G.R. No.
120528       January 29, 2001 to come to an agreement, Pablo left and went back to Cebu City, unsuccessful in his attempt to take possession
ATTY. DIONISIO CALIBO, JR., petitioner, vs. COURT OF APPEALS and DR. PABLO U.
ABELLA, respondents.
QUISUMBING, J.:
Before us is the petition for review on certiorari by petitioner Dionisio Calibo, Jr., assailing the decision of the Court of
Appeals in CA-G.R. CV No. 39705, which affirmed the decision of the Regional Trial Court of Cebu, Branch 11,
declaring private respondent as the lawful possessor of a tractor subject of a replevin suit and ordering petitioner to pay
private respondent actual damages and attorney's fees.
The facts of the case, as summarized by respondent court, are undisputed.
"…on January 25, 1979, plaintiff-appellee [herein petitioner] Pablo U. Abella purchased an MF 210
agricultural tractor with Serial No. 00105 and Engine No. P126M00199 (Exhibit A; Record, p.5) which he
used in his farm in Dagohoy, Bohol.
Sometimes in October or November 1985, Pablo Abella's son, Mike abella rented for residential purpose the
house of defendant-appellant Dionosio R. Calibo, Jr., in Tagbilaran City.
In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm in Dagohoy, Bohol, and left
it in the safekeeping of his son, Mike Abella, in Tagbilaran City. Mike kept the tractor in the garage of the
house he was leasing from Calibo.
Since he started renting Calibo's house, Mike had been religiously paying the monthly rentals therefor, but
beginning November of 1986, he stopped doing so. The following month, Calibo learned that Mike had never
paid the charges for electric and water consumption in the leased premises which the latter was duty-bound to
shoulder. Thus, Calibo confronted Mike about his rental arrears and the unpaid electric and water bills. During
this confrontation, Mike informed Calibo that he (Mike) would be staying in the leased property only until the
end of December 1986. Mike also assured Calibo that he would be settling his account with the latter, offering
the tractor as security. Mike even asked Calibo to help him find a buyer for the tractor so he could sooner pay
his outstanding obligation.1âwphi1.nêt
In January 1987 when a new tenant moved into the house formerly leased to Mike, Calibo had the tractor
moved to the garage of his father's house, also in Tagbilaran City.
Apprehensive over Mike's unsettled account, Calibo visited him in his Cebu City address in January, February
and March, 1987 and tried to collect payment. On all three occasions, Calibo was unable to talk to Mike as the
latter was reportedly out of town. On his third trip to Cebu City, Calibo left word with the occupants of the
Abella residence thereat that there was a prospective buyer for the tractor. The following week, Mike saw
Calibo in Tagbilaran City to inquire about the possible tractor buyer. The sale, however, did not push through
as the buyer did not come back anymore. When again confronted with his outstanding obligation, Mike
reassured Calibo that the tractor would stand as a guarantee for its payment. That was the last time Calibo saw
or heard from Mike.
After a long while, or on November 22, 1988, Mike's father, Pablo Abella, came to Tagbilaran City to claim
and take possession of the tractor. Calibo, however, informed Pablo that Mike left the tractor with him as
security for the payment of Mike's obligation to him. Pablo offered to write Mike a check for P2,000.00 in
payment of Mike's unpaid lease rentals, in addition to issuing postdated checks to cover the unpaid electric and
water bills the correctness of which Pablo said he still had to verify with Mike. Calibo told Pablo that he would
accept the P2,000.00-check only if the latter would execute a promissory note in his favor to cover the amount
of the unpaid electric and water bills. Pablo was not amenable to this proposal. The two of them having failed
of the tractor."1
On November 25, 1988, private respondent instituted an action for replevin, claiming ownership of the tractor and
seeking to recover possession thereof from petitioner. As adverted to above, the trial court ruled in favor of private
respondent; so did the Court of Appeals when petitioner appealed.
The Court of Appeals sustained the ruling of the trial court that Mike Abella could not have validly pledged the subject
tractor to petitioner since he was not the owner thereof, nor was he authorized by its owner to pledge the tractor.
Respondent court also rejected petitioner's contention that, if not a pledge, then a deposit was created. The Court of
Appeals said that under the Civil Code, the primary purpose of a deposit is only safekeeping and not, as in this case,
securing payment of a debt.
The Court of Appeals reduced the amount of actual damages payable to private respondent, deducting therefrom the cost
of transporting the tractor from Tagbilaran, Bohol, to Cebu City.
Hence, this petition.
Essentially, petitioner claims that the tractor in question was validly pledged to him by private respondent's son Mike
Abella to answer for the latter's monetary obligations to petitioner. In the alternative, petitioner asserts that the tractor
was left with him, in the concept of an innkeeper, on deposit and that he may validly hold on thereto until Mike Abella
pays his obligations.
Petitioner maintains that even if Mike Abella were not the owner of the tractor, a principal-agent relationship may be
implied between Mike Abella and private respondent. He contends that the latter failed to repudiate the alleged agency,
knowing that his son is acting on his behalf without authority when he pledged the tractor to petitioner. Petitioner argues
that, under Article 1911 of the Civil Code, private respondent is bound by the pledge, even if it were beyond the authority
of his son to pledge the tractor, since he allowed his son to act as though he had full powers.
On the other hand, private respondent asserts that respondent court had correctly ruled on the matter.
In a contract of pledge, the creditor is given the right to retain his debtor's movable property in his possession, or in that
of a third person to whom it has been delivered, until the debt is paid. For the contract to be valid, it is necessary that: (1)
the pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor be the absolute owner of the
thing pledged; and (3) the person constituting the pledge has the free disposal of his property, and in the absence thereof,
that he be legally authorized for the purpose.2
As found by the trial court and affirmed by respondent court, the pledgor in this case, Mike Abella, was not the absolute
owner of the tractor that was allegedly pledged to petitioner. The tractor was owned by his father, private respondent,
who left the equipment with him for safekeeping. Clearly, the second requisite for a valid pledge, that the pledgor be the
absolute owner of the property, is absent in this case. Hence, there is no valid pledge.
"He who is not the owner or proprietor of the property pledged or mortgaged to guarantee the fulfillment of a
principal obligation, cannot legally constitute such a guaranty as may validly bind the property in favor of his
creditor, and the pledgee or mortgagee in such a case acquires no right whatsoever in the property pledged or
mortgaged."3
There also does not appear to be any agency in this case. We agree with the Court of Appeals that:
 "As indicated in Article 1869, for an agency relationship to be deemed as implied, the principal must know
that another person is acting on his behalf without authority. Here, appellee categorically stated that the only
purpose for his leaving the subject tractor in the care and custody of Mike Abella was for safekeeping, and
definitely not for him to pledge or alienate the same. If it were true that Mike pledged appeellee's tractor to
appellant, then Mike was acting not only without appellee's authority but without the latter's knowledge as
well.

Article 1911, on the other hand, mandates that the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers. Again, in view of appellee's lack of knowledge of Mike's
pledging the tractor without any authority from him, it stands to reason that the former could not have allowed
the latter to pledge the tractor as if he had full powers to do so." 4

There is likewise no valid deposit in this case. In a contract of deposit, a person receives an object belonging to another
with the obligation of safely keeping it and of returning the same. 5 Petitioner himself states that he received the tractor
not to safely keep it but as a form of security for the payment of Mike Abella's obligations. There is no deposit where the
principal purpose for receiving the object is not safekeeping. 6

Consequently, petitioner had no right to refuse delivery of the tractor to its lawful owner. On the other hand, private
respondent, as owner, had every right to seek to repossess the tractor, including the institution of the instant action for
replevin.1âwphi1.nêt

We do not here pass upon the other assignment of errors made by petitioner concerning alleged irregularities in the raffle
and disposition of the case at the trial court. A petition for review on certiorari is not the proper vehicle for such
allegations.

WHEREFORE, the instant petition is DENIED for lack of merit, and the decision of the Court of Appeals in CA-G.R.
CV No. 39705 is AFFIRMED. Costs against petitioner.

SO ORDERED.

