OBLIGATIONS AND CONTRACTS ALL SECTIONS

CHAPTER 2

Nature and Effects of Obligations

Cases:

1. SSS vs. Moonwalk Devt. and Housing Corp., G.R. No. 73345, April 7, 1993)
2. RCBC vs. CA, G.R. No. 133107, March 25, 1999
3. Barzaga vs. CA, February 12, 1997
4. Pantaleon vs. American Express, May 8, 2009
5. Lorenzo Shipping Corp. vs. BJ Mathel International Nov. 19, 2004
6. Solar Harvest vs. Davao Corrugated Carlon Corp. July 26, 2010
7. Cathay Pacific Airways vs. Vazquez March 2003
8. Meralco vs. Ramoy, March 4, 2008
9. Areola vs. CA & Prudential Guarantee Insurance
10. Tanguiling vs. CA, January 2, 1997
11. Nakpil & Sons vs. CA, October 3, 1986
12. Republic vs. Luzon Stevedoring 21 SCRA 279
13. Far East Bank & Trust Co. vs. CA
14. Salugada vs. FEU April 30, 2008
15. Fil Estate Properties Inc. vs. Sps. Ronquillo G.R. No. 185798, January 13, 2014
16. Metro Concast Steel Corp. vs. Allied Bank Corp. G.R. No. 177921, Dec. 13, 2013
17. Sene vs. Franco, 24 Phil 309
18. Jimmy Co vs. CA, Broadway Motors Corp, June 22, 1998
19. Sicam vs. Jorge 529 SCRA 443
20. Austria vs. CA
21. Hernandez vs. Chairman, COA
22. Yobido vs. CA Oct. 17, 1997
23. Juntilla vs. Fontanar, May 31, 1985
24. Perla Compania de Seguros vs. Sarangay, 474 SCRA 191
25. Fil-Estate Properties vs. Go, 530 SCRA 621

Please take note/study of the following provisions:

 1163, 1244, 1246, 1458, 1459, 1460, 1461, 1733, 1734, 1755
 1164, 1166, 440, 441, 442, 1475, 1537, 1495-1497 1501
 1165, 1167, 1168
 1170, 1169, 1171, 1172, 1173, 2176
 1174, 1165 par. 3, 552 par. 2, 1268, 1942, 2147, 2148, 2159
 1175
 1176, 1235, 1956
 1177
 1178
G.R. No. 73345. April 7, 1993.
SOCIAL SECURITY SYSTEM vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION,
ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO,
in her capacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in his capacity
as Register of Deeds for Metro Manila District IV, Makati, Metro Manila and the
INTERMEDIATE APPELLATE COURT
Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate
Court affirming in toto the decision of the former Court of First Instance of Rizal, Seventh
Judicial District, Branch XXIX, Pasay City.
The facts as found by the Appellate Court are as follows:
"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the
Court of First Instance of Rizal against Moonwalk Development & Housing Corporation,
Moonwalk for short, alleging that the former had committed an error in failing to compute
the 12% interest due on delayed payments on the loan of Moonwalk — resulting in a chain of
errors in the application of payments made by Moonwalk and, in an unpaid balance on the
principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its
statement or account an unpaid balance on the said penalties for delayed payments in the
amount of P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to
ascertain the truth but failed to do so.
The trial court set the case for pre-trial at which pre-trial conference, the court issued an order
giving both parties thirty (30) days within which to submit a stipulation of facts.
The Order of October 6, 1980 dismissing the complaint followed the submission by the parties
on September 19, 1980 of the following stipulation of Facts:
"1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an
interim loan in the amount of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of
developing and constructing a housing project in the provinces of Rizal and Cavite;
"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of
P9,595,000.00 was released to defendant Moonwalk as of November 28, 1973;
"3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D'
providing for restructuring of the payment of the released amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively,
under paragraph 5 of the aforesaid Third Amended Deed of First Mortgage substituted
Associated Construction and Surveys Corporation, Philippine Model Homes Development
Corporation, Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors;
"5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00,
made to defendant Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory
note for TWELVE MILLION TWO HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS
(P12,254,700.00) Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and
Rosita U. Alberto;
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of
P12,254,700.00 released to it. The last payment made by Moonwalk in the amount of
P15,004,905.74 were based on the Statement of Account, Annex "F" prepared by plaintiff SSS
for defendant;
"7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk
the Release of Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes
'G' and 'H' on October 9, 1979 and October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another
letter dated December 17, 1979, plaintiff alleged that it committed an honest mistake in
releasing defendant.
"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had
completely paid its obligations to SSS;
"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O'
inclusive, of the Complaint and the letter dated December 21, 1979 of the defendant's
counsel to the plaintiff are admitted.
"Manila for Pasay City, September 2, 1980." 2
On October 6, 1990, the trial court issued an order dismissing the complaint on the ground
that the obligation was already extinguished by the payment by Moonwalk of its indebtedness
to SSS and by the latter's act of cancelling the real estate mortgages executed in its favor by
defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was
likewise dismissed by the latter.
These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced
the errors assigned by the SSS into this issue: ". . . are defendants-appellees, namely,
Moonwalk Development and Housing Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA
House, Inc. still liable for the unpaid penalties as claimed by plaintiff-appellant or is their
obligation extinguished?" 3 As We have stated earlier, the respondent Court held that
Moonwalk's obligation was extinguished and affirmed the trial court.
Hence, this Petition wherein SSS raises the following grounds for review:
"First, in concluding that the penalties due from Moonwalk are "deemed waived and/or
barred," the appellate court disregarded the basic tenet that waiver of a right must be
express, made in a clear and unequivocal manner. There is no evidence in the case at bar to
show that SSS made a clear, positive waiver of the penalties, made with full knowledge of the
circumstances.
Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere
trustee, cannot perform acts affecting the same, including condonation of penalties, that
would diminish property rights of the owners and beneficiaries thereof. (United Christian
Missionary Society v. Social Security Commission, 30 SCRA 982, 988 [1969]).
Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.
Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of
fact." 4
The same problem which confronted the respondent court is presented before Us: Is the
penalty demandable even after the extinguishment of the principal obligation?
The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the
negative. It reasoned, thus:
"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its
Brief, what is sought to be recovered in this case is not the 12% interest on the loan but the
12% penalty for failure to pay on time the amortization. What is sought to be enforced
therefore is the penal clause of the contract entered into between the parties.
Now, what is a penal clause. A penal clause has been defined as
"an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special presentation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118).
Now an accessory obligation has been defined as that attached to a principal obligation in
order to complete the same or take its place in the case of breach (4 Puig Peña Part 1 p. 76).
Note therefore that an accessory obligation is dependent for its existence on the existence of
a principal obligation. A principal obligation may exist without an accessory obligation but an
accessory obligation cannot exist without a principal obligation. For example, the contract of
mortgage is an accessory obligation to enforce the performance of the main obligation of
indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist
without the indebtedness, which is the principal obligation. In the present case, the principal
obligation is the loan between the parties. The accessory obligation of a penal clause is to
enforce the main obligation of payment of the loan. If therefore the principal obligation does
not exist the penalty being accessory cannot exist.
Now then when is the penalty demandable? A penalty is demandable in case of non
performance or late performance of the main obligation. In other words in order that the
penalty may arise there must be a breach of the obligation either by total or partial non
fulfillment or there is non fulfillment in point of time which is called mora or delay. The debtor
therefore violates the obligation in point of time if there is mora or delay. Now, there is no
mora or delay unless there is a demand. It is noteworthy that in the present case during all
the period when the principal obligation was still subsisting, although there were late
amortizations there was no demand made by the creditor, plaintiff-appellant for the payment
of the penalty. Therefore up to the time of the letter of plaintiff-appellant there was no
demand for the payment of the penalty, hence the debtor was no in mora in the payment of
the penalty.
However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F)
showing the total obligation of Moonwalk as P15,004,905.74, and forthwith demanded
payment from defendant-appellee. Because of the demand for payment, Moonwalk made
several payments on September 29, October 9 and 19, 1979 respectively, all in all totalling
P15,004,905.74 which was a complete payment of its obligation as stated in Exhibit F. Because
of this payment the obligation of Moonwalk was considered extinguished, and pursuant to
said extinguishment, the real estate mortgages given by Moonwalk were released on October
9, 1979 and October 10, 1979 (Exhibits G and H). For all purposes therefore the principal
obligation of defendant-appellee was deemed extinguished as well as the accessory obligation
of real estate mortgage; and that is the reason for the release of all the Real Estate Mortgages
on October 9 and 10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal clause which is also an accessory
obligation must also be deemed extinguished considering that the principal obligation was
considered extinguished, and the penal clause being an accessory obligation. That being the
case, the demand for payment of the penal clause made by plaintiff-appellant in its demand
letter dated November 28, 1979 and its follow up letter dated December 17, 1979 (which
parenthetically are the only demands for payment of the penalties) are therefore ineffective
as there was nothing to demand. It would be otherwise, if the demand for the payment of the
penalty was made prior to the extinguishment of the obligation because then the obligation We find no reason to depart from the appellate court's decision. We, however, advance the
of Moonwalk would consist of: 1) the principal obligation 2) the interest of 12% on the following reasons for the denial of this petition.
principal obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk
would be in mora and therefore liable for the penalty. Article 1226 of the Civil Code provides:

Let it be emphasized that at the time of the demand made in the letters of November 28, "Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for
1979 and December 17, 1979 as far as the penalty is concerned, the defendant-appellee was damages and the payment of interests in case of noncompliance, if there is no stipulation to
not in default since there was no mora prior to the demand. That being the case, therefore, the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or
the demand made after the extinguishment of the principal obligation which carried with it is guilty of fraud in the fulfillment of the obligation.
the extinguishment of the penal clause being merely an accessory obligation, was an exercise
in futility.
The penalty may be enforced only when it is demandable in accordance with the provisions
of this Code." (Emphasis Ours.)
3. At the time of the payment made of the full obligation on October 10, 1979 together with
the 12% interest by defendant-appellee Moonwalk, its obligation was extinguished. It being
A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It
extinguished, there was no more need for the penal clause. Now, it is to be noted that penalty
has a double function: (1) to provide for liquidated damages, and (2) to strengthen the
at anytime can be modified by the Court. Even substantial performance under Art. 1234
coercive force of the obligation by the threat of greater responsibility in the event of breach.
authorizes the Court to consider it as complete performance minus damages. Now, Art, 1229
7 From the foregoing, it is clear that a penal clause is intended to prevent the obligor from
Civil Code of the Philippines provides:
defaulting in the performance of his obligation. Thus, if there should be default, the penalty
may be enforced. One commentator of the Civil Code wrote:
"ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no performance,
"Now when is the penalty deemed demandable in accordance with the provisions of the Civil
the penalty may also be reduced by the courts if it is iniquitous or unconscionable."
Code? We must make a distinction between a positive and a negative obligation. With regard
to obligations which are positive (to give and to do), the penalty is demandable when the
If the penalty can be reduced after the principal obligation has been partly or irregularly debtor is in mora; hence, the necessity of demand by the debtor unless the same is excused .
complied with by the debtor, which is nonetheless a breach of the obligation, with more . ." 8
reason the penal clause is not demandable when full obligation has been complied with since
in that case there is no breach of the obligation. In the present case, there has been as yet no
When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially
demand for payment of the penalty at the time of the extinguishment of the obligation, hence
or extrajudicially demands from the obligor the performance of the obligation.
there was likewise an extinguishment of the penalty.

"Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
Let Us emphasize that the obligation of defendant-appellee was fully complied with by the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation."
debtor, that is, the amount loaned together with the 12% interest has been fully paid by the
appellee. That being so, there is no basis for demanding the penal clause since the obligation
has been extinguished. Here there has been a waiver of the penal clause as it was not There are only three instances when demand is not necessary to render the obligor in default.
demanded before the full obligation was fully paid and extinguished. Again, emphasis must These are the following:
be made on the fact that plaintiff-appellant has not lost anything under the contract since in
got back in full the amount loan (sic) as well as the interest thereof. The same thing would "(1) When the obligation or the law expressly so declares;
have happened if the obligation was paid on time, for then the penal clause, under the terms
of the contract would not apply. Payment of the penalty does not mean gain or loss of (2) When from the nature and the circumstances of the obligation it appears that the
plaintiff-appellant since it is merely for the purpose of enforcing the performance of the main designation of the time when the thing is to be delivered or the service is to be rendered was
obligation has been fully complied with and extinguished, the penal clause has lost its raison a controlling motive for the establishment of the contract; or
d' entre." 5
(3) When the demand would be useless, as when the obligor has rendered it beyond his power
to perform." 9
This case does not fall within any of the established exceptions. Hence, despite the provision
in the promissory note that "(a)ll amortization payments shall be made every first five (5) days
of the calendar month until the principal and interest on the loan or any portion thereof
actually released has been fully paid," 10 petitioner is not excused from making a demand. It
has been established that at the time of payment of the full obligation, private respondent
Moonwalk has long been delinquent in meeting its monthly arrears and in paying the full
amount of the loan itself as the obligation matured sometime in January, 1977. But mere
delinquency in payment does not necessarily mean delay in the legal concept. To be in default
". . . is different from mere delay in the grammatical sense, because it involves the beginning
of a special condition or status which has its own peculiar effects or results." 11 In order that
the debtor may be in default it is necessary that the following requisites be present: (1) that
the obligation be demandable and already liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance judicially and extrajudicially. 12 Default
generally begins from the moment the creditor demands the performance of the obligation.
13
Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its
monthly amortizations. Neither did it show that petitioner demanded the payment of the
stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the
complaint itself showed was that SSS tried to enforce the obligation sometime in September,
1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this
foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The
next demand for payment happened on October 1, 1979 when SSS issued a Statement of
Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full.
What is clear, therefore, is that Moonwalk was never in default because SSS never compelled
performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so
upon the entreaties of Moonwalk. If the Statement of Account could properly be considered
as demand for payment, the demand was complied with on time. Hence, no delay occurred
and there was, therefore, no occasion when the penalty became demandable and
enforceable. Since there was no default in the performance of the main obligation — payment
of the loan — SSS was never entitled to recover any penalty, not at the time it made the
Statement of Account and certainly, not after the extinguishment of the principal obligation
because then, all the more that SSS had no reason to ask for the penalties. Thus, there could
never be any occasion for waiver or even mistake in the application for payment because
there was nothing for SSS to waive as its right to enforce the penalty did not arise.
SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds
it held were trust funds and as trustee, the petitioner could not perform acts affecting the
funds that would diminish property rights of the owners and beneficiaries thereof. To support
its claim, SSS cited the case of United Christian Missionary Society v. Social Security
Commission. 14
We looked into the case and found out that it is not applicable to the present case as it dealt
not with the right of the SSS to collect penalties which were provided for in contracts which it
entered into but with its right to collect premiums and its duty to collect the penalty for
delayed payment or non-payment of premiums. The Supreme Court, in that case, stated:
"No discretion or alternative is granted respondent Commission in the enforcement of the
law's mandate that the employer who fails to comply with his legal obligation to remit the
premiums to the System within the prescribed period shall pay a penalty of three (3%) per
month. The prescribed penalty is evidently of a punitive character, provided by the legislature
to assure that employers do not take lightly the State's exercise of the police power in the
implementation of the Republic's declared policy "to develop, establish gradually and perfect
a social security system which shall be suitable to the needs of the people throughout the
Philippines and (to) provide protection to employers against the hazards of disability, sickness,
old age and death . . ."
Thus, We agree with the decision of the respondent court on the matter which We quote, to
wit:
"Note that the above case refers to the condonation of the penalty for the non remittance of
the premium which is provided for by Section 22(a) of the Social Security Act . . . In other
words, what was sought to be condoned was the penalty provided for by law for non
remittance of premium for coverage under the Social Security Act.
The case at bar does not refer to any penalty provided for by law nor does it refer to the non
remittance of premium. The case at bar refers to a contract of loan entered into between
plaintiff and defendant Moonwalk Development and Housing Corporation. Note, therefore,
that no provision of law is involved in this case, nor is there any penalty imposed by law nor a
case about non-remittance of premium required by law. The present case refers to a contract
of loan payable in installments not provided for by law but by agreement of the parties.
Therefore, the ratio decidendi of the case of United Christian Missionary Society vs. Social
Security Commission which plaintiff-appellant relies is not applicable in this case; clearly, the
Social Security Commission, which is a creature of the Social Security Act cannot condone a
mandatory provision of law providing for the payment of premiums and for penalties for non
remittance. The life of the Social Security Act is in the premiums because these are the funds
from which the Social Security Act gets the money for its purposes and the non-remittance of
the premiums is penalized not by the Social Security Commission but by law.
xxx xxx xxx
It is admitted that when a government created corporation enters into a contract with private
party concerning a loan, it descends to the level of a private person. Hence, the rules on
contract applicable to private parties are applicable to it. The argument therefore that the
Social Security Commission cannot waive or condone the penalties which was applied in the
United Christian Missionary Society cannot apply in this case. First, because what was not paid
were installments on a loan but premiums required by law to be paid by the parties covered
by the Social Security Act. Secondly, what is sought to be condoned or waived are penalties
not imposed by law for failure to remit premiums required by law, but a penalty for non
payment provided for by the agreement of the parties in the contract between them . . ." 15
WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the
respondent court is AFFIRMED.
G.R. No. 133107 March 25, 1999
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and FELIPE
LUSTRE, respondents.
A simple telephone call and an ounce of good faith on the part of petitioner could have
prevented the present controversy.
On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla from
Toyota Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the
purchase price to be paid in 24 equal monthly installments. Private respondent thus issued
24 postdated checks for the amount of P14,976.00 each. The first was dated April 10, 1991;
subsequent checks were dated every 10th day of each succeeding month.
To secure the balance, private respondent executed a promissory note 1 and a contract of
chattel mortgage 2 over the vehicle in favor of Toyota Shaw, Inc. The contract of chattel
mortgage, in paragraph 11 thereof, provided for an acceleration clause stating that should
the mortgagor default in the payment of any installment, the whole amount remaining unpaid
shall become due. In addition, the mortgagor shall be liable for 25% of the principal due as
liquidated damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel
mortgage to petitioner Rizal Commercial Banking Corporation (RCBC).
All the checks dated April 10, 1991 to January 10, 1993 were thereafter encashed and debited
by RCBC from private respondent's account, except for RCBC Check No. 279805 representing
the payment for August 10, 1991, which was unsigned. Previously, the amount represented
by RCBC Check No. 279805 was debited from private respondent's account but was later
recalled and re-credited, to him. Because of the recall, the last two checks, dated February
10, 1993 and March 10, 1993, were no longer presented for payment. This was purportedly
in conformity with petitioner bank's procedure that once a client's account was forwarded to
its account representative, all remaining checks outstanding as of the date the account was
forwarded were no longer presented for patent.
On the theory that respondent defaulted in his payments, the check representing the
payment for August 10, 1991 being unsigned, petitioner, in a letter dated January 21, 1993,
demanded from private respondent the payment of the balance of the debt, including
liquidated damages. The latter refused, prompting petitioner to file an action for replevin and
damages before the Pasay City Regional Trial Court (RTC). Private respondent, in his Answer,
interposed a counterclaim for damages.
After trial, the. RTC 3 rendered a decision disposing of the case as follows:
WHEREFORE, in view of the foregoing, judgment is hereby, rendered as follows:
I. The complaint; for lack of cause of action, is hereby DISMISSED and plaintiff RCBC is hereby
ordered,
A. To accept the payment equivalent to the three checks amounting to a total of P44,938.00,
without interest.
B. To release/cancel the mortgage on the car . . . upon payment of the amount of P44,938.00,
without interest.
C. To pay the cost of suit.
II. On The Counterclaim.
A. Plaintiff RCBC to pay Atty. Lustre the amount of P200,000.00 as moral damages.
B. RCBC to pay P100,000.00 as exemplary damages.
C. RCBC to pay Atty. Obispo P50,000.00 as Attorney's fees. Atty. Lustre is not entitled to any
fee for lawyering for himself.
All awards for damages are subject to payment of fees to be assessed by the Clerk of Court,
RTC, Pasay City.
SO ORDERED.
On appeal by petitioner, the Court of Appeals affirmed the decision of the RTC, thus:
We . . . concur with the trial court's ruling that the Chattel Mortgage contract being a contract
of adhesion — that is, one wherein a party, usually a corporation, prepares the stipulations in
the contract, while the other party merely affixes his signature or his "adhesion" thereto . . .
— is to be strictly construed against appellant bank which prepared the form Contract . . .
Hence . . . paragraph 11 of the Chattel Mortgage contract [containing the acceleration clause]
should be construed to cover only deliberate and advertent failure on the part of the
mortgagor to pay an amortization as it became due in line with the consistent holding of the
Supreme Court construing obscurities and ambiguities in the restrictive sense against the
drafter thereof . . . in the light of Article 1377 of the Civil Code.
In the case at bench, plaintiff-appellant's imputation of default to defendant-appellee rested
solely on the fact that the 5th check issued by appellee . . . was recalled for lack of signature.
However, the check was recalled only after the amount covered thereby had been deducted
from defendant-appellee's account, as shown by the testimony of plaintiff's own witness
Francisco Bulatao who was in charge of the preparation of the list and trial balances of bank
customers . . . . The "default" was therefore not a case of failure to pay, the check being
sufficiently funded, and which amount was in fact already debited [sic] from appellee's
account by the appellant bank which subsequently re-credited the amount to defendant-
appelle's account for lack of signature. All these actions RCBC did on its own without notifying
defendant until sixteen (16) months later when it wrote its demand letter dated January 21,
1993.
Clearly, appellant bank was remiss in the performance, of its functions for it could have easily
called the defendant's attention to the lack of signature on the check and sent the check to
or summoned, the latter to affix his signature. It is also to be noted that the demand letter
contains no explanation as to how defendant-appellee incurred arrearages in the amount of
P66,255.70, which is why defendant-appellee made a protest notation thereon.
Notably, all the other checks issued by the appellee dated subsequent to August 10, 1991 and
dated earlier than the demand letter, were duly encashed. This fact should have already
prompted the appellant bank to review its action relative to the unsigned check. . . . 4
We take exception to the application by both the trial and appellate courts of Article 1377 of
the Civil Code, which states:
The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. 5 It is true
that we have, on occasion, struck down such contracts as void when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative
of taking it or leaving it, completely deprived of the opportunity to bargain on equal
footing. 6 Nevertheless, contracts of adhesion are not invalid per se; 7 they are not entirely
prohibited. 8 The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. 9
While ambiguities in a contract of adhesion are to be construed against the party that
prepared the same, 10 this rule applies only if the stipulations in such contract are obscure or
ambiguous. If the terms thereof are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. 11 In the latter case,
there would be no need for construction. 12
Here, the terms of paragraph 11 of the Chattel Mortgage Contract 13 are clear. Said paragraph
states:
11. In case the MORTGAGOR fails to pay any of the installments, or to pay the interest that
may be due as provided in the said promissory note, the whole amount remaining unpaid
therein shall immediately become due and payable and the mortgage on the property (ies)
herein-above described may be foreclosed by the MORTGAGEE, or the MORTGAGEE may take
any other legal action to enforce collection of the obligation hereby secured, and in either
case the MORTGAGOR further agrees to pay the MORTGAGEE an additional sum of 25% of
the principal due and unpaid, as liquidated damages, which said sum shall become part
thereof. The MORTGAGOR hereby waives reimbursement of the amount heretofore paid by
him/it to the MORTGAGEE.
The above terms leave no room for construction. All that is required is the application thereof.
Petitioner claims that private respondent's check representing the fifth installment was "not
encashed," 14 such that the installment for August 1991 was not paid. By virtue of paragraph
11 above, petitioner submits that it "was justified in treating the entire balance of the
obligation as due and
demandable." 15 Despite demand by petitioner, however, private respondent refused to pay
the balance of the debt. Petitioner, in sum imputes delay on the part of private respondent.
We do not subscribe to petitioner's theory.
Art. 170 of the Civil Code states that those who in the performance of their obligations are
guilty of delay are liable for damages. The delay in the performance of the obligation,
however, must be either malicious or negligent.16 Thus, assuming that private respondent was
guilty of delay in the payment of the value of unsigned check, private respondent cannot be
held liable for damages. There is no imputation, much less evidence, that private respondent
acted with malice or negligence in failing to sign the check. Indeed, we agree with the Court
of Appeals finding that such omission was mere "in advertence" on the part of private
respondent. Toyota salesperson Jorge Geronimo testified that he even verified whether
private respondent had signed all the checks and in fact returned three or four unsigned
checks to him for signing:
Atty. Obispo:
After these receipts were issued, what else did you do about the transaction?
act with justice, give everyone his due, and observe honesty and good faith." 19 behooved the
bank to do so.
Failing thus, petitioner is liable for damages caused to private respondent. 20 These include
moral damages for the mental anguish, serious anxiety, besmirched reputation, wounded
feelings and social humiliation suffered by the latter. 21 The trial court found that private
respondent was:
[a] client who has shared transactions for over twenty years with a bank . . ..The shabby
treatment given the defendant is unpardonable since he was put to shame and
embarrassment after the case was filed in Court. He is a lawyer in his own right, married to
another member of the bar. He sired children who are all professionals in their chosen field.
He is known to the community of golfers with whom he gravitates. Surely the filing of the case
made defendant feel so bad and bothered.

A: During our transaction with Atty. Lustre, I found out when he issued to me the 24 checks, I To deter others from emulating petitioner's callous example, we affirm the award of
found out 3 to 4 checks are unsigned and I asked him to signed these checks. exemplary damages. 22 As exemplary damages are warranted, so are attorney's fees. 23

Atty. Obispo: We, however, find excessive the amount of damages awarded by the trial court in favor of
private respondent with respect to his counterclaims and, accordingly, reduce the same as
What did you do? follows:

A: I asked him to sign the checks. After signing the checks, I reviewed again all the documents, (a) Moral damages — from P200,000.00 to P100,000.00
after I reviewed all the documents and found out that all are completed and the down
payments was completed, we realed to him the car. 17 (b) Exemplary damages — from P100,000.00 to P75,000.00

Even when the checks were delivered to petitioner, it did not object to the unsigned check. In (c) Attorney's fees — from P50,000.00 to P 30,000.00
view of the lack of malice or negligence on the part of private respondent, petitioner's blind
and mechanical invocation of paragraph 11 of the contract of chattel mortgage was WHEREFORE, subject to these modifications, the decision of the Court of Appeals is
unwarranted. AFFIRMED.

Petitioner's conduct, in the light of the circumstances of this case, can only be described as
mercenary. Petitioner had already debited the value of the unsigned check from private
respondent's account only to re-credit it much later to him. Thereafter, petitioner encashed
checks subsequently dated, then abruptly refused to encash the last two. More than a year
after the date of the unsigned check, petitioner, claiming delay and invoking paragraph 11,
demanded from private respondent payment of the value of said check and that of the last
two checks, including liquidated damages. As pointed out by the trial court, this whole
controversy could have been avoided if only petitioner bothered to call up private respondent
and ask him to sign the check. Good faith not only in compliance with its contractual
obligations, 18 but also in observance of the standard in human relations, for every person "to
G.R. No. 115129 February 12, 1997 The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the
delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about
IGNACIO BARZAGA, petitioner, the delay. Boncales assured him that although the delivery truck was not yet around it had
vs. already left the garage and that as soon as it arrived the materials would be brought over to
COURT OF APPEALS and ANGELITO ALVIAR, respondents. the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the
memorial park and wait for the materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to
inquire about the materials. But he received the same answer from respondent's employees
BELLOSILLO, J.:
who even cajoled him to go back to the burial place as they would just follow with his
construction materials.
The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the
nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged
After hours of waiting — which seemed interminable to him — Barzaga became extremely
pain and suffering. Forewarned by her attending physicians of her impending death, she
upset. He decided to dismiss his laborers for the day. He proceeded to the police station,
expressed her wish to be laid to rest before Christmas day to spare her family from keeping
which was just nearby, and lodged a complaint against Alviar. He had his complaint entered
lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their
in the police blotter. When he returned again to the store he saw the delivery truck already
Redeemer.
there but the materials he purchased were not yet ready for loading. Distressed that Alviar's
employees were not the least concerned, despite his impassioned pleas, Barzaga decided to
Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing cancel his transaction with the store and look for construction materials elsewhere.
the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the
twenty-fourth of December in obedience semper fidelis to her dying wish. But her final
In the afternoon of that day, petitioner was able to buy from another store. But since darkness
entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that
was already setting in and his workers had left, he made up his mind to start his project the
forthwith gave him and his family their gloomiest Christmas ever.
following morning, 23 December. But he knew that the niche would not be finish in time for
the scheduled burial the following day. His laborers had to take a break on Christmas Day and
This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he they could only resume in the morning of the twenty-sixth. The niche was completed in the
went to the hardware store of respondent Angelito Alviar to inquire about the availability of afternoon and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2)
certain materials to be used in the construction of a niche for his wife. He also asked if the days behind schedule.
materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she
had yet to verify if the store had pending deliveries that afternoon because if there were then
On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga
all subsequent purchases would have to be delivered the following day. With that reply
wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar
petitioner left.
did not respond. Consequently, petitioner sued him before the Regional Trial Court.1

