosca. 24

What is decisively clear on record is that Maosca managed to keep Osmundo Canlas uninformed of his (Maosca's) intention to use the parcels
of land of the Canlas spouses as security for the loan obtained from Asian Savings Bank. Since Vicente Maosca showed Osmundo Canlas
several certificates of title of lots which, according to Maosca were the collaterals, Osmundo Canlas was confident that their (Canlases') parcels
of land were not involved in the loan transactions with the Asian Savings Bank. 25 Under the attendant facts and circumstances, Osmundo Canlas
was undoubtedly negligent, which negligence made them (petitioners) undeserving of an award of attorney's fees.

Settled is the rule that a contract of mortgage must be constituted only by the absolute owner on the property mortgaged;26 a mortgage,
constituted by an impostor is void.27 Considering that it was established indubitably that the contract of mortgage sued upon was entered into and
signed by impostors who misrepresented themselves as the spouses Osmundo Canlas and Angelina Canlas, the Court is of the ineluctible
conclusion and finding that subject contract of mortgage is a complete nullity.

WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals, dated September 30, 1993, in CA-G.R. CV No. 25242 SET
ASIDE. The Decision of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028 is hereby REINSTATED. No
pronouncement as to costs.

SO ORDERED.1wp

G.R. No. 71049 May 29, 1987

BERNARDINO JIMENEZ, petitioner,

vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.

PARAS, J.:

This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate Court in AC-G.R. No. 013887-CV Bernardino
Jimenez v. Asiatic Integrated Corporation and City of Manila, reversing the decision ** of the Court of First Instance of Manila, Branch XXII in
Civil Case No. 96390 between the same parties, but only insofar as holding Asiatic Integrated Corporation solely liable for damages and
attorney's fees instead of making the City of Manila jointly and solidarily liable with it as prayed for by the petitioner and (2) the resolution of
the same Appellate Court denying his Partial Motion for Reconsideration (Rollo, p. 2).

The dispositive portion of the Intermediate Appellate Court's decision is as follows:

WHEREFORE, the decision appealed from is hereby REVERSED. A new one is hereby entered ordering the defendant
Asiatic Integrated Corporation to pay the plaintiff P221.90 actual medical expenses, P900.00 for the amount paid for the
operation and management of a school bus, P20,000.00 as moral damages due to pains, sufferings and sleepless nights and P
l0,000.00 as attorney's fees.

SO ORDERED. (p. 20, Rollo)

The findings of respondent Appellate Court are as follows:

The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15, 1974 he, together with his neighbors, went to Sta. Ana
public market to buy "bagoong" at the time when the public market was flooded with ankle deep rainwater. After purchasing the "bagoong" he
turned around to return home but he stepped on an uncovered opening which could not be seen because of the dirty rainwater, causing a dirty
and rusty four- inch nail, stuck inside the uncovered opening, to pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a
half inches. After administering first aid treatment at a nearby drugstore, his companions helped him hobble home. He felt ill and developed
fever and he had to be carried to Dr. Juanita Mascardo. Despite the medicine administered to him by the latter, his left leg swelled with great
pain. He was then rushed to the Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and severe pain.

Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days. His injury prevented him from attending to the
school buses he is operating. As a result, he had to engage the services of one Bienvenido Valdez to supervise his business for an aggregate
compensation of nine hundred pesos (P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-20).

Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose administration the Sta. Ana Public Market
had been placed by virtue of a Management and Operating Contract (Rollo, p. 47).

The lower court decided in favor of respondents, the dispositive portion of the decision reading:
 WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff dismissing the complaint
with costs against the plaintiff. For lack of sufficient evidence, the counterclaims of the defendants are likewise dismissed.
(Decision, Civil Case No. 96390, Rollo, p. 42).

As above stated, on appeal, the Intermediate Appellate Court held the Asiatic Integrated Corporation liable for damages but absolved respondent
City of Manila.

Hence this petition.

The lone assignment of error raised in this petition is on whether or not the Intermediate Appellate Court erred in not ruling that respondent City
of Manila should be jointly and severally liable with Asiatic Integrated Corporation for the injuries petitioner suffered.

In compliance with the resolution of July 1, 1985 of the First Division of this Court (Rollo, p. 29) respondent City of Manila filed its comment
on August 13, 1985 (Rollo, p. 34) while petitioner filed its reply on August 21, 1985 (Reno, p. 51).

Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave due course to the petition and required both parties to submit
simultaneous memoranda

Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while respondent filed its memorandum on October 24, 1985 (Rollo, p. 82).

In the resolution of October 13, 1986, this case was transferred to the Second Division of this Court, the same having been assigned to a member
of said Division (Rollo, p. 92).

The petition is impressed with merit.

As correctly found by the Intermediate Appellate Court, there is no doubt that the plaintiff suffered injuries when he fell into a drainage opening
without any cover in the Sta. Ana Public Market. Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated
Corporation tries to minimize the extent of the injuries, claiming that it was only a small puncture and that as a war veteran, plaintiff's
hospitalization at the War Veteran's Hospital was free. (Decision, AC-G.R. CV No. 01387, Rollo, p. 6).

Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the petitioner because under the Management and
Operating Contract, Asiatic Integrated Corporation assumed all responsibility for damages which may be suffered by third persons for any cause
attributable to it.

It has also been argued that the City of Manila cannot be held liable under Article 1, Section 4 of Republic Act No. 409 as amended (Revised
Charter of Manila) which provides:

The City shall not be liable or held for damages or injuries to persons or property arising from the failure of the Mayor, the
Municipal Board, or any other City Officer, to enforce the provisions of this chapter, or any other law or ordinance, or from
negligence of said Mayor, Municipal Board, or any other officers while enforcing or attempting to enforce said provisions.

This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272 [1968]) where the Supreme Court squarely ruled that
Republic Act No. 409 establishes a general rule regulating the liability of the City of Manila for "damages or injury to persons or property
arising from the failure of city officers" to enforce the provisions of said Act, "or any other law or ordinance or from negligence" of the City
"Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said provisions."

Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that:

Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by any person by reason
of defective conditions of roads, streets, bridges, public buildings and other public works under their control or supervision.

constitutes a particular prescription making "provinces, cities and municipalities ... liable for damages for the death of, or injury suffered by any
person by reason" specifically "of the defective condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in general, regardless of the
object, thereof, while Article 2189 of the Civil Code governs liability due to "defective streets, public buildings and other public works" in
particular and is therefore decisive on this specific case.

In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it is not necessary for the liability therein
established to attach, that the defective public works belong to the province, city or municipality from which responsibility is exacted. What said
article requires is that the province, city or municipality has either "control or supervision" over the public building in question.

In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management and Operating Contract between respondent City
and Asiatic Integrated Corporation remained under the control of the former.

For one thing, said contract is explicit in this regard, when it provides:
 II

That immediately after the execution of this contract, the SECOND PARTY shall start the painting, cleaning, sanitizing and
repair of the public markets and talipapas and within ninety (90) days thereof, the SECOND PARTY shall submit a program
of improvement, development, rehabilitation and reconstruction of the city public markets and talipapas subject to prior
approval of the FIRST PARTY. (Rollo, p. 44)

xxx xxx xxx

VI

That all present personnel of the City public markets and talipapas shall be retained by the SECOND PARTY as long as their
services remain satisfactory and they shall be extended the same rights and privileges as heretofore enjoyed by them.
Provided, however, that the SECOND PARTY shall have the right, subject to prior approval of the FIRST PARTY to
discharge any of the present employees for cause. (Rollo, p. 45).

VII

That the SECOND PARTY may from time to time be required by the FIRST PARTY, or his duly authorized representative
or representatives, to report, on the activities and operation of the City public markets and talipapas and the facilities and
conveniences installed therein, particularly as to their cost of construction, operation and maintenance in connection with the
stipulations contained in this Contract. (lbid)

The fact of supervision and control of the City over subject public market was admitted by Mayor Ramon Bagatsing in his letter to Secretary of
Finance Cesar Virata which reads:

These cases arose from the controversy over the Management and Operating Contract entered into on December 28, 1972 by
and between the City of Manila and the Asiatic Integrated Corporation, whereby in consideration of a fixed service fee, the
City hired the services of the said corporation to undertake the physical management, maintenance, rehabilitation and
development of the City's public markets and' Talipapas' subject to the control and supervision of the City.

xxx xxx xxx

It is believed that there is nothing incongruous in the exercise of these powers vis-a-vis the existence of the contract,
inasmuch as the City retains the power of supervision and control over its public markets and talipapas under the terms of
the contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).

In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary duty is to take direct supervision and control
of that particular market, more specifically, to check the safety of the place for the public.

Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the City of Manila testified as follows:

Court This market master is an employee of the City of Manila?

Mr. Ymson Yes, Your Honor.

Q What are his functions?

A Direct supervision and control over the market area assigned to him."(T.s.n.,pp. 41-42, Hearing of
May 20, 1977.)

xxx xxx xxx

Court As far as you know there is or is there any specific employee assigned with the task of seeing to it
that the Sta. Ana Market is safe for the public?

Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has its own market master. The primary
duty of that market master is to make the direct supervision and control of that particular market, the
check or verifying whether the place is safe for public safety is vested in the market master. (T.s.n., pp.
2425, Hearing of July 27, 1977.) (Emphasis supplied.) (Rollo, p. 76).