[ G.R. No. 224006, July 06, 2020 ]
CJH DEVELOPMENT CORPORATION, PETITIONER, VS. CORAZON D. ANICETO, RESPONDENT,
G.R. NO. 224472
CORAZON D. ANICETO, PETITIONER, VS. CJH DEVELOPMENT CORPORATION, ATTY. MA.
GEORGINA ALVAREZ, AND ATTY. HILARIO BELMES, RESPONDENTS.
DECISION
LEONEN, J.:
A stipulation in a lease contract that authorizes the lessor to take possession of the leased premises is valid and binding,
even when there is no judicial action.
Before this Court are two consolidated Petitions for Review1 assailing the Decision2 and Resolution3 of the Court of
Appeals, which reversed the Regional Trial Court Decision4 and found Camp John Hay Development Corporation (CJH
Development) liable to pay Corazon Aniceto (Aniceto) P2,183,625.00, the value of the personal properties seized by the
corporation when the parties' Lease Contract expired.
Aniceto owned El Rancho Cafe and Restaurant (El Rancho), which then stood on Camp John Hay in Baguio City. CJH
Development had allowed her to use a junkyard within the vicinity, on which she built her restaurant from October to
December 2003.5
On December 1,2003, Aniceto and CJH Development formally entered into a Lease Contract effective until November
30, 2004. When the lease expired, it was renewed on a monthly basis.6  On November 18, 2005, Aniceto and CJH
Development entered into another Lease Contract that would last until November 17, 2006.7
Pertinently, under Article VI, Section 1 of the Lease Contract, all permanent improvements made by Aniceto shall form
an integral part of the premises and become CJH Development's property upon the termination of the lease.8  Moreover,
under Article X, when the contract is terminated, Aniceto must promptly deliver the premises to CJH Development
devoid of occupants, furniture, articles, and effects of any kind; otherwise, CJH Development can enter the premises and
take inventories of Aniceto's merchandise. The merchandise will then be placed in the bodega for Aniceto's retrieval. 9
When the term of this Lease Contract lapsed, the parties amended it to extend for six more months, or until May 17,
2007.10
Before the second lease expired, Aniceto asked for another extension from Federico S. Alquiros (Alquiros), the officer-
in-charge of CJH Development. The request was denied. Nevertheless, El Rancho continued to operate on a monthly
basis, with Aniceto paying advance rentals up to February 28, 2008.11
However, on January 30, 2008, Alquiros wrote Aniceto, informing her to vacate the premises as it would undergo land
development. Aniceto was given until March 1, 2008 to remove all furniture, equipment, and furnishing within the
premises.12
In February 2008, Aniceto twice tried to convince Alquiros to extend the lease, reasoning that El Rancho would not get
in the way of the land development. On both occasions, Alquiros denied the requests, reminding Aniceto instead to
vacate the premises.13 On February 28, 2008, a day before the deadline, Aniceto sent yet another request for extension.
This was rejected all the same, and she was given 24 hours to vacate the premises.14
Thus, before the Regional Trial Court of Baguio City, Aniceto filed a Complaint seeking to enjoin the closure and
demolition of El Rancho. The Complaint was lodged against CJH Development; its Legal and Corporate Service Senior
Vice President, Arty. Ma. Georgina Alvarez (Atty. Alvarez); its legal officer, Atty. Hilario Belmes (Atty. Belmes), and
Alquiros.15
On March 4, 2008, the trial court issued a 72-hour Temporary Restraining Order, directing CJH Development to cease
and desist from closing El Rancho. On March 6,2008, it issued a status quo order. Eventually, however, it denied the
application for the issuance of a writ of preliminary injunction.16
While Aniceto was seeking reconsideration of the denial, on May 1, 2008, El Rancho was demolished.17
Thus, the trial court denied her Motion for Reconsideration for mootness.18 Meanwhile, the case itself became a
complaint for damages.19 Aniceto sought actual damages worth P4,983,625.00 for the demolition of the structure and the
personal properties taken from El Rancho. This amount was broken down as follows: (a) P2,500,000.00 for the value of
the structures; (b) P300,000.00 for the landscaping, (c) 146,000.00 for the value of the signage; and (d) P2,137,625.00 for
the value of personal properties.20
In its Answer, CJH Development argued that Aniceto had no cause of action because the lease had long expired on May
17, 2007. The monthly extension, it said, was only allowed pursuant to the hold-over provision of the Lease Contract. It
also maintained that the demolition was legal and within its rights as owner of El Rancho's structure, citing Article VI,
Section 1 and Article X, Section 2 of the Lease Contract.21
When the parties failed to arrive at an amicable settlement, trial proceeded.22  From this, the Regional Trial Court issued
its December 11, 2013 Decision23 ruling in favor of Aniceto. It disposed as follows:
WHEREFORE, this Court finds for the plaintiff and RESOLVES to:
1. DECLARE as contrary to law, good customs and public policy the demolition made by the defendants of
the El Rancho and the taking of all properties found therein.
2. DECLARE Section 2, Article X of the Lease dated November 18,2005 without force and effect being
contrary to law.
3. ORDER the defendants CJHDevCo, Atty. Ma. Georgina Alvarez, and Atty. Hilario Belmes, jointly and
severally, TO PAY the plaintiff: (a) actual damages in the amount of P2,183,625.00, being the uncontested
value of the personal properties owned by the plaintiff kept at the Roosevelt Building of CJHDevCo, less the
value of any undamaged properties defendant CJHDevCo will turn over to the plaintiff; (b) the amount of
P1,000,000.00 by way of moral damages; (c) the amount of P500,000.00 by way of exemplary
damages; (d) P200,000.00 as attorney's fees; and (e) the costs.
SO ORDERED. 24 (Emphasis in the original)
The trial court held that the demolition was illegal and may not be justified by the Lease Contract. It held that Article X,
Section 2 of the contract was illegal as it ignored the basic demands of due process.25
The trial court further denounced how the restaurant was demolished while the case was pending, saying that this act
grossly violated the rules on forcible entry and unlawful detainer and usurped the power of the courts.26
Thus, the trial court found bad faith in CJH Development and its lawyers, finding them liable under the abuse of rights
principle laid down in Articles 19, 20, and 21 of the New Civil Code.27 It awarded damages for the restaurant's
demolition, which it found to have caused damage and injury on Aniceto.28 It, however, spared Alquiros, whom it ruled
was just a layperson without knowledge of the law and who merely relied on the advice of his legal advisers.29
In assessing the actual damages, the trial court gave more weight to Aniceto's inventory than the company's incomplete
inventory. However, it explained that the value of the demolished structures and landscape could not be awarded to
Aniceto as these were deemed owned by CJH Development based on the Lease Contract. Only the value of the personal
properties amounting to P2,183,625.00 may be awarded to Aniceto, less the value of personal properties kept by CJH
Development for Aniceto's retrieval.30 The trial court also awarded P1,000,000.00 as moral damages, P500,000.00 as
exemplary damages, P200,000.00 as attorney's fees, and costs of suit.31
On appeal, the Court of Appeals, in its July 27, 2015 Decision,32 set aside the Regional Trial Court Decision. It
disposed:
WHEREFORE, in view of the foregoing, the appeal is hereby GRANTED. The Decision dated December 11, 2013 of
the Baguio City Regional Trial Court, Branch 61, in Civil Case No. 6648-R is hereby REVERSED AND SET ASIDE.
However, [CJH Development] is hereby ORDERED to pay the amount of Php2,183,625.00 representing the value of
personal properties taken from plaintiff-appellee during the demolition undertaken on April 29 to May 1, 2008. In
addition, the value of the personal properties, if any, which are still kept at Roosevelt Building of [CJH Development]
shall be deducted from the aforesaid amount, provided that [CJH Development] shall turn them over in an undamaged
state and in the same condition as when they were removed from the leased premises.
SO ORDERED.33 (Emphasis in the original)
Relying on Article VI, Section 1 of the Lease Contract, the Court of Appeals ruled that CJH Development was well
within its rights as owner to demolish the restaurant. It ruled that since the contract had already expired on May 17, 2007,
the company's removal of the structure was valid.34
The Court of Appeals also found that CJH Development only demolished the restaurant after Aniceto's application for
preliminary injunction had been denied. It also noted that the status quo order had expired a month before the demolition,
and that Aniceto had been informed several times to vacate the premises until March 1, 2008. Hence, it ruled that the
demolition on April 29, 2008 did not need a court action.35
In deleting the award of damages, the Court of Appeals ascribed good faith to CJH Development. It held that Aniceto had
no clear right to retain possession since the lease had expired. Since the application for preliminary injunction had been
denied, it found that CJH Development may proceed with the demolition even if a motion for reconsideration was still
pending.36 More telling of good faith, the Court of Appeals noted, was that Aniceto's employees and the Baguio City
police even witnessed the demolition.37
Absolving the company lawyers, the Court of Appeals maintained that these officers may not be held jointly and
severally liable with the corporation unless they have exceeded their authority. It opined that Attys. Alvarez and Belmes
only acted within their duty to protect the company's interests.38
The Court of Appeals, however, agreed with the trial court that the value of permanent improvements should be deducted
from the damages claimed by Aniceto. It deducted the following: (1) the value of the permanent improvements,
particularly the structures and the landscape, amounting to P 2,800,000.00, deemed owned by CJH Development; and (2)
the value of the personal articles and goods that may be returned to Aniceto.39
The Court of Appeals further ruled that CJH Development should return the personal properties in an undamaged state
and in the same condition as when they were removed from the restaurant.40
Both parties moved for reconsideration, but these were denied by the Court of Appeals in its March 8, 2016
Resolution.41
Hence, both parties went before this Court with their Petitions for Review on Certiorari. CJH Development's was
docketed as G.R. No. 224006,42 while Aniceto's was docketed as G.R. No. 224472.43 The cases were eventually
consolidated.44
In her Petition, Aniceto mainly argues that the provisions of the Lease Contract are illegal and without force and effect.45
She contends that Article X, Section 2 violates due process. Moreover, for giving CJH Development the right to
unilaterally take possession of the premises, she says that the contract went against law, morals, good customs, public
order, and public policy.46 She likewise assails Article VI, Section 1 for allowing the lessor to have an unbridled right
over the property. She claims that the provision cannot protect CJH Development from civil or criminal liabilities in their
exercise of its right.47 In demolishing the restaurant, Aniceto claims, CJH Development disregarded the court and
violated the rules on forcible entry and unlawful detainer.48
Aniceto likewise imputes bad faith to CJH Development for demolishing the establishment without any court order.
Asserting that the corporation was wrong to take the law into its own hands, she avers that it violated the abuse of rights
principle.49 She did not spare Attys. Belmes and Alvarez, saying that as lawyers, the two cannot feign innocence and
claim that they saw no legal impediment against the demolition.50
Lastly, Aniceto claims that she is entitled to the damages awarded by the trial court. As to the actual damages, she asserts
that she presented a list of structures demolished and goods taken during the demolition, which should be given more
weight and credence than CJH Development's inventory. 51
In its Comment,52 CJH Development counters that stipulations allowing the eviction of the lessee without court
intervention are valid. It further avers that the stipulation allowing CJH Development to regain possession of the
premises upon default is a resolutory condition, which is valid.53
Citing jurisprudence, 54 CJH Development avers that Aniceto, whose lease has expired, cannot maintain an action
against it even if the ouster was done extrajudicially.55 It points out that under the law, parties may enter into contracts
and agree on stipulations that will govern their affairs. As such, when CJH Development and Aniceto entered into the
lease contract, they agreed that upon default, the lessor can extrajudicially regain possession of the premises.56
Moreover, CJH Development claims that it acted in good faith when it proceeded with the demolition. It invokes Article
1306 of the Civil Code, under which a stipulation granting ownership of improvements to the lessor is valid.57  Thus, it
maintains that when it removed the structures of the restaurant, it was authorized under the Lease Contract to do so. It
then reiterates that the removal was done after the status quo order had expired and Aniceto's application for preliminary
injunction had been denied, and that it was witnessed by Aniceto's employees and police officers. 58
CJH Development further maintains that it was constrained to remove the structures because Aniceto refused to vacate
the premises and to remove her personal properties despite several notices. Thus, it cannot be said that CJH Development
disregarded the court and acted in bad faith.59 Absent bad faith, it cannot be held liable under the abuse of rights
principle.60
CJH Development also maintains that Attys. Alvarez and Belmes are not personally liable to pay damages,61  given that
the corporation has a personality of its own. Thus, it asserts that without bad faith or gross negligence on their part, they
have no liability.62
In her Reply,63 Aniceto reiterates that CJH Development took the law into its own hands when it demolished the
restaurant and took possession of her personal properties despite her protest.64
Meanwhile, in its own Petition, CJH Development argues that while Aniceto's personal properties must be returned, it
must not be held liable for any deterioration, damage, or loss of these items. 65 It reasons that these personal properties
include perishable food items and materials made of wood, which have already rotted, 66 and which had long been
available for Aniceto's retrieval.67
Moreover, CJH Development maintains that the removal of the properties is consistent with the Lease Contract, citing
Article X, Section 1 that says the premises, upon turnover, must be "devoid of any occupants, furniture, equipment and/or
furnishing except the permanent improvements introduced thereon."68 Citing the same provision, it insists that Aniceto
had agreed to pay all reasonable expenses CJH Development incurred in storing the removed properties.69
CJH Development further narrates that when it entered the premises, Aniceto's employees were asked to remove all the
personal items, but they refused. Thus, they were constrained to take the properties and store them in the bodega. When
they asked the representatives to sign the inventories they prepared, the latter refused again.70 CJH Development asserts
that it would  be unjust to be required to pay for the personal properties which Aniceto could have retrieved long ago.71
CJH Development also prays that the actual damages of P2,183,625.00 be deleted.  72 It notes that Aniceto failed to
prove the actual loss suffered, with the inventory she presented in court only self-serving.73
Lastly, CJH Development admits that it raises questions of fact, but asserts that its Petition falls under recognized
exceptions, namely: (1) the Court of Appeals' inference is manifestly mistaken, absurd, or impossible; (2) its judgment is
based on a misapprehension of facts; and (3) its findings of fact are premised on the absence of evidence and is
contradicted by the evidence on records.74
In her Comment,75 Aniceto counters that the Lease Contract is a contract of adhesion whose provisions she had no
option but to accept. Thus, she says, the trial court correctly struck down the provisions for violating her right to due
process, as well as the human relations principles.76
As to the award of damages, Aniceto echoes the Court of Appeals ruling that the inventory she presented prevails over
CJH Development's incomplete list. She likewise maintains CJH Development's liability for the value of the personal
properties it confiscated.77
In its Reply,78 CJH Development maintains that the Court of Appeals' finding of fact must be revisited for being based
on a misapprehension of facts. It notes that it submitted at least two inventories which the Court of Appeals failed to
consider, and which Aniceto herself did not dispute. It also attacks Aniceto's inventory, claiming that it cannot be the
basis of actual damages for being self-serving and inadmissible.79
Finally, CJH Development reiterates that it repeatedly notified Aniceto about retrieving the properties, but Aniceto failed
to do so.80 Since it was Aniceto who unjustifiably refused to take her personal properties, any deterioration, damage, and
loss should be borne by her and not the corporation.81
The issues for this Court's resolution are the following:
First, whether or not questions of fact may be raised in the Rule 45 Petition of Camp John Hay Development
Corporation;
Second, whether or not the assailed provisions of the Lease Contract are valid. Subsumed under this are the issues of
whether or not the demolition and ejectment were validly made even without a court order, whether or not a contract may
grant the lessor ownership over the permanent improvements, and whether or not the Lease Contract is a contract of
adhesion;
Third, whether or not Camp John Hay Development Corporation is liable for personal properties of the lessee; and
Finally, whether or not Camp John Hay Development Corporation and its lawyers are liable for damages under the abuse
of rights principle.
I
Only questions of law may be raised in a Rule 45 petition.82 As this Court is not a trier of facts, the lower courts' factual
findings are generally binding upon it.83 Nevertheless, jurisprudence has provided several exceptions to this rule:
(1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) When the inference
made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of discretion; (4) When the
judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) The findings of the Court of Appeals are contrary to those of the trial court; (8) When the
findings of fact are conclusions without citation of specific evidence on which they are based; (9) When the facts set
forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents; and (10) The
finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by the
evidence on record.84 (Citations omitted)
For these cases, a proper resolution would demand a scrutiny of the factual issues, which is generally beyond the ambit of
a Rule 45 petition. CJH Development alleged that its case is an exception, for the following reasons: (1) the Court of
Appeals' inference was manifestly mistaken, absurd, or impossible; (2) its judgment was based on a misapprehension of
facts; and (3) its findings of fact were premised on the absence of evidence and was contradicted by the evidence on
records. 85
After a judicious review, this Court finds it necessary to review the facts to have a proper determination of these cases.
II
When parties enter into contracts, they are free to stipulate on the terms and conditions of their agreement as they may
deem convenient.86 Contracts have the force of law between the contracting parties. Thus, whatever stipulations agreed
upon in them must be complied with in good faith. 87
However, the freedom to stipulate is not absolute.88 Under Article 1306 of the Civil Code, parties cannot agree on
stipulations that are "contrary to law, morals, good customs, public order, or public policy." It states:
ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.89
A contract of lease is a special form of contract in civil law. The Civil Code outlines a number of provisions that guide
the parties and limit the stipulations that may be agreed upon in the lease contract. It specifies the rights and obligations
of the lessor and the lessee, as well as the rules on the payment and ejectment.90
Under the Civil Code provisions on lease, when the lease has a definite period, it ceases on the day fixed without need for
a demand from the lessor.91
The lessee, then, shall return the thing leased, as they received it, to the lessor.92
However, if at the end of the contract, the lessor allows the lessee to enjoy the lease for 15 days, there arises an implied
lease and the terms of the original contract are revived. 93 It is presumed by law that the lessor is amenable to its
renewal.94 When there is an implied lease, the lease will continue based on the period of payment.95 For instance, if the