At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware
Resisting petitioner's claim, private respondent contended that legal delay could not be validly
store to follow up his purchase of construction materials. He told the store employees that
ascribed to him because no specific time of delivery was agreed upon between them. He
the materials he was buying would have to be delivered at the Memorial Cemetery in
pointed out that the invoices evidencing the sale did not contain any stipulation as to the
Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at the
exact time of delivery and that assuming that the materials were not delivered within the
burial site and time was of the essence. Marina Boncales agreed to deliver the items at the
period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to
designated time, date and place. With this assurance, Barzaga purchased the materials and
pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in the
paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which
morning of 22 December but petitioner refused to accept them. According to Alviar, it was
was only a kilometer away, to await the delivery.
this obstinate refusal of petitioner to accept delivery that caused the delay in the construction
of the niche and the consequent failure of the family to inter their loved one on the twenty-
fourth of December, and that, if at all, it was petitioner and no other who brought about all
his personal woes.
Upholding the proposition that respondent incurred in delay in the delivery of the
construction materials resulting in undue prejudice to petitioner, the trial court ordered
respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the
materials with interest per annum computed at the legal rate from the date of the filing of
the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d)
P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the lower court and ruled that there was
no contractual commitment as to the exact time of delivery since this was not indicated in the
invoice receipts covering the sale.2
The arrangement to deliver the materials merely implied that delivery should be made within
a reasonable time but that the conclusion that since petitioner's workers were already at the
graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of
Appeals also held that assuming that there was delay, petitioner still had sufficient time to
construct the tomb and hold his wife's burial as she wished.
We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent
Angelito Alviar was negligent and incurred in delay in the performance of his contractual
obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the
damage he suffered as a consequence of delay or a contractual breach. The law expressly
provides that those who in the performance of their obligation are guilty of fraud, negligence,
or delay and those who in any manner contravene the tenor thereof, are liable for damages.3
Contrary to the appellate court's factual determination, there was a specific time agreed upon
for the delivery of the materials to the cemetery. Petitioner went to private respondent's
store on 21 December precisely to inquire if the materials he intended to purchase could be
delivered immediately. But he was told by the storekeeper that if there were still deliveries to
be made that afternoon his order would be delivered the following day. With this in mind
Barzaga decided to buy the construction materials the following morning after he was assured
of immediate delivery according to his time frame. The argument that the invoices never
indicated a specific delivery time must fall in the face of the positive verbal commitment of
respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices
the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper
Boncales admitted that it was her custom not to indicate the time of delivery whenever she
prepared invoices.4
Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the
delivery of petitioner's purchases. He maintains that Barzaga should have allowed his delivery
men a little more time to bring the construction materials over to the cemetery since a few
hours more would not really matter and considering that his truck had a flat tire. Besides,
according to him, Barzaga still had sufficient time to build the tomb for his wife.
This is a gratuitous assertion that borders on callousness. Private respondent had no right to
manipulate petitioner's timetable and substitute it with his own. Petitioner had a deadline to
meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to
attend to other pressing family concerns. Despite this, respondent's employees still made light
of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court
" . . . they (respondent's employees) were making a fool out of me."5
We also find unacceptable respondent's justification that his truck had a flat tire, for this
event, if indeed it happened, was forseeable according to the trial court, and as such should
have been reasonably guarded against. The nature of private respondent's business requires
that he should be ready at all times to meet contingencies of this kind. One piece of testimony
by respondent's witness Marina Boncales has caught our attention - that the delivery truck
arrived a little late than usual because it came from a delivery of materials in Langcaan,
Dasmarinas, Cavite.6Significantly, this information was withheld by Boncales from petitioner
when the latter was negotiating with her for the purchase of construction materials.
Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and
that the delivery of the materials would consequently be delayed, petitioner would not have
bought the materials from respondent's hardware store but elsewhere which could meet his
time requirement. The deliberate suppression of this information by itself manifests a certain
degree of bad faith on the part of respondent's storekeeper.
The appellate court appears to have belittled petitioner's submission that under the prevailing
circumstances time was of the essence in the delivery of the materials to the grave site.
However, we find petitioner's assertion to be anchored on solid ground. The niche had to be
constructed at the very least on the twenty-second of December considering that it would
take about two (2) days to finish the job if the interment was to take place on the twenty-
fourth of the month. Respondent's delay in the delivery of the construction materials wasted
so much time that construction of the tomb could start only on the twenty-third. It could not
be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged the wake,
in addition to the fact that work at the cemetery had to be put off on Christmas day.
This case is clearly one of non-performance of a reciprocal obligation.7 In their contract of
purchase and sale, petitioner had already complied fully with what was required of him as
purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon
respondent to immediately fulfill his obligation to deliver the goods otherwise delay would
attach.
We therefore sustain the award of moral damages. It cannot be denied that petitioner and
his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch
on Christmas day over the remains of their loved one who could not be laid to rest on the
date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio
Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier
behavior and bad faith of respondent and his employees in the performance of an obligation
voluntarily entered into.
We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the
employees of respondent over which he exercised supervisory authority indicates gross
negligence in the fulfillment of his business obligations. Respondent Alviar and his employees
should have exercised fairness and good judgment in dealing with petitioner who was then
grieving over the loss of his wife. Instead of commiserating with him, respondent and his
employees contributed to petitioner's anguish by causing him to bear the agony resulting
from his inability to fulfill his wife's dying wish.
We delete however the award of temperate damages. Under Art. 2224 of the Civil Code,
temperate damages are more than nominal but less than compensatory, and may be
recovered when the court finds that some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with certainty. In this case, the trial court
found that plaintiff suffered damages in the form of wages for the hired workers for 22
December 1990 and expenses incurred during the extra two (2) days of the wake. The record
however does not show that petitioner presented proof of the actual amount of expenses he
incurred which seems to be the reason the trial court awarded to him temperate damages
instead. This is an erroneous application of the concept of temperate damages. While
petitioner may have indeed suffered pecuniary losses, these by their very nature could be
established with certainty by means of payment receipts. As such, the claim falls
unequivocally within the realm of actual or compensatory damages. Petitioner's failure to
prove actual expenditure consequently conduces to a failure of his claim. For in determining
actual damages, the court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence obtainable
regarding the actual amount of loss.8
We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's
fees and litigation costs is left to the sound discretion of the court, and if such discretion be
well exercised, as in this case, it will not be disturbed on appeal.9
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar
as it GRANTED on a motion for reconsideration the refund by private respondent of the
amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except
for the award of P5,000.00 as temperate damages which we delete, the decision of the
Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with
interest computed at the legal rate per annum from the date of the filing of the case; (b)
P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as
litigation expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs.
G.R. No. 174269 May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son
Adrian Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of
Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the afternoon of 25
October 1991, the second to the last day of the tour. As the group had arrived late in the city,
they failed to engage in any sight-seeing. Instead, it was agreed upon that they would start
early the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The
group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art
of diamond polishing that lasted for around ten minutes.1 Afterwards, the group was led to
the store’s showroom to allow them to select items for purchase. Mrs. Pantaleon had already
planned to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she
found a diamond close enough in approximation that she decided to buy.2 Mrs. Pantaleon
also selected for purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together
with his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes
before the tour group was slated to depart from the store. The sales clerk took the card’s
imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then referred
electronically to respondent’s Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and
informed the other members of the Pantaleon family that the entire tour group was waiting
for them. As it was already 9:40 a.m., and he was already worried about further
inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store
manager though asked plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded bank references. Pantaleon
supplied the names of his depositary banks, then instructed his daughter to return to the bus
and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and
30 minutes after the tour group was supposed to have left the store, Coster decided to release
the items even without respondent’s approval of the purchase. The spouses Pantaleon
returned to the bus. It is alleged that their offers of apology were met by their tourmates with
stony silence.4 The tour group’s visible irritation was aggravated when the tour guide
announced that the city tour of Amsterdam was to be canceled due to lack of remaining time,
as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up
weeping, while her husband had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent’s Manila office
at 9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was
transmitted to respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner
had already left Coster, and 78 minutes from the time the purchases were electronically
transmitted by the jewelry store to respondent’s Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States
before returning to Manila on 12 November 1992. While in the United States, Pantaleon
continued to use his AmEx card, several times without hassle or delay, but with two other
incidents similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf
equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit card
purchase and borrowed money instead from a friend, after more than 30 minutes had
transpired without the purchase having been approved. On 3 November 1991, Pantaleon
used the card to purchase children’s shoes worth $87.00 at a store in Boston, and it took 20
minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to
the respondent, demanding an apology for the "inconvenience, humiliation and
embarrassment he and his family thereby suffered" for respondent’s refusal to provide credit
authorization for the aforementioned purchases.8 In response, respondent sent a letter dated
24 March 1992,9 stating among others that the delay in authorizing the purchase from Coster
was attributable to the circumstance that the charged purchase of US $13,826.00 "was out of
the usual charge purchase pattern established."10 Since respondent refused to accede to
Pantaleon’s demand for an apology, the aggrieved cardholder instituted an action for
damages with the Regional Trial Court (RTC) of Makati City, Branch 145.11 Pantaleon prayed
that he be awarded ₱2,000,000.00, as moral damages; ₱500,000.00, as exemplary damages;
₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding
him ₱500,000.00 as moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as
attorney’s fees, and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal,
while Pantaleon moved for partial reconsideration, praying that the trial court award the
increased amount of moral and exemplary damages he had prayed for.14 The RTC denied
Pantaleon’s motion for partial reconsideration, and thereafter gave due course to
respondent’s Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of
damages in favor of Pantaleon, holding that respondent had not breached its obligations to
petitioner. Hence, this petition.
The key question is whether respondent, in connection with the aforementioned transactions,
had committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that
even assuming that respondent had not been in breach of its obligations, it still remained
liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and
respondent’s credit authorizer, Edgardo Jaurigue, that the normal approval time for
purchases was "a matter of seconds." Based on that standard, respondent had been in clear
delay with respect to the three subject transactions. As it appears, the Court of Appeals
conceded that there had been delay on the part of respondent in approving the purchases.
However, it made two critical conclusions in favor of respondent. First, the appellate court
ruled that the delay was not attended by bad faith, malice, or gross negligence. Second, it
ruled that respondent "had exercised diligent efforts to effect the approval" of the purchases,
which were "not in accordance with the charge pattern" petitioner had established for
himself, as exemplified by the fact that at Coster, he was "making his very first single charge
purchase of US$13,826," and "the record of [petitioner]’s past spending with [respondent] at
the time does not favorably support his ability to pay for such purchase."17
On the premise that there was an obligation on the part of respondent "to approve or
disapprove with dispatch the charge purchase," petitioner argues that the failure to timely
approve or disapprove the purchase constituted mora solvendi on the part of respondent in
the performance of its obligation. For its part, respondent characterizes the depiction by
petitioner of its obligation to him as "to approve purchases instantaneously or in a matter of
seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default
are that the obligation is demandable and liquidated; the debtor delays performance; and the
creditor judicially or extrajudicially requires the debtor’s performance.18 Petitioner asserts
that the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates
to delay on the part of the obligee in accepting the performance of the obligation by the
obligor. The requisites of mora accipiendi are: an offer of performance by the debtor who has
the required capacity; the offer must be to comply with the prestation as it should be
performed; and the creditor refuses the performance without just cause.19 The error of the
appellate court, argues petitioner, is in relying on the invocation by respondent of "just cause"
for the delay, since while just cause is determinative of mora accipiendi, it is not so with the
case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate.
Generally, the relationship between a credit card provider and its card holders is that of
creditor-debtor,20 with the card company as the creditor extending loans and credit to the
card holder, who as debtor is obliged to repay the creditor. This relationship already takes
exception to the general rule that as between a bank and its depositors, the bank is deemed
as the debtor while the depositor is considered as the creditor.21 Petitioner is asking us, not
baselessly, to again shift perspectives and again see the credit card company as the
debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to act
promptly on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we were to still regard
respondent as the creditor in the context of this cause of action. If there was delay on the part
of respondent in its normal role as creditor to the cardholder, such delay would not have been
in the acceptance of the performance of the debtor’s obligation (i.e., the repayment of the
debt), but it would be delay in the extension of the credit in the first place. Such delay would
not fall under mora accipiendi, which contemplates that the obligation of the debtor, such as
the actual purchases on credit, has already been constituted. Herein, the establishment of the
debt itself (purchases on credit of the jewelry) had not yet been perfected, as it remained
pending the approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioner’s
purchases with "timely dispatch," or for the purposes of this case, within a period significantly
less than the one hour it apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part
of respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on its
part in complying with its obligation to act promptly on its customer’s purchase request,
whether such action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was
a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the
three charge purchases subject of this case, approvals of his charge purchases were always
obtained in a matter of seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal approval time for charges would
be 3 to 4 seconds?
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and approval of plaintiff’s charge
purchase at the Coster Diamond House was way beyond the normal approval time of a
"matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and
by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In
fact, the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that
defendant’s Amsterdam office received the request to approve plaintiff’s charge purchase at
9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its
approval to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse
of one hour and [18] minutes. And even then, the approval was conditional as it directed in
computerese [sic] "Positive Identification of Card holder necessary further charges require
bank information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive
queries of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen.
Advise how long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08,
all times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the
charge purchase referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows
how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in
Phoenix time from 01:20 when the charge purchased was referred for authorization,
defendants own record shows:
01:22 – the authorization is referred to Manila Amexco
01:32 – Netherlands gives information that the identification of the cardmember has been
presented and he is buying jewelries worth US $13,826.
01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation
to act on his use of the card abroad "with special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within
seconds," there really is no strict, legally determinative point of demarcation on how long
must it take for a credit card company to approve or disapprove a customer’s purchase, much
less one specifically contracted upon by the parties. Yet this is one of those instances when
"you’d know it when you’d see it," and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase. It is long enough
time for the customer to walk to a bank a kilometer away, withdraw money over the counter,
and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the
purchase "in timely dispatch," and not "to approve the purchase instantaneously or within
seconds." Certainly, had respondent disapproved petitioner’s purchase "within seconds" or
within a timely manner, this particular action would have never seen the light of day.
Petitioner and his family would have returned to the bus without delay – internally humiliated
perhaps over the rejection of his card – yet spared the shame of being held accountable by
newly-made friends for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify
whether the credit it is extending upon on a particular purchase was indeed contracted by the
cardholder, and that the cardholder is within his means to make such transaction. The
culpable failure of respondent herein is not the failure to timely approve petitioner’s
purchase, but the more elemental failure to timely act on the same, whether favorably or
unfavorably. Even assuming that respondent’s credit authorizers did not have sufficient basis
on hand to make a judgment, we see no reason why respondent could not have promptly
informed petitioner the reason for the delay, and duly advised him that resolving the same
could take some time. In that way, petitioner would have had informed basis on whether or
not to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner
was left uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced
to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently
or in bad faith, and the court should find that under the circumstances, such damages are
due. The findings of the trial court are ample in establishing the bad faith and unjustified
neglect of respondent, attributable in particular to the "dilly-dallying" of respondent’s Manila
credit authorizer, Edgardo Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as
to the amount of time it should take defendant to grant authorization for a charge purchase,
defendant acknowledged that the normal time for approval should only be three to four
seconds. Specially so with cards used abroad which requires "special handling", meaning with
priority. Otherwise, the object of credit or charge cards would be lost; it would be so
inconvenient to use that buyers and consumers would be better off carrying bundles of
currency or traveller’s checks, which can be delivered and accepted quickly. Such right was
not accorded to plaintiff in the instances complained off for reasons known only to defendant
at that time. This, to the Court’s mind, amounts to a wanton and deliberate refusal to comply
with its contractual obligations, or at least abuse of its rights, under the contract.24
xxx
The delay committed by defendant was clearly attended by unjustified neglect and bad faith,
since it alleges to have consumed more than one hour to simply go over plaintiff’s past credit
history with defendant, his payment record and his credit and bank references, when all such
data are already stored and readily available from its computer. This Court also takes note of
the fact that there is nothing in plaintiff’s billing history that would warrant the imprudent
suspension of action by defendant in processing the purchase. Defendant’s witness Jaurique
admits:
Q. – But did you discover that he did not have any outstanding account?
A. – Nothing in arrears at that time.
Q. – You were well aware of this fact on this very date?
A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account.25
It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent incurred delay, but because the delay, for which culpability lies under
Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moral
damages are remunerative.26 Moral damages do not avail to soothe the plaints of the simply
impatient, so this decision should not be cause for relief for those who time the length of their This is a petition for review seeking to set aside the Decision1 of the Court of Appeals in CA-
credit card transactions with a stopwatch. The somewhat unusual attending circumstances to G.R. CV No. 54334 and its Resolution denying petitioner's motion for reconsideration.
the purchase at Coster – that there was a deadline for the completion of that purchase by
petitioner before any delay would redound to the injury of his several traveling companions The factual antecedents of this case are as follows:
– gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded by the RTC.27 Those circumstances are
Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise
fairly unusual, and should not give rise to a general entitlement for damages under a more
shipping. It used to own the cargo vessel M/V Dadiangas Express.
mundane set of facts.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-
in trading, marketing, and selling of various industrial commodities. It is also an importer and
and-fast rule in determining what would be a fair and reasonable amount of moral damages,
distributor of different brands of engines and spare parts.
since each case must be governed by its own peculiar facts, however, it must be
commensurate to the loss or injury suffered.28 Petitioner’s original prayer for ₱5,000,000.00
for moral damages is excessive under the circumstances, and the amount awarded by the trial From 1987 up to the institution of this case, respondent supplied petitioner with spare parts
court of ₱500,000.00 in moral damages more seemly.1avvphi1 for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a
quotation for various machine parts. Acceding to this request, respondent furnished
petitioner with a formal quotation,2 thus:
Likewise, we deem exemplary damages available under the circumstances, and the amount
of ₱300,000.00 appropriate. There is similarly no cause though to disturb the determined May 31, 1989
award of ₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
MINQ-6093
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in
LORENZO SHIPPING LINES
Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
Pier 8, North Harbor
Manila
G.R. No. 145483 November 19, 2004
SUBJECT: PARTS FOR ENGINE MODEL
LORENZO SHIPPING CORP., petitioner, MITSUBISHI 6UET 52/60
vs.
BJ MARTHEL INTERNATIONAL, INC., respondent.
Dear Mr. Go:

We are pleased to submit our offer for your above subject requirements.

Description Qty. Unit Price

DECISION

Nozzle Tip 6 pcs. P 5,520.00

Plunger & Barrel 6 pcs. 27,630.00

CHICO-NAZARIO, J.:
 Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00
TERM OF PAYMENT: 25% DOWN PAYMENT

Cylinder Liner 1 set 5 BI-MONTHLY INSTALLMENT[S]

477,000.00

TOTAL PRICE FOB Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor
P2,745,900.00
of respondent ten postdated checks4 to be drawn against the former's account with Allied
MANILA ___________ Banking Corporation. The checks were supposed to represent the full payment of the
aforementioned cylinder liner.

DELIVERY: Within 2 months after receipt of firm order.
TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
Subsequently, petitioner issued Purchase Order No. 14011,5 dated 15 January 1990, for yet
another unit of cylinder liner. This purchase order stated the term of payment to be "25%
upon delivery, balance payable in 5 bi-monthly equal installment[s]."6 Like the purchase order
of 02 November 1989, the second purchase order did not state the date of the cylinder liner's
delivery.

On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January
We trust you find our above offer acceptable and look forward to your most valued order.
1990, however, the same was dishonored by the drawee bank due to insufficiency of funds.
Very truly yours, The remaining nine postdated checks were eventually returned by respondent to petitioner.

(SGD) HENRY PAJARILLO The parties presented disparate accounts of what happened to the check which was
previously dishonored. Petitioner claimed that it replaced said check with a good one, the
proceeds of which were applied to its other obligation to respondent. For its part, respondent
Sales Manager
insisted that it returned said postdated check to petitioner.