Finally, Section 30 (g) of the Local Tax Code as amended, provides:

 The treasurer shall exercise direct and immediate supervision administration and control over public markets and the
personnel thereof, including those whose duties concern the maintenance and upkeep of the market and ordinances and other
pertinent rules and regulations. (Emphasis supplied.) (Rollo, p. 76)

The contention of respondent City of Manila that petitioner should not have ventured to go to Sta. Ana Public Market during a stormy weather is
indeed untenable. As observed by respondent Court of Appeals, it is an error for the trial court to attribute the negligence to herein petitioner.
More specifically stated, the findings of appellate court are as follows:

... The trial court even chastised the plaintiff for going to market on a rainy day just to buy bagoong. A customer in a store
has the right to assume that the owner will comply with his duty to keep the premises safe for customers. If he ventures to
the store on the basis of such assumption and is injured because the owner did not comply with his duty, no negligence can
be imputed to the customer. (Decision, AC-G. R. CV No. 01387, Rollo, p. 19).

As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of a good father of a family. (Art. 1173 of the
Civil Code).

There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the public market reasonably safe for people
frequenting the place for their marketing needs.

While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods, it must however, be admitted that
ordinary precautions could have been taken during good weather to minimize the dangers to life and limb under those difficult circumstances.

For instance, the drainage hole could have been placed under the stalls instead of on the passage ways. Even more important is the fact, that the
City should have seen to it that the openings were covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was
already uncovered, and five (5) months after the incident happened, the opening was still uncovered. (Rollo, pp. 57; 59). Moreover, while there
are findings that during floods the vendors remove the iron grills to hasten the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17),
there is no showing that such practice has ever been prohibited, much less penalized by the City of Manila. Neither was it shown that any sign
had been placed thereabouts to warn passersby of the impending danger.

To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article 2189 of the Civil Code, respondent City
having retained control and supervision over the Sta. Ana Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts

Petitioner had the right to assume that there were no openings in the middle of the passageways and if any, that they were adequately covered.
Had the opening been covered, petitioner could not have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the
injury suffered, the City is therefore liable for the injury suffered by the peti- 4 petitioner.

Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article 2194 of the Civil Code.

PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED, making the City of Manila and the Asiatic Integrated
Corporation solidarily liable to pay the plaintiff P221.90 actual medical expenses, P900.00 for the amount paid for the operation and
management of the school bus, P20,000.00 as moral damages due to pain, sufferings and sleepless nights and P10,000.00 as attorney's fees.

SO ORDERED.

[G.R. No. 119602. October 6, 2000]

WILDVALLEY SHIPPING CO., LTD. petitioner, vs. COURT OF APPEALS and PHILIPPINE PRESIDENT LINES INC., respondents.

DECISION
BUENA, J.:

This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals which reversed the decision of the lower
court in CA-G.R. CV No. 36821, entitled "Wildvalley Shipping Co., Ltd., plaintiff-appellant, versus Philippine President Lines, Inc., defendant-
appellant."
The antecedent facts of the case are as follows:
Sometime in February 1988, the Philippine Roxas, a vessel owned by Philippine President Lines, Inc., private respondent herein, arrived in
Puerto Ordaz, Venezuela, to load iron ore. Upon the completion of the loading and when the vessel was ready to leave port, Mr. Ezzar del Valle
Solarzano Vasquez, an official pilot of Venezuela, was designated by the harbour authorities in Puerto Ordaz to navigate the Philippine Roxas
through the Orinoco River.[1] He was asked to pilot the said vessel on February 11, 1988[2] boarding it that night at 11:00 p.m.[3]
 The master (captain) of the Philippine Roxas, Captain Nicandro Colon, was at the bridge together with the pilot (Vasquez), the vessel's
third mate (then the officer on watch), and a helmsman when the vessel left the port[4] at 1:40 a.m. on February 12, 1988.[5] Captain Colon left
the bridge when the vessel was under way.[6]
The Philippine Roxas experienced some vibrations when it entered the San Roque Channel at mile 172. [7] The vessel proceeded on its way,
with the pilot assuring the watch officer that the vibration was a result of the shallowness of the channel. [8]
Between mile 158 and 157, the vessel again experienced some vibrations. [9] These occurred at 4:12 a.m.[10] It was then that the watch
officer called the master to the bridge.[11]
The master (captain) checked the position of the vessel[12] and verified that it was in the centre of the channel.[13] He then went to confirm,
or set down, the position of the vessel on the chart.[14] He ordered Simplicio A. Monis, Chief Officer of the President Roxas, to check all the
double bottom tanks.[15]
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco River, [16] thus obstructing the ingress and egress of vessels.
As a result of the blockage, the Malandrinon, a vessel owned by herein petitioner Wildvalley Shipping Company, Ltd., was unable to sail
out of Puerto Ordaz on that day.
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the Regional Trial Court of Manila, Branch III against Philippine
President Lines, Inc. and Pioneer Insurance Company (the underwriter/insurer of Philippine Roxas) for damages in the form of unearned profits,
and interest thereon amounting to US $400,000.00 plus attorney's fees, costs, and expenses of litigation. The complaint against Pioneer
Insurance Company was dismissed in an Order dated November 7, 1988.[17]
At the pre-trial conference, the parties agreed on the following facts:

"1. The jurisdictional facts, as specified in their respective pleadings;

"2. That defendant PPL was the owner of the vessel Philippine Roxas at the time of the incident;

"3. That defendant Pioneer Insurance was the insurance underwriter for defendant PPL;

"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel Malandrinon, whose passage was obstructed by the vessel Philippine
Roxas at Puerto Ordaz, Venezuela, as specified in par. 4, page 2 of the complaint;

"5. That on February 12, 1988, while the Philippine Roxas was navigating the channel at Puerto Ordaz, the said vessel grounded and as a result,
obstructed navigation at the channel;

"6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;

"7. That at the time of the incident, the vessel, Philippine Roxas, was under the command of the pilot Ezzar Solarzano, assigned by the
government thereat, but plaintiff claims that it is under the command of the master;

"8. The plaintiff filed a case in Middleburg, Holland which is related to the present case;

"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by the defendant PPL;

"10. The Orinoco River is 150 miles long and it takes approximately 12 hours to navigate out of the said river;

"11. That no security for the plaintiff's claim was given until after the Philippine Collier was arrested; and

"12. That a letter of guarantee, dated 12-May-88 was issued by the Steamship Mutual Underwriters Ltd."[18]

The trial court rendered its decision on October 16, 1991 in favor of the petitioner, Wildvalley Shipping Co., Ltd. The dispositive portion
thereof reads as follows:

"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine President Lines, Inc. to pay to the plaintiff the sum of U.S.
$259,243.43, as actual and compensatory damages, and U.S. $162,031.53, as expenses incurred abroad for its foreign lawyers, plus additional
sum of U.S. $22,000.00, as and for attorney's fees of plaintiff's local lawyer, and to pay the cost of this suit.

"Defendant's counterclaim is dismissed for lack of merit.

"SO ORDERED."[19]

Both parties appealed: the petitioner appealing the non-award of interest with the private respondent questioning the decision on the merits
of the case.
 After the requisite pleadings had been filed, the Court of Appeals came out with its questioned decision dated June 14, 1994, [20] the
dispositive portion of which reads as follows:

"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is hereby rendered reversing the Decision of the lower
court. Plaintiff-appellant's Complaint is dismissed and it is ordered to pay defendant-appellant the amount of Three Hundred Twenty-three
Thousand, Forty-two Pesos and Fifty-three Centavos (P323,042.53) as and for attorney's fees plus cost of suit. Plaintiff-appellant's appeal is
DISMISSED.

"SO ORDERED."[21]

Petitioner filed a motion for reconsideration[22] but the same was denied for lack of merit in the resolution dated March 29, 1995. [23]
Hence, this petition.
The petitioner assigns the following errors to the court a quo:
1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT UNDER PHILIPPINE LAW NO FAULT
OR NEGLIGENCE CAN BE ATTRIBUTED TO THE MASTER NOR THE OWNER OF THE "PHILIPPINE ROXAS" FOR
THE GROUNDING OF SAID VESSEL RESULTING IN THE BLOCKAGE OF THE RIO ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE FINDINGS OF FACTS OF THE TRIAL
COURT CONTRARY TO EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE "PHILIPPINE ROXAS" IS
SEAWORTHY;
4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING VENEZUELAN LAW DESPITE THE
FACT THAT THE SAME HAS BEEN SUBSTANTIALLY PROVED IN THE TRIAL COURT WITHOUT ANY
OBJECTION FROM PRIVATE RESPONDENT, AND WHOSE OBJECTION WAS INTERPOSED BELATEDLY ON
APPEAL;
5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN AWARDING ATTORNEY'S FEES AND COSTS TO
PRIVATE RESPONDENT WITHOUT ANY FAIR OR REASONABLE BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT PETITIONER'S CAUSE IS
MERITORIOUS HENCE, PETITIONER SHOULD BE ENTITLED TO ATTORNEY'S FEES, COSTS AND INTEREST.
The petition is without merit.
The primary issue to be determined is whether or not Venezuelan law is applicable to the case at bar.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to take judicial notice of
them. Like any other fact, they must be alleged and proved. [24]
A distinction is to be made as to the manner of proving a written and an unwritten law. The former falls under Section 24, Rule 132 of the
Rules of Court, as amended, the entire provision of which is quoted hereunder. Where the foreign law sought to be proved is "unwritten," the
oral testimony of expert witnesses is admissible, as are printed and published books of reports of decisions of the courts of the country concerned
if proved to be commonly admitted in such courts.[25]
Section 24 of Rule 132 of the Rules of Court, as amended, provides:

