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THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs.

COURT OF APPEALS and SUN


BROTHERS & COMPANY, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks
the reversal of the Decision,[1] dated May 20, 1996, of the Court of Appeals (CA for brevity) in CA-G.R.
CV No. 46987 affirming the Decision,[2] dated April 25, 1994, rendered by the Regional Trial Court
(Branch 150), Makati City (RTC for brevity) in Civil Case No. 92-27754 extending the lease contract
subject of the petition for declaratory relief and ordering petitioner to pay attorneys fees and costs.

The factual antecedents are as follows:

On September 24, 1992, Sun Brothers & Company (Sun Brothers for brevity) filed a petition for
declaratory relief with the RTC seeking judicial interpretation of the option to renew clause under a
Contract of Lease dated September 20, 1988.[3]

Under the contract, Sun Brothers leased for a period of five years from December 1,
1987 until November 30, 1992, a parcel of land, with an approximate area of 4,215 square meters,
and the building constructed thereon, located in Makati (then a Municipality). The contract stipulated
that the lease was renewable at the option of the tenant, Sun Brothers, for an additional five years,
provided the exercise of the option to renew the lease shall be made by the tenant in writing to The
Insular Life Assurance Company, Ltd. (Insular for brevity) at least ninety days before the expiration of
the period. The contract further provided for monthly rental of P50,000.00 for the first year and an
increase of 10% per annum for the succeeding years, exclusive of real estate taxes and insurance
premiums which are for the account of Sun Brothers.[4]

Sun Brothers alleged that since the lease contract does not contain any provision as to the rental or
any provision for any new or additional terms or conditions in case of renewal, the terms and
conditions of the renewal of lease should be the same and the monthly rental should remain
at P73,205.00. It prayed that judgment be rendered: (a) declaring that renewal under the contract of
lease be for an additional period of five years under the same terms and conditions and the monthly
rental should be P73,205.00; and, (b) ordering Insular to pay Sun Brothers P20,000.00 as attorneys
fees and to pay the costs of suit.[5]

On November 6, 1992, Insular filed its Answer[6] claiming that while the lease contract grants Sun
Brothers the option to renew the lease by giving notice thereof to Insular at least ninety days before
the expiration of the period, it has always been the agreement of the parties that Sun Brothers does
not have the right to impose, on its sole will, a renewal of the lease as to the period or the
rentals;[7] that despite the presence of the renewal clause in the previous contracts of lease, the
parties still negotiated, as a matter of course, for the renewal of the lease in 1977 and 1987; that
negotiation was the usual norm between the parties, clearing up as it did vague portions of the
previous contracts.

After trial on the merits, the RTC rendered its decision, dated April 25, 1994, ruling as follows:

The wording of the xxx provisions of the contract is clear, unambiguous and need no further
interpretation. The tenant, herein petitioner, is vested solely with the option to renew the said
contract of lease on the only condition that the same be made known to respondent in writing at
least 90 days before its expiration.

Petitioner, in its letter to respondent dated May 22, 1993 (Exh. D), expressed its desire to exercise the
option granted in the contract, since there is no mention of any change or increase in the amount of
monthly rental, petitioner understood it to mean that the renewal will be under the same terms and
conditions.
Respondents claim that the lease contract (Exh. C) does not contain the true intent of the parties
deserves scant consideration. It must be noted, as correctly pointed out by the petitioner, that all the
contracts of lease between the parties and the repeated renewals thereof were entirely drafted,
finalized and notarized by respondent and is, thus, a contract of adhesion. Being a contract of
adhesion, petitioners only role was for its general manager, Amancio L. Sun to sign the same. The
respondent could have easily deleted this questioned renewal clause in the contract if, indeed, such
was not the intention of the parties. It could have provided therein that any renewal of the lease
would be by mutual agreement of the parties or had specifically limited the period of the lease.[8]

The dispositive portion of the assailed decision reads:

WHEREFORE, considering all the foregoing, judgment is hereby rendered as follows:

a) declaring that the contract of lease dated 30 September 1988 be renewed for another 5 years
starting from 30 November 1992 and up to 1 December 1997;

b) declaring that the monthly rental on the leased premises be P100,000.00 exclusive of real estate
taxes and insurance premiums, less any amounts that petitioner may have paid respondent in the
meantime;

c) ordering the respondent to pay herein petitioner the amount of P20,000.00 as attorneys fees; and

d) to pay the cost.

SO ORDERED.[9]

On June 1, 1994, Insular filed a motion for reconsideration[10] which the RTC denied in its Order
dated July 18, 1994.[11]

Dissatisfied, Insular appealed to the CA.[12] In a Decision dated May 20, 1996, the CA affirmed the
decision of the trial court.[13] It reasoned that since the renewal clause in the latest contract of
Insular and Sun Brothers is silent as to the terms and conditions of the subsequent contract, such
subsequent contract should follow the terms and conditions of the original contract, applying the
doctrine laid down in the cases of Ledesma vs. Javellana,[14] Millare vs.
Hernando, [15] and Fernandez vs. Court of Appeals.[16]

As regards the monthly rental, the CA held that there was no merit to Insulars allegation that the trial
court acted arbitrarily in fixing the amount of the rent at P100,000.00 a month since it considered the
testimony of Insulars witness that improvements introduced by Sun Brothers still have an appraised
value, which value is considered by the CA in favor of Sun Brothers in the determination of the terms
of the extended lease. The CA added that the trial court arrived at the amount of P100,000.00 after
considering that Sun Brothers had shouldered the maintenance expenses on the building and paid
real estate taxes as well as insurance premiums thereon.[17]

Insular filed a motion for reconsideration[18] which was denied by the CA in its Resolution
dated October 10, 1996.[19]

Hence, the present petition for review anchored on the following grounds:

A. THE EXERCISE OF JUDICIAL POWER ENTAILS THE DUTY TO SETTLE ACTUAL CONTROVERSIES OF
LEGALLY DEMANDABLE RIGHTS AND TO DECIDE UPON ISSUES SUBMITTED BY THE PARTIES.

B. WHERE A PARTY PUTS IN ISSUE IN HIS PLEADING THAT THE CONTRACT FAILS TO EXPRESS THE TRUE
INTENT OF THE PARTIES, THE LOWER COURT IS MANDATED TO CONSIDER THE EXTRINSIC EVIDENCE
PRESENTED AND THEN DECIDE WHAT THE TRUE INTENT IS; BY THE VERY NATURE OF THIS CHALLENGE,
IT IS A JUDICIAL ABDICATION OF DUTY TO SIMPLY AND MERELY RULE THAT THE CONTRACT IS CLEAR
AND MUST BE INTERPRETED AS SUCH.
C. THE AMOUNT OF REASONABLE RENT IS DETERMINED ON THE BASIS OF EVIDENCE PRESENTED.

D. PETITIONER IS ENTITLED TO AN AWARD OF MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS


FEES.[20]

Succinctly, the issue herein is the real nature of the option to renew the lease under the contractual
agreement of the parties. Insular insists that the option to renew is a bilateral agreement subject to
the terms and conditions the parties may agree upon. Sun Brothers, on the other hand, posits that
the option to renew is its unilateral right effectively exercised by mere notice to Insular of the
intention to extend the lease, at least ninety days before the expiration of the period, without
qualification as to monthly rental or term of the lease.

It is a settled rule that in the exercise of the Supreme Courts power of review, the Court is not a trier
of facts and does not normally undertake the re-examination of the evidence presented by the
contending parties during the trial of the case considering that the findings of facts of the CA are
conclusive and binding on the Court.[21] However, the Court had recognized several exceptions to
this rule, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different
conclusion.[22] Exceptions (4), (10) and (11) are present in this case.

It is a cardinal rule in contract interpretation that the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to project that intention in
their contract, that is, all the words, not just a particular word or two, and words in context, not
words standing alone.[23] Furthermore, Article 1374 of the Civil Code requires that 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. Conformably, to ascertain the true meaning or import
of the disputed option to renew clause in the contract of lease, the entirety of the contract must be
considered; not merely the clause relating to the option to renew.

