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G.R. No. 174154 October 17, 2008 CUENCO vs Talisay

JESUS CUENCO, petitioner,
vs.
TALISAY TOURIST SPORTS COMPLEX, INCORPORATED AND
MATIAS B. AZNAR III, respondents.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the Decision dated April 18, 2005 and the Resolution
dated August 15, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 65773.
The Facts
The antecedent facts of the case are as follows:
On May 25, 1992, petitioner leased from respondents for a period of two (2)
years, from May 8, 1992 to May 8, 1994, the Talisay Tourist Sports Complex, to
be operated as a cockpit. The lease was extended for another four (4) years, or
until May 8, 1998.

lease was eventually awarded to another bidder, Mr. Rex Cuaqui Salud. 5
Thereafter, petitioner wrote four (4) demand letters to respondents.
The first letter, dated June 8, 1998, reads:
Dear Mr. Aznar:
I was so disheartened that after going through with the supposed public bidding,
haggling with the terms and conditions of a new lease agreement and after full
compliance of ALL your requirements and the handshakes signifying the
clinching of the deal, the contract was awarded to another party. Though I
believe I deserve a renewal, I had to accept your decision with a heavy heart.
It is now my desire to be released quickly from whatever liability or
responsibility under our previous contract. Repair works on some damaged
portions were already done. Based on our contract, par. 5 thereof, it is my
understanding that I am answerable to all damages caused to furnitures
(sic), chattels and other equipments and minor parts of the leased premises.
Once cleared, I want the return of my deposit of P500,000.00.
Kindly send your inspector to determine by actual ocular inspection if the
restoration work is to your satisfaction.
Very truly yours,

Under the Contract of Lease, it was stipulated that petitioner shall, like a good
father of the family, maintain in good condition the furniture, chattels and all
other equipment and shall, at all times, keep the leased premises clean and
sanitary. For this purpose, petitioner would allow the respondents building
supervisor or his authorized representative to make a regular spot inspection of
the leased premises to see to it that these stipulations are strictly implemented. 2
Any damage caused to the furniture, chattels, equipment and parts of the leased
premises shall be the responsibility of petitioner to repair and compensate. 3
Furthermore, petitioner would give a deposit equivalent to six (6) months rental
to answer for whatever damages may be caused to the premises during the
period of the lease.4
Upon expiration of the contract, respondent company conducted a public
bidding for the lease of the property. Petitioner participated in the bidding. The

JESUS C. CUENCO [signed]6

Obviously, the letter was not answered, because on June 17, 1998 petitioner
found it necessary to write respondents a second letter reiterating his request for
the return of the deposit. The second demand letter reads:
Dear Mr. Aznar:
It has been more than a week since my letter dated 8 June 1998 requesting the
return of my deposit of P500,000.00. I would assume your representative had
already conducted an ocular inspection and you were satisfied on the restoration
works made on the premises. As Ive stated in my said letter, I want to be
released as soon as possible.

I need to know immediately if I still have other things to comply with as precondition for the release of the deposit. As far as I know, I have already done my
part.
Very truly yours,
JESUS C. CUENCO [signed]7
With still no response from respondents, petitioner, on August 14, 1998, sent a
third demand letter which read:
Dear Mr. Aznar:
I am surprised by the unreasonable delay in the release of my deposit of
P500,000.00 in spite of my full compliance as to repair works on minor damage
to the premises during my term as lessee. Twice I requested in writing for the
immediate release of my deposit but until now it remains unheeded. And
the so-called "inventory" which your lawyer Atty. Algoso8 promised to give
has not been given. Frankly, I am doubtful of the accuracy of said
inventory, if any, considering the full blast major renovation now being
conducted on the complex by the new concessionaire. I think its about time
we close the last chapter of the book, in a manner of speaking, so we can
proceed in our separate distinct ways.

It appears that when Mr. Cuenco leased the cockpit complex he was required to
put up a deposit to answer for damages that may be caused to furnitures (sic),
chattels and other equipments and minor repairs on the leased premises. When
the lease expired and he failed to get a renewal, Mr. Cuenco in fulfillment of
his obligation under the contract caused the repair of minor damage to the
premises after which your attention was invited to get your reaction to the
restoration work. And since he did not receive any objection, it can be
safely premised that the restoration was to the lessors satisfaction.
Mr. Cuenco informed me that the new concessionaire has undertaken a full blast
major renovation of the complex. Under this condition and in the absence of an
accurate inventory conducted in the presence of both parties, it would be doubly
difficult, if not impossible, to charge Mr. Cuenco of any violation of his
undertaking especially as to deficiency in the furnitures (sic), chattels and other
equipments in the premises.
In view of all the foregoing, it is consequently demanded that you return to Mr.
Cuenco the aforesaid sum of P500,000.00 within THREE (3) DAYS from notice
hereof; otherwise, he may be constrained to seek judicial relief for the return of
the deposit plus interest, damages and attorneys fees.
Your compliance is enjoined.
Very truly yours, At my instance:

I reiterate my request to please release right now my deposit of P500,000.00.