"Sec. 24. Proof of official record. -- The record of public documents referred to in paragraph (a) of Section 19, when admissible for any purpose,
may be evidenced by an official publication thereof or by a copy attested by the officer having the legal custody of the record, or by his deputy,
and accompanied, if the record is not kept in the Philippines, with a certificate that such officer has the custody. If the office in which the
record is kept is in a foreign country, the certificate may be made by a secretary of the embassy or legation, consul general, consul, vice consul,
or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign country in which the record is kept, and
authenticated by the seal of his office." (Underscoring supplied)

The court has interpreted Section 25 (now Section 24) to include competent evidence like the testimony of a witness to prove the existence
of a written foreign law.[26]
In the noted case of Willamette Iron & Steel Works vs. Muzzal,[27] it was held that:

" Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the year 1918 under oath, quoted verbatim section 322 of the
California Civil Code and stated that said section was in force at the time the obligations of defendant to the plaintiff were incurred, i.e. on
November 5, 1928 and December 22, 1928. This evidence sufficiently established the fact that the section in question was the law of the State of
California on the above dates. A reading of sections 300 and 301 of our Code of Civil Procedure will convince one that these sections do not
exclude the presentation of other competent evidence to prove the existence of a foreign law.

"`The foreign law is a matter of fact You ask the witness what the law is; he may, from his recollection, or on producing and referring to books,
say what it is.' (Lord Campbell concurring in an opinion of Lord Chief Justice Denman in a well-known English case where a witness was called
upon to prove the Roman laws of marriage and was permitted to testify, though he referred to a book containing the decrees of the Council of
Trent as controlling, Jones on Evidence, Second Edition, Volume 4, pages 3148-3152.) x x x.
 We do not dispute the competency of Capt. Oscar Leon Monzon, the Assistant Harbor Master and Chief of Pilots at Puerto Ordaz,
Venezuela,[28] to testify on the existence of the Reglamento General de la Ley de Pilotaje (pilotage law of Venezuela)[29] and the Reglamento
Para la Zona de Pilotaje No 1 del Orinoco (rules governing the navigation of the Orinoco River). Captain Monzon has held the aforementioned
posts for eight years.[30] As such he is in charge of designating the pilots for maneuvering and navigating the Orinoco River. He is also in charge
of the documents that come into the office of the harbour masters. [31]
Nevertheless, we take note that these written laws were not proven in the manner provided by Section 24 of Rule 132 of the Rules of
Court.
The Reglamento General de la Ley de Pilotaje was published in the Gaceta Oficial[32]of the Republic of Venezuela. A photocopy of
the Gaceta Oficial was presented in evidence as an official publication of the Republic of Venezuela.
The Reglamento Para la Zona de Pilotaje No 1 del Orinoco is published in a book issued by the Ministerio de Comunicaciones of
Venezuela.[33] Only a photocopy of the said rules was likewise presented as evidence.
Both of these documents are considered in Philippine jurisprudence to be public documents for they are the written official acts, or records
of the official acts of the sovereign authority, official bodies and tribunals, and public officers of Venezuela. [34]
For a copy of a foreign public document to be admissible, the following requisites are mandatory: (1) It must be attested by the officer
having legal custody of the records or by his deputy; and (2) It must be accompanied by a certificate by a secretary of the embassy or legation,
consul general, consul, vice consular or consular agent or foreign service officer, and with the seal of his office. [35] The latter requirement is not a
mere technicality but is intended to justify the giving of full faith and credit to the genuineness of a document in a foreign country.[36]
It is not enough that the Gaceta Oficial, or a book published by the Ministerio de Comunicaciones of Venezuela, was presented as
evidence with Captain Monzon attesting it. It is also required by Section 24 of Rule 132 of the Rules of Court that a certificate that Captain
Monzon, who attested the documents, is the officer who had legal custody of those records made by a secretary of the embassy or legation,
consul general, consul, vice consul or consular agent or by any officer in the foreign service of the Philippines stationed in Venezuela, and
authenticated by the seal of his office accompanying the copy of the public document. No such certificate could be found in the records of the
case.
With respect to proof of written laws, parol proof is objectionable, for the written law itself is the best evidence. According to the weight
of authority, when a foreign statute is involved, the best evidence rule requires that it be proved by a duly authenticated copy of the statute. [37]
At this juncture, we have to point out that the Venezuelan law was not pleaded before the lower court.
A foreign law is considered to be pleaded if there is an allegation in the pleading about the existence of the foreign law, its import and
legal consequence on the event or transaction in issue.[38]
A review of the Complaint[39] revealed that it was never alleged or invoked despite the fact that the grounding of the M/V Philippine Roxas
occurred within the territorial jurisdiction of Venezuela.
We reiterate that under the rules of private international law, a foreign law must be properly pleaded and proved as a fact. In the absence of
pleading and proof, the laws of a foreign country, or state, will be presumed to be the same as our own local or domestic law and this is known
as processual presumption.[40]
Having cleared this point, we now proceed to a thorough study of the errors assigned by the petitioner.
Petitioner alleges that there was negligence on the part of the private respondent that would warrant the award of damages.
There being no contractual obligation, the private respondent is obliged to give only the diligence required of a good father of a family in
accordance with the provisions of Article 1173 of the New Civil Code, thus:

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171
and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family
shall be required.

The diligence of a good father of a family requires only that diligence which an ordinary prudent man would exercise with regard to his
own property. This we have found private respondent to have exercised when the vessel sailed only after the "main engine, machineries, and
other auxiliaries" were checked and found to be in good running condition;[41] when the master left a competent officer, the officer on watch on
the bridge with a pilot who is experienced in navigating the Orinoco River; when the master ordered the inspection of the vessel's double bottom
tanks when the vibrations occurred anew.[42]
The Philippine rules on pilotage, embodied in Philippine Ports Authority Administrative Order No. 03-85, otherwise known as the Rules
and Regulations Governing Pilotage Services, the Conduct of Pilots and Pilotage Fees in Philippine Ports enunciate the duties and
responsibilities of a master of a vessel and its pilot, among other things.
The pertinent provisions of the said administrative order governing these persons are quoted hereunder:

Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage grounds, the Harbor Pilot providing the service to a vessel shall
be responsible for the damage caused to a vessel or to life and property at ports due to his negligence or fault. He can be absolved from liability
if the accident is caused by force majeure or natural calamities provided he has exercised prudence and extra diligence to prevent or minimize
the damage.
The Master shall retain overall command of the vessel even on pilotage grounds whereby he can countermand or overrule the order or command
of the Harbor Pilot on board. In such event, any damage caused to a vessel or to life and property at ports by reason of the fault or negligence of
the Master shall be the responsibility and liability of the registered owner of the vessel concerned without prejudice to recourse against said
Master.

Such liability of the owner or Master of the vessel or its pilots shall be determined by competent authority in appropriate proceedings in the light
of the facts and circumstances of each particular case.

xxx

Sec. 32. Duties and Responsibilities of the Pilots or Pilots Association. -- The duties and responsibilities of the Harbor Pilot shall be as follows:

xxx

f) A pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a pilot thereof until he leaves it anchored or
berthed safely; Provided, however, that his responsibility shall cease at the moment the Master neglects or refuses to carry out his order."

The Code of Commerce likewise provides for the obligations expected of a captain of a vessel, to wit:

Art. 612. The following obligations shall be inherent in the office of captain:

xxx

"7. To be on deck on reaching land and to take command on entering and leaving ports, canals, roadsteads, and rivers, unless there is a pilot on
board discharging his duties. x x x.

The law is very explicit. The master remains the overall commander of the vessel even when there is a pilot on board. He remains in
control of the ship as he can still perform the duties conferred upon him by law[43] despite the presence of a pilot who is temporarily in charge of
the vessel. It is not required of him to be on the bridge while the vessel is being navigated by a pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:

Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat, or passing through rivers or straits within a pilotage district,
as well as docking and undocking at any pier/wharf, or shifting from one berth or another, every vessel engaged in coastwise and foreign trade
shall be under compulsory pilotage.

xxx.
The Orinoco River being a compulsory pilotage channel necessitated the engaging of a pilot who was presumed to be knowledgeable of
every shoal, bank, deep and shallow ends of the river. In his deposition, pilot Ezzar Solarzano Vasquez testified that he is an official pilot in the
Harbour at Port Ordaz, Venezuela,[44] and that he had been a pilot for twelve (12) years.[45] He also had experience in navigating the waters of the
Orinoco River.[46]
The law does provide that the master can countermand or overrule the order or command of the harbor pilot on board. The master of the
Philippine Roxas deemed it best not to order him (the pilot) to stop the vessel, [47] mayhap, because the latter had assured him that they were
navigating normally before the grounding of the vessel.[48] Moreover, the pilot had admitted that on account of his experience he was very
familiar with the configuration of the river as well as the course headings, and that he does not even refer to river charts when navigating the
Orinoco River.[49]
Based on these declarations, it comes as no surprise to us that the master chose not to regain control of the ship. Admitting his limited
knowledge of the Orinoco River, Captain Colon relied on the knowledge and experience of pilot Vasquez to guide the vessel safely.

Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different class from ordinary employees, for they assume to have a
skill and a knowledge of navigation in the particular waters over which their licenses extend superior to that of the master; pilots are bound to
use due diligence and reasonable care and skill. A pilot's ordinary skill is in proportion to the pilot's responsibilities, and implies a knowledge
and observance of the usual rules of navigation, acquaintance with the waters piloted in their ordinary condition, and nautical skill in avoiding all
known obstructions. The character of the skill and knowledge required of a pilot in charge of a vessel on the rivers of a country is very different
from that which enables a navigator to carry a vessel safely in the ocean. On the ocean, a knowledge of the rules of navigation, with charts that
disclose the places of hidden rocks, dangerous shores, or other dangers of the way, are the main elements of a pilot's knowledge and skill. But
the pilot of a river vessel, like the harbor pilot, is selected for the individual's personal knowledge of the topography through which the vessel is
steered."[50]

We find that the grounding of the vessel is attributable to the pilot. When the vibrations were first felt the watch officer asked him what
was going on, and pilot Vasquez replied that "(they) were in the middle of the channel and that the vibration was as (sic) a result of the
shallowness of the channel."[51]
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine Roxas as well as other vessels on the Orinoco River due to his
knowledge of the same. In his experience as a pilot, he should have been aware of the portions which are shallow and which are not.His failure
to determine the depth of the said river and his decision to plod on his set course, in all probability, caused damage to the vessel.Thus, we hold
him as negligent and liable for its grounding.
In the case of Homer Ramsdell Transportation Company vs. La Compagnie Generale Transatlantique, 182 U.S. 406, it was held that:

x x x The master of a ship, and the owner also, is liable for any injury done by the negligence of the crew employed in the ship. The same
doctrine will apply to the case of a pilot employed by the master or owner, by whose negligence any injury happens to a third person or his
property: as, for example, by a collision with another ship, occasioned by his negligence. And it will make no difference in the case that the pilot,
if any is employed, is required to be a licensed pilot; provided the master is at liberty to take a pilot, or not, at his pleasure, for in such a case the
master acts voluntarily, although he is necessarily required to select from a particular class. On the other hand, if it is compulsive upon the
master to take a pilot, and, a fortiori, if he is bound to do so under penalty, then, and in such case, neither he nor the owner will be liable
for injuries occasioned by the negligence of the pilot; for in such a case the pilot cannot be deemed properly the servant of the master or the
owner, but is forced upon them, and the maxim Qui facit per alium facit per se does not apply." (Underscoring supplied)

Anent the river passage plan, we find that, while there was none, [52] the voyage has been sufficiently planned and monitored as shown by
the following actions undertaken by the pilot, Ezzar Solarzano Vasquez, to wit: contacting the radio marina via VHF for information regarding
the channel, river traffic,[53]soundings of the river, depth of the river, bulletin on the buoys. [54] The officer on watch also monitored the
voyage.[55]
We, therefore, do not find the absence of a river passage plan to be the cause for the grounding of the vessel.
The doctrine of res ipsa loquitur does not apply to the case at bar because the circumstances surrounding the injury do not clearly indicate
negligence on the part of the private respondent. For the said doctrine to apply, the following conditions must be met: (1) the accident was of
such character as to warrant an inference that it would not have happened except for defendant's negligence; (2) the accident must have been
caused by an agency or instrumentality within the exclusive management or control of the person charged with the negligence complained of;
and (3) the accident must not have been due to any voluntary action or contribution on the part of the person injured. [56]
As has already been held above, there was a temporary shift of control over the ship from the master of the vessel to the pilot on a
compulsory pilotage channel. Thus, two of the requisites necessary for the doctrine to apply, i.e., negligence and control, to render the
respondent liable, are absent.
As to the claim that the ship was unseaworthy, we hold that it is not.
The Lloyds Register of Shipping confirmed the vessels seaworthiness in a Confirmation of Class issued on February 16, 1988 by finding
that "the above named ship (Philippine Roxas) maintained the class "+100A1 Strengthened for Ore Cargoes, Nos. 2 and 8 Holds may be empty
(CC) and +LMC" from 31/12/87 up until the time of casualty on or about 12/2/88." [57] The same would not have been issued had not the vessel
been built according to the standards set by Lloyd's.
Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified thus:
"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to the seaworthiness of the vessel?
"A Well, judging on this particular vessel, and also basing on the class record of the vessel, wherein recommendations were made on the top
side tank, and it was given sufficient time to be repaired, it means that the vessel is fit to travel even with those defects on the ship.
"COURT
What do you mean by that? You explain. The vessel is fit to travel even with defects? Is that what you mean? Explain.
"WITNESS
"A Yes, your Honor. Because the class society which register (sic) is the third party looking into the condition of the vessel and as far as
their record states, the vessel was class or maintained, and she is fit to travel during that voyage."
xxx
"ATTY. MISA
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class +100A1 Strengthened for Ore Cargoes', mean?
"WITNESS
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is capable of carrying ore bulk cargoes, but she is
particularly capable of carrying Ore Cargoes with No. 2 and No. 8 holds empty.
xxx
"COURT
The vessel is classed, meaning?
"A Meaning she is fit to travel, your Honor, or seaworthy."[58]
It is not required that the vessel must be perfect. To be seaworthy, a ship must be reasonably fit to perform the services, and to encounter
the ordinary perils of the voyage, contemplated by the parties to the policy.[59]
As further evidence that the vessel was seaworthy, we quote the deposition of pilot Vasquez:
"Q Was there any instance when your orders or directions were not complied with because of the inability of the vessel to do so?
 "A No.
"Q. Was the vessel able to respond to all your commands and orders?
"A. The vessel was navigating normally.[60]
Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an accident report wherein he stated that on February 11, 1988, he
checked and prepared the main engine, machineries and all other auxiliaries and found them all to be in good running condition and ready for
maneuvering. That same day the main engine, bridge and engine telegraph and steering gear motor were also tested. [61]Engineer Mata also
prepared the fuel for consumption for maneuvering and checked the engine generators. [62]
Finally, we find the award of attorneys fee justified.
Article 2208 of the New Civil Code provides that:

"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

xxx

"(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

xxx
Due to the unfounded filing of this case, the private respondent was unjustifiably forced to litigate, thus the award of attorneys fees was
proper.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED and the decision of the Court of Appeals in CA G.R. CV No.
36821 is AFFIRMED.
SO ORDERED.

G.R. No. 147324 May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.

x-----------------------------x

GLOBE TELECOM, INC., petitioner,

vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

DECISION

TINGA, J.:

Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001, in CA-G.R. CV No.
63619.1

The facts of the case are undisputed.

For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had been engaged in the
coordination of the provision of various communication facilities for the military bases of the United States of America (US) in Clark Air Base,
Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were installed and configured for the
exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of
American companies contracted by it to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn,
contracted with Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such as the
Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities.

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and provide an IBS
Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA. 2 The term of the contract was for 60 months, or
five (5) years.3 In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the Philippines and
the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point,
was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities, which include those
located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and
ratified by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new treaty is recognized
as such by the US Government.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same.

On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the
Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of the use by the US of
Subic Naval Base, among others.5 The last two paragraphs of the Resolution state:

FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries in the spirit of
friendship, cooperation and sovereign equality: Now, therefore, be it Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements, at
the same time reaffirming its desire to continue friendly relations with the government and people of the United States of America.6

On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US Embassy, notifying it of the
Philippines termination of the RP-US Military Bases Agreement. The Note Verbalestated that since the RP-US Military Bases Agreement, as
amended, shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval Base should be completed by said
date.

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08 November
1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement.
Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which provides:

Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such
failure results directly or indirectly from force majeure or fortuitous event. Either party is thus precluded from performing its
obligation until such force majeure or fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall mean
circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of
the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public
enemies, fire, floods, typhoons or other catastrophies or acts of God.

Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to know its commitment to pay the stipulated
rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of the earth station after November 08,
1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:

7. DISCONTINUANCE OF SERVICE

Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written notice shall be
served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no case shall be
less than the first two (2) T1 circuits, for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the
earth station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at
such monthly rate as may be agreed upon by the parties.8

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of its
outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed
Philcomsats demand.

On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the latter be ordered to
pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit. The case was raffled to
Branch 59 of said court.

Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US Military
Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of
the Agreement.

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate prevailing at the time of compliance
 or payment) representing rentals for the month of December 1992 with interest thereon at the legal rate of twelve percent
(12%) per annum starting December 1992 until the amount is fully paid;

2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300,000.00) Pesos as and for
attorneys fees;

3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and

4. With costs against the defendant.

SO ORDERED.9

Both parties appealed the trial courts Decision to the Court of Appeals.

Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force majeure which exempts Globe from complying with its obligations under the
Agreement; (2) Globe is not liable to pay the rentals for the remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for
exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for December 1992 and of
attorneys fees. It explained that it terminated Philcomsats services on 08 November 1992; hence, it had no reason to pay for rentals beyond that
date.