Petitioner thereafter issued to respondent Purchase Order No. 13839,3 dated 02 November Respondent thereafter placed the order for the two cylinder liners with its principal in Japan,
1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name
Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioner's vice- with the First Interstate Bank of Tokyo.
president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase
order: On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North
Harbor, Manila. The sales invoices7 evidencing the delivery of the cylinder liners both contain
Name of Description Qty. Amount
the notation "subject to verification" under which the signature of Eric Go, petitioner's
warehouseman, appeared.
CYL. LINER M/E 1 SET P477,000.00
Respondent thereafter sent a Statement of Account dated 15 November 19908 to petitioner.
NOTHING FOLLOW While the other items listed in said statement of account were fully paid by petitioner, the
two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently,
INV. # Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02 January
19919 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this
case. Instead of heeding the demand of respondent for the full payment of the value of the
cylinder liners, petitioner sent the former a letter dated 12 March 199110 offering to pay only
P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners
were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner)
would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of
said sale.
Shortly thereafter, another demand letter dated 27 March 199111 was furnished petitioner by
respondent's counsel requiring the former to settle its obligation to respondent together with
accrued interest and attorney's fees.
Due to the failure of the parties to settle the matter, respondent filed an action for sum of
money and damages before the Regional Trial Court (RTC) of Makati City. In its
complaint,12 respondent (plaintiff below) alleged that despite its repeated oral and written
demands, petitioner obstinately refused to settle its obligations. Respondent prayed that
petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of
P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June
1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary
damages; actual damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended
complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules
of Court.13 Aside from the prayer for the issuance of writ of preliminary attachment, the
amendments also pertained to the issuance by petitioner of the postdated checks and the
amounts of damages claimed.
In an Order dated 25 July 1991,14 the court a quo granted respondent's prayer for the issuance
of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion
to Discharge Writ of Attachment15attaching thereto a counter-bond as required by the Rules
of Court. On even date, the trial court issued an Order16lifting the levy on petitioner's
properties and the garnishment of its bank accounts.
Petitioner afterwards filed its Answer17 alleging therein that time was of the essence in the
delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as
respondent committed to deliver said items "within two (2) months after receipt of firm
order"18 from petitioner. Petitioner likewise sought counterclaims for moral damages,
exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment
dated 25 October 1991.19 The amendment introduced dealt solely with the number of
postdated checks issued by petitioner as full payment for the first cylinder liner it ordered
from respondent. Whereas in the first amended complaint, only nine postdated checks were
involved, in its second amended complaint, respondent claimed that petitioner actually issued
ten postdated checks. Despite the opposition by petitioner, the trial court admitted
respondent's Second Amended Complaint with Preliminary Attachment.20
Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder
Liners)21 alleging therein that "[w]ith the passage of time and with no definite end in sight to
the present litigation, the cylinder liners run the risk of obsolescence and deterioration" 22 to
the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the
cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This
motion, unopposed by respondent, was granted by the trial court through the Order of 17
March 1991.23
After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is
ordered to pay P50,000.00 to the defendant as and by way of attorney's fees.24
The trial court held respondent bound to the quotation it submitted to petitioner particularly
with respect to the terms of payment and delivery of the cylinder liners. It also declared that
respondent had agreed to the cancellation of the contract of sale when it returned the
postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and
compensatory damages were dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial court's Decision but the motion was
denied for lack of merit.25
Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of
Appeals26 which reversed and set aside the Decision of the court a quo. The appellate court
brushed aside petitioner's claim that time was of the essence in the contract of sale between
the parties herein considering the fact that a significant period of time had lapsed between
respondent's offer and the issuance by petitioner of its purchase orders. The dispositive
portion of the Decision of the appellate court states:
WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is
hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest
computed at 14% per annum reckoned from May, 1991.27
The Court of Appeals also held that respondent could not have incurred delay in the delivery
of cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon
petitioner in contravention of the express provision of Article 1169 of the Civil Code which
provides:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.
Likewise, the appellate court concluded that there was no evidence of the alleged cancellation
of orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was
reasonable under the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of
Appeals but this was denied through the resolution of 06 October 2000.28 Hence, this petition
for review which basically raises the issues of whether or not respondent incurred delay in
performing its obligation under the contract of sale and whether or not said contract was
validly rescinded by petitioner.
That a contract of sale was entered into by the parties is not disputed. Petitioner, however,
maintains that its obligation to pay fully the purchase price was extinguished because the
adverted contract was validly terminated due to respondent's failure to deliver the cylinder
liners within the two-month period stated in the formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale
to justify petitioner to disregard the terms of the contract considering that time was of the
essence thereof?
In determining whether time is of the essence in a contract, the ultimate criterion is the actual
or apparent intention of the parties and before time may be so regarded by a court, there
must be a sufficient manifestation, either in the contract itself or the surrounding
circumstances of that intention.29 Petitioner insists that although its purchase orders did not
specify the dates when the cylinder liners were supposed to be delivered, nevertheless,
respondent should abide by the term of delivery appearing on the quotation it submitted to
petitioner.30 Petitioner theorizes that the quotation embodied the offer from respondent
while the purchase order represented its (petitioner's) acceptance of the proposed terms of
the contract of sale.31 Thus, petitioner is of the view that these two documents "cannot be
taken separately as if there were two distinct contracts."32 We do not agree.
It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave
no doubt as to the intention of the contracting parties, the literal meaning shall
control.33 However, in order to ascertain the intention of the parties, their contemporaneous
and subsequent acts should be considered.34 While this Court recognizes the principle that
contracts are respected as the law between the contracting parties, this principle is tempered
by the rule that the intention of the parties is primordial35 and "once the intention of the
parties has been ascertained, that element is deemed as an integral part of the contract as
though it has been originally expressed in unequivocal terms."36
In the present case, we cannot subscribe to the position of petitioner that the documents, by
themselves, embody the terms of the sale of the cylinder liners. One can easily glean the
significant differences in the terms as stated in the formal quotation and Purchase Order No.
13839 with regard to the due date of the down payment for the first cylinder liner and the
date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery
of the second cylinder liner. While the quotation provided by respondent evidently stated
that the cylinder liners were supposed to be delivered within two months from receipt of the
firm order of petitioner and that the 25% down payment was due upon the cylinder liners'
delivery, the purchase orders prepared by petitioner clearly omitted these significant items.
The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery
of the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No.
14011 likewise did not indicate the due date of delivery of the second cylinder liner.
In the case of Bugatti v. Court of Appeals,37 we reiterated the principle that "[a] contract
undergoes three distinct stages – preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of agreement of the parties.
The perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the contract wherein the
parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof."
In the instant case, the formal quotation provided by respondent represented the negotiation
phase of the subject contract of sale between the parties. As of that time, the parties had not
yet reached an agreement as regards the terms and conditions of the contract of sale of the
cylinder liners. Petitioner could very well have ignored the offer or tendered a counter-offer
to respondent while the latter could have, under the pertinent provision of the Civil
Code,38withdrawn or modified the same. The parties were at liberty to discuss the provisions
of the contract of sale prior to its perfection. In this connection, we turn to the testimonies of
Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed, renegotiated prior to the
issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping
Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of
the cylinder liner, did you not?
A: Yes sir.
Q: I am showing to you the quotation which is marked as Exhibit A there appears in the
quotation that the delivery of the cylinder liner will be made in two months' time from the
time you received the confirmation of the order. Is that correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is Exhibit A how long a time did the
defendant make a confirmation of the order?
A: After six months.
Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms
of payment which you required of them of 25% down payment, now, it is stated in the
purchase order the date of delivery, will you explain to the court why the date of delivery of
the cylinder liner was not mentioned in the purchase order which is the contract between you
and Lorenzo Shipping Corporation?
A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have
inquired [with] our supplier in Japan to give us the price and delivery of that item. When we
received that quotation from our supplier it is stated there that they can deliver within two
months but we have to get our confirmed order within June.
Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with your
Japanese supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder
liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm
the order with your Japanese supplier after receiving the purchase order dated November 2,
1989?
A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.39
For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr.,
testified in the following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was
agreed upon by both parties was 25% down payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?
A: It was not stated when we were supposed to receive that. Normally, we expect to receive
at the earliest possible time. Again, that would depend on the customers. Even after receipt
of the purchase order which was what happened here, they re-negotiated the terms and
sometimes we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.40
The above declarations remain unassailed. Other than its bare assertion that the subject
contracts of sale did not undergo further renegotiation, petitioner failed to proffer sufficient
evidence to refute the above testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839
and No. 14011 yet it utterly failed to adduce any justification as to why said documents
contained terms which are at variance with those stated in the quotation provided by
respondent. The only plausible reason for such failure on the part of petitioner is that the
parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as
the obscurity in the terms of the contract between respondent and petitioner was caused by
the latter when it omitted the date of delivery of the cylinder liners in the purchase orders
and varied the term with respect to the due date of the down payment,41 said obscurity must
be resolved against it.42
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v.
Matti,43 instructive. There, we held that –
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not
of the essence of the contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable
time, in the absence of anything to show that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the cylinder liners were to
be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later
part of December 1989 to early January 1990, the record is bereft of any indication that
respondent was aware of such fact. The failure of petitioner to notify respondent of said date
is fatal to its claim that time was of the essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the Court of Appeals:
. . . It must be noted that in the purchase orders issued by the appellee, dated November 2,
1989 and January 15, 1990, no specific date of delivery was indicated therein. If time was
really of the essence as claimed by the appellee, they should have stated the same in the said
purchase orders, and not merely relied on the quotation issued by the appellant considering
the lapse of time between the quotation issued by the appellant and the purchase orders of
the appellee.
In the instant case, the appellee should have provided for an allowance of time and made the
purchase order earlier if indeed the said cylinder liner was necessary for the repair of the
vessel scheduled on the first week of January, 1990. In fact, the appellee should have
cancelled the first purchase order when the cylinder liner was not delivered on the date it
now says was necessary. Instead it issued another purchase order for the second set of
cylinder liner. This fact negates appellee's claim that time was indeed of the essence in the
consummation of the contract of sale between the parties.44
Finally, the ten postdated checks issued in November 1989 by petitioner and received by the
respondent as full payment of the purchase price of the first cylinder liner supposed to be
delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a
commitment on the part of the respondent. The earliest maturity date of the checks was 18
January 1990. As delivery of said checks could produce the effect of payment only when they
have been cashed,45 respondent's obligation to deliver the first cylinder liner could not have
arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had
yet to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by
respondent, it proceeded with the placement of the order for the cylinder liners with its
principal in Japan solely on the basis of its previously harmonious business relationship with
petitioner.
As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the
contract in that respect by one of the parties may be waived by the other party's subsequently
treating the contract as still in force."46Petitioner's receipt of the cylinder liners when they
were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the
contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been
cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder
liners even if said receipt was "subject to verification." By accepting the cylinder liners when
these were delivered to its warehouse, petitioner indisputably waived the claimed delay in
the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the essence. The delivery
of the cylinder liners on 20 April 1990 was made within a reasonable period of time
considering that respondent had to place the order for the cylinder liners with its principal in
Japan and that the latter was, at that time, beset by heavy volume of work.47
There having been no failure on the part of the respondent to perform its obligation, the
power to rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil
Code runs as follows:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The law explicitly gives either party the right to rescind the contract only upon the failure of
the other to perform the obligation assumed thereunder.48 The right, however, is not an
unbridled one. This Court in the case of University of the Philippines v. De los
Angeles,49 speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:
Of course, it must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the
other and is always provisional, being ever subject to scrutiny and review by the proper court.
If the other party denied that rescission is justified, it is free to resort to judicial action in its
own behalf, and bring the matter to court. Then, should the court, after due hearing, decide
that the resolution of the contract was not warranted, the responsible party will be sentenced
to damages; in the contrary case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced. (Emphasis supplied)
In other words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its own risk.
For it is only the final judgment of the corresponding court that will conclusively and finally
settle whether the action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured
by the other's breach will have to passively sit and watch its damages accumulate during the
pendency of the suit until the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own damages.50
Here, there is no showing that petitioner notified respondent of its intention to rescind the
contract of sale between them. Quite the contrary, respondent's act of proceeding with the
opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it
notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman
would pursue such action knowing that the contract of sale, for which the letter of credit was
opened, was already rescinded by the other party.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06
October 2000, are hereby AFFIRMED. No costs.
G.R. No. 176868 July 26, 2010
SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision1 dated September 21, 2006
and Resolution2 dated February 23, 2007, which denied petitioner’s motion for
reconsideration. The assailed Decision denied petitioner’s claim for reimbursement for the
amount it paid to respondent for the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton
boxes, specifically designed for petitioner’s business of exporting fresh bananas, at US$1.10
each. The agreement was not reduced into writing. To get the production underway,
petitioner deposited, on March 31, 1998, US$40,150.00 in respondent’s US Dollar Savings
Account with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3,
2001, petitioner wrote a demand letter for reimbursement of the amount paid.3 On February
19, 2001, respondent replied that the boxes had been completed as early as April 3, 1998 and
that petitioner failed to pick them up from the former’s warehouse 30 days from completion,
as agreed upon. Respondent mentioned that petitioner even placed an additional order of
24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment
from petitioner. Respondent then demanded petitioner to remove the boxes from the factory
and to pay the balance of US$15,400.00 for the additional boxes and ₱132,000.00 as storage
fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages against
respondent. The Complaint averred that the parties agreed that the boxes will be delivered
within 30 days from payment but respondent failed to manufacture and deliver the boxes
within such time. It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of the
ordered boxes, but every time, defendant [would] only show samples of boxes and ma[k]e
repeated promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d] to
cancel the same and demand payment and/or refund from the defendant but the latter
refused to pay and/or refund the US$40,150.00 payment made by the former for the ordered
boxes.41avvphi1
In its Answer with Counterclaim,5 respondent insisted that, as early as April 3, 1998, it had
already completed production of the 36,500 boxes, contrary to petitioner’s allegation.
According to respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of
which, 14,000 had been completed without waiting for petitioner’s payment. Respondent
stated that petitioner was to pick up the boxes at the factory as agreed upon, but petitioner
failed to do so. Respondent averred that, on October 8, 1998, petitioner’s representative,
Bobby Que (Que), went to the factory and saw that the boxes were ready for pick up. On
February 20, 1999, Que visited the factory again and supposedly advised respondent to sell
the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioner’s
transaction to ship bananas to China did not materialize. Respondent claimed that the boxes
were occupying warehouse space and that petitioner should be made to pay storage fee at
₱60.00 per square meter for every month from April 1998. As counterclaim, respondent
prayed that judgment be rendered ordering petitioner to pay $15,400.00, plus interest, moral
and exemplary damages, attorney’s fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent
already completed the initial order of 36,500 boxes and 14,000 boxes out of the second order.
It maintained that
respondent only manufactured a sample of the ordered boxes and that respondent could not
have produced 14,000 boxes without the required pre-payments.6
During trial, petitioner presented Que as its sole witness. Que testified that he ordered the
boxes from respondent and deposited the money in respondent’s account.7 He specifically
stated that, when he visited respondent’s factory, he saw that the boxes had no print of
petitioner’s logo.8 A few months later, he followed-up the order and was told that the
company had full production, and thus, was promised that production of the order would be
rushed. He told respondent that it should indeed rush production because the need for the
boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the order because
it was already late for them to meet their commitment to ship the bananas to China.9 On
cross-examination, Que further testified that China Zero Food, the Chinese company that
ordered the bananas, was sending a ship to Davao to get the bananas, but since there were
no cartons, the ship could not proceed. He said that, at that time, bananas from Tagum
Agricultural Development Corporation (TADECO) were already there. He denied that
petitioner made an additional order of 24,000 boxes. He explained that it took three years to
refer the matter to counsel because respondent promised to pay.10
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in
October 1998 to inspect the boxes and that the latter got samples of them. In February 2000,
they inspected the boxes again and Que got more samples. Estanislao said that petitioner did
not pick up the boxes because the ship did not arrive.11 Jaime Tan (Tan), president of
respondent, also testified that his company finished production of the 36,500 boxes on April
3, 1998 and that petitioner made a second order of 24,000 boxes. He said that the agreement
was for respondent to produce the boxes and for petitioner to pick them up from the
warehouse.12 He also said that the reason why petitioner did not pick up the boxes was that
the ship that was to carry the bananas did not arrive.13 According to him, during the last visit
of Que and Estanislao, he asked them to withdraw the boxes immediately because they were
occupying a big space in his plant, but they, instead, told him to sell the cartons as rejects. He
was able to sell 5,000 boxes at ₱20.00 each for a total of ₱100,000.00. They then told him to
apply the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not
commit any breach of faith that would justify rescission of the contract and the consequent
reimbursement of the amount paid by petitioner. The RTC said that respondent was able to
produce the ordered boxes but petitioner failed to obtain possession thereof because its ship
did not arrive. It thus dismissed the complaint and respondent’s counterclaims, disposing as
follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and
against the plaintiff and, accordingly, plaintiff’s complaint is hereby ordered DISMISSED
without pronouncement as to cost. Defendant’s counterclaims are similarly dismissed for lack
of merit.
SO ORDERED.14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of merit.15 The appellate court held
that petitioner failed to discharge its burden of proving what it claimed to be the parties’
agreement with respect to the delivery of the boxes. According to the CA, it was unthinkable
that, over a period of more than two years, petitioner did not even demand for the delivery
of the boxes. The CA added that even assuming that the agreement was for respondent to
deliver the boxes, respondent would not be liable for breach of contract as petitioner had not
yet demanded from it the delivery of the boxes.16
Petitioner moved for reconsideration,17 but the motion was denied by the CA in its Resolution
of February 23, 2007.18
In this petition, petitioner insists that respondent did not completely manufacture the boxes
and that it was respondent which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant of this petition.
Petitioner’s claim for reimbursement is actually one for rescission (or resolution) of contract
under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with
Art. 1169 of the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the
parties’ respective obligations should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the other party does not fulfill his,
the latter automatically incurs in delay. But when different dates for performance of the
obligations are fixed, the default for each obligation must be determined by the rules given in
the first paragraph of the present article,19 that is, the other party would incur in delay only
from the moment the other party demands fulfillment of the former’s obligation. Thus, even
in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand
upon the obligee is still necessary before the obligor can be considered in default and before
a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the
boxes. The Complaint only alleged that petitioner made a "follow-up" upon respondent,
which, however, would not qualify as a demand for the fulfillment of the obligation.
Petitioner’s witness also testified that they made a follow-up of the boxes, but not a demand.
Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint
alleged and the witness testified that a demand letter was sent to respondent. Without a
previous demand for the fulfillment of the obligation, petitioner would not have a cause of
action for rescission against respondent as the latter would not yet be considered in breach
of its contractual obligation.
Even assuming that a demand had been previously made before filing the present case,
petitioner’s claim for reimbursement would still fail, as the circumstances would show that
respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not usually reviewed in a petition for
review under Rule 45.20 The Court, in petitions for review, limits its inquiry only to questions
of law. After all, it is not a trier of facts, and findings of fact made by the trial court, especially
when reiterated by the CA, must be given great respect if not considered as final.21 In dealing
with this petition, we will not veer away from this doctrine and will thus sustain the factual
findings of the CA, which we find to be adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes and the
production report thereof, there is ample showing that the boxes had already been
manufactured by respondent. There is the testimony of Estanislao who accompanied Que to
the factory, attesting that, during their first visit to the company, they saw the pile of
petitioner’s boxes and Que took samples thereof. Que, petitioner’s witness, himself
confirmed this incident. He testified that Tan pointed the boxes to him and that he got a
sample and saw that it was blank. Que’s absolute assertion that the boxes were not
manufactured is, therefore, implausible and suspicious.
In fact, we note that respondent’s counsel manifested in court, during trial, that his client was
willing to shoulder expenses for a representative of the court to visit the plant and see the
boxes.22 Had it been true that the boxes were not yet completed, respondent would not have
been so bold as to challenge the court to conduct an ocular inspection of their warehouse.
Even in its Comment to this petition, respondent prays that petitioner be ordered to remove
the boxes from its factory site,23 which could only mean that the boxes are, up to the present,
still in respondent’s premises.
We also believe that the agreement between the parties was for petitioner to pick up the
boxes from respondent’s warehouse, contrary to petitioner’s allegation. Thus, it was due to
petitioner’s fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver
the boxes within 30 days from payment, as alleged in the Complaint. Its sole witness, Que,
was not even competent to testify on the terms of the agreement and, therefore, we cannot
give much credence to his testimony. It appeared from the testimony of Que that he did not
personally place the order with Tan, thus:
Q. No, my question is, you went to Davao City and placed your order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr. Tan.
Q. So, your first statement that you were the one who placed the order is not true?
A. That’s true. The Solar Harvest made a contact with Mr. Tan and I deposited the money in
the bank.
Q. You said a while ago [t]hat you were the one who called Mr. Tan and placed the order for
36,500 boxes, isn’t it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24
Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?
A. Yes, sir.25
Moreover, assuming that respondent was obliged to deliver the boxes, it could not have
complied with such obligation. Que, insisting that the boxes had not been manufactured,
admitted that he did not give respondent the authority to deliver the boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A. No, sir. As I have said, before the delivery, we must have to check the carton, the quantity
and quality. But I have not seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only after the boxes are completed, will
you give authority to Mr. Tan to deliver the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan to rush
the carton but not…26
Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You don’t have any authority yet given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority, TADECO would not have allowed respondent to deposit the
boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the
evidence having shown that respondent did not commit any breach of its contractual
obligation. As previously stated, the subject boxes are still within respondent’s premises. To
put a rest to this dispute, we therefore relieve respondent from the burden of having to keep
the boxes within its premises and, consequently, give it the right to dispose of them, after
petitioner is given a period of time within which to remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision
dated September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In
addition, petitioner is given a period of 30 days from notice within which to cause the removal
of the 36,500
boxes from respondent’s warehouse. After the lapse of said period and petitioner fails to
effect such removal, respondent shall have the right to dispose of the boxes in any manner it
may deem fit.
G.R. No. 150843 March 14, 2003
CATHAY PACIFIC AIRWAYS, LTD., petitioner,
vs.
SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ, respondents.
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passenger’s accommodation from one class to a more
superior class at no extra cost a breach of contract of carriage that would entitle the passenger
to an award of damages? This is a novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay
Pacific Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers and goods by
air. Among the many routes it services is the Manila-Hongkong-Manila course. As part of its
marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The
members enjoy several privileges, such as priority for upgrading of booking without any extra
charge whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class
has priority for upgrading to First Class if the Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are
frequent flyers of Cathay and are Gold Card members of its Marco Polo Club. On 24
September 1996, the Vazquezes, together with their maid and two friends Pacita Cruz and
Josefina Vergel de Dios, went to Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked on Cathay’s Flight
CX-905, with departure time at 9:20 p.m. Two hours before their time of departure, the
Vazquezes and their companions checked in their luggage at Cathay’s check-in counter at Kai
Tak Airport and were given their respective boarding passes, to wit, Business Class boarding
passes for the Vazquezes and their two friends, and Economy Class for their maid. They then
proceeded to the Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends went to Departure
Gate No. 28, which was designated for Business Class passengers. Dr. Vazquez presented his
boarding pass to the ground stewardess, who in turn inserted it into an electronic machine
reader or computer at the gate. The ground stewardess was assisted by a ground attendant
by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw
a message that there was a "seat change" from Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes’ accommodations were
upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look
nice for them as hosts to travel in First Class and their guests, in the Business Class; and
moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu
that she could have other passengers instead transferred to the First Class Section. Taken
aback by the refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to handle
the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the
latter that the Business Class was fully booked, and that since they were Marco Polo Club
members they had the priority to be upgraded to the First Class. Dr. Vazquez continued to
refuse, so Ms. Chiu told them that if they would not avail themselves of the privilege, they
would not be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez
gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to
Cathay’s Country Manager, demanded that they be indemnified in the amount of P1million
for the "humiliation and embarrassment" caused by its employees. They also demanded "a
written apology from the management of Cathay, preferably a responsible person with a rank
of no less than the Country Manager, as well as the apology from Ms. Chiu" within fifteen days
from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathay’s Country Manager
Argus Guy Robson, informed the Vazquezes that Cathay would investigate the incident and
get back to them within a week’s time.
On 8 November 1996, after Cathay’s failure to give them any feedback within its self-imposed
deadline, the Vazquezes instituted before the Regional Trial Court of Makati City an action for
damages against Cathay, praying for the payment to each of them the amounts of P250,000
as temperate damages; P500,000 as moral damages; P500,000 as exemplary or corrective
damages; and P250,000 as attorney’s fees.
In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they
preferred to stay in Business Class, Ms. Chiu "obstinately, uncompromisingly and in a loud,
discourteous and harsh voice threatened" that they could not board and leave with the flight
unless they go to First Class, since the Business Class was overbooked. Ms. Chiu’s loud and
stringent shouting annoyed, embarrassed, and humiliated them because the incident was
witnessed by all the other passengers waiting for boarding. They also claimed that they were
unjustifiably delayed to board the plane, and when they were finally permitted to get into the
aircraft, the forward storage compartment was already full. A flight stewardess instructed Dr.
Vazquez to put his roll-on luggage in the overhead storage compartment. Because he was not
assisted by any of the crew in putting up his luggage, his bilateral carpal tunnel syndrome was
aggravated, causing him extreme pain on his arm and wrist. The Vazquezes also averred that
they "belong to the uppermost and absolutely top elite of both Philippine Society and the
Philippine financial community, [and that] they were among the wealthiest persons in the
Philippine[s]."
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade
passengers to the next better class of accommodation, whenever an opportunity arises, such
as when a certain section is fully booked. Priority in upgrading is given to its frequent flyers,
who are considered favored passengers like the Vazquezes. Thus, when the Business Class
Section of Flight CX-905 was fully booked, Cathay’s computer sorted out the names of favored
passengers for involuntary upgrading to First Class. When Ms. Chiu informed the Vazquezes
that they were upgraded to First Class, Dr. Vazquez refused. He then stood at the entrance of
the boarding apron, blocking the queue of passengers from boarding the plane, which
inconvenienced other passengers. He shouted that it was impossible for him and his wife to
be upgraded without his two friends who were traveling with them. Because of Dr. Vazquez’s
outburst, Ms. Chiu thought of upgrading the traveling companions of the Vazquezes. But
when she checked the computer, she learned that the Vazquezes’ companions did not have
priority for upgrading. She then tried to book the Vazquezes again to their original seats.
However, since the Business Class Section was already fully booked, she politely informed Dr.
Vazquez of such fact and explained that the upgrading was in recognition of their status as
Cathay’s valued passengers. Finally, after talking to their guests, the Vazquezes eventually
decided to take the First Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing
with the Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act
of disrespect against them (the Vazquezes). Assuming that there was indeed a breach of
contractual obligation, Cathay acted in good faith, which negates any basis for their claim for
temperate, moral, and exemplary damages and attorney’s fees. Hence, it prayed for the
dismissal of the complaint and for payment of P100,000 for exemplary damages and P300,000
as attorney’s fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the complaint. His
testimony was corroborated by his two friends who were with him at the time of the incident,
namely, Pacita G. Cruz and Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms.
Chiu; Norma Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and
Robson testified on Cathay’s policy of upgrading the seat accommodation of its Marco Polo
Club members when an opportunity arises. The upgrading of the Vazquezes to First Class was
done in good faith; in fact, the First Class Section is definitely much better than the Business
Class in terms of comfort, quality of food, and service from the cabin crew. They also testified
that overbooking is a widely accepted practice in the airline industry and is in accordance with
the International Air Transport Association (IATA) regulations. Airlines overbook because a lot
of passengers do not show up for their flight. With respect to Flight CX-905, there was no
overall overbooking to a degree that a passenger was bumped off or downgraded. Yuen and
Robson also stated that the demand letter of the Vazquezes was immediately acted upon.
Reports were gathered from their office in Hong Kong and immediately forwarded to their
counsel Atty. Remollo for legal advice. However, Atty. Remollo begged off because his services
were likewise retained by the Vazquezes; nonetheless, he undertook to solve the problem in
behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this
case. For her part, Ms. Chiu denied that she shouted or used foul or impolite language against
the Vazquezes. Ms. Barrientos testified on the amount of attorney’s fees and other litigation
expenses, such as those for the taking of the depositions of Yuen and Chiu.
In its decision1 of 19 October 1998, the trial court found for the Vazquezes and decreed as
follows:
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment
is hereby rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific
Airways, Ltd., ordering the latter to pay each plaintiff the following:
a) Nominal damages in the amount of P100,000.00 for each plaintiff;
b) Moral damages in the amount of P2,000,000.00 for each plaintiff;
c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;
d) Attorney’s fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff;
and
e) Costs of suit.
According to the trial court, Cathay offers various classes of seats from which passengers are
allowed to choose regardless of their reasons or motives, whether it be due to budgetary
constraints or whim. The choice imposes a clear obligation on Cathay to transport the
passengers in the class chosen by them. The carrier cannot, without exposing itself to liability,
force a passenger to involuntarily change his choice. The upgrading of the Vazquezes’
accommodation over and above their vehement objections was due to the overbooking of
the Business Class. It was a pretext to pack as many passengers as possible into the plane to
maximize Cathay’s revenues. Cathay’s actuations in this case displayed deceit, gross
negligence, and bad faith, which entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,2 deleted
the award for exemplary damages; and it reduced the awards for moral and nominal damages
for each of the Vazquezes to P250,000 and P50,000, respectively, and the attorney’s fees and
litigation expenses to P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay
novated the contract of carriage without the former’s consent. There was a breach of contract
not because Cathay overbooked the Business Class Section of Flight CX-905 but because the
latter pushed through with the upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be
discourteous to, Dr. Vazquez, although it might seemed that way to the latter, who was a
member of the elite in Philippine society and was not therefore used to being harangued by
anybody. Ms. Chiu was a Hong Kong Chinese whose fractured Chinese was difficult to
understand and whose manner of speaking might sound harsh or shrill to Filipinos because of
cultural differences. But the Court of Appeals did not find her to have acted with deliberate
malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering the
First Class accommodations to other passengers. Neither can the flight stewardess in the First
Class Cabin be said to have been in bad faith when she failed to assist Dr. Vazquez in lifting his
baggage into the overhead storage bin. There is no proof that he asked for help and was
refused even after saying that he was suffering from "bilateral carpal tunnel syndrome." Anent
the delay of Yuen in responding to the demand letter of the Vazquezes, the Court of Appeals
found it to have been sufficiently explained.
The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both
of which were denied by the Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for
moral damages has no basis, since the Court of Appeals found that there was no "wanton,
fraudulent, reckless and oppressive" display of manners on the part of its personnel; and that
the breach of contract was not attended by fraud, malice, or bad faith. If any damage had
been suffered by the Vazquezes, it was damnum absque injuria, which is damage without
injury, damage or injury inflicted without injustice, loss or damage without violation of a legal
right, or a wrong done to a man for which the law provides no remedy. Cathay also invokes
our decision in United Airlines, Inc. v. Court of Appeals3 where we recognized that, in
accordance with the Civil Aeronautics Board’s Economic Regulation No. 7, as amended, an
overbooking that does not exceed ten percent cannot be considered deliberate and done in
bad faith. We thus deleted in that case the awards for moral and exemplary damages, as well
as attorney’s fees, for lack of proof of overbooking exceeding ten percent or of bad faith on
the part of the airline carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting
awards for moral and nominal damages and attorney’s fees in view of the breach of contract
committed by Cathay for transferring them from the Business Class to First Class Section
without prior notice or consent and over their vigorous objection. They likewise argue that
the issuance of passenger tickets more than the seating capacity of each section of the plane
is in itself fraudulent, malicious and tainted with bad faith.
The key issues for our consideration are whether (1) by upgrading the seat accommodation
of the Vazquezes from Business Class to First Class Cathay breached its contract of carriage
with the Vazquezes; (2) the upgrading was tainted with fraud or bad faith; and (3) the
Vazquezes are entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons whereby one agrees to give something
or render some service to another for a consideration. There is no contract unless the
following requisites concur: (1) consent of the contracting parties; (2) an object certain which
is the subject of the contract; and (3) the cause of the obligation which is
established.4 Undoubtedly, a contract of carriage existed between Cathay and the Vazquezes.
They voluntarily and freely gave their consent to an agreement whose object was the
transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in
the Business Class Section of the aircraft, and whose cause or consideration was the fare paid
by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of the seat accommodation of the
Vazquezes. Did it constitute a breach of contract?
Breach of contract is defined as the "failure without legal reason to comply with the terms of
a contract."5 It is also defined as the "[f]ailure, without legal excuse, to perform any promise
which forms the whole or part of the contract."6
In previous cases, the breach of contract of carriage consisted in either the bumping off of a
passenger with confirmed reservation or the downgrading of a passenger’s seat
accommodation from one class to a lower class. In this case, what happened was the reverse.
The contract between the parties was for Cathay to transport the Vazquezes to Manila on a
Business Class accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak
Airport in Hong Kong, the Vazquezes were given boarding cards indicating their seat
assignments in the Business Class Section. However, during the boarding time, when the
Vazquezes presented their boarding passes, they were informed that they had a seat change
from Business Class to First Class. It turned out that the Business Class was overbooked in that
there were more passengers than the number of seats. Thus, the seat assignments of the
Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of the
Marco Polo Club, were upgraded from Business Class to First Class.
We note that in all their pleadings, the Vazquezes never denied that they were members of
Cathay’s Marco Polo Club. They knew that as members of the Club, they had priority for
upgrading of their seat accommodation at no extra cost when an opportunity arises. But, just
like other privileges, such priority could be waived. The Vazquezes should have been
consulted first whether they wanted to avail themselves of the privilege or would consent to
a change of seat accommodation before their seat assignments were given to other
passengers. Normally, one would appreciate and accept an upgrading, for it would mean a
better accommodation. But, whatever their reason was and however odd it might be, the
Vazquezes had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their boarding passes. They
clearly waived their priority or preference when they asked that other passengers be given
the upgrade. It should not have been imposed on them over their vehement objection. By
insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.
We are not, however, convinced that the upgrading or the breach of contract was attended
by fraud or bad faith. Thus, we resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are
serious accusations that can be so conveniently and casually invoked, and that is why they are
never presumed. They amount to mere slogans or mudslinging unless convincingly
substantiated by whoever is alleging them.
Fraud has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists
where the party, with intent to deceive, conceals or omits to state material facts and, by
reason of such omission or concealment, the other party was induced to give consent that
would not otherwise have been given.7
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill will that partakes of the nature of fraud.8
We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced
to agree to the upgrading through insidious words or deceitful machination or through willful
concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their
accommodations were upgraded to First Class in view of their being Gold Card members of
Cathay’s Marco Polo Club. She was honest in telling them that their seats were already given
to other passengers and the Business Class Section was fully booked. Ms. Chiu might have
failed to consider the remedy of offering the First Class seats to other passengers. But, we
find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment.
Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As
testified to by Mr. Robson, the First Class Section is better than the Business Class Section in
terms of comfort, quality of food, and service from the cabin crew; thus, the difference in fare
between the First Class and Business Class at that time was $250.9Needless to state, an
upgrading is for the better condition and, definitely, for the benefit of the passenger.
We are not persuaded by the Vazquezes’ argument that the overbooking of the Business Class
Section constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No.
7 of the Civil Aeronautics Board, as amended, provides:
Sec 3. Scope. – This regulation shall apply to every Philippine and foreign air carrier with
respect to its operation of flights or portions of flights originating from or terminating at, or
serving a point within the territory of the Republic of the Philippines insofar as it denies
boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for
which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover
only honest mistakes on the part of the carriers and excludes deliberate and willful acts of
non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating
capacity of the aircraft shall not be considered as a deliberate and willful act of non-
accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not
considered deliberate and therefore does not amount to bad faith.10 Here, while there was
admittedly an overbooking of the Business Class, there was no evidence of overbooking of the
plane beyond ten percent, and no passenger was ever bumped off or was refused to board
the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in the amount of
P250,000. Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although
incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant’s wrongful act or omission.11 Thus, case law establishes the
following requisites for the award of moral damages: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the claimant; and (4) the award
for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.12
Moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the
death of a passenger.13 Where in breaching the contract of carriage the airline is not shown
to have acted fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of the obligation which the parties had foreseen or
could have reasonably foreseen. In such a case the liability does not include moral and
exemplary damages.14
In this case, we have ruled that the breach of contract of carriage, which consisted in the
involuntary upgrading of the Vazquezes’ seat accommodation, was not attended by fraud or
bad faith. The Court of Appeals’ award of moral damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a
requisite in the grant of exemplary damages that the act of the offender must be accompanied
by bad faith or done in wanton, fraudulent or malevolent manner.15 Such requisite is absent
in this case. Moreover, to be entitled thereto the claimant must first establish his right to
moral, temperate, or compensatory damages.16 Since the Vazquezes are not entitled to any
of these damages, the award for exemplary damages has no legal basis. And where the awards
for moral and exemplary damages are eliminated, so must the award for attorney’s fees.17
The most that can be adjudged in favor of the Vazquezes for Cathay’s breach of contract is an
award for nominal damages under Article 2221 of the Civil Code, which reads as follows:
Article 2221 of the Civil Code provides:
Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathay’s Memorandum filed with this Court, it prayed only for
the deletion of the award for moral damages. It deferred to the Court of Appeals’ discretion
in awarding nominal damages; thus:
As far as the award of nominal damages is concerned, petitioner respectfully defers to the
Honorable Court of Appeals’ discretion. Aware as it is that somehow, due to the resistance of
respondents-spouses to the normally-appreciated gesture of petitioner to upgrade their
accommodations, petitioner may have disturbed the respondents-spouses’ wish to be with
their companions (who traveled to Hong Kong with them) at the Business Class on their flight
to Manila. Petitioner regrets that in its desire to provide the respondents-spouses with
additional amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension
ensued.18
Nonetheless, considering that the breach was intended to give more benefit and advantage
to the Vazquezes by upgrading their Business Class accommodation to First Class because of
their valued status as Marco Polo members, we reduce the award for nominal damages to
P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt observation of the
Court of Appeals regarding the awards adjudged by the trial court:
We are not amused but alarmed at the lower court’s unbelievable alacrity, bordering on the
scandalous, to award excessive amounts as damages. In their complaint, appellees asked for
P1 million as moral damages but the lower court awarded P4 million; they asked for
P500,000.00 as exemplary damages but the lower court cavalierly awarded a whooping P10
million; they asked for P250,000.00 as attorney’s fees but were awarded P2 million; they did
not ask for nominal damages but were awarded P200,000.00. It is as if the lower court went
on a rampage, and why it acted that way is beyond all tests of reason. In fact the excessiveness
of the total award invites the suspicion that it was the result of "prejudice or corruption on
the part of the trial court."
The presiding judge of the lower court is enjoined to hearken to the Supreme Court’s
admonition in Singson vs. CA (282 SCRA 149 [1997]), where it said: The well-entrenched
principle is that the grant of moral damages depends upon the discretion of the court based
on the circumstances of each case. This discretion is limited by the principle that the amount
awarded should not be palpably and scandalously excessive as to indicate that it was the result
of prejudice or corruption on the part of the trial court….
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held: Nonetheless, we agree
with the injunction expressed by the Court of Appeals that passengers must not prey on
international airlines for damage awards, like "trophies in a safari." After all neither the social
standing nor prestige of the passenger should determine the extent to which he would suffer
because of a wrong done, since the dignity affronted in the individual is a quality inherent in
him and not conferred by these social indicators. 19
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of
Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and as modified, the
awards for moral damages and attorney’s fees are set aside and deleted, and the award for
nominal damages is reduced to P5,000.
G.R. No. 158911 March 4, 2008
MANILA ELECTRIC COMPANY, Petitioner,
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE
RAMOY, OFELIA DURIAN and CYRENE PANADO, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying
that the Decision1 of the Court of Appeals (CA) dated December 16, 2002, ordering petitioner
Manila Electric Company (MERALCO) to pay Leoncio Ramoy2 moral and exemplary damages
and attorney's fees, and the CA Resolution3 dated July 1, 2003, denying petitioner's motion
for reconsideration, be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized the facts as
culled from the records, thus:
The evidence on record has established that in the year 1987 the National Power Corporation
(NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly
illegally occupying its properties in Baesa, Quezon City. Among the defendants in the
ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989
after the defendants failed to file an answer in spite of summons duly served, the MTC Branch
36, Quezon City rendered judgment for the plaintiff [MERALCO] and "ordering the defendants
to demolish or remove the building and structures they built on the land of the plaintiff and
to vacate the premises." In the case of Leoncio Ramoy, the Court found that he was occupying
a portion of Lot No. 72-B-2-B with the exact location of his apartments indicated and encircled
in the location map as No. 7. A copy of the decision was furnished Leoncio Ramoy (Exhibits 2,
2-A, 2-B, 2-C, pp. 128-131, Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric
power supply to all residential and commercial establishments beneath the NPC transmission
lines along Baesa, Quezon City (Exh. 7, p. 143, Record). Attached to the letter was a list of
establishments affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. 9), as well
as a copy of the court decision (Exh. 2). After deliberating on NPC's letter, Meralco decided to
comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of
disconnection to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A
to 3-C), Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-
F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine all
the establishments which are considered under NPC property in view of the fact that "the
houses in the area are very close to each other" (Exh. 12). Shortly thereafter, a joint survey
was conducted and the NPC personnel pointed out the electric meters to be disconnected
(Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein respondents] was
disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of
land covered by TCT No. 326346, a portion of which was occupied by plaintiffs Rosemarie
Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado as lessees. When the Meralco
employees were disconnecting plaintiffs' power connection, plaintiff Leoncio Ramoy objected
by informing the Meralco foreman that his property was outside the NPC property and
pointing out the monuments showing the boundaries of his property. However, he was
threatened and told not to interfere by the armed men who accompanied the Meralco
employees. After the electric power in Ramoy's apartment was cut off, the plaintiffs-lessees
left the premises.
During the ocular inspection ordered by the Court and attended by the parties, it was found
out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside
the NPC property. This was confirmed by defendant's witness R.P. Monsale III on cross-
examination (TSN, October 13, 1993, pp. 10 and 11). Monsale also admitted that he did not
inform his supervisor about this fact nor did he recommend re-connection of plaintiffs' power
supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco re-connected the
electric service of four customers previously disconnected none of whom was any of the
plaintiffs (Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral
damages, exemplary damages and attorney's fees. However, the RTC ordered MERALCO to
restore the electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated December 16, 2002, the CA
faulted MERALCO for not requiring from National Power Corporation (NPC) a writ of execution
or demolition and in not coordinating with the court sheriff or other proper officer before
complying with the NPC's request. Thus, the CA held MERALCO liable for moral and exemplary
damages and attorney's fees. MERALCO's motion for reconsideration of the Decision was
denied per Resolution dated July 1, 2003.
Hence, herein petition for review on certiorari on the following grounds:
I contract been performed, or his "reliance interest," which is his interest in being reimbursed
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN IT
DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT
THE LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF
THE RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a Service Contract whereby it is
obliged to supply respondents with electricity. Nevertheless, upon request of the NPC,
MERALCO disconnected its power supply to respondents on the ground that they were
illegally occupying the NPC's right of way. Under the Service Contract, "[a] customer of electric
service must show his right or proper interest over the property in order that he will be
provided with and assured a continuous electric service."7 MERALCO argues that since there
is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein
respondents were among the illegal occupants of the NPC's right of way, MERALCO was
justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or
breach of contract for the latter's discontinuance of its service to respondents under Article
1170 of the Civil Code which provides:
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court expounded on the
nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the interests of the
promissee that may include his "expectation interest," which is his interest in having the
benefit of his bargain by being put in as good a position as he would have been in had the
for loss caused by reliance on the contract by being put in as good a position as he would have
been in had the contract not been made; or his "restitution interest," which is his interest in
having restored to him any benefit that he has conferred on the other party. Indeed,
agreements can accomplish little, either for their makers or for society, unless they are made
the basis for action. The effect of every infraction is to create a new duty, that is, to make
recompense to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his exercise
of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing
liability.9 (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in the omission
of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. The Court emphasized in Ridjo
Tape & Chemical Corporation v. Court of Appeals10 that "as a public utility, MERALCO has the
obligation to discharge its functions with utmost care and diligence."11
The Court agrees with the CA that under the factual milieu of the present case, MERALCO
failed to exercise the utmost degree of care and diligence required of it. To repeat, it was not
enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether
it had become final and executory. Verily, only upon finality of said Decision can it be said with
conclusiveness that respondents have no right or proper interest over the subject property,
thus, are not entitled to the services of MERALCO.
Although MERALCO insists that the MTC Decision is final and executory, it never showed any
documentary evidence to support this allegation. Moreover, if it were true that the decision
was final and executory, the most prudent thing for MERALCO to have done was to coordinate
with the proper court officials in determining which structures are covered by said court
order. Likewise, there is no evidence on record to show that this was done by MERALCO.
The utmost care and diligence required of MERALCO necessitates such great degree of
prudence on its part, and failure to exercise the diligence required means that MERALCO was
at fault and negligent in the performance of its obligation. In Ridjo Tape,12 the Court
explained:
[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain
obligations towards its customers and any omission on its part to perform such duties would
be prejudicial to its interest. For in the final analysis, the bottom line is that those who do not
exercise such prudence in the discharge of their duties shall be made to bear the
consequences of such oversight.13
This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.
The next question is: Are respondents entitled to moral and exemplary damages and
attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from
him and his tenants the supply of electricity to which they were entitled under the Service
Contract. This is contrary to public policy because, as discussed above, MERALCO, being a vital
public utility, is expected to exercise utmost care and diligence in the performance of its
obligation. It was incumbent upon MERALCO to do everything within its power to ensure that
the improvements built by respondents are within the NPC’s right of way before
disconnecting their power supply. The Court emphasized in Samar II Electric Cooperative, Inc.
v. Quijano14 that:
Electricity is a basic necessity the generation and distribution of which is imbued with public
interest, and its provider is a public utility subject to strict regulation by the State in the
exercise of police power. Failure to comply with these regulations will give rise to the
presumption of bad faith or abuse of right.15 (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance
of its obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy
testified that he suffered wounded feelings because of MERALCO's actions.16 Furthermore,
due to the lack of power supply, the lessees of his four apartments on subject lot left the
premises.17 Clearly, therefore, Leoncio Ramoy is entitled to moral damages in the amount
awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding
the effects on him of MERALCO's electric service disconnection. His co-respondents Matilde
Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of
damages they suffered.
It is a hornbook principle that damages may be awarded only if proven. In Mahinay v.
Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint that
he suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed to
prove them during the trial. Indeed, respondent should have taken the witness stand and
should have testified on the mental anguish, serious anxiety, wounded feelings and other
emotional and mental suffering he purportedly suffered to sustain his claim for moral
damages. Mere allegations do not suffice; they must be substantiated by clear and convincing
proof. No other person could have proven such damages except the respondent himself as they
were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral damages may be awarded,
the amount of indemnity being left to the discretion of the court, it is nevertheless essential
that the claimant should satisfactorily show the existence of the factual basis of damages and
its causal connection to defendant’s acts. This is so because moral damages, though incapable
of pecuniary estimation, are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS,
the Court held that there must be clear testimony on the anguish and other forms of mental
suffering. Thus, if the plaintiff fails to take the witness stand and testify as to his/her social
humiliation, wounded feelings and anxiety, moral damages cannot be awarded. In Cocoland
Development Corporation vs. National Labor Relations Commission, the Court held that
"additional facts must be pleaded and proven to warrant the grant of moral damages under
the Civil Code, these being, x x x social humiliation, wounded feelings, grave anxiety, etc. that
resulted therefrom."
x x x The award of moral damages must be anchored to a clear showing that respondent
actually experienced mental anguish, besmirched reputation, sleepless nights, wounded
feelings or similar injury. There was no better witness to this experience than respondent
himself. Since respondent failed to testify on the witness stand, the trial court did not have any
factual basis to award moral damages to him.19 (Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be
awarded moral damages.20
With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts
and quasi-contracts, the court may award exemplary damages if the defendant, in this case
MERALCO, acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while
Article 2233 of the same Code provides that such damages cannot be recovered as a matter
of right and the adjudication of the same is within the discretion of the court.1avvphi1
Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
None of the grounds for recovery of attorney's fees are present.
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees
is DELETED.

The Court finds that MERALCO fell short of exercising the due diligence required, but its
actions cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Records
show that MERALCO did take some measures, i.e., coordinating with NPC officials and
conducting a joint survey of the subject area, to verify which electric meters should be
disconnected although these measures are not sufficient, considering the degree of diligence
required of it. Thus, in this case, exemplary damages should not be awarded.

Since the Court does not deem it proper to award exemplary damages in this case, then the
CA's award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code
states that in the absence of stipulation, attorney's fees cannot be recovered except in cases
provided for in said Article, to wit:
G.R. No. 95641 September 22, 1994 From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola,
a lawyer from Dagupan City, bought, through
SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to
vs. as Prudential), a personal accident insurance policy covering the one-year period between
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents- noon of November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the
appellees. statement of account issued by respondent insurance company, petitioner-insured was
supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00,
documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower left-hand
Gutierrez, Cortes & Gonzales for petitioners.
corner of the statement of account, the following is legibly printed:

Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.
This Statement of Account must not be considered a receipt. Official Receipt will be issued to
you upon payment of this account.

If payment is made to our representative, demand for a Provisional Receipt and if our Official
ROMERO, J.: Receipts is (sic) not received by you within 7 days please notify us.

On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal If payment is made to our office, demand for an OFFICIAL RECEIPT.
Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally
cancelled the same since company records revealed that petitioner-insured failed to pay his
On December 17, 1984, respondent insurance company issued collector's provisional receipt
premiums.
No. 9300 to petitioner-insured for the amount of P1,609.65 3 On the lower portion of the
receipt the following is written in capital letters:
On August 3, 1985, respondent insurance company offered to reinstate same policy it had
previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a
Note: This collector's provisional receipt will be confirmed by our official receipt. If our official
finding that the cancellation was erroneous and that the premiums were paid in full by
receipt is not received by you within 7 days, please notify us. 4
petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance
company's branch manager.
On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo
M. Malapit, sent petitioner-insured Endorsement
These, in brief, are the material facts that gave rise to the action for damages due to breach
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium
of contract instituted by petitioner-insured before
effective as of inception dated." 5 The same endorsement also credited "a return premium of
Branch 40 RTC, Dagupan City against respondent insurance company.
P1,609.65 plus documentary stamps and premium tax" to the account of the insured.