Very truly yours,

FEDERICO C. CABILAO
(signed)

JESUS C. CUENCO (signed)

JESUS C. CUENCO [signed]9

Counsel for Mr. Jesus C. Cuenco10

Finally, on August 18, 1998, petitioner, thru his counsel, wrote respondents a
final demand letter as follows:
Dear Mr. Aznar:

As all of his demand letters remained unheeded, on October 21, 1998, petitioner
filed a Complaint11 for sum of money, damages and attorneys fees. He
maintained that respondents acted in bad faith in withholding the amount of the
deposit without any justifiable reason.12

For ignoring the two letters of my client Mr. Jesus C. Cuenco, dated June 8 and
17, 1998 regarding his request for the return of his deposit in the sum of P500,
000.00, he has decided to endorse the matter to this office for appropriate action.

In their Answer,13 respondents countered that petitioner caused physical damage

to some portions of the leased premises and the cost of repair and replacement
of materials amounted to more than P500,000.00.14 They also averred that

respondent Matias B. Aznar III (Aznar) cannot be sued personally under the
contract of lease since a corporation has a separate and distinct personality from
its officers and stockholders, and there was no allegation that Aznar, who is the
President of the corporation, signed the contract in his personal capacity. 15
On March 8, 1999, the RTC issued a Pre-trial Order,16 the pertinent portions of
which reads:

On August 11, 1999, the RTC rendered a Decision20 in favor of petitioner, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of [petitioner] and against
the [respondents], directing the latter jointly and severally to return to
[petitioner] the sum of P500,000.00, representing the deposit mentioned in the
Complaint, plus 3% interest per month from August 18, 1998 until full payment
thereof.

The following facts were admitted by the [respondents]:

1. There is no inventory of damages up to this time;

The latter are, likewise, directed to pay [petitioner] the sum of P15,000.00 as
and for litigation expenses.

2. [Petitioner] deposited the amount of P500,000.00;

With costs against the [respondents].

3. [Petitioner] sends (sic) several letters of demand to [respondents] but said

letters were not answered.

SO ORDERED.21

4. There was a renovation of the Talisay Tourist Sports Complex with a

qualification that the renovation is only 10% of the whole amount.
The main issues in this case are as follows:
1. Whether or not [petitioner] is entitled to the return of the deposit of
P500,000.00, with interest;
2. Whether or not some portions of the complex sustained physical damage
during the operation of the same by the [petitioner]. 17
On May 24, 1999, the RTC issued an Order18 admitting the exhibits of
petitioner, consisting of the contract of lease dated May 4, 1994 and the four (4)
demand letters.
On July 29, 1999, an Order19 was issued by the same court formally admitting
the respondents following exhibits: the lease contract, inventory of the leased
property as of June 4, 1998, inventory of the sports complex dated June 24,
1995, ocular inspection report dated January 15, 1998 and various receipts
mostly in the name of Southwestern University incurred in different months of
1998.

The RTC ratiocinated that respondents failure to reply to the letters of petitioner
raises a presumption that petitioner has complied with his end of the contract.
The lower court gave credence to the testimony of respondents witness, Ateniso
Coronado (Coronado), the property custodian of the respondents, that the sports
complex was repaired and renovated by the new lessee. The court also
considered the admission of respondents counsel during the pre-trial that no
inventory of the property was conducted on the leased premises. The RTC
debunked the inventory presented by the respondents during trial as a mere
afterthought to bolster their claim against petitioner.22
Respondents appealed. On April 18, 2005, the CA rendered a Decision 23
reversing and setting aside the decision of the RTC. The fallo of the CA decision
reads:
WHEREFORE, with the foregoing, the Decision of the Regional Trial Court,
Branch 13, Cebu City, dated August 11, 1999, is REVERSED and SET ASIDE,
and a new one entered finding this case in favor of defendants-appellants Talisay
Tourists Sports Complex and Matias Aznar III. Consequently, Civil Case No.
CEB-22847 for sum of money, damages, and attorneys fees involving herein
parties, as well as all other claims and counterclaims are hereby DISMISSED
for lack of factual and legal basis.