After a careful examination of the records of the case, the Court finds it significant that the disputed
contract of lease is not the first contract between the parties but, in fact, the third contract or the
second renewal contract. The parties lessor-lessee relationship all started on January 29, 1958, with
the original contract of lease,[24] portions of which provide:

INSULAR does hereby lease the abovementioned land and building unto the TENANT and the
TENANT does hereby accept in lease from INSULAR the said land and building, for a period of TEN (10)
YEARS from the date provided for in Clause IX hereof, renewable at the option of the TENANT for an
additional period of TEN (10) YEARS; PROVIDED, HOWEVER, that the exercise of the options to renew
the lease as herein stated shall be made by the TENANT in writing to INSULAR at least NINETY (90)
DAYS before the expiration of the periods herein mentioned. All renewals shall be under the same
terms and conditions hereinstated.

.........

III
INSULAR expressly covenants that if on or before the expiration of the period of TWENTY (20) YEARS
(covered by the original TEN (10) years period of the lease and the renewal period of TEN (10) years
hereinabove stipulated) TENANT still desires to occupy the building, INSULAR shall give the TENANT
first priority to lease the building at the monthly rental and under such other terms and conditions as
may be agreed upon by the parties at that time.[25] (Emphasis supplied)

The first renewal of the lease contract was made on January 20, 1978 for a period of another 10 years,
from December 1, 1977 until November 30, 1987, which by that time had added up to twenty years of
lease. The parties agreed that the lease was renewable at the option of the Sun Brothers for an
additional period of five years with the proviso that the exercise of the option to renew the lease shall
be made by the tenant in writing to Insular at least ninety days before the expiration of the period
provided.[26] The contract further provided that:

2) For the use and occupancy of the leased premises TENANT shall, during the first (5) years of the
above 10-year period, pay in advance at the office of INSULAR, within the first five (5) days of every
month a monthly rental of P24,325.00 exclusive of real estate taxes and insurance premiums. (All real
estate taxes, other assessments and insurance premiums of the leased properties shall be for the
account of the TENANT).

Thereafter, the rental shall be adjusted beginning on the sixth year of this lease with an effective
increase equivalent to 6.5% per annum of the imputed value increment on the land compounded at
5% annually for a period of five (5) years using the current value of the leased property as base, which
current value is hereby agreed upon by the parties as follows:

Land ---------------------------- P 3,793,500.00

Improvements ---------------- 697,100.00

Total Current Value ---------- P 4,490,600.00

On the basis of the above current value, the monthly rental for the 2nd Five (5) years of the said
10-year period is estimated to be P30,002.00 exclusive of real estate taxes, other assessments and
insurance premiums for the leased properties.

3) Except for the foregoing modification/amendment, all the other terms and conditions of the
Contract of Lease dated 29 January 1958 remain in full force and effect.[27] (Emphasis supplied)

Thereafter, prior to the expiration of the foregoing contract in November 1987, an exchange of letters
ensued between the contracting parties, as follows:

1. SUN BROTHERS, in a letter dated July 15, 1987, expressed its intention to renew the lease for a
period of five years.[28]

2. On July 31, 1987, INSULAR informed SUN BROTHERS that it was agreeable to the renewal of the
lease subject to the following terms: (a) lease period from 01 December 1987 to 30 November 1992;
(b) basic monthly rental of P60,000.00; (c) annual escalation rate of 10%; and, (d) insurance premiums,
realty taxes, other government assessments if any, shall be for the account of SUN BROTHERS.[29]

3. SUN BROTHERS acceded to the terms of INSULAR[30] but subsequently found the said terms to be
quite heavy, hence in a letter dated October 5, 1987, it offered the following compromise term: (a)
basic monthly rental increase of 50% over the present monthly rental of P30,000.00, thereby making
the new monthly rental to P45,000.00; and, (b) annual escalation rate of 5% which is a new condition
not in the old contract, in addition to the insurance premiums, realty taxes, other government
assessments if any, which shall be for the account of SUN BROTHERS.[31]

4. On November 20, 1987 INSULAR informed SUN BROTHERS that it was not amenable to the
foregoing compromise terms. It reasoned that the new basic rental rate of P60,000.00 is fair and
reasonable considering the present market value rates of other properties in the immediate
vicinity.[32]

5. On November 27, 1987, SUN BROTHERS requested reconsideration and accept its new offer
of P50,000.00 monthly rental and yearly increase of 5%.[33]

6. On December 10, 1987, INSULAR informed SUN BROTHERS that it was agreeable to renewal of the
lease subject to the following terms: (a) lease period from 01 December 1987 to 30 November 1992;
(b) basic monthly rental of P50,000.00; (c) annual escalation rate of 10%; and, (d) insurance premiums,
realty taxes, other government assessments if any, shall be for the account of SUN BROTHERS.[34]

The foregoing exchange of communications ultimately led to the Contract of Lease dated September
20, 1988, which is the second renewed Contract of Lease or third contract of lease between the
parties. The contract again stipulated that the lease was renewable at the option of the tenant for an
additional five years provided the exercise of the option to renew the lease shall be made by the
tenant in writing to Insular at least ninety days before the expiration of the period. The lease was for a
period of five years, from December 1, 1987 until November 30, 1992, with a monthly rental
of P50,000.00 for the first year, and an increase of 10% per annum for the succeeding years, exclusive
of real estate taxes and insurance premiums which are for the account of Sun Brothers.[35] Again, the
contract provided that except for the foregoing modification/amendment, all the other terms and
conditions of the Contract of Lease dated 29 January 1958 remain in full force and effect.[36]

Prior to the expiration of the second renewal Contract of Lease in 1992, an exchange of letters once
more transpired between the parties, thus:

1. On May 22, 1992, SUN BROTHERS communicated to INSULAR its intention to renew the lease
contract, quoting P100,000.00 as monthly rental.[37]

2. In response thereto in a letter dated June 10, 1992, INSULAR offered a lease period of one year at a
monthly rental of P500,000.00.[38]

3. More than a month later, SUN BROTHERS, in a letter dated August 5, 1992, expressed that, under
the provisions of the contract of lease, SUN BROTHERS has the right to renew the lease for another
period of five (5) years without any condition for the exercise of the option, except the giving of
written notice at least ninety (90) days before November 30, 1992 and that the rental due INSULAR is
the current rental. Thus, SUN BROTHERS insisted that INSULARs consent is not necessary to the
renewal of the lease and the monthly rental due is the current rental paid by it.[39]

4. On September 1, 1992, INSULAR replied to the foregoing letter, explaining that the contract of
lease granted SUN BROTHERS only the option to renew the lease contract and not the right to dictate
the terms and conditions of the renewed contract, especially on the amount of rentals to be paid.[40]

5. On September 5, 1992, SUN BROTHERS reiterated its position that it has the validly exercised the
option to renew the lease contract under the same terms and conditions by giving notice to INSULAR
as provided in the lease contract.[41]

which apparently brought about an impasse by reason of which Sun Brothers filed the petition for
declaratory relief with the RTC.

Clearly, in this case, the original contract of lease dictates the interpretation of the renewal clause.
Under the original contract of lease, the option to renew clause means simply that after the 20-year
period of lease, or after the second contract of lease which was to expire November 30, 1987, the
lessee, Sun Brothers, is given first priority to lease the building at the monthly rental and under such
other terms and conditions as may be agreed upon by the parties at that time. The renewal contracts
of 1978 and 1987 each contained the stipulation that except for the modification or amendment
relating to the monthly rental and term of the lease, all the other terms and conditions of the
Contract of Lease dated 29 January 1958 remain in full force and effect,[42] and, therefore, in
pursuance thereof, the monthly rentals and other terms and conditions of the proposed renewal
contract were agreed upon by the parties in said 1978 and 1987 renewed contracts of lease.

Consequently, Sun Brothers interpretation based solely on the renewal clause under scrutiny
completely ignoring the original contract of lease, is not plausible. The contracting parties intent as
can be gleaned from the original contract of lease and confirmed by their subsequent acts in the 1977
and 1987 renewal contracts, was to constitute the renewal of the lease subject to terms and
conditions to be agreed upon by the parties at the time of each renewal.

Furthermore, the subsequent acts of the parties, evidenced by the exchange of letters between the
two contenders, clearly show that their understanding and interpretation of the option to renew
clause is that which is explicitly provided in the original contract of lease. Thus, after Sun Brothers
signified its intention to renew the lease in 1977 and in 1987, a series of offers and counter-offers on
the monthly rental and the term of lease followed until the parties reached an agreement
thereon. Sun Brothers complied with the terms of the original contract of lease on the option to
renew until 1992 when, midway through the negotiations, in the face of a P500,000.00 monthly rental
pegged by Insular, Sun Brothers did a volte face and suddenly insisted that it had a unilateral right to
renew.