On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats appeal for lack of merit and affirming the trial
courts finding that certain events constituting force majeure under Section 8 the Agreement occurred and justified the non-payment by Globe of
rentals for the remainder of the term of the Agreement.

The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security, and its Supplementary
Agreements, and the termination by the Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated
in the Philippine Governments Note Verbale to the US Government, are acts, directions, or requests of the Government of the Philippines which
constitute force majeure. In addition, there were circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr.
Walter Corliss of the US Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US military forces and
personnel from Cubi Point, which prevented further use of the earth station under the Agreement.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services by 08 November 1992, it is still liable to pay
rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992. 10

Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.

In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:

A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE MAJEUREDIFFERENT

FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT
GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF
SECTION 7 OF THE AGREEMENT.

C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD OF ATTORNEYS FEES
IN FAVOR OF PHILCOMSAT.

D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR EXEMPLARY DAMAGES.12

Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event because the happening
thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section 8 should be deemed ineffective because it is
contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the validity of the parties definition of force majeure in Section 8 of
the Agreement as "circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or
request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public
enemies, fire, floods, typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous events
as events which could not be foreseen, or which, though foreseen, were inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the earth station for the entire
term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is
inconsistent with the appellate courts pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated
Philcomsats services effective 08 November 1992, because the US military and personnel completely withdrew from Cubi Point only in
December 1992. Philcomsat points out that it was Globe which proposed the five-year term of the Agreement, and that the other provisions of
the Agreement, such as Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals for the entire five-year term.15

Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys fees and exemplary damages.16

In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of the Civil Code because
said provision does not prohibit parties to a contract from providing for other instances when they would be exempt from fulfilling their
contractual obligations. Globe also claims that the termination of the RP-US Military Bases Agreement constitutes force majeure and exempts it
from complying with its obligations under the Agreement. 17 On the issue of the propriety of awarding attorneys fees and exemplary damages to
Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the term of the
Agreement, Globe only acted in accordance with its rights. 18

In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since Philcomsats services were actually terminated on 08 November 1992.20

In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual issue which is not cognizable by the Court in a
petition for review on certiorari.21

On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R. No.

147324 and required the parties to submit their respective memoranda.22

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by Globe in G.R. No. 147334 and required
both parties to submit their memoranda.23

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their arguments in their respective
petitions.

The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement, the non-ratification of
the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and personnel from Cubi Point
constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat; (2)
whether Globe is liable to pay rentals under the Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.

No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are denied.

There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect because the enumeration of events
constituting force majeure therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid.

In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in order to exempt a party
to a contract from complying with its obligations therein. It insists that since the expiration of the RP-US Military Bases Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US military forces and personnel from Cubi Point were
not unforeseeable, but were possibilities known to it and Globe at the time they entered into the Agreement, such events cannot exempt Globe
from performing its obligation of paying rentals for the entire five-year term thereof.

However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that
are unforeseeable, but also to those which are foreseeable, but inevitable:

Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though
foreseen were inevitable.

A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or typhoons, 24 or an "act of man,"
such as riots, strikes or wars.25

Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure:

1. Any law, order, regulation, direction or request of the Philippine Government;

2. Strikes or other labor difficulties;

 3. Insurrection;

4. Riots;

5. National emergencies;

6. War;

7. Acts of public enemies;

8. Fire, floods, typhoons or other catastrophies or acts of God;

9. Other circumstances beyond the control of the parties.

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the enumeration that runs
contrary to, or expands, the concept of a fortuitous event under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and conditions as they
may deem fit, as long as the same do not run counter to the law, morals, good customs, public order or public policy. 27

Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith."28 Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene
law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to
the function of the courts to give force and effect thereto. 29

Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat and Globe freely
agreed upon has the force of law between them.30

In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following
elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor.31

The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and
Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi Point in December 1992:

Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental Agreements) under its
Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond the control of the parties. This resolution was followed by the
sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to the US Government notifying
the latter of the formers termination of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces from Subic Naval Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification from
ATT dated July 29, 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08,
1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06, 1992.

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts,
direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and
personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant.

Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute "force majeure or fortuitous
event(s) as defined under paragraph 8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of the
contract.

As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military
forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to render
the service it was obligated under the Agreement. To put it blantly (sic), since the US military forces and personnel left or withdrew
from Cubi Point in the year end December 1992, there was no longer any necessity for the plaintiff to continue maintaining the IBS
facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of
either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment
of rentals for the remainder of the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its
corresponding obligation under the Agreement. As noted by the appellate court:

We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge GLOBE rentals for the
balance of the lease term without there being any corresponding telecommunications service subject of the lease. It will be grossly
unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act
of the government which was clearly beyond GLOBEs control. The binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality
between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the
other party free therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33

With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the Court likewise affirms the
appellate courts ruling that Globe should pay the same.

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal order issued by
Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject of the Agreement was not established during the
trial.34 However, the trial court found that the US military forces and personnel completely withdrew from Cubi Point only on 31 December
1992.35 Thus, until that date, the USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could
not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to
US naval personnel up to that time. Hence, the Court of Appeals did not err when it affirmed the trial courts ruling that Globe is liable for
payment of rentals until December 1992.

Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorneys fees and exemplary damages.

The award of attorneys fees is the exception rather than the rule, and must be supported by factual, legal and equitable justifications.36 In
previously decided cases, the Court awarded attorneys fees where a party acted in gross and evident bad faith in refusing to satisfy the other
partys claims and compelled the former to litigate to protect his rights;37 when the action filed is clearly unfounded,38 or where moral or
exemplary damages are awarded.39 However, in cases where both parties have legitimate claims against each other and no party actually
prevailed, such as in the present case where the claims of both parties were sustained in part, an award of attorneys fees would not be
warranted.40

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.41 In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsats
demands for payment of rentals. It was established during the trial of the case before the trial court that Globe had valid grounds for refusing to
comply with its contractual obligations after 1992.

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is
AFFIRMED.

SO ORDERED.

G.R. No. 126389 July 10, 1998

SOUTHEASTERN COLLEGE INC., petitioner,

vs.

COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO,
CONSOLACION DIMAANO and MILAGROS DIMAANO, respondents.

PURISIMA, J.:

Petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision 1 promulgated on July 31, 1996, and
Resolution 2 dated September 12, 1996 of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda. de Dimaano, et
al. vs. Southeastern College, Inc.", which reduced the moral damages awarded below from P1,000,000.00 to P200,000.00. 4 The
Resolution under attack denied petitioner's motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a four-storey school building along the
same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit Metro Manila. Buffeted by
very strong winds, the roof of petitioner's building was partly ripped off and blown away, landing on and destroying portions of the
roofing of private respondents' house. After the typhoon had passed, an ocular inspection of the destroyed building was conducted by a
team of engineers headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's Report 5 dated October 18,
1989 stated, as follows:

5. One of the factors that may have led to this calamitous event is the formation of the building in the area and the
general direction of the wind. Situated in the peripheral lot is an almost U-shaped formation of 4-storey building.
Thus, with the strong winds having a westerly direction, the general formation of the building becomes a big funnel-
like structure, the one situated along College Road, receiving the heaviest impact of the strong winds. Hence, there
are portions of the roofing, those located on both ends of the building, which remained intact after the storm.

6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural trusses is the
improper anchorage of the said trusses to the roof beams. The 1/2' diameter steel bars embedded on the concrete roof
beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still, there are other steel bars which
were not even bent to the trusses, thus, those trusses are not anchored at all to the roof beams.

It then recommended that "to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity,"
the fourth floor of subject school building be declared as a "structural hazard."

In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for damages based on culpa aquiliana, private
respondents alleged that the damage to their house rendered the same uninhabitable, forcing them to stay temporarily in others' houses.
And so they sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as moral damages, P300,000.00, as
exemplary damages and P100,000.00, for and as attorney's fees; plus costs.

In its Answer, petitioner averred that subject school building had withstood several devastating typhoons and other calamities in the
past, without its roofing or any portion thereof giving way; that it has not been remiss in its responsibility to see to it that said school
building, which houses school children, faculty members, and employees, is "in tip-top condition"; and furthermore, typhoon "Saling"
was "an act of God and therefore beyond human control" such that petitioner cannot be answerable for the damages wrought thereby,
absent any negligence on its part.

The trial court, giving credence to the ocular inspection report to the effect that subject school building had a "defective roofing
structure," found that, while typhoon "Saling" was accompanied by strong winds, the damage to private respondents' houses "could
have been avoided if the construction of the roof of [petitioner's] building was not faulty." The dispositive portion of the lower court's
decision 7 reads, thus:

WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff (sic) and against
the defendants, (sic) ordering the latter to pay jointly and severally the former as follows:

a) P117,116.00, as actual damages, plus litigation expenses;

b) P1,000,000.00 as moral damages;

c) P100,000.00 as attorney's fees;

d) Costs of the instant suit.

The claim for exemplary damages is denied for the reason that the defendants (sic) did in a wanton fraudulent,
reckless, oppressive or malevolent manner.