No pronouncement as to costs.

CA based on contradictory factual findings. Thus, we have reviewed the records

in order to arrive at a judicious resolution of the case at bench.

SO ORDERED.24
The CA ruled in favor of respondents on the basis of: (1) Coronados testimony
that petitioner continued to hold cockfights two months after the expiration of
the lease contract which was not refuted by petitioner; (2) the summary of
repairs made on the property showing that respondents spent the amount of
P573,710.17 immediately prior to the expiration of the lease contract and shortly
thereafter; and (3) the new lessor incurred expenses amounting to over P3
million when he shouldered the rest of the repair and renovation of the subject
property.25
Hence, the instant petition.
The Issues
Petitioner raised the following issues for resolution of the Court: (1) whether a
judicial admission is conclusive and binding upon a party making the admission;
and (2) whether such judicial admission was properly rejected by the CA. 26

Petitioner questions the CAs finding that there was damage caused the premises
while the lease was still in force. Such finding could only have been based on
alleged inventory of the property conducted by the respondents. Petitioner takes
exception to this evidence because of the earlier judicial admission made by
respondents counsel that no inventory was conducted and, accordingly, any
evidence adduced by the respondents contrary to or inconsistent with the
judicial admission should be rejected.
Indeed, at the pre-trial conference, respondents counsel made an admission that
no inventory was made on the leased premises, at least up to that time. This
admission was confirmed in the Pre-Trial Order issued by the trial court on
March 8, 1999 after the lease expired on May 8, 1998.
Yet, on July 1, 1999, respondents witness Coronado testified, as follows:
ATTY. VASQUEZ:
Q Why do you know the defendants?

On the other hand, respondents posed the following: (1) whether the findings of
the CA that the cockpit sustained damage during the period of the lease was
rendered not in accord with law or with the applicable decisions of the Court;
(2) whether the CA committed an error of law in ruling that petitioner is not
entitled for the return of the deposit.27
The ultimate question we must resolve is whether petitioner is entitled to the
return of the amount deposited.
The Ruling of the Court
We rule in the affirmative. Respondents failed to present sufficient proof to
warrant the retention of the full amount of the deposit given by petitioner.
The Supreme Court is not a trier of facts, and as a rule, does not weigh anew the
evidence presented by the parties. However, the instant case is one of the
exceptions to the rule because of the conflicting decisions of the RTC and the

A Because Talisay Sports Complex is owned by Aznar Brothers Realty

Corporation of which I am employed as (sic) in charge of the realty department.
Q How about Matias Aznar III, the defendant here?
A He is the Chairman of the Board.
Q Board of what?
A Of the Aznar Brothers Realty Corporation.
Q Is he the Chairman of Talisay Tourist Sports Complex?
A Yes, sir.

Q You said that you are in charge of the realty department, what is your
function with respect to the properties of Talisay Tourist and Sports
Complex?

COURT

A I am the in-charge of the administration and overseeing of the complex

owned by Talisay Sports Complex.

Q W[h]y did you not take photographs of the damage sustained by the
complex?

Q When you said that you are in charge of the administration and
overseeing of the complex, what does it includes (sic)?

A We did not take pictures, Your Honor, because in fact their personnel
were in our presence (sic) during the inspection, they were accompanied by
us, because we can not conduct inspection without the presence of the
personnel of Jesus Cuenco, Your Honor, the lessee.

A It includes collection of rentals of complex and routine inspection to

determine that there are missing or damage of (sic) the properties.
Q How long have you been employed with the Aznar Brothers Realty
Company?

xxxx

Q Did the personnel of Jesus Cuenco sign any paper acknowledging receipt
of any report?
A There was no refusal, but we did not initiate to let them sign and confirm.

A 25 years.
COURT
xxxx
Q So, we have to rely on your testimony?
Q In your earlier testimony, you said that part of your function is to
conduct routine inspection of the complex. Now, was there a routine
inspection conducted during the period of the lease contract between
plaintiff and the defendant?
A Yes, we conducted inspection sometime in January 1998.
Q For what purpose was that inspection?