The cases of Ledesma vs. Javellana, Millare vs. Hernando and Fernandez vs. Court of Appeals, relied
upon by the lower courts, find no application in the present case since the 1977 and 1987 renewal
contracts explicitly adopted all the other provisions of the original contract of lease dated January 29,
1958, including the provision on contract renewals, except those that relate to the monthly rental and
the term of the lease.

When the language of the contract is explicit leaving no doubt as to the intention of the drafters
thereof, the courts may not read into it any other intention that would contradict its plain
import.[43] The Court would be rewriting the contract of lease between Insular and Sun Brothers
under the guise of construction were we to interpret the option to renew clause as Sun Brothers
propounds it, despite the express provision in the original contract of lease and the contracting
parties subsequent acts. As the Court has held in Riviera Filipina, Inc. vs. Court of Appeals,[44] a court,
even the Supreme Court, has no right to make new contracts for the parties or ignore those already
made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal
construction justifies the creation of a contract for the parties which they did not make themselves or
the imposition upon one party to a contract of an obligation not assumed.[45]

The Court will now discuss the merit of Insulars claim for monthly rental and damages.

Insular pleads that the Court should fix the monthly rental at P500,000.00. Sun Brothers alleges that
the said amount is unreasonable, if not, unconscionable. However, no evidence, other than its
self-serving assertion, was offered by Sun Brothers to substantiate its contention. On the other hand,
Insular submitted in evidence the Appraisal Report which estimated the fair rental value of the
subject leased property at P700,000.00 as of October 30, 1991.[46] The testimony of the appraiser,
Executive Vice President, Engr. Oliver Morales, of the Cuervo Appraisers, Inc.[47] was not proven by
Sun Brothers to be biased and partial on their estimation of the fair rental value of the subject leased
property.

In addition, Insular presented the Contract of Lease it entered into with Winsome Development
Corporation dated March 30, 1993 involving an 8,200 square meter property which is almost twice
the size of the subject leased property and likewise located in Makati, where the monthly rental for
the first year, starting December 1992, was fixed at P600,000.00.[48] Sun Brothers failed to
demonstrate that this contract has been assailed in court or that the agreed monthly rental was
found to be unconscionable. Suffice it to state that courts may take judicial notice of the general
increase in rentals of lease contract renewals much more with business establishments,[49] especially
in this case where the subject leased property covers a 4,215 square meter prime property centrally
located in a well-developed commercial district of the City of Makati.[50] Based thereon, the Court
finds the amount of P500,000.00 as reasonable monthly rental.

However, the Court cannot validly impose said amount on Sun Brothers as monthly rental since it was
not agreed upon by the parties. It is not the province of the Court to make a contract for the parties
or bind parties to one when no consensual agreement was entered into.[51] But the amount
of P500,000.00 a month since 1992 or P6 Million a year, can be considered actual or compensatory
damages representing reasonable rental value or unrealized monthly income for Sun Brothers
continued occupation and enjoyment of the leased property. This is in consonance with Producers
Bank of the Philippines vs. Court of Appeals[52] wherein the Court had enunciated the kinds of actual
damages, thus:

. . . There are two kinds of actual or compensatory damages: one is the loss of what a person already
possesses, and the other is the failure to receive as a benefit that which would have pertained to him
x x x.In the latter instance, the familiar rule is that damages consisting of unrealized profits, frequently
referred as ganacias frustradas or lucrum cessans, are not to be granted on the basis of mere
speculation, conjecture, or surmise, but rather by reference to some reasonably definite standard
such as market value, established experience, or direct inference from known circumstances.[53]

In addition, records disclose that in an Order dated April 30, 1993 the trial court authorized Sun
Brothers to make a consignation of its monthly rentals of P69,544.75 staring the month of December
1992 while the case pends in the trial court.[54] The amount of monthly rentals consigned[55] should
be deducted from the total amount of actual or compensatory damages herein granted to Insular.
Furthermore, such actual or compensatory damages due shall earn interest at the legal rate of 12%
per annum computed from the date of finality of this decision until full payment would have actually
been made, in accordance with the ruling of this Court in Eastern Shipping Lines, Inc. vs. Court of
Appeals,[56] to wit:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing.Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on


the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum.No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. (Emphasis supplied)[57]

Moreover, the Court takes exception from the CAs opinion that the improvements introduced by Sun
Brothers should be considered in the latters favor in considering the terms of the rent. The fact that
Sun Brothers had shouldered maintenance expenses on the building and paid real estate taxes as well
as insurance premiums is inconsequential and immaterial in fixing the rent. The improvements
introduced and the payment of expenses, taxes and premiums have always been excluded in the
determination of the monthly rental in the contracts of lease between the parties. The Court cannot
disregard this fact simply because it later becomes disadvantageous to one party, especially when Sun
Brothers voluntarily assumed the obligation in the original contract.

As to moral damages, Insulars prayer that moral damages not less than P5 Million be awarded
because its name and reputation has been defamed by Sun Brothers, is not tenable. The rule is that
moral damages can not be granted in favor of a corporation. Being an artificial person and having
existence only in legal contemplation, a corporation has no feelings, no emotions, no senses; it cannot,
therefore, experience physical suffering, mental anguish, fright, serious anxiety, wounded feelings or
moral shock or social humiliation, which can be suffered only by one having a nervous system.[58]

As to Insulars plea for exemplary damages, the Court finds the same meritorious. In contracts and
quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.[59] Sun Brothers was in evident bad faith
when in the course of negotiations for the third renewal of the lease contract in 1992, it wantonly and
oppressively insisted that it had a unilateral right to renew to lease thereby resulting in an impasse
between the parties and which Sun Brothers took advantage of and used as a basis for instituting the
proceedings for declaratory relief, although its prior actions since January 29, 1958 when the original
contract of lease was executed, spanning more than three decades, indicated that it was well-aware
of the contractual stipulation that after a twenty-year period of lease, the right to renew the lease
was subject to such terms and conditions that the parties may mutually agree upon at the time, as
expressly provided for in the original contract of lease. Consequently, an award of exemplary
damages in the amount of P500,000.00 is in order by way of example and correction for the public
good and also to serve as a deterrent to the commission of similar misdeeds by others.

Under Article 2208 of the Civil Code, attorneys fees may be awarded not only when exemplary
damages is awarded but also when a party is compelled to litigate or to incur expenses to protect its
interest by reason of an unjustified act of the other party.[60] In the present case, Insular was
constrained to engage the services of counsel and to incur expenses of litigation in order to protect its
interest to the subject property against Sun Brothers utterly unfounded insistence on an alleged
unilateral right to renew the lease. The award of P250,000.00 is reasonable in view of the time it has
taken this case to be resolved.[61]

WHEREFORE, the assailed Decision, dated May 20, 1996, of the Court of Appeals in CA-G.R. CV No.
46987 is REVERSED and SET ASIDE. In lieu thereof, judgment is rendered ordering respondent Sun
Brothers and Company to pay petitioner Insular Life Assurance Company, Ltd. actual damages in the
amount of Five Hundred Thousand Pesos (P500,000.00) monthly, representing the unrealized
monthly income of petitioner or P6 Million a year from December 1, 1992 until respondent vacates
the leased premises. The amount of monthly rentals consigned with the trial court shall be deducted
from the total amount of actual or compensatory damages due. Furthermore, such actual or
compensatory damages due shall earn interestat the legal rate of 12% per annum computed from the
date of finality of this decision until full payment thereof. In addition, private respondent Sun
Brothers and Company is ordered to pay petitioner exemplary damages in the amount of Five
Hundred Thousand Pesos (P500,000.00); and attorneys fees in the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00).

Double costs against private respondent.


SO ORDERED.