In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that:

THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON "SALING", AS AN ACT OF GOD, IS NOT "THE
SOLE AND ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL PORTION OF THE ROOF OF
SOUTHEASTERN'S FOUR (4) STOREY SCHOOL BUILDING.

II

THE TRIAL COURT ERRED IN HOLDING THAT "THE CONSTRUCTION OF THE ROOF OF DEFENDANT'S
SCHOOL BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION THAT THERE WERE
TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON "SALING" WHICH IS THE DIRECT AND
PROXIMATE CAUSE OF THE INCIDENT.
 III

THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL AS ATTORNEY'S
FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY HAVE NOT
INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN
INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC.

IV

THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF EXECUTION INSPITE OF
THE PERFECTION OF SOUTHEASTERN'S APPEAL WHEN THERE IS NO COMPELLING REASON FOR
THE ISSUANCE THERETO.

As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court's disposition by reducing the award of
moral damages from P1,000,000.00 to P200,000.00. Hence, petitioner's resort to this Court, raising for resolution the issues of:

1. Whether or not the award of actual damages [sic] to respondent Dimaanos on the basis of speculation or
conjecture, without proof or receipts of actual damage, [sic] legally feasible or justified.

2. Whether or not the award of moral damages to respondent Dimaanos, with the latter having suffered, actual
damage has legal basis.

3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject matter of the case,
during its pendency, has the right to pursue their complaint against petitioner when the case was already moot and
academic by the sale of the property to third party.

4. Whether or not the award of attorney's fees when the case was already moot academic [sic] legally justified.

5. Whether or not petitioner is liable for damage caused to others by typhoon "Saling" being an act of God.

6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without hearing, has support in law.

The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof of the building of private respondents
resulting from the impact of the falling portions of the school building's roof ripped off by the strong winds of typhoon "Saling", was,
within legal contemplation, due to fortuitous event? If so, petitioner cannot be held liable for the damages suffered by the private
respondents. This conclusion finds support in Article 1174 of Civil Code, which provides:

Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which, though foreseen, were inevitable.

The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as "an event which takes place by accident
and could not have been foreseen." 9 Escriche elaborates it as "an unexpected event or act of God which could neither be foreseen nor
resisted." 10 Civilist Arturo M. Tolentino adds that "[f]ortuitous events may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as an armed invasion, attack by bandits, governmental
prohibitions, robbery, etc." 11

In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or
misconduct by reason of which the loss may have been occasioned. 12 An act of God cannot be invoked for the protection of a person
who has been guilty of gross negligence in not trying to forestall its possible adverse consequences. When a person's negligence concurs
with an act of God in producing damage or injury to another, such person is not exempt from liability by showing that the immediate or
proximate cause of the damages or injury was a fortuitous event. When the effect is found to be partly the result of the participation of
man whether it be from active intervention, or neglect, or failure to act the whole occurrence is hereby humanized, and removed
from the rules applicable to acts of God. 13

In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school
building's roofing had "no sufficient anchorage to hold it in position especially when battered by strong winds." Based on such finding,
the trial court imputed negligence to petitioner and adjudged it liable for damages to private respondents.

After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the general rule that
factual findings by the trail court, especially when affirmed by the appellate court, are binding and conclusive upon this Court. 14 After
a careful scrutiny of the records and the pleadings submitted by the parties, we find exception to this rule and hold that the lower courts
misappreciated the evidence proffered.

There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable
despite any amount of foresight, diligence or care. 15 In order to be exempt from liability arising from any adverse consequence
engendered thereby, there should have been no human participation amounting to a negligent act. 16 In other words; the person seeking
exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance which
the circumstances justify demand, 17 or the omission to do something which a prudent and reasonable man, guided by considerations
which ordinarily regulate the conduct of human affairs, would
do. 18 From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused to
private respondents' house could have been avoided?

At the outset, it bears emphasizing that a person claiming damages for the negligence of another has the burden of proving the existence
of fault or negligence causative of his injury or loss. The facts constitutive of negligence must be affirmatively established by competent
evidence, 19 not merely by presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of
petitioner, merely relied on the aforementioned report submitted by a team which made an ocular inspection of petitioner's school
building after the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or viewing. 20 What is visual to the
eye through, is not always reflective of the real cause behind. For instance, one who hears a gunshot and then sees a wounded person,
cannot always definitely conclude that a third person shot the victim. It could have been self-inflicted or caused accidentally by a stray
bullet. The relationship of cause and effect must be clearly shown.

In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial
unroofing of petitioner's school building. Private respondents did not even show that the plans, specifications and design of said school
building were deficient and defective. Neither did they prove any substantial deviation from the approved plans and specifications. Nor
did they conclusively establish that the construction of such building was basically flawed. 21

On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the
original plans and design of petitioner's school building were approved prior to its construction. Engr. Reyna admitted that it was a
legal requirement before the construction of any building to obtain a permit from the city building official (city engineer, prior to the
passage of the Building Act of 1977). In like manner, after construction of the building, a certification must be secured from the same
official attesting to the readiness for occupancy of the edifice. Having obtained both building permit and certificate of occupancy, these
are, at the very least, prima facie evidence of the regular and proper construction of subject school building. 22

Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official gave the go-signal
for such repairs without any deviation from the original design and subsequently, authorized the use of the entire fourth floor of
the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its "U-shaped"
form was "structurally defective." Having given his unqualified imprimatur, the city building official is presumed to have properly
performed his duties 23 in connection therewith.

In addition, petitioner presented its vice president for finance and administration who testified that an annual maintenance inspection
and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance supervisor to
attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it
would be corroborative of the vice president's narration.

Moreover, the city building official, who has been in the city government service since 1974, admitted in open court that no complaint
regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench. It is a
matter of judicial notice that typhoons are common occurrences in this country. If subject school building's roofing was not firmly
anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than "Saling."

In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We thus hold that
petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school building in question and
that typhoon "Saling" was the proximate cause of the damage suffered by private respondents' house.

With this disposition on the pivotal issue, private respondents' claim for actual and moral damages as well as attorney's fees must
fail. 24 Petitioner cannot be made to answer for a purely fortuitous event. 25 More so because no bad faith or willful act to cause damage
was alleged and proven to warrant moral damages.

Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred. 26 It is not enough that
the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts that afford
a basis for measuring whatever compensatory damages are borne. 27 Private respondents merely submitted an estimated amount needed
for the repair of the roof their subject building. What is more, whether the "necessary repairs" were caused ONLY by petitioner's
alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential
question that remains indeterminable.

The Court deems unnecessary to resolve the other issues posed by petitioner.

As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is hereby nullified and set aside.
Private respondents are ordered to reimburse any amount or return to petitioner any property which they may have received by virtue
of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The complaint of private respondents in Civil
Case No. 7314 before the trial court a quo is ordered DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET
ASIDE. Accordingly, private respondents are ORDERED to return to petitioner any amount or property received by them by virtue of
said writ. Costs against the private respondents.

SO ORDERED.

G.R. No. 159617 August 8, 2007

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,

vs.
LULU V. JORGE and CESAR JORGE, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner
corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R.
CV No. 56633.

It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry
with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan in the total amount
of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault.
The incident was entered in the police blotter of the Southern Police District, Paraaque Police Station as follows:

Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said
office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an
electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat
on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above.

Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number.3

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the
pawnshop. On November 2, 1987, respondent Lulu then wrote a letter 4 to petitioner Sicam expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested
petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial
Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as
attorney's fees. The case was docketed as Civil Case No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and
known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged
with it and could not be made liable for an event that is fortuitous.

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents
opposed the same. The RTC denied the motion in an Order dated November 8, 1989. 5

After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing respondents complaint as well as petitioners
counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in
the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by
respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is
a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties
transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those
events which could not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of
which reads as follows:

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial
Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the
lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8

In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity
reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop
tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner
corporation.

The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items
and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade
which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had
not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the
loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.

The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry.

Petitioners motion for reconsideration was denied in a Resolution dated August 8, 2003.

Hence, the instant petition for review with the following assignment of errors:

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT
THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.9

Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is personally liable for the loss of the pawned
jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief."10

Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer from infirmities, as follows:

(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present
owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and

(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality
distinct and separate from its individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents brief
which had the following defects:

(1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a
vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB
rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place;

(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice
that due to high incidence of crimes, insurance companies refused to cover pawnshops and banks because of high probability of losses
due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for
the sum of money belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda.

We find no merit in the petition.

To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents (appellants)
brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and
distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case one
way or another is broad enough to justify the adoption of the arguments put forth by one of the parties, as long as these are legally tenable and
supported by law and the facts on records.11

Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. Generally, the
findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence
adduced by the parties in the court a quo.12 This rule, however, is not without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case.

However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is
that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of
corporate entity was not meant to promote unfair objectives or otherwise to shield them. 15

Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam
himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words
"Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged
incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression
to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation.

Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987 addressed to the Central Bank, expressly referred to
petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the
present owner of the pawnshop, the CA is bound to decide the case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no
such admission was made.

Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to
wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact
made. The latter exception allows one to contradict an admission by denying that he made such an admission. 17

The Committee on the Revision of the Rules of Court explained the second exception in this wise:

x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the
"admission" may show that he made no "such" admission, or that his admission was taken out of context.

x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the admission is made to
appear.