lease is paid monthly, the implied lease would only be renewed every month. The implied lease is a lease with a definite
period, and it is "terminable at the end of each month upon demand to vacate by the lessor."96
On the other hand, if the lessor refuses to renew the lease, it is necessary for him or her to furnish the lessee with a formal
notice to vacate the premises.97 If the lessee continues to possess the premises against the lessor's will, the lessee would
be holding the property illegally and a judicial action may be filed.98  Moreover, the lessee "shall be subject to the
responsibilities of a possessor in bad faith."99
Under Article 1673, "[t]he lessor may judicially eject the lessee" in the following instances: (1) if the period agreed upon
has expired; (2) if the lessee fails to pay the price stipulated; (3) if the lessee violates any of the conditions of the
contract; and (4) if the thing leased suffered deterioration due to use or service not stipulated. 100
However, judicial action is not always required to eject the lessee.
In Consing v. Jamandre, 101 the petitioner-sublessee of a hacienda in Negros Occidental allegedly failed to pay the
respondent-sublessor. Because of this, the respondent regained possession of the hacienda, relying on a provision of their
lease contract stating that when the lessee fails to comply with any of its term and conditions, the lessor is authorized "to
take possession of the leased premises including all its improvements without compensation to the [sublessee] and
without necessity of resorting to any court action[.]" 102 The petitioner went to this Court, assailing its validity. 103
This Court ruled that such stipulation in a lease contract, which authorized the sublessor to take possession of the
premises without judicial action, is valid and binding because the stipulation is in the nature of a resolutory condition. It
held:
This stipulation is in the nature of a resolutory condition, for upon the exercise by the Sub-lessor of his right to take
possession of the leased property, the contract is deemed terminated. This kind of contractual stipulation is not illegal,
there being nothing in the law proscribing such kind of agreement. As held by this Court in Froilan vs. Pan Oriental
Shipping Co:
Under Article 1191 of the Civil Code, in case of reciprocal obligations, the power to rescind the contract where a party
incurs in default, is impliedly given to the injured party. Appellee maintains, however, that the law contemplates of
rescission of contract by judicial action and not a unilateral act by the injured party; consequently, the action of the
Shipping Administration contravenes said provision of the law. This is not entirely correct, because there is also nothing
in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract. As already held, judicial action is needed where there is absence of special
provision in the contract granting to a party the right of rescission."
Judicial permission to cancel the agreement was not, therefore, necessary because of the express stipulation in the
contract of sub-lease that the sub-lessor, in case of failure of the sub-lessee to comply with the terms and conditions
thereof, can take-over the possession of the leased premises, thereby cancelling the contract of sub-lease. Resort to
judicial action is necessary only in the absence of a special provision granting the power of cancellation.104 (Citations
omitted)
Consing teaches that while Article 1673 provides for judicial action to eject the lessee, it is only required if the lease
contract has no special provision granting the cancellation of the lease.105
Viray v. Intermediate Appellate Court106 reiterated this doctrine. There, a similar provision, which authorized the
sublessor repossession without court action, was assailed for contravening public policy. In upholding its validity, this
Court held that there was no law against extrajudicial ejectment. In fact, stipulations may authorize the use of "all
necessary force" or "reasonable force" for the sublessor to repossess the lessor of the premises:
This Court ruled that the stipulation "is in the nature of a resolutory condition, for upon the exercise by the Sub-lessor of
his right to take possession of the leased property, the contract is deemed terminated;" and that such a contractual
provision "is not illegal, there being nothing in the law proscribing such kind of agreement."
Similarly, there is considerable authority in American law upholding the validity of stipulations of this nature.
"Although the authorities are not in entire accord, the better view seems to be, even in jurisdictions adopting the view that
the landlord cannot forcibly eject a tenant who wrongfully holds without incurring civil liability, that nevertheless, where
a lease provides that if the tenants holds over after the expiration of his term, the landlord may enter and take possession
of the premises, using all necessary force to obtain the actual possession thereof, and that such entry should not be
regarded as a trespass, be sued for as such, or in any wise be considered unlawful, the landlord may forcibly expel the
tenant upon the termination of the tenancy, using no more force than is necessary, and will not be liable to the tenant
therefor, such a condition in a lease being valid."
". . . although there is contrary authority, the rule supported by a substantial number of cases is that despite the effect of
forcible entry and detainer statutes, where a lease expressly gives a landlord a right to use such reasonable force as is
necessary in making re-entry and dispossessing a tenant, when the landlord becomes entitled to possession because of the
termination of the term, the landlord can use force in making re-entry and dispossessing the tenant."  107 (Citations
omitted)
The more recent case of Republic v. Peralta 108 is likewise illuminating. The petitioner-lessor again argued that a
judicial action was not required to evict the lessees because the contract allowed for extrajudicial ejectment upon the
expiration of the lease contract. 109 Again, this Court upheld the contract provision as valid, declaring that since such
stipulations form "the law between the parties, they must be respected." 110
Similarly, the cases here put in issue the legality of some provisions in the parties' Lease Contract.
First, Aniceto contends that Article X, Sections 1 and 2, which gave CJH Development authority to extrajudicially regain
possession of the premises, must be struck down for violating due process and being illegal. Second, Aniceto argues that
Article VI, Section 1, which granted CJH Development ownership over the permanent improvements, is likewise illegal.
II (A)
The provisions on the termination of Lease Contract, which Aniceto claims violate due process and the law, state:
ARTICLE X II (B)
TERMINATION OF LEASE
Section 1. Termination or Expiration of Lease. The LESSEE, at the expiration or termination of the term of this Contract
or cancellation of this Contract as herein provided, shall promptly deliver the said Leased Premises to the LESSOR in
good condition, reasonable wear and tear excepted, devoid of all occupants, furniture, articles and effects of any kind,
subject to Section 1, Article VI hereof.
Section 2. Non-compliance. Non-compliance on the part of the LESSEE with the terms and conditions of this Article will
give the LESSOR the right to enter the Leased Premises and LESSEE hereby expressly appoints LESSOR as his duly
authorized Attorney-in-Fact with power and authority to cause the Leased Premises to be opened in the presence of a
peace officer to take inventories of the LESSEE'S merchandise and to place the same in LESSOR'S bodega so that the
LESSOR can take full possession of the said premises. LESSEE hereby expressly agrees to pay all reasonable expenses
incurred by LESSOR in connection therewith including storage fees; Provided, further that failure of LESSEE to claim
said merchandise and equipment within thirty (30) days from date of transfer to LESSOR'S bodega, LESSOR is hereby
given the right to dispose of said property in private sale and to apply the proceeds to whatever indebtedness of LESSEE
to LESSOR and the balance, if any, shall be given to LESSEE. LESSOR shall not incur civil and/or criminal liabilities
whatsoever by exercising its rights granted under these provisions. The rights granted to the LESSOR in this section, may
be exercised by the LESSOR'S duly authorized employees, agents or representatives and, in so doing, they shall not incur
civil and/or criminal liabilities whatsoever.111 (Emphasis supplied)
Here, before the second lease lapsed on May 17, 2007, Aniceto asked CJH Development to renew the Lease Contract.
While CJH Development refused the request, it still allowed Aniceto to keep occupying the premises. Only on January
30, 2008 did it notify her to vacate the premises. 112 From then on, despite Aniceto's persistent requests to renew the
lease, CJH Development refused and reminded her to vacate the premises, and that she had until March 1, 2008 to do so.
Clearly, there was an implied lease between the parties. When the lease expired on May 17, 2007, CJH Development
acquiesced to Aniceto's continued occupancy. It did not send a notice to vacate and even accepted Aniceto's monthly
payments until February 28, 2008. As it was paid monthly, the implied lease ran on a month-to-month renewal, in
accordance with Article 1687 of the Civil Code. It follows that the lease would be terminated by the end of each month,
and CJH Development may choose not to renew the lease and demand repossession of the premises.
In sending the notice to vacate on January 30, 2008, CJH Development signified that it no longer wished to continue the
lease. By then, the month- to-month implied lease was terminated. The lessee can no longer insist on staying in the
premises against the lessor's will because there is no longer a contract of lease to speak of.
Thus, when Aniceto refused to surrender the premises, the Lease Contract provided CJH Development recourse. Article
X, Section 2 authorized it to enter the premises and extrajudicially regain possession if Aniceto failed to promptly deliver
the premises upon the termination of the Lease Contract.
This provision is neither unconstitutional nor illegal, contrary to Aniceto's assertions. As this Court has consistently held,
the lessee may be ejected from the leased premises without any court action as long as there is a stipulation to this effect.
Due process was not violated here, considering that the lessor owns the property and merely allowed the lessee to occupy
and possess it for a certain period. There is no deprivation of property without due process when the law  113 and the
provision of the lease contract allow the lessor to immediately repossess the property when the lease is terminated.
More so, in an implied lease, the lessee cannot unreasonably insist on continuing it. Nor can the lessee keep on badgering
the lessor into renewing the lease when the contract has already expired. Even if the lease was repeatedly renewed, it
does not give the lessee a better right over the property. The lessor, as the property owner, may decide not to renew the
implied lease and devote the property to other use.
Aniceto also assails Article VI, Section 1 of the Lease Contract for supposedly giving CJH Development ownership over
the permanent improvements, and therefore an unbridled right over the property. The section states:
ARTICLE VI
IMPROVEMENTS & ALTERATIONS
Section 1. Improvements and Alterations. The LESSEE, with the written consent and approval of the LESSOR, may
introduce improvements or alterations on the Leased Premises. For this purpose, the LESSEE shall:
a) Shall submit to the LESSOR detailed engineering plans for improvements or alterations which shall be
subject to the review and approval of the LESSOR, prior to start of work;
b) Require its contractor to apply for accreditation with the LESSOR;
c) Require its contractor and employees to undergo a safety and environmental briefing.
It is expressly understood that the actual cost of the permanent improvements or alterations introduced shall be for the
account of the LESSEE.
All permanent improvements or alterations made on the Leased Premises shall upon completion thereof, form an integral
part of the Leased Premises, and shall not be removed therefrom, but shall belong to and become the exclusive property
of the LESSOR and the LESSEE shall have no right to reimbursement of the cost or value thereof.  114 (Emphasis
supplied)
Article 1678 of the Civil Code provides the rule on improvements introduced by the lessee upon the premises. It states:
ARTICLE 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease
is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease
shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said
amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall
not, however, cause any more impairment upon the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the
ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by
paying their value at the time the lease is extinguished.115
In Land Bank of the Philippines v. AMS Farming Corporation, 116 this Court explained that a lessee who builds on the
leased premises is treated differently from a builder in good faith. Unlike a lessee, a builder in good faith believed that he
or she owned the land. Under Articles 448 and 546 of the Civil Code, the builder in good faith is granted the rights of
retention and reimbursement for the necessary and useful expenses spent on the improvements. 117
On the other hand, a lessee is conclusively presumed to know that he or she does not own the land. If the lessee
introduces improvements on the leased premises, the law only grants him or her the right to remove these improvements,
or be paid 50% of their value in case the lessor decides to retain. Because the lessee is deemed to have known the nature
of occupation and possession of the premises, he or she is deemed to have introduced the improvements at his or her own
risk. The lessee knows that at some point, the life of the lease contract will end, and the lessor will eventually demand the
premises back.118
Moreover, the reimbursement to the lessee is predicated on the lessor's choice to appropriate the improvements
introduced by the lessee. The lessee cannot compel the lessor to retain the improvement or pay the reimbursement. The
lessee may only remove the improvements if the lessor refused to appropriate and reimburse. 119
Here, the last sentence of the Lease Contract's Article VI, Section 1 provides that CJH Development does not have to
reimburse Aniceto for her permanent improvements on the premises.
This outright violates Article 1678, which mandates the lessor to choose whether or not to appropriate the improvement.
If so, the lessee must be reimbursed half of its value; if not, the lessee has the right to remove the improvements. Either
way, the lessor cannot own the improvement without paying the lessee. Hence, CJH Development cannot insist on a
blanket provision that grants it ownership over the structure of the restaurant. For this, the last sentence of Article VI,
Section 1 must be struck down.
In any case, it appears that CJH Development decided not to appropriate and use the permanent improvement introduced
by Aniceto. Hence, it is not liable to reimburse Aniceto for the demolished structures.
We likewise agree with the Court of Appeals that the demolition of the restaurant did not go against the authority of the
trial court.
As explained by the Court of Appeals, the 72-hour Temporary Restraining Order directing CJH Development to desist
from closing the restaurant had already expired at the time of the demolition. Moreover, the  status quo order had likewise
lapsed and Aniceto's application for preliminary injunction had been denied. Hence, there was no legal obstacle for CJH
Development to take possession of the premises.
II (C)
Additionally, in assailing the provisions, Aniceto argues that the lease contract is a contract of adhesion, and thus, against
public policy.
This argument deserves scant consideration.
An adhesion contract is a contract unilaterally prepared and drafted in advance by one party. In this kind of contract,
"parties are not given a real arms' length opportunity to transact[.]"120 Hence, the weaker party has no option but to
accept the terms and conditions already inserted in the contract. For this reason, the party may not have understood all the
terms and stipulations prescribed. 121
Nevertheless, contracts of adhesion are not void per se. They may be as binding on the parties as any ordinary contract.
In Ong him Sing, Jr. v. FEB Leasing & Finance Corporation'122
[Wjhile we affirm that the subject lease agreement is a contract of adhesion, such a contract is not void per se. It is as
binding as any ordinary contract. A party who enters into an adhesion contract is free to reject the stipulations entirely. If
the terms thereof are accepted without objection, then the contract serves as the law between the parties.123
Here, Aniceto failed to show how CJH Development dominated her when they entered into the contract. There was no
showing that Aniceto was unaware of the contract's provisions or that the provisions were vaguely worded. Aniceto even
seemed to understand the implications of the contract, as shown when she entered into a second lease with CJH
Development, as well as in the further extensions made by amending the contract.
As parties to the Lease Contract, Aniceto and CJH Development entered into stipulations they found convenient. Without
showing that the provisions are against law, morals, good customs, public order, or public policy, the contract has the
force of law and must be binding upon the parties.
III
Article X, Section 2 of the Lease Contract not only gives CJH Development the right to repossess the premises, but also
the authority to "take inventories of Aniceto's merchandise and to place the same in [CJH Development's]
bodega"124 for Aniceto's retrieval. It further states that Aniceto will shoulder all reasonable expenses incurred by CJH
Development in safekeeping the merchandise, including storage fees.
Yet, the Court of Appeals ruled that CJH Development was liable to return or pay the value of the personal properties it
stored in its bodega.
Such finding has no basis in law.
While the agreement of the parties is akin to a contract of deposit, the special rules on deposit cannot apply because
safekeeping is not the principal purpose of the contract. 125 Hence, we find guidance in the general provisions on
obligations.
Under Article 1262 of the Civil Code, an obligation to deliver a determinate thing shall be extinguished if it was lost or
destroyed without fault and delay on the part of the obligor.126 If the thing is lost while in the custody of the obligor, the
law presumes that the loss was due to the obligor's fault, unless there is proof to the contrary.127 This presumption lies
because the obligor "has the custody and care of the thing can easily explain the circumstances of the loss."128
Here, CJH Development was authorized under the Lease Contract to take Aniceto's personal properties found in the
premises; in turn, Aniceto is obliged to retrieve them. However, due to Aniceto's refusal to do so, the properties
deteriorated over time.
CJH Development has proven that the deterioration of Aniceto's personal properties was not its fault. When CJH
Development entered the premises, Aniceto's employees were present. When it asked them to remove all the items, the
employees refused. Hence, the corporation itself took the articles and goods and placed them in its bodega for Aniceto's
retrieval. When it prepared the inventories, Aniceto's employees also refused to sign them.
Aniceto did not deny these allegations. She only insists that her inventory must be upheld over the list submitted by CJH
Development.
It is clear, then, that CJH Development only acted within its authority.
The Lease Contract states that upon its termination, the premises must be returned by Aniceto, "devoid of all occupants,
furniture, articles and effects of any kind[.]" 129 It was Aniceto's unjustified refusal to retrieve the properties that caused
them to sit idle and deteriorate over time, rotten to be of any use.
The personal articles and goods were no longer capable of being returned to Aniceto, but CJH Development cannot be
held liable to pay their value. CJH Development is released from its obligation to safekeep and return the items if these
were destroyed and lost without fault and delay on its part. 130 Aniceto must solely bear the loss she brought on herself,
through her unjustified refusal to comply with her obligation. Thus, the award of damages for the value of the personal
properties must be deleted.
IV Bad faith is not merely bad judgment or simple negligence, but a "dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty due to some motives or interest or [ill will] that partakes of the
Lastly, this Court affirms the Court of Appeals' ruling that CJH Development and its lawyers are not liable for damages nature of fraud." 141 Similarly, malice "implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or
bad motive." 142
under the abuse of rights principle.