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

DECISION

CARPIO, J.:

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of
the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14
December 1992 Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No.
8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters
Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical
and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs
of suit.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun
Alegre (Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other
Bicol areas.[6]

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints
from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian
College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory,
AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for
damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly
libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already. Several students had approached me
stating that they had consulted with the DECS which told them that there is no such regulation. If
[there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized
by DECS. xxx

Third: Students are required to take and pay for the subject even if the subject does not have an
instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is offered by the school. However
there would be no instructor for such subject. Students would be informed that course would be
moved to a later date because the school is still searching for the appropriate instructor.
xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been
surviving for the past few years since its inception because of funds support from foreign foundations.
If you will take a look at the AMEC premises youll find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very
concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial,
isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for
detractors and enemies of the Ago family to stop the flow of support of foreign foundations who
assist the medical school on the basis of the latters purpose. But if the purpose of the institution
(AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign
foundations to lift or suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the
AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are
absorbing or continues to accept rejects. For example how many teachers in AMEC are former
teachers of Aquinas University but were removed because of immorality? Does it mean that the
present administration of AMEC have the total definite moral foundation from catholic administrator
of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of
Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she
is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old,
low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in
AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer
fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at
that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as
she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was
taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at AMEC is so much burdened
with unreasonable imposition? What do you expect from a student who aside from peculiar problems
because not all students are rich in their struggle to improve their social status are even more
burdened with false regulations. xxx[9] (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs,
FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC
and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due
diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that
the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly
impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued
with public interest.

Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on FBNIs behalf. The trial court
denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised
due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI likewise claimed that it always
reminds its broadcasters to observe truth, fairness and objectivity in their broadcasts and to refrain
from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.

On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for libel
except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the
broadcasters claim that their utterances were the result of straight reporting because it had no
factual basis. The broadcasters did not even verify their reports before airing them to show good faith.
In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the
selection and supervision of its employees.

In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he
agreed with Alegres expos. The trial court found Rimas statement within the bounds of freedom of
speech, expression, and of the press. The dispositive portion of the decision reads:

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of
damages caused by the controversial utterances, which are not found by this court to be really very
serious and damaging, and there being no showing that indeed the enrollment of plaintiff school
dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the
radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00
moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.

SO ORDERED. [13] (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other,
appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts
judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre.
The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were
directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision
reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26
January 2000 Resolution.

Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per
se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of
Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to
inform the public of the students gripes as insufficient to justify the utterance of the defamatory
remarks.

Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled
that the broadcasts were made with reckless disregard as to whether they were true or false. The
appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students
who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to
identify the students. According to the Court of Appeals, these circumstances cast doubt on the
veracity of the broadcasters claim that they were impelled by their moral and social duty to inform
the public about the students gripes.

The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a
dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean
Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with
unreasonable imposition and false regulations.[16]

The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of
its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the
libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged
FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.

The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre
against AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of
the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code.
Article 30[18] authorizes a separate civil action to recover civil liability arising from a criminal offense.
On the other hand, Article 33[19] particularly provides that the injured party may bring a separate
civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article
19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles 2176[21] and 2180[22] of
the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.

Whether the broadcasts are libelous

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or
any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or
contempt of a natural or juridical person, or to blacken the memory of one who is dead.[24]

There is no question that the broadcasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such
as greed for money on the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx
moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of
the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a
money-making institution where physically and morally unfit teachers abound.

However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre
were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no
evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points
out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to
defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel.

FBNIs contentions are untenable.

Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately
their good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have presented the public issues free
from inaccurate and misleading information.[26] Hearing the students alleged complaints a month
before the expos,[27] they had sufficient time to verify their sources and information. However, Rima
and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they
inquire about nor confirm the purported irregularities in AMEC from the Department of Education,
Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied on the words of the
students because they were many and not because there is proof that what they are saying is
true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report was true or
not.

Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some
courts in the United States apply the privilege of neutral reportage in libel cases involving matters of
public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly
reports certain defamatory statements made against public figures is shielded from liability,
regardless of the republishers subjective awareness of the truth or falsity of the accusation.[29] Rima
and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in
the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were
made. The privilege of neutral reportage applies where the defamed person is a public figure who is
involved in an existing controversy, and a party to that controversy makes the defamatory
statement.[30]

However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court
of Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged
communications for being commentaries on matters of public interest. Such being the case, AMEC
should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there
is no libel.

FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment,
thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an
action for libel or slander. The doctrine of fair comment means that while in general every
discreditable imputation publicly made is deemed false, because every man is presumed innocent
until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when
the discreditable imputation is directed against a public person in his public capacity, it is not
necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false supposition. If
the comment is an expression of opinion, based on established facts, then it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the
facts.[32] (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is genuinely imbued
with public interest. The welfare of the youth in general and AMECs students in particular is a matter
which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject
broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts
are not based on established facts. The record supports the following findings of the trial court:

xxx Although defendants claim that they were motivated by consistent reports of students and
parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single
student who made the complaint to them, much less present written complaint or petition to that
effect. To accept this defense of defendants is too dangerous because it could easily give license to
the media to malign people and establishments based on flimsy excuses that there were reports to
them although they could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of
their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove
that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy
courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than
2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already
been given the plaintiff, which certificate is signed by no less than the Secretary of Education and
Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this
were they careful enough to verify. And yet, defendants were very categorical and sounded too
positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy
courses which they were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although
a big building of plaintiff school was given the name Mcdonald building, that was only in order to
honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the
claim of defendants over the air, not a single centavo appears to be received by plaintiff school from
the aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when
medical students fail in one subject, they are made to repeat all the other subject[s], even those they
have already passed, nor their claim that the school charges laboratory fees even if there are no
laboratories in the school. No evidence was presented to prove the bases for these claims, at least in
order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers,
defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean
Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people
prove to be effective teachers like Supreme Court Justices who are still very much in demand as law
professors in their late years. Counsel for defendants is past 75 but is found by this court to be still
very sharp and effective. So is plaintiffs counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still
alert and docile.

The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous and responsible
professionals.[33]

Had the comments been an expression of opinion based on established facts, it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the
facts.[34] However, the comments of Rima and Alegre were not backed up by facts. Therefore, the
broadcasts are not privileged and remain libelous per se.

The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. (Radio Code). Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate
and misleading information. x x x Furthermore, the station shall strive to present balanced discussion
of issues. x x x.

xxx

7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public affairs and public
issues.[36](Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of
ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary
code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a
public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a
code by which their conduct are measured for lapses, liability and sanctions.

The public has a right to expect and demand that radio broadcast practitioners live up to the code of
conduct of their profession, just like other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly and with good faith in the
exercise of his rights and performance of his duties as required by Article 19[37] of the Civil Code. A
professional code of conduct also provides the standards for determining whether a person who
willfully causes loss or injury to another has acted in a manner contrary to morals or good customs
under Article 21[38] of the Civil Code.

II.

Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]

A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental
anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to
justify the award of moral damages. However, the Courts statement in Mambulao that a corporation
may have a good reputation which, if besmirched, may also be a ground for the award of moral
damages is an obiter dictum.[42]

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or
any other form of defamation and claim for moral damages.[44]

Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case,
evidence of an honest mistake or the want of character or reputation of the party libeled goes only in
mitigation of damages.[46] Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some damages.[47] In this case, the
broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.

However, we find the award of P300,000 moral damages unreasonable. The record shows that even
though the broadcasts were libelous per se, AMEC has not suffered any substantial or material
damage to its reputation. Therefore, we reduce the award of moral damages from P300,000
to P150,000.

III.

Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article
2208[48] of the Civil Code.

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for
attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover,
both the trial and appellate courts failed to explicitly state in their respective decisions the rationale
for the award of attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of
Appeals,[50] we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than
the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the
court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In all events, the court must explicitly state in the text
of the decision, and not only in the decretal portion thereof, the legal reason for the award of
attorneys fees.[51](Emphasis supplied)

While it mentioned about the award of attorneys fees by stating that it lies within the discretion of
the court and depends upon the circumstances of each case, the Court of Appeals failed to point out
any circumstance to justify the award.

IV.

Whether FBNI is solidarily liable with Rima and Alegre

for moral damages, attorneys fees

and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and
attorneys fees because it exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre,
undergo a very regimented process before they are allowed to go on air. Those who apply for
broadcaster are subjected to interviews, examinations and an apprenticeship program.

FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a
broadcaster. FBNI points out that the minor deficiencies in the KBP accreditation of Rima and Alegre
do not in any way prove that FBNI did not exercise the diligence of a good father of a family in
selecting and supervising them. Rimas accreditation lapsed due to his non-payment of the KBP annual
fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila
Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or
government regulation.