That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no
admission was made," the rule would not really be providing for a contradiction of the admission but just a denial. 18 (Emphasis
supplied).

While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, they did
so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the
pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that respondents referred to both
petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to
observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry.

Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended Complaint, insofar as petitioner Sicam is concerned,
averred as follows:

Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show
that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the
Complaint. He merely added "that defendant is not now the real party in interest in this case."
 It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of
the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop
business is now incorporated. It is a matter of defense, the merit of which can only be reached after consideration of the evidence to be
presented in due course.19

Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own
purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name
militates for the piercing of the corporate veil.

We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was
not an issue raised and litigated before the RTC.

Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the
pawnshop business initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he
submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be
directed.20 In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court.
Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision in this manner:

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he cannot be made
personally liable for a claim arising from a corporate transaction.

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts that "plaintiff pawned
assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of a
corporation.21

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected
with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned articles in their possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.

We are not persuaded.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which,
though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have
been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. 22

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor
to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. 23

The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. 24 And, in order for a fortuitous event to exempt
one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. 25

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence
is humanized and removed from the rules applicable to acts of God. 26

Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he
started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which
petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated.
Petitioner Sicams testimony, in effect, contradicts petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been
occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners.
In Co v. Court of Appeals,27 the Court held:

It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in
its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise
to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It
must be proved and established that the event was an act of God or was done solely by third parties and that neither the
claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of
proving that the loss was due to a fortuitous event rests on him who invokes it which in this case is the private
respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent
is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault
or negligence on the part of private respondent.28

Just like in Co, petitioners merely presented the police report of the Paraaque Police Station on the robbery committed based on the report of
petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory
negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by
pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and
antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the
diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own
property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the
provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of
a family shall be required.

We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not
do.31 It is want of care required by the circumstances.

A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have
used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:

Court:

Q. Do you have security guards in your pawnshop?

A. Yes, your honor.

Q. Then how come that the robbers were able to enter the premises when according to you there was a security guard?

A. Sir, if these robbers can rob a bank, how much more a pawnshop.

Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard?
 A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and
everything was quiet in the area BF Homes Paraaque they pretended to pawn an article in the pawnshop, so one of my employees
allowed him to come in and it was only when it was announced that it was a hold up.

Q. Did you come to know how the vault was opened?

A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The combination is off.

Q. No one open (sic) the vault for the robbers?

A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to
you inside the vault.

A. Yes sir.32

revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security
guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security
guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the
premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers
were armed with caliber .45 pistols each, which were allegedly poked at the employees. 33 Significantly, the alleged security guard was not
presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified
in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the
care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the
combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF
Homes Paraaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting
the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart
away the pawned articles.

We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned
jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was
issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be
insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance
Commissioner.

However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns The office building/premises and pawns of a pawnshop must be insured against
fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of
pawned articles against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners
to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code.

The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is
placed and the importance of the act which he is to perform. 34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman,
Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability,
find no application to the present case.

In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad failed to
subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case filed against several
persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set up the defense
that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that
Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly established and
declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the
civil liability of returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took
place without any concurrent fault on the debtors part, and this can be done by preponderance of evidence; that to be free from liability for
reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence.38

We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila and its
suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without
suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of
considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. However we did not
hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of
incidence obtaining in 1971.

In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they
wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found
petitioners negligent in securing their pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite.
In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of the employees and the operating
expenses of the project. However for some reason, the processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he
decided to encash the check because the project employees would be waiting for their pay the following day; otherwise, the workers would have
to wait until July 5, the earliest time, when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same
afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate
the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for
Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the
robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because
he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan instead
of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to
collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the next working day after
July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer
destination, being nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We
further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other
passengers could not be said to be a result of his imprudence and negligence.

Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the
control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from
unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the
pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA), boarded the
Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified
person. Among those stolen were her wallet and the government-issued cellular phone. She then reported the incident to the police authorities;
however, the thief was not located, and the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she
requested that she be freed from accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the
diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA
found no sufficient justification to grant the request for relief from accountability. We reversed the ruling and found that riding the LRT cannot
per se be denounced as a negligent act more so because Cruzs mode of transit was influenced by time and money considerations; that she
boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance
can reasonably be expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did
considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and
pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the
cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on
board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions
justly demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its Resolution dated August 8,
2003, are AFFIRMED.

Costs against petitioners.

SO ORDERED.
G.R. No. 155604 November 22, 2007

COLLEGE ASSURANCE PLAN and COMPREHENSIVE ANNUITY PLAN and PENSION CORPORATION,petitioners,
vs.
BELFRANLT DEVELOPMENT INC., respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the February 28, 2002 Decision 1 of the
Court of Appeals (CA) in CA-G.R. CV No. 63283, which modified the April 14, 1999 Decision 2 of the Regional Trial Court (Branch 221),
Quezon City (RTC) in Civil Case No. Q-95-23118.

The antecedent facts are as summarized by the RTC.

Belfranlt Development, Inc. (respondent) is the owner of Belfranlt Building in Angeles City, Pampanga. It leased to petitioners College
Assurance Plan Phil., Inc. (CAP) and Comprehensive Annuity Plans and Pension Corporation (CAPP) several units on the second and third
floors of the building.3

On October 8, 1994, fire destroyed portions of the building, including the third floor units being occupied by petitioners. An October 20, 1994
field investigation report by an unnamed arson investigator assigned to the case disclosed:

0.5 Origin of Fire: Store room occupied by CAP, located at the 3rd floor of the bldg.

0.6 Cause of Fire: Accidental (overheated coffee percolator).4

These findings are reiterated in the October 21, 1994 certification which the BFP City Fire Marshal, Insp. Teodoro D. del Rosario issued to
petitioners as supporting document for the latter's insurance claim. 5

Citing the foregoing findings, respondent sent petitioners on November 3, 1994 a notice to vacate the leased premises to make way for repairs,
and to pay reparation estimated at P1.5 million.

On November 11, 1994, petitioners vacated the leased premises, including the units on the second floor, 6 but they did not act on the demand for
reparation.

Respondent wrote petitioners another letter, reiterating its claim for reparation, this time estimated by professionals to be no less than P2
million.7 It also clarified that, as the leased units on the second floor were not affected by the fire, petitioners had no reason to vacate the same;
hence, their lease on said units is deemed still subsisting, along with their obligation to pay for the rent. 8

In reply, petitioners explained that they could no longer re-occupy the units on the second floor of the building for they had already moved to a
new location and entered into a binding contract with a new lessor. Petitioners also disclaimed liability for reparation, pointing out that the fire
was a fortuitous event for which they could not be held responsible. 9

After its third demand10 went unheeded, respondent filed with the RTC a complaint against petitioners for damages. The RTC rendered a
Decision dated April 14, 1999, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [respondent] and against the herein
defendants [petitioners]. Defendants are ordered to pay the plaintiff joint[sic] and severally the following amounts:

1) P2.2 Million Pesos cost of rehabilitation (repairs, replacements and renovations) of the Belfranlt building by way of
Actual and Compensatory damages;

2) P14,000.00 per month of unpaid rentals on the third floor of the Belfranlt building for the period from October 1994 until
the end of the two year lease contract on May 10, 1996 by way of Actual and Compensatory damages;

3) P18,000.00 per month of unpaid rentals on the second floor of the Belfanlt building for the period from October 1994
until the end of the two year lease contract on May 10, 1996 by way of Actual or Compensatory damages;

4) P8,400.00 per month as reimbursement of unpaid rentals on the other leased areas occupied by other tenants for the period
from October 1994 until the time the vacated leased areas were occupied by new tenants;

5) P200,000.00 as moral damages;

 6) P200,000.00 as exemplary damages;

7) P50,000.00 plus 20% of Actual damages awarded as reasonable Attorney's fees; and

8) Costs of suit.

SO ORDERED.11

Petitioners appealed to the CA which, in its February 28, 2002 Decision, modified the RTC Decision, thus:

WHEREFORE, the appealed decision is MODIFIED in that the award of (i) actual and compensatory damages in the amounts of P2.2
Million as cost of rehabilitation of Belfranlt Building and P8,400.00 per month as reimbursement of unpaid rentals on the areas leased
by other tenants, (ii) moral damages, (iii) exemplary damages and (iv) attorney's fees is DELETED, while defendants-appellants are
ordered to pay to plaintiff-appellee, jointly and severally, the amount of P500,000.00 as temperate damages. The appealed judgment is
AFFIRMED in all other respects.

SO ORDERED.12

Respondent did not appeal from the CA decision.13

Petitioners filed the present petition, questioning the CA decision on the following grounds:

The honorable Court of Appeals erred in not holding that the fire that partially burned respondent's building was a fortuitous event.

II

The honorable Court of Appeals erred in holding that petitioner failed to observe the due diligence of a good father of a family.

III

The honorable Court of Appeals erred in holding petitioners liable for certain actual damages despite plaintiffs' failure to prove the
damage as alleged.

IV

The honorable Court of Appeals erred in holding petitioners liable for temperate damages. 14

The petition lacks merit.