The abuse of rights principle is enshrined in the Civil Code: Here, CJH Development has no liability under the abuse of rights principle. It was not shown to have acted in bad faith or
with malice in pursuing its rights under the Lease Contract. Aniceto has not proven how the company's actions were
tainted with an ill motive to cause her harm. In entering and regaining possession of the premises, CJH Development
ARTICLE 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give only exercised its right as the owner of the land.
everyone his due, and observe honesty and good faith.
Even before CJH Development demolished the premises, it sent Aniceto several notices to vacate. When it removed the
ARTICLE 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the personal properties, Aniceto's employees and the Baguio City police were present. CJH Development also requested
latter for the same. Aniceto to retrieve her properties, but she, for unknown reasons, refused to do so.

ARTICLE 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.
These articles provide a standard to which one must adhere in the exercising rights and performing duties.131
As stated in Globe Mackay Cable and Radio Corporation v. Court of Appeals,132 these Civil Code provisions provide
"basic principles that are to be observed for the rightful relationship between human beings and for the stability of the
social order." 133 This Court said:
The framers of the Code, seeking to remedy the defect of the old Code which merely stated the effects of the law, but
failed to draw out its spirit, incorporated certain fundamental precepts which were "designed to indicate certain norms
that spring from the fountain of good conscience" and which were also meant to serve as "guides for human conduct
[that] should run as golden threads through society, to the end that law may approach its supreme ideal, which is the sway
and dominance of justice[.]134
Moreover, in De Guzman v. National Labor Relations Commission: 135
Neither did the lawyers act in bad faith in advising CJH Development to demolish the restaurant and remove Aniceto's
properties. As discussed, the entry and repossession of the premises are within CJH Development's contractual rights. As
lawyers, Attys. Alvarez and Belmes only advised their client to protect its interests under the law.
In sum, the circumstances here do not demonstrate bad faith or malice, nor any unjustifiable harm caused to Aniceto.
Hence, the Court of Appeals correctly deleted the award of damages.
WHEREFORE, the Petition for Review of Corazon D. Aniceto is DENIED, but the Petition for Review of Camp John
Hay Development Corporation is GRANTED. The Court of Appeals' July 27, 2015 Decision and March 8, 2016
Resolution in CA-G.R. CV No. 102139 are AFFIRMED with MODIFICATION. The award of damages worth
P2,183,625.00, which represents the value of the personal properties, is deleted for lack of legal basis. The remaining
personal properties stored with Camp John Hay Development Corporation, if any, shall be turned over to Corazon D.
Aniceto.
SO ORDERED.

The exercise of a right ends when the right disappears, and it disappears when it is abused, especially to the prejudice of
others.£a⩊phi£ The mask of a right without the spirit of justice which gives it life is repugnant to the modern concept of
social law. It cannot be said that a person exercises a right when he unnecessarily prejudices another or offends morals or
good customs. Over and above the specific precepts of positive law are the supreme norms of justice which the law
develops and which are expressed in three principles: honeste vivere, alterum non laedere and jus siatm quique
tribuere; and he who violates them violates the law. For this reason, it is not permissible to abuse our rights to prejudice
others.136 (Citation omitted)

Article 19 puts a "primordial limitation on all rights[.]"137 It mandates that the norms of human conduct be observed in
the exercise of one's rights. 138

While a right may be granted by law, it may not be exercised in a way that causes damage to another, giving rise to a
legal wrong.1awp++i1 Article 19, which only lays down a rule of conduct, is read together with Articles 20 and 21,
which authorize an action for damages. Article 20 pertains to damage arising from a violation of law, while Article 21
provides damages for those who suffered material and moral injury.139

To be awarded damages under the abuse of rights principle, the following elements must be proven: (1) there is a legal
right or duty; (2) the legal right or duty was exercised in bad faith; and (3) it was done for the sole intent of prejudicing or
injuring another.140