A Yes, sir.28
Obviously, it was on Coronados testimony, as well as on the documentary
evidence29 of an alleged property inventory conducted on June 4, 1998, that the
CA based its conclusion that the amount of damage sustained by the leased
premises while in the possession of petitioner exceeded the amount of
petitioners deposit. This contradicts the judicial admission made by
respondents counsel which should have been binding on the respondents.

A The purpose is to determine if there are damage sustained by the complex.

Section 4, Rule 129 of the Rules of Court provides:
Q And what was the result of the inspection.
A There were missing and destroyed fixtures and physical damage sustained by
the complex.
xxxx

SEC. 4. Judicial admissions. An admission, verbal or written, made by a party

in the course of the proceedings in the same case, does not require proof. The
admission may be contradicted only by a showing that it was made through
palpable mistake or that no such admission was made.

A party may make judicial admissions in (1) the pleadings, (2) during the trial,
by verbal or written manifestations or stipulations, or (3) in other stages of the
judicial proceeding.30 The stipulation of facts at the pre-trial of a case constitutes
judicial admissions. The veracity of judicial admissions require no further proof
and may be controverted only upon a clear showing that the admissions were
made through palpable mistake or that no admissions were made. Thus, the
admissions of parties during the pre-trial, as embodied in the pre-trial order, are
binding and conclusive upon them.
Respondents did not deny the admission made by their counsel, neither did they
claim that the same was made through palpable mistake. As such, the stipulation
of facts is incontrovertible and may be relied upon by the courts. The pre-trial
forms part of the proceedings and matters dealt therein may not be brushed aside
in the process of decision-making. Otherwise, the real essence of compulsory
pre-trial would be rendered inconsequential and worthless. 31 Furthermore, an act
performed by counsel within the scope of a "general or implied authority" is
regarded as an act of the client which renders respondents in estoppel. By
estoppel is meant that an admission or representation is conclusive upon the
person making it and cannot be denied or disproved as against the person
relying thereon.32
Thus, respondents are bound by the admissions made by their counsel at the pretrial. Accordingly, the CA committed an error when it gave ample evidentiary
weight to respondents evidence contradictory to the judicial admission.
The appellate courts findings that the damage in the premises exceeded the
amount of the deposit is further sought to be justified, thus:
Verily, a perusal of the summary of repairs amounting to P573,710.17 claimed
to have been made by appellants over the property at about that time
immediately prior to the expiration of the lease contract and shortly thereafter,
would show that the repairs pertained to repairs on the drainage, sewage,
immediate premises and structure of the complex. We find the same highly
credible and meritorious considering that as earlier admitted by appellee, the
repairs he made were minor and were confined only to certain portions of the
complex, although substantial repairs were done on the cockhouses only, and
that said repairs were done because of a coming big time derby and not to
satisfy the provisions of the lease contract. Also, by implication, appellee is
stating that the new lessor incurred expenses amounting to over P3 million when

he shouldered the rest of the repair and renovation of the complex after the term
of lease of appellee.33
Yet, upon perusal of the receipts presented by respondents, we found that
majority of the receipts are under the name of Southwestern University. In their
Memorandum,34 respondents aver that Southwestern University and respondent
corporation are sister companies. 35 Even if true, this matter is of no consequence
because respondent company and Southwestern University have distinct and
separate legal personalities, and Southwestern University is not a party to this
case. Thus, we cannot just accept respondents argument that the receipts paid in
the name of Southwestern University should be credited to respondent company.
In any event, they were not able to prove that those receipts were in fact used for
the repair or maintenance of the respondents complex.
Furthermore, respondents are not entitled the full amount of the deposit because
the repair and renovation of the sports complex after the expiration of
petitioners lease were undertaken not by respondents but by the new lessee.
This can be gleaned from Coronados testimony on cross-examination, viz.:
Q You do not know. Mr. Witness, is it not a fact that the new lessee was Wacky
Salud?
A Yes, sir.
Q And that was sometime of July or August of 1998?
A They were about to conduct three months repair of the complex?
Q So, Mr. Wacky Salud conducted, did you say repair or renovation? Is it
renovation or repair?
A There was a renovation and repair.
Q Renovation including repair?
A Yes, sir.
COURT

Q In other words, after the expiration of the contract of Mr. Cuenco, Wacky
Salud took over?

Q You mean to say that there were still cockfighting held in the complex even
after May 1998?

A Yes, he took over that repair and renovation were no longer included in this
presentation, that is at his own expense.