There are two issues for resolution in this case:

(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to
payment of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by
respondent insurance company, in an effort to rectify such error, obliterate whatever liability
for damages it may have to bear, thus absolving it therefrom?
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of
respondent insurance company, and demanded the issuance of an official receipt. Ang told
petitioner-insured that the cancellation of the policy was a mistake but he would personally
see to its rectification. However, petitioner-insured failed to receive any official receipt from
Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter
demanding that he be insured under the same terms and conditions as those contained in
Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current
commercial rate of increase on the payment he had made under provisional receipt No. 9300
be returned within five days. 6 Areola also warned that should his demands be unsatisfied, he
would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit informing him that
the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant
to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit
warned Areola that should be fail to pay the balance, the company's liability would cease to
operate. 7
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company,
through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25,
1985 stating that the company was verifying whether the payment had in fact been issued
therefor. Ampil emphasized that the official receipt should have been issued seven days from
the issuance of the provisional receipt but because no official receipt had been issued in
Areola's name, there was reason to believe that no payment had been made. Apologizing for
the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover
(sic) under the terms of the referenced policy until such time that this matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of
P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on
December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17,
1985 or one year from the date when payment was received." Apologizing again for the
inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal
by signing on the space provided for in the letter. 9
The letter was personally delivered by Carlito Ang to Areola on
August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985
had filed a complaint for breach of contract with damages before the lower court.
In its Answer, respondent insurance company admitted that the cancellation of petitioner-
insured's policy was due to the failure of Malapit to turn over the premiums collected, for
which reason no official receipt was issued to him. However, it argued that, by acknowledging
the inconvenience caused on petitioner-insured and after taking steps to rectify its omission
by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance
company had complied with its obligation under the contract. Hence, it concluded that
petitioner-insured no longer has a cause of action against it. It insists that it cannot be held
liable for damages arising from breach of contract, having demonstrated fully well its
fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former the following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages; and
c) P50,000.00 as exemplary damages;
2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
3. To pay the costs.
In its decision, the court below declared that respondent insurance company acted in bad
faith in unilaterally cancelling subject insurance policy, having done so only after seven
months from the time that it had taken force and effect and despite the fact of full payment
of premiums and other charges on the issued insurance policy. Cancellation from the date of
the policy's inception, explained the lower court, meant that the protection sought by
petitioner-insured from the risks insured against was never extended by respondent
insurance company. Had the insured met an accident at the time, the insurance company
would certainly have disclaimed any liability because technically, the petitioner could not have
been considered insured. Consequently, the trial court held that there was breach of contract
on the part of respondent insurance company, entitling petitioner-insured to an award of the
damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad faith on
its part in unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision of the
trial court, convinced that the latter had erred in finding respondent insurance company in
bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals,
respondent insurance company was not motivated by negligence, malice or bad faith in
cancelling subject policy. Rather, the cancellation of the insurance policy was based on what
the existing records showed, i.e., absence of an official receipt issued to petitioner-insured
confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-
interest or ill-will; a furtive design of ulterior purpose, proof of which must be established
convincingly. On the contrary, it further observed, the following acts indicate that respondent
insurance company did not act precipitately or willfully to inflict a wrong on petitioner-
insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had
indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had
been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend
its effective period to December 17, 1985; and (d) respondent insurance company's apologies
for the "inconvenience" caused upon petitioner-insured. The appellate court added that
respondent insurance company even relieved Malapit, its Baguio City manager, of his job by
forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court of
Appeals denied. Hence, this petition for review on certiorari anchored on these arguments:
I
Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious
and reversible error in not holding Respondent Prudential liable for the cancellation of the
insurance contract which was admittedly caused by the fraudulent acts and bad faith of its
own officers.
II
Respondent Court of Appeals committed serious and reversible error and abused its
discretion in ruling that the defenses of good faith and honest mistake can co-exist with the
admitted fraudulent acts and evident bad faith.
III
Respondent Court of Appeals committed a reversible error in not finding that even without
considering the fraudulent acts of its own officer in misappropriating the premium payment,
the act itself in cancelling the insurance policy was done with bad faith and/or gross
negligence and wanton attitude amounting to bad faith, because among others, it was
Mr. Malapit — the person who committed the fraud — who sent and signed the notice of
cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to law and
applicable decision of the Supreme Court when it refused to award damages in favor of herein
Petitioner-Appellants.
It is petitioner-insured's submission that the fraudulent act of Malapit, manager of
respondent insurance company's branch office in Baguio, in misappropriating his premium
payments is the proximate cause of the cancellation of the insurance policy. Petitioner-
insured theorized that Malapit's act of signing and even sending the notice of cancellation
himself, notwithstanding his personal knowledge of petitioner-insured's full payment of
premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by
Malapit, argued petitioner-insured, is attributable to respondent insurance company, an
artificial corporate being which can act only through its officers or employees. Malapit's
actuation, concludes petitioner-insured, is therefore not separate and distinct from that of
respondent-insurance company, contrary to the view held by the Court of Appeals. It must,
therefore, bear the consequences of the erroneous cancellation of subject insurance policy
caused by the non-remittance by its own employee of the premiums paid. Subsequent
reinstatement, according to petitioner-insured, could not possibly absolve respondent
insurance company from liability, there being an obvious breach of contract. After all,
reasoned out petitioner-insured, damage had already been inflicted on him and no amount
of rectification could remedy the same.
Respondent insurance company, on the other hand, argues that where reinstatement, the
equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior
to the filing of the complaint, petitioner-insured is left without a cause of action on which to
predicate his claim for damages. Reinstatement, it further explained, effectively restored
petitioner-insured to all his rights under the policy. Hence, whatever cause of action there
might have been against it, no longer exists and the consequent award of damages ordered
by the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the
premiums paid by petitioner-insured is beyond doubt directly imputable to respondent
insurance company. A corporation, such as respondent insurance company, acts solely thru
its employees. The latters' acts are considered as its own for which it can be held to
account. 11 The facts are clear as to the relationship between private respondent insurance
company and Malapit. As admitted by private respondent insurance company in its
answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he
represented its interest and acted in its behalf. His act of receiving the premiums collected is
well within the province of his authority. Thus, his receipt of said premiums is receipt by
private respondent insurance company who, by provision of law, particularly under Article
1910 of the Civil Code, is bound by the acts of its agent.
Article 1910 thus reads:
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. The fact
that private respondent insurance company was itself defrauded due to the anomalies that
took place in its Baguio branch office, such as the non-accrual of said premiums to its account,
does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v.
Court of Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside the
scope of their authority. A bank holding out its officers and agent as worthy of confidence will
not be permitted to profit by the frauds they may thus be enabled to perpetrate in the
apparent scope of their employment; nor will it be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a
banking corporation is liable to innocent third persons where the representation is made in
the course of its business by an agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for the fraudulent
acts committed by Malapit that gave occasion to the erroneous cancellation of subject
insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury
inflicted on petitioner-insured. Respondent company should be reminded that a contract of
insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations
are those which arise from the same cause and in which each party is both a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. 15
Under the circumstances of instant case, the relationship as creditor and debtor between the
parties arose from a common cause: i.e., by reason of their agreement to enter into a contract
of insurance under whose terms, respondent insurance company promised to extend
protection to petitioner-insured against the risk insured for a consideration in the form of
premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly
the second paragraph of Article 1191, 16 the injured party, petitioner-insured in this case, is
given a choice between fulfillment or rescission of the obligation in case one of the obligors,
such as respondent insurance company, fails to comply with what is incumbent upon him.
However, said article entitles the injured party to payment of damages, regardless of whether
he demands fulfillment or rescission of the obligation. Untenable then is reinstatement
insurance company's argument, namely, that reinstatement being equivalent to fulfillment of
its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a
claim finds no support in our laws on obligations and contracts.
The nature of damages to be awarded, however, would be in the form of nominal
damages 17 contrary to that granted by the court below. Although the erroneous cancellation
of the insurance policy constituted a breach of contract, private respondent insurance
company, within a reasonable time took steps to rectify the wrong committed by reinstating
the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was
inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal
damages are "recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind, or where there has
been a breach of contract and no substantial injury or actual damages whatsoever have been
or can be shown. 18
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the
Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch
40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby
REINSTATED subject to the following modifications: (a) that nominal damages amounting to
P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b)
that in the satisfaction of the damages awarded therein, respondent insurance company is
ORDERED to pay the legal rate of interest computed from date of filing of complaint until final
payment thereof.
G.R. No. 117190 January 2, 1997
JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND
GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and
style J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce
Jr. to construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from
the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to
the agreement respondent paid petitioner a down payment of P30,000.00 and an installment
payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner
filed a complaint to collect the amount. In his Answer before the trial court respondent denied
the claim saying that he had already paid this amount to the San Pedro General Merchandising
Inc. (SPGMI) which constructed the deep well to which the windmill system was to be
connected. According to respondent, since the deep well formed part of the system the
payment he tendered to SPGMI should be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects
in the windmill system which caused the structure to collapse after a strong wind hit their
place.1
Petitioner denied that the construction of a deep well was included in the agreement to build
the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly
and its installation, exclusive of other incidental materials needed for the project. He also
disowned any obligation to repair or reconstruct the system and insisted that he delivered it
in good and working condition to respondent who accepted the same without protest.
Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any
liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not part
of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to
respondent.2 It noted that "[i]f the intention of the parties is to include the construction of
the deep well in the project, the same should be stated in the proposals. In the absence of
such an agreement, it could be safely concluded that the construction of the deep well is not
a part of the project undertaken by the plaintiff."3 With respect to the repair of the windmill,
the trial court found that "there is no clear and convincing proof that the windmill system fell
down due to the defect of the construction."4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well
was included in the agreement of the parties because the term "deep well" was mentioned
in both proposals. It also gave credence to the testimony of respondent's witness Guillermo
Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him
that the cost of constructing the deep well would be deducted from the contract price of
P60,000.00. Upon these premises the appellate court concluded that respondent's payment
of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus
effectively extinguishing his contractual obligation. However, it rejected petitioner's claim
of force majeure and ordered the latter to reconstruct the windmill in accordance with the
stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner now
seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct
the windmill system included the installation of a deep well and, secondly, whether petitioner
is under obligation to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation of
a deep well was not included in the proposals of petitioner to construct a windmill system for
respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the
contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was
submitted three days later, i.e., on 22 May 1987 which contained more specifications but
proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted
by respondent and the construction immediately followed. The pertinent portions of the first
letter-proposal (Exh. "1") are reproduced hereunder —
In connection with your Windmill System and Installation, we would like to quote to you as
follows:
One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in
diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not
advisable to operate during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials and Installation, operated
water pump, we would like to quote to you as
follows —
One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet
diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to
Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot — Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.
One (1) lot — Float valve.
One (1) lot — Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that a
deep well pump is a component of the proposed windmill system. The contract prices fixed
in both proposals cover only the features specifically described therein and no other. While
the words "deep well" and "deep well pump" are mentioned in both, these do not indicate
that a deep well is part of the windmill system. They merely describe the type of deep well
pump for which the proposed windmill would be suitable. As correctly pointed out by
petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were
meant only to convey the idea that the proposed windmill would be appropriate for a deep
well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include
a deep well in the agreement to construct a windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt
as to their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration5 and, in case
of doubt, their contemporaneous and subsequent acts shall be principally considered.6 An
examination of such contemporaneous and subsequent acts of respondent as well as the
attendant circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not have
the capacity to install the pump the latter agreed to have a third party do the work the cost
of which was to be deducted from the contract price. To prove his point, he presented
Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter
from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract
which Engineer (Herce) had with Mr. Tanguilig."7
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote
him a letter is unsubstantiated. The alleged letter was never presented in court by private
respondent for reasons known only to him. But granting that this written communication
existed, it could not have simply contained a request for Pili to install a deep well; it would
have also mentioned the party who would pay for the undertaking. It strains credulity that
respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally
convey to Pili that the deep well was part of the windmill construction and that its payment
would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment for
which would come supposedly from the windmill contract price on the mere representation
of petitioner, whom he had never met before, without a written commitment at least from
the former. For if indeed the deep well were part of the windmill project, the contract for its
installation would have been strictly a matter between petitioner and Pili himself with the
former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who
paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that
the contract for the deep well was not part of the windmill project but a separate agreement
between respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the
obligation of respondent was to pay the entire amount to petitioner without prejudice to any
action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when
asked why he tendered payment directly to Pili and not to petitioner, respondent explained,
rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in
his possession."8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the
law is clear that "payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it,"9 it does not
appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person."10 The Civil Code provisions do not apply in the instant case because no creditor-
debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established
regarding the construction of the deep well. Specifically, witness Pili did not testify that he
entered into a contract with petitioner for the construction of respondent's deep well. If
SPGMI was really commissioned by petitioner to construct the deep well, an agreement
particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well by
SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal nor
factual basis by which this Court can impose upon petitioner an obligation he did not expressly
assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has consistently held
that in order for a party to claim exemption from liability by reason of fortuitous event under
Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of Appeals,12 four (4) requisites
must concur: (a) the cause of the breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and,
(d) the debtor must be free from any participation in or aggravation of the injury to the
creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that there was actually a typhoon on the day the
windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind
in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong
wind should be present in places where windmills are constructed, otherwise the windmills
will not turn.
The appellate court correctly observed that "given the newly-constructed windmill system,
the same would not have collapsed had there been no inherent defect in it which could only
be attributable to the appellee."13 It emphasized that respondent had in his favor the
presumption that "things have happened according to the ordinary course of nature and the
ordinary habits of life."14 This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the payment
of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him.15 When the windmill failed
to function properly it became incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction
of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged
to do something fails to do it, the same shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed
to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal
rate from the date of the filing of the complaint. In return, petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with the one-year
guaranty"16 and to complete the same within three (3) months from the finality of this
decision.
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the
PHILIPPINE BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
These are petitions for review on certiorari of the November 28, 1977 decision of the Court
of Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of
Manila, Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order
of the lower court dated December 8, 1971. The Court of Appeals in modifying the decision
of the lower court included an award of an additional amount of P200,000.00 to the Philippine
Bar Association to be paid jointly and severally by the defendant United Construction Co. and
by the third-party defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party defendants (except
Roman Ozaeta) to pay the plaintiff, jointly and severally, the sum of P989,335.68 with interest
at the legal rate from November 29, 1968, the date of the filing of the complaint until full
payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-party defendants (except
Roman Ozaeta) to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to include an award of P200,000.00 in
favor of plaintiff-appellant Philippine Bar Association, with interest at the legal rate from
November 29, 1968 until full payment to be paid jointly and severally by defendant United
Construction Co., Inc. and third party defendants (except Roman Ozaeta). In all other respects,
the judgment dated September 21, 1971 as modified in the December 8, 1971 Order of the
lower court is hereby affirmed with COSTS to be paid by the defendant and third party
defendant (except Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J.
Carlos in L-47863 seek the reversal of the decision of the Court of Appeals, among other
things, for exoneration from liability while petitioner Philippine Bar Association in L-47896
seeks the modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss
of the PBA building plus four (4) times such amount as damages resulting in increased cost of
the building, P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First Instance of Manila were
consolidated by this Court in the resolution of May 10, 1978 requiring the respective
respondents to comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-
348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located
at the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was
undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion
of Juan J. Carlos, the president and general manager of said corporation. The proposal was
approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-
party defendant in this case. The plans and specifications for the building were prepared by
the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June,
1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its
environs and the building in question sustained major damage. The front columns of the
building buckled, causing the building to tilt forward dangerously. The tenants vacated the
building in view of its precarious condition. As a temporary remedial measure, the building
was shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages
arising from the partial collapse of the building against United Construction, Inc. and its
President and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse
of the building was accused by defects in the construction, the failure of the contractors to
follow plans and specifications and violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the plans
and specifications, alleging in essence that the collapse of the building was due to the defects
in the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for having included Juan J.
Carlos, President of the United Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F.
Nakpil presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and third- party complaints and
the third-party defendants Nakpil & Sons' answer thereto, the plaintiff need not amend its
complaint by including the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties
defendant.
2. That in the event (unexpected by the undersigned) that the Court should find after the trial
that the above-named defendants Juan J. Carlos and United Construction Co., Inc. are free
from any blame and liability for the collapse of the PBA Building, and should further find that
the collapse of said building was due to defects and/or inadequacy of the plans, designs, and
specifications p by the third-party defendants, or in the event that the Court may find Juan F.
Nakpil and Sons and/or Juan F. Nakpil contributorily negligent or in any way jointly and
solidarily liable with the defendants, judgment may be rendered in whole or in part. as the
case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the plaintiff to all
intents and purposes as if plaintiff's complaint has been duly amended by including the said
Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant and by alleging causes of action
against them including, among others, the defects or inadequacy of the plans, designs, and
specifications prepared by them and/or failure in the performance of their contract with
plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this stipulation.
(Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which
among others, the parties agreed to refer the technical issues involved in the case to a
Commissioner. Mr. Andres O. Hizon, who was ultimately appointed by the trial court, assumed
his office as Commissioner, charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building during the August 2, 1968 earthquake
had been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and specifications prepared by third-party
defendants;
(b) The deviations, if any, made by the defendants from said plans and specifications and how
said deviations contributed to the damage sustained;
(c) The alleged failure of defendants to observe the requisite quality of materials and
workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision expected of the
architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a combination of the above-
enumerated factors, the degree or proportion in which each individual factor contributed to
the damage sustained;
3. Whether the building is now a total loss and should be completely demolished or whether
it may still be repaired and restored to a tenantable condition. In the latter case, the
determination of the cost of such restoration or repair, and the value of any remaining
construction, such as the foundation, which may still be utilized or availed of (Record on
Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-technical issues. As
aforestated the technical issues were referred to the Commissioner. The non-technical issues
were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may
topple down in case of a strong earthquake. The motions were opposed by the defendants
and the matter was referred to the Commissioner. Finally, on April 30, 1979 the building was
authorized to be demolished at the expense of the plaintiff, but not another earthquake of
high intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970,
caused further damage to the property. The actual demolition was undertaken by the buyer
of the damaged building. (Record on Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted his report on
September 25, 1970 with the findings that while the damage sustained by the PBA building
was caused directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3
they were also caused by the defects in the plans and specifications prepared by the third-
party defendants' architects, deviations from said plans and specifications by the defendant
contractors and failure of the latter to observe the requisite workmanship in the construction
of the building and of the contractors, architects and even the owners to exercise the requisite
degree of supervision in the construction of subject building.
All the parties registered their objections to aforesaid findings which in turn were answered
by the Commissioner.
The trial court agreed with the findings of the Commissioner except as to the holding that the
owner is charged with full nine supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which was
modified by the Intermediate Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence,
these petitions.
On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers,
and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the liability of architects when a building
collapses and to submit likewise a critical analysis with computations on the divergent views
on the design and plans as submitted by the experts procured by the parties. The motion
having been granted, the amicus curiae were granted a period of 60 days within which to
submit their position.
After the parties had all filed their comments, We gave due course to the petitions in Our
Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not
defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion
that the defects in the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No.
4131) and the 1966 Asep Code, the Commissioner added that even if it can be proved that
the defects in the constructionalone (and not in the plans and design) caused the damage to
the building, still the deficiency in the original design and jack of specific provisions against
torsion in the original plans and the overload on the ground floor columns (found by an the
experts including the original designer) certainly contributed to the damage which occurred.
(Ibid, p. 174).
In their respective briefs petitioners, among others, raised the following assignments of
errors: Philippine Bar Association claimed that the measure of damages should not be limited
to P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of
rentals while United Construction Co., Inc. and the Nakpils claimed that it was an act of God
that caused the failure of the building which should exempt them from responsibility and not
the defective construction, poor workmanship, deviations from plans and specifications and
other imperfections in the case of United Construction Co., Inc. or the deficiencies in the
design, plans and specifications prepared by petitioners in the case of the Nakpils. Both UCCI
and the Nakpils object to the payment of the additional amount of P200,000.00 imposed by
the Court of Appeals. UCCI also claimed that it should be reimbursed the expenses of shoring
the building in the amount of P13,661.28 while the Nakpils opposed the payment of damages
jointly and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-
which caused the failure of the building, exempts from liability, parties who are otherwise
liable because of their negligence.
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of
the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and specifications for a building
is liable for damages if within fifteen years from the completion of the structure the same
should collapse by reason of a defect in those plans and specifications, or due to the defects
in the ground. The contractor is likewise responsible for the damage if the edifice fags within
the same period on account of defects in the construction or the use of materials of inferior
quality furnished by him, or due to any violation of the terms of the contract. If the engineer
or architect supervises the construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of the causes of
action by reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.
On the other hand, the general rule is that no person shall be responsible for events which
could not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil
Code).
An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to
have been expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of
God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an
obligation due to an "act of God," the following must concur: (a) the cause of the breach of
the obligation must be independent of the will of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138
SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527;
Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of the
tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. When the effect, the cause of which
is to be considered, is found to be in part the result of the participation of man, whether it be
from active intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to the acts of God. (1 Corpus
Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate
cause of the damage was the act of God. To be exempt from liability for loss because of an
act of God, he must be free from any previous negligence or misconduct by which that loss or
damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker
v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam
v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans
and specifications. and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the defects in the construction and
in the plans and specifications were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this reason the defendant and
third-party defendants cannot claim exemption from liability. (Decision, Court of Appeals, pp.
30-31).
It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties
and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan,
January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely
on speculation, surmise and conjectures; (2) the inference made is manifestly mistaken; (3)
there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5)
the findings of fact are conflicting , (6) the Court of Appeals went beyond the issues of the
case and its findings are contrary to the admissions of both appellant and appellees (Ramos
vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31,
1967, 21 SCRA 648, 651); (7) the findings of facts of the Court of Appeals are contrary to those
of the trial court; (8) said findings of facts are conclusions without citation of specific evidence
on which they are based; (9) the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33
SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding
of fact of the Court of Appeals is premised on the supposed absence of evidence and is
contradicted by evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247;
Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the exceptions above-mentioned.
On the contrary, the records show that the lower court spared no effort in arriving at the
correct appreciation of facts by the referral of technical issues to a Commissioner chosen by
the parties whose findings and conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court as affirmed by the Court
of Appeals that "while it is not possible to state with certainty that the building would not
have collapsed were those defects not present, the fact remains that several buildings in the
same area withstood the earthquake to which the building of the plaintiff was similarly
subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to the PBA for the
partial collapse (and eventual complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on the report of the
Commissioner that the total amount required to repair the PBA building and to restore it to
tenantable condition was P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus unrealized rental income
for one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an
additional sum of P200,000.00 representing the damage suffered by the PBA building as a
result of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00 representing the
total value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the
NAKPILS and UNITED question the additional award of P200,000.00 in favor of the PBA (L-
47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further
urges that the unrealized rental income awarded to it should not be limited to a period of
one-half year but should be computed on a continuing basis at the rate of P178,671.76 a year
until the judgment for the principal amount shall have been satisfied L- 47896, PBA's No. 11
Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial
and it is undisputed that the building could then still be repaired and restored to its tenantable
condition. The PBA, however, in view of its lack of needed funding, was unable, thru no fault
of its own, to have the building repaired. UNITED, on the other hand, spent P13,661.28 to
shore up the building after the August 2, 1968 earthquake (L-47896, CA Decision, p. 46).
Because of the earthquake on April 7, 1970, the trial court after the needed consultations,
authorized the total demolition of the building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for the damage resulting
from the partial and eventual collapse of the PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision penned by Justice Hugo E.
Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of
the Court of Appeals:
There is no question that an earthquake and other forces of nature such as cyclones, drought,
floods, lightning, and perils of the sea are acts of God. It does not necessarily follow, however,
that specific losses and suffering resulting from the occurrence of these natural force are also
acts of God. We are not convinced on the basis of the evidence on record that from the
thousands of structures in Manila, God singled out the blameless PBA building in Intramuros
and around six or seven other buildings in various parts of the city for collapse or severe
damage and that God alone was responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the designs and plans,
defective construction, poor workmanship, deviation from plans and specifications and other
imperfections. These deficiencies are attributable to negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party defendants-
appellants presented in their briefs are premised on legal generalizations or speculations and
on theological fatalism both of which ignore the plain facts. The lengthy discussion of United
on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous events
and extraordinary fortuitous events leads to its argument that the August 2, 1968 earthquake
was of such an overwhelming and destructive character that by its own force and independent
of the particular negligence alleged, the injury would have been produced. If we follow this
line of speculative reasoning, we will be forced to conclude that under such a situation scores
of buildings in the vicinity and in other parts of Manila would have toppled down. Following
the same line of reasoning, Nakpil and Sons alleges that the designs were adequate in
accordance with pre-August 2, 1968 knowledge and appear inadequate only in the light of
engineering information acquired after the earthquake. If this were so, hundreds of ancient
buildings which survived the earthquake better than the two-year old PBA building must have
been designed and constructed by architects and contractors whose knowledge and foresight
were unexplainably auspicious and prophetic. Fortunately, the facts on record allow a more
down to earth explanation of the collapse. The failure of the PBA building, as a unique and
distinct construction with no reference or comparison to other buildings, to weather the
severe earthquake forces was traced to design deficiencies and defective construction,
factors which are neither mysterious nor esoteric. The theological allusion of appellant United
that God acts in mysterious ways His wonders to perform impresses us to be inappropriate.
The evidence reveals defects and deficiencies in design and construction. There is no mystery
about these acts of negligence. The collapse of the PBA building was no wonder performed
by God. It was a result of the imperfections in the work of the architects and the people in the
construction company. More relevant to our mind is the lesson from the parable of the wise
man in the Sermon on the Mount "which built his house upon a rock; and the rain descended
and the floods came and the winds blew and beat upon that house; and it fen not; for it was
founded upon a rock" and of the "foolish upon the sand. And the rain descended and man
which built his house the floods came, and the winds blew, and beat upon that house; and it
fell and great was the fall of it. (St. Matthew 7: 24-27)." The requirement that a building should
withstand rains, floods, winds, earthquakes, and natural forces is precisely the reason why we
have professional experts like architects, and engineers. Designs and constructions vary under
varying circumstances and conditions but the requirement to design and build well does not
change.
The findings of the lower Court on the cause of the collapse are more rational and accurate.
Instead of laying the blame solely on the motions and forces generated by the earthquake, it
also examined the ability of the PBA building, as designed and constructed, to withstand and
successfully weather those forces.
The evidence sufficiently supports a conclusion that the negligence and fault of both United
and Nakpil and Sons, not a mysterious act of an inscrutable God, were responsible for the
damages. The Report of the Commissioner, Plaintiff's Objections to the Report, Third Party
Defendants' Objections to the Report, Defendants' Objections to the Report, Commissioner's
Answer to the various Objections, Plaintiffs' Reply to the Commissioner's Answer, Defendants'
Reply to the Commissioner's Answer, Counter-Reply to Defendants' Reply, and Third-Party
Defendants' Reply to the Commissioner's Report not to mention the exhibits and the
testimonies show that the main arguments raised on appeal were already raised during the
trial and fully considered by the lower Court. A reiteration of these same arguments on appeal
fails to convince us that we should reverse or disturb the lower Court's factual findings and its
conclusions drawn from the facts, among them:
The Commissioner also found merit in the allegations of the defendants as to the physical
evidence before and after the earthquake showing the inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the Manila Fire
Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-
sectional area of each of the columns and the strength thereof.
4. Two front corners, A7 and D7 columns were very much less reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;
1. Column A7 suffered the severest fracture and maximum sagging. Also D7.
2. There are more damages in the front part of the building than towards the rear, not only in
columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front corner parts of the
building.
5. There was a lateral displacement of the building of about 8", Maximum sagging occurs at
the column A7 where the floor is lower by 80 cm. than the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects in the design, plans and
specifications of the PBA building which involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks. He conceded, however, that the
fact that those deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for earthquake forces
mitigates in a large measure the responsibility or liability of the architect and engineer
designer.
The Third-party defendants, who are the most concerned with this portion of the
Commissioner's report, voiced opposition to the same on the grounds that (a) the finding is
based on a basic erroneous conception as to the design concept of the building, to wit, that
the design is essentially that of a heavy rectangular box on stilts with shear wan at one end;
(b) the finding that there were defects and a deficiency in the design of the building would at
best be based on an approximation and, therefore, rightly belonged to the realm of
speculation, rather than of certainty and could very possibly be outright error; (c) the
Commissioner has failed to back up or support his finding with extensive, complex and highly
specialized computations and analyzes which he himself emphasizes are necessary in the
determination of such a highly technical question; and (d) the Commissioner has analyzed the
design of the PBA building not in the light of existing and available earthquake engineering
knowledge at the time of the preparation of the design, but in the light of recent and current
standards.
The Commissioner answered the said objections alleging that third-party defendants'
objections were based on estimates or exhibits not presented during the hearing that the
resort to engineering references posterior to the date of the preparation of the plans was
induced by the third-party defendants themselves who submitted computations of the third-
party defendants are erroneous.
The issue presently considered is admittedly a technical one of the highest degree. It involves
questions not within the ordinary competence of the bench and the bar to resolve by
themselves. Counsel for the third-party defendants has aptly remarked that "engineering,
although dealing in mathematics, is not an exact science and that the present knowledge as
to the nature of earthquakes and the behaviour of forces generated by them still leaves much
to be desired; so much so "that the experts of the different parties, who are all engineers,
cannot agree on what equation to use, as to what earthquake co-efficients are, on the codes
to be used and even as to the type of structure that the PBA building (is) was (p. 29, Memo,
of third- party defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were to be tried and inquired into
by the Court itself, coupled with the intrinsic nature of the questions involved therein,
constituted the reason for the reference of the said issues to a Commissioner whose
qualifications and experience have eminently qualified him for the task, and whose
competence had not been questioned by the parties until he submitted his report. Within the
pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's
report on this issue, and the objections voiced to the same, the Court sees no compelling
reasons to disturb the findings of the Commissioner that there were defects and deficiencies
in the design, plans and specifications prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks with respect to the accidental forces which
may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans and specifications, and
how said deviations contributed to the damage sustained by the building.
(b) The alleged failure of defendants to observe the requisite quality of materials and
workmanship in the construction of the building.
These two issues, being interrelated with each other, will be discussed together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the alleged deficiencies or defects
in the construction and violations or deviations from the plans and specifications. All these
may be summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3 bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no larger than 1
inch.
(4) Reinforcement assembly is not concentric with the column, eccentricity being 3" off when
on one face the main bars are only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled worst where there are no spirals
or where spirals are cut. Columns suffered worst displacement where the eccentricity of the
columnar reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers,
(2) Column D5 — No spiral up to a height of 22" from the ground floor,
(3) Column D6 — Spacing of spiral over 4 l/2,
(4) Column D7 — Lack of lateral ties,
(5) Column C7 — Absence of spiral to a height of 20" from the ground level, Spirals are at 2"
from the exterior column face and 6" from the inner column face,
(6) Column B6 — Lack of spiral on 2 feet below the floor beams,
(7) Column B5 — Lack of spirals at a distance of 26' below the beam,
(8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to 4",
(9) Column A3 — Lack of lateral ties,
(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars,
(11) Column A4 — (second floor Column is completely hollow to a height of 30"
(12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam
to a height of 6 feet,
(13) Column A6 — No spirals up to a height of 30' above the ground floor level,
(14) Column A7— Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the Third-Party defendants.
Ground floor columns.
(1) Column A4 — Spirals are cut,
(2) Column A5 — Spirals are cut,
(3) Column A6 — At lower 18" spirals are absent,
(4) Column A7 — Ties are too far apart,
(5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced,
(6) Column B6 — At upper 2 feet spirals are absent,
(7) Column B7 — At upper fourth of column spirals missing or improperly spliced.
(8) Column C7— Spirals are absent at lowest 18"
(9) Column D5 — At lowest 2 feet spirals are absent,
(10) Column D6 — Spirals are too far apart and apparently improperly spliced,
(11) Column D7 — Lateral ties are too far apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations given by the engineering experts
for the defendants are either contrary to general principles of engineering design for
reinforced concrete or not applicable to the requirements for ductility and strength of
reinforced concrete in earthquake-resistant design and construction.
We shall first classify and consider defects which may have appreciable bearing or relation to'
the earthquake-resistant property of the building.
As heretofore mentioned, details which insure ductility at or near the connections between
columns and girders are desirable in earthquake resistant design and construction. The
omission of spirals and ties or hoops at the bottom and/or tops of columns contributed greatly
to the loss of earthquake-resistant strength. The plans and specifications required that these
spirals and ties be carried from the floor level to the bottom reinforcement of the deeper
beam (p. 1, Specifications, p. 970, Reference 11). There were several clear evidences where
this was not done especially in some of the ground floor columns which failed.
There were also unmistakable evidences that the spacings of the spirals and ties in the
columns were in many cases greater than those called for in the plans and specifications
resulting again in loss of earthquake-resistant strength. The assertion of the engineering
experts for the defendants that the improper spacings and the cutting of the spirals did not
result in loss of strength in the column cannot be maintained and is certainly contrary to the
general principles of column design and construction. And even granting that there be no loss
in strength at the yield point (an assumption which is very doubtful) the cutting or improper
spacings of spirals will certainly result in the loss of the plastic range or ductility in the column
and it is precisely this plastic range or ductility which is desirable and needed for earthquake-
resistant strength.
There is no excuse for the cavity or hollow portion in the column A4, second floor, and
although this column did not fail, this is certainly an evidence on the part of the contractor of
poor construction.
The effect of eccentricities in the columns which were measured at about 2 1/2 inches
maximum may be approximated in relation to column loads and column and beam moments.
The main effect of eccentricity is to change the beam or girder span. The effect on the
measured eccentricity of 2 inches, therefore, is to increase or diminish the column load by a
maximum of about 1% and to increase or diminish the column or beam movements by about
a maximum of 2%. While these can certainly be absorbed within the factor of safety, they
nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is the subject of great contention
between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5, ground floor, is the
responsibility of the general contractor which is the UCCI. The burden of proof, therefore,
that this cutting was done by others is upon the defendants. Other than a strong allegation
and assertion that it is the plumber or his men who may have done the cutting (and this was
flatly denied by the plumber) no conclusive proof was presented. The engineering experts for
the defendants asserted that they could have no motivation for cutting the bar because they
can simply replace the spirals by wrapping around a new set of spirals. This is not quite correct.
There is evidence to show that the pouring of concrete for columns was sometimes done
through the beam and girder reinforcements which were already in place as in the case of
column A4 second floor. If the reinforcement for the girder and column is to subsequently
wrap around the spirals, this would not do for the elasticity of steel would prevent the making
of tight column spirals and loose or improper spirals would result. The proper way is to
produce correct spirals down from the top of the main column bars, a procedure which can
not be done if either the beam or girder reinforcement is already in place. The engineering
experts for the defendants strongly assert and apparently believe that the cutting of the
spirals did not materially diminish the strength of the column. This belief together with the
difficulty of slipping the spirals on the top of the column once the beam reinforcement is in
place may be a sufficient motivation for the cutting of the spirals themselves. The defendants,
therefore, should be held responsible for the consequences arising from the loss of strength
or ductility in column A5 which may have contributed to the damages sustained by the
building.
The lack of proper length of splicing of spirals was also proven in the visible spirals of the
columns where spalling of the concrete cover had taken place. This lack of proper splicing
contributed in a small measure to the loss of strength.
The effects of all the other proven and visible defects although nor can certainly be
accumulated so that they can contribute to an appreciable loss in earthquake-resistant
strength. The engineering experts for the defendants submitted an estimate on some of these
defects in the amount of a few percent. If accumulated, therefore, including the effect of
eccentricity in the column the loss in strength due to these minor defects may run to as much
as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of
some of the ground floor columns contributed greatly to the collapse of the PBA building since
it is at these points where the greater part of the failure occurred. The liability for the cutting
of the spirals in column A5, ground floor, in the considered opinion of the Commissioner rests
on the shoulders of the defendants and the loss of strength in this column contributed to the
damage which occurred.
It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of
the plans and specifications of the PBA building contributed to the damages which resulted
during the earthquake of August 2, 1968 and the vice of these defects and deficiencies is that
they not only increase but also aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not only tend to add but also to
multiply the effects of the shortcomings in the design of the building. We may say, therefore,
that the defects and deficiencies in the construction contributed greatly to the damage which
occurred.
Since the execution and supervision of the construction work in the hands of the contractor
is direct and positive, the presence of existence of all the major defects and deficiencies noted
and proven manifests an element of negligence which may amount to imprudence in the
construction work. (pp. 42-49, Commissioners Report).
As the parties most directly concerned with this portion of the Commissioner's report, the
defendants voiced their objections to the same on the grounds that the Commissioner should
have specified the defects found by him to be "meritorious"; that the Commissioner failed to
indicate the number of cases where the spirals and ties were not carried from the floor level
to the bottom reinforcement of the deeper beam, or where the spacing of the spirals and ties
in the columns were greater than that called for in the specifications; that the hollow in
column A4, second floor, the eccentricities in the columns, the lack of proper length of splicing
of spirals, and the cut in the spirals in column A5, ground floor, did not aggravate or contribute
to the damage suffered by the building; that the defects in the construction were within the
tolerable margin of safety; and that the cutting of the spirals in column A5, ground floor, was
done by the plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many of the defects were
minor only the totality of the defects was considered. As regards the objection as to failure to
state the number of cases where the spirals and ties were not carried from the floor level to
the bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the
first one without spirals for 03 inches at the top, and in the latter, there were no spirals for 10
inches at the bottom. The Commissioner likewise specified the first storey columns where the
spacings were greater than that called for in the specifications to be columns B-5, B-6, C-7, C-
6, C-5, D-5 and B-7. The objection to the failure of the Commissioner to specify the number
of columns where there was lack of proper length of splicing of spirals, the Commissioner
mentioned groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns
and were not welded, resulting in some loss of strength which could be critical near the ends
of the columns. He answered the supposition of the defendants that the spirals and the ties
must have been looted, by calling attention to the fact that the missing spirals and ties were
only in two out of the 25 columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate
or contribute to the damage, but averred that it is "evidence of poor construction." On the
claim that the eccentricity could be absorbed within the factor of safety, the Commissioner
answered that, while the same may be true, it also contributed to or aggravated the damage
suffered by the building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered
by the Commissioner by reiterating the observation in his report that irrespective of who did
the cutting of the spirals, the defendants should be held liable for the same as the general
contractor of the building. The Commissioner further stated that the loss of strength of the
cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the
spiral containment in the column and resulted in the loss of strength, as evidenced by the
actual failure of this column.
Again, the Court concurs in the findings of the Commissioner on these issues and fails to find
any sufficient cause to disregard or modify the same. As found by the Commissioner, the
"deviations made by the defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also aggravated the damage
caused by the defects in the plans and specifications prepared by third-party defendants.
(Rollo, Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and
the third-party defendants in effecting the plans, designs, specifications, and construction of
the PBA building and We hold such negligence as equivalent to bad faith in the performance
of their respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380)
which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the natural and
probable consequences thereof, although the act of a third person, or an act of God for which
he is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad faith, without which the damage
would not have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, We deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the third-party defendants (with
the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in
favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception of attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality
of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum
shall be imposed upon afore-mentioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (except Roman Ozaeta).
G.R. No. L-21749 September 29, 1967
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
The present case comes by direct appeal from a decision of the Court of First Instance of
Manila (Case No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation,
liable in damages to the plaintiff-appellee Republic of the Philippines.
In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring
Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero"1 also
belonging to the same corporation, when the barge rammed against one of the wooden piles
of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at
the time, was swollen and the current swift, on account of the heavy downpour of Manila and
the surrounding provinces on August 15 and 16, 1960.
Sued by the Republic of the Philippines for actual and consequential damage caused by its
employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon
Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due
diligence in the selection and supervision of its employees; that the damages to the bridge
were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan
bailey bridge is an obstruction to navigation.
After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable
for the damage caused by its employees and ordering it to pay to plaintiff the actual cost of
the repair of the Nagtahan bailey bridge which amounted to P192,561.72, with legal interest
thereon from the date of the filing of the complaint.
Defendant appealed directly to this Court assigning the following errors allegedly committed
by the court a quo, to wit:
I — The lower court erred in not holding that the herein defendant-appellant had exercised
the diligence required of it in the selection and supervision of its personnel to prevent damage
or injury to others.
II — The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by
barge L-1892 was caused by force majeure.
III — The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction,
if not a menace, to navigation in the Pasig river.
IV — The lower court erred in not blaming the damage sustained by the Nagtahan bailey
bridge to the improper placement of the dolphins.
V — The lower court erred in granting plaintiff's motion to adduce further evidence in chief
after it has rested its case.
VI — The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for
damages which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that when a party
appeals directly to the Supreme Court, and submits his case there for decision, he is deemed
to have waived the right to dispute any finding of fact made by the trial Court. The only
questions that may be raised are those of law (Savellano vs. Diaz, L-17441, July 31, 1963;
Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A
converso, a party who resorts to the Court of Appeals, and submits his case for decision there,
is barred from contending later that his claim was beyond the jurisdiction of the aforesaid
Court. The reason is that a contrary rule would encourage the undesirable practice of
appellants' submitting their cases for decision to either court in expectation of favorable
judgment, but with intent of attacking its jurisdiction should the decision be unfavorable
(Tyson Tan, et al. vs. Filipinas Compañia de Seguros) et al., L-10096, Res. on Motion to
Reconsider, March 23, 1966). Consequently, we are limited in this appeal to the issues of law
raised in the appellant's brief.
Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this
appeal are reduced to two:
1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan
bridge was in law caused by fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to
introduce additional evidence of damages after said party had rested its case.
As to the first question, considering that the Nagtahan bridge was an immovable and
stationary object and uncontrovertedly provided with adequate openings for the passage of
water craft, including barges like of appellant's, it is undeniable that the unusual event that
the barge, exclusively controlled by appellant, rammed the bridge supports raises a
presumption of negligence on the part of appellant or its employees manning the barge or
the tugs that towed it. For in the ordinary course of events, such a thing does not happen if
proper care is used. In Anglo American Jurisprudence, the inference arises by what is known
as the "res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit
Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299;
Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146
S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on the day in question: that it
assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned
to the task the more competent and experienced among its patrons, had the towlines,
engines and equipment double-checked and inspected; that it instructed its patrons to take
extra precautions; and concludes that it had done all it was called to do, and that the accident,
therefore, should be held due to force majeure or fortuitous event.
These very precautions, however, completely destroy the appellant's defense. For caso
fortuito or force majeure(which in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events
that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code
of the Philippines). It is, therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility to foresee the same: "un
hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga mas
dificil o mas onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad
Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very
measures adopted by appellant prove that the possibility of danger was not only foreseeable,
but actually foreseen, and was not caso fortuito.
It avails the appellant naught to argue that the dolphins, like the bridge, were improperly
located. Even if true, these circumstances would merely emphasize the need of even higher
degree of care on appellant's part in the situation involved in the present case. The appellant,
whose barges and tugs travel up and down the river everyday, could not safely ignore the
danger posed by these allegedly improper constructions that had been erected, and in place,
for years.
On the second point: appellant charges the lower court with having abused its discretion in
the admission of plaintiff's additional evidence after the latter had rested its case. There is an
insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice
defendant-appellant.
We find no merit in the contention. Whether or not further evidence will be allowed after a
party offering the evidence has rested his case, lies within the sound discretion of the trial
Judge, and this discretion will not be reviewed except in clear case of abuse.3
In the present case, no abuse of that discretion is shown. What was allowed to be introduced,
after plaintiff had rested its evidence in chief, were vouchers and papers to support an item
of P1,558.00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which
item already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court
of being unfair, because it was also able to secure, upon written motion, a similar order dated
November 24, 1962, allowing reception of additional evidence for the said defendant-
appellant.4
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is
hereby affirmed. Costs against the defendant-appellant.

Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating
the perils posed by the swollen stream and its swift current, voluntarily entered into a
situation involving obvious danger; it therefore assured the risk, and can not shed
responsibility merely because the precautions it adopted turned out to be insufficient. Hence,
the lower Court committed no error in holding it negligent in not suspending operations and
in holding it liable for the damages caused.
G.R. No. 108164 February 23, 1995 private respondent had never been "in question." A copy of this reply was sent to Luis by
Festejo.
FAR EAST BANK AND TRUST COMPANY, petitioner,
vs. Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint
THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents. for damages with the Regional Trial Court ("RTC") of Pasig against FEBTC.

Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision
FAREASTCARD issued by petitioner Far East Bank and Trust Company ("FEBTC") at its Pasig ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b) P50,000.00
Branch. Upon his request, the bank also issued a supplemental card to private respondent exemplary damages; and (c) P20,000.00 attorney's fees.
Clarita S. Luna.
On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court.
In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace
the lost card, Clarita submitted an affidavit of loss. In cases of this nature, the bank's internal Its motion for reconsideration having been denied by the appellate court, FEBTC has come to
security procedures and policy would appear to be to meanwhile so record the lost card, along this Court with this petition for review.
with the principal card, as a "Hot Card" or "Cancelled Card" in its master file.
There is merit in this appeal.
On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American,
and another guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To
In culpa contractual, moral damages may be recovered where the defendant is shown to have
pay for the lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had
acted in bad faith or with malice in the breach of the contract. 2 The Civil Code provides:
it verified through a telephone call to the bank's Credit Card Department. Since the card was
not honored, Luis was forced to pay in cash the bill amounting to P588.13. Naturally, Luis felt
embarrassed by this incident. Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded
(Emphasis supplied)
from FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the bank,
expressed the bank's apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part,
said: Bad faith, in this context, includes gross, but not simple, negligence.3 Exceptionally, in a
contract of carriage, moral damages are also allowed in case of death of a passenger
attributable to the fault (which is presumed4 ) of the common carrier.5
In cases when a card is reported to our office as lost, FAREASTCARD undertakes the necessary
action to avert its unauthorized use (such as tagging the card as hotlisted), as it is always our
intention to protect our cardholders. Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own
card's cancellation. Nothing in the findings of the trial court and the appellate court, however,
can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private
An investigation of your case however, revealed that FAREASTCARD failed to inform you about
respondents. Neither could FEBTC's negligence in failing to give personal notice to Luis be
its security policy. Furthermore, an overzealous employee of the Bank's Credit Card
considered so gross as to amount to malice or bad faith.
Department did not consider the possibility that it may have been you who was presenting
the card at that time (for which reason, the unfortunate incident occurred). 1
Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is different from the negative idea of negligence in
Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter
that malice or bad faith contemplates a state of mind affirmatively operating with furtive
that private respondents were "very valued clients" of FEBTC. William Anthony King, Food and
design or ill will.6
Beverage Manager of the Intercontinental Hotel, wrote back to say that the credibility of
We are not unaware of the previous rulings of this Court, such as in American Express
International, Inc., vs. Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine
Islands vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the application of Article
21, in relation to Article 2217 and Article 22197 of the Civil Code to a contractual breach
similar to the case at bench. Article 21 states:
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm.
Thus, even if we are to assume that the provision could properly relate to a breach of contract,
its application can be warranted only when the defendant's disregard of his contractual
obligation is so deliberate as to approximate a degree of misconduct certainly no less worse
than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a general
principle in human relations that clearly must, in any case, give way to the specific provision
of Article 2220 of the Civil Code authorizing the grant of moral damages in culpa
contractual solely when the breach is due to fraud or bad faith.
Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda8 explained with great clarity
the predominance that we should give to Article 2220 in contractual relations; we quote:
Anent the moral damages ordered to be paid to the respondent, the same must be discarded.
We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil. 523; 54 Off.
Gaz., [26], 6599; Necesito, et al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023), that moral
damages are not recoverable in damage actions predicated on a breach of the contract of
transportation, in view of Articles 2219 and 2220 of the new Civil Code, which provide as
follows:
Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
xxx xxx xxx
Art. 2220. Wilful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
By contrasting the provisions of these two articles it immediately becomes apparent that:
(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud
(dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral
damages; and
(b) That a breach of contract can not be considered included in the descriptive term
"analogous cases" used in Art. 2219; not only because Art. 2220 specifically provides for the
damages that are caused contractual breach, but because the definition of quasi-delict in Art.
2176 of the Code expressly excludes the cases where there is a "preexisitng contractual
relations between the parties."
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.
The exception to the basic rule of damages now under consideration is a mishap resulting in
the death of a passenger, in which case Article 1764 makes the common carrier expressly
subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the
deceased passenger to "demand moral damages for mental anguish by reason of the death
of the deceased" (Necesito vs. Paras, 104 Phil. 84, Resolution on motion to reconsider,
September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that
where the injured passenger does not die, moral damages are not recoverable unless it is
proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere
carelessness of the carrier's driver does not per se constitute or justify an inference of malice
or bad faith on the part of the carrier; and in the case at bar there is no other evidence of such
malice to support the award of moral damages by the Court of Appeals. To award moral
damages for breach of contract, therefore, without proof of bad faith or malice on the part of
the defendant, as required by Art. 2220, would be to violate the clear provisions of the law,
and constitute unwarranted judicial legislation.
xxx xxx xxx
The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong
doing and negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts.
1170-1172); their consequences being clearly differentiated by the Code.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.
It is to be presumed, in the absence of statutory provision to the contrary, that this difference
was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages
to breaches of contract in bad faith. It is true that negligence may be occasionally so gross as
to amount to malice; but the fact must be shown in evidence, and a carrier's bad faith is not
to be lightly inferred from a mere finding that the contract was breached through negligence
of the carrier's employees.
The Court has not in the process overlooked another rule that a quasi-delict can be the cause
for breaching a contract that might thereby permit the application of applicable principles on
tort9 even where there is a pre-existing contract between the plaintiff and the defendant (Phil.
Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117;
and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve
private respondents' case for it can aptly govern only where the act or omission complained
of would constitute an actionable tort independently of the contract. The test (whether a
quasi-delict can be deemed to underlie the breach of a contract) can be stated thusly: Where,
without a pre-existing contract between two parties, an act or omission can nonetheless
amount to an actionable tort by itself, the fact that the parties are contractually bound is no
bar to the application of quasi-delict provisions to the case. Here, private respondents'
damage claim is predicated solely on their contractual relationship; without such agreement,
the act or omission complained of cannot by itself be held to stand as a separate cause of
action or as an independent actionable tort.
The Court finds, therefore, the award of moral damages made by the court a quo, affirmed
by the appellate court, to be inordinate and substantially devoid of legal basis.
Exemplary or corrective damages, in turn, are intended to serve as an example or as
correction for the public good in addition to moral, temperate, liquidated or compensatory
damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance Transport System, 148 SCRA 440;
Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses, exemplary
damages are imposed when the crime is committed with one or more aggravating
circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are granted if the
defendant is shown to have been so guilty of gross negligence as to approximate malice
(See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161 SCRA 655; Globe
Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778). In contracts and quasi-contracts, the
court may award exemplary damages if the defendant is found to have acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner (Art. 2232, Civil Code; PNB vs. Gen.
Acceptance and Finance Corp., 161 SCRA 449).
Given the above premises and the factual circumstances here obtaining, it would also be just
as arduous to sustain the exemplary damages granted by the courts below (see De Leon vs.
Court of Appeals, 165 SCRA 166).
Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to
private respondent Luis should entitle him to recover a measure of damages sanctioned under
Article 2221 of the Civil Code providing thusly:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
Reasonable attorney's fees may be recovered where the court deems such recovery to be just
and equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part of the
appellate court in allowing the award thereof by the trial court.
WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED
by deleting the award of moral and exemplary damages to private respondents; in its stead,
petitioner is ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way
of nominal damages. In all other respects, the appealed decision is AFFIRMED. No costs.
Footnotes
1 Rollo, p. 52.
2 Necesito vs. Paras, 104 Phil. 75; Panay Electric Co. vs. CA, 119 SCRA 456; Sweet Lines, Inc.
vs. CA, 121 SCRA 769; Rex Taxicab Co., Inc. vs. Bautista, 109 Phil. 712.
3 Philippine Airlines vs. Court of Appeals, 106 SCRA 143.
4 Art. 1756, Civil Code.
5 Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with
the Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of
a passenger caused by the breach of contract by a common carrier.
6 See Luzon Brokerage, Co., Inc. vs. Maritime Building, Co., Inc., 43 SCRA 93; also Black's Law
Dictionary.
7 Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act for omission.
Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this
article, may also recover moral damages.
The spouse, descendants, ascendants, and brother and sisters may bring action mentioned in
No. 9 of this article, in the order named.
8 105 Phil. 266, 273-276.
9 In culpa aquiliana, moral damages may be recovered when the act or omission complained
of causes physical injuries or where the defendant is guilty of intentional tort (Article 2219
[2][10], Civil Code).
G.R. No. 179337 April 30, 2008
JOSEPH SALUDAGA, petitioner,
vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of
FEU, respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29,
2007 Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside
the November 10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case
No. 98-89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern
University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards
on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor
Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained.6Meanwhile, Rosete
was brought to the police station where he explained that the shooting was accidental. He
was eventually released considering that no formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages against respondents on the ground that
they breached their obligation to provide students with a safe and secure environment and
an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party
Complaint7 against Galaxy Development and Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security services within its premises and Mariano
D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged
in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand,
Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.8
On November 10, 2004, the trial court rendered a decision in favor of petitioner, the
dispositive portion of which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered ordering:
1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally
Joseph Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum
from the filing of the complaint until fully paid; moral damages of P300,000.00, exemplary
damages of P500,000.00, attorney's fees of P100,000.00 and cost of the suit;
2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to
indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity
as President of FEU) for the above-mentioned amounts;
3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as
to costs.
SO ORDERED.9
Respondents appealed to the Court of Appeals which rendered the assailed Decision, the
decretal portion of which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is
hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant
Far Eastern University and its President in Civil Case No. 98-89483 is DISMISSED.
SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition
based on the following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND
JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A
GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR
OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO
PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE AND
SECURE EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS
WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE
BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU
NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND
BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH
WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11
Petitioner is suing respondents for damages based on the alleged breach of student-school
contract for a safe learning environment. The pertinent portions of petitioner's Complaint
read:
6.0. At the time of plaintiff's confinement, the defendants or any of their representative did
not bother to visit and inquire about his condition. This abject indifference on the part of the
defendants continued even after plaintiff was discharged from the hospital when not even a
word of consolation was heard from them. Plaintiff waited for more than one (1) year for the
defendants to perform their moral obligation but the wait was fruitless. This indifference and
total lack of concern of defendants served to exacerbate plaintiff's miserable condition.
xxxx
11.0. Defendants are responsible for ensuring the safety of its students while the latter are
within the University premises. And that should anything untoward happens to any of its
students while they are within the University's premises shall be the responsibility of the
defendants. In this case, defendants, despite being legally and morally bound, miserably failed
to protect plaintiff from injury and thereafter, to mitigate and compensate plaintiff for said
injury;
12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them.
Under this contract, defendants are supposed to ensure that adequate steps are taken to
provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside
defendant FEU's premises. In the instant case, the latter breached this contract when
defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people,
their security guard who was tasked to maintain peace inside the campus.12
In Philippine School of Business Administration v. Court of Appeals,13 we held that:
When an academic institution accepts students for enrollment, there is established a contract
between them, resulting in bilateral obligations which both parties are bound to comply with.
For its part, the school undertakes to provide the student with an education that would
presumably suffice to equip him with the necessary tools and skills to pursue higher education
or a profession. On the other hand, the student covenants to abide by the school's academic
requirements and observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-in" obligation of providing their
students with an atmosphere that promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the school premises a constant
threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to prevent the breakdown
thereof.14
It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU.
As such, there was created a contractual obligation between the two parties. On petitioner's
part, he was obliged to comply with the rules and regulations of the school. On the other
hand, respondent FEU, as a learning institution is mandated to impart knowledge and equip
its students with the necessary skills to pursue higher education or a profession. At the same
time, it is obliged to ensure and take adequate steps to maintain peace and order within the
campus.
It is settled that in culpa contractual, the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief.15 In the instant
case, we find that, when petitioner was shot inside the campus by no less the security guard
who was hired to maintain peace and secure the premises, there is a prima facie showing that
respondents failed to comply with its obligation to provide a safe and secure environment to
its students.
In order to avoid liability, however, respondents aver that the shooting incident was a
fortuitous event because they could not have reasonably foreseen nor avoided the accident
caused by Rosete as he was not their employee;16and that they complied with their obligation
to ensure a safe learning environment for their students by having exercised due diligence in
selecting the security services of Galaxy.
After a thorough review of the records, we find that respondents failed to discharge the
burden of proving that they exercised due diligence in providing a safe learning environment
for their students. They failed to prove that they ensured that the guards assigned in the
campus met the requirements stipulated in the Security Service Agreement. Indeed, certain
documents about Galaxy were presented during trial; however, no evidence as to the
qualifications of Rosete as a security guard for the university was offered.
Respondents also failed to show that they undertook steps to ascertain and confirm that the
security guards assigned to them actually possess the qualifications required in the Security
Service Agreement. It was not proven that they examined the clearances, psychiatric test
results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total
reliance on the security agency about these matters or failure to check the papers stating the
qualifications of the guards is negligence on the part of respondents. A learning institution
should not be allowed to completely relinquish or abdicate security matters in its premises to
the security agency it hired. To do so would result to contracting away its inherent obligation
to ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In order for force majeure to
be considered, respondents must show that no negligence or misconduct was committed that
may have occasioned the loss. An act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly
the result of a person's participation - whether by active intervention, neglect or failure to act
- the whole occurrence is humanized and removed from the rules applicable to acts of God.17
Article 1170 of the Civil Code provides that those who are negligent in the performance of
their obligations are liable for damages. Accordingly, for breach of contract due to negligence
in providing a safe learning environment, respondent FEU is liable to petitioner for damages.
It is essential in the award of damages that the claimant must have satisfactorily proven during
the trial the existence of the factual basis of the damages and its causal connection to
defendant's acts.18
In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization
and other medical expenses.19 While the trial court correctly imposed interest on said
amount, however, the case at bar involves an obligation arising from a contract and not a loan
or forbearance of money. As such, the proper rate of legal interest is six percent (6%) per
annum of the amount demanded. Such interest shall continue to run from the filing of the
complaint until the finality of this Decision.20 After this Decision becomes final and executory,
the applicable rate shall be twelve percent (12%) per annum until its satisfaction.
The other expenses being claimed by petitioner, such as transportation expenses and those
incurred in hiring a personal assistant while recuperating were however not duly supported
by receipts.21 In the absence thereof, no actual damages may be awarded. Nonetheless,
temperate damages under Art. 2224 of the Civil Code may be recovered where it has been
shown that the claimant suffered some pecuniary loss but the amount thereof cannot be
proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded
to petitioner.
As regards the award of moral damages, there is no hard and fast rule in the determination
of what would be a fair amount of moral damages since each case must be governed by its
own peculiar circumstances.22 The testimony of petitioner about his physical suffering, mental
anguish, fright, serious anxiety, and moral shock resulting from the shooting incident23 justify
the award of moral damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrongdoer. The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that
will serve to obviate the moral suffering he has undergone. It is aimed at the restoration,
within the limits of the possible, of the spiritual status quo ante, and should be proportionate
to the suffering inflicted. Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption on the part of the trial
court.24 We deem it just and reasonable under the circumstances to award petitioner moral
damages in the amount of P100,000.00.
Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of
damages is reasonable in view of Article 2208 of the Civil Code.25 However, the award of
exemplary damages is deleted considering the absence of proof that respondents acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily liable with respondent FEU.
In Powton Conglomerate, Inc. v. Agcolicol,26 we held that:
[A] corporation is invested by law with a personality separate and distinct from those of the
persons composing it, such that, save for certain exceptions, corporate officers who entered
into contracts in behalf of the corporation cannot be held personally liable for the liabilities
of the latter. Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when - (1) he assents
to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages
to the corporation, its stockholders or other persons; (2) he consents to the issuance of
watered down stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) he agrees to hold himself personally and
solidarily liable with the corporation; or (4) he is made by a specific provision of law personally
answerable for his corporate action.27
None of the foregoing exceptions was established in the instant case; hence, respondent De
Jesus should not be held solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the instant case is the breach of the school-
student contract, petitioner, in the alternative, also holds respondents vicariously liable under
Article 2180 of the Civil Code, which provides:
Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
We agree with the findings of the Court of Appeals that respondents cannot be held liable for
damages under Art. 2180 of the Civil Code because respondents are not the employers of
Rosete. The latter was employed by Galaxy. The instructions issued by respondents' Security
Consultant to Galaxy and its security guards are ordinarily no more than requests commonly
envisaged in the contract for services entered into by a principal and a security agency. They
cannot be construed as the element of control as to treat respondents as the employers of
Rosete.28
As held in Mercury Drug Corporation v. Libunao:29
In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns
the works of its watchmen or security guards to a client, the employer of such guards or
watchmen is such agency, and not the client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence of a good father of a family cannot be
demanded from the said client:
… [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and
assigns the work of its watchmen or security guards, the agency is the employer of such
guards or watchmen. Liability for illegal or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients or customers of such agency. As a
general rule, a client or customer of a security agency has no hand in selecting who among
the pool of security guards or watchmen employed by the agency shall be assigned to it; the
duty to observe the diligence of a good father of a family in the selection of the guards cannot,
in the ordinary course of events, be demanded from the client whose premises or property
are protected by the security guards.
xxxx
The fact that a client company may give instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the security
guards concerned and liable for their wrongful acts or omissions.31
We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural device whereby a 'third party' who is
neither a party nor privy to the act or deed complained of by the plaintiff, may be brought
into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity, subrogation or any
other relief, in respect of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's complaint. Were it not for this
provision of the Rules of Court, it would have to be filed independently and separately from
the original complaint by the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of
action in respect of plaintiff's claim against a third-party in the original and principal case with
the object of avoiding circuitry of action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject matter arising from one particular
set of facts.33
Respondents and Galaxy were able to litigate their respective claims and defenses in the
course of the trial of petitioner's complaint. Evidence duly supports the findings of the trial
court that Galaxy is negligent not only in the selection of its employees but also in their
supervision. Indeed, no administrative sanction was imposed against Rosete despite the
shooting incident; moreover, he was even allowed to go on leave of absence which led
eventually to his disappearance.34 Galaxy also failed to monitor petitioner's condition or
extend the necessary assistance, other than the P5,000.00 initially given to petitioner. Galaxy
and Imperial failed to make good their pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied respondent FEU with an unqualified
security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to
hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned
amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being
grossly negligent in directing the affairs of the security agency. It was Imperial who assured
petitioner that his medical expenses will be shouldered by Galaxy but said representations
were not fulfilled because they presumed that petitioner and his family were no longer
interested in filing a formal complaint against them.35
WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in
CA-G.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint
as well as the August 23, 2007 Resolution denying the Motion for Reconsideration
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in
Civil Case No. 98-89483 finding respondent FEU liable for damages for breach of its obligation
to provide students with a safe and secure learning atmosphere, is AFFIRMED with the
following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual
damages in the amount of P35,298.25, plus 6% interest per annum from the filing
of the complaint until the finality of this Decision. After this decision becomes final
and executory, the applicable rate shall be twelve percent (12%) per annum until
its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate damages in the
amount of P20,000.00; moral damages in the amount of P100,000.00; and
attorney's fees and litigation expenses in the amount of P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of
respondents are likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D.
Imperial are ORDEREDto jointly and severally pay respondent FEU damages equivalent to the
above-mentioned amounts awarded to petitioner.
G.R. No. 185798 January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil
Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which
affirmed the Decision of the Office of the President in O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place
Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent.
Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-
square meter condominium unit at Central Park Place Tower in Mandaluyong City for a pre-
selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY
(₱5,174,000.00). On 29 August 1997, respondents executed and signed a Reservation
Application Agreement wherein they deposited ₱200,000.00 as reservation fee. As agreed
upon, respondents paid the full downpayment of ₱1,552,200.00 and had been paying the
₱63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise stopped paying
their monthly amortization. Claiming to have paid a total of ₱2,198,949.96 to petitioners,
respondents through two (2) successive letters, demanded a full refund of their payment with
interest. When their demands went unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the Housing and Land Use Regulatory Board
(HLURB). Respondents prayed for reimbursement/refund of ₱2,198,949.96 representing the
total amortization payments, ₱200,000.00 as and by way of moral damages, attorney’s fees
and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to
file their Answer within the reglementary period despite service of summons.2
Petitioners filed a motion to lift order of default and attached their position paper attributing
the delay in construction to the 1997 Asian financial crisis. Petitioners denied committing
fraud or misrepresentation which could entitle respondents to an award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment
ordering petitioners to jointly and severally pay respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED
FORTY NINE PESOS & 96/100 (₱2,198,949.96) with interest thereon at twelve percent (12%)
per annum to be computed from the time of the complainants’ demand for refund on October
08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this Office fifteen
(15) days upon receipt of this decision, for violation of Section 20 in relation to Section 38 of
PD 957.3
The Arbiter considered petitioners’ failure to develop the condominium project as a
substantial breach of their obligation which entitles respondents to seek for rescission with
payment of damages. The Arbiter also stated that mere economic hardship is not an excuse
for contractual and legal delay.
Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII
of the 1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners
of the HLURB denied4 the petition and affirmed the Arbiter’s Decision. The HLURB reiterated
that the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous
event which will exempt petitioners from the performance of their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter,
petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007,
petitioners’ appeal was dismissed6 by the Office of the President for lack of merit. Petitioners
moved for a reconsideration but their motion was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under Rule
43 containing the same arguments they raised before the HLURB and the Office of the
President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE
HONORABLE HOUSING AND LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-
APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM OF ₱2,198,949.96 WITH 12%
INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT
STATES NO CAUSE OF ACTION AGAINST PETITIONERS-APPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE
OFFICE BELOW ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE
SUM OF ₱100,000.00 AS MORAL DAMAGES AND ₱50,000.00 AS ATTORNEY’S FEES
CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE
HOUSING AND LAND USE REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAY
₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO
SUPPORT SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The
appellate court echoed the HLURB Arbiter’s ruling that "a buyer for a
condominium/subdivision unit/lot unit which has not been developed in accordance with the
approved condominium/subdivision plan within the time limit for complying with said
developmental requirement may opt for reimbursement under Section 20 in relation to
Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court supported the HLURB
Arbiter’s conclusion, which was affirmed by the HLURB Board of Commission and the Office
of the President, that petitioners’ failure to develop the condominium project is tantamount
to a substantial breach which warrants a refund of the total amount paid, including interest.
The appellate court pointed out that petitioners failed to prove that the Asian financial crisis
constitutes a fortuitous event which could excuse them from the performance of their
contractual and statutory obligations. The appellate court also affirmed the award of moral
damages in light of petitioners’ unjustified refusal to satisfy respondents’ claim and the
legality of the administrative fine, as provided in Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December
2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for
review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF
THE OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF
THE RESPONDENTS DESPITE LACK OF CAUSE OF ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE
PREMISES, THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE
AMOUNT OF INTEREST OF TWELVE PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE
DECISION OF THE OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF ₱100,000.00 AS
MORAL DAMAGES, ₱50,000.00 AS ATTORNEY’S FEES AND ₱10,000.00 AS ADMINISTRATIVE
FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action because they allegedly have not
committed any act of misrepresentation amounting to bad faith which could entitle
respondents to a refund. Petitioners claim that there was a mere delay in the completion of
the project and that they only resorted to "suspension and reformatting as a testament to
their commitment to their buyers." Petitioners attribute the delay to the 1997 Asian financial
crisis that befell the real estate industry. Invoking Article 1174 of the New Civil Code,
petitioners maintain that they cannot be held liable for a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas
Bank v. Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period
that its operations are ordered suspended by the Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages because they
never intended to cause delay, and again blamed the Asian economic crisis as the direct,
proximate and only cause of their failure to complete the project. Petitioners submit that
moral damages should not be awarded unless so stipulated except under the instances
enumerated in Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the
administrative fine because the delay in the project was caused not by their own deceptive
intent to defraud their buyers, but due to unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian financial crisis
constitute a fortuitous event which would justify delay by petitioners in the performance of
their contractual obligation; 2) assuming that petitioners are liable, whether or not 12%
interest was correctly imposed on the judgment award, and 3) whether the award of moral
damages, attorney’s fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The
rulings were consistent that first, the Asian financial crisis is not a fortuitous event that would
excuse petitioners from performing their contractual obligation; second, as a result of the
breach committed by petitioners, respondents are entitled to rescind the contract and to be
refunded the amount of amortizations paid including interest and damages; and third,
petitioners are likewise obligated to pay attorney’s fees and the administrative fine.
This petition did not present any justification for us to deviate from the rulings of the HLURB,
the Office of the President and the Court of Appeals.
Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission
under Article 1191 of the New Civil Code which states:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1âwphi1 No installment payment made by a buyer in
a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited
in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interests but excluding delinquency interests, with
interest thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to rescind the contract
and demand reimbursement for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties,
Inc. v. Spouses Go13promulgated on 17 August 2007, where the Court stated that the Asian
financial crisis is not an instance of caso fortuito. Bearing the same factual milieu as the instant
case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about a different
condominium property. The company likewise reneged on its obligation to respondents
therein by failing to develop the condominium project despite substantial payment of the
contract price. Fil-Estate advanced the same argument that the 1997 Asian financial crisis is a
fortuitous event which justifies the delay of the construction project. First off, the Court
classified the issue as a question of fact which may not be raised in a petition for review
considering that there was no variance in the factual findings of the HLURB, the Office of the
President and the Court of Appeals. Second, the Court cited the previous rulings of Asian
Construction and Development Corporation v. Philippine Commercial International
Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals15 holding that the
1997 Asian financial crisis did not constitute a valid justification to renege on obligations. The
Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and
beyond the control of a business corporation. It is unfortunate that petitioner apparently met
with considerable difficulty e.g. increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is concededly a master in
projections on commodities and currency movements and business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday occurrence,
and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso
fortuito.16
The aforementioned decision becomes a precedent to future cases in which the facts are
substantially the same, as in this case. The principle of stare decisis, which means adherence
to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by respondents plus
6% legal interest computed from the date of demand. The Court also awarded attorney’s fees.
We follow that ruling in the case before us.
The resulting modification of the award of legal interest is, also, in line with our recent ruling
in Nacar v. Gallery Frames,17 embodying the amendment introduced by the Bangko Sentral
ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.
We likewise affirm the award of attorney’s fees because respondents were forced to litigate
for 14 years and incur expenses to protect their rights and interest by reason of the unjustified
act on the part of petitioners.18 The imposition of ₱10,000.00 administrative fine is correct
pursuant to Section 38 of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding
ten thousand pesos for violations of the provisions of this Decree or of any rule or regulation
thereunder. Fines shall be payable to the Authority and enforceable through writs of
execution in accordance with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral damages may be awarded
in breach of contract cases, the defendant must have acted in bad faith, must be found guilty
of gross negligence amounting to bad faith, or must have acted in wanton disregard of
contractual obligations.19 The Arbiter found petitioners to have acted in bad faith when they
breached their contract, when they failed to address respondents’ grievances and when they
adamantly refused to refund respondents' payment.
In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision
and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the time of respondents' demand for refund on 8 October 1998.
G.R. No. 177921 December 4, 2013
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES
GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA
DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.
Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007
and the Resolution3dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896
which reversed and set aside the Decision4 dated January 17, 2006 of the Regional Trial Court
of Makati, Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering petitioners Metro
Concast Steel Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses
Guillermo and Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual
petitioners) to solidarily pay respondent Allied Bank Corporation (Allied Bank) the aggregate
amount of ₱51,064,094.28, with applicable interests and penalty charges.
The Facts
On various dates and for different amounts, Metro Concast, a corporation duly organized and
existing under and by virtue of Philippine laws and engaged in the business of manufacturing
steel,5 through its officers, herein individual petitioners, obtained several loans from Allied
Bank. These loan transactions were covered by a promissory note and separate letters of
credit/trust receipts, the details of which are as follows:
the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel,
sent them demand letters,20 all dated December 10, 1998, seeking payment of the total
amount of ₱51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint
for collection of sum of money21 (subject complaint) against petitioners before the RTC,
docketed as Civil Case No. 00-1563. In their second22 Amended Answer,23petitioners admitted
their indebtedness to Allied Bank but denied liability for the interests and penalties charged,
claiming to have paid the total sum of ₱65,073,055.73 by way of interest charges for the
period covering 1992 to 1997.24