G.R. No. 201822, August 12, 2015
MARINA PORT SERVICES, INC.*, Petitioner, v. AMERICAN HOME ASSURANCE
CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari 1 filed pursuant to Rule 45 of the Rules of Court assails the December
29, 2011 Decision2 and May 8, 2012 Resolution3 of the Court of Appeals (CA) in CA GR. CV No. 88321, which granted
the appeal filed therein by respondent American Home Assurance Corporation (AHAC) and reversed and set aside the
October 17, 2006 Decision4 of the Regional Trial Court (RTC), Pasig City, Branch 271 dismissing AHAC's
Complaint5 for Damages against petitioner Marina Port Services, Inc. (MPSI).
Factual Antecedents
On September 21, 1989, Countercorp Trading PTE., Ltd. shipped from Singapore to the Philippines 10
container vans of soft wheat flour with seals intact on board the vessel M/V Uni Fortune. The shipment was insured
against all risks by AHAC and consigned to MSC Distributor (MSC).
Upon arrival at the Manila South Harbor on September 25, 1989, the shipment was discharged in good and
complete order condition and with safety seals in place to the custody of the arrastre operator, MPSI. After unloading and
prior to hauling, agents of the Bureau of Customs officially broke the seals, opened the container vans, and examined the
shipment for tax evaluation in the presence of MSC's broker and checker. Thereafter, the customs inspector closed the
container vans and refastened them with safety wire seals while MSC's broker padlocked the same. MPSI then placed the
said container vans in a back-to-back arrangement at the delivery area of the harbor's container yard where they were
watched over by the security guards of MPSI and of the Philippine Ports Authority.
On October 10, 1989, MSC's representative, AD's Customs Services (ACS), took out five container vans for
delivery to MSC. At the compound's exit, MPSI issued to ACS the corresponding gate passes for the vans indicating its
turnover of the subject shipment to MSC. However, upon receipt of the container vans at its warehouse, MSC discovered
substantial shortages in the number of bags of flour delivered. Hence, it filed a formal claim for loss with MPSI.From
October 12 to 14, 1989 and pursuant to the gate passes issued by MPSI, ACS took out the remaining five container vans
from the container yard and delivered them to MSC. Upon receipt, MSC once more discovered substantial shortages.
Thus, MSC filed another claim with MPSI.
Per MSC, the total number of the missing bags of flour was 1,650 with a value of £257,083.00.
MPSI denied both claims of MSC. As a result, MSC sought insurance indemnity for the lost cargoes from
AHAC. AHAC paid MSC the value of the missing bags of flour after finding the tetter's claim in order. In turn, MSC
issued a subrogation receipt in favor of AHAC.
Thereafter, AHAC filed a Complaint6 for damages against MPSI before the RTC.
Ruling of the Regional Trial Court
AHAC averred in its Complaint that the partial loss of the bags of flour was due to the fault or negligence of
MPSI since the loss happened while the shipment was still in MPSI's custody.
MPSL, on the other hand, disclaimed any liability. It essentally maintained in its Answer 7 that the bags of flour
were inside sealed container vans when it received the same; that it handled the subject shipment with the diligence
required of it; and, mat the container vans were turned over by it to MSC in the same condition that they were in at the
time of their discharge from the vessel. MPSI likewise countered that the failure of MSC to request for a bad order
survey belied the latter's claim for loss.
Trial then ensued.
On October 17, 2006, the RTC rendered a Decision 8 dismissing AHAC's Complaint. It held that while there was indeed a
shortage of 1,650 sacks of soft wheat flour, AHAC's evidence failed to clearly show that the loss happened while the
subject shipment was still under MPSI's responsibility. Hence, the dispositive portion of the RTC Decision:
WHEREFORE, premises considered, the complaint is hereby DISMISSED. SO ORDERED.
Ruling of the Court of Appeals
Aggrieved, AHAC appealed to the CA.
In its Decision10 dated December 29, 2011, the CA stressed that in a claim for loss filed by a consignee, the
burden of proof to show due compliance with the obligation to deliver the goods to the appropriate party devolves upon
the arrastre operator. In consonance with this, a presumption of fault or negligence for the loss of the goods arises against
the arrastre operator pursuant to Articles 1265 11 and 198112 of the Civil Code. In this case, the CA found that MPSI failed
to discharge such burden and to rebut the aforementioned presumption. Thus, it was held liable to AHAC for the value of
the missing bags of flour, viz.:
We conclude that x x x MPSI was negligent in the handling and safekeeping of the subject shipment. It did not
create and implement a more defined, concrete and effective measure to detect, curb and prevent the loss or pilferage of
cargoes in its custody. This is manifested by the fact that [MPSI] never took any action to address such complaint even
after it received the formal claim of loss in the first five (5) vans. As a consequence, more bags of flour were eventually
lost or pilfered in the remaining container vans that were still in [MPSI's] custody at that time. Case law tells us that
negligence is that conduct which creates undue risk of harm to another, the failure to observe that degree of care,
precaution and vigilance which the circumstance[s] justly demand, whereby that other person suffers injury. Clearly,
[MPSI] breached its arrastre obligations to the consignee for it failed to deliver said bags in good and complete condition.
In view of MPSI's failure to exercise that degree of diligence, precaution and care the law [requires] of arrastre
operators in the performance of their duties to the consignee, [MPSI] is legally bound to reimburse [AHAC] for the value
of the missing bags of flour that it paid to MSC pursuant to the insurance policy. 13
 In view of the same, the said court disposed of the appeal in this wise:
WHEREFORE, premises considered, the appeal is GRANTED. The Decision of the Regional Trial Court of Pasig City,
Branch 271 dated 17 October 2006 is REVERSED and SET ASIDE. Appellee Marina Port Services, Inc. is ORDERED
to pay appellant, American Home Assurance Corporation, the sum of Two Hundred Fifty Seven Thousand and Eighty
Three Pesos (PhP257,083.00) with interest thereon at Six percent (6%) [per annum] from the filing of this complaint on
24 September 1990 until the decision becomes final and executory, and thereafter, at the rate of twelve (12) percent [per
annum] until fully paid, and additionally, to pay the x x x sum of Fifty Thousand Pesos (PhP50,000.00) as attorney's fees.
SO ORDERED.14
MPSI moved for reconsideration but the CA denied the same in its Resolution 15 dated May 8, 2012.
Hence, the present recourse.
Issue
The core issue to be resolved in this case is whether MPSI is liable for the loss of the bags of flour
Our Ruling
There is merit in the Petition.
Albeit involving factual questions, the
Court shall proceed to resolve this case
since it falls under several exceptions to
the rule that only questions of law are
proper in a petition for review on
certiorari.
At the outset, it is evident that the resolution of the instant case requires the scrutiny of factual issues which
are, however, outside the scope of the present petition filed pursuant to Rule 45 of the Rules of Court. However, the
Court held in Asian Terminals, Inc. v. Philam Insurance Co., Inc.16 that:
But while it is not our duty to review, examine and evaluate or weigh all over again the probative value of the
evidence presented, the Court may nonetheless resolve questions of fact when the case falls under any of the following
exceptions
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings the
Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record. 1
The Court finds that the instant case falls under the aforementioned second, fourth, fifth, and seventh
exceptions. Hence, it shall proceed to delve into factual matters essential to the proper determination of the merits of this
case.
Several well-entrenched legal principles
govern the relationship of an arrastre
operator and a consignee.
The relationship between an arrastre operator and a consignee is similar to that between a warehouseman and a
depositor, or to that between a common carrier and the consignee and/or the owner of the shipped goods. 18 Thus, an
arrastre operator should adhere to the same degree of diligence as that legally expected of a warehouseman or a common
carrier19 as set forth in Section 3[b] of the Warehouse Receipts [Act] 20 and Article 1733 of the Civil Code. 21 As custodian
of the shipment discharged from the vessel, the arrastre operator must take good care of the same and turn it over to the
party entitled to its possession.
In case of claim for loss filed by a consignee or the insurer as subrogee, 23 it is the arrastre operator that carries
the burden of proving compliance with the obligation to deliver the goods to the appropriate party. 24 It must show that the
losses were not due to its negligence or that of its employees. 25 It must establish that it observed the required diligence in
handling the shipment.26 Otherwise, it shall be presumed that the loss was due to its fault. 27 In the same manner, an
arrastre operator shall be liable for damages if the seal and lock of the goods deposited and delivered to it as closed and
sealed, be broken through its fault. 28 Such fault on the part of the arrastre operator is likewise presumed unless there is
proof to the contrary.2
MPSI was able to prove delivery of the
shipment to MSC in good and complete
condition and with locks and seals intact.
It is significant to note that MPSI, in order to prove that it properly delivered the subject shipment consigned to
MSC, presented 10 gate passes marked as Exhibits 4 to 13. 30 Each of these gate passes bore the duly identified
signature31 of MSC's representative which serves, among others, as an acknowledgement that
Issuance of [the] Gate Pass constitutes delivery to and receipt by consignee of the goods as described above in
good order and condition, unless an accompanying B.O. certificate duly issued and noted on the face of [the] Gate Pass
appears.32
As held in International Container Terminal Services, Inc. v. Prudential Guarantee & Assurance Co., Inc.,33 the
signature of the consignee's representative on the gate pass is evidence of receipt of the shipment in good order and
condition
Also, that MPSI delivered the subject shipment to MSC's representative in good and complete condition and
with lock and seals intact is established by the testimonies of MPSFs employees who were directly involved in the
processing of the subject shipment. Mr. Ponciano De Leon testified that as MPSI's delivery checker, he personally
examined the subject container vans and issued the corresponding gate passes that were, in turn, countersigned by the
consignee's representative. MPSI's other witness, Chief Claims Officer Sergio Icasiano (Icasiano), testified that the
broker, as the consignee's representative, neither registered any complaints nor requested for an inspection, to wit
RE-DIRECT EXAMINATION:
Atty. Laurente
xxxx
Q [A]fter receipt by the broker of the container van containing the cargo, do you require the broker to issue you
a report or certification as to the appearance of the container van?
A [W]e only rely on the gate pass.
Q [A]nd you don't place there "the padlock is still intact or the wirings still intact"?
A [I]t is stated in the gate pass, your Honor.
xxxx
Q [A]nd the findings [are counter-signed] by the representative of the broker also on the same date?
A [Y]es, your honor.35
xxxx
RE-CROSS EXAMINATION
Atty. Laino
q [B]ut did you not say that in the gate pass it is stated there as to the external appearance of the container van?
a [I]here was no indication of any inspection of the container van x x x
meaning the container vans were all in good condition, sir.
q [Y]ou said a [while] ago that you did not receive any complaint for broken seals, is it not?
a [Y]es, sir.
q [B]ut the complaint that you received indicates that there were losses,
a [W]e did not receive any complaint from the broker, sir.
q [I]f the broker will complain they have to file a request for inspection of the cargo so that they will know if
there [are] shortages x x x.
a [Y]es, sir.
[C]ourt
q [A]nd if the broker would notice or detect [something] peculiar, the way the door of the container van
 appears whether close[d] or not, they have to request for an inspection[?]
a [Y]es, your honor.
q [O]r in the absence of the padlock or wirings, the broker will request for an inspection[?]
a [Y]es,your honor[;] they can require for the examination of the cargo.
q [B]ut there was no request at all by the broker?
a [T]here was none, your Honor.36
Verily, the testimonies of the aforementioned employees of MPSI confirm that the container vans, together with their
padlocks and wirings, were in order at the time the gate passes were issued up to the time the said container vans were
turned over to ACS.
AHAC justifies the failure of ACS to immediately protest the alleged loss or pilferage upon initial pick-up of the first
batch of container vans. According to it, ACS could not have discovered the loss at that moment since the stripping of
container vans in the pier area is not allowed. The Court cannot, however, accept such excuse. For one, AHAC's claim
that stripping of the container vans is not allowed in the pier area is a mere allegation without proof. It is settled that
"[m]ere allegations do not suffice; they must be substantiated by clear and convincing proof." 37 For another, even
assuming that stripping of the container vans is indeed not allowed at the pier area, it is hard to believe that MSC or its
representative ACS has no precautionary measures to protect itself from any eventuality of loss or pilferage. To recall,
ACS's representative signed the gate passes without any qualifications. This is despite the fact that such signature serves
as an acknowledgment of ACS's receipt of the goods in good order and condition. If MSC was keen enough in protecting
its interest, it (through ACS) should have at least qualified the receipt of the goods as subject to inspection, and thereafter
arrange for such an inspection in an area where the same is allowed to be done. However, no such action or other similar
measure was shown to have been undertaken by MSC. What is clear is that ACS accepted the container vans on its behalf
without any qualification. As aptly observed by the RTC
During [the] period of tum-over of goods from the arrastre to [ACS], there had been no protest on anything on the part of
consignee's representative x x x. Otherwise, the complaint would have been shown [on] the gate passes. In fact, each gate
pass showed the date of delivery, the location of delivery, the truck number of the truck used in the delivery, the actual
quantity of goods delivered, the numbers of the safety wires and padlocks of the vans and the signatures of the receiver.
More importantly, the gate passes bared the fact that the shipments were turned-over by [MPSI] to [ACS] on the same
dates of customs inspections and turnovers. 3
There being no exception as to bad order, the subject shipment, therefore, appears to have been accepted by MSC,
through ACS, in good order. 39 "It logically follows [then] that the case at bar presents no occasion for the necessity of
discussing the diligence required of an [arrastre operator] or of the theory of [its]  prima facie liability x x x, for from all
indications, the shipment did not suffer loss or damage while it was under the care x x x of the arrastre operator x x x."
Even in the light of Article 1981, no
presumption of fault on the part of MPSI
arises since it was not sufficiently shown
that the container vans were re-opened
or that their locks and seals were broken
for the second time.
Indeed, Article 1981 of the Civil Code also mandates a presumption of fault on the part of the arrastre operator as
follows:
Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same
condition, and he shall be liable for damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is proof to the contrary.
As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is
imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility
of the depositor with respect to the value claimed by him.
When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit
However, no such presumption arises in this case considering that it was not sufficiently shown that the container vans
were re-opened or that their locks and seals were broken for the second time. As may be recalled, the container vans were
opened by a customs official for examination of the subject shipment and were thereafter resealed with safety wires.
While this fact is not disputed by both parties, AHAC alleges that the container vans were re-opened and this gave way to
the alleged pilferage. The Court notes, however, that AHAC based such allegation solely on the survey report of the
Manila Adjuster & Surveyors Company (MASCO). As observed by the RTC:
AHAC x x x claim[s] that there were two instances when the seals were broken. [First], when the customs officer
examined the shipment and had it resealed with safety wires. [Second], when the surveyor and consignee's broker
visually inspected the shipment and allegedly found the safety wires of the customs officer to have been detached and
missing which they then replaced. This second instance is only upon their say so as there is no x x x documentary or
testimonial proof on the matter [other] than the [MASCO] survey report.
However, the person who prepared the said report was not presented in court to testify on the same. Thus, the said survey
report has no probative value for being hearsay. "It is a basic rule that evidence, whether oral or documentary, is hearsay,
if its probative value is not based on the personal knowledge of the witness but on the knowledge of another person who
is not on the witness stand."42 Moreover, "an unverified and unidentified private document cannot be accorded probative
value. It is precluded because the party against whom it is presented is deprived of the right and opportunity to cross-
examine the person to whom the statements or writings are attributed. Its executor or author should be presented as a
witness to provide the other party to the litigation the opportunity to question its contents. Being mere hearsay evidence,
failure to present the author of the letter renders its contents suspect and of no probative value."
There being no other competent evidence that the container vans were reopened or that their locks and seals were broken
for the second time, MPSI cannot be held liable for damages due to the alleged loss of the bags of flour pursuant to
Article 1981 of the Civil Code.
At any rate, the goods were shipped
under "Shipper's Load and Count"
arrangement. Thus, protection against
pilferage of the subject shipment was
the consignees lookout.
At any rate, MPSI cannot just the same be held liable for the missing bags of flour since the consigned goods were
shipped under "Shipper's Load and Count" arrangement. "This means that the shipper was solely responsible for the
loading of the container, while the carrier was oblivious to the contents of the shipment. Protection against pilferage of
the shipment was the consignee's lookout. The arrastre operator was, like any ordinary depositary, duty-bound to take
good care of the goods received from the vessel and to turn the same over to the party entitled to their possession, subject
to such qualifications as may have validly been imposed in the contract between the parties. The arrastre operator was not
required to verify the contents of the container received and to compare them with those declared by the shipper because,
as earlier stated, the cargo was at the shipper's load and count. The arrastre operator was expected to deliver to the
consignee only the container received from the carrier."
All told, the Court holds that MPSI is not liable for the loss of the bags of flour.
WHEREFORE, the Petition is GRANTED. The Decision dated December 29, 2011 and Resolution dated May 8, 2012
of the Court of Appeals in CA-GR. CV No. 88321 are REVERSED AND SET ASIDE. The Decision dated October 17,
2006 of the Regional Trial Court, Branch 271, Pasig City in Civil Case No. 90-54517 is REINSTATED and the
Complaint in the said case is DISMISSED.
SO ORDERED
G.R. No. 172682, July 27, 2016
SULPICIO LINES, INC., Petitioner, v. NAPOLEON SESANTE, NOW SUBSTITUTED BY MARIBEL
ATILANO, KRISTEN MARIE, CHRISTIAN IONE, KENNETH KERRN AND KARISNA KATE, ALL
SURNAMED SESANTE, Respondent.
DECISION
BERSAMIN, J.:
Moral damages are meant to enable the injured party to obtain the means, diversions or amusements in order to alleviate
the moral suffering. Exemplary damages are designed to permit the courts to reshape behavior that is socially deleterious
in its consequence by creating negative incentives or deterrents against such behavior.
The Case
This appeal seeks to undo and reverse the adverse decision promulgated on June 27, 2005, 1 whereby the Court of
Appeals (CA) affirmed with modification the judgment of the Regional Trial Court (RTC), Branch 91, in Quezon City
holding the petitioner liable to pay temperate and moral damages due to breach of contract of carriage. 2chanrobleslaw
Antecedents
On September 18, 1998, at around 12:55 p.m., the M/V Princess of the Orient, a passenger vessel owned and operated by
the petitioner, sank near Fortune Island in Batangas. Of the 388 recorded passengers, 150 were lost. 3 Napoleon Sesante,
then a member of the Philippine National Police (PNP) and a lawyer, was one of the passengers who survived the
sinking. He sued the petitioner for breach of contract and damages.
Sesante alleged in his complaint that the M/V Princess of the Orient left the Port of Manila while Metro Manila was
experiencing stormy weather; that at around 11:00 p.m., he had noticed the vessel listing starboard, so he had gone to the
uppermost deck where he witnessed the strong winds and big waves pounding the vessel; that at the same time, he had
seen how the passengers had been panicking, crying for help and frantically scrambling for life jackets in the absence of
the vessel's officers and crew; that sensing danger, he had called a certain Vency Ceballos through his cellphone to
request him to inform the proper authorities of the situation; that thereafter, big waves had rocked the vessel, tossing him
to the floor where he was pinned by a long steel bar; that he had freed himself only after another wave had hit the
vessel;5 that he had managed to stay afloat after the vessel had sunk, and had been carried by the waves to the coastline of
Cavite and Batangas until he had been rescued; that he had suffered tremendous hunger, thirst, pain, fear, shock, serious
anxiety and mental anguish; that he had sustained injuries, 6 and had lost money, jewelry, important documents, police
uniforms and the .45 caliber pistol issued to him by the PNP; and that because it had committed bad faith in allowing the
vessel to sail despite the storm signal, the petitioner should pay him actual and moral damages of P500,000.00 and
P1,000,000.00, respectively
In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of the Orient due to its having been
cleared to sail from the Port of Manila by the proper authorities; that the sinking had been due to force majeure; that it
had not been negligent; and that its officers and crew had also not been negligent because they had made preparations to
abandon the vessel because they had launched life rafts and had provided the passengers assistance in that regard.
Decision of the RTC
On October 12, 2001, the RTC rendered its judgment in favor of the respondent, 9 holding as follows
WHEREFORE, judgment is hereby rendered in favor of plaintiff Napoleon Sesante and against defendant Sulpicio
Lines, Inc., ordering said defendant to pay plaintiff:
1. Temperate damages in the amount of P400,000.00;
2. Moral damages in the amount of One Million Pesos (P1,000,000.00);
3. Costs of suit.
SO ORDERED
The RTC observed that the petitioner, being negligent, was liable to Sesante pursuant to Articles 1739 and
1759 of the Civil Code; that the petitioner had not established its due diligence in the selection and supervision of the
vessel crew; that the ship officers had failed to inspect the stowage of cargoes despite being aware of the storm signal;
that the officers and crew of the vessel had not immediately sent a distress signal to the Philippine Coast Guard; that the
ship captain had not called for then "abandon ship" protocol; and that based on the report of the Board of Marine Inquiry
(BMI), the erroneous maneuvering of the vessel by the captain during the extreme weather condition had been the
immediate and proximate cause of the sinking.
The petitioner sought reconsideration, but the RTC only partly granted its motion by reducing the temperate
damages from P500,000.00 to P300,000.00.11chanrobleslaw
Dissatisfied, the petitioner appealed. 12 It was pending the appeal in the CA when Sesante passed away. He was
substituted by his heirs
Judgment of the CA
On June 27, 2005, the CA promulgated its assailed decision. It lowered the temperate damages to P120,000.00,
which approximated the cost of Sesante's lost personal belongings; and held that despite the seaworthiness of the vessel,
the petitioner remained civilly liable because its officers and crew had been negligent in performing their duties.
Sttill aggrieved, Sulpicio Lines moved for reconsideration, but the CA denied the motion.
Hence, this appeal.
Issues
The petitioner attributes the following errors to the CA, to wit:
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF MORAL DAMAGES, AS THE INSTANT
CASE IS FOR ALLEGED PERSONAL INJURIES PREDICATED ON BREACH OF CONTRACT OF CARRIAGE,
AND THERE BEING NO PROOF OF BAD FAITH ON THE PART OF SULPICIO
II
THE ASSAILED DECISION ERRED IN SUSTAINING THE AMOUNT OF MORAL DAMAGES AWARDED, THE
SAME BEING UNREASONABLE, EXCESSIVE AND UNCONSCIONABLE, AND TRANSLATES TO UNJUST
ENRICHMENT AGAINST SULPICIO
III
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF TEMPERATE DAMAGES AS THE
SAME CANNOT SUBSTITUTE FOR A FAILED CLAIM FOR ACTUAL DAMAGES, THERE BEING NO
COMPETENT PROOF TO WARRANT SAID AWARD
IV
THE AWARD OF TEMPERATE DAMAGES IS UNTENABLE AS THE REQUISITE NOTICE UNDER THE LAW
WAS NOT GIVEN TO SULPICIO IN ORDER TO HOLD IT LIABLE FOR THE ALLEGED LOSS OF SESANTE'S
PERSONAL BELONGINGS
V and could be continued by his heirs following the rule on substitution.
THE ASSAILED DECISION ERRED IN SUBSTITUTING THE HEIRS OF RESPONDENT SESANTE IN THE
INSTANT CASE, THE SAME BEING A PERSONAL ACTION WHICH DOES NOT SURVIVE
VI
THE ASSAILED DECISION ERRED IN APPLYING ARTICLE 1759 OF THE NEW CIVIL CODE AGAINST
SULPICIO SANS A CLEAR-CUT FINDING OF SULPICIO'S BAD FAITH IN THE
INCIDENT16chanroblesvirtuallawlibrary
In other words, to be resolved are the following, namely: (1) Is the complaint for breach of contract and damages a
personal action that does not survive the death of the plaintiff?; (2) Is the petitioner liable for damages under Article 1759
of the Civil Code?; and (3) Is there sufficient basis for awarding moral and temperate damages?
Ruling of the Court
The appeal lacks merit.
I
An action for breach of contract of carriage survives the death of the plaintiff
The petitioner urges that Sesante's complaint for damages was purely personal and cannot be transferred to his heirs upon
his death. Hence, the complaint should be dismissed because the death of the plaintiff abates a personal action.
The petitioner's urging is unwarranted.
Section 16, Rule 3 of the Rules of Court lays down the proper procedure in the event of the death of a
litigant, viz.:
Section 16. Death of party; duty of counsel. - Whenever a party to a pending action dies, and the claim is
not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days after such death
of the fact thereof, and to give the name and address of his legal representative or representatives. Failure of counsel to
comply with his duty shall be a ground for disciplinary action.
The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs.
Substitution by the heirs is not a matter of jurisdiction, but a requirement of due process. 17 It protects the right
of due process belonging to any party, that in the event of death the deceased litigant continues to be protected and
properly represented in the suit through the duly appointed legal representative of his estate
The application of the rule on substitution depends on whether or not the action survives the death of the
litigant. Section 1, Rule 87 of the Rules of Court enumerates the following actions that survive the death of a party,
namely: (1) recovery of real or personal property, or an interest from the estate; (2) enforcement of liens on the estate;
and (3) recovery of damages for an injury to person or property. On the one hand, Section 5, Rule 86 of the  Rules of
Court lists the actions abated by death as including: (1) claims for funeral expenses and those for the last sickness of the
decedent; (2) judgments for money; and (3) all claims for money against the deceased, arising from contract, express or
implied.
A contract of carriage generates a relation attended with public duty, neglect or malfeasance of the carrier's
employees and gives ground for an action for damages. 19 Sesante's claim against the petitioner involved his personal
injury caused by the breach of the contract of carriage. Pursuant to the aforecited rules, the complaint survived his death,
II
The petitioner is liable for breach of contract of carriage
The petitioner submits that an action for damages based on breach of contract of carriage under Article 1759 of
the Civil Code should be read in conjunction with Article 2201 of the same code; that although Article 1759 only
provides for a presumption of negligence, it does not envision automatic liability; and that it was not guilty of bad faith
considering that the sinking of M/V Princess of the Orient had been due to a fortuitous event, an exempting circumstance
under Article 1174 of the Civil Code.
The submission has no substance.
Article 1759 of the Civil Code does not establish a presumption of negligence because it explicitly makes the
common carrier liable in the event of death or injury to passengers due to the negligence or fault of the common carrier's
employees. It reads:ChanRoblesVirtualawlibrary
Article 1759. Common carriers are liable for the death or injuries to passengers through the negligence or willful
acts of the former's employees, although such employees may have acted beyond the scope of their authority or in
violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a
family in the selection and supervision of their employees.
The liability of common carriers under Article 1759 is demanded by the duty of extraordinary diligence required of
common carriers in safely carrying their passengers
On the other hand, Article 1756 of the Civil Code lays down the presumption of negligence against the common carrier
in the event of death or injury of its passenger, viz.
Article 1756. In case of death of 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 175
Clearly, the trial court is not required to make an express finding of the common carrier's fault or negligence. 21 Even the
mere proof of injury relieves the passengers from establishing the fault or negligence of the carrier or its
employees.22 The presumption of negligence applies so long as there is evidence showing that: (a) a contract exists
between the passenger and the common carrier; and (b) the injury or death took place during the existence of such
contract.23 In such event, the burden shifts to the common carrier to prove its observance of extraordinary diligence, and
that an unforeseen event or force majeure had caused the injury.
Sesante sustained injuries due to the buffeting by the waves and consequent sinking of M/V Princess of the Orient where
he was a passenger. To exculpate itself from liability, the common carrier vouched for the seaworthiness of M/V Princess
of the Orient, and referred to the BMI report to the effect that the severe weather condition - a  force majeure - had
brought about the sinking of the vessel.
The petitioner was directly liable to Sesante and his heirs.
from the center of the turn. The force is considered to act at the center of lateral resistance which, in this case, is the
centroid of the underwater area of the ship's side away from the center of the turn. In the case of the Princess, when the
Captain maneuvered her to starboard, her body shifted its weight to port. Being already inclined to an angle of 15
degrees, coupled with the instantaneous movement of the ship, the cargoes below deck could have completely shifted its
position and weight towards portside. By this time, the ship being ravaged simultaneously by ravaging waves and
howling winds on her starboard side, finally lost her grip. 30chanroblesvirtuallawlibrary
Even assuming the seaworthiness of the MA/ Princess of the Orient, the petitioner could not escape liability considering
that, as borne out by the aforequoted findings of the BMI, the immediate and proximate cause of the sinking of the vessel
had been the gross negligence of its captain in maneuvering the vessel.