FBNIs arguments do not persuade us.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort
which they commit.[52] Joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve
of it after it is done, if done for their benefit.[53] Thus, AMEC correctly anchored its cause of action
against FBNI on Articles 2176 and 2180 of the Civil Code.

As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages
arising from the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory
statements published by radio or television may be had from the owner of the station, a
licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements.[54] An employer and employee are solidarily liable for a defamatory
statement by the employee within the course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were clearly
performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts.
FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that
time. There was likewise no showing that FBNI did not authorize and ratify the defamatory
broadcasts.

Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that
it exercised diligence in the selection of its broadcasters without introducing any evidence to prove
that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its
broadcasters to observe truth, fairness and objectivity and to refrain from using libelous and indecent
language is not enough to prove due diligence in the supervision of its broadcasters. Adequate
training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters performance are but a few of the many ways of showing
diligence in the supervision of broadcasters.

FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications. However, no clear and convincing evidence shows that Rima and
Alegre underwent FBNIs regimented process of application. Furthermore, FBNI admits that Rima and
Alegre had deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements before it
hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters
strong commitment to observe the broadcast industrys rules and regulations. Clearly, these
circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI
is solidarily liable to pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and
Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the
MODIFICATION that the a
METROPOLITAN BANK AND TRUST COMPANY G.R. No. 179952
(formerly ASIANBANK CORPORATION),

Petitioner,
Present:

PUNO, C.J., Chairperson,

CARPIO MORALES,

LEONARDO-DE CASTRO,
- versus -
BERSAMIN, and

VILLARAMA, JR., JJ.

BA FINANCE CORPORATION and MALAYAN


INSURANCE CO., INC.,

Respondents.

Promulgated:

December 4, 2009

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

DECISION

CARPIO MORALES, J.:

Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance)
a P329,280[1] loan to secure which, he mortgaged his car to respondent BA Finance.[2] The mortgage
contained the following stipulation:

The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove
mortgaged to be insured against loss or damage by accident, theft and fire for a period of one year
from date hereof with an insurance company or companies acceptable to the MORTGAGEE in an
amount not less than the outstanding balance of mortgage obligations and that he/it will make all loss,
if any, under such policy or policies, payable to the MORTGAGEE or its assigns as its interest may
appear x x x.[3] (emphasis and underscoring supplied)

Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan
Insurance)[4] which issued a policy stipulating that, inter alia,
Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is hereby expressly
understood that this policy or any renewal thereof, shall not be cancelled without prior notification
and conformity by BA FINANCE CORPORATION.[5] (emphasis and underscoring supplied)

The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A.
Finance Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation
(China Bank). The check was crossed with the notation For Deposit Payees Account Only.[6]

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his
account with the Asianbank Corporation (Asianbank), now merged with herein petitioner
Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire
proceeds of the check.

In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed
check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and
withdrawing the entire proceeds thereof.

BA Finance thereupon demanded the payment of the value of the check from Asianbank[7] but to no
avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of
money and damages against Asianbank and Bitanga,[8] alleging that, inter alia, it is entitled to the
entire proceeds of the check.

In its Answer with Counterclaim,[9] Asianbank alleged that BA Finance instituted [the] complaint in
bad faith to coerce [it] into paying the whole amount of the CHECK knowing fully well that its rightful
claim, if any, is against Malayan [Insurance].[10]

Asianbank thereafter filed a cross-claim against Bitanga,[11] alleging that he fraudulently induced its
personnel to release to him the full amount of the check; and that on being later informed that the
entire amount of the check did not belong to Bitanga, it took steps to get in touch with him but he
had changed residence without leaving any forwarding address.[12]

And Asianbank filed a third-party complaint against Malayan Insurance,[13] alleging that Malayan
Insurance was grossly negligent in issuing the check payable to both Bitanga and BA Finance and
delivering it to Bitanga without the consent of BA Finance.[14]

Bitanga was declared in default in Asianbanks cross-claim.[15]


Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the contract between
BA Finance and Bitanga, and noting the claim of Malayan Insurance that it is its policy to issue checks
to both the insured and the financing company, held that Malayan Insurance cannot be faulted for
negligence for issuing the check payable to both BA Finance and Bitanga.

The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his
account and to withdraw the proceeds thereof, without his co-payee BA Finance having either
indorsed it or authorized him to indorse it in its behalf,[16] found Asianbank and Bitanga jointly and
severally liable to BA Finance following Section 41 of the Negotiable Instruments Law and Associated
Bank v. Court of Appeals.[17]

Thus the trial court disposed:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Asian Bank
Corporation and Lamberto Bitanga:

1) To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon
at the rate of 12% from September 25, 1992 until fully paid;

2) To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as actual


damages; P30,000.00 as attorneys fee; and

3) To pay the costs of suit.

Asianbanks and Bitangas [sic] counterclaims are dismissed.

The third party complaint of defendant/third party plaintiff against third-party defendant Malayan
Insurance, Co., Inc. is hereby dismissed. Asianbank is ordered to pay Malayan attorneys fee of
P50,000.00 and a per appearance fee of P500.00.

On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered to pay the
former the amounts the latter is ordered to pay the plaintiff in Nos. 1, 2 and 3 above-mentioned.

SO ORDERED.[18] (emphasis and underscoring supplied)

Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted the following issues for
consideration:

3.01.1.1 Whether BA Finance has a cause of action against Asianbank.

3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from Asianbank more
than one-half of the value of the check considering that it is a mere co-payee or joint payee of the
check?
3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary damages for
wrongfully bringing the case to court.

3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of money which
this Honorable Court may award to BA Finance in this case.[19] (underscoring supplied)

And it proffered the following arguments:

A. BA Finance has no cause of action against Asianbank as it has no legal right and title to the check
considering that the check was not delivered to BA Finance. Hence, BA Finance is not a holder thereof
under the Negotiable Instruments Law.

B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of contract
between them.

C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the intermediary
between the payee and the drawee Chinabank, it merely acted on the instructions of drawee
Chinabank to pay the amount of the check to Bitanga, hence, the consequent damage to BA Finance
was due to the negligence of Chinabank.

D. Malayans act of issuing and delivering the check solely to Bitanga in violation of the loss payee
clause in the Policy, is the proximate cause of the alleged damage to BA Finance.

E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest on the check as
it is a joint payee thereof.

F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust enrichment or solutio
indebiti.

G. BA Finance is liable to pay Asianbank actual and exemplary damages.[20] (underscoring supplied)

The appellate court, summarizing the errors attributed to the trial court by Asianbank to be
whetherBA Finance has a cause of action against [it] even if the subject check had not been delivered
toBA Finance by the issuer itself, held in the affirmative and accordingly affirmed the trial courts
decision but deleted the award of P20,000 as actual damages.[21]
Hence, the present Petition for Review on Certiorari[22] filed by Metrobank (hereafter petitioner) to
which Asianbank was, as earlier stated, merged, faulting the appellate court

I. x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of


factual similarity and of the legal relationships necessary for the application of the desirable shortcut
rule. x x x

II. x x x in not finding that x x x the general rule that the payee has no cause of
action against the collecting bank absent delivery to him must be applied.

III. x x x in finding that all the elements of a cause of action by BA Finance Corporation
against Asianbank Corporation are present.

IV. x x x in finding that Article 1208 of the Civil Code is not applicable.

V. x x x in awarding of exemplary damages even in the absence of moral, temperate,


liquidated or compensatory damages and a finding of fact that Asianbank acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.

xxxx

VII. x x x in dismissing Asianbanks counterclaim and Third Party complaint [against Malayan
Insurance].[23] (italics in the original; underscoring supplied)

Petitioner proffers the following arguments against the application of Associated Bank v. CA to the
case:

x x x [T]he rule established in the Associated Bank case has provided a speedier remedy for the payee
to recover from erring collecting banks despite the absence of delivery of the negotiable
instrument. However, the application of the rule demands careful consideration of the factual settings
and issues raised in the case x x x.

One of the relevant circumstances raised in Associated Bank is the existence of forgery or
unauthorized indorsement. x x x

xxxx

In the case at bar, Bitanga is authorized to indorse the check as the drawer names him as one of the
payees. Moreover, his signature is not a forgery nor has he or anyone forged the signature of the
representative of BA Finance Corporation. No unauthorized indorsement appears on the check.

xxxx
Absent the indispensable fact of forgery or unauthorized indorsement, the desirable shortcut rule
cannot be applied,[24] (underscoring supplied)

The petition fails.