A Yes, sir.38

Q Precisely. In other words, some repairs were made by Mr. Salud and not by
Aznar Brothers Realty?
A Yes, sir.36

This two (2) months over-stay of petitioner in the leased premises should be
charged against the deposit. Because there was no renewal of the lease contract,
it is understood that the continued use of the premises is on a monthly basis with
the rental in the amount previously agreed upon by the parties, in accordance
with Articles 167039 and 168740 of the Civil Code.

Finally, the Court observes that the inventories presented by respondents were
not countersigned by petitioner or were they presented to the latter prior to the
filing of the case in the RTC. Thus, we are more inclined to agree with the trial
court that the "inventory was made as an afterthought," 37 in a vain attempt of the
respondents to establish their case.

In the Contract of Lease of petitioner and respondent company, it was agreed

that the rental to be paid shall be the following:

However, Coronados testimony that petitioner extended the operation of the

sports complex for a period of two months after the expiration of the lease
without the respondents authority and without the payment of rentals, remains
unrebutted. Enlightening is the following testimony:

WHEREAS, the SECOND PARTY has expressed his desire to lease said
complex (cockpit) and the FIRST PARTY have agreed to lease/let the same to
the SECOND PARTY subject to the following term and condition, to wit:

Q I observed here in No. 16 of your summary, two months arrears rentals, June
to July, how come? The contract was supposed to expire May 1998?
A Yes, because it had happened on this extension of the lease because they are
still occupying until July after the expiration of the contract.

WHEREAS, the FIRST PARTY is the owner of the Talisay Tourist Sports
Complex, Inc. located at Tabunok, Talisay, Cebu;

1. In consideration of this lease, the SECOND PARTY agrees to pay the FIRST
PARTY a lump sum of ONE MILLION PESOS (P1,000,000.00) representing
advance rental for the first year, the same to be paid on May 8, 1994. Thereafter,
the rental shall be as follows:
Second year

P1,050,000.00 or P87,500.00/month

COURT

Third year

1,100,000.00 or P91,666.67/month

Q You mean to say that they still use the complex for the purpose for which it
was intended, which is for cockfighting?

Fourth year

1,175,000.00 or P97,916.67/month41

WITNESS
A Yes, they are still doing their usual operation.
ATTY. VASQUEZ

Thus, by way of rental for the two-month overstay, the amount of P195,833.34
should be deducted from the amount of deposit paid by petitioner to respondent
company.

As to petitioners claim of interest of three percent (3%) per month on the

amount due him, the same is without legal basis. We note that no amount of
interest was previously agreed upon by the parties in the contract of lease.
Under Article 2213 of the Civil Code, "interest cannot be recovered upon
unliquidated claims or damages, except when the demand can be established
with reasonable certainty." In the instant case, the claim of petitioner is
unliquidated or cannot be established with reasonable certainty upon his filing
of the case in the RTC. This is because of the contending claims of the parties,
specifically, the claim of petitioner for the return of the P500,000.00 deposit visa-vis the claim of respondents on the arrears in rentals and on the damage to the
premises. It is only now that the amount that should be returned is ascertained,
i.e., P500,000.00 less the two-months arrears in rentals amounting to
P195,833.34, the sum of which will earn
interest at the legal rate of six percent (6%) per annum 42 from the time the case
was filed in the RTC on October 21, 1998.43 Upon finality of this decision, the
rate of interest shall be twelve percent (12%) per annum from such finality until
full satisfaction. The foregoing interest rate is based on the guidelines set by the
Court in Eastern Shipping Lines v. CA, viz.:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, 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 of 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 of 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.44
Concerning the solidary liability of respondents, we hold that respondent Matias
Aznar III is not solidarily liable with respondent company. His function as the
President of the company does not make him personally liable for the
obligations of the latter. A corporation, being a juridical entity, may act only
through its directors, officers and employees. Obligations incurred by them
while acting as corporate agents, are not their personal liability but the direct
accountability of the corporation they represent. 45
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the
Court of Appeals is hereby REVERSED AND SET ASIDE. The Decision of
the RTC in Civil Case No. CEB-22847 is hereby REINSTATED with the
following modifications:
(1) Talisay Sports Complex, Inc. is solely liable to return the amount of the
deposit after deducting the amount of the two-months arrears in rentals; and
(2) The rate of legal interest to be paid is SIX PERCENT (6%) on the amount
due computed from October 21, 1998, and TWELVE PERCENT (12%) interest,
thereon upon finality of this decision until full payment thereof.