A common carrier may be relieved of any liability arising from a fortuitous event pursuant to Article 1174 25cralawred of The Court also notes that Metro Manila was experiencing Storm Signal No. 1 during the time of the sinking. 31 The BMI
the Civil Code. But while it may free a common carrier from liability, the provision still requires exclusion of human observed that a vessel like the M/V Princess of the Orient, which had a volume of 13.734 gross tons, should have been
agency from the cause of injury or loss. 26 Else stated, for a common carrier to be absolved from liability in case of  force capable of withstanding a Storm Signal No. 1 considering that the responding fishing boats of less than 500 gross tons
majeure, it is not enough that the accident was caused by a fortuitous event. The common carrier must still prove that it had been able to weather through the same waves and winds to go to the succor of the sinking vessel and had actually
did not contribute to the occurrence of the incident due to its own or its employees' negligence. 27 We explained rescued several of the latter's distressed passengers. 32chanrobleslaw
in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,28 as follows
In order to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected
III
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will; (2) it must be
impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it must be impossible to avoid;
The award of moral damages and temperate damages is prope
(3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4)
the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.
The petitioner argues that moral damages could be meted against a common carrier only in the following
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by
instances, to wit: (1) in the situations enumerated by Article 2201 of the Civil Code; (2) in cases of the death of a
the violence of nature. Human intervention is to be excluded from creating or entering into the cause of the
passenger; or (3)where there was bad faith on the part of the common carrier. It contends that none of these instances
mischief. When the effect is found to be in part the result of the participation of man, whether due to his active
obtained herein; hence, the award should be deleted.
intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the rules
We agree with the petitioner that moral damages may be recovered in an action upon breach of contract of
applicable to the acts of God.29 (bold underscoring supplied for emphasis)
carriage only when: (a) death of a passenger results, or (b) it is proved that the carrier was guilty of fraud and bad faith,
The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on the
even if death does not result. 33 However, moral damages may be awarded if the contractual breach is found to be wanton
seaworthiness of M/V Princess of the Orient. Yet, the findings of the BMI directly contradicted the petitioner's
and deliberately injurious, or if the one responsible acted fraudulently or with malice or bad faith.
attribution, as follows
The CA enumerated the negligent acts committed by the officers and crew of M/V Princess of the Orient, viz.
[W]hile this Court yields to the findings of the said investigation report, yet it should be observed that what
7. The Immediate and the Proximate Cause of the Sinking
was complied with by Sulpicio Lines were only the basic and minimal safety standards which would qualify the vessel as
seaworthy. In the same report however it also revealed that the immediate and proximate cause of the sinking of the M/V
The Captain's erroneous maneuvers of the M/V Princess of the Orient minutes before she sunk [sic] had caused
Princess of the Orient was brought by the following: erroneous maneuvering command of Captain Esrum Mahilum and
the accident. It should be noted that during the first two hours when the ship left North Harbor, she was navigating
due to the weather condition prevailing at the time of the tragedy. There is no doubt that under the circumstances the
smoothly towards Limbones Point. During the same period, the ship was only subjected to the normal weather stress
crew of the vessel were negligent in manning it. In fact this was clearly established by the investigation of the Board of
prevailing at the time. She was then inside Manila Bar. The waves were observed to be relatively small to endanger the
Marine Inquiry where it was found that
safety of the ship. It was only when the MV Princess of the Orient had cleared Limbones Pt. while navigating towards the
The Chief Mate, when interviewed under oath, had attested that he was not able to make stability calculation
direction of the Fortune Island when this agonizing misfortune struck the ship.
of the ship vis-a-vis her cargo. He did not even know the metacentric height (GM) of the ship whether it be positive or
Initially, a list of three degrees was observed. The listing of the ship to her portside had continuously
negative.
increased. It was at this point that the captain had misjudged the situation. While the ship continuously listed to her
As cargo officer of the ship, he failed to prepare a detailed report of the ship's cargo stowage plan.
portside and was battered by big waves, strong southwesterly winds, prudent judgement [sic] would dictate that the
He likewise failed to conduct the soundings (measurement) of the ballast tanks before the ship departed from port. He
Captain should have considerably reduced the ship's speed. He could have immediately ordered the Chief Engineer to
readily presumed that the ship was full of ballast since the ship was fully ballasted when she left Cebu for Manila on 16
slacken down the speed. Meanwhile, the winds and waves continuously hit the ship on her starboard side. The waves
September 1998 and had never discharge[d] its contents since that time
were at least seven to eight meters in height and the wind velocity was a[t] 25 knots. The MV Princess of the
Orient being a close-type ship (seven decks, wide and high superstructure) was vulnerable and exposed to the howling Being the officer-in-charge for emergency situation (sic) like this, he failed to execute and supervise the actual
winds and ravaging seas. Because of the excessive movement, the solid and liquid cargo below the decks must have abandonship (sic) procedure. There was no announcement at the public address system of abandonship (sic), no orderly
shifted its weight to port, which could have contributed to the tilted position of the ship. distribution of life jackets and no orderly launching of life rafts. The witnesses have confirmed this finding on their
Minutes later, the Captain finally ordered to reduce the speed of the ship to 14 knots. At the same time, he sworn statements
ordered to put ballast water to the starboard-heeling tank to arrest the continuous listing of the ship. This was an exercise
There was miscalculation in judgment on the part of the Captain when he erroneously navigated the ship at her
in futility because the ship was already listing between 15 to 20 degrees to her portside. The ship had almost reached the
last crucial moment. x x
maximum angle of her loll. At this stage, she was about to lose her stability.
Despite this critical situation, the Captain executed several starboard maneuvers. Steering the course of To aggravate his case, the Captain, having full command and responsibility of the MV Princess of the Orient,
the Princess to starboard had greatly added to her tilting. In the open seas, with a fast speed of 14 knots, advance had failed to ensure the proper execution of the actual abandoning of the ship
maneuvers such as this would tend to bring the body of the ship in the opposite side. In navigational terms, this
movement is described as the centripetal force. This force is produced by the water acting on the side of the ship away
 The deck and engine officers (Second Mate, Third Mate, Chief Engineers, Second Engineer, Third Engineer
and Fourth Engineer), being in charge of their respective abandonship (sic) post, failed to supervise the crew and
passengers in the proper execution of abandonship (sic) procedure
The Radio Officer (spark) failed to send the SOS message in the internationally accepted communication
network (VHF Channel 16). Instead, he used the Single Side Band (SSB) radio in informing the company about the
emergency situation.
The aforestated negligent acts of the officers and crew of M/V Princess of the Orient could not be ignored in
view of the extraordinary duty of the common carrier to ensure the safety of the passengers. The totality of the negligence
by the officers and crew of M/V Princess of the Orient, coupled with the seeming indifference of the petitioner to render
assistance to Sesante,36 warranted the award of moral damages.
While there is no hard-and-fast rule in determining what is a fair and reasonable amount of moral damages, the
discretion to make the determination is lodged in the trial court with the limitation that the amount should not be palpably
and scandalously excessive. The trial court then bears in mind that moral damages are not intended to impose a penalty
on the wrongdoer, or to enrich the plaintiff at the expense of the defendant. 37 The amount of the moral damages must
always reasonably approximate the extent of injury and be proportional to the wrong committed. 38chanrobleslaw
The Court recognizes the mental anguish, agony and pain suffered by Sesante who fought to survive in the
midst of the raging waves of the sea while facing the immediate prospect of losing his life. His claim for moral and
economic vindication is a bitter remnant of that most infamous tragedy that left hundreds of families broken in its wake.
The anguish and moral sufferings he sustained after surviving the tragedy would always include the memory of facing
the prospect of his death from drowning, or dehydration, or being preyed upon by sharks. Based on the established
circumstances, his survival could only have been a miracle wrought by God's grace, by which he was guided in his
desperate swim for the safety of the shore. But even with the glory of survival, he still had to grapple with not just the
memory of having come face to face with almost certain death, but also with having to answer to the instinctive guilt for
the rest of his days of being chosen to live among the many who perished in the tragedy.
While the anguish, anxiety, pain and stress experienced by Sesante during and after the sinking cannot be
quantified, the moral damages to be awarded should at least approximate the reparation of all the consequences of the
petitioner's negligence. With moral damages being meant to enable the injured party to obtain the means, diversions or
amusements in order to alleviate his moral and physical sufferings, 40 the Court is called upon to ensure that proper
recompense be allowed to him, through his heirs. For this purpose, the amount of P1,000,000.00, as granted by the RTC
and affirmed by the CA, is maintained.
The petitioner contends that its liability for the loss of Sesante's personal belongings should conform with
Article 1754, in relation to Articles 1998, 2000 to 2003 of the Civil Code, which provide:
Article 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in
his personal custody or in that of his employees. As to other baggage, the rules in Articles 1998 and 2000 to 2003
concerning the responsibility of hotel-keepers shall be applicable
xxxx
Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary.
The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to
their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which
said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.
xxxx
Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to
the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as by
strangers; but not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the
vigilance of the keeper of the hotel or inn shall be considered in determining the degree of care required of him.
Article 2001. The act of a thief or robber, who has entered the hotel is not deemed  force majeure, unless it is
done with the use of arms or through an irresistible force.
Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his
family, servants or visitors, or if the loss arises from the character of the things brought into the hotel.
Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he
is not liable for the articles brought by the guest. Any stipulation to the contrary between the hotel-keeper and the guest
whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void
The petitioner denies liability because Sesante's belongings had remained in his custody all throughout the
voyage until the sinking, and he had not notified the petitioner or its employees about such belongings. Hence, absent
such notice, liability did not attach to the petitione
Is notification required before the common carrier becomes liable for lost belongings that remained in the
custody of the passenger
We answer in the negative.
The rule that the common carrier is always responsible for the passenger's baggage during the voyage needs to
be emphasized. Article 1754 of the Civil Code does not exempt the common carrier from liability in case of loss, but only
highlights the degree of care required of it depending on who has the custody of the belongings. Hence, the law requires
the common carrier to observe the same diligence as the hotel keepers in case the baggage remains with the passenger;
otherwise, extraordinary diligence must be exercised. 41 Furthermore, the liability of the common carrier attaches even if
the loss or damage to the belongings resulted from the acts of the common carrier's employees, the only exception being
where such loss or damages is due to force majeure.
In YHT Realty Corporation v. Court of Appeals,43 we declared the actual delivery of the goods to the
innkeepers or their employees as unnecessary before liability could attach to the hotelkeepers in the event of loss of
personal belongings of their guests considering that the personal effects were inside the hotel or inn because the
hotelkeeper shall remain accountable. 44 Accordingly, actual notification was not necessary to render the petitioner as the
common carrier liable for the lost personal belongings of Sesante. By allowing him to board the vessel with his
belongings without any protest, the petitioner became sufficiently notified of such belongings. So long as the belongings
were brought inside the premises of the vessel, the petitioner was thereby effectively notified and consequently duty-
bound to observe the required diligence in ensuring the safety of the belongings during the voyage. Applying Article
2000 of the Civil Code, the petitioner assumed the liability for loss of the belongings caused by the negligence of its
officers or crew. In view of our finding that the negligence of the officers and crew of the petitioner was the immediate
and proximate cause of the sinking of the M/V Princess of the Orient, its liability for Sesante's lost personal belongings
was beyond question.
The petitioner claims that temperate damages were erroneously awarded because Sesante had not proved
pecuniary loss; and that the CA merely relied on his self-serving testimony.
The award of temperate damages was proper.
Temperate damages may be recovered when some pecuniary loss has been suffered but the amount cannot,
from the nature of the case, be proven with certainty. 45 Article 222446 of the Civil Code expressly authorizes the courts to
award temperate damages despite the lack of certain proof of actual damages.
Indubitably, Sesante suffered some pecuniary loss from the sinking of the vessel, but the value of the loss
could not be established with certainty. The CA, which can try facts and appreciate evidence, pegged the value of the lost
belongings as itemized in the police report at P120,000.00. The valuation approximated the costs of the lost belongings.
In that context, the valuation of P120,000.00 is correct, but to be regarded as temperate damages.
In fine, the petitioner, as a common carrier, was required to observe extraordinary diligence in ensuring the
safety of its passengers and their personal belongings. It being found herein short of the required diligence rendered it
liable for the resulting injuries and damages sustained by Sesante as one of its passengers.
Should the petitioner be further held liable for exemplary damages?
In contracts and quasi-contracts, the Court has the discretion to award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 48 Indeed, exemplary damages cannot be
recovered as a matter of right, and it is left to the court to decide whether or not to award them. 49 In consideration of these
legal premises for the exercise of the judicial discretion to grant or deny exemplary damages in contracts and quasi-
contracts against a defendant who acted in a wanton, fraudulent,' reckless, oppressive, or malevolent manner, the Court The BMI concluded that the captain had executed several starboard maneuvers despite the critical situation of
hereby awards exemplary damages to Sesante. the vessel, and that the maneuvers had greatly added to the tilting of the vessel. It observed:
First of all, exemplary damages did not have to be specifically pleaded or proved, because the courts had the x x x In the open seas, with a fast speed of 14 knots, advance maneuvers such as this would tend to bring
discretion to award them for as long as the evidence so warranted. In Marchan v. Mendoza,50 the Court has relevantly the body of the ship in the opposite side. In navigational terms, this movement is described as the centripetal force.
discoursed: This force is produced by the water acting on the side of the ship away from the center of the turn. The force is
considered to act at the center of lateral resistance which, in this case, is the centroid of the underwater area of the
x x x. It is argued that this Court is without jurisdiction to adjudicate this exemplary damages since
ship's side away from the center of the turn. In the case of the Princess, when the Captain maneuvered her to
there was no allegation nor prayer, nor proof, nor counterclaim of error for the same by the appellees. It is to be
starboard, her body shifted its weight to port. Being already inclined to an angle of 15 degrees, coupled with the
observed however, that in the complaint, plaintiffs "prayed for such other and further relief as this Court may
instantaneous movement of the ship, the cargoes below deck could have completely shifted its position and weight
deem just and equitable." Now, since the body of the complaint sought to recover damages against the defendant-
towards portside. By this time, the ship being ravaged simultaneously by ravaging waves and howling winds on
carrier wherein plaintiffs prayed for indemnification for the damages they suffered as a result of the negligence of
her starboard side, finally lost her grip
said Silverio Marchan who is appellant's employee; and since exemplary damages is intimately connected with
general damages, plaintiffs may not be expected to single out by express term the kind of damages they are trying Clearly, the petitioner and its agents on the scene acted wantonly and recklessly. Wanton and reckless are
to recover against the defendant's carrier. Suffice it to state that when plaintiffs prayed in their complaint for virtually synonymous in meaning as respects liability for conduct towards others. 54Wanton means characterized by
such other relief and remedies that may be availed of under the premises, in effect, therefore, the court is called extreme recklessness and utter disregard for the rights of others; or marked by or manifesting arrogant recklessness of
upon to exercise and use its discretion whether the imposition of punitive or exemplary damages even though not justice or of rights or feelings of others. 55 Conduct is reckless when it is an extreme departure from ordinary care, in a
expressly prayed or pleaded in the plaintiffs' complaint. situation in which a high degree of danger is apparent. It must be more than any mere mistake resulting from
inexperience, excitement, or confusion, and more than mere thoughtlessness or inadvertence, or simple inattention.
x x x It further appears that the amount of exemplary damages need not be proved, because its
determination depends upon the amount of compensatory damages that may be awarded to the claimant. If the
amount of exemplary damages need not be proved, it need not also be alleged, and the reason is obvious because it The actuations of the petitioner and its agents during the incident attending the unfortunate sinking of the M/V
is merely incidental or dependent upon what the court may award as compensatory damages. Unless and until this Princess of the Orient were far below the standard of care and circumspection that the law on common carriers
premise is determined and established, what may be claimed as exemplary damages would amount to a mere demanded. Accordingly, we hereby fix the sum of P1,000,000.00 in order to serve fully the objective of exemplarity
surmise or speculation. It follows as a necessary consequence that the amount of exemplary damages need not be among those engaged in the business of transporting passengers and cargo by sea. The amount would not be excessive,
pleaded in the complaint because the same cannot be predetermined. One can merely ask that it be determined by but proper. As the Court put it in Pereña v. Zarate:5
the court if in the use of its discretion the same is warranted by the evidence, and this is just what appellee has
done. (Bold underscoring supplied for emphasis Anent the P1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to render
effective the desired example for the public good. As a common carrier, the Perenas needed to be vigorously reminded to
And, secondly, exemplary damages are designed by our civil law to "permit the courts to reshape behavior that observe their duty to exercise extraordinary diligence to prevent a similarly senseless accident from happening again.
is socially deleterious in its consequence by creating negative incentives or deterrents against such behavior." 51 The Only by an award of exemplary damages in that amount would suffice to instill in them and others similarly situated like
nature and purpose for this kind of damages have been well-stated in People v. Dalisay,52 to them the ever-present need for greater and constant vigilance in the conduct of a business imbued with public
Also known as 'punitive' or 'vindictive' damages, exemplary or corrective damages are intended to serve as interest.58 (Bold underscoring supplied for emphasis
a deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of WHEREFORE, the Court AFFIRMS the decision promulgated on June 27, 2005 with
an injured or a punishment for those guilty of outrageous conduct. These terms are generally, but not always, used the MODIFICATIONS that: (a) the amount of moral damages is fixed at P1,000,000.00; (b) the amount of
interchangeably. In common law, there is preference in the use of exemplary damages when the award is to account for P1,000,000.00 is granted as exemplary damages; and (c) the sum of P120,000.00 is allowed as temperate damages, all to
injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been be paid to the heirs of the late Napoleon Sesante. In addition, all the amounts hereby awarded shall earn interest of
maliciously and wantonly inflicted, the theory being that there should be compensation for the hurt caused by the highly 6% per annum from the finality of this decision until fully paid. Costs of suit to be paid by the petitioner.
reprehensible conduct of the defendant - associated with such circumstances as willfulness, wantonness, malice, gross
negligence or recklessness, oppression, insult or fraud or gross fraud - that intensifies the injury. The terms punitive or SO ORDERED
vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish
him for his outrageous conduct. In either case, these damages are intended in good measure to deter the wrongdoer
and others like him from similar conduct in the future. (Bold underscoring supplied for emphasis
The BMI found that the "erroneous maneuvers" during the ill-fated voyage by the captain of the petitioner's
vessel had caused the sinking. After the vessel had cleared Limbones Point while navigating towards the direction of
Fortune Island, the captain already noticed the listing of the vessel by three degrees to the portside of the vessel, but,
according to the BMI, he did not exercise prudence as required by the situation in which his vessel was suffering the
battering on the starboard side by big waves of seven to eight meters high and strong southwesterly winds of 25 knots.
The BMI pointed out that he should have considerably reduced the speed of the vessel based on his experience about the
vessel - a close-type ship of seven decks, and of a wide and high superstructure - being vulnerable if exposed to strong
winds and high waves. He ought to have also known that maintaining a high speed under such circumstances would have
shifted the solid and liquid cargo of the vessel to port, worsening the tilted position of the vessel. It was only after a few
minutes thereafter that he finally ordered the speed to go down to 14 knots, and to put ballast water to the starboard-
heeling tank to arrest the continuous listing at portside. By then, his moves became an exercise in futility because,
according to the BMI, the vessel was already listing to her portside between 15 to 20 degrees, which was almost the
maximum angle of the vessel's loll. It then became inevitable for the vessel to lose her stability.