Section 41 of the Negotiable Instruments Law provides:

Where an instrument is payable to the order of two or more payees or indorsees who are not
partners, all must indorse unless the one indorsing has authority to indorse for the others.(emphasis
and underscoring supplied)

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the
proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on
its behalf.[25]

Denying any irregularity in accepting the check, petitioner maintains that it followed normal banking
procedure. The testimony of Imelda Cruz, Asianbanks then accounting head, shows otherwise,
however, viz:

Q Now, could you be familiar with a particular policy of the bank with respect to checks with joined
(sic) payees?

A Yes, sir.

Q And what would be the particular policy of the bank regarding this transaction?

A The bank policy and procedure regarding the joint checks. Once it is deposited to a single account,
we are not accepting joint checks for single account, depositing to a single account (sic).

Q What happened to the bank employee who allowed this particular transaction to occur?

A Once the branch personnel, the bank personnel (sic) accepted it, he is liable.

Q What do you mean by the branch personnel being held liable?

A Because since (sic) the bank policy, we are not supposed to accept joint checks to a [single] account,
so we mean that personnel would be held liable in the sense that (sic) once it is withdrawn or
encashed, it will not be allowed.

Q In your experience, have you encountered any bank employee who was subjected to disciplinary
action by not following bank policies?

A The one that happened in that case, since I really dont know who that personnel is, he is no longer
connected with the bank.
Q What about in general, do you know of any disciplinary action, Madam witness?

A Since theres a negligence on the part of the bank personnel, it will be a ground for his separation
[from] the bank.[26] (emphasis, italics and underscoring supplied)

Admittedly, petitioner dismissed the employee who allowed the deposit of the check in Bitangas
account.

Petitioners argument that since there was neither forgery, nor unauthorized indorsement because
Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does not apply in
the present case fails. The payment of an instrument over a missing indorsement is the equivalent of
payment on a forged indorsement[27] or an unauthorized indorsement in itself in the case of joint
payees.[28]

Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the crossed
check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it
bears repeating, carry the indorsement of BA Finance.[29]

As has been repeatedly emphasized, the banking business is imbued with public interest such that the
highest degree of diligence and highest standards of integrity and performance are expected of banks
in order to maintain the trust and confidence of the public in general in the banking
sector.[30] Undoubtedly, BA Finance has a cause of action against petitioner.

Is petitioner liable to BA Finance for the full value of the check?

Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount
covered by the check as there is no indication in the check that Bitanga and BA Finance are solidary
creditors to thus make them presumptively joint creditors under Articles 1207 and 1208 of the Civil
Code which respectively provide:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the prestations. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity.

Art. 1208. If from the law, or the nature or wording of the obligations to which the preceding article
refers to the contrary does not appear, the credit or debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors, the debts or credits being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits.
Petitioners argument is flawed.

The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the
black-letter law provide definitive justification for petitioners full liability on the value of the check.

To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses
the check upon presentment with the drawee bank, is an indorser.[31]This is because in indorsing a
check to the drawee bank, a collecting bank stamps the back of the check with the phrase all prior
endorsements and/or lack of endorsement guaranteed[32] and, for all intents and purposes, treats
the check as a negotiable instrument, hence, assumes the warranty of an indorser.[33] Without
Asianbanks warranty, the drawee bank (China Bank in this case) would not have paid the value of the
subject check.

Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to
ascertain the genuineness of all prior indorsements 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 prior indorsements.[34]

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in
conversion to the non-indorsing payee for the entire amount of the check.[35]

It bears noting that in petitioners cross-claim against Bitanga, the trial court ordered Bitanga to return
to petitioner the entire value of the check ─ P224,500.00 ─ with interest as well as damages and cost
of suit. Petitioner never questioned this aspect of the trial courts disposition, yet it now prays for the
modification of its liability to BA Finance to only one-half of said amount. To pander to petitioners
supplication would certainly amount to unjust enrichment at BA Finances expense. Petitioners
remedywhich is the reimbursement for the full amount of the check from the perpetrator of the
irregularity lies with Bitanga.

Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these are
completely irrelevant. The drawer, Malayan Insurance in this case, issued the check to answer for an
underlying contractual obligation (payment of insurance proceeds). The obligation is merely reflected
in the instrument and whether the payees would jointly share in the proceeds or not is beside the
point.

Moreover, granting petitioners appeal for partial liability would run counter to the existing principles
on the liabilities of parties on negotiable instruments, particularly on Section 68 of the Negotiable
Instruments Law which instructs that joint payees who indorse are deemed to indorse jointly and
severally.[36] Recall that when the maker dishonors the instrument, the holder thereof can turn to
those secondarily liable the indorser for recovery.[37] And since the law explicitly mandates a solidary
liability on the part of the joint payees who indorse the instrument, the holder thereof (assuming the
check was further negotiated) can turn to either Bitanga or BA Finance for full recompense.
Respecting petitioners challenge to the award by the appellate court of exemplary damages to BA
Finance, the same fails. Contrary to petitioners claim that no moral, temperate, liquidated or
compensatory damages were awarded by the trial court,[38] the RTC did in fact award compensatory
or actual damages of P224,500, the value of the check, plus interest thereon.

Petitioner argues, however, that assuming arguendo that compensatory damages had been awarded,
the same contravened Article 2232 of the Civil Code which provides that in contracts or
quasi-contracts, the court may award exemplary damages only if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.Since, so petitioner concludes, there was no
finding that it acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner,[39] it is not
liable for exemplary damages.

The argument fails. To reiterate, petitioners liability is based not on contract or quasi-contract but
on quasi-delict since there is no pre-existing contractual relation between the parties.[40] Article 2231
of the Civil Code, which provides that in quasi-delict, exemplary damages may be granted if the
defendant acted with gross negligence, thus applies.For gross negligence implies a want or absence of
or failure to exercise even slight care or diligence, or the entire absence of care,[41] evincing a
thoughtless disregard of consequences without exerting any effort to avoid them.[42]

x x x The law allows the grant of exemplary damages to set an example for the public good. The
business of a bank is affected with public interest; thus it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. For this reason, the bank should guard against in
injury attributable to negligence or bad faith on its part. The award of exemplary damages is proper as
a warning to [the petitioner] and all concerned not to recklessly disregard their obligation to exercise
the highest and strictest diligence in serving their depositors.[43] (Italics and underscoring supplied)

As for the dismissal by the appellate court of petitioners third-party complaint against Malayan
Insurance, the same is well-taken. Petitioner based its third-party complaint on Malayan Insurances
alleged gross negligence in issuing the check payable to both BA Finance and Bitanga, despite the
stipulation in the mortgage and in the insurance policy that liability for loss shall be payable to BA
Finance.[44] Malayan Insurance countered, however, that it

x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto Bitanga in compliance
with the decision in the case of Lamberto Bitanga versus Malayan Insurance Co., Inc., Civil Case No.
88-2802, RTC-Makati Br. 132, and affirmed on appeal by the Supreme Court [3rd Division], G.R. no.
101964, April 8, 1992 x x x.[45] (underscoring supplied)

It is noted that Malayan Insurance, which stated that it was a matter of company policy to issue
checks in the name of the insured and the financing company, presented a witness to rebut its
supposed negligence. [46] Perforce, it thus wrote a crossed check with joint payees so as to serve
warning that the check was issued for a definite purpose.[47]Petitioner never ever disputed these
assertions.

The Court takes exception, however, to the appellate courts affirmance of the trial courts grant of
legal interest of 12% per annum on the value of the check. For the obligation in this case did not arise
out of a loan or forbearance of money, goods or credit. While Article 1980 of the Civil Code provides
that:

Fixed savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan,

said provision does not find application in this case since the nature of the relationship between BA
Finance and petitioner is one of agency whereby petitioner, as collecting bank, is to collect for BA
Finance the corresponding proceeds from the check.[48] Not being a loan or forbearance of money,
the interest should be 6% per annum computed from the date of extrajudicial demand on September
25, 1992 until finality of judgment; and 12% per annum from finality of judgment until payment,
conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.[49]

WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED with
MODIFICATION in that the rate of interest on the judgment obligation of P224,500 should be 6% per
annum, computed from the time of extrajudicial demand on September 25, 1992 until its full
payment before finality of judgment; thereafter, if the amount adjudged remains unpaid, the interest
rate shall be 12% per annum computed from the time the judgment becomes final and executory
until fully satisfied.