Date Document Amount They also alleged that the economic reverses suffered by the Philippine economy in 1998 as
well as the devaluation of the peso against the US dollar contributed greatly to the downfall
December 13, 1996 Promissory Note No. 96-213016 ₱2,000,000.00 of the steel industry, directly affecting the business of Metro Concast and eventually leading
to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the
November 7, 1995 Trust Receipt No. 96-2023657 ₱608,603.04 sale of Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied
Bank, which the latter, however, refused. Instead, Allied Bank advised them to sell the
May 13, 1996 Trust Receipt No. 96-9605228 ₱3,753,777.40 equipment and apply the proceeds of the sale to their outstanding obligations. Accordingly,
petitioners offered the equipment for sale, but since there were no takers, the equipment
May 24, 1996 Trust Receipt No. 96-9605249 ₱4,602,648.08 was reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation
(Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in buying the
March 21, 1997 Trust Receipt No. 97-20472410 ₱7,289,757.79 scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw
(Atty. Saw), a member of Allied Bank’s legal department, acted as the latter’s agent.
June 7, 1996 Trust Receipt No. 96-20328011 ₱17,340,360.73 Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of
Agreement25 dated November 8, 2002 (MoA) was drawn between Metro Concast,
July 26, 1995 Trust Receipt No. 95-20194312 ₱670,709.24 represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which
Peakstar obligated itself to purchase the scrap metal for a total consideration of
August 31, 1995 Trust Receipt No. 95-20205313 ₱313,797.41 ₱34,000,000.00, payable as follows:

November 16, 1995 Trust Receipt No. 96-20243914 ₱13,015,109.87 (a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be paid in cash and the
other ₱2,000,000.00 to be paid in two (2) post-dated checks of ₱1,000,000.00
July 3, 1996 Trust Receipt No. 96-20355215 ₱401,608.89 each;26 and
(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly installments of
June 20, 1995 Trust Receipt No. 95-20171016 ₱750,089.25 ₱3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the
form of separate post-dated checks.27
December 13, 1995 Trust Receipt No. 96-37908917 ₱92,919.00
Unfortunately, Peakstar reneged on all its obligations under the MoA.1âwphi1 In this regard,
December 13, 1995 Trust Receipt No. 96/20258118 ₱224,713.58 petitioners asseverated that:

(a) their failure to pay their outstanding loan obligations to Allied Bank must be
The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum
considered as force majeure ; and
(p.a.), with penalty charge of 3% per month in case of default; while the twelve (12) trust
(b) since Allied Bank was the party that accepted the terms and conditions of payment
receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By way of
proposed by Peakstar, petitioners must therefore be deemed to have settled their
security, the individual petitioners executed several Continuing Guaranty/Comprehensive
obligations to Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose
Surety Agreements19 in favor of Allied Bank. Petitioners failed to settle their obligations under
 Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA
and subsequently received29 the ₱2,000,000.00 cash and the two (2) Bankwise
post-dated checks worth ₱1,000,000.00 each from Camiling. However, Atty. Saw
turned over only the two (2) checks and ₱1,500,000.00 in cash to the wife of Jose
Dychiao.30
Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for
the award of moral damages in the amount of ₱20,000,000.00 in favor of Metro Concast and
at least ₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as exemplary
damages, ₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other litigation expenses,
including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed the subject
complaint, holding that the "causes of action sued upon had been paid or otherwise
extinguished." It ruled that since Allied Bank was duly represented by its agent, Atty. Saw, in
all the negotiations and transactions with Peakstar – considering that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition of the scrap metal
– then it stands to reason that the MoA between Metro Concast and Peakstar was
binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed and
set aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law
to declare that when Bankwise reneged its guarantee under the [MoA], herein [petitioners]
should be deemed to be discharged from their obligations lawfully incurred in favor of [Allied
Bank]."33
The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and
Peakstar, as the buyer thereof, and found that the same did not indicate that Allied Bank
intervened or was a party thereto. It also pointed out the fact that the post-dated checks
pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the CA found no sufficient
evidence on record showing that Atty. Saw was duly and legally authorized to act for and on
behalf of Allied Bank, opining that the RTC was "indulging in hypothesis and
speculation"34 when it made a contrary pronouncement. While Atty. Saw received the earnest
money from Peakstar, the receipt was signed by him on behalf of Jose Dychiao.35
It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by
[Atty.] Saw either as representative of [petitioners] or as partner of the latter’s legal counsel,
and not in anyway as representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank
their corresponding obligations under the aforementioned promissory note and trust
receipts, plus interests, penalty charges and attorney’s fees. Petitioners sought
reconsideration37 which was, however, denied in a Resolution38 dated May 10, 2007. Hence,
this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of whether or not the loan obligations
incurred by the petitioners under the subject promissory note and various trust receipts have
already been extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations are extinguished either by payment or
performance, the loss of the thing due, the condonation or remission of the debt, the
confusion or merger of the rights of creditor and debtor, compensation or novation.
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had
already been extinguished due to Peakstar’s failure to perform its own obligations to Metro
Concast pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force
majeure in the sense that they have, beyond their control, lost the funds they expected to
have received from the Peakstar (due to the MoA) which they would, in turn, use to pay their
own loan obligations to Allied Bank. They further state that Allied Bank was equally bound by
Metro Concast’s MoA with Peakstar since its agent, Atty. Saw, actively represented it during
the negotiations and execution of the said agreement. Petitioners’ arguments are untenable.
At the outset, the Court must dispel the notion that the MoA would have any relevance to the
performance of petitioners’ obligations to Allied Bank. The MoA is a sale of assets contract,
while petitioners’ obligations to Allied Bank arose from various loan transactions. Absent any
showing that the terms and conditions of the latter transactions have been, in any way,
modified or novated by the terms and conditions in the MoA, said contracts should be treated
separately and distinctly from each other, such that the existence, performance or breach of
one would not depend on the existence, performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale
transaction between Metro Concast and Peakstar (as evidenced by the MoA) is actually
irrelevant to the issues related to petitioners’ loan obligations to the bank. Besides, as the CA
pointed out, the fact of Allied Bank’s representation has not been proven in this case and
hence, cannot be deemed as a sustainable defense to exculpate petitioners from their loan
obligations to Allied Bank. Now, anent petitioners’ reliance on force majeure, suffice it to state
that Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be
classified as a fortuitous event under jurisprudential formulation. As discussed in Sicam v.
Jorge:39
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable.1âwphi1 It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility to foresee the same. To
constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee the event
that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in
a normal manner; and (d) the obligor must be free from any participation in the aggravation
of the injury or loss.40(Emphases supplied)
While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the
same us clearly not "impossible"to foresee or even an event which is independent of human
will." Neither has it been shown that said occurrence rendered it impossible for petitioners to
pay their loan obligations to Allied Bank and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the performance or breach of the MoA bears no
relation to the performance or breach of the subject loan transactions, they being separate
and distinct sources of obligations. The fact of the matter is that petitioners’ loan obligations
to Allied Bank remain subsisting for the basic reason that the former has not been able to
prove that the same had already been paid41 or, in any way, extinguished. In this regard,
petitioners’ liability, as adjudged by the CA, must perforce stand. Considering, however, that
Allied Bank’s extra-judicial demand on petitioners appears to have been made only on
December 10, 1998, the computation of the applicable interests and penalty charges should
be reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution
dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED
with MODIFICATION reckoning the applicable interests and penalty charges from the date of
the extrajudicial demand or on December 10, 1998. The rest of the appellate court’s
dispositions stand.
G.R. No. L-7859 February 12, 1913
VICTORIA SEOANE, administratrix of The Intestate Estate of Eduardo Fargas, plaintiff-appellee,
vs.
CATALINA FRANCO, administratrix of The Intestate Estate of Manuel Franco, defendant-
appellant.
Ramon Salinas, for appellant.
Gibbs, McDonough and Blanco, for appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of Zamboanga in favor of the
plaintiff, holding that the right of action upon the mortgage debt which was the basis of the
claim presented against the plaintiff's estate had prescribed.
The mortgage in question was executed on the 13th of October, 1884, to secure the payment
of the sum of P4,876.01, the mortgagor agreeing to pay the sum "little by little." The claim
appears to have been presented to the plaintiff's intestate on the 8th of August, 1911. Nothing
has been paid either of principal or of interest.
We are of the opinion that this case falls within the provisions of article 1128 of the Civil Code,
which reads as follows:
1128. When the obligation does not fix a term, but it can be inferred from its nature and
circumstance that there was an intention of granting it to the debtor, the courts shall fix the
duration of such a term.
The courts shall also fix the duration of a term when it may have been left at the will of the
debtor.
The obligation in question seems to leave the duration of the period for the payment thereof
to the will of the debtor. It appears also that it was the intention of the instrument to give the
debtor time within which to pay the obligation. In such cases this court has held, on several
occasions, that the obligation is not due and payable until an action has been commenced by
the mortgagee against the mortgagor for the purpose of having the court fix the date on and
after which the instrument shall be payable and the date of maturity is fixed in pursuance
thereof. The case of Eleizegui vs. The Manila Lawn Tennis Club (2 Phil. Rep., 309), in which the
opinion was written by the Chief Justice of the court, is the leading case upon the subject. In
that case the question was over the duration of a lease concerning "a piece of land for a fixed
consideration and to endure at the will of the lessee." In discussing the question the court
said (p. 310):
With respect to the term of the lease the present question has arisen. In its discussion three
theories have been presented: One which makes the duration depend upon the will of the
lessor, who, upon one month's notice given to the lessee, may terminate the lease so
stipulated; another which, on the contrary, makes it dependent upon the will of the lessee,
as stipulated; and the third, in accordance with which the right is reserved to the court to fix
the duration of the term.
The clause on which the case turns is as follows (p. 312):
Mr. Williamson, or whoever may succeed him as secretary of the club, may terminate this
lease whenever desired without other formality than that of giving a month's notice. The
owners of the land undertake to maintain the club as tenant as long as the latter shall see fit.
Considering the case the court said (314):
The Civil Code has made provision for such a case in all kinds of obligations. In speaking in
general of obligations with a term it has supplied the deficiency of the former law with respect
to the "duration of the term when it has been left to the will of the debtor," and provides that
in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid
down by the authorities, there is always a creditor who is entitled to demand the
performance, and a debtor upon whom rests the obligation to perform the undertaking. In
bilateral contracts the contracting parties are mutually creditors and debtors. Thus, in this
contract of lease, the lessee is the creditor with respect to the rights enumerated in article
1554, and is the debtor with respect to the obligations imposed by articles 1555 and 1561.
The term within which performance of the latter obligation is due is what has been left to the
will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that bywhich it is
sought to be obtain from the judge the determination of this period, and not the unlawful
detainer action which has been brought — an action which presupposes the expiration of the
term and makes it the duty of the judge to simply the decree the eviction. To maintain the
latter action it is sufficient to show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be granted in the former action it is
necessary for the judge to look into the character and conditions of the mutual undertakings
with a view to supplying the lacking element of a time at which the lease is to expire.
The case of Barreto vs. The City of Manila (7 Phil. Rep., 416) dealt with a case where the terms
of a donation did not fix the time of the performance of the condition placed upon the
donation, and the court held that the period must be determined by the court in a proper
action in accordance with article 1128 of the Civil Code, saying (p. 420):
The contract having fixed no period in which the condition should be fulfilled, the provisions
of article 1128 of the Civil Code are applicable and it is the duty of the court to fix a suitable
time for its fulfillment. Eleizegui vs. The Manila Lawn Tennis Club, 2 Phil. Rep., 309. (11 Phil.
Rep., 624.1)
In the case of Levy Hermanos vs. Paterno (18 Phil. Rep., 353) the court said (p. 355):
The defendant having bound himself to pay his debt to the plaintiffs in partial payments, as
set forth in the note in question, it is seen that the obligation is one of payment by
installments, since its fulfillment cannot be required immediately nor does its existence
depend upon the happening of any particular event. But, thought the obligation is one of
payment by installments, nevertheless no fixed day was specified for its fulfillment, so that
the period for payment is undetermined or was not fixed by the parties when they executed
the contract. Besides, it is evident that the term for payment was granted for the exclusive
benefit of the defendant and for his own convenience, as by the language of the document,
the plaintiffs gained nothing by the fact that the debt was not immediately demandable. Nor
was any interest stipulated on the debt during the time that it should remain unpaid by the
defendant. For the foregoing reasons, and in whatever manner this case be considered, it is
unquestionable that it falls within the provisions of article 1128 of the Civil Code. . . .
The obligation being manifestly defective with regard to the duration of the period granted
to the debtor, that is, to the defendant, that defect must be cured by the courts through
judicial decision which shall determine the said duration, under the power expressly granted
them for such purpose by the legal provisions just above transcribed.
The trial court, therefore, acted in accordance with the law in exercising the said power in the
present case, by fixing the duration of the period on the basis that the payment of the debt
should be made at the rate of P200 a month; and we see no abuse of judicial discretion of
fixing such a rate, considering the importance of the obligation and the absence of any
stipulation of interest in favor of the creditors.
From these decisions it is clear that the instrument sued upon in the case at bar is one which
leaves the period of payment at the will of the mortgagor. Such being the case, an action
should have been brought for the purpose of having the court set a date on which the
instrument should become due and payable. Until such action was prosecuted no suit could
be brought for the recovery of the amount named in the instrument. It is, therefore, clear
that this action is premature. The instrument has been sued upon before it is due. The action
must accordingly be dismissed.
Ordinarily when an action of this sort is dismissed the plaintiff may at once begin his action
for the purpose of fixing a date upon which the instrument shall become due. From the
undisputed facts in this case and from the facts and conditions that very probably cannot be
charged hereafter, it is our present opinion that such action is itself prescribed. Section 38 of
the Code of Civil Procedure reads as follows:
SEC. 38. To what this chapter does not apply. — This chapter shall not apply to actions already
commenced, or to cases wherein the right of action has already accrued; but the statutes in
force when the action or right of action accrued shall be applicable to such cases according to
the subject of the action and without regard to the form; nor shall this chapter apply in the
case of a continuing and subsisting trust, nor to an action by the vendee of real property in
possession thereof to obtain the conveyance of it: Provided, nevertheless, That all rights of
action which have already accrued, except those named in the last preceding paragraph, must
be vindicated by the commencement of an action or proceeding to enforce the same within
ten years after this Act comes into effect.
This section evidently covers all rights of action of whatever kind or nature, except those
which have special limitations and are referred to in subsequent sections. A right of action to
fix a day for the determination of the time of payment is included within the terms of this
section. The mortgage in question having left the period of payment to the will of the
mortgagor, an action could have been maintained by the mortgagee at any time after its
execution for the naming of a date on which the instrument must be paid in full. The right of
action accrued as soon as the instrument was executed. Such action, therefore, falls within
the provisions of section 38, and not having been commenced within the ten years next
following the 1st day of October, 1901, such action cannot, under the facts as they now
appear, be maintained.
While the expression of an opinion as to the prescription of the action to fix a date for the
maturity of the obligation in question is unnecessary for a complete resolution of the case
before us, still we do not hesitate to express that opinion for the reasons which we have
heretofore given in one or two cases, particularly that of Lichauco vs. Limjuco(19 Phil. Rep.,
12). That case went off upon the finding of the court that the action could not be maintained
by the plaintiff, Lichauco, on behalf of his brothers and sisters and upon that finding the
complaint was dismissed. While the merits in that case were not necessarily before us, we
nevertheless took up the facts as they appeared and expressed our opinion of what the result
of the case would be upon the merits if it subsequently came before us upon the same facts.
In that case we said (p. 17):
We believe, however, that, for the information of the parties interested in the subject matter
of this action and to the end that unnecessary litigation may be avoided, the opinion of the
court should be given upon the facts presented in this case. Knowing what our opinion is upon
these facts it is probable that the heirs will not care to pursue the litigation further unless,
which is somewhat unlikely, they are able to present new facts. We, therefore, proceed to a
consideration of the case upon the merits as presented by the record.
The judgment is affirmed, with the costs against the appellant. So ordered.
G.R. No. 124922 June 22, 1998
JIMMY CO, doing business under the name & style DRAGON METAL
MANUFACTURING, petitioner,
vs.
COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION, respondents.
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model 1 to private
respondent — which is engaged in the sale, distribution and repair of motor vehicles — for
the following job repair services and supply of parts:
— Bleed injection pump and all nozzles;
— Adjust valve tappet;
— Change oil and filter;
— Open up and service four wheel brakes, clean and adjust;
— Lubricate accelerator linkages;
— Replace aircon belt; and
— Replace battery 2
Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and
supplied in accordance with the job contract. After petitioner paid in full the repair bill in the
amount of P1,397.00 3private respondent issued to him a gate pass for the release of the
vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as its
battery was weak and was not yet replaced. Left with no option, petitioner himself bought a
new battery nearby and delivered it to private respondent for installation on the same day.
However, the battery was not installed and the delivery of the car was rescheduled to July 24,
1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of July
24, 1990, he was told that it was carnapped earlier that morning while being road-tested by
private respondent's employee along Pedro Gil and Perez Streets in Paco, Manila. Private
respondent said that the incident was reported to the police.
Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit
for damages against private respondent anchoring his claim on the latter's alleged negligence.
For its part, private respondent contended that it has no liability because the car was lost as
result of a fortuitous event — the carnapping. During pre-trial, the parties agreed that:
(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the
defendent is P332,500.00 excluding accessories which were installed in the vehicle by the
plaintiff consisting of four (4) brand new tires, magwheels, stereo speaker, amplifier which
amount all to P20,000.00. It is agreed that the vehicle was lost on July 24, 1990 "approximately
two (2) years and five (5) months from the date of the purchase." It was agreed that the
plaintiff paid the defendant the cost of service and repairs as early as July 21, 1990 in the
amount of P1,397.00 which amount was received and duly receipted by the defendant
company. It was also agreed that the present value of a brand new vehicle of the same type
at this time is P425,000.00 without accessories. 4
They likewise agreed that the sole issue for trial was who between the parties shall bear the
loss of the vehicle which necessitates the resolution of whether private respondent was
indeed negligent. 5 After trial, the court a quo found private respondent guilty of delay in the
performance of its obligation and held it liable to petitioner for the value of the lost vehicle
and its accessories plus interest and attorney's fees. 6 On appeal, the Court of Appeals (CA)
reversed the ruling of the lower court and ordered the dismissal of petitioner's damage
suit. 7 The CA ruled that: (1) the trial court was limited to resolving the issue of negligence as
agreed during pre-trial; hence it cannot pass on the issue of delay; and (2) the vehicle was lost
due to a fortuitous event.
In a petition for review to this Court, the principal query raised is whether a repair shop can
be held liable for the loss of a customer's vehicle while the same is in its custody for repair or
other job services?
The Court resolves the query in favor of the customer. First, on the technical aspect involved.
Contrary to the CA' s pronouncement, the rule that the determination of issues at a pre-trial
conference bars the consideration of other issues on appeal, except those that may involve
privilege or impeaching matter, 8 is inapplicable to this case. The question of delay, though
not specifically mentioned as an issue at the pre-trial may be tackled by the court considering
that it is necessarily intertwined and intimately connected with the principal issue agreed
upon by the parties, i.e., who will bear the loss and whether there was negligence. Petitioner's
imputation of negligence to private respondent is premised on delay which is the very basis
of the former's complaint. Thus, it was unavoidable for the court to resolve the case,
particularly the question of negligence without considering whether private respondent was
guilty of delay in the performance of its obligation.
On the merits. It is a not defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due to carnapping.
Carnapping per secannot be considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping,
does not automatically give rise to a fortuitous event. To be considered as such, carnapping
entails more than the mere forceful taking of another's property. It must be proved and
established that the event was an act of God or was done solely by third parties and that
neither the claimant nor the person alleged to be negligent has any participation. 9 In
accordance with the Rules of evidence, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it 10 — which in this case is the private respondent.
However, other than the police report of the alleged carnapping incident, no other evidence
was presented by private respondent to the effect that the incident was not due to its fault.
A police report of an alleged crime, to which only private respondent is privy, does not suffice
to establish the carnapping. Neither does it prove that there was no fault on the part of private
respondent notwithstanding the parties' agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the pissibility of fault or negligence on the part of
private respondent.
Even assuming arguendo that carnapping was duly established as a fortuitous event, still
private respondent cannot escape liability. Article 1165 11 of the New Civil Code makes an
obligor who is guilty of delay responsible even for a fortuitous event until he has effected the
delivery. In this case, private respondent was already in delay as it was supposed to deliver
petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled
delivery does not defeat his claim as private respondent had already breached its obligation.
Moreover, such accession cannot be construed as waiver of petitioner's right to hold private
respondent liable because the car was unusable and thus, petitioner had no option but to
leave it.
Assuming further that there was no delay, still working against private respondent is the legal
presumption under Article 1265 that its possession of the thing at the time it was lost was due
to its fault. 12 This presumption is reasonable since he who has the custody and care of the
thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show
that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple
fact that private respondent was in possession of the vehicle at the time it was lost. In this
case, private respondent's possession at the time of the loss is undisputed. Consequently, the
burden shifts to the possessor who needs to present controverting evidence sufficient enough
to overcome that presumption. Moreover, the exempting circumstances — earthquake,
flood, storm or other natural calamity — when the presumption of fault is not applicable 13 do
not concur in this case. Accordingly, having failed to rebut the presumption and since the case
does not fall under the exceptions, private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code,
liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation
requires the assumption of risk". 14 Carnapping is a normal business risk for those engaged in
the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop
since the car was entrusted to it. That is why, repair shops are required to first register with
the Department of Trade and Industry (DTI) 15 and to secure an insurance policy for the "shop
covering the property entrusted by its customer for repair, service or maintenance" as a pre-
requisite for such registration/accreditation.16 Violation of this statutory duty constitutes
negligence per se.17 Having taken custody of the vehicle private respondent is obliged not only
to repair the vehicle but must also provide the customer with some form of security for his
property over which he loses immediate control. An owner who cannot exercise the seven
(7) juses or attributes of ownership — the right to possess, to use and enjoy, to abuse or
consume, to accessories, to dispose or alienate, to recover or vindicate and to the fruits — 18 is
a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner
would leave the latter at the mercy of the former. Moreover, on the assumption that private
respondent's repair business is duly registered, it presupposes that its shop is covered by
insurance from which it may recover the loss. If private respondent can recover from its
insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no
fault can be attributed. Otherwise, if the shop is not registered, then the presumption of
negligence applies.
One last thing. With respect to the value of the lost vehicle and its accessories for which the
repair shop is liable, it should be based on the fair market value that the property would
command at the time it was entrusted to it or such other value as agreed upon by the parties
subsequent to the loss. Such recoverable value is fair and reasonable considering that the
value of the vehicle depreciates. This value may be recovered without prejudice to such other
damages that a claimant is entitled under applicable laws.
WHEREFORE, premises considered, the decision of the Court Appeals is REVERSED and SET
ASIDE and the decision of the court a quo is REINSTATED.
Footnotes
6 The dispositive portion of the trial court's decision reads:
"Accordingly, this Court finds the defendant liable to the plaintiff for the value of the vehicle
in question. Defendant is ordered to pay plaintiff the value of the vehicle in the amount of
Three Hundred Thirty Two Thousand Five Hundred Pesos representing the acquisition cost of
the vehicle plus the amount of Twenty Thousand Pesos representing the cost of the four
brand new tires, magwheels, pioneer stereo speakers, air-conditioner, which were installed
by the plaintiff in his vehicle after the plaintiff bought the vehicle from the defendant. While
it is true that plaintiff purchased from the defendant the vehicle about two years and five
months before the same was lost, and therefore the vehicle had already depreciated from its
original value at the time it was lost, it is also true as agreed upon by the parties in the pre-
trial, that the present value of brand new vehicle of the same type has at this time increased
to Four Hundred Thousand Pesos without accessories, so whatever is awarded by this Court
to the plaintiff in this decision would not even be sufficient to purcahse a brand new vehicle
at the present prices. This Court believes that the amount awarded to the plaintiff above-
stated represents a fair compromise, considering the depreciation of the vehicle from the
time it was purchased and to the time it was lost and which is off-seted by the increase cost
of a brand new vehicle at the present time. Defendant is likewise ordered to pay plaintiff legal
interest in the amount above-stated from the date of the finality of this decision until full
payment of the obligation. Further, defendant is ordered to pay plaintiff Ten Thousand Pesos
by attorney's fees." (sic was not included so as no to clutter the narration); Rollo, pp. 78, 94.
7 CA Decision promulgated August 31, 1995 penned by Justice Austria-Martinez with Justices
Lantin and Salas, concurring; Rollo, pp. 26-32.
8 Caltex v. CA, 212 SCRA 448; Bergado v. CA, 173 SCRA 497 citing Permanent Concrete
Products, Inc. v. Teodoro, 26 SCRA 332. In the Bergado case (p. 501), the court reiterated the
rule that the specific exceptions to the general rule to be observed in pre-trials emphasized
in Gicano v. Gegato, 157 SCRA 140 is "that trial court have authority and discretion to dismiss
an action on the ground of prescription when the parties' pleadings or other facts on record
show it to be indeed time-barred; and it may do so on the basis of a motion to dismiss, or an
answer which sets up such ground as an affirmative defense; or even if the ground is alleged
after judgment on the merits, as in a motion for reconsideration; or even if the defense has
not been asserted at all, as where no statement thereof is found in the pleadings, or where a
defendant had been declared in default. What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily
apparent on the record; either in the averments of the plaintiff's, or otherwise established by
the evidence."
9 Lasam v. Smith, 45 Phil. 657; General Enterprises, Inc., v. Llianga Bay Logging Co., Inc., 120
Phil. 702; Tugade v. CA, 85 SCRA 226.
10 Sec. 1, Rule 131, 1989 Revised Rules on Evidence provides: "Burden of proof. — Burden of
proof is the duty of a party to present evidence on he facts in issue necessary to
establish hisclaim or defense by the amount of evidence required by law." (Emphasis
supplied).
11 Art. 1165. xxx xxx xxx
If the obligor delays, or has promised to deliver the same thing to two or more persons who
do not have the same interest, he shall be responsible for fortuitous event until he has
effected the delivery. (Emphasis supplied).
12 Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed
that the loss was due to his fault, unless there is proof to the contrary, and without prejudice
to the provisions of Article 1165. This presumption does not apply in case of earthquake, flood,
storm, or other natural calamity. (Emphasis supplie).
13 New Civil Code, Article 1265.
14 Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which, though foreseen,
were inevitable.
Art. 1262. xxx xxx xxx
When by law or stipulation, the obligor is liable even for fortuitous event, the loss of the thing
does not extinguish the obligation, and he shall be responsible for damages. The same rule
applies when the nature of the obligation requires the assumption of risk. (Emphasis supplied).
1.3 Copy of Insurance Policy of the shop covering the property entrusted by its customer for
repair, service or maintenance together with a copy of the official receipt covering the
full payment of premium;
1.4 Copy of Bond referred to under Section 7, Rule III of this Rules and Regulations;
1.5 Written service warranty in the form prescribed by the Bureau;
1.6 Certification issued by the Securities and Exchange Commission and Articles of
Incorporation or Partnership in case of corporation or partnership;
1.7 Such other additional documents which the director may require from time to time.
Sec. 8. INSURANCE POLICY
The insurance policy for the following risks like theft, pilferage, fire, flood and loss should
cover exclusively the machines, motor vehicles, heavy equipment engines electronics,
electrical, airconditioners, refrigerators, office machines, and data processing equipment,
medical and dental equipment, other consumer mechanical and industrial equipment stored
for repair and/or in the premises of the applicant." (Emphasis supplied).

15 P.D. 1572 (EMPOWERING THE SECRETARY OF TRADE TO REGULATE AND CONTROL THE
17 Cipriano v. CA, 263 SCRA 711 citing F.F. Cruz and Co., Inc. v. CA, 164 SCRA 731 and Teague
OPERATION OF SERVICE AND REPAIR ENTERPRISES FOR MOTOR VEHICLES, HEAVY
v. Fernandez, 51 SCRA 181.
EQUIPMENT AND ENGINES AND ENGINEERING WORKS; ELECTRONICS, ELECTRICAL,
AIRCONDITIONING AND REFRIGERATION; OFFICE EQUIPMENT; MEDICAL AND DENTAL
EQUIPMENT; AND OTHER CONSUMER MECHANICAL AND INDUSTRIAL EQUIPMENT; 18 Paras, Civil Code of the Philippines, Annotated, 1989 ed., vol. II, p. 70; De Leon, Comments
APPLIANCES OR DEVICES, INCLUDING THE TECHNICAL PERSONNEL EMPLOYED THEREIN). and Cases on Property, 1983 ed. p. 77; See also Article 428 of the New Civil Code which states
that "The owner has the right to enjoy and dispose of a thing, without other limitations than
those established by law.
Section 1. Accreditation. All enterprises and technical personnel employed therein engaged
in the service and repair of motor vehicles, heavy equipment, engines and engineering works;
electronics, electrical, air-conditioning and refrigeration; office equipment; medical and "The owner has also a right of action against the holder and possessor of the thing in order to
dental equipment; and other consumer industrial electro-mechanical, chemical and gaseous recover it."
equipment, machinery, appliances or devices should apply for accreditation with the
Department of Trade within ninety (90) days from the promulgation of this decree and should
apply for renewal on or before the 31st day of January of every year thereafter. No such
service or repair enterprices and technical personnel shall be licensed or permitted to operate
in the Philippines for the first time without being accredited by the Department of Trade.

16 DTI Ministry Order No. 32, Rule III

Sec. 1. REQUIREMENTS FOR ACCREDITATION:

(1) Enterprise applying for original accreditation shall submit the following:

1.1 List of machineries/equipment/tools in useful condition;

1.2 List of certified engineers/accredited technicians mechanics with their personal data;
G.R. No. 159617 August 8, 2007 On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a
complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners, indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary
vs. damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035.
LULU V. JORGE and CESAR JORGE, respondents.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the
DECISION pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that
petitioner corporation had exercised due care and diligence in the safekeeping of the articles
pledged with it and could not be made liable for an event that is fortuitous.
AUSTRIA-MARTINEZ, J.:

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam)
and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision1 of the
Court of Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R.
CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent
Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre
Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash
and jewelry were found inside the pawnshop vault. The incident was entered in the police
blotter of the Southern Police District, Parañaque Police Station as follows:
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering
that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the
motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing
respondents’ complaint as well as petitioners’ counterclaim. The RTC held that petitioner
Sicam could not be made personally liable for a claim arising out of a corporate transaction;
that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted
jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of a
stockholder.