G.R. No. 179419               January 12, 2011
DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden
Hotel, Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
DECISION
NACHURA, J.:
For review is the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirmed the decision 2 of the
Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey See’s (See’s)
vehicle.
The facts, as found by the CA, are simple
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of subrogation, filed
[with the RTC of Makati City] a Complaint for Recovery of Damages against [petitioner] Durban Apartments
Corporation, doing business under the name and style of City Garden Hotel, and [defendant before the RTC] Vicente
Justimbaste x x x. [Respondent averred] that: it is the insurer for loss and damage of Jeffrey S. See’s [the insured’s] 2001
Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the amount of
₱1,175,000.00; on April 30, 2002, See arrived and checked in at the City Garden Hotel in Makati corner Kalayaan
Avenues, Makati City before midnight, and its parking attendant, defendant x x x Justimbaste got the key to said Vitara
from See to park it[. O]n May 1, 2002, at about 1:00 o’clock in the morning, See was awakened in his room by [a]
telephone call from the Hotel Chief Security Officer who informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank along Makati Avenue between the hours of 12:00 [a.m.] and 1:00
[a.m.]; See went to see the Hotel Chief Security Officer, thereafter reported the incident to the Operations Division of the
Makati City Police Anti-Carnapping Unit, and a flash alarm was issued; the Makati City Police Anti-Carnapping Unit
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x Justimbaste; See gave his
Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet with the PNP Traffic Management Group in
Camp Crame, Quezon City; the Vitara has not yet been recovered since July 23, 2002 as evidenced by a Certification of
Non- Recovery issued by the PNP TMG; it paid the ₱1,163,250.00 money claim of See and mortgagee ABN AMRO
Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the negligence of [petitioner]
Durban Apartments and [defendant] Justimbaste because it was discovered during the investigation that this was the
second time that a similar incident of carnapping happened in the valet parking service of [petitioner] Durban Apartments
and no necessary precautions were taken to prevent its repetition; [petitioner] Durban Apartments was wanting in due
diligence in the selection and supervision of its employees particularly defendant x x x Justimbaste; and defendant x x x
Justimbaste and [petitioner] Durban Apartments failed and refused to pay its valid, just, and lawful claim despite written
demands.
Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed their Answer
with Compulsory Counterclaim alleging that: See did not check in at its hotel, on the contrary, he was a guest of a certain
Ching Montero x x x; defendant x x x Justimbaste did not get the ignition key of See’s Vitara, on the contrary, it was See
who requested a parking attendant to park the Vitara at any available parking space, and it was parked at the Equitable
Bank parking area, which was within See’s view, while he and Montero were waiting in front of the hotel; they made a
written denial of the demand of [respondent] Pioneer Insurance for want of legal basis; valet parking services are
provided by the hotel for the convenience of its customers looking for a parking space near the hotel premises; it is a
special privilege that it gave to Montero and See; it does not include responsibility for any losses or damages to motor
vehicles and its accessories in the parking area; and the same holds true even if it was See himself who parked his Vitara
within the premises of the hotel as evidenced by the valet parking customer’s claim stub issued to him; the carnapper was
able to open the Vitara without using the key given earlier to the parking attendant and subsequently turned over to See
after the Vitara was stolen; defendant x x x Justimbaste saw the Vitara speeding away from the place where it was
parked; he tried to run after it, and blocked its possible path but to no avail; and See was duly and immediately informed
of the carnapping of his Vitara; the matter was reported to the nearest police precinct; and defendant x x x Justimbaste,
and Horlador submitted themselves to police investigation
During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer Insurance was
present. Atty. Monina Lee x x x, counsel of record of [petitioner] Durban Apartments and Justimbaste was absent,
instead, a certain Atty. Nestor Mejia appeared for [petitioner] Durban Apartments and Justimbaste, but did not file their
pre-trial brief
On November 5, 2004, the lower court granted the motion of [respondent] Pioneer Insurance, despite the
opposition of [petitioner] Durban Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance to present its
evidence ex parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and stopped in front of
City Garden Hotel in Makati Avenue, Makati City; a parking attendant, whom he had later known to be defendant x x x
Justimbaste, approached and asked for his ignition key, told him that the latter would park the Vitara for him in front of
the hotel, and issued him a valet parking customer’s claim stub; he and Montero, thereafter, checked in at the said hotel;
on May 1, 2002, at around 1:00 in the morning, the Hotel Security Officer whom he later knew to be Horlador called his
attention to the fact that his Vitara was carnapped while it was parked at the parking lot of Equitable PCI Bank which is
in front of the hotel; his Vitara was insured with [respondent] Pioneer Insurance; he together with Horlador and
defendant x x x Justimbaste went to Precinct 19 of the Makati City Police to report the carnapping incident, and a police
officer came accompanied them to the Anti-Carnapping Unit of the said station for investigation, taking of their sworn
statements, and flashing of a voice alarm; he likewise reported the said incident in PNP TMG in Camp Crame where
another alarm was issued; he filed his claim with [respondent] Pioneer Insurance, and a representative of the latter, who
is also an adjuster of Vesper Insurance Adjusters-Appraisers [Vesper], investigated the incident; and [respondent]
Pioneer Insurance required him to sign a Release of Claim and Subrogation Receipt, and finally paid him the sum of
₱1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance tasked, among others,
with the receipt of claims and documents from the insured, investigation of the said claim, inspection of damages, taking
of pictures of insured unit, and monitoring of the processing of the claim until its payment; he monitored the processing
of See’s claim when the latter reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance
assigned the case to Vesper who verified See’s report, conducted an investigation, obtained the necessary documents for
the processing of the claim, and tendered a settlement check to See; they evaluated the case upon receipt of the
subrogation documents and the adjuster’s report, and eventually recommended for its settlement for the sum of
₱1,163,250.00 which was accepted by See; the matter was referred and forwarded to their counsel, R.B. Sarajan &
Associates, who prepared and sent demand letters to [petitioner] Durban Apartments and [defendant] Justimbaste, who
did not pay [respondent] Pioneer Insurance notwithstanding their receipt of the demand letters; and the services of R.B.
Sarajan & Associates were engaged, for ₱100,000.00 as attorney’s fees plus ₱3,000.00 per court appearance, to prosecute
the claims of [respondent] Pioneer Insurance against [petitioner] Durban Apartments and Justimbaste before the lower
court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance assigned to Vesper
the investigation of See’s case, and he was the one actually assigned to investigate it; he conducted his investigation of
the matter by interviewing See, going to the City Garden Hotel, required subrogation documents from See, and verified
the authenticity of the same; he learned that it is the standard procedure of the said hotel as regards its valet parking
service to assist their guests as soon as they get to the lobby entrance, park the cars for their guests, and place the ignition
keys in their safety key box; considering that the hotel has only twelve (12) available parking slots, it has an agreement
with Equitable PCI Bank permitting the hotel to use the parking space of the bank at night; he also learned that a Hyundai
Starex van was carnapped at the said place barely a month before the occurrence of this incident because Liberty
Insurance assigned the said incident to Vespers, and Horlador and defendant x x x Justimbaste admitted the occurrence of
the same in their sworn statements before the Anti-Carnapping Unit of the Makati City Police; upon verification with the
PNP TMG [Unit] in Camp Crame, he learned that See’s Vitara has not yet been recovered; upon evaluation, Vesper
recommended to [respondent] Pioneer Insurance to settle See’s claim for ₱1,045,750.00; See contested the
recommendation of Vesper by reasoning out that the 10% depreciation should not be applied in this case considering the
fact that the Vitara was used for
barely eight (8) months prior to its loss; and [respondent] Pioneer Insurance acceded to See’s contention,
tendered the sum of ₱1,163,250.00 as settlement, the former accepted it, and signed a release of claim and subrogation
receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for Reconsideration field by
[petitioner] Durban Apartments and Justimbaste in its Orders dated May 4, 2005 and October 20, 2005, respectively, for
being devoid of merit.
3
Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments Corporation] to pay [respondent
Pioneer Insurance and Surety Corporation] the sum of ₱1,163,250.00 with legal interest thereon from July 22, 2003 until
the obligation is fully paid and attorney’s fees and litigation expenses amounting to ₱120,000.00.
SO ORDERED.4
On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC, Branch 66, Makati City in Civil
Case No. 03-857 is hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation solely liable to
[respondent] Pioneer Insurance and Surety Corporation for the loss of Jeffrey See’s Suzuki Grand Vitara.
SO ORDERED.5
Hence, this recourse by petitioner.
The issues for our resolution are:
1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the pre-trial
conference and to file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence ex-parte;
3. Whether petitioner is liable to respondent for attorney’s fees in the amount of ₱120,000.00; and
4. Ultimately, whether petitioner is liable to respondent for the loss of See’s vehicle.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that petitioner was in default for failure to appear
at the pre-trial conference and to file a pre-trial brief, and thus, correctly allowed respondent to present evidence ex-parte.
Likewise, the lower courts did not err in holding petitioner liable for the loss of See’s vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and are considered conclusive between the parties. 6 A review
of such findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1)
when the findings of a trial court are grounded entirely on speculation, surmises, or conjectures; (2) when a lower court’s
inference from its factual findings is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail
to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence, or are contradicted by evidence on record. 7 None of the
foregoing exceptions permitting a reversal of the assailed decision exists in this instance.
Petitioner urges us, however, that "strong [and] compelling reason[s]" such as the prevention of miscarriage of justice
warrant a suspension of the rules and excuse its and its counsel’s non-appearance during the pre-trial conference and their
failure to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at the pre-trial
conference, along with the filing of a corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and
Section 6 thereof provide:
SEC. 4. Appearance of parties.–It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-
appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his
behalf fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute
resolution, and to enter into stipulations or admissions of facts and documents.
SEC. 6. Pre-trial brief.–The parties shall file with the court and serve on the adverse party, in such manner as shall ensure
their receipt thereof at least three (3) days before the date of the pre-trial, their respective pre-trial briefs which shall
contain, among others:
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Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial.
Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-trial conference.
Worse, they did not file a pre-trial brief. Their non-appearance cannot be excused as Section 4, in relation to Section 6,
allows only two exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party who is fully
authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to
enter into stipulations or admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date for the pre-trial
conference, and a certain Atty. Mejia appeared on its behalf. However, its assertion is belied by its own admission that,
on said date, this Atty. Mejia "did not have in his possession the Special Power of Attorney issued by petitioner’s Board
of Directors."
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October 27, 2003, thirty-two
(32) days prior to the scheduled conference. In that span of time, Atty. Lee, who was charged with the duty of notifying
petitioner of the scheduled pre-trial conference, 8 petitioner, and Atty. Mejia should have discussed which lawyer would
appear at the pre-trial conference with petitioner, armed with the appropriate authority therefor. Sadly, petitioner failed to
comply with not just one rule; it also did not proffer a reason why it likewise failed to file a pre-trial brief. In all,
petitioner has not shown any persuasive reason why it should be exempt from abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only his bare allegation that
he is counsel for petitioner, was correctly rejected by the trial court. Accordingly, the trial court, as affirmed by the
appellate court, did not err in allowing respondent to present evidence ex-parte.
Former Chief Justice Andres R. Narvasa’s words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January 1, 1964. Yet to this day its
place in the scheme of things is not fully appreciated, and it receives but perfunctory treatment in many courts. Some
courts consider it a mere technicality, serving no useful purpose save perhaps, occasionally to furnish ground for non-
suiting the plaintiff, or declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is
not thus put to full use. Hence, it has failed in the main to accomplish the chief objective for it: the simplification,
abbreviation and expedition of the trial, if not indeed its dispensation. This is a great pity, because the objective is
attainable, and with not much difficulty, if the device were more intelligently and extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers but the parties as well to
appear for this purpose before the Court, and when a party "fails to appear at a pre-trial conference (he) may be non-
suited or considered as in default." The obligation "to appear" denotes not simply the personal appearance, or the mere
physical presentation by a party of one’s self, but connotes as importantly, preparedness to go into the different subject
assigned by law to a pre-trial. And in those instances where a party may not himself be present at the pre-trial, and
another person substitutes for him, or his lawyer undertakes to appear not only as an attorney but in substitution of the
client’s person, it is imperative for that representative of the lawyer to have "special authority" to make such substantive
agreements as only the client otherwise has capacity to make. That "special authority" should ordinarily be in writing or
at the very least be "duly established by evidence other than the self-serving assertion of counsel (or the proclaimed
representative) himself." Without that special authority, the lawyer or representative cannot be deemed capacitated to
appear in place of the party; hence, it will be considered that the latter has failed to put in an appearance at all, and he
[must] therefore "be non-suited or considered as in default," notwithstanding his lawyer’s or delegate’s presence. 9
We are not unmindful that defendant’s (petitioner’s) preclusion from presenting evidence during trial does not
automatically result in a judgment in favor of plaintiff (respondent). The plaintiff must still substantiate the allegations in
its complaint.10 Otherwise, it would be inutile to continue with the plaintiff’s presentation of evidence each time the
defendant is declared in default.
In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary deposit existed between
the insured See and petitioner. On this score, we find no error in the following disquisition of the appellate court:
[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and parking
attendant of the said hotel, x x x Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x x x
Justimbaste issued a valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area,
and placed the ignition key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI
Bank parking area became an annex of City Garden Hotel when the management of the said bank allowed the parking of
the vehicles of hotel guests thereat in the evening after banking hours. 11
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by
persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of
safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary.1avvphi1 The
keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their
employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said
hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner,
through the latter’s employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit
was perfected from See’s delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste
received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of See’s
vehicle.
Lastly, petitioner assails the lower courts’ award of attorney’s fees to respondent in the amount of ₱120,000.00.
Petitioner claims that the award is not substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate, 12 we find that respondent is entitled to reasonable
attorney’s fees. Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect its
interest,13 or when the court deems it just and equitable. 14 In this case, petitioner refused to answer for the loss of See’s
vehicle, which was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and
subrogated to the latter’s right, to litigate and incur expenses. However, we reduce the award of ₱120,000.00 to
₱60,000.00 in view of the simplicity of the issues involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 86869 is
AFFIRMED with the MODIFICATION that the award of attorney’s fees is reduced to ₱60,000.00. Costs against
petitioner.
SO ORDERED.