Costs against petitioner.

SO ORDERED.

G.R. No. 88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.
CRUZ, J.:

We are concerned in this case with the question of damages, specifically moral and exemplary
damages. The negligence of the private respondent has already been established. All we have to
ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts.

The parties agree on the basic facts. The petitioner is a private corporation engaged in the
exportation of food products. It buys these products from various local suppliers and then sells them
abroad, particularly in the United States, Canada and the Middle East. Most of its exports are
purchased by the petitioner on credit.

The petitioner was a depositor of the respondent bank and maintained a checking account in its
branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its
account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised
to learn later that they had been dishonored for insufficient funds.

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for
P16,480.00:

2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of
P3,386.73:

3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in the amount of P7,080.00;

4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the
amount of P42,906.00:

5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the
amount of P12,953.00:

6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of
P27,024.45:

7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount
of P4,385.02: and

8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand
to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It
also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner
by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10,
1981. Malabon also canceled the petitioner's credit line and demanded that future payments be
made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with
the other suppliers whose checks were dishonored was also deferred.

The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that
the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The
error was rectified on June 17, 1981, and the dishonored checks were paid after they were
re-deposited. 4

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for
its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in
the then Court of First Instance of Rizal claiming from the private respondent moral damages in the
sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees,
and costs.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages
were not called for under the circumstances. However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus
P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6

The respondent court found with the trial court that the private respondent was guilty of negligence
but agreed that the petitioner was nevertheless not entitled to moral damages. It said:

The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA
280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of
P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor
of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad
faith and negligence on the part of the defendant-appellant.

It is this ruling that is faulted in the petition now before us.

This Court has carefully examined the facts of this case and finds that it cannot share some of the
conclusions of the lower courts. It seems to us that the negligence of the private respondent had
been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the
wrist. We feel it is not enough to say that the private respondent rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. The error should not have been
committed in the first place. The respondent bank has not even explained why it was committed at all.
It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However,
this took almost a month when, properly, the checks should have been paid immediately upon
presentment.

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical
attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith,
that the respondent court said had not been established by the petitioner.

We also note that while stressing the rectification made by the respondent bank, the decision
practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not,
indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not
acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation
was tarnished. Its standing was reduced in the business community. All this was due to the fault of
the respondent bank which was undeniably remiss in its duty to the petitioner.

Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for
injury to the plaintiff s business standing or commercial credit." There is no question that the
petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the
loss having been established "absolute certainty as to its amount is not required." 7 Such injury
should bolster all the more the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said claim.

We agree that moral damages are not awarded to penalize the defendant but to compensate the
plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such
damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent
court said that the claimed losses are purely speculative and are not supported by substantial
evidence, but if failed to consider that the amount of such losses need not be established with
exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is
necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated." That is why the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court, according to "the circumstances of each case."

From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled
to moral damages because, not being a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception
to this rule is where the corporation has a good reputation that is debased, resulting in its social
humiliation. 9

We shall recognize that the petitioner did suffer injury because of the private respondent's negligence
that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige
was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished.
The private respondent makes much of the one instance when the petitioner was sued in a collection
case, but that did not prove that it did not have a good reputation that could not be marred, more so
since that case was ultimately settled. 10 It does not appear that, as the private respondent would
portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect.

Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the
proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal
damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through
the fault of the private respondent, the proper remedy is the award to it of moral damages, which we
impose, in our discretion, in the same amount of P20,000.00.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory damages.

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will
even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly bills and the payment of
ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs, not only in the form of loans when needed but
more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of
the bank, such as the dishonor of a check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions,
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. In the case at bar, it is obvious that the
respondent bank was remiss in that duty and violated that relationship. What is especially deplorable
is that, having been informed of its error in not crediting the deposit in question to the petitioner, the
respondent bank did not immediately correct it but did so only one week later or twenty-three days
after the deposit was made. It bears repeating that the record does not contain any satisfactory
explanation of why the error was made in the first place and why it was not corrected immediately
after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in
the Civil Code that calls for the imposition of exemplary damages.

After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes
upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or
correction for the public good," in the words of the law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to
pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and
exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the
amount of P5,000.00, and costs.

SO ORDERED.

G.R. No. 164349 January 31, 2006

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,


vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG,
AND FORTUNATO CATIBOG, Respondents.

DECISION

CARPIO MORALES, J.:

On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital
due to an ailment. On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the
Sorsogon Branch of the Radio Communications of the Philippines, Inc. (RCPI) whose services she
engaged to send a telegram to her sister Zenaida Verchez-Catibog (Zenaida) who was residing at 18
Legal St., GSIS Village, Quezon City1 reading: "Send check money Mommy hospital." For RCPI’s
services, Grace paid P10.502 for which she was issued a receipt.3

As three days after RCPI was engaged to send the telegram to Zenaida no response was received from
her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not
sending any financial aid.
Immediately after she received Grace’s letter, Zenaida, along with her husband Fortunato Catibog,
left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any
telegram.

In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on
January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon City where she
was confined from January 30, 1991 to March 21, 1991.

The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991.4 On inquiry from
RCPI why it took that long to deliver it, a messenger of RCPI replied that he had nothing to do with the
delivery thereof as it was another messenger who previously was assigned to deliver the same but the
address could not be located, hence, the telegram was resent on February 2, 1991, and the second
messenger finally found the address on February 15, 1991.

Editha’s husband Alfonso Verchez (Verchez), by letter of March 5, 1991,5 demanded an explanation
from the manager of the Service Quality Control Department of the RCPI, Mrs. Lorna D. Fabian, who
replied, by letter of March 13, 1991,6 as follows:

Our investigation on this matter disclosed that subject telegram was duly processed in accordance
with our standard operating procedure. However, delivery was not immediately effected due to
the occurrence of circumstances which were beyond the control and foresight of RCPI. Among
others, during the transmission process, the radio link connecting the points of communication
involved encountered radio noise and interferences such that subject telegram did not initially
registered (sic) in the receiving teleprinter machine.

Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission was
made and subsequent delivery was effected. (Underscoring supplied)

Verchez’s lawyer thereupon wrote RCPI’s manager Fabian, by letter of July 23, 1991,7 requesting for a
conference on a specified date and time, but no representative of RCPI showed up at said date and
time.

On April 17, 1992, Editha died.

On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective
spouses, filed a complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for damages.
In their complaint, the plaintiffs alleged that, inter alia, the delay in delivering the telegram
contributed to the early demise of the late Editha to their damage and prejudice,8 for which they
prayed for the award of moral and exemplary damages9 and attorney’s fees.10

After its motion to dismiss the complaint for improper venue11 was denied12 by Branch 5 of the RTC
of Sorsogon, RCPI filed its answer, alleging that except with respect to Grace,13 the other plaintiffs
had no privity of contract with it; any delay in the sending of the telegram was due to force majeure,
"specifically, but not limited to, radio noise and interferences which adversely affected the
transmission and/or reception of the telegraphic message";14 the clause in the Telegram
Transmission Form signed by Grace absolved it from liability for any damage arising from the
transmission other than the refund of telegram tolls;15 it observed due diligence in the selection and
supervision of its employees; and at all events, any cause of action had been barred by laches.16

The trial court, observing that "although the delayed delivery of the questioned telegram was not
apparently the proximate cause of the death of Editha," ruled out the presence of force majeure.
Respecting the clause in the telegram relied upon by RCPI, the trial court held that it partakes of the
nature of a contract of adhesion.

Finding that the nature of RCPI’s business obligated it to dispatch the telegram to the addressee at
the earliest possible time but that it did not in view of the negligence of its employees to repair its
radio transmitter and the concomitant delay in delivering the telegram on time, the trial court, upon
the following provisions of the Civil Code, to wit:

Article 2176 – Whoever by act or omission causes damage to another, there being at 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 quasi-delict and is governed by the provisions of
this Chapter.

Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence which
is required by the nature of the obligation and corresponds with the circumstances of the person, of
the time, or the place."