Article 1667 of the Civil Code, which provides:

The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his fault. This
burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity.

creates the presumption that the lessee is liable for the deterioration or loss of a thing leased. To overcome such legal presumption, the lessee
must prove that the deterioration or loss was due to a fortuitous event which took place without his fault or negligence. 15

Article 1174 of the Civil Code defines a fortuitous event as that which could not be foreseen, or which, though foreseen, was inevitable. Whether
an act of god16 or an act of man,17 to constitute a fortuitous event, it must be shown that: a) the cause of the unforeseen and unexpected
occurrence or of the failure of the obligor to comply with its obligations was independent of human will; b) it was impossible to foresee the
event or, if it could have been foreseen, to avoid it; c) the occurrence rendered it impossible for the obligor to fulfill its obligations in a normal
manner; and d) said obligor was free from any participation in the aggravation of the injury or loss.18 If the negligence or fault of the obligor
coincided with the occurrence of the fortuitous event, and caused the loss or damage or the aggravation thereof, the fortuitous event cannot
shield the obligor from liability for his negligence. 19

In the present case, it was fire that caused the damage to the units being occupied by petitioners. The legal presumption therefore is that
petitioners were responsible for the damage. Petitioners insist, however, that they are exempt from liability for the fire was a fortuitous event that
took place without their fault or negligence.20

The RTC saw differently, holding that the proximate cause of the fire was the fault and negligence of petitioners in using a coffee percolator in
the office stockroom on the third floor of the building and in allowing the electrical device to overheat:
 Plaintiff has presented credible and preponderant evidence that the fire was not due to a fortuitous event but rather was due to an
overheated coffee percolator found in the leased premises occupied by the defendants. The certification issued by the Bureau of Fire
Protection Region 3 dated October 21, 1994 clearly indicated that the cause of the fire was an overheated coffee percolator. This
documentary evidence is credible because it was issued by a government office which conducted an investigation of the cause and
circumstances surrounding the fire of October 8, 1994. Under Section 4, Rule 131 of the Revised Rules of Court, there is a legal
presumption that official duty has been regularly performed. The defendants have failed to present countervailing evidence to rebut or
dispute this presumption. The defendants did not present any credible evidence to impute any wrongdoing or false motives on the part
of Fire Department Officials and Arson investigators in the preparation and finalization of this certification. This Court is convinced
that the Certification is genuine, authentic, valid and issued in the proper exercise and regular performance of the issuing authority's
official duties. The written certification cannot be considered self-serving to the plaintiff because as clearly indicated on its face the
same was issued not to the plaintiff but to the defendant's representative Mr. Jesus V. Roig for purposes of filing their insurance claim.
This certification was issued by a government office upon the request of the defendant's authorized representative. The plaintiff also
presented preponderant evidence that the fire was caused by an overheated coffee percolator when plaintiff submitted in evidence not
only photographs of the remnants of a coffee percolator found in the burned premises but the object evidence itself. Defendants did not
dispute the authenticity or veracity of these evidence. Defendants merely presented negative evidence in the form of denials that
defendants maintained a coffee percolator in the premises testified to by employees of defendants who cannot be considered totally
disinterested.21(Citations omitted)

The CA concurred with the RTC and noted additional evidence of the negligence of petitioners:

The records disclose that the metal base of a heating device which the lower court found to be the base of a coffee percolator, was
retrieved from the stockroom where the fire originated. The metal base contains the inscription "CAUTION DO NOT OPERATE
WHEN EMPTY", which is a warning against the use of such electrical device when empty and an indication that it is a water-heating
appliance. Its being an instrument for preparing coffee is demonstrated by its retrieval from the stockroom, particularly beside broken
drinking glasses, Nescafe bottle, metal dish rack and utensils.

Appellants assert that it had an airpot not a coffee percolator - near the Administration Office on the third floor. For unexplained
reasons, however, they did not present the airpot to disprove the existence of the coffee percolator. The fire did not raze the entire third
floor and the objects therein. Even the stack of highly combustible paper on the third floor was not totally gutted by the fire.
Consequently, it is not farfetched that the burnt airpot, if any, could have been recovered by appellants from the area where it was
supposedly being kept.

xxxx

The defense that the fire was a fortuitous event is untenable. It is undisputed that the fire originated from appellants' stockroom located
on the third floor leased premises. Said stockroom was under the control of appellants which, on that fateful day (a Saturday),
conducted a seminar in the training room which was adjoining the stockroom. Absent an explanation from appellants on the cause of
the fire, the doctrine of res ipsa loquitur applies.22

Petitioners impugn both findings. They claim that the BFP field investigation report (Exh. "P-2") and the BFP certification (Exh. "P-3") are
hearsay evidence because these were presented during the testimony of Fireman Gerardo Sitchon (Fireman Sitchon) of the Bureau of Fire
Protection (BFP), Angeles City, who admitted to having no participation in the investigation of the fire incident or personal knowledge about
said incident,23 making him incompetent to testify thereon. Petitioners argue that, with Exh. "P-2" and Exh. "P-3" and the testimony of Fireman
Sitchon that are flawed, there is virtually no evidence left that the cause of the fire was an overheated coffee percolator. Petitioners insist that
they own no such percolator.24

We find no cogent reason to disturb the finding of the RTC and CA.

The finding that the negligence of petitioners was the proximate cause of the fire that destroyed portions of the leased units is a purely factual
matter which we cannot pass upon,25 lest we overstep the restriction that review by certiorari under Rule 45 be limited to errors of law only.26

Moreover, the established rule is that the factual findings of the CA affirming those of the RTC are conclusive and binding on us.27 We are not
wont to review them, save under exceptional circumstances as: (1) when the inference made is manifestly mistaken, absurd or impossible; (2)
when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the
judgment of the CA is based on misapprehension of facts; (5) when the CA, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (6) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (7) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (8) when the findings of fact of the CA are premised on the absence of evidence
and are contradicted by the evidence on record.28

The exceptions do not obtain in the present case. In fact, the findings of the RTC and CA are fully supported by the evidence.

Contrary to petitioners' claim, Fireman Sitchon is competent to identify and testify on Exh. "P-2" and Exh. "P-3" because, although he did not
sign said documents, he personally prepared the same.29 What Fireman Sitchon did not prepare were the documents which his investigation
witnesses presented.30 However, Fireman Sitchon emphasized that he interviewed said investigation witnesses namely, Ronald Estanislao, the
security guard on duty at the time of fire; and Dr. Zenaida Arcilla, manager of CAPP, before he prepared Exh. "P-2" and Exh. "P-3."31Hence,
while Fireman Sitchon may have had no personal knowledge of the fire incident, Exh. "P-2" and Exh. "P-3," which he prepared based on the
statements of his investigation witnesses, especially that of Ronald Estanislao whose official duty it was to report on the incident, are exceptions
to the hearsay rule because these are entries in official records.32 Consequently, his testimony on said documents are competent evidence of the
contents thereof. 33

Furthermore, the petitioners are estopped from contesting the veracity of Exh. "P-3" because, as the CA correctly pointed out, "the aforesaid
certification was used by appellants [petitioners] in claiming insurance for their office equipment which were destroyed by the fire."34

Even without the testimony of Fireman Sitchon and the documents he prepared, the finding of the RTC and CA on the negligence of petitioners
cannot be overturned by petitioners' bare denial. The CA correctly applied the doctrine of res ipsa loquitur under which expert testimony may be
dispensed with35 to sustain an allegation of negligence if the following requisites obtain: a) the accident is of a kind which does not ordinarily
occur unless someone is negligent; b) the cause of the injury was under the exclusive control of the person in charge and c) the injury suffered
must not have been due to any voluntary action or contribution on the part of the person injured.36 The fire that damaged Belfranlt Building was
not a spontaneous natural occurrence but the outcome of a human act or omission. It originated in the store room which petitioners had
possession and control of. Respondent had no hand in the incident. Hence, the convergence of these facts and circumstances speaks for itself:
petitioners alone having knowledge of the cause of the fire or the best opportunity to ascertain it, and respondent having no means to find out for
itself, it is sufficient for the latter to merely allege that the cause of the fire was the negligence of the former and to rely on the occurrence of the
fire as proof of such negligence.37 It was all up to petitioners to dispel such inference of negligence, but their bare denial only left the matter
unanswered.

The CA therefore correctly affirmed the RTC in holding petitioners liable to respondent for actual damages consisting of unpaid rentals for the
units they leased.

The CA deleted the award of actual damages of P2.2 million which the RTC had granted respondent to cover costs of building repairs. In lieu of
actual damages, temperate damages in the amount of P500,000.00 were awarded by the CA. We find this in order. 38

Temperate or moderate damages may be availed when some pecuniary loss has been suffered but its amount cannot, from the nature of the case,
be proved with certainty.39 The amount thereof is usually left to the discretion of the courts but the same should be reasonable, bearing in mind
that temperate damages should be more than nominal but less than compensatory. 40 Without a doubt, respondent suffered some form of
pecuniary loss for the impairment of the structural integrity of its building as a result of the fire. However, as correctly pointed out by the CA,
because of respondent's inability to present proof of the exact amount of such pecuniary loss, it may only be entitled to temperate damages in the
amount of P500,000.00,41 which we find reasonable and just.

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.