Investigation shows that at above TDPO, while victims were inside the office, two (2) male
The RTC further ruled that petitioner corporation could not be held liable for the loss of the
unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went
pawned jewelry since it had not been rebutted by respondents that the loss of the pledged
straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric
pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that
wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and
robbery is a fortuitous event which exempts the victim from liability for the loss, citing the
ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted
case of Austria v. Court of Appeals;7 and that the parties’ transaction was that of a pledgor
pawned jewelries items mentioned above.
and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not
responsible for those events which could not be foreseen.
Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified
plate number.3
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the
CA reversed the RTC, the dispositive portion of which reads as follows:
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the
loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987,
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated
respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that
January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and
when the robbery happened, all jewelry pawned were deposited with Far East Bank near the
SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry
pawnshop since it had been the practice that before they could withdraw, advance notice
amounting to P272,000.00, and attorney' fees of P27,200.00.8
must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent
Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
In finding petitioner Sicam liable together with petitioner corporation, the CA applied the
doctrine of piercing the veil of corporate entity reasoning that respondents were misled into
thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the
pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was
no indication on the pawnshop tickets that it was the petitioner corporation that owned the
pawnshop which explained why respondents had to amend their complaint impleading
petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it should
take steps to secure and protect the pledged items and should take steps to insure itself
against the loss of articles which are entrusted to its custody as it derives earnings from the
pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since
the robbery incident happened in 1961 when the criminality had not as yet reached the levels
attained in the present day; that they are at least guilty of contributory negligence and should
be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks
in that those engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to
respondents for the loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution dated August 8, 2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT
ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT
WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS
HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT
ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT
ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON
RECORD.9
Anent the first assigned error, petitioners point out that the CA’s finding that petitioner Sicam
is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction
of the arguments set out on pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief
suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that
Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and
therefore, the CA cannot rule against said conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and litigated in
the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate
veil since a corporation has a personality distinct and separate from its individual stockholders
or members.
Anent the second error, petitioners point out that the CA finding on their negligence is
likewise an unedited reproduction of respondents’ brief which had the following defects:
(1) There were unrebutted evidence on record that petitioners had observed the diligence
required of them, i.e, they wanted to open a vault with a nearby bank for purposes of
safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules
provide that they can only store the pawned articles in a vault inside the pawnshop premises
and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the
pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance
companies refused to cover pawnshops and banks because of high probability of losses due
to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of
robbery was exonerated from liability for the sum of money belonging to others and lost by
him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties
subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact reproductions of the
arguments raised in respondents’ (appellants’) brief filed with the CA, we find the same to be
not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and
distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the
Constitution. The discretion to decide a case one way or another is broad enough to justify
the adoption of the arguments put forth by one of the parties, as long as these are legally
tenable and supported by law and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law
committed by the appellate court. Generally, the findings of fact of the appellate court are
deemed conclusive and we are not duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a quo.12 This rule, however, is not without
exceptions, such as where the factual findings of the Court of Appeals and the trial court are
conflicting or contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records, we find no justification to absolve
petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable
together with petitioner corporation. The rule is that the veil of corporate fiction may be
pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The
theory of corporate entity was not meant to promote unfair objectives or otherwise to shield
them.15
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry,
the pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all
the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words
"Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in
April 1987. The receipts issued after such alleged incorporation were still in the name of
"Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the pawnshop was owned solely by
petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15, 1987
addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the
pawnshop notwithstanding the alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had alleged in their
Amended Complaint that petitioner corporation is the present owner of the pawnshop, the
CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made
by a party in the course of the proceedings in the same case, does not require proof. The
admission may be contradicted only by showing that it was made through palpable mistake
or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party making it and does
not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission
was made through palpable mistake, and (2) when it is shown that no such admission was in
fact made. The latter exception allows one to contradict an admission by denying that he made
such an admission.17
The Committee on the Revision of the Rules of Court explained the second exception in this
wise:
x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of
context," then the one making the "admission" may show that he made no "such" admission,
or that his admission was taken out of context.
x x x that the party can also show that he made no "such admission", i.e., not in the sense in
which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states that the admission
may be contradicted by showing that "no admission was made," the rule would not really be
providing for a contradiction of the admission but just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, they did so only because petitioner Sicam
alleged in his Answer to the original complaint filed against him that he was not the real party-
in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam
and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry
and ascribed to both the failure to observe due diligence commensurate with the business
which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss Amended
Complaint, insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint because the pawnshop
tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In
paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint.
He merely added "that defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in the subject
transactions in this case which was the cause of the instant action. He cannot now ask for the
dismissal of the complaint against him simply on the mere allegation that his pawnshop
business is now incorporated. It is a matter of defense, the merit of which can only be reached
after consideration of the evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents' Amended Complaint was taken
"out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that
petitioner Sicam continued to issue pawnshop receipts under his name and not under the
corporation's name militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of
corporate fiction of petitioner corporation, as it was not an issue raised and litigated before
the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real
party-in-interest because since April 20, 1987, the pawnshop business initiated by him was
incorporated and known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner
Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the
real party in interest against whom the complaint should be directed.20 In fact, he
subsequently moved for the dismissal of the complaint as to him but was not favorably acted
upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously,
by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the
reason that he cannot be made personally liable for a claim arising from a corporate
transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended
complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop."
It has been held that " as a consequence of the separate juridical personality of a corporation,
the corporate debt or credit is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner
Sicam is personally liable is inextricably connected with the determination of the question
whether the doctrine of piercing the corporate veil should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned articles in their
possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not
negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen or which, though foreseen,
were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is
therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty
to foresee the happening is not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee the event
that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c)
the occurrence must be such as to render it impossible for the debtor to fulfill obligations in
a normal manner; and, (d) the obligor must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him who invokes
it.24 And, in order for a fortuitous event to exempt one from liability, it is necessary that one
has committed no negligence or misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who has failed to
take steps to forestall the possible adverse consequences of such a loss. One's negligence may
have concurred with an act of God in producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the damage or injury was a fortuitous
event would not exempt one from liability. When the effect is found to be partly the result of
a person's participation -- whether by active intervention, neglect or failure to act -- the whole
occurrence is humanized and removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time
of the robbery. He likewise testified that when he started the pawnshop business in 1983, he
thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables
but was discouraged by the Central Bank since pawned articles should only be stored in a vault
inside the pawnshop. The very measures which petitioners had allegedly adopted show that
to them the possibility of robbery was not only foreseeable, but actually foreseen and
anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of
fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the
loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the
possibility of negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court
held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping
per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and
forcefully taken from another's rightful possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be considered as such, carnapping entails more
than the mere forceful taking of another's property. It must be proved and established that the
event was an act of God or was done solely by third parties and that neither the claimant nor
the person alleged to be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who
invokes it — which in this case is the private respondent. However, other than the police report
of the alleged carnapping incident, no other evidence was presented by private respondent
to the effect that the incident was not due to its fault. A police report of an alleged crime, to
which only private respondent is privy, does not suffice to establish the carnapping. Neither
does it prove that there was no fault on the part of private respondent notwithstanding the
parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose
the possibility of fault or negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police report of the Parañaque Police Station
on the robbery committed based on the report of petitioners' employees which is not
sufficient to establish robbery. Such report also does not prove that petitioners were not at
fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that
petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of
the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and subsidiarily, the provisions on pledge,
mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor
shall take care of the thing pledged with the diligence of a good father of a family. This means
that petitioners must take care of the pawns the way a prudent person would as to his own
property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of time and of the place. When negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do; or the doing of something which a prudent and reasonable man
would not do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and
caution that an ordinarily prudent person would have used in the same situation. Petitioners
were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam
testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when according to you
there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there was a
security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon
and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque
they pretended to pawn an article in the pawnshop, so one of my employees allowed him to
come in and it was only when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The
combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why the
robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the operation of the
pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to
protect the pawnshop from unlawful intrusion. There was no clear showing that there was
any security guard at all. Or if there was one, that he had sufficient training in securing a
pawnshop. Further, there is no showing that the alleged security guard exercised all that was
necessary to prevent any untoward incident or to ensure that no suspicious individuals were
allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since
it is quite impossible that he would not have noticed that the robbers were armed with caliber
.45 pistols each, which were allegedly poked at the employees.33 Significantly, the alleged
security guard was not presented at all to corroborate petitioner Sicam's claim; not one of
petitioners' employees who were present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is
clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the
circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open,
the combination was already off. Considering petitioner Sicam's testimony that the robbery
took place on a Saturday afternoon and the area in BF Homes Parañaque at that time was
quiet, there was more reason for petitioners to have exercised reasonable foresight and
diligence in protecting the pawned jewelries. Instead of taking the precaution to protect
them, they let open the vault, providing no difficulty for the robbers to cart away the pawned
articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking
steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops,
which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No.
114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the
pawns pledged to it must be insured against fire and against burglary as well as for the
latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect
on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a
pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central
Bank considered it not feasible to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted
amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry
in which case it was error for the CA to consider it as a factor in concluding that petitioners
were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the
diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct
varies with the nature of the situation in which he is placed and the importance of the act
which he is to perform.34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v.
Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings,
where the victims of robbery were exonerated from liability, find no application to the present
case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold
on commission basis, but which Abad failed to subsequently return because of a robbery
committed upon her in 1961. The incident became the subject of a criminal case filed against
several persons. Austria filed an action against Abad and her husband (Abads) for recovery of
the pendant or its value, but the Abads set up the defense that the robbery extinguished their
obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC
decision holding that the fact of robbery was duly established and declared the Abads not
responsible for the loss of the jewelry on account of a fortuitous event. We held that for the
Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the
Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place
without any concurrent fault on the debtor’s part, and this can be done by preponderance of
evidence; that to be free from liability for reason of fortuitous event, the debtor must, in
addition to the casus itself, be free of any concurrent or contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at the time the Decision was
promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against
persons and property that rendered travel after nightfall a matter to be sedulously avoided
without suitable precaution and protection; that the conduct of Maria Abad in returning alone
to her house in the evening carrying jewelry of considerable value would have been
negligence per se and would not exempt her from responsibility in the case of robbery.
However we did not hold Abad liable for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in
1971.
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent
and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a
nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was
committed, we found petitioners negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate
Beach Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he
went to Manila to encash two checks covering the wages of the employees and the operating
expenses of the project. However for some reason, the processing of the check was delayed
and was completed at about 3 p.m. Nevertheless, he decided to encash the check because
the project employees would be waiting for their pay the following day; otherwise, the
workers would have to wait until July 5, the earliest time, when the main office would open.
At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive
early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the
night there, and leave for Ternate the following day. He chose the second option, thinking it
was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While
the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by
Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased
the robbers and caught up with one robber who was subsequently charged with robbery and
pleaded guilty. The other robber who held the stolen money escaped. The Commission on
Audit found Hernandez negligent because he had not brought the cash proceeds of the checks
to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling
of funds. We held that Hernandez was not negligent in deciding to encash the check and
bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour
for the following reasons: (1) he was moved by unselfish motive for his co-employees to
collect their wages and salaries the following day, a Saturday, a non-working, because to
encash the check on July 5, the next working day after July 1, would have caused discomfort
to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao
as a safer destination, being nearer, and in view of the comparative hazards in the trips to the
two places, said decision seemed logical at that time. We further held that the fact that two
robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the
presence of other passengers could not be said to be a result of his imprudence and
negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case
took place in the pawnshop which is under the control of petitioners. Petitioners had the
means to screen the persons who were allowed entrance to the premises and to protect itself
from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring
that the robbers were prevented from entering the pawnshop and for keeping the vault open
for the day, which paved the way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue
to Monumento when her handbag was slashed and the contents were stolen by an
unidentified person. Among those stolen were her wallet and the government-issued cellular
phone. She then reported the incident to the police authorities; however, the thief was not
located, and the cellphone was not recovered. She also reported the loss to the Regional
Director of TESDA, and she requested that she be freed from accountability for the cellphone.
The Resident Auditor denied her request on the ground that she lacked the diligence required
in the custody of government property and was ordered to pay the purchase value in the total
amount of P4,238.00. The COA found no sufficient justification to grant the request for relief
from accountability. We reversed the ruling and found that riding the LRT cannot per se be
denounced as a negligent act more so because Cruz’s mode of transit was influenced by time
and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time
for her 3 pm meeting; that any prudent and rational person under similar circumstance can
reasonably be expected to do the same; that possession of a cellphone should not hinder one
from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the
risk of theft would have also been present; that because of her relatively low position and pay,
she was not expected to have her own vehicle or to ride a taxicab; she did not have a
government assigned vehicle; that placing the cellphone in a bag away from covetous eyes
and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling
on board the LRT; that the records did not show any specific act of negligence on her part and
negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they
were negligent in not exercising the precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated
March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
G.R. No. L-29640 June 10, 1971
GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.
REYES, J.B.L., J.:
Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in
CA-G.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of
goods for sale) it is necessary that there be prior conviction for robbery before the loss of the
article shall exempt the consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from
Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on
commission basis or to be returned on demand. On 1 February 1961, however, while walking
home to her residence in Mandaluyong, Rizal, Abad was said to have been accosted by two
men, one of whom hit her on the face, while the other snatched her purse containing jewelry
and cash, and ran away. Among the pieces of jewelry allegedly taken by the robbers was the
consigned pendant. The incident became the subject of a criminal case filed in the Court of
First Instance of Rizal against certain persons (Criminal Case No. 10649, People vs. Rene
Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria
brought in the Court of First Instance of Manila an action against her and her husband for
recovery of the pendant or of its value, and damages. Answering the allegations of the
complaint, defendants spouses set up the defense that the alleged robbery had extinguished
their obligation.
After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants
spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest
thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held
that defendants failed to prove the fact of robbery, or, if indeed it was committed, that
defendant Maria Abad was guilty of negligence when she went home without any companion,
although it was already getting dark and she was carrying a large amount of cash and valuables
on the day in question, and such negligence did not free her from liability for damages for the
loss of the jewelry.
Not satisfied with his decision, the defendants went to the Court of Appeals, and there
secured a reversal of the judgment. The appellate court overruling the finding of the trial court
on the lack of credibility of the two defense witnesses who testified on the occurrence of the
robbery, and holding that the facts of robbery and defendant Maria Abad's possesion of the
pendant on that unfortunate day have been duly published, declared respondents not
responsible for the loss of the jewelry on account of a fortuitous event, and relieved them
from liability for damages to the owner. Plaintiff thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in finding that there
was robbery in the case, although nobody has been found guilty of the supposed crime. It is
petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve
the obligor from his obligation under a contract, pursuant to Article 1174 of the new Civil
Code, there ought to be prior finding on the guilt of the persons responsible therefor. In short,
that the occurrence of the robbery should be proved by a final judgment of conviction in the
criminal case. To adopt a different view, petitioner argues, would be to encourage persons
accountable for goods or properties received in trust or consignment to connive with others,
who would be willing to be accused in court for the robbery, in order to be absolved from civil
liability for the loss or disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a
person from responsibility, it is necessary that (1) the event must be independent of the
human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor
must be free of participation in or aggravation of the injury to the creditor.1 A fortuitous event,
therefore, can be produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of
man, such as war, attack by bandits, robbery,2 etc., provided that the event has all the
characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and
if it were really true that the pendant, which she was obliged either to sell on commission or
to return to petitioner, were taken during the robbery, then the occurrence of that fortuitous
event would have extinguished her liability. The point at issue in this proceeding is how the
fact of robbery is to be established in order that a person may avail of the exempting provision
of Article 1174 of the new Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which, though foreseen,
were inevitable.
It may be noted the reform that the emphasis of the provision is on the events, not on the
agents or factors responsible for them. To avail of the exemption granted in the law, it is not
necessary that the persons responsible for the occurrence should be found or punished; it
would only be sufficient to established that the enforceable event, the robbery in this case
did take place without any concurrent fault on the debtor's part, and this can be done by
preponderant evidence. To require in the present action for recovery the prior conviction of
the culprits in the criminal case, in order to establish the robbery as a fact, would be to
demand proof beyond reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious
event, such debtor must, in addition to the cams itself, be free of any concurrent or
contributory fault or negligence.3 This is apparent from Article 1170 of the Civil Code of the
Philippines, providing that:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
It is clear that under the circumstances prevailing at present in the City of Manila and its
suburbs, with their high incidence of crimes against persons and property that renders travel
after nightfall a matter to be sedulously avoided without suitable precaution and protection,
the conduct of respondent Maria G. Abad, in returning alone to her house in the evening,
carrying jewelry of considerable value would be negligent per se and would not exempt her
from responsibility in the case of a robbery. We are not persuaded, however, that the same
rule should obtain ten years previously, in 1961, when the robbery in question did take place,
for at that time criminality had not by far reached the levels attained in the present day.
There is likewise no merit in petitioner's argument that to allow the fact of robbery to be
recognized in the civil case before conviction is secured in the criminal action, would prejudice
the latter case, or would result in inconsistency should the accused obtain an acquittal or
should the criminal case be dismissed. It must be realized that a court finding that a robbery
has happened would not necessarily mean that those accused in the criminal action should
be found guilty of the crime; nor would a ruling that those actually accused did not commit
the robbery be inconsistent with a finding that a robbery did take place. The evidence to
establish these facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals under review, the
petition in this case is hereby dismissed with costs against the petitioner.
G.R. No. 71871 November 6, 1989
TEODORO M. HERNANDEZ, petitioner,
vs.
THE HONORABLE CHAIRMAN, COMMISSION ON AUDIT, respondent.
Al-Fred O. Concepcion for petitioner.
CRUZ, J.:
It was one of those prosaic decisions not requiring deep thought or long deliberation. The
petitioner arrived at it almost as a matter of course, applying what he believed then to be
common sense. Little did he realize until later that it would cause him much anguish, even
endanger his life, and ultimately lead to this litigation. But such are the quirks of fate.
At the time of the incident in question, Teodoro M. Hernandez was the officer-in-charge and
special disbursing officer of the Ternate Beach Project of the Philippine Tourism Authority in
Cavite. As such, he went to the main office of the Authority in Manila on July 1, 1983, to encash
two checks covering the wages of the employees and the operating expenses of the Project.
He estimated that the money would be available by ten o'clock in the morning and that he
would be back in Ternate by about two o'clock in the afternoon of the same day. For some
reason, however, the processing of the checks was delayed and was completed only at three
o'clock that afternoon. The petitioner decided nevertheless to encash them because the
Project employees would be waiting for their pay the following day. He thought he had to do
this for their benefit as otherwise they would have to wait until the following Tuesday at the
earliest when the main office would reopen. And so, on that afternoon of July 1, 1983, he
collected the cash value of the checks and left the main office with not an insubstantial
amount of money in his hands. 1
What would he do with the money in the meantime? The petitioner had two choices, to wit:
(1) return to Ternate, Cavite, that same afternoon and arrive there in the early evening; or (2)
take the money with him to his house in Marilao, Bulacan, spend the night there, and leave
for Ternate the following morning. He opted for the second, thinking it the safer one. And so,
on that afternoon of July 1, 1983, at a little past three o'clock, he took a passenger jeep bound
for his house in Bulacan.
It was while the vehicle was along Epifanio de los Santos Avenue that two persons boarded
with knives in hand and robbery in mind. One pointed his weapon at the petitioner's side
while the other slit his pocket and forcibly took the money he was carrying. The two then
jumped out of the jeep and ran. Hernandez, after the initial shock, immediately followed in
desperate pursuit. He caught up with Virgilio Alvarez and overcame him after a scuffle. The
petitioner sustained injuries in the lip arms and knees. Alvarez was subsequently charged with
robbery and pleaded guilty. But the hold-upper who escaped is still at large and the stolen
money he took with him has not been recovered. 2
On July 5, 1983, the petitioner, invoking the foregoing facts, filed a request for relief from
money accountability under Section 638 of the Revised Administrative Code. This was
favorably indorsed by the General Manager of the Philippine Tourism Authority the same
day 3 and by its Corporate Auditor on July 27, 1983. 4 The Regional Director, National Capital
Region, of the Commission on Audit, made a similar recommendation on January 17, 1984,
and also absolved Hernandez of negligence. 5 On June 29, 1984, however, the Commission on
Audit, through then Chairman Francisco S. Tantuico, jr. denied the petitioner's request,
observing inter alia:
In the instant case, the loss of the P10,175.00 under the accountability of Mr. Hernandez can
be attributed to his negligence because had he brought the cash proceeds of the checks
(replenishment fund) to the Beach Park in Ternate, Cavite, immediately after encashment for
safekeeping in his office, which is the normal procedure in the handling of public funds, the
loss of said cash thru robbery could have been aborted. 6
In the petition at bar, Hernandez claims that the respondent Commission on Audit acted with
grave abuse of discretion in denying him relief and in holding him negligent for the loss of the
stolen money. He avers he has done only what any reasonable man would have done and
should not be held accountable for a fortuitous event over which he had no control.
The petitioner stresses that he decided to encash the checks in the afternoon of July 1, 1983,
which was a Friday, out of concern for the employees of the Project, who were depending on
him to make it possible for them to collect their pay the following day. July 2 and 3 being non-
working days and July 4 being a holiday, they could receive such payment only on the
following Tuesday unless he brought the encashed checks on July 1, 1983, and took it to
Ternate the following day.
On his decision to take the money home that afternoon instead of returning directly to
Ternate, he says that the first course was more prudent as he saw it, if only because his home
in Marilao, Bulacan, was much nearer than his office in Ternate, Cavite. The drive to Ternate
would take three hours, including a 30-minute tricycle ride along the dark and lonely Naic-
Ternate road; and as he would be starting after three o'clock in the afternoon, it was not likely
that he would reach his destination before nightfall. By contrast, the road to Marilao was
nearer and safer (or so he reasonably thought) and there was less risk involved in his taking
the money the following morning to Ternate rather than on that same afternoon of July 1.
The petitioner maintains that the likelihood of robbery during the time in question was
stronger in Ternate than in Marilao, so he should not be blamed if the robbery did occur while
he was on the way to Marilao that afternoon. That was a fortuitous event that could not have
reasonably been foreseen, especially on that busy highway. At any rate, he contends, he had
not been remiss in protecting the money in his custody; in fact, he immediately pursued the
hold-uppers and succeeded in catching one of them who was subsequently prosecuted and
convicted. It might have been different if he had simply resigned himself to the robbery and
allowed the culprits to go scot-free. But he acted. His action after the robbery only goes to
show his vigilance over the money entrusted to his custody and his readiness to protect it
even at great personal risk.
In his Comment, then Solicitor-General Sedfrey A. Ordonez supported the denial of the
petitioner's request, arguing that Hernandez was negligent in the safekeeping of the stolen
funds as correctly found by the Commission on Audit. 7 Later, however, his successor, Solicitor
General Francisco I. Chavez, submitted a Manifestation in Lieu of Memorandum in which he
sided with the petitioner, agreeing that Hernandez had not committed any negligence or,
assuming he was guilty of contributory negligence, had made up for it with his efforts to
retrieve the money and his capture of one of the robbers, who was eventually
convicted. 8 This prompted the respondent Commission on Audit to submit its own
memorandum.
The Commission on Audit insists in this memorandum that the petitioner should not be
relieved from his money accountability because it was his own negligence that led to the loss
of the cash he had sought to take not to Ternate in Cavite but to Marilao.
Its contention is that the petitioner should not have encashed the cheeks on July 1, 1983, as
the hour was already late and he knew he could not return to Ternate before nightfall.
Knowing this, he should have prudently deferred encashing the checks until the morning of
the next working day on July 5, 1983, when he could have safely taken the money to Ternate.
His alleged concern for the convenience of his fellow workers was not really a valid reason
because one of the checks he had encashed, in the greater amount of P6,964.00, was in fact
not for salaries and wages but for the operating expenses of the Project. There was no urgency
to encash that check. Moreover, if it is true that he had that much concern for the employees,
he should have gone to the main office earlier than July 1, 1983, since the vouchers
representing the checks had already been prepared as of June 29, 1983.
The memorandum concludes that in deciding to take the money with him to Marilao after
imprudently withdrawing it from the main office, the petitioner was assuming a risk from
which he cannot now be excused after the loss of the money as a result of the robbery to
which it was unreasonably exposed. In any event, the burden of proof in petitions for relief
from money accountability rests with the petitioner, who has not clearly established that the
loss of the money was not the result of his negligence.
Section 638 of the Revised Administrative Code reads as follows:
Section 638. Credit for loss occurring in transit or due to casualty — Notice to Auditor. — When
a loss of government funds or property occurs while the same is in transit or is caused by fire,
theft, or other casualty, the officer accountable therefor or having custody thereof shall
immediately notify the Auditor General, or the provincial auditor, according as a matter is
within the original jurisdiction of the one or the other, and within thirty days or such longer
period as the Auditor, or provincial auditor, may in the particular case allow, shall present his
application for relief, with the available evidence in support thereof. An officer who fails to
comply with this requirement shall not be relieved of liability or allowed credit for any such
loss in the settlement of his accounts.
This provision has since then been reiterated, with some slight modification, in Section 73 of
P.D. No. 1445, otherwise known as the "Government Auditing Code of the Philippines," which
was promulgated on June 11. 1978.
Applying the letter and spirit of the above-mentioned laws, and after considering the
established facts in the light of the arguments of the parties, this Court inclines in favor of the
petitioner.
Hindsight is a cruel judge. It is so easy to say, after the event, that one should have done this
and not that or that he should not have acted at all, or else this problem would not have arisen
at all. That is all very well as long as one is examining something that has already taken place.
One can hardly be wrong in such a case. But the trouble with this retrospective assessment is
that it assumes for everybody an uncanny prescience that will enable him by some mysterious
process to avoid the pitfalls and hazards that he is expected to have foreseen. It does not work
out that way in real life. For most of us, all we can rely on is a reasoned conjecture of what
might happen, based on common sense and our own experiences, or our intuition, if you will,
and without any mystic ability to peer into the future. So it was with the petitioner.
It is pointless to argue that Hernandez should have encashed the vouchers earlier because
they were dated anyway on June 29, 1983. He was not obliged to encash the checks earlier
and then again there might have been any number of reasons why he did so only on July 1,
1983. The point is that he did encash the checks on that date and took the money to Marilao
and not Ternate in view of the lateness of the hour. The question before us is whether these
acts are so tainted with negligence or recklessness as to justify the denial of the petitioner's
request for relief from accountability for the stolen money.
It seems to us that the petitioner was moved only by the best of motives when he encashed
the checks on July 1, 1983, so his co-employees in Ternate could collect their salaries and
wages the following day. Significantly, although this was a non-working day, he was intending
to make the trip to his office the following day for the unselfish purpose of accommodating
his fellow workers. The other alternative was to encash the check is on July 5, 1983, the next
working day after July 1, 1983, which would have meant a 5-day wait for the payment of the
said salaries and wages. Being a modest employee himself, Hernandoz must have realized the
great discomfort it would cause the laborer who were dependent on their wages for their
sustenance and were anxious to collect their pay as soon as possible.
For such an attitude, Hernandez should be commended rather than faulted.
As for Hernandez's choice between Marilao, Bulacan, and Ternate, Cavite, one could easily
agree that the former was the safer destination, being nearer, and in view of the comparative
hazards in the trips to the two places. It is true that the petitioner miscalculated, but the Court
feels he should not be blamed for that. The decision he made seemed logical at that time and
was one that could be expected of a reasonable and prudent person. And if, as it happened,
the two robbers attacked him in broad daylight in the jeep while it was on a busy highway,
and in the presence of other passengers, it cannot be said that all this was the result of his
imprudence and negligence. This was undoubtedly a fortuitous event covered by the said
provisions, something that could not have been reasonably foreseen although it could have
happened, and did.
We find, in sum, that under the circumstances as above narrated, the petitioner is entitled to
be relieved from accountability for the money forcibly taken from him in the afternoon of July
1, 1983. To impose such liability upon him would be to read the law too sternly when it should
be softened by the proven facts.
ACCORDINGLY, the petition is GRANTED, without any pronouncement as to costs. It is so
ordered.
G.R. No. 113003 October 17, 1997
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,
vs.
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.
ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is
whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous
event that exempts the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and
Jasmin, bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along
Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The
bus fell into a ravine around three (3) feet from the road and struck a tree. The incident
resulted in the death of 28-year-old Tito Tumboy and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and
attorney's fees was filed by Leny and her children against Alberta Yobido, the owner of the
bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the
defendants therein filed their answer to the complaint, they raised the affirmative defense
of caso fortuito. They also filed a third-party complaint against Philippine Phoenix Surety and
Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim. At
the pre-trial conference, the parties agreed to a stipulation of facts.1
Upon a finding that the third party defendant was not liable under the insurance contract, the
lower court dismissed the third party complaint. No amicable settlement having been arrived
at by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the
defendants was brought about by the driver's failure to exercise the diligence required of the
carrier in transporting passengers safely to their place of destination. According to Leny
Tumboy, the bus left Mangagoy at 3:00 o'clock in the afternoon. The winding road it traversed
was not cemented and was wet due to the rain; it was rough with crushed rocks. The bus
which was full of passengers had cargoes on top. Since it was "running fast," she cautioned
the driver to slow down but he merely stared at her through the mirror. At around 3:30 p.m.,
in Trento, she heard something explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous
event. Abundio Salce, who was the bus conductor when the incident happened, testified that
the 42-seater bus was not full as there were only 32 passengers, such that he himself managed
to get a seat. He added that the bus was running at a speed of "60 to 50" and that it was going
slow because of the zigzag road. He affirmed that the left front tire that exploded was a "brand
new tire" that he mounted on the bus on April 21, 1988 or only five (5) days before the
incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from
Davao Toyo Parts on April 20, 1988 and she was present when it was mounted on the bus by
Salce. She stated that all driver applicants in Yobido Liner underwent actual driving tests
before they were employed. Defendant Cresencio Yobido underwent such test and submitted
his professional driver's license and clearances from the barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a decision2 dismissing the action for lack of
merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that "the
falling of the bus to the cliff was a result of no other outside factor than the tire blow-out." It
held that the ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus3 that a tire blowout
is "a mechanical defect of the conveyance or a fault in its equipment which was easily
discoverable if the bus had been subjected to a more thorough or rigid check-up before it
took to the road that morning" is inapplicable to this case. It reasoned out that in said case, it
was found that the blowout was caused by the established fact that the inner tube of the left
front tire "was pressed between the inner circle of the left wheel and the rim which had
slipped out of the wheel." In this case, however, "the cause of the explosion remains a mystery
until at present." As such, the court added, the tire blowout was "a caso fortuito which is
completely an extraordinary circumstance independent of the will" of the defendants who
should be relieved of "whatever liability the plaintiffs may have suffered by reason of the
explosion pursuant to Article 11744 of the Civil Code."
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court
the following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold
that the defendants did not exercise utmost and/or extraordinary diligence required of
carriers under Article 1755 of the Civil Code, and (c) deciding the case contrary to the ruling
in Juntilla v. Fontanar,5 and Necesito v. Paras.6
On August 23, 1993, the Court of Appeals rendered the Decision7 reversing that of the lower
court. It held that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-
out, if due to a factory defect, improper mounting, excessive tire pressure, is not an
unavoidable event. On the other hand, there may have been adverse conditions on the road
that were unforeseeable and/or inevitable, which could make the blow-out a caso fortuito.
The fact that the cause of the blow-out was not known does not relieve the carrier of liability.
Owing to the statutory presumption of negligence against the carrier and its obligation to
exercise the utmost diligence of very cautious persons to carry the passenger safely as far as
human care and foresight can provide, it is the burden of the defendants to prove that the
cause of the blow-out was a fortuitous event. It is not incumbent upon the plaintiff to prove
that the cause of the blow-out is not caso-fortuito.
Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge
defendants' burden. As enunciated in Necesito vs. Paras, the passenger has neither choice
nor control over the carrier in the selection and use of its equipment, and the good repute of
the manufacturer will not necessarily relieve the carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and rough.
The driver could have explained that the blow-out that precipitated the accident that caused
the death of Toto Tumboy could not have been prevented even if he had exercised due care
to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering
defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00
in moral damages, and P7,000.00 for funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said decision which was denied on
November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the position
that the tire blowout that caused the death of Tito Tumboy was a caso fortuito. Petitioners
claim further that the Court of Appeals, in ruling contrary to that of the lower court,
misapprehended facts and, therefore, its findings of fact cannot be considered final which
shall bind this Court. Hence, they pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of
the established principle that the factual findings of the Court of Appeals are final and may
not be reviewed on appeal by this Court. This general principle is subject to exceptions such
as the one present in this case, namely, that the lower court and the Court of Appeals arrived
at diverse factual findings.8 However, upon such re-examination, we found no reason to
overturn the findings and conclusions of the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the
mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers
and is not bound absolutely and at all events to carry them safely and without
injury.9 However, when a passenger is injured or dies while travelling, the law presumes that
the common carrier is negligent. Thus, the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755.
Article 1755 provides that "(a) common carrier is bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances." Accordingly, in culpa contractual, once a
passenger dies or is injured, the carrier is presumed to have been at fault or to have acted
negligently. This disputable presumption may only be overcome by evidence that the carrier
had observed extraordinary diligence as prescribed by Articles 1733,10 1755 and 1756 of the
Civil Code or that the death or injury of the passenger was due to a fortuitous
event.11 Consequently, the court need not make an express finding of fault or negligence on
the part of the carrier to hold it responsible for damages sought by the passenger.12
In view of the foregoing, petitioners' contention that they should be exempt from liability
because the tire blowout was no more than a fortuitous event that could not have been
foreseen, must fail. A fortuitous event is possessed of the following characteristics: (a) the
cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply
with his obligations, must be independent of human will; (b) it must be impossible to foresee
the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the obliger must be free from any participation in the
aggravation of the injury resulting to the creditor.13 As Article 1174 provides, no person shall
be responsible for a fortuitous event which could not be foreseen, or which, though foreseen,
was inevitable. In other words, there must be an entire exclusion of human agency from the
cause of injury or loss.14
Under the circumstances of this case, the explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the situation. The fact that the tire was
new did not imply that it was entirely free from manufacturing defects or that it was properly
mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is
of a brand name noted for quality, resulting in the conclusion that it could not explode within
five days' use. Be that as it may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso fortuito that would exempt
the carrier from liability for damages.15
Moreover, a common carrier may not be absolved from liability in case of force majeure or
fortuitous event alone. The common carrier must still prove that it was not negligent in
causing the death or injury resulting from an accident.16 This Court has had occasion to state:
While it may be true that the tire that blew-up was still good because the grooves of the tire
were still visible, this fact alone does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road conditions or that
precautions were taken by the jeepney driver to compensate for any conditions liable to cause
accidents. The sudden blowing-up, therefore, could have been caused by too much air
pressure injected into the tire coupled by the fact that the jeepney was overloaded and
speeding at the time of the accident.17
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus
was running at "60-50" kilometers per hour only or within the prescribed lawful speed limit.
However, they failed to rebut the testimony of Leny Tumboy that the bus was running so fast
that she cautioned the driver to slow down. These contradictory facts must, therefore, be
resolved in favor of liability in view of the presumption of negligence of the carrier in the law.
Coupled with this is the established condition of the road — rough, winding and wet due to
the rain. It was incumbent upon the defense to establish that it took precautionary measures
considering partially dangerous condition of the road. As stated above, proof that the tire was
new and of good quality is not sufficient proof that it was not negligent. Petitioners should
have shown that it undertook extraordinary diligence in the care of its carrier, such as
conducting daily routinary check-ups of the vehicle's parts. As the late Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of carriers to test the strength of each
and every part of its vehicles before each trip; but we are of the opinion that a due regard for
the carrier's obligations toward the traveling public demands adequate periodical tests to
determine the condition and strength of those vehicle portions the failure of which may
endanger the safety of the passengers.18
Having failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence, petitioners are hereby held liable for damages. Article 176419 in relation
to Article 220620 of the Civil Code prescribes the amount of at least three thousand pesos as
damages for the death of a passenger. Under prevailing jurisprudence, the award of damages
under Article 2206 has been increased to fifty thousand pesos (P50,000.00).21
Moral damages are generally not recoverable in culpa contractual except when bad faith had
been proven. However, the same damages may be recovered when breach of contract of
carriage results in the death of a passenger,22 as in this case. Exemplary damages, awarded by
way of example or correction for the public good when moral damages are awarded,23 may
likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.24 Because petitioners failed to exercise the
extraordinary diligence required of a common carrier, which resulted in the death of Tito
Tumboy, it is deemed to have acted recklessly.25 As such, private respondents shall be entitled
to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the
modification that petitioners shall, in addition to the monetary awards therein, be liable for
the award of exemplary damages in the amount of P20,000.00. Costs against petitioners.
G.R. No. L-45637 May 31, 1985
ROBERTO JUNTILLA, petitioner,
vs.
CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL CAMORO, respondents.
Valentin A. Zozobrado for petitioner.
Ruperto N. Alfarara for respondents.
GUTIERREZ, JR., J.:
This is a petition for review, on questions of law, of the decision of the Court of First Instance
of Cebu which reversed the decision of the City Court of Cebu and exonerated the
respondents from any liability arising from a vehicular accident.
The background facts which led to the filing of a complaint for breach of contract and damages
against the respondents are summarized by the Court of First Instance of Cebu as follows:
The facts established after trial show that the plaintiff was a passenger of the public utility
jeepney bearing plate No. PUJ-71-7 on the course of the trip from Danao City to Cebu City.
The jeepney was driven by defendant Berfol Camoro. It was registered under the franchise of
defendant Clemente Fontanar but was actually owned by defendant Fernando Banzon. When
the jeepney reached Mandaue City, the right rear tire exploded causing the vehicle to turn
turtle. In the process, the plaintiff who was sitting at the front seat was thrown out of the
vehicle. Upon landing on the ground, the plaintiff momentarily lost consciousness. When he
came to his senses, he found that he had a lacerated wound on his right palm. Aside from this,
he suffered injuries on his left arm, right thigh and on his back. (Exh. "D"). Because of his shock
and injuries, he went back to Danao City but on the way, he discovered that his "Omega" wrist
watch was lost. Upon his arrival in Danao City, he immediately entered the Danao City Hospital
to attend to his injuries, and also requested his father-in-law to proceed immediately to the
place of the accident and look for the watch. In spite of the efforts of his father-in-law, the
wrist watch, which he bought for P 852.70 (Exh. "B") could no longer be found.
xxx xxx xxx
Petitioner Roberto Juntilla filed Civil Case No. R-17378 for breach of contract with damages
before the City Court of Cebu City, Branch I against Clemente Fontanar, Fernando Banzon and
Berfol Camoro.
The respondents filed their answer, alleging inter alia that the accident that caused losses to
the petitioner was beyond the control of the respondents taking into account that the tire
that exploded was newly bought and was only slightly used at the time it blew up.
After trial, Judge Romulo R. Senining of the Civil Court of Cebu rendered judgment in favor of
the petitioner and against the respondents. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants
and the latter are hereby ordered, jointly and severally, to pay the plaintiff the sum of P750.00
as reimbursement for the lost Omega wrist watch, the sum of P246.64 as unrealized salary of
the plaintiff from his employer, the further sum of P100.00 for the doctor's fees and medicine,
an additional sum of P300.00 for attorney's fees and the costs.
The respondents appealed to the Court of First Instance of Cebu, Branch XIV.
Judge Leonardo B. Canares reversed the judgment of the City Court of Cebu upon a finding
that the accident in question was due to a fortuitous event. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered exonerating the defendants from any liability to
the plaintiff without pronouncement as to costs.
A motion for reconsideration was denied by the Court of First Instance.
The petitioner raises the following alleged errors committed by the Court of First Instance of
Cebu on appeal—
a. The Honorable Court below committed grave abuse of discretion in failing to take
cognizance of the fact that defendants and/or their employee failed to exercise "utmost
and/or extraordinary diligence" required of common carriers contemplated under Art. 1755
of the Civil Code of the Philippines.
b. The Honorable Court below committed grave abuse of discretion by deciding the case
contrary to the doctrine laid down by the Honorable Supreme Court in the case of Necesito
et al. v. Paras, et al.
We find the petition impressed with merit.
The City Court and the Court of First Instance of Cebu found that the right rear tire of the
passenger jeepney in which the petitioner was riding blew up causing the vehicle to fall on its
side. The petitioner questions the conclusion of the respondent court drawn from this finding
of fact.
The Court of First Instance of Cebu erred when it absolved the carrier from any liability upon
a finding that the tire blow out is a fortuitous event. The Court of First Instance of Cebu ruled
that:
After reviewing the records of the case, this Court finds that the accident in question was due
to a fortuitous event. A tire blow-out, such as what happened in the case at bar, is an
inevitable accident that exempts the carrier from liability, there being absence of a showing
that there was misconduct or negligence on the part of the operator in the operation and
maintenance of the vehicle involved. The fact that the right rear tire exploded, despite being
brand new, constitutes a clear case of caso fortuito which can be a proper basis for
exonerating the defendants from liability. ...
The Court of First Instance relied on the ruling of the Court of Appeals in Rodriguez v. Red Line
Transportation Co., CA G.R. No. 8136, December 29, 1954, where the Court of Appeals ruled
that:
A tire blow-out does not constitute negligence unless the tire was already old and should not
have been used at all. Indeed, this would be a clear case of fortuitous event.
The foregoing conclusions of the Court of First Instance of Cebu are based on a
misapprehension of overall facts from which a conclusion should be drawn. The reliance of
the Court of First Instance on the Rodriguez case is not in order. In La Mallorca and Pampanga
Bus Co. v. De Jesus, et al. (17 SCRA 23), we held that:
Petitioner maintains that a tire blow-out is a fortuitous event and gives rise to no liability for
negligence, citing the rulings of the Court of Appeals in Rodriguez v. Red Line Transportation
Co., CA G.R. No. 8136, December 29, 1954, and People v. Palapad, CA-G.R. No. 18480, June
27, 1958. These rulings, however, not only are not binding on this Court but were based on
considerations quite different from those that obtain in the case at bar. The appellate court
there made no findings of any specific acts of negligence on the part of the defendants and
confined itself to the question of whether or not a tire blow-out, by itself alone and without
a showing as to the causative factors, would generate liability. ...
In the case at bar, there are specific acts of negligence on the part of the respondents. The
records show that the passenger jeepney turned turtle and jumped into a ditch immediately
after its right rear tire exploded. The evidence shows that the passenger jeepney was running
at a very fast speed before the accident. We agree with the observation of the petitioner that
a public utility jeep running at a regular and safe speed will not jump into a ditch when its
right rear tire blows up. There is also evidence to show that the passenger jeepney was
overloaded at the time of the accident. The petitioner stated that there were three (3)
passengers in the front seat and fourteen (14) passengers in the rear.
While it may be true that the tire that blew-up was still good because the grooves of the tire
were still visible, this fact alone does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road conditions or that
precautions were taken by the jeepney driver to compensate for any conditions liable to cause
accidents. The sudden blowing-up, therefore, could have been caused by too much air
pressure injected into the tire coupled by the fact that the jeepney was overloaded and
speeding at the time of the accident.
In Lasam v. Smith (45 Phil. 657), we laid down the following essential characteristics of caso
fortuito:
xxx xxx xxx
... In a legal sense and, consequently, also in relation to contracts, a caso fortuito presents the
following essential characteristics: (1) The cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his obligation, must be independent
of the human will. (2) It must be impossible to foresee the event which constitutes the caso
fortuito, or if it can be foreseen, it must be impossible to avoid. (3) The occurrence must be
such as to render it impossible for the debtor to fulfill his obligation in a normal manner. And
(4) the obligor (debtor) must be free from any participation in the aggravation of the injury
resulting to the creditor. (5 Encyclopedia Juridica Espanola, 309.)
In the case at bar, the cause of the unforeseen and unexpected occurrence was not
independent of the human will. The accident was caused either through the negligence of the
driver or because of mechanical defects in the tire. Common carriers should teach their
drivers not to overload their vehicles, not to exceed safe and legal speed limits, and to know
the correct measures to take when a tire blows up thus insuring the safety of passengers at
all times. Relative to the contingency of mechanical defects, we held in Necesito, et al. v.
Paras, et al. (104 Phil. 75), that:
... The preponderance of authority is in favor of the doctrine that a passenger is entitled to
recover damages from a carrier for an injury resulting from a defect in an appliance purchased
from a manufacturer, whenever it appears that the defect would have been discovered by
the carrier if it had exercised the degree of care which under the circumstances was
incumbent upon it, with regard to inspection and application of the necessary tests. For the
purposes of this doctrine, the manufacturer is considered as being in law the agent or servant
of the carrier, as far as regards the work of constructing the appliance. According to this
theory, the good repute of the manufacturer will not relieve the carrier from liability' (10 Am.
Jur. 205, s, 1324; see also Pennsylvania R. Co. v. Roy, 102 U.S. 451; 20 L. Ed. 141; Southern R.
Co. v. Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed Note, 29 ALR 788.: Ann. Cas. 1916E 929).
The rationale of the carrier's liability is the fact that the passenger has neither choice nor
control over the carrier in the selection and use of the equipment and appliances in use by
the carrier. Having no privity whatever with the manufacturer or vendor of the defective
equipment, the passenger has no remedy against him, while the carrier usually has. It is but
logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should
nevertheless be held to answer for the flaws of his equipment if such flaws were at all
discoverable. ...
It is sufficient to reiterate that the source of a common carrier's legal liability is the contract
of carriage, and by entering into the said contract, it binds itself to carry the passengers safely
as far as human care and foresight can provide, using the utmost diligence of a very cautious
person, with a due regard for all the circumstances. The records show that this obligation was
not met by the respondents.
The respondents likewise argue that the petitioner cannot recover any amount for failure to
prove such damages during the trial. The respondents submit that if the petitioner was really
injured, why was he treated in Danao City and not in Mandaue City where the accident took
place. The respondents argue that the doctor who issued the medical certificate was not
presented during the trial, and hence not cross-examined. The respondents also claim that
the petitioner was not wearing any wrist watch during the accident.
It should be noted that the City Court of Cebu found that the petitioner had a lacerated wound
on his right palm aside from injuries on his left arm, right thigh and on his back, and that on
his way back to Danao City, he discovered that his "Omega" wrist watch was lost. These are
findings of facts of the City Court of Cebu which we find no reason to disturb. More so when
we consider the fact that the Court of First Instance of Cebu impliedly concurred in these
matters when it confined itself to the question of whether or not the tire blow out was a
fortuitous event.
WHEREFORE, the decision of the Court of First Instance of Cebu, Branch IV appealed from is
hereby REVERSED and SET ASIDE, and the decision of the City Court of Cebu, Branch I is
REINSTATED, with the modification that the damages shall earn interest at 12% per annum
and the attorney's fees are increased to SIX HUNDRED PESOS (P600.00). Damages shall earn
interests from January 27, 1975.
G.R. No. 147746 October 25, 2005
PERLA COMPANIA DE SEGUROS, INC. and BIENVENIDO S. PASCUAL, Petitioners,
vs.
SPS. GAUDENCIO SARANGAYA III and PRIMITIVA B. SARANGAYA, Respondents.
DECISION
CORONA, J.:
This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to
annul the decisions of the Court of Appeals (CA) dated June 29, 2000 and March 31, 2001,
respectively, which affirmed the decision of the Regional Trial Court (RTC), Branch 21 of
Santiago, Isabela.
In 1986, respondent spouses Gaudencio Sarangaya III and Primitiva Sarangaya erected a semi-
concrete, semi-narra, one-storey commercial building fronting the provincial road of
Santiago, Isabela. The building was known as "Super A Building" and was subdivided into three
doors, each of which was leased out. The two-storey residence of the Sarangayas was behind
the second and third doors of the building. On the left side of the commercial building stood
the office of the Matsushita Electric Philippine Corporation (Matsushita).
In 1988, petitioner Perla Compania de Seguros, Inc. (petitioner-corporation), through its
branch manager and co-petitioner Bienvenido Pascual, entered into a contract of lease of the
first door of the "Super A Building," abutting the office of Matsushita. Petitioner-corporation
renovated its rented space and divided it into two. The left side was converted into an office
while the right was used by Pascual as a garage for a 1981 model 4-door Ford Cortina, a
company-provided vehicle he used in covering the different towns within his area of
supervision.
On July 7, 1988, Pascual left for San Fernando, Pampanga but did not bring the car with him.
Three days later, he returned to Santiago and, after checking his appointments the next day,
decided to "warm up" the car. When he pulled up the handbrake and switched on the ignition
key, the engine made an "odd" sound and did not start. Thinking it was just the gasoline
percolating into the engine, he again stepped on the accelerator and started the car. This
revved the engine but petitioner again heard an unusual sound. He then saw a small flame
coming out of the engine. Startled, he turned it off, alighted from the vehicle and started to
push it out of the garage when suddenly, fire spewed out of its rear compartment and
engulfed the whole garage. Pascual was trapped inside and suffered burns on his face, legs
and arms.
Meanwhile, respondents were busy watching television when they heard two loud explosions.
The smell of gasoline permeated the air and, in no time, fire spread inside their house,
destroying all their belongings, furniture and appliances.
The city fire marshall conducted an investigation and thereafter submitted a report to the
provincial fire marshall. He concluded that the fire was "accidental." The report also disclosed
that petitioner-corporation had no fire permit as required by law.
Based on the same report, a criminal complaint for "Reckless Imprudence Resulting to (sic)
Damage in (sic) Property"1 was filed against petitioner Pascual. On the other hand, petitioner-
corporation was asked to pay the amount of ₱7,992,350, inclusive of the value of the
commercial building. At the prosecutor’s office, petitioner Pascual moved for the withdrawal
of the complaint, which was granted.
Respondents later on filed a civil complaint based on quasi-delict against petitioners for a
"sum of money and damages," alleging that Pascual acted with gross negligence while
petitioner-corporation lacked the required diligence in the selection and supervision of
Pascual as its employee. They prayed for payment of the following damages:
1. ₱2,070,000.00 - representing the value of the 2-storey residential building and the 3-door
apartment;
2. ₱5,922,350.00 - representing the value of the jewelries, appliances, [furniture], fixtures and
cash;
3. ₱8,300.00 – a month for [lost rental] income from July 1995 until such time that the
premises is restored to its former condition or payment for its value, whichever comes first;
4. ₱2,000,000.00 – for moral damages;
5. ₱1,000,000.00 – for exemplary damages, and
6. Attorney’s fees equivalent to 15% of the total amount to be awarded to the plaintiffs.2
During the trial, respondents presented witnesses who testified that a few days before the
incident, Pascual was seen buying gasoline in a container from a nearby gas station. He then
placed the container in the rear compartment of the car.
In his answer, Pascual insisted that the fire was purely an accident, a caso fortuito, hence, he
was not liable for damages. He also denied putting a container of gasoline in the car’s rear
compartment. For its part, petitioner-corporation refused liability for the accident on the
ground that it exercised due diligence of a good father of a family in the selection and
supervision of Pascual as its branch manager.
After the trial, the court a quo ruled in favor of respondents. The decretal portion of the
decision read:
WHEREFORE, in the light of the foregoing considerations judgment is hereby rendered
ORDERING the defendants, Bienvenido Pascual and Perla Compania de Seguros, Inc. to
pay jointly and solidarily to the plaintiffs spouses Gaudencio and Primitiva Sarangaya the total
sum of Two Million Nine Hundred Four Thousand Eight Hundred and Eighty Pesos
([₱]2,904,880.00) as actual damages with legal interest thereon from December 12, 1995 until
fully paid.3 (emphasis supplied)
The court a quo declared that, although the respondents failed to prove the precise cause of
the fire that engulfed the garage, Pascual was nevertheless negligent based on the doctrine
of res ipsa loquitur.4 It did not, however, categorically rule that the gasoline container
allegedly placed in the rear compartment of the car caused the fire. The trial court instead
declared that both petitioners failed to adduce sufficient evidence to prove that they
employed the necessary care and diligence in the upkeep of the car.5 Contrary to the claims
of petitioner-corporation, the trial court also found that it failed to employ the diligence of a
good father of a family, as required by law, in the selection and supervision of Pascual.
With respect to the amount of damages, the trial court awarded to respondents no more than
their claim for actual damages covering the cost of the 2-storey residential building and the
commercial building, including their personal properties. It explained:
According to the plaintiff Gaudencio Sarangaya III, he made a list of what was lost. His list
includes the commercial building that was burned which he valued at ₱2,070,000.00. The
defendants take exception to the value given by the plaintiff and for this purpose they
submitted the tax declaration of the building which states that the market value is
₱183,770.00. The Court takes judicial notice that the valuation appearing on the tax
declaration of property is always lower [than] the correct value thereof. Considering that the
building that was burned was a two-storey residential house with a commercial building annex
with a total floor area of 241 square meters as stated in the tax declaration, mostly concrete
mixed with narra and other lumber materials, the value given by the plaintiffs of
₱2,070,000.00 is reasonable and credible and it shall be awarded to the plaintiffs.
The other items listed are assorted [furniture] and fixtures totaling ₱307,000.00 assorted
appliances worth ₱358,350.00; two filing cabinets worth ₱7,000.00 and clothing and other
personal effects costing ₱350,000.00, household utensils costing ₱15,000.00. The Court finds
them reasonable and credible considering the social and financial stature of the plaintiffs who
are businessmen. There could be no question that they were able to acquire and own quite a
lot of home furnishings and personal belongings. The costing however is high considering that
these belongings were already used for quite some time so a 20% depreciation should be
equitably deducted from the cost of acquisition submitted by plaintiffs. Thus, the total
amount recoverable would be ₱1,037,350.00 less 20% or a total of ₱829,880.00. The
₱5,000.00 representing foodstock can also be ordered paid to the plaintiffs. x x x.6
On appeal to the Court of Appeals, the appellate court again ruled in favor of respondents but
modified the amount of damages awarded by the trial court. It held:
x x x the Decision of the Court a quo is AFFIRMED, with the modification that the Appellants
are hereby ordered to pay the Appellees, jointly and severally, the total amount of
₱600,000.00 by way of nominal damages under Articles 2222 and 2223 of the New Civil Code,
with interest thereon, at the rate of 6% per annum from the date of the Decision of this Court.7
The appellate court was in accord with the trial court’s findings that the doctrine of res ipsa
loquitur was correctly applied in determining the liability of Pascual and that petitioner-
corporation, as the employer, was vicariously liable to respondents. Nonetheless, for
respondents’ failure to substantiate their actual loss, the appellate court granted nominal
damages of ₱600,000 to them.
Petitioners and respondents filed their respective motions for reconsideration.
In their MR, petitioners contested the findings of fact of the appellate court. They denied any
liability whatsoever to respondents but this was rejected by the CA for lack of merit. Thus, the
present appeal.
Respondents, on the other hand, argued in their MR that the award of nominal damages was
erroneous. They prayed that, in lieu of the award of nominal damages, the case should instead
be remanded to the trial court for reception of additional evidence on their claim for actual
damages. The CA granted respondents’ MR. Hence they did not appeal the CA’s decision to
us. According to the CA:
Anent Plaintiffs-Appellees’ plea that, in lieu of the Court’s award of nominal damages, the
case be remanded to the Court a quo, in the interest of justice, to enable them to adduce
evidence to prove their claim for actual damages, we find the same meritorious.
Accordingly, the Decision of the Court is hereby amended to read as follows:
IN THE LIGHT OF ALL THE FOREGOING, the Decision of the Court a quo appealed from is
AFFIRMED. The award of nominal damages is set aside. Let the records be remanded to the
Court a quo for the reception of additional evidence by the Plaintiffs-Appellees and the
Defendants-Appellants anent Plaintiffs-Appellees’ claim for actual damages.8 (emphasis
supplied)
Via this petition, petitioners ascribe the following errors to the appellate court:
(a) THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF ["RES IPSA LOQUITUR"] IN
THE PRESENT CASE;
(b) THE COURT OF APPEALS ERRED WHEN IT FOUND PERLA NEGLIGENT IN THE SUPERVISION
OF PASCUAL, AND CONSEQUENTLY, VICARIOUSLY LIABLE FOR THE FIRE BECAUSE PERLA
FAILED TO ADDUCE EVIDENCE OF SUPERVISION OF EMPLOYEE’S CARE AND UPKEEP OF
COMPANY VEHICLES REQUIRED BY THE SUPREME COURT ON TRANSPORTATION COMPANIES;
AND
(c) THE COURT OF APPEALS ERRED WHEN IT ORDERED THE REMAND OF THE CASE TO RTC
ISABELA FOR RECEPTION OF ADDITIONAL EVIDENCE BY THE SARANGAYA SPOUSES ON THEIR
CLAIM FOR ACTUAL DAMAGES.9
Res ipsa loquitur is a Latin phrase which literally means "the thing or the transaction speaks
for itself."10 It relates to the fact of an injury that sets out an inference to the cause thereof
or establishes the plaintiff’s prima facie case.11The doctrine rests on inference and not on
presumption.12 The facts of the occurrence warrant the supposition of negligence and they
furnish circumstantial evidence of negligence when direct evidence is lacking.13
The doctrine is based on the theory that the defendant either knows the cause of the accident
or has the best opportunity of ascertaining it and the plaintiff, having no knowledge thereof,
is compelled to allege negligence in general terms.14 In such instance, the plaintiff relies on
proof of the happening of the accident alone to establish negligence.15
The doctrine provides a means by which a plaintiff can pin liability on a defendant who, if
innocent, should be able to explain the care he exercised to prevent the incident complained
of. Thus, it is the defendant’s responsibility to show that there was no negligence on his part.16
To sustain the allegation of negligence based on the doctrine of res ipsa loquitur, the following
requisites must concur:
1) the accident is of a kind which does not ordinarily occur unless someone is negligent;
2) the cause of the injury was under the exclusive control of the person in charge and
3) the injury suffered must not have been due to any voluntary action or contribution on the
part of the person injured.17
Under the first requisite, the occurrence must be one that does not ordinarily occur unless
there is negligence. "Ordinary" refers to the usual course of events.18 Flames spewing out of
a car engine, when it is switched on, is obviously not a normal event. Neither does an
explosion usually occur when a car engine is revved. Hence, in this case, without any direct
evidence as to the cause of the accident, the doctrine of res ipsa loquitur comes into play and,
from it, we draw the inference that based on the evidence at hand, someone was in fact
negligent and responsible for the accident.
The test to determine the existence of negligence in a particular case may be stated as follows:
did the defendant in committing the alleged negligent act, use reasonable care and caution
which an ordinarily prudent person in the same situation would have employed?19 If not, then
he is guilty of negligence.
Here, the fact that Pascual, as the caretaker of the car, failed to submit any proof that he had
it periodically checked (as its year-model and condition required) revealed his negligence. A
prudent man should have known that a 14-year-old car, constantly used in provincial trips,
was definitely prone to damage and other defects. For failing to prove care and diligence in
the maintenance of the vehicle, the necessary inference was that Pascual had been negligent
in the upkeep of the car.
Pascual attempted to exculpate himself from liability by insisting that the incident was a caso
fortuito. We disagree.
The exempting circumstance of caso fortuito may be availed only when: (a) the cause of the
unforeseen and unexpected occurrence was independent of the human will; (b) it was
impossible to foresee the event which constituted the caso fortuito or, if it could be foreseen,
it was impossible to avoid; (c) the occurrence must be such as to render it impossible to
perform an obligation in a normal manner and (d) the person tasked to perform the obligation
must not have participated in any course of conduct that aggravated the accident.20
In fine, human agency must be entirely excluded as the proximate cause or contributory cause
of the injury or loss.21 In a vehicular accident, for example, a mechanical defect will not release
the defendant from liability if it is shown that the accident could have been prevented had he
properly maintained and taken good care of the vehicle.22
The circumstances on record do not support the defense of Pascual. Clearly, there was
no caso fortuito because of his want of care and prudence in maintaining the car.
Under the second requisite, the instrumentality or agency that triggered the occurrence must
be one that falls under the exclusive control of the person in charge thereof. In this case, the
car where the fire originated was under the control of Pascual. Being its caretaker, he alone
had the responsibility to maintain it and ensure its proper functioning. No other person, not
even the respondents, was charged with that obligation except him.
Where the circumstances which caused the accident are shown to have been under the
management or control of a certain person and, in the normal course of events, the incident
would not have happened had that person used proper care, the inference is that it occurred
because of lack of such care.23 The burden of evidence is thus shifted to defendant to establish
that he observed all that was necessary to prevent the accident from happening. In this
aspect, Pascual utterly failed.
Under the third requisite, there is nothing in the records to show that respondents
contributed to the incident. They had no access to the car and had no responsibility regarding
its maintenance even if it was parked in a building they owned.
On the second assigned error, we find no reason to reverse the decision of the Court of
Appeals. The relationship between the two petitioners was based on the principle of pater
familias according to which the employer becomes liable to the party aggrieved by its
employee if he fails to prove due diligence of a good father of a family in the selection and
supervision of his employees.24 The burden of proof that such diligence was observed
devolves on the employer who formulated the rules and procedures for the selection and
hiring of his employees.
In the selection of prospective employees, employers are required to examine them as to
their qualifications, experience and service records.25 While the petitioner-corporation does
not appear to have erred in considering Pascual for his position, its lack of supervision over
him made it jointly and solidarily liable for the fire.
In the supervision of employees, the employer must formulate standard operating
procedures, monitor their implementation and impose disciplinary measures for the breach
thereof.26 To fend off vicarious liability, employers must submit concrete proof, including
documentary evidence, that they complied with everything that was incumbent on
them.27 Here, petitioner-corporation’s evidence hardly included any rule or regulation that
Pascual should have observed in performing his functions. It also did not have any guidelines
for the maintenance and upkeep of company property like the vehicle that caught fire.
Petitioner-corporation did not require periodic reports on or inventories of its properties
either. Based on these circumstances, petitioner-corporation clearly did not exert effort to be
apprised of the condition of Pascual’s car or its serviceability.
Petitioner-corporation’s argument that the liability attached to employers only applies in
cases involving the supervision of employees in the transportation business is incorrect.
Article 2180 of the Civil Code states that employers shall be liable for the damage caused by
their employees. The liability is imposed on all those who by their industry, profession or other
enterprise have other persons in their service or supervision.28 Nowhere does it state that the
liability is limited to employers in the transportation business.
WHEREFORE, the petition is hereby DENIED and the decision29 of the Court of Appeals
affirmed in toto. Costs against petitioners.
G.R. No. 165164 August 17, 2007
FIL-ESTATE PROPERTIES, INC., Petitioner, vs. SPOUSES GONZALO and CONSUELO
GO, Respondents.
For review on certiorari are the Decision1 dated June 9, 2004 of the Court of Appeals in CA-
G.R. SP No. 79624, and its Resolution2 dated August 3, 2004, denying the motion for
reconsideration.
The basic facts in this case are undisputed. On December 29, 1995, petitioner Fil-Estate
Properties, Inc. (Fil-Estate) entered into a contract to sell a condominium unit to respondent
spouses Gonzalo and Consuelo Go at "Eight Sto. Domingo Place," a condominium project of
petitioner located on Sto. Domingo Avenue, Quezon City. The spouses paid a total of
₱3,439,000.07 of the full contract price set at ₱3,620,000.00.
Because petitioner failed to develop the condominium project, on August 4, 1999, the
spouses demanded the refund of the amount they paid, plus interest. When petitioner did
not refund the spouses, the latter filed a complaint against petitioner for reimbursement of
₱3,620,000 representing the lump sum price of the condominium unit, plus interest,
₱100,000 attorney’s fees, and expenses of litigation before the Housing and Land Use
Regulatory Board (HLURB).
In answer, petitioner claimed that respondents had no cause of action since the delay in the
construction of the condominium was caused by the financial crisis that hit the Asian region,
a fortuitous event over which petitioner had no control.
On July 18, 2000, the HLURB Regional Director approved the decision of the Housing and Land
Use Arbiter in favor of the spouses Go. The HLURB ratiocinated that the Asian financial crisis
that resulted in the depreciation of the peso is not a fortuitous event as any fluctuation in the
value of the peso is a daily occurrence which is foreseeable and its deleterious effects avoided
by economic measures. The HLURB went on to say that when petitioner discontinued the
development of its condominium project, it failed to fulfill its contractual obligations to the
spouses. And following Article 14753 of the Civil Code, upon perfection of the contract, the
parties, here the spouses Go, may demand performance. And under Article 11914 of the same
code, should one of the parties, in this instance Fil-Estate, fail to comply with the obligation,
the aggrieved party may choose between fulfillment or rescission of the obligation, with
damages in either case. Inasmuch as Fil-Estate could no longer fulfill its obligation, the spouses
Go may ask for rescission of the contract with damages. The dispositive portion of the decision
reads:
WHEREFORE, the foregoing considered, judgment is hereby rendered as follows:
1. Ordering the respondent, Fil-Estate Properties, Inc., to refund to the complainants,
₱3,439,000.07 (the amount proved) plus 12% interest thereon reckoned from 09
August 1999 (the date the respondent received the demand letter) until the same
is fully paid.
2. Ordering the respondent to pay to the complainants ₱25,000.00 attorney’s fees as
and by way of damages.
All other claims and counterclaims are dismissed.
IT IS SO ORDERED.5
The Board of Commissioners of the HLURB denied petitioner’s petition for review and
consequent motion for reconsideration.6 The Office of the President dismissed petitioner’s
appeal and denied its motion for reconsideration.7
On appeal, asserting that both the HLURB and the Office of the President committed
reversible errors, Fil-Estate asked the Court of Appeals to set aside the orders it is appealing.
The Court of Appeals affirmed the actions taken by the HLURB and the Office of the President
and declared that the Asian financial crisis could not be considered a fortuitous event and that
respondents’ right is provided for in Section 238 of Presidential Decree (P.D.) No. 957,
otherwise known as "The Subdivision and Condominium Buyers’ Protective Decree." The
appellate court also noted that there was yet no crisis in 1995 and 1996 when the project
should have been started, and petitioner cannot blame the 1997 crisis for failure of the
project, nor for even not starting it, because the project should have been completed by 1997.
The appellate court denied petitioner’s motion for reconsideration.
Hence, this petition raising two issues for our resolution as follows:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE ASIAN
FINANCIAL CRISIS IS NOT A FORTUITOUS EVENT THAT WOULD EXCUSE THE
DELIVERY BY PETITIONER OF THE SUBJECT CONDOMINIUM UNIT TO
RESPONDENTS.
II. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE
FOR THE PAYMENT OF ATTORNEY’S FEES.9
On the first issue, did the Court of Appeals err in ruling that the Asian financial crisis was not
a fortuitous event?
Petitioner, citing Article 117410 of the Civil Code, argues that the Asian financial crisis was a
fortuitous event being unforeseen or inevitable. Petitioner likewise cites Servando v.
Philippine Steam Navigation Co.,11 to bolster its case. Petitioner explains that the extreme
economic exigency and extraordinary currency fluctuations could not have been reasonably
foreseen and were beyond the contemplation of both parties when they entered the contract.
Petitioner further asserts that the resultant economic collapse of the real estate industry was
unforeseen by the whole Asia and if it was indeed foreseeable, then all those engaged in the
real estate business should have foreseen the impending fiasco. Petitioner adds that it had
not committed any fraud; that it had all the required government permits; and that it had not
abandoned the project but only suspended the work. It also admits its obligation to complete
the project. It says that it had in fact asked the HLURB for extension to complete it.12
In their Comment, respondents submit that the instant petition be rejected outright for the
reason that petitioner has not raised any question of law in the instant petition. The questions
of whether or not the Asian financial crisis is a fortuitous event, and whether or not attorney’s
fees should be granted, are questions of facts which the Court of Appeals recognized as such.
Respondent spouses reiterate that contrary to what petitioner avers, the delay in the
construction of the building was not attributable to the Asian financial crisis which happened
in 199713 because petitioner did not even start the project in 1995 when it should have done,
so that it could have finished it in 1997, as stipulated in the contract.
Preliminarily, respondents bring to the attention of this Court the strange discrepancy in the
dates of notarization of the Certification of Non-Forum Shopping and the Affidavit of Service
both notarized on September 24, 2004, while the Secretary’s Certification was notarized a day
earlier on September 23, 2004. However, we shall not delve into technicalities, but we shall
proceed with the resolution of the issues raised on the merits.1awph!l
respondents actually sought the refund of ₱3,620,000.00, the lump sum cost of the
condominium, more than their actual payment of ₱3,439,000.07. We are thus constrained to
award only ₱3,439,000.07, representing the sum of their actual payments plus amortization
interests and interest at legal rate which is 6% per annum from the date of demand on August
4, 1999. We are not unaware that the appellate court pegged the interest rate at 12% on the
basis of Resolution No. R-421, Series of 1988 of the HLURB. But, conformably with our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals,17 the award of 12% interest on the amount
of refund must be reduced to 6%.

Indeed, the question of whether or not an event is fortuitous is a question of fact. As a general Moreover, we are constrained to modify the Court of Appeals’ grant of attorney’s fees from
rule, questions of fact may not be raised in a petition for review for as long as there is no ₱25,000 to ₱100,000 as just and equitable since respondents were compelled to secure the
variance between the findings of the lower court and the appellate court, as in this case where services of counsel over eight years to protect their interest due to petitioner’s delay in the
the HLURB, the Office of the President, and the Court of Appeals were agreed on the fact. performance of their clear obligation.

Worthy of note, in a previous case, Asian Construction and Development Corporation v. WHEREFORE, the petition is DENIED for lack of merit. Petitioner is hereby ordered (1) to
Philippine Commercial International Bank,14 the Court had said that the 1997 financial crisis reimburse respondents ₱3,439,000.07 at 6% interest starting August 4, 1999 until full
that ensued in Asia did not constitute a valid justification to renege on obligations. We payment, and (2) to pay respondents ₱100,000.00 attorney’s fees. Costs against petitioner.
emphatically stressed the same view in Mondragon Leisure and Resorts Corporation v. Court
of Appeals,15 that the Asian financial crisis in 1997 is not among the fortuitous events
contemplated under Article 1174 of the Civil Code.1avvphi1

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and
beyond the control of a business corporation. It is unfortunate that petitioner apparently met
with considerable difficulty e.g. increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is concededly a master in
projections on commodities and currency movements and business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday occurrence,
and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso
fortuito.

Are respondents entitled to reimbursement of the amount paid, plus interest and attorney’s
fees?

Yes. Section 23 of P.D. No. 957 is clear on this point.

It will be noted that respondents sent a demand letter dated August 4, 1999 to Fil-Estate
asking for the return of "the total amount paid including amortization interests" and "legal
interest due thereon."16 The latter did not respond favorably, and so the spouses filed a
complaint demanding the reimbursement of ₱3,620,000 representing the lump sum price of
the condominium unit with interest at the legal rate, and ₱100,000 attorney’s fees. But the
Footnotes
1Rollo, pp. 26-31. Penned by Associate Justice Renato C. Dacudao, with Associate Justices
Edgardo F. Sundiam and Japar B. Dimaampao concurring.
2 Id. at 33.
3Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
4Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
5 Rollo, p. 40.
6 Id. at 59-63.
7
Id. at 92 and 97.
8 SEC. 23. Non-Forfeiture of Payments. – No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited
in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interest[s] but excluding delinquency interests, with
interest thereon at the legal rate.
9 Rollo, p. 16.
10Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which though foreseen,
were inevitable.
11 Nos. L-36481-2, October 23, 1982, 117 SCRA 832.
12 Rollo, pp. 16-20.
13 Id. at 30.
14 G.R. No. 153827, April 25, 2006, 488 SCRA 192, 206.
15 G.R. No. 154188, June 15, 2005, 460 SCRA 279, 289.
16 Rollo, p. 26.
17 G.R. No. 97412, July 12, 1994, 234 SCRA 78, 96-97. The rule partly reads:
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 … 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.
See also Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc., G.R. No.
150255, April 22, 2005, 456 SCRA 557, 575; V.V. Soliven Realty Corp. v. Ong, G.R. No. 147869,
January 26, 2005, 449 SCRA 339, 350; Heirs of Ignacia Aguilar-Reyes v. Mijares, G.R. No.
143826, August 28, 2003, 410 SCRA 97, 110-111.