In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of an
urgent nature. Its essence is the early delivery of the telegram to the concerned person. Yet, due to
the negligence of its employees, the defendant failed to discharge of its obligation on time making it
liable for damages under Article 2176.

The negligence on the part of the employees gives rise to the presumption of negligence on the part
of the employer.17 (Underscoring supplied),

rendered judgment against RCPI. Accordingly, it disposed:

WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the
plaintiffs and against the defendant, to wit:

Ordering the defendant to pay the plaintiffs the following amount:

1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;

2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney’s fees; and

3. To pay the costs.

SO ORDERED.18

On appeal, the Court of Appeals, by Decision of February 27, 2004,19 affirmed the trial court’s
decision.

Hence, RCPI’s present petition for review on certiorari, it raising the following questions: (1) "Is the
award of moral damages proper even if the trial court found that there was no direct connection
between the injury and the alleged negligent acts?"20 and (2) "Are the stipulations in the ‘Telegram
Transmission Form,’ in the nature "contracts of adhesion" (sic)?21

RCPI insists that respondents failed to prove any causal connection between its delay in transmitting
the telegram and Editha’s death.22

RCPI’s stand fails. It bears noting that its liability is anchored on culpa contractual or breach of
contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents.

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. (Underscoring supplied)

Passing on this codal provision, this Court explained:

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.23 (Emphasis and underscoring supplied)

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took
25 days, however, for RCPI to deliver it.

RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely
affected the transmission and/or reception of the telegraphic message. Additionally, its messenger
claimed he could not locate the address of Zenaida and it was only on the third attempt that he was
able to deliver the telegram.

For the defense of force majeure to prosper,

x x x it is necessary that one has committed no negligence or misconduct 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.

xxxx

Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that
could not be foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion
of human intervention from the cause of injury or loss.24 (Emphasis and underscoring supplied)

Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the
soonest possible time, it should have at least informed Grace of the non-transmission and the
non-delivery so that she could have taken steps to remedy the situation. But it did not. There lies the
fault or negligence.

In an earlier case also involving RCPI, this Court held:

Considering the public utility of RCPI’s business and its contractual obligation to transmit messages, it
should exercise due diligence to ascertain that messages are delivered to the persons at the given
address and should provide a system whereby in cases of undelivered messages the sender is given
notice of non-delivery. Messages sent by cable or wireless means are usually more
important and urgent than those which can wait for the mail.25

xxxx

People depend on telecommunications companies in times of deep emotional stress or pressing


financial needs. Knowing that messages about the illnesses or deaths of loved ones, births or
marriages in a family, important business transactions, and notices of conferences or meetings as in
this case, are coursed through the petitioner and similar corporations, it is incumbent upon them to
exercise a greater amount of care and concern than that shown in this case. Every reasonable effort
to inform senders of the non-delivery of messages should be undertaken.26

(Emphasis and underscoring supplied)

RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the
basis for the award of moral damages, thus:27

The request to send check as written in the telegraphic text negates the existence of urgency that
private respondents’ allegations that ‘time was of the essence’ imports. A check drawn against a
Manila Bank and transmitted to Sorsogon, Sorsogon will have to be deposited in a bank in Sorsogon
and pass thru a minimum clearing period of 5 days before it may be encashed or withdrawn. If the
transmittal of the requested check to Sorsogon took 1 day – private respondents could therefore still
wait for 6 days before the same may be withdrawn. Requesting a check that would take 6 days before
it could be withdrawn therefore contradicts plaintiff’s claim of urgency or need.28

At any rate, any sense of urgency of the situation was met when Grace Verchez was able to
communicate to Manila via a letter that she sent to the same addressee in Manila thru JRS.29

xxxx

As far as the respondent court’s award for moral damages is concerned, the same has no
basis whatsoever since private respondent Alfonso Verchez did not accompany his late wife when the
latter went to Manila by bus. He stayed behind in Sorsogon for almost 1 week before he proceeded to
Manila. 30

When pressed on cross-examination, private respondent Alfonso Verchez could not give any plausible
reason as to the reason why he did not accompany his ailing wife to Manila.31

xxxx

It is also important to consider in resolving private respondents’ claim for moral damages that
private respondent Grace Verchez did not accompany her ailing mother to Manila.32

xxxx

It is the common reaction of a husband to be at his ailing wife’s side as much as possible. The fact that
private respondent Alfonso Verchez stayed behind in Sorsogon for almost 1 week convincingly
demonstrates that he himself knew that his wife was not in critical condition.33

(Emphasis and underscoring supplied)

RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears repeating,
anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It,
however, failed to rebut this presumption.

For breach of contract then, RCPI is liable to Grace for damages.

And for quasi-delict, RCPI is liable to Grace’s co-respondents following Article 2176 of the Civil Code
which provides:

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

RCPI’s liability as an employer could of course be avoided if it could prove that it observed the
diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code so provides:
The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but
also for those of persons for whom one is responsible.

xxxx

The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on the
occasion of their functions.

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. (Underscoring
supplied)

RCPI failed, however, to prove that it observed all the diligence of a good father of a family to prevent
damage.

Respecting the assailed award of moral damages, a determination of the presence of the following
requisites to justify the award is in order:

x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering


sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof
that the wrongful act or omission of the defendant is the proximate cause of damages sustained by
the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned
by Article 2219 and Article 2220 of the Civil Code.34

Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was correctly
appreciated by the CA in this wise:

The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed
their filial tranquillity. Family members blamed each other for failing to respond swiftly to an
emergency that involved the life of the late Mrs. Verchez, who suffered from diabetes.35

As reflected in the foregoing discussions, the second and third requisites are present.

On the fourth requisite, Article 2220 of the Civil Code provides:

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

After RCPI’s first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery
thereof and waited for 12 days before trying to deliver it again, knowing – as it should know – that
time is of the essence in the delivery of telegrams. When its second long-delayed attempt to deliver
the telegram again failed, it, again, waited for another 12 days before making a third attempt. Such
nonchalance in performing its urgent obligation indicates gross negligence amounting to bad faith.
The fourth requisite is thus also present.

In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of breach
of contract where the defendant was guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligation.36

As for RCPI’s tort-based liability, Article 2219 of the Civil Code provides:
Moral damages may be recovered in the following and analogous cases:

xxxx

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis supplied)

Article 26 of the Civil Code, in turn, provides:

Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and
other persons. The following and similar acts, though they may not constitute a criminal offense, shall
produce a cause of action for damages, prevention, and other relief:

xxxx

(2) Meddling with or disturbing the private life or family relations of another. (Emphasis supplied)

RCPI’s negligence in not promptly performing its obligation undoubtedly disturbed the peace of mind
not only of Grace but also her co-respondents. As observed by the appellate court, it disrupted the
"filial tranquillity" among them as they blamed each other "for failing to respond swiftly to an
emergency." The tortious acts and/or omissions complained of in this case are, therefore, analogous
to acts mentioned under Article 26 of the Civil Code, which are among the instances of quasi-delict
when courts may award moral damages under Article 2219 of the Civil Code.

In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the award of
attorney’s fees, respondents having been compelled to litigate to protect their rights.

Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission Form" is
not a contract of adhesion. Thus it argues:

Neither can the Telegram Transmission Form be considered a contract of adhesion as held by the
respondent court. The said stipulations were all written in bold letters right in front of the Telegram
Transmission Form. As a matter of fact they were beside the space where the telegram senders write
their telegraphic messages. It would have been different if the stipulations were written at the back
for surely there is no way the sender will easily notice them. The fact that the stipulations were
located in a particular space where they can easily be seen, is sufficient notice to any sender (like
Grace Verchez-Infante) where she could manifest her disapproval, leave the RCPI station and avail of
the services of the other telegram operators.37 (Underscoring supplied)

RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the stipulations
nor their physical location in the contract determines whether it is one of adhesion.

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of
contract, which the other party may accept or reject, but which the latter cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes his signature or his
"adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing.38 (Emphasis and underscoring supplied)

While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly
against the party who drafted it or gave rise to any ambiguity therein, it is stricken down as void and
unenforceable or subversive of public policy when the weaker party is imposed upon in dealing with
the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing.39

This Court holds that the Court of Appeals’ finding that the parties’ contract is one of adhesion which
is void is, given the facts and circumstances of the case, thus well-taken.

WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals
is AFFIRMED.
Costs against petitioner.