CASES IN OBLIGATIONS AND CONTRACTS CHAPTER 2. NATURE AND EFFECT

1) BAYLA V. SILANG TRAFFIC CO. 73 PHIL 5572) PICART V. SMITH, 37 PHIL 8093) CANGCO V. MLA RAILROAD 38 PHIL 768 4) LUZON STEVEDORING V. REPUBLIC (21 SCRA 279) AUSTRIA V. CA (39 SCRA 527)5) LA MALLORCA V. DE JESUS (17 SCRA 23)6) TUGADE V. CA (85 SCRA 226)7) TANGUILIG V. CA & HERCE, January 2, 19978.) BISHOP OF JARO V. DE LA PEÑA, 26 PHIL 1449) GUTIERREZ V. FUENTEBELLA, 13 PHIL 74110) ALBERT V. UNIVERSITY PUBLISHING, 55 OG 134811) PSBA ET AL V. CA, Feb. 2, 199212) ONGSIAKO V. IAC, 152 SCRA 62713) SANTOS VENTURA HACORMA FOUNDATION, INC. V. ERNESTO SANTOS, ET AL , Nov. 5, 200414) DBP V. LICUANAN, Feb. 26, 2007, 516 SCRA 64415) BARZAGA V. CA, 268 SCRA 10516) PHIL. COMMUNICATION SATELLITE CORP. V. GLOBE TELECOM, May 25, 200417) CO V. CA, 353 PHIL 305SICAM, ET AL V. JORGE, August 8, 200718) NPC V. CA, May 16, 199819) RCPI V. VA, August 29, 198620) RURAL BANK OF STA. MARIA, PANGASINAN V. CA (Sept. 14, 1999)21) ARIETA V. NATIONAL RIVRE AND COMM CORP, 10 SCRA 7922) MAGUT V. MEDIALDEN, April 20, 198323) GERALDEZ V. CA, Feb. 23, 199424) PANTELEON V. AMERICAN EXPRESS, May 8, 200925) QUIROS V. TAN-GUINLAY, 5 PHIL 67526) RCBC V. CA, March 25, 199927) LORENZO SHIPPING CORP. V. BJ MATHEL INTERNATIONAL, Nov. 19, 200428) SOLAR HARVEST V. DAVAO CORRUGATED CARTON CORP, July 26 201029) CATHAY PACIFIC AIRWAY V. VASQUEZ, 14 March 200330) MERALCO V. RAMOS, 4 March 200831) ARCOLA V. CA & PRUDENTIAL GUARANTEE & INSURANCE32) NAKPIL & SONS V. CA, 3 October 198633) FEBTC V. CA34) SALAGADA V FEU, April 30, 200835) JUNTILLA V. FONTANAR, 136 SCRA 624

SOFRONIO T. BAYLA, ET AL. vs. SILANG TRAFFIC CO., INC.

EN BANC

[G.R. Nos. 48195 & 48196. May 1, 1942.]

SOFRONIO T. BAYLA, ET AL., petitioners, vs.SILANG TRAFFIC CO., INC., respondent. SILANG TRAFFIC CO., INC. petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.

E. A. Beltran, for petitioners.

Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando, for respondent.

SYLLABUS

1.CORPORATIONS; DISTINCTION BETWEEN SUBSCRIPTION TO CAPITAL STOCK AND CONTRACT OF SALE OF SHARES OF STOCK. — Eight years after the corporation was organized, it entered into an "agreement for instalment sale" of its shares of stock with various individuals. After the latter had paid several instalments on account of the purchase price agreed upon, and upon default in the payment of the succeeding instalment, the board of directors of the corporation passed a resolution authorizing the refund of the amounts paid and the reversion of the shares of stock to the corporation. Held: That such resolution is valid because the contract was not one of subscription but of purchase and sale. In some particulars, the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscriptions and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares.

2.ID.; ID. — Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties. In Salmon, Dexter & Co. vs. Unson, 47 Phil. 649, it was held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between

the individual and the corporation to buy shares of stock from it at a stipulated price.

3.OBLIGATIONS AND CONTRACTS; NECESSITY OF DEMAND UPON DEFAULT AS REQUISITE TO FORFEITURE. — The contract here involved provides that if the purchaser fails to pay any of the instalments when due, the shares of stock which are the object of the sale are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The seller, through its board of directors, annulled a previous resolution rescinding the sale and declared the forfeiture of the payments already made and the reversion of the shares of stock to the corporation. Held: That such forfeiture was ineffective. The contract did not expressly provide that the failure of the purchaser to pay any instalment would give rise to forfeiture and cancellation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfilment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, or (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which the thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation.

D E C I S I O N

OZAETA, J p:

Petitioners in G. R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in G. R. No. 48196), to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under certain specified terms and conditions, of which the following, referring to the petitioner Josefa Naval, is typical:

"AGREEMENT FOR INSTALLMENT SALE OFSHARES IN THE SILANG TRAFFIC COMPANY, INC.,' 

"Silang, Cavite, P. I."THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married, and resident of the Municipality of Silang, Province of Cavite, Philippine

Islands, party of the First Part, hereinafter called the subscriber, and the 'Silang Traffic Company, Inc.,' a corporation duly organized and existing by virtue of and under the laws of the Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the seller,

"WITNESSETH:"That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent upon the execution of the contract, the receipt whereof is hereby acknowledged and confessed, and the remainder in installments of five per cent, payable within the first month of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum until paid."That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take possession, without resorting to court proceedings."The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all encumbrances."In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935.

 

"(Sgd.) JOSEFA NAVAL

"SILANG TRAFFIC COMPANY, INC.

Subscriber

"By (Sgd.) LINO GOMEZ

President." 

(Exhibit 1. Notarial acknowledgment omitted.)The agreements signed by the other petitioners were of the same date (March 30, 1935) and in identical terms as the foregoing except as to the number of shares and the corresponding purchase price. The petitioners agreed to purchase the following number of shares and, up to April 30, 1937, had paid the following sums on account thereof:.

 

Sofronio T. Bayla8 shares—P360

Venancio Toledo8 shares — 375

Josefa Naval15 shares—675

Paz Toledo15 shares—675 

Petitioners' action for the recovery of the sums above mentioned is based on a resolution approved by the board of directors of the respondent corporation on August 1, 1937, of the following tenor:

"A mocion del Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado 'Vicente F. Villanueva et al. vs. Lino Gomez et al.', en el Juzgado de Primera Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo por la Junta Directiva los siguientes:

"(a)Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos pagar 20% del valor de las acciones suscritas en un año, con interes de 6% y el pago o jornal que se hara por trimestre.

"(b)Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguientes:

 

Lino Gomez10 Acciones

Venancio Toledo8 Acciones

Melchor P. Benitez17 Acciones

Isaias Videña14 Acciones

Esteban Velasco10 Acciones

Numeriano S. Aldaba15 Acciones

Inocencio Cruz8 Acciones

Paz Toledo15 Acciones

Josefa Naval15 Acciones

Sofronio Bayla8 Acciones

Dionisio Dungca3 Acciones

 

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones.

"(c)Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation

Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.

"(d)Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades pagadas por las 123 acciones." (Exhibit A-1.)The respondent corporation set up the

following defenses: (1) That the above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and canceled by a subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937.

The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void, citing Velasco vs. Poizat (37 Phil. 802), wherein this Court held that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares; and any agreement to this effect is invalid." Plaintiffs below appealed to the Court of Appeals, which modified the judgment of the trial court as follows:

 "That part of the

judgment dismissing plaintiffs' complaint is affirmed, but that part thereof declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their subscription. Without pronouncement as to costs."Both parties appealed to this Court by

petition and cross-petition for certiorari. Petitioners insist that they have the right to recover the amounts involved under the resolution of August 1, 1937, while the respondent and cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock have reverted to the corporation under the agreement hereinabove quoted.

The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as a contract of subscription to the capital stock of the respondent

corporation. It should be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic Company, Inc."; that while the purchaser is designated as "subscriber," the corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and organization of the corporation, which took place in 1927; and that the price of the stock was payable in quarterly installments spread over a period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the persons named in said resolution (including the herein petitioners) was impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares.

Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporations [permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale.

It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred in overlooking the distinction between subscription and purchase. "A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at a stipulated price." (18 C. J. S., 760.) In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscriptions and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares.

The next question to determine is whether under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The contract provides for interest at the rate of six per centum per annum on deferred payments. It also provides that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already

made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost any and all rights under said contract. That contention is, we think, untenable. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them, judicially or extrajudicially the fulfilment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, or (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which the thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties. According to the resolution of August 1, 1937, the rescission was made for the good of the corporation and in order to terminate the then pending civil case involving the validity of the sale of the shares in question among others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the refund of the amounts they had paid as provided in said resolution. It appears from the record that said civil case was subsequently dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were mentioned in said resolution were able to benefit by said resolution. It would be an unjust discrimination to deny the same benefit to the herein petitioners.

We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was in any way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the petitioners.

Wherefore, the judgment of the Court of Appeals is hereby reversed and another

judgment will be entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs in the three instances. So ordered.

Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.

AMADO PICART vs. FRANK SMITH

EN BANC

[G.R. No. L-12219. March 15, 1918.]

AMADO PICART, plaintiff-appellant, vs. FRANK SMITH, jr., defendant-appellee.

Alejo Mabanag for appellant.

G. E. Campbell for appellee.

SYLLABUS

1.NEGLIGENCE; CRITERION FOR DETERMINING EXISTENCE OF NEGLIGENCE. — The test for determining whether a person is negligent in doing an act whereby injury or damage results to the person or property of another is this: Would a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the person injured as a reasonable consequence of the course about to be pursued. If so, the law imposes a duty on the actor to refrain from that course or to take precaution against its mischievous results, and the failure to do so constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition born of this prevision, is the constitutive fact in negligence.

2.ID.; CONTRIBUTORY NEGLIGENCE; SUCCESSIVE NEGLIGENT ACTS. — Where both parties are guilty of negligence, but the negligent act of one succeeds that of the other by an appreciable interval of time, the one who has the last reasonable opportunity to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party.

3.ID.; ID.; CASE AT BAR. — The plaintiff was riding a pony on a bridge. Seeing an automobile ahead he improperly pulled his horse over to the railing on the right. The driver of the automobile, however, guided his car toward the plaintiff without diminution of speed until he was only a few feet away. He then turned to the right but passed so closely to the horse that the latter being frightened, jumped around and was killed by the passing car. Held: That although the plaintiff was guilty of negligence in being on the wrong side of the bridge, the defendant was nevertheless civilly liable for the legal damages resulting from the collision, as he had a fair opportunity to avoid the accident after he realized the situation created by the negligence of the plaintiff and failed to avail himself of that opportunity; while the plaintiff could by no means then place himself in a position of greater safety.

D E C I S I O N

STREET, J p:

In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the sum of P31,100, as damages alleged to have been caused by an automobile driven by the defendant. From a judgment of the Court of First Instance of the Province of La Union absolving the defendant from liability the plaintiff has appealed.

The occurrence which gave rise to the institution of this action took place on December 12, 1912, on the Carlatan Bridge, at San Fernando, La Union. It appears that upon the occasion in question the plaintiff was riding on his pony over said bridge. Before he had gotten half way across, the defendant approached from the opposite direction in an automobile, going at the rate of about ten or twelve miles per hour. As the defendant neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his course and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man on horseback before him was not observing the rule of the road.

The plaintiff, it appears, saw the automobile coming and heard the warning signals. However, being perturbed by the novelty of the apparition or the rapidity of the approach, he pulled the pony closely up against the railing on the right side of the bridge instead of going to the left. He says that the reason he did this was that he thought he did not have sufficient time to get over to the other side. The bridge is shown to have a length of about 75 meters and a width of

4.08 meters. As the automobile approached, the defendant guided it toward his left, that being the proper side of the road for the machine. In so doing the defendant assumed that the horseman would move to the other side. The pony had not as yet exhibited fright, and the rider had made no sign for the automobile to stop. Seeing that the pony was apparently quiet, the defendant, instead of veering to the right while yet some distance away or slowing down, continued to approach directly toward the horse without diminution of speed. When he had gotten quite near, there being then no possibility of the horse getting across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing where it was then standing; but in so doing the automobile passed in such close proximity to the animal that it became frightened and turned its body across the bridge with its head toward the railing. In so doing, it was struck on the hock of the left hind leg by the flange of the car and the limb was broken. The horse fell and its rider was thrown off with some violence. From the evidence adduced in the case we believe that when the accident occurred the free space where the pony stood between the automobile and the railing of the bridge was probably less than one and one half meters. As a result of its injuries the horse died. The plaintiff received contusions which caused temporary unconsciousness and required medical attention for several days.

The question presented for decision is whether or not the defendant in maneuvering his car in the manner above described was guilty of negligence such as gives rise to a civil obligation to repair the damage done; and we are of the opinion that he is so liable. As the defendant started across the bridge, he had the right to assume that the horse and rider would pass over to the proper side; but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not be done; and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of situation occurred while the automobile was yet some distance away; and from this moment it was not longer within the power of the plaintiff to escape being run down by going to a place of greater safety. The control of the situation had then passed entirely to the defendant; and it was his duty either to bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. He was, we think, deceived into doing this by the fact that the horse had not yet exhibited fright. But in view of the known nature of horses, there was an

appreciable risk that, if the animal in question was unacquainted with automobiles, he might get excited and jump under the conditions which here confronted him. When the defendant exposed the horse and rider to this danger he was, in our opinion, negligent in the eye of the law.

The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case. Abstract speculation cannot here be of much value but his much can be profitably said: Reasonable men govern their conduct by the circumstances which are before them or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they can be expected to take care only when there is something before them to suggest or warn of danger. Could a prudent man, in the case under consideration, foresee harm as a result of the course actually pursued? If so, it was the duty of the actor to take precautions to guard against that harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this prevision, is always necessary before negligence can be held to exist. Stated in these terms, the proper criterion for determining the existence of negligence in a given case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its consequences.

Applying this test to the conduct of the defendant in the present case we think that negligence is clearly established. A prudent man, placed in the position of the defendant, would, in our opinion, have recognized that the course which he was pursuing was fraught with risk, and would therefore have foreseen harm to the horse and rider as a reasonable consequence of that course. Under these circumstances the law imposed on the defendant the duty to guard against the threatened harm.

It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was also negligent; and in such case the problem always is to discover which agent is immediately and directly responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party.

 The decision in the case of Rakes vs.

Atlantic, Gulf and Pacific Co.(7 Phil. Rep., 359) should perhaps be mentioned in this connection. This Court there held that while contributory negligence on the part of the person injured did not constitute a bar to recover, it could be received in evidence to reduce the damages which would otherwise have been assessed wholly against the other party. The defendant company had there employed the plaintiff, a laborer, to assist in transporting iron rails from a barge in Manila harbor to the company's yards located not far away. The rails were conveyed upon cars which were hauled along a narrow track. At a certain spot near the water's edge the track gave way by reason of the combined effect of the weight of the car and the insecurity of the road bed. The car was in consequence upset; the rails slid off; and the plaintiff's leg was caught and broken. It appeared in evidence that the accident was due to the effects of a typhoon which had dislodged one of the supports of the track. The court found that the defendant company was negligent in having failed to repair the bed of the track and also that the plaintiff was, at the moment of the accident, guilty of contributory negligence in walking at the side of the car instead of being in front or behind. It was held that while the defendant was liable to the plaintiff by reason of its negligence in having failed to keep the track in proper repair, nevertheless the amount of the damages should be reduced on account of the contributory negligence of the plaintiff. As will be seen the defendant's negligence in that case consisted in an omission only. The liability of the company arose from its responsibility for the dangerous condition of its track. In a case like the one now before us, where the defendant was actually present and operating the automobile which caused the damage, we do not feel constrained to attempt to weigh the negligence of the respective parties in order to apportion the damage according to the degree of their relative fault. It is enough to say

that the negligence of the defendant was in this case the immediate and determining cause of the accident and that the antecedent negligence of the plaintiff was a more remote factor in the case.

A point of minor importance in the case is indicated in the special defense pleaded in the defendant's answer, to the effect that the subject matter of the action had been previously adjudicated in the court of a justice of the peace. In this connection it appears that soon after the accident in question occurred, the plaintiff caused criminal proceedings to be instituted before a justice of the peace charging the defendant with the infliction of serious injuries (lesiones graves). At the preliminary investigation the defendant was discharged by the magistrate and the proceedings were dismissed. Conceding that the acquittal of the defendant at a trial upon the merits in a criminal prosecution for the offense mentioned would be res adjudicata upon the question of his civil liability arising from negligence — a point upon which it is unnecessary to express an opinion — the action of the justice of the peace in dismissing the criminal proceeding upon the preliminary hearing can have no such effect. (See U.S. vs. Banzuela and Banzuela, 31 Phil. Rep., 564.)

From what has been said it results that the judgment of the lower court must be reversed, and judgment is here rendered that the plaintiff recover of the defendant the sum of two hundred pesos (P200), with costs of both instances. The sum here awarded is estimated to include the value of the horse, medical expenses of the plaintiff, the loss or damage occasioned to articles of his apparel, and lawful interest on the whole to the date of this recovery. The other damages claimed by the plaintiff are remote or otherwise of such characters as not to be recoverable. So ordered.

Arellano, C.J., Torres, Carson, Araullo, Avanceña, and Fisher, JJ., concur.

Johnson, J., reserves his vote.

Separate Opinions

MALCOLM, J., concurring:

After mature deliberation, I have finally decided to concur with the judgment in this case. I do so because of my understanding of the "last clear chance" rule of the law of negligence as particularly applied to automobile accidents. This rule cannot be invoked where the negligence of the plaintiff is concurrent with that of the defendant. Again, if a traveller when he reaches the point of collision is in a situation to extricate himself and avoid injury, his negligence at that point will prevent a recovery. But Justice Street finds as a fact that the negligent act of the

defendant succeeded that of the plaintiff by an appreciable interval of time, and that at that moment the plaintiff had no opportunity to avoid the accident. consequently, the "last clear chance" rule is applicable. In other words, when a traveller has reached a point where he cannot extricate himself and vigilance on his part will not avert the injury, his negligence in reaching that position becomes the condition and not the proximate cause of the injury and will not preclude a recovery. (Note especially Aiken vs. Metcalf [1917], 102 Atl., 330.)

JOSE CANGCO vs. MANILA RAILROAD CO.

EN BANC

[G.R. No. 12191. October 14, 1918.]

JOSE CANGCO, plaintiff-appellant, vs. MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo, for appellant.

Kincaid & Hartigan, for appellee.

SYLLABUS

1.MASTER AND SERVANT; CONTRACT; NEGLIGENCE. — Failure to perform a contract cannot be excused upon the ground that the breach was due to the negligence of a servant of the obligor, and that the latter exercised due diligence in the selection and control of the servant.

2.CONTRACTS; NEGLIGENCE:; CULPA AQUILIANA; CULPA CONTRACTUAL. — The distinction between negligence as the source of an obligation (culpa aquiliana) and negligence in the performance of a contract (culpa contractual ) pointed out.

3.CARRIERS; PASSENGERS; NEGLIGENCE; ALIGHTING FROM MOVING TRAIN. — It is not negligence per se for a traveler to alight from a slowly moving train.

D E C I S I O N

FISHER, J p:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the employment of the Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the defendant railroad company; and in coming daily by train to the company's office in the city of Manila where he worked, he used a pass, supplied by the company, which entitled him to ride upon the company's trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff was returning home by rail from his daily labors; and as the train drew up to the station in San Mateo the plaintiff arose from his seat in the second class-car where he was riding and, making his exit through the door, took his position upon the steps of the coach, seizing the upright guardrail with his right hand for support.

On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise with a moderate gradient some distance away from the company's office and extends along in front of said office for a distance sufficient to cover the length of several coaches. As the train slowed down another passenger, named Emilio Zuniga, also an employee of the railroad company, got off the same car, alighting safely at the point where the platform begins to rise from the level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell violently on the platform. His body at once rolled from the platform and was drawn under the moving car, where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted dimly by a single light located some distance away, objects on the platform where the accident occurred were difficult to discern, especially to a person emerging from a lighted car.

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that it was the customary season for harvesting these melons and a large lot had been brought to the station for shipment to the market. They were contained in numerous tow sacks which had been piled on the platform in a row one upon another. The testimony shows that this row of sacks was so placed that there was a space of only about two feet between the sacks of melons and the edge

of the platform; and it is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the platform. His statement that he failed to see these objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries which he had received were very serious. He was therefore brought at once to a certain hospital in the city of Manila where an examination was made and his arm was amputated. The result of this operation was unsatisfactory, and the plaintiff was then carried to another hospital where a second operation was performed and the member was again amputated higher up near the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and surgical fees and for other expenses in connection with the process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages of the defendant company, founding his action upon the negligence of the servants and employees of the defendant in placing the sacks of melons upon the platform and in leaving them so placed as to be a menace to the security of passenger alighting from the company's trains. At the hearing in the Court of First Instance, his Honor, the trial judge, found the facts substantially as above stated, and drew therefrom his conclusion to the effect that, although negligence was attributable to the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and from the cars, nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded from recovering. Judgment was accordingly entered in favor of the defendant company, and the plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the platform in the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily follow s that the defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. In resolving this problem it is necessary that each of these conceptions of liability, to-wit, the primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the obligation to respond for the damage which plaintiff has

suffered arises, if at all, from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and immediate, differing essentially, in the legal viewpoint from that presumptive responsibility for the negligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-contractual obligations — or to use the technical form of expression, that article relates only to culpa aquiliana and not to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and Pacific Cc. (7 Phil. Rep., 359). In commenting upon article 1093 (vol. 8, p. 30) Manresa clearly points out the difference between "culpa, substantive and independent, which of itself constitutes the source of an obligation between persons not formerly connected by any legal tie" and culpa considered as an "accident in the performance of an obligation already existing . . .."

In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of a contract.

Upon this point the Court said:"The acts to which these

articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not growing out of pre-existing duties of the parties to one another But where relations already formed give rise to duties, whether springing from contract or quasi-contract, then breaches of those duties are subject to articles 1101, 1103 and 1104 of the same code." (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at p. 365.)This distinction is of the utmost

importance. The liability, which, under the Spanish law, is, in certain cases imposed upon employers with respect to damages occasioned by the negligence of their employees to persons to whom they are not bound by contract, is not based, as in the English Common Law, upon the principle of respondent superior — if it were, the master would be liable in every case and unconditionally — but upon the principle announced in article 1902 of the Civil Code, which imposes upon all persons who by their

fault or negligence, do injury to another, the obligation of making good the damage caused. One who places a powerful automobile in the hands of a servant whom he knows to be ignorant of the method of managing such a vehicle, is himself guilty of an act of negligence which makes him liable for all the consequences of his imprudence. The obligation to make good the damage arises at the very instant that the unskillful servant, while acting within the scope of his employment, causes the injury. The liability of the master is personal and direct. But, if the master has not been guilty of any negligence whatever in the selection and direction of the servant, he is not liable for the acts of the latter, whether done within the scope of his employment or not, if the damage done by the servant does not amount to a breach of the contract between the master and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from liability for the latter's acts — on the contrary, that proof shows that the responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon avoluntary act or omission which, without willful intent, but by mere negligence or inattention, has caused damage to another. A master who exercises all possible care in the selection of his servant, taking into consideration the qualifications they should possess for the discharge of the duties which it is his purpose to confide to them, and directs them with equal diligence, thereby performs his duty to third persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by reason of the negligence of his servants, even within the scope of their employment, such third persons suffer damage. True it is that under article 1903 of the Civil Code the law creates apresumption that he has been negligent in the selection or direction of his servant, but the presumption is rebuttable and yields to proof of due care and diligence in this respect.

 The supreme court of Porto Rico, in

interpreting identical provisions, as found in the Porto Rican Civil Code, has held that these articles are applicable to cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. Rep., 624), which was an action brought upon the theory of the extra-contractual liability of the defendant to respond for the damage caused by the carelessness of his employee while acting within the scope of his employment The Court, after citing the last paragraph of article 1903 of the Civil Code, said:

"From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after the selection, or both; and (2) that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved from liability.

"This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast to the American doctrine that, in relations with strangers, the negligence of the servant is conclusively the negligence of the master."The opinion there expressed by this

Court, to the effect that in case of extra-contractual culpa based upon negligence, it is necessary that there shall have been some fault attributable to the defendant personally, and that the last paragraph of article 1903 merely establishes a rebuttable presumption, is in complete accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special relations of authority or superiority existing between the person called upon to repair the damage and the one who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents, when such acts or omissions cause damages which amount to the breach of a contract, is not based upon a mere presumption of the master's negligence in their selection or control, and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its source in the breach

or omission of those mutual duties which civilized society imposes upon its members, or which arise from these relations, other than contractual, of certain members of society to others, generally embraced in the concept of status. The legal rights of each member of society constitute the measure of the corresponding legal duties, mainly negative in character, which the existence of those rights imposes upon all other members of society. The breach of these general duties whether due to willful intent or to mere inattention, if productive of injury, gives rise to an obligation to indemnify the injured party. The fundamental distinction between obligations of this character and those which arise from contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of one's agents or servants, or in the control of persons who, by reason of their status, occupy a position of dependency with respect to the person made liable for their conduct.

The position of a natural or juridical person who has undertaken by contract to render service to another, is wholly different from that to which article 1903 relates. When the source of the obligation upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests upon plaintiff to prove the negligence — if he does not his action fails. But when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the contract is due to willful

fault or to negligence on the part of the defendant, or of his servants or agents. Proof of the contract and of its nonperformance is sufficient prima facie to warrant a recovery.

"As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume the burden of proof of its existence, as the only fact upon which his action is based; while on the contrary, in a case of negligence which presupposes the existence of a contractual obligation, if the creditor shows that it exists and that it has been broken, it is not necessary for him to prove the negligence." (Manresa, vol. 8, p. 71 [1907 ed., p. 76].)As it is not necessary for the plaintiff in

an action for the breach of a contract to show that the breach was due to the negligent conduct of defendant or of his servants, even though such be in fact the actual cause of the breach, it is obvious that proof on the part of defendant that the negligence or omission of his servants or agents caused the breach of the contract would not constitute a defense to the action. If the negligence of servants or agents could be invoked as a means of discharging the liability arising from contract, the anomalous result would be that persons acting through the medium of agents or servants in the performance of their contracts, would be in a better position than those acting in person. If one delivers a valuable watch to a watchmaker who contracts to repair it, and the bailee, by a personal negligent act causes its destruction, he is unquestionably liable. Would it be logical to free him from his liability for the breach of his contract, which involves the duty to exercise due care in the preservation of the watch, if he shows that it was his servant whose negligence caused the injury? If such a theory could be accepted, juridical persons would enjoy practically complete immunity from damages arising from the breach of their contracts if caused by negligent acts of omission or commission on the part of their servants, as such juridical persons can of necessity only act through agents or servants, and it would no doubt be true in most instances that reasonable care had been taken in the selection and direction of such servants. If one delivers securities to a banking corporation as collateral, and they are lost by reason of the negligence of some clerk employed by the bank, would it be just and reasonable to permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon the payment of the debt by proving that due care had been exercised in the selection and direction of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere incident to the performance of a contract has frequently been recognized by the supreme court of Spain. (Sentenciasof June 27, 1894; November 20, 1896; and December 13 1896.) In the decision of November 20, 1896, it appeared that plaintiff s action arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense. The Spanish Supreme Court rejected defendant's contention, saying:

"These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as those to which article 1902 of the Civil Code relates, but of damages caused by the defendant's failure to carry out the undertakings imposed by the contracts . . .."A brief review of the earlier decision of

this court involving the liability of employers for damage done by the negligent acts of their servants will show that in no case has the court ever decided that the negligence of the defendant's servants [has] been held to constitute a defense to an action for damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not liable for the damages caused by the negligence of his driver. In that case the court commented on the fact that no evidence had been adduced in the trial court that the defendant had been negligent in the employment of the driver, or that he had any knowledge of his lack of skill or carefulness.

 In the case of Baer Senior & Co.'s

Successors vs. Compañia Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of defendant's servants in the course of the performance of a contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff . . . we do not think that the provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages for personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which defendant was riding at the time. The court found that the damages were caused by the negligence of the driver of the automobile, but held that the

master was not liable, although he was present at the time, saying:

" . . . unless the negligent acts of the driver are continued for such a length of time as to give the owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. . . . The act complained of must be continued in the presence of the owner for such a length of time that the owner by his acquiescence, makes the driver's acts his own."In the case of Yamada vs. Manila

Railroad Co. and Rachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its conclusion as to the liability of the defendant upon article 1903, although the facts disclosed that the injury complained of by plaintiff constituted a breach of the duty to him arising out of the contract of transportation. The express ground of the decision in this case was that article 1903, in dealing with the liability of a master for the negligent acts of his servants "makes the distinction between private individuals and public enterprise;" that as to the latter the law creates a rebuttable presumption of negligence in the selection or direction of the servants; and that in the particular case the presumption of negligence had not been overcome.

It is evident, therefore, that in its decision in the Yamada case, the court treated plaintiff's action as though founded in tort rather than as based upon the breach of the contract of carriage, and an examination of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theory. Viewed from the standpoint of the defendant the practical result must have been the same in any event. The proof disclosed beyond doubt that the defendant's servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared that defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant. Defendant was therefore, liable for the injury suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa aquilina or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether negligence occurs as an incident in the course of the performance of a contractual undertaking or is itself the source of an extra-contractual obligation, its essential characteristics are identical. There is always an act or omission productive of damage due to carelessness or inattention on the part of the defendant. Consequently, when the court holds that a defendant is liable in damages for having failed to exercise due care, either directly, or in failing to

exercise proper care in the selection and direction of his servants, the practical result is identical in either ease. Therefore, it follows that it is not to be inferred, because the court held in the Yamada ease that the defendant was liable for the damages negligently caused by its servant to a person to whom it was bound by contract, and made reference to the fact that the defendant was negligent in the selection and control of its servants, that in such a case the court would have held that it would have been a good defense to the action, if presented squarely upon the theory of the breach of the contract, for defendant to have proved that it did in fact exercise care in the selection and control of the servant.

The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and extra-contractual obligations. The field of non-contractual obligation is much more broader than that of contractual obligation, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the contract would have constituted the source of an extra-contractual obligation had no contract existed between the parties.

The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to provide safe means of entering and leaving its trains (Civil Code, article 1258). That duty, being contractual, was direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendant's servants.

The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of approaching and leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a complete stop before alighting. Under the doctrine of comparative negligence announced in the Rakes case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposed upon defendant, whereas if the accident was caused by defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop

before alighting, the particular injury suffered by him could not have occurred. Defendant contends, and cites many authorities in support of the contention, that it is negligence per se for a passenger to alight from a moving train. We are not disposed to subscribe to this doctrine n its absolute form. We are of the opinion that this proposition is too broadly stated and is at variance with the experience of every-day life. In this particular instance, tat the train was barely moving when plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the place where he stepped from it. Thousands of persons alight from trains under these conditions every day of the year, and sustain no injury where the company has kept its platform free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as follows:

"The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be used by the prudent man generally, but the care which a man of ordinary prudence would use under similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)Or, if we prefer to adopt the mode of

exposition used by this court in Picart vs. Snith (37 Phil. Rep., 809), we may say that the test is this; Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train which would have admonished a person of average prudence that to get off the train under the conditions then existing was dangerous ? If so, the plaintiff should have desisted from alighting; and his failure so to desist was contributory negligence.

As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that the plaintiff was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the

condition of the platform and while the train was yet slowly moving. In considering the situation thus presented, it should not be overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford to its passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the absence of some circumstance to warn him to the contrary, that the platform was clear. The place, as we have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the part of the defendant in the performance of a duty owing by it to the plaintiff; for if it were by any possibility conceded that it had a right to pile these sacks in the path of alighting passengers, the placing of them in that position gave rise to the duty to light the premises adequately so that their presence would be revealed.

 As pertinent to the question of

contributory negligence on the part of the plaintiff in this case the following circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed and the surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature of the platform, constructed as it was of cement material, also assured to the passenger a stable and even surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no means so risky for him to get off while the train was yet moving as the same act would have been in an aged or feeble person. In determining the question of contributory negligence in performing such act — that is to say, whether the passenger acted prudently or recklessly — the age, sex, and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger, and should be considered. Women, it has been observed, as a general rule, are less capable than men of alighting with safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff, as it was his daily custom to get on and off the train at this station. There could, therefore, be no uncertainty in his mind with regard either to the length of the step which he was required to take or the character of the platform where he was alighting. Our conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist clerk, and that the injuries he has suffered have permanently disabled him from continuing that employment. Defendant has not shown that any other gainful occupation is open to plaintiff. His expectancy of life, according to the standard mortality tables, is approximately thirty-three years. We are of the opinion that a fair compensation for the damage suffered by him for his permanent disability is the sum of P2,500, and that he is also entitled to recover of defendant the additional sum of P790.25 for medical attention, hospital services, and other incidental expenditures connected with the treatment of his injuries.

The decision of the lower court is reversed, and judgment is hereby rendered plaintiff for the sum of P3,290.25, and for the costs of both instances. So ordered.

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

With one sentence in the majority decision, we are of full accord, namely, "It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular injury suffered by him could not have occurred." With the general rule relative to a passenger's contributory negligence, we are likewise in full accord, namely, "An attempt to alight from a moving train is negligence per se." Adding these two points together, we have the logical result — the Manila Railroad Co. should be absolved from the complaint, and judgment affirmed.

Johnson, J., concurs.

EN BANC

[G.R. No. L-21749. September 29, 1967.]

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. LUZON STEVEDORING CORPORATION,defendant-appellant.

The Solicitor General for the plaintiff-appellee.

H. San Luis and L.V. Simbulan for defendant-appellant.

SYLLABUS

1.REMEDIAL LAW; APPEALS, EFFECT OF; WAIVER; ESTOPPEL. — The established rule in this jurisdiction is that when a party appeals directly to the Supreme Court and submits his case there for decision, he is deemed to have waived the right to dispute any finding of fact made by the trial court. The only questions that may be raised are those of law. A converso, a party who resorts to the Court of Appeals and submits his case for decision there, is barred from contending later that his claim was beyond the jurisdiction of that Court.

2.CIVIL LAW; CULPA AQUILIANA; PRESUMPTIONS; RES IPSA LOQUITUR. — Where an immovable and stationary object like the Nagtahan bridge, uncontrovertedly provided with adequate openings for passage of watercraft, is rammed by a barge exclusively controlled by appellant, causing damage to its supports, there arises a presumption of negligence on appellant's part or its employees, manning the barge or the tugs that towed it. In the ordinary course of events, such a thing does not happen if proper care is used. In Anglo-American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule.

3.ID; CASO FORTUITO. — Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) by definition, means extraordinary events not forseeable or avoidable, "events that could not be forseen, or which though foreseen, were inevitable." It is therefore not enough that the event should not have been forseen or anticipated, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga más dificil o más onerosa la acción diligente del presénto ofensor."

4.ID.; CASO FORTUITO, INVOCATION OF. — Where appellant adopted precautionary measures by assigning two of its most powerful tugboats to tow its barge down river and by assigning its more competent and experienced patrons to take care of the towlines, who were instructed to take precautions; and where the engines and equipment had been double-checked and unspected so that it had done all it could do to prevent an accident, said appellant cannot invoke caso fortuito or force majeure, as the possibility of danger was not only foreseeable, but actually foreseen. Otherwise stated, appellant, knowing or appreciating the perils posed by the

swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it therefore assumed the risk, and cannot shed responsibility merely because the precautions it adopted turned out to be insufficient.

5.REMEDIAL LAW; EVIDENCE; DISCRETION OF JUDGE. — Whether or not further evidence will be allowed after a party offering the evidence had rested his case, lies within the sound discretion of the trial judge, and this discretion will not be reviewed except in clear case of abuse.

D E C I S I O N

REYES, J.B.L., J p:

The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to the plaintiff-appellee Republic of the Philippines.

In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero," 1 also belonging to the same corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the time, was swollen and the current swift, on account of the heavy downpour in Manila and the surrounding provinces on August 15 and 16, 1960.

Sued by the Republic of the Philippines for actual and consequential damage caused by its employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due diligence in the selection and supervision of its employees; that the damages to the bridge were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation.

After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the damage caused by its employees and ordering it to pay plaintiff the actual cost of the repair of the Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of the filing of the complaint.

Defendant appealed directly to this Court assigning the following errors allegedly committed by the court a quo, to wit:

I — The lower court erred in not holding that the herein defendant-appellant had exercised the diligence required of it in the selection and supervision of its personnel to prevent damage or injury to others.

II — The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by barge L-1892 was caused by force majeure.

III — The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if not a menace, to navigation in the Pasig river.

IV — The lower court erred in not blaming the damage sustained by the Nagtahan bailey bridge to the improper placement of the dolphins.

V — The lower court erred in granting the plaintiff's motion to adduce further evidence in chief after it has rested its case.

VI — The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for damages which is clearly exorbitant and without any factual basis.

However, it must be recalled that the established rule in this jurisdiction is that when a party appeals directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived the right to dispute any finding of fact made by the trial Court. The only questions that may be raised are those of law (Savellano vs. Diaz, L-17941, July 31, 1963; Aballe vs. Santiago, L- 16307, April 30, 1963, G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of Appeals, and submits his case for decision there, is barred from contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage the undesirable practice of appellants' submitting their cases for decision to either court in expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable (Tyson Tan et al. vs. Filipinas Compañia de Seguros et al., L-10096, Res. on Motion to Reconsider, March 23, 1966). Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief.

Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal are reduced to two:

1)Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan bridge was in law caused by fortuitous event or force majeure, and

2)Whether or not it was error for the Court to have permitted the plaintiff-appellee to introduce additional evidence of damages after said party had rested its case.

As to the first question considering that the Nagtahan bridge was an immovable and stationary object and uncontrovertedly provided with adequate openings for the passage of water craft, including barges like of appellant's, it is undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence on the part of appellant or its employees manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule (Scott vs. London Docks, Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).

The appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent and experienced among its patrons, had the towlines, engines and equipment double-checked and inspected' that it instructed its patronsto take extra precautions; and concludes that it had done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event.

These very precautions, however, completely destroy the appellant's defense. For caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability) 2 by definition, are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del presento ofensor"

(Peirano Facio, Responsabilidad Extra-contractual, p. 465; Mazeaud, Trait de la Responsabilite Civil, Vol. 2, sec. 1569). The very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito.

Otherwise state, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it therefore assumed the risk, and can not shed responsibility merely because the precautions it adopted turned out to be insufficient. Hence, the lower Court committed no error in holding it negligent in not suspending operations and in holding it liable for the damages caused.

It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if true, these circumstances would merely emphasize the need of even higher degree of care on appellant's part in the situation involved in the present case. The appellant, whose barges and tugs travel up and down the river everyday, could not safely ignore the danger posed by these allegedly improper constructions that had been erected and, in place, for years.

On the second point: appellant charges the lower court with having abused its discretion in the admission of plaintiff's additional evidence after the latter had rested its case. There is an insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice defendant-appellant.

We find no merit in the contention. Whether or not further evidence will be allowed after a party offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this discretion will not be reviewed except in clear case of abuse. 3

In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after plaintiff had rested its evidence in chief, were vouchers and papers to support an item of P1,558,00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which item already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of being unfair, because it was also able to secure, upon written motion, a similar order dated November 24, 1962, allowing reception of additional evidence for the said defendant-appellant. 4

WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed. Costs against the defendant-appellant.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

Footnotes

1.The lead - tugboat "Bangus" was pulling the barge, while the tugboat "Barbero" was holding or restraining it at the back.

2.Lasam vs. Smith, 45 Phil. 661.

3.Lopez vs. Liboro. 81 Phil. 429.

4.p. 89, Record on Appeal.

EN BANC

[G.R. No. L-29640. June 10, 1971.]

GUILLERMO AUSTRIA, petitioner, vs. THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD, respondents.

Antonio Enrile Inton for petitioner.

Jose A. Buendia for respondents.

SYLLABUS

1.CIVIL LAW; OBLIGATIONS; REQUISITES OF FORTUITOUS EVENT. — It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. A fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by bandits, robbery, etc., provided that the event has all the characteristics enumerated above.

2.ID.; ID.; ID.; FOR ROBBERY TO CONSTITUTE A FORTUITOUS EVENT, IT IS NOT REQUIRED THAT THE ACCUSED IN THE ROBBERY CASE BE FIRST CONVICTED; REASON. — The point at issue in this proceeding is how the fact of robbery is to be established in order that a person may avail of the exempting provision of Article 1174 of the new Civil

Code, which reads as follows: . . It may be noted therefrom that the emphasis of the provision is on the events, not on the agents or factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to establish that the unforeseeable event, the robbery in this case, did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. To require in the present action for recovery the prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.

3.ID.; ID.; ID.; ID.; THE COMMISSION AGENT WHO TRAVELED ALONE AT NIGHT 1961 IS NOT NEGLIGENT AND NOT RESPONSIBLE FOR THE LOSS DUE TO ROBBERY OF JEWELRY RECEIVED ON CONSIGNMENT; IT IS OTHER WISE IN 1971; CASE AT BAR. — It is undeniable that in order to completely exonerate the debtor for reason of a fortuitous event, such debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence. This is apparent from Article 1170 of the Civil Code of the Philippines, providing that: . . It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with their high incidence of crimes against persons and property, that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying jewelry of considerable value, would be negligent per se, and would not exempt her from responsibility in the case of a robbery. We are not persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in question did take place, for at that time criminality had not by far reached the levels attained in the present day.

4.REMEDIAL LAW; EVIDENCE; THE RECOGNITION IN THE CIVIL CASE FOR RECOVERY AGAINST THE COMMISSION AGENT OF THE FACT OF ROBBERY BEFORE CONVICTION IN THE CRIMINAL CASE FOR ROBBERY WILL NOT PREJUDICE THE LATTER CASE, NEITHER WILL IT RESULT IN INCONSISTENCY SHOULD THE ACCUSED OBTAIN AN ACQUITTAL OR SHOULD THE CRIMINAL CASE BE DISMISSED; REASON. — There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in the civil case before conviction is secured in the criminal action, would prejudice the latter case, or would result in inconsistency should the accused obtain an acquittal or should the criminal case be dismissed. It must be realized that a court finding that a robbery has happened would not necessarily mean that those accused in the criminal action should be found guilty of the crime; nor would a ruling that those actually

accused did not commit the robbery be inconsistent with a finding that a robbery did take place. The evidence to establish these facts would not necessarily be the same.

D E C I S I O N

REYES, J.B.L., J p:

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeals (in CA-G.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods for sale) it is necessary that there be prior conviction for robbery before the loss of the article shall exempt the consignee from liability for such loss.

In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to be returned on demand. On 1 February 1961, however while walking home to her residence in Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and cash, and ran away. Among the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident became the subject of a criminal case filed in the Court of First Instance of Rizal against certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).

As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in the Court of First Instance of Manila an action against her and her husband for recovery of the pendant or of its value, and damages. Answering the allegations of the complaint, defendants spouses set up the defense that the alleged robbery had extinguished their obligation.

After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants failed to prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad was guilty of negligence when she went home without any companion, although it was already getting dark and she was carrying a large amount of cash and valuables on the day in question, and such negligence did not free her from liability for damages for the loss of the jewelry.

Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a reversal of the judgment. The appellate court, overruling the finding of the trial court on the lack of credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding that the facts of robbery and defendant Maria Abad's possession of the pendant on that unfortunate day have been duly established, declared respondents not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages to the owner. Plaintiff thereupon instituted the present proceeding.

It is now contended by herein petitioner that the Court of Appeals erred in finding that there was robbery in the case, although nobody has been found guilty of the supposed crime. It is petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from is obligation under a contract, pursuant to Article 1174 of the new Civil Code, there ought to be prior finding on the guilt of the persons responsible there for. In short, that the occurrence of the robbery should be proved by a final judgment of conviction in the criminal case. To adopt a different view, petitioner argues, would be to encourage persons accountable for goods or properties received in trust or consignment to connive with others, who would be willing to be accused in court for the robbery, in order to be absolved from civil liability for the lass or disappearance of the entrusted articles.

We find no merit in the contention of petitioner.

It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation, in a normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. 1 A fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by bandits, robbery, 2 etc., provided that the event has all the characteristics enumerated above.

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were really true that the pendant, which she was obliged either to sell on commission or to return to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have extinguished her liability. The point at issue in this proceeding is how the fact of robbery is to be established in order that a person may avail of the exempting provision of Article 1174 of the new Civil Code, which reads as follows:

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

It may be noted the reform that the emphasis of the provision is on the events, not on the agents or factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to establish that the enforceable event, the robbery in this case, did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. To require in the present action for recovery the prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.

 

It is undeniable that in order to completely exonerate the debtor for reason of a fortuitous event, such debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence, 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:

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

It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with their high incidence of crimes against persons and property, that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying jewelry of considerable value, would be negligent per se, and would not exempt her from responsibility in the case of a robbery. We are not persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in question did take place, for at that time criminality had not by far reached the levels attained in the present day.

There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in the

civil case before conviction is secured in the criminal action, would prejudice the latter case, or would result in inconsistency should the accused obtain an acquittal or should the criminal case be dismissed. It must be realized that a court finding that a robbery has happened would not necessarily mean that those accused in the criminal action should be found guilty of the crime; nor would a ruling that those actually accused did not commit the robbery be inconsistent with a finding that a robbery did take place. The evidence to establish these facts would not necessarily be the same.

WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in this case is hereby dismissed, with costs against the petitioner.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Castro, J., did not take part.

EN BANC

[G.R. No. L-21486. May 14, 1966.]

LA MALLORCA and PAMPANGA BUS COMPANY, petitioners, vs. VALENTIN DE JESUS, MANOLO TOLENTINO and COURT OF APPEALS, respondents.

Manuel O. Chan for petitioners.

Sixto T. Antonio for respondents.

SYLLABUS

1.DAMAGES, ACCIDENT CAUSED BY MECHANICAL DEFECT; LIABILITY OF OWNER OF VEHICLE. — Where the cause of the blowout which caused the accident was known in that the inner tube of the left front tire was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel, a mechanical defect of the conveyance or a fault in equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took to the road, the owner of the vehicle is liable accident.

2.MORAL DAMAGES; COMMON CARRIER; BREACH OF CONTRACT. — In this jurisdiction moral damages are recoverable by reason of the death of a passenger caused by the breach of contract of a common carrier, as provided in Article 1764, in relation to Article 2206, of the Civil Code.

D E C I S I O N

MAKALINTAL, J p:

La Mallorca and Pampanga Bus Company, Inc., commonly known as La Mallorca-Pambusco, filed this appeal by certiorari from the decision of the Court of Appeals which affirmed that rendered by the Court of First Instance of Bulacan in its civil case No. 2100, entitled Valentin de Jesus and Manolo Tolentino vs. La Mallorca Pambusco." The court a quosentenced the defendant now petitioner, "to pay to plaintiffs the amount of P2,132.50 for actual damages; P14,400.00 as compensatory damages; P10,000.00 to each plaintiff by way of moral damages; and P3,000.00 as counsel fees."

Two errors are attributed to the appellate Court: (1) "in sustaining the decision (of the court a quo) holding that the petitioners were liable for the accident which was caused by a blow-out of one of the tires of the bus and in not considering the same as," and (2) in holding petitioners liable for moral damages.

The suit arose by reason of the death of Lolita de Jesus, 20-year old daughter of Valentin de Jesus and wife of Manolo Tolentino, in a head-on collision between petitioner's bus, on which she was a passenger, and a freight truck travelling in the opposite direction, in a barrio in Marilao, Bulacan, in the morning of October 8, 1959. The immediate cause of the collision was the fact that the driver of the bus lost control of the wheel when its left front tire suddenly exploded.

Petitioner maintains that a tire blowout is a fortuitous event and gives rise to no liability for negligence, citing the rulings of the Court of Appeals in Rodriguez vs. Red Line Transportation Co., CA-G.R. No. 8136; December 29, 1954, and vs. Palapad, CA-G.R. No. 18480, June 27, 1953. These rulings, however, not only are not binding on this Court but were based on considerations quite different from those that obtain in the case at bar. The appellate Court there made no findings of any specific acts of negligence on the part of the defendants and confined itself to the question of whether or not a tire blowout, by itself alone and without a showing as to the causative factors, would generate liability. In the present case, the cause of the blowout was known. The inner tube of the left front

tire, according to petitioner's own evidence and as found by the Court of Appeals, "was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel." This was, said Court correctly held, a mechanical direct of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took to the road that morning.

Then again both trial court and the Court of Appeals found as a fact that the bus was running quite fast immediately before the accident. Considering that the tire which exploded was not new — petitioner describes it as "hindi masyadong kalbo," or not so very worn out — the plea of caso fortuito cannot be entertained.

The second issue raised by petitioner is already a settled one. In this jurisdiction moral damages are recoverable by reason of the death of a passenger cause by the breach of contract of a common carrier, as provided in Article 1764, in relation to Article 2206, of the Civil Code. These articles have been applied by this Court in a number of cases, among them Necessito, etc. vs. Paras, et al., 104 Phil. 75; Mercado vs. Lira, 113 Phil. 112; Villa-Rey Transit vs. Bello, 117 Phil. 745.

Wherefore, the judgment appealed from is affirmed, with costs against petitioner.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

SECOND DIVISION

[G.R. No. L-47772. August 31, 1978.]

INOCENCIO TUGADE, petitioner, vs. COURT OF APPEALS, and PEOPLE OF THE PHILIPPINES,respondents.

Manuel M. Camacho for petitioner.

Solicitor General Estelito P. Mendoza, Assistant Solicitor General Nathanael P. de Pano, Jr. and Solicitor Francisco J. Bautista for respondents.

SYNOPSIS

Respondent court affirmed the lower court's judgment finding the accused Inocencio Tugade guilty beyond reasonable doubt of the crime of reckless imprudence resulting in damage to property. In this petition for review, its application of the Supreme Court's pronouncement in La Mallorca and Pampanga Bus Co. vs. Jesus, L-21486, May 14, 1966 is assailed, petitioner contending that in its stead, decisions of respondent court maintaining that a mishap caused by a fortuitous event does not give rise to liability for negligence should have been taken into consideration in rendering judgment.

The Supreme Court ruled that its decisions are definitive, authoritative and binding on those occupying the lower ranks in the judicial hierarchy; that respondent lower court had no choice but to abide by the doctrine laid down by the Supreme Court decisions on the matter; and that the principle enunciated in the La Mallorca case was but a reiteration of previously settled rule that for an event to be fortuitous in character, there should exist some extraordinary circumstance independent of the will of the obligor, or of his employee, an element absent in the case at bar, which rightly called for the conviction of the accused.

Judgment affirmed.

SYLLABUS

1.CONSTITUTIONAL LAW; JUDICIARY; DECISIONS OF THE SUPREME COURT FINAL AND AUTHORITATIVE. — "The delicate task of ascertaining the significance that attaches to a constitutional or statutory provision, an executive order, a procedural norm or a municipal ordinance is committed to the judiciary. It discharges a role no less crucial than that appertaining to the other two departments in the maintenance of the rule of the law. To assure stability in legal relations and avoid confusion, it has to speak with one voice. It does so with finality and rightly, through the highest judicial organ, the Supreme Court. What it says should be definitive and authoritative, binding on those occupying the lower ranks in the judicial hierarchy. They have to defer and to submit." (citing Barrera v. Barrera, L-31589, July 31, 1970).

2.ID.; ID.; ID.; LOWER COURTS TO ABIDE BY FINAL JUDGMENTS OF THE SUPREME COURT. — The Supreme Court, by tradition and in our system of judicial administration, has the last word on what the law is; it is the final arbiter of any justiciable controversy. There is only one Supreme Court from whose decisions all other courts should take their bearings.

3.TORTS AND DAMAGES; FORTUITOUS EVENT; MISHAP CAUSED BY DEFECTIVE BRAKES NOT FORTUITOUS IN CHARACTER. — An essential element of a caso fortuito is the occurrence of some extraordinary circumstance independent of the will of the obligor, or of his employees. This element is lacking in the present case. It is not suggested that the accident in question was due to an act of God or to adverse road conditions which could not have been foreseen. As far as the record shows, the accident was caused either by defects in the automobile or else through the negligence of its driver. This is not a caso fortuito which would call for an acquittal of the driver.

D E C I S I O N

FERNANDO, J p:

There is nothing impressive about this petition seeking to justify a review of a decision of respondent Court of Appeals on the ground that instead of relying on what counsel considers applicable rulings of respondent Court. the judgment was based on a case decided by this Tribunal. Moreover, counsel for petitioner ignored earlier doctrines of this Court consistently holding that a mishap caused by defective brakes could not be considered as fortuitous in character and thus called for an acquittal of the driver if subsequently haled to court. This Court, nonetheless, was persuaded to give due course to the petition primarily for clarifying the state of the law and thus hopefully avoid any further lurking doubt on the matter. It is quite evident that a reversal of the decision sought to be reviewed is not justified. cdll

The decision of respondent Court, with Justice Julia Agrava as ponente, set forth the relevant facts thus: "At about 9:15 o'clock in the morning of January 4, 1972, Rodolfo [Rayandayan] was driving a Holden Kingswood car (the [Holden] car), bearing plate No. 52-19V (L-Rizal '71), owned by the Sta. Ines Mining Corp. and assigned for use of its manager, on Ayala Avenue in Makati, Rizal, going northwards. At the intersection of Ayala Avenue and Makati Avenue, [Rayandayan] was going to turn left on Makati Avenue but he stopped to wait for the left turn signal and because a jeep in front of him was also at a stop . . . .While in that stop position, the [Holden] car was bumped from behind by Blue Car Taxi, bearing Plate No. 55-71R (TX-QC '71) and driven by Inocencio [Tugade] causing damage to the [Holden] car, the repairs of which cost P778.10 . . . [Tugade] was then charged with Reckless Imprudence Resulting in Damage to Property. He pleaded not guilty and while admitting that the collision was caused by faulty brakes of his taxicab, sought to

exculpate himself with the explanation that this fault could not and should not be traced to him. After trial, the lower court held: [Accordingly], the Court finds that accused Inocencio Tugade guilty beyond reasonable doubt of the crime of reckless imprudence resulting in damage to property and hereby sentences him to pay a [fine of one thousand (P1,000.00) pesos], with subsidiary imprisonment in case of insolvency in accordance with the provisions of Article 39 of the Revised Penal Code, as amended, to indemnify the Sta. Ines Mining Corporation in the amount of P778.10 by way of actual damages; and to pay the costs.' While [Tugade] admitted the facts of the case as set out above, he nevertheless, appealed from the judgment reiterating that `the malfunctioning of the brakes at the time of accident was due to a mechanical defect which even the exercise of due negligence of a good father of a family cannot have prevented.' As the lower court had found: `this witness ([Tugade]) testified that after the accident, he admitted that his taxicab bumped the car on his front because the brakes of his vehicle malfunctioned; and that the document, . . . , is the handwritten statement he prepared to this effect.'" 1 Respondent Court of Appeals, after stating that upon review of the record, it agreed with trial court, rendered its decision affirming in toto the judgment appealed from. LLphil

As noted at the outset, petitioner is not entitled to acquittal. His plea for the reversal of the decision reached by respondent Court is not impressed with merit. At the most, as was likewise previously mentioned, the fine imposed could be reduced.

1.Counsel for petitioner vigorously contends that respondent Court of Appeals ought not to have applied the pronouncement in La Mallorca and Pampanga Bus Co. vs. De Jesus 2 on the ground that it was obiter dictum. That is not the case at all. A little more time and attention in the study of the above decision could have resulted in its correct appraisal. I would have realized then that respondent Court acted correctly. This Tribunal passed squarely on the specific issue raise. The opinion penned by the then Justice, later Chief Justice Makalintal, is categorical: "Petitioner maintains that a tire blow-out is a fortuitous event and gives rise to no liability for negligence, citing the rulings of the Court of Appeals in Rodriguez v. Red Line Transportation Co., CA-GR No. 8136, December 29, 1954, and People v. Palapal, CA-GR No. 18480, June 27, 1958. These rulings, however, not only are not binding on this Court but were based on considerations quite different from those that obtain in the case at bar." 3 The above doctrine is controlling. The reference to the Court of appeals decisions is of no moment. 4 It may be printed out that they were not ignored in the opinion of Justice Agrava, six of its nine pages being devoted to distinguishing them. Even without the La Mallorca ruling then, the decision of respondent Court sought to be reviewed can stand the test of strict scrutiny. It

is this Tribunal, not respondent Court of Appeals, that speaks authoritatively.

2.Respondent Court of Appeals really was devoid of any choice at all. It could not have ruled in any other way on the legal question raised. This Tribunal having spoken, its duty was to obey. It is as simple as that. There is relevance to this excerpt from Barrera v. Barrera: 5 "The delicate task of ascertaining the significance that attaches to a constitutional or statutory provision, an executive order, a procedural norm or a municipal ordinance is committed to the judiciary. It thus discharges a role no less crucial than that appertaining to the other two departments in the maintenance of the rule of law. To assure stability in legal relations and avoid confusion, it has to speak with one voice. It does so with finality, logically and rightly, through the highest judicial organ, this Court. What it says then should be definitive and authoritative, binding on those occupying the lower ranks in the judicial hierarchy. They have to defer and to submit." 6 The ensuing paragraph of the opinion in Barrera further emphasizes the point: "Such a thought was reiterated in an opinion of Justice J.B.L. Reyes and further emphasized in these words: 'Judge Gaudencio Cloribel need not be reminded that the Supreme Court, by tradition and in our system of judicial administration, has the last word on what the law is; it is the final arbiter of any justifiable controversy. There is only one Supreme Court from whose decisions all other courts should take their bearings.'" 7

3.The lack of merit in this petition becomes even more obvious when it is recalled that the La Mallorca decision did not enunciate a new principle. As far back as Lasam v. Smith, 8 promulgated more than half a century ago, in 1924 to be exact, this Court has been committed to such a doctrine. Thus; "As will be seen, these authorities agree that some extraordinary circumstance independent of the will of the obligor, or of his employees, is an essential element of a caso fortuito. Turning to the present case, it is at once apparent that this element is lacking. It is not suggested that the accident in question was due to an act of God or to adverse road conditions which could not have been foreseen. As far as the record shows, the accident was caused either by defects in the automobile or else through the negligence of its driver. That is not a caso fortuito." 9 Lasam was cited with approval in the two subsequent cases of Son v. Cebu Autobus Co. 10 and Necesito v. Paras. 11

WHEREFORE, The decision of respondent Court of Appeals of December 15, 1977 is affirmed. No costs.

Barredo, Antonio, Aquino, Concepcion Jr., and Santos, JJ., concur.

FIRST DIVISION

[G.R. No. 117190. January 2, 1997.]

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT OF APPEALS and VICENTE HERCE JR.,respondents.

Ricardo C. Valmonte for petitioner.

Restituto M. Mendoza for private respondent.

SYLLABUS

1.CIVIL LAW; CONTRACT; INTERPRETATION; INTENTION OF THE PARTIES SHALL BE ACCORDED PRIMORDIAL CONSIDERATION. — It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. prLL

2.OBLIGATION; NATURE AND EFFECTS; EXEMPTION FROM LIABILITY BY REASON OF FORTUITOUS EVENTS; REQUISITES. — This Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, Nos. L-47851 and L- 47896, 3 October 1986, 144 SCRA 596, four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

3.ID.; ID.; ID.; APPLICATION OF ART. 1167 OF THE CIVIL CODE; WHEN A PERSON OBLIGED TO DO SOMETHING FAILS TO DO IT, THE SAME SHALL BE EXECUTED AT HIS COST. — In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. (Art. 1169, last par., New Civil Code) When the windmill failed to function properly it became incumbent upon petitioner

to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost. llcd

D E C I S I O N

BELLOSILLO, J p:

This case involves the proper interpretation of the contract entered into between the parties.

Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. 1

Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.

In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction. " 4

The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty.

His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed.

We reverse the appellate court on the first issue but sustain it on the second.

The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced hereunder —

In connection with your Windmill System and Installation, we would like to quote to you as follows:

One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump.

UNIT CONTRACT PRICE P87,000.00

The second letter-proposal (Exh. "A") provides as follows:

In connection with your Windmill system, Supply of Labor Materials and Installation, operated water pump, we would like to quote to you as follows —

One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.

One (1) lot — Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.

One (1) lot— Float valve.

One (1) lot — Concreting materials foundation.

F. O.

B. Laguna

Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. aisadc

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration 5 and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. 6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him.

Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7

 

We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this written communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60,000.00.

We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he

has (sic) the money, so (he) just paid the money in his possession. 8

Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it, " 9 it does not appear from the record that Pili and/or SPGMI was so authorized.

Respondent cannot claim the benefit of the law "concerning payments made by a third person." 10 The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have been entered into.

The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify.

The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong wind should be present in

places where windmills are constructed, otherwise the windmills will not turn.

The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee." 13 It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life." 14 This presumption has not been rebutted by petitioner.

Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. 15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost

WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty" 16 and to complete the same within three (3) months from the finality of this decision.

SO ORDERED.

Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

FIRST DIVISION

[G.R. No. 6913. November 21, 1913.]

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendant-appellant.

J. Lopez Vito for appellant.

Arroyo & Horrilleno for appellee.

SYLLABUS

1.TRUST FUNDS; LIABILITY OF TRUSTEE. — One who, having in his possession trust funds, deposits them in his personal account in a bank and mixes them with his own funds, does not thereby assume an obligation different from that under which he would have lain in such deposit had not been made; not does he thereby become liable to repay the money at all hazards; and where such funds are taken from the bank by fuerza mayor, he is relieved from responsibility in relation thereto.

2.ID.; ID.; ENGLISH AND AMERICAN LAW OF TRUSTS NOT APPLICABLE. — That branch of the law, known in England and America as the law of trusts, has no counterpart in the Roman law and none under the Spanish law.

D E C I S I O N

MORELAND, J p:

This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.

It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that Father Agustin de la Peña was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la Peña.

In the year 1898 the books of Father de la Peña, as trustee, shoed that he had on hand as such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father dela Peña was arrested by the military authorities as a political prisoner, and while thus detained made an order on said bank in favor of the United States Army officer under whose charge he then was so for the sum thus deposited in said bank. The arrest of Father de la Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the

funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order, was confiscated and turned over to the Government.

While there is considerable dispute in the case over the question whether the P6,641 of trust funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us to the conclusion that said trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United States.

Branch of the law know in England and America as the law of the trusts had no exact counterpart in the Roman law and is more has none under the Spanish law, In this jurisdiction, therefore, Father dela Peña's liability is determined by those portions of the Civil Code which relate to obligations (Book 4, Title 1.)

Although the Civil Code states that a "person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exceptions of the cases expressly mentioned in the law of those in which the obligation so declares." (Art. 1105).

By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. If the money had been forcibly take from his pocket or from his house by the military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed the trust fund in the bank is his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all the hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by depositing the money in the bank than he would if had left it in his home: or whether he was more or less negligent by depositing the money in his personal account than he would have been if had deposited it in a separate account as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise question is not one of the negligence. There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility by reason of the deposit, While

it may be true that one who is under obligation to do or give a things is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not been constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting negligent in selecting one whereas he would not have been if he had selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Peña was not responsible for its loss.

The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his complaint.

Arellano, C.J. Torres and Carson, JJ., concur.

Separate Opinions

TRENT, J., dissenting:

I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the plaintiff his books showed that in 1898 he had in his possessions as trustee or agent or a trustee or an agent of the plaintiff his books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641 belonging to the plaintiff as the head of the church. This money was then clothed with all the immunities and protection with which the law seeks to invest trust funds. But when De la Peña missed this trust fund with his own and deposited the whole in the bank to his personal account or credit, he by this act stamped on the said funds his own private marks and unclothed it of all the protection it had. If this money had been deposited in the name of De la Peña as trustee of agent of the plaintiff, I think that it my presumed that the military authorities would not have confiscated it for the reason that they were looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la Peña would attempt to strip the fund of its identity, not had he said or done anything which tended to relieve De la Peña from the legal responsibility which pertains to the care and custody of trust funds.

The Supreme Court of the United States in United States vs. Thomas (82 U.S., 337), at page 343, said: "Trustees are only bound to

exercise the same care and solicitude with regard to their own. Equity will not exact more of them. They are not liable for a loss by theft without their fault. But this exemption ceases when they mix the trust money with their own, whereby it loses its identity, and they become mere debtors."

If this proposition is sound and applicable to cases arising in this jurisdiction, and I entertain no doubt on this point the liability of the estate of De la Peña cannot be doubted. But this court in the majority opinion says: "The fact that he (Agustin de la Peña) placed the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards . . . There was no law prohibiting him from depositing it as he did, and there was no law which changed his responsibility, by reason of the deposit."

I assume that the court in using the language which appears in the latter part of the above quotation meant to say that there was no statutory law regulating the question. Questions of this character are not usually governed by statutory law. The law is to be found in the very nature of the trust itself, and, as a general rule, the courts say what facts are necessary to hold the trustee as a debtor.

If De la Peña, after depositing the trust fund in his personal account, had used this money for speculative purposes, such as the buying and selling of sugar or other products of the country, thereby becoming a debtor, there would have been no doubt as to the liability of his estate. Whether he used this money for that purpose the record is silent, but it will be noted that a considerable length of time intervened from the time of the deposit until the funds were confiscated by the military authorities. In fact the record shows that De la Peña deposited on June 27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of the same year P6,000. The record also shows that these funds were withdrawn and again deposited all together on the 29th of May, 1900, this last deposit amounting to P18,970. These facts strongly indicate that De la Peña had as a matter of fact been using the money in violation of the trust imposed in him.

If the doctrine announced in the majority opinion be followed in cases hereafter arising in this jurisdiction trust funds will be placed in a precarious condition. The position of the trustee will cease to be one of trust.

EN BANC

[G.R. No. 4761. March 2, 1909.]

GUTIERREZ HERMANOS, plaintiffs-appellees, vs. MARIANO FUENTEBELLA, defendant-appellant.

Chicote & Miranda and Ramon Zaldarriaga, for appellant.

Sierra & Roco, for appellees.

SYLLABUS

1.SETTLEMENT OF ACCOUNTS; CONSENT THROUGH ERROR; BURDEN OF PROOF. — When a person who has agreed in writing to a settlement of accounts claims that he did so through error, the burden of proof is on him to show such error.

2.ID.; BALANCE DUE ON ACCOUNT-CURRENT NOT A LOAN. — The balance which results from a settlement of an account-current, between a commercial house in Manila and a dealer in the provinces, does not constitute a mercantile loan.

3.ID.; INTEREST ON BALANCE DUE. — The balance due on such a current account, in the absence of agreement, bears interest only from the date of a demand for its payment.

D E C I S I O N

WILLARD, J p:

On the 26th day of August, 1903, the defendant signed the following document, which at the trial in the court below was marked Exhibit A:

"All my accounts with the late Don Tomas R. Perez having been settled this day, I declare that I am indebted for the balance of $22,509.03, Mexican currency, resulting therefrom, which sum I bind myself to pay to his widow Dona Concepcion Valero, and all the receipts and vales dated prior to this are hereby annulled by both parties, the account of the business at Goa carried on by Don Simon Perfecto being the only one which remains unsettled.

"Lagonoy, August 26, 1903.

(Signed) "MARIANO FUENTEBELLA.

"$22,509.03."Note. — Signed in

duplicate, one copy retained by each."When the plaintiffs as assignees of

Dona Concepcion Valero brought this action against the amount mentioned in Exhibit A, he claimed that, in the settlement of the accounts as a result of which Exhibit A was signed, two mistakes had been committed against him.

He claimed that on the 12th and 23d of October, 1902, he had delivered hemp of the value of 5,424.30 pesos, which amount, as he said, had not been credited to him at the time when he signed Exhibit A and never has been credited to him. He himself produced at the trial a statement of account which was marked Exhibit 1, delivered to him by the agent of Dona Concepcion Valero some days before Exhibit A was signed and which formed the basis of the settlement. In the last item in this statement the defendant is credited with two deliveries of hemp on the 12th ad 23d of October of the value of 5,424.30 pesos. This entry shows that he was, in fact, given credit for this hemp at the time of the settlement and effectually disposes of his claim to the contrary.

The other mistake relates to a delivery of hemp on the 20th of November, 1901, of the value of 1,612.20 pesos. He says that he never was given credit for this amount. In Exhibit 1 there is an item crediting him with this amount, but later on in the same exhibit the same amount is charged to him, so that when Exhibit 1 was delivered to the defendant for his examination it did not appear that he had, in fact, been credited with this delivery. The doubt entry of this amount upon Exhibit 1 is explained by the witnesses for the plaintiffs who testified that this particular hemp was delivered by one Miguel Estela; that it was credited to the defendant because it was at first thought that it was his hemp, and that it was afterwards charged back to him on the theory that it was the hemp of Estela.

According to the defendant's own testimony, he had Exhibit 1 in his possession for several days. He testified that he and the agent of the creditor spent several days in examining the accounts; that he, the defendant, kept books of account and kept books which showed the amount of hemp which he had delivered to Perez; and that he examined these books of his during the process of the settlement. After this examination he presented to the creditors' agent a list of his objections to the account. The balance against him, as shown by Exhibit 1 as it originally was, amounted to 28,687.65 pesos. He claimed that, by reason of mistakes and errors in

the account, it should be reduced by 6,178.62 pesos. The agent of the creditor allowed his entire claim in this respect, subtracted this sum from the original amount, 28,687.65 pesos, and the account was liquidated at the difference, namely, 22,509.03 pesos, which is the exact amount contained in Exhibit A. The plaintiffs' witnesses testified that the claim as presented in the complaint was taken from the books kept by the creditor and was correct according to those books. The books themselves the plaintiffs produced in court and offered to the defendant for his examination. The defendant testifying as a witness, admitted that he was allowed a reduction of 6,178.62 pesos, but did not undertake to say how that amount was made up. We have no doubt that in it was included this sum of 1,612.20 pesos.

The defendant having signed Exhibit A, is bound by it unless at least he shows affirmatively that there was some mistake or error in the settlement. The burden of proof was on him to show such mistake or error, and, if this amount of 1,612.20 pesos was not included in the 6,178.62 pesos it was his duty to show it as he easily could have done. He testified that he himself kept books of account, but he did not offer them in evidence at the trial. Having before him when he signed Exhibit A his own books, showing the amount of hemp he had delivered, in which book the amount represented by this 1,612.20 pesos must have appeared, it is impossible to believe that he did not then make a claim for an allowance on account of that delivery.

It will have been observed that in Exhibit A it is stated that all the accounts pending between the parties had been arranged, except that relating to the business at Goa in charge of Don Simon Perfecto. On the 29th of August, 1903, the following document was signed by Simon Perfecto:

"The accounts of the business at Goa which I represent on account and by order of Don Mariano Fuentebella, having been this day settled with Don Tomas R. Perez, I hereby acknowledge the correctness of the balance of 7,434.95 pesos resulting against my account in the business, the sum of $647.03 as the purchase commission on 647.03 piculs of hemp only remaining unpaid; which sum shall be paid to Don Mariano Fuentebella as per contract.

"San Jose, Lagonoy, August 29, 1903.

(Signed) "SIMON PERFECTO."

The plaintiffs included this amount in their complaint in this action and claimed that the defendant was responsible therefor. He denies such responsibility, alleging that he had nothing to do with the business of Perfecto at Goa except to ask the creditor at one time to deliver to Perfecto 2,000 pesos. The court found against the defendant upon this point and the evidence is entirely in favor of such finding. In the first place Exhibit A itself is a strong indication that the business at Goa belonged to the defendant. The agent of the creditor testified that the defendant told him, the agent, to settle the account with Perfecto, and that he, Perfecto, was authorized to make the settlement. The defendant himself testified that Perfecto was his purchaser at Goa and was in charge of the business there; that he, the defendant, had authorized him to buy hemp, giving him one-half of the commission which he received from the creditor; and that the creditor knew that Perfecto was the agent or purchaser of the defendant at Goa.

The business between the parties was entirely closed on the 20th of June, 1904. This action was commenced on the 22nd of June, 1906. The defendant claims that the balance which appeared against him on the 20th of June, 1904, constituted a mercantile loan made by the creditor to him and that, in accordance with the provisions of the Code of Commerce, no action could be maintained upon it until a notarial demand for its payment had been made by the creditor, and no such demand having been made, the action was prematurely brought. The account between the parties was an ordinary current account between a commercial house in Manila and a dealer in the provinces and embraces a great variety of transactions. It is apparent that the balance which results from the settlement of such a current account can in o sense be called a mercantile loan. (Gutierrez Hermanos vs. De la Riva, 7 Off. Gaz., 215.(1))

The court below allowed the plaintiffs interest from the 20th of June, 1904. We think that in this respect the court erred and that the plaintiffs are entitled to interest only from the time of the presentation of their complaint. There was no agreement as to interest. The transaction did not constitute a mercantile loan so as to fall within the provisions of article 316 of the Code of Commerce relating to interest. Nor can the balance due on a current account be said to be due for the sale of merchandise, so as to bring the case within article 341 of the same code. It rather falls under articles 1108 and 1100 of the Civil Code. No demand for payment having been made before the bringing of this suit, interest can be allowed only from the presentation of the complaint.

The judgment of the court below is modified by providing for interest only from the 22nd day of June, 1906. In all other respects it is

affirmed, with the costs of this instance against the appellant.

Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.

EN BANC

[G.R. No. L-19118. January 30, 1965.]

MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant-appellee.

Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.

Aruego, Mamaril & Associates for defendant-appellee.

SYLLABUS

1.CORPORATION; PRINCIPLE OF CORPORATION BY ESTOPPEL; NOT INVOCABLE BY ONE WHO MISREPRESENTED CORPORATION AS DULY ORGANIZED AGAINST HIS VICTIM. — One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel.

2.ID.; PERSON ACTING FOR CORPORATION WITH NO VALID EXISTENCE IS PERSONALLY LIABLE FOR CONTRACTS ENTERED INTO AS SUCH AGENT. — A person acting or purporting to act on behalf of a corporation which has no valid existence assumes each privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent.

3.PARTIES TO ACTION; SUIT AGAINST CORPORATION WITH NO VALID EXISTENCE; REAL DEFENDANT IS PERSON WHO WAS CONTROL OF ITS PROCEEDINGS. — In a suit against a corporation with no valid existence the person who had and exercised the rights to control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision, is the real defendant, and the enforcement of a judgment against the corporation upon him is substantial observance of due process of law.

4.ID.; REAL PARTY IN INTEREST: PERSON WHO ACTED AS REPRESENTATIVE OF NON-EXISTENT PRINCIPAL AND WHO REAPED BENEFITS FROM ITS CONTRACTS. — A person who acted as representative of a non-existent principal, who reaped the benefits resulting from a contract entered into by him as such, and who violated its terms, thereby precipitating a suit, is the real party to the contract sued upon.

5.DUE PROCESS OF LAW; PURPOSE IS TO SECURE JUSTICE AND NOT TO SACRIFICE IT BY TECHNICALITIES. — The "due process" clause of the Constitution is designed to secure justice as a living reality, not to sacrifice it by paying undue homage to formality. For substance must prevail over form.

6.PARTIES IN INTEREST; REAL LITIGANT MAY BE HELD LIABLE. — Since the purpose of formally impleading a party is to assure him a day in court, once the protective mantle of due process of law has in fact been accorded a litigant, whatever the imperfection in form, the real litigant may be held liable as a party.

7.PLEADINGS AND PRACTICE; LITIGANT NOT ALLOWED TO SPECULATE ON DECISION OF COURT. — A litigant is not allowed to speculate on the decision the court may render. Where it was only after the receipt of the adverse decision of the Supreme Court that a party disclosed its registration papers, it is held that the same can no longer be considered.

8.ID.; ORIGINAL PAPERS NOT PRESENTED BEFORE COURT CANNOT BE TRANSMITTED ON APPEAL; SEC. 7, RULE 48, RULES OF COURT NOT APPLICABLE. — Sec. 7 of Rule 48, Rules of Court, refers to papers the originals of which are of record in the lower court, which the appellate court may require to be transmitted for inspection. Where the original papers have not been presented in the lower court as part of its record, the same cannot be transmitted on appeal under the aforesaid section.

9.ID.; ORIGINAL PAPERS IN POSSESSION AND CONTROL OF PARTY MOVANT NOT NEWLY DISCOVERED EVIDENCE. — For original papers not part of the lower court's record, the applicable rule is Sec 1 of Rule 58 on New Trial. Where the papers could with due diligence have been presented in the lower court, since they were in movant's possession and control all the time it is held that under said Rule said papers cannot be admitted because they are not newly discovered evidence.

R E S O L U T I O N *

BENGZON, J.P., J p:

No less than three times have the parties here appealed to this Court.

In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages (for breach of contract but reduced the amount from P23,000.00 to P15,000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it, payment already made had been considered.

Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the real defendant.

Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged inter alia that defendant was a corporation duly organized and existing under the laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a contract with plaintiff; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's first edition; that defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one installment would render the rest due; and that defendant had failed to pay the second installment.

Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their contract by failing to deliver his manuscript. Furthermore, defendant counterclaimed for damages.

Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him.

The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the dispositive portion —

"IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff

and against the defendant the University Publishing Co. Inc., ordering the defendant to pay the administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the date of the filing of this complaint until the whole amount shall have been fully paid. The defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed for lack of evidence."

As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, on July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing Co., Inc. Plaintiff however, on August 10, 1961, petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a certification from the Security and Exchange Commission dated July 31, 1961, attesting; "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case" and that, therefore, plaintiff's petition should be denied.

Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, would not want Jose M. Aruego to be considered a party to the present case: should a separate action be now instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of limitations.

The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has appealed.

The fact of non-registration of University Publishing Co., Inc., in the Securities and Exchange Commission has not been disputed. Defendant would only raise the point that "University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University Publishing Co., Inc." is an existing corporation with an independent juridical personality. Precisely, however, on account of the non-registration it cannot be considered a corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil. 603. It has therefore no personality separate from Jose M. Aruego; it cannot be sued independently.

The corporation-by estoppel doctrine has not been invoked. At any rate, the same is inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 Off. Gaz., 3069).

"University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon the merits, But as stated, "University Publishing Co., Inc." has no independent personality; it is just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as counsel. He was in fact, if not in name, the defendant.

Even with regard to corporations duly organized and existing under the law, we have in many a case pierced the veil of corporate fiction to administer the ends of justice.* And in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent". Had Jose M. Aruego been named as party defendant instead of, or together with, "University Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he was not so named, the matters of "day in court" and "due process' have arisen.

In this connection, it must be realized that parties to a suit are "persons who have a right to control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision" (67 C.J.S. 887) - and Aruego was, in reality, the person who had and exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has been substantially observed.

"By 'due process of law' we mean "a law which hears before it condemns; which proceeds upon inquiry, and renders judgment only after trial. . . ." (4 Wheaton, U.S. 518, 581.)'; or, as this Court

has said, "Due process of law" contemplates notice and opportunity to be heard before Judgment is rendered, affecting one's person or property' (Lopez vs. Director of Lands, 47 Phil., 23, 32)." Sicate vs. Reyes, 100 Phil. 504.) And it may not be amiss to mention here also that the "due process" clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying undue homage to formality. For substance must prevail over form. It may now be trite, but none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:

"A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice end becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities."

The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial payments of the consideration were made by him; that he violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him.

We need hardly state that should there be persons who under the law are liable to Aruego for reimbursement or contribution with respect to the payment he makes under the judgment in question, he may, of course, proceed against them through proper remedial measures.

PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered.

SECOND DIVISION

[G.R. No. 84698. February 4, 1992.]

PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO, AND LT. M. SORIANO, petitioners, vs.COURT OF APPEALS, HON. REGINA ORDOÑEZ-BENITEZ, in her capacity as Presiding Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA, and ARSENIA D. BAUTISTA, respondents.

Balgos and Perez for petitioners.

Collantes, Ramirez & Associates for private respondents.

SYLLABUS

1.CIVIL LAW; QUASI-DELICTS; DOCTRINE OF IN LOCO PARENTIS. — Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule in in loco parentis. This Court discussed this doctrine in the afore-cited cases ofExconde, (101 Phil. 843) Mendoza, (101 Phil. 414), Palisoc (G.R. No. L-29025, 4 October, 1971, 41 SCRA 548) and, more recently, in Amadora vs. Court of Appeals, (G.R. No. L-47745, 15 April 1988, 160 SCRA 315). In all such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted bypupils or students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody.

2.ID.; OBLIGATIONS AND CONTRACTS; CONTRACTS RESULTING IN BILATERAL OBLIGATIONS ESTABLISHED WHEN ACADEMIC INSTITUTION ACCEPTS STUDENTS FOR

ENROLLMENT. — When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.

3.ID.; QUASI-DELICTS; OBLIGATIONS ARISING FROM QUASI-DELICTS OR TORTS ARISE ONLY BETWEEN PARTIES NOT BOUND BY CONTRACT. — Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied.

4.ID.; ID.; VIEW THAT LIABILITY FROM TORT MAY EXIST EVEN IF THERE IS A CONTRACT. — In Air France vs.Carroscoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort, not one arising from a contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231).

5.ID.; ID.; AN ACT WHICH BREACHES A CONTRACT IN BAD FAITH AND IN VIOLATION OF ART. 21 CONSTITUTES QUASI-DELICT. — Air France penalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had a better right to the seat." In Austro-American, supra, the public embarrassment caused to the passenger was the justification for the Circuit Court of Appeals, (Second

Circuit), to award damages to the latter. From the foregoing, it can be concluded that should the act which breaches a contract be done in bad faith and be violative of Article 21, then there is a cause to view the act as constituting a quasi-delict.

6.ID.; ID.; CONTRACTUAL RELATION, A CONDITION SINE QUA NON TO SCHOOL'S LIABILITY. — A contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently on the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code.

7.ID.; ID.; ID.; SCHOOL MAY STILL AVOID LIABILITY BY PROVING THAT THE BREACH OF CONTRACTUAL OBLIGATION TO STUDENTS WAS NOT DUE TO ITS NEGLIGENCE. — Conceptually a school, like a common carrier, cannot be an insurer of its students against all risks. It would not be equitable to expect of schools to anticipate alltypes of violent trespass upon their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group determined to carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability by proving that the breach of its contractual obligation to the students was not due to its negligence.

8.ID.; ID.; NEGLIGENCE; DEFINED. — Negligence is statutorily defined to be the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the circumstances of persons, time and place.

D E C I S I O N

PADILLA, J p:

A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit in the Regional Trial Court of Manila (Branch 47) presided over by Judge (now Court of Appeals justice) Regina Ordoñez-Benitez, for damages against the said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the PSBA. It was established that his assailants were not members of the schools academic community but were elements from outside the school.

Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President), Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially, the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the other petitioners by resigning from his position in the school.

Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated article.

The respondent trial court, however, overruled petitioners' contention and thru an order dated 8 December 1987, denied their motion to dismiss. A subsequent motion for reconsideration was similarly dealt with by an order dated 25 January 1988. Petitioners then assailed the trial court's dispositions before the respondent appellate court which, in a decision *promulgated on 10 June 1988, affirmed the trial court's orders. On 22 August 1988, the respondent appellate court resolved to deny the petitioners' motion for reconsideration. Hence, this petition.

At the outset, it is to be observed that the respondent appellate court primarily anchored its decision on the law of quasi-delicts, as enunciated in Articles 2176 and 2180 of the Civil Code. 1 Pertinent portions of the appellate court's now assailed ruling state:

"Article 2180 (formerly Article 1903) of the Civil Code is an adoptation from the old Spanish Civil Code. The comments of Manresa and learned authorities on its meaning should give way to present day changes. The law is not fixed and flexible (sic); it must be dynamic. In fact, the greatest value and significance of law as a rule of conduct in (sic) its flexibility to adopt to changing social conditions and its capacity to meet the new challenges of progress.

Construed in the light of modern day educational systems, Article

2180 cannot be construed in its narrow concept as held in the old case of Exconde vs. Capuno 2 and Mercado vs. Court of Appeals 3 ; hence, the ruling in the Palisoc 4 case that it should apply to all kinds of educational institutions, academic or vocational.

At any rate, the law holds the teachers and heads of the school staff liable unless they relieve themselves of such liability pursuant to the last paragraph of Article 2180 by 'proving that they observed all the diligence to prevent damage.' This can only be done at a trial on the merits of the case." 5

While we agree with the respondent appellate court that the motion to dismiss the complaint was correctly denied and the complaint should be tried on the merits, we do not however agree with the premises of the appellate court's ruling.

Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more recently, in Amadora vs. Court of Appeals. 6 In all such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted by pupils or students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody. However, this material situation does not exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of the PSBA, for whose acts the school could be made liable.

 

However, does the appellate court's failure to consider such material facts mean the exculpation of the petitioners from liability? It does not necessarily follow.

When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. 7 For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.

Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied. However, this impression has not prevented this Court from determining the existence of a tort even when there obtains a contract. In Air France vs. Carroscoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort, not one arising from a contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231).

This view was not all that revolutionary, for even as early as 1918, this Court was already of a similar mind. In Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:

"The field of non-contractual obligation is much more broader than that of contractual obligation, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the contract would have constituted the source of an extra-contractual

obligation had no contract existed between the parties."

Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21, which provides:

"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." (emphasis supplied)

Air France penalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had a better right to the seat." In Austro-American, supra, the public embarrassment caused to the passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award damages to the latter. From the foregoing, it can be concluded that should the act which breaches a contract be done in bad faith and be violative of Article 21, then there is a cause to view the act as constituting a quasi-delict.

In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and Bautista had been breached thru the former's negligence in providing proper security measures. This would be for the trial court to determine. And, even if there be a finding of negligence, the same could give rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently on the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code.

This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for conceptually a school, like a common carrier, cannot be an insurer of its students against all risks. This is specially true in the populous student communities of the so-called "university belt" in Manila where there have been reported several incidents ranging from gang wars to other forms of hooliganism. It would not be equitable to expect of schools to anticipate all types of violent trespass upon their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group determined to carry out a nefarious deed inside school premises and environs. Should

this be the case, the school may still avoid liability by proving that the breach of its contractual obligation to the students was not due to its negligence, here statutorily defined to be the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the circumstances of persons, time and place. 9

As the proceedings a quo have yet to commence on the substance of the private respondents' complaint, the record is bereft of all the material facts. Obviously, at this stage, only the trial court can make such a determination from the evidence still to unfold.

WHEREFORE, the foregoing premises considered, the petition is DENIED. The Court of origin (RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court. Costs against the petitioners.

SO ORDERED.

Melencio-Herrera, Paras, Regalado and Nocon, JJ., concur.

Footnotes

*Penned by Justice Jose C. Campos, Jr. and concurred in by Justices Ricardo J. Francisco and Alfredo L. Benipayo.

1.Article 2176 provides:

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

Article 2180 provides:

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

xxx xxx xxx

"Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody.

"The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage."

2.101 Phil. 843.

3.108 Phil. 414.

4.G.R. No. L-29025, 4 October 1971, 41 SCRA 548.

5.Rollo, p. 75.

6.G.R. No. L-47745, 15 April 1988, 160 SCRA 315.

7.In Non vs. Dames II , G.R. No. 89317, 20 May 1990, 185 SCRA 535, it was held that the contract between school and student is one "imbued with public interest" but a contract nonetheless.

8.Article 2176, Civil Code is re-quoted for stress:

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

9.Article 1173, Civil Code provides:

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

FIRST DIVISION

[G.R. No. L-69901. July 31, 1987.]

ANTONIO RAMON ONGSIAKO, petitioner, vs. INTERMEDIATE APPELLATE COURT and THE PEOPLE OF THE PHILIPPINES, respondents.

SYLLABUS

1.REMEDIAL LAW; EVIDENCE; FINDINGS OF THE TRIAL AND APPELLATE COURTS GENERALLY UPHELD ON APPEAL; CASE AT BAR, AN EXCEPTION. — While this Court is ordinarily not a trier of facts, it has the authority to review and reverse the factual findings of the lower courts if it finds that they do not conform to the evidence of record. We so find in this case, for reasons to be discussed presently. The trial court held, and the respondent court affirmed, that "the jeep was still about 150 meters away from the Philippine Rabbit bus when the accused drove his car toward the road shoulder to avoid the collision with the oncoming bus. In other words, there was sufficient time for Antonio Ramon Ongsiako to avail of a feasible time to avert hitting the jeep." The judge should have been more careful in reaching this conclusion for it is not founded on the facts as established. The evidence of record is that the distance was not 150 meters but 150 feet, which makes quite a difference, indeed. Another indication of carelessness, this time on the part of the respondent court, is its observation, in rejecting the petitioner's version of the collision, that "the police sketch of the collision scene fails to reveal any skidmarks of the appellant's car," on the highway. What is rather odd about this finding is that the trial court, and the respondent court later, never considered the fact that the sketch was made five days after the collision, as clearly emphasized by the petitioner in his brief. Apparently, it did not occur to the courts below — and this is also somewhat puzzling — that all skidmarks would have disappeared by that time on the busy highway. There was also apparent disregard of the record when the respondent court observed that the petitioner had not presented his companion to testify on his behalf, concluding that "such failure to present Heras raises the presumption that his testimony, had it been presented, would have been adverse to the appellant's cause (Orfanel v. People, 30 SCRA 825)." This is another careless conclusion. The premise is incorrect, and so the conclusion must also be rejected. In fact, the petitioner did present Heras, and Heras did testify in support of the petitioner, substantially corroborating the petitioner's account of the collision. A reading of the transcript of the stenographic notes in the hearing of the case on July 27, 1983, will readily disclose this. At any rate, it is the finding of the Court, in view of the misappreciation of the evidence of record by the respondent court and the trial court, that the guilt of the petitioner has not been proved beyond reasonable doubt. Consequently, he should not have been held guilty of even simple negligence

and instead is entitled to be completely absolved of criminal responsibility.

2.CIVIL LAW; QUASI-DELICT; DAMAGES FOR INJURIES SUSTAINED; NEGLIGENT DRIVER LIABLE FOR HOSPITALIZATION EXPENSES AND UNEARNED SALARIES OF VICTIM. — While the quantum of proof necessary for conviction has not been established, there is, in our view, a preponderance of evidence to hold the petitioner liable in damages for the injuries sustained by the victims of this accident. Although it is really doubtful that he was criminally negligent, we find there is enough evidence to sustain the conclusion that a little more caution and discretion on his part in reacting to the threat of a head-on collision with the oncoming bus, could have avoided the unfortunate accident. For this shortcoming, we hold him liable for the hospitalization expenses and unearned salaries of the victims as itemized by the trial court and affirmed by the respondent court. We absolve him, however, from the payment of moral damages and so reduce his total civil liability to P46,131.04.

D E C I S I O N

CRUZ, J p:

Prosecuted for reckless imprudence resulting in multiple physical injuries and damage to property, the petitioner was convicted by the trial court 1 On appeal, the conviction was affirmed but the respondent court 2Still not satisfied, the petitioner has come to this Court for a complete reversal of the judgment below.

This case arose from a collision between the car being driven by the petitioner and the jeep of Robert Ha on December 30, 1981, at about 4 o'clock in the afternoon, at MacArthur Highway, in Moncada, Tarlac. The petitioner had a companion, Leon Miguel Heras, who was seated beside him. Robert Ha was at the wheel of his vehicle, which had seven other passengers. It appears that the petitioner was south-bound, toward Manila, and the jeep was coming from the opposite direction; that a Philippine Rabbit bus ahead of the jeep swerved into the petitioner's lane to overtake and bypass a tricycle; and that as a result of this sudden move, the petitioner, to avoid a head-on collision, immediately veered his car to the shoulder of the highway. The car went out

of control when it hit the soft shoulder, moved back diagonally across the cemented highway, then collided with Ha's jeep, damaging it and causing multiple injuries to its passengers. The Philippine Rabbit bus sped away. 3

After considering the arguments of the parties in the petition itself, the comment thereon of the public respondent and the reply thereto, we gave due course to this petition and required the parties to file simultaneous memoranda. The petitioner complied in due time but the Solicitor General, to avoid repetitiousness, as he put it, merely adopted his sketchy comment as the memorandum for the respondent. 4

While this Court is ordinarily not a trier of facts, it has the authority to review and reverse the factual findings of the lower courts if it finds that they do not conform to the evidence of record. We so find in this case, for reasons to be discussed presently.

The trial court held, and the respondent court affirmed, that "the jeep was still about 150 meters away from the Philippine Rabbit bus when the accused drove his car toward the road shoulder to avoid the collision with the oncoming bus. In other words, there was sufficient time for Antonio Ramon Ongsiako to avail of a feasible time to avert hitting the jeep." 5 The judge should have been more careful in reaching this conclusion for it is not founded on the facts as established. The evidence of record is that the distance was not 150 metersbut 150 feet, which makes quite a difference, indeed. The correct distance, incidentally, was established by no less than the trial court itself which, in its examination of Robert Ha, the principal prosecution witness, elicited from him the said information in the following exchange: LLjur

"COURT:"QHow far was the Philippine

Rabbit bus ahead of you before the car swerved to your lane?

"WITNESS"A:Approximately about 150 feet

ahead of me, Your Honor." 6

The Court considers this discrepancy important because the finding of negligence by the trial court is based on whether or not the accused had enough opportunity to avoid the collision. And that opportunity depended on the distance between the two vehicles. If the trial judge had carefully considered the evidence and

discovered that the distance was 150 feet and not meters, it is doubtful that he would have concluded as he did that the accused was negligent. The distance of 150 feet is less than one-third of 150 meters, which means that the sufficient time imagined by the trial judge would have been correspondingly — and significantly — reduced by two thirds of the actual period. The time as shortened could not have, if we apply the trial judge's own calculations, prevented the petitioner from avoiding the collision.

Another indication of carelessness, this time on the part of the respondent court, is its observation, in rejecting the petitioner's version of the collision, that "the police sketch of the collision scene fails to reveal any skidmarks of the appellant's car." 7 on the highway. What is rather odd about this finding is that the trial court, and the respondent court later, never considered the fact that the sketch was made five days after the collision, as clearly emphasized by the petitioner in his brief. Apparently, it did not occur to the courts below — and this is also somewhat puzzling — that all skidmarks would have disappeared by that time on the busy highway.

There was also apparent disregard of the record when the respondent court observed that the petitioner had not presented his companion to testify on his behalf, concluding that "such failure to present Heras raises the presumption that his testimony, had it been presented, would have been adverse to the appellant's cause (Orfanel v. People, 30 SCRA 825)." 8 This is another careless conclusion. The premise is incorrect, and so the conclusion must also be rejected. In fact, the petitioner did present Heras, and Heras did testify in support of the petitioner, substantially corroborating the petitioner's account of the collision. A reading of the transcript of the stenographic notes in the hearing of the case on July 27, 1983, will readily disclose this. 9

The Court is also perplexed by the following portion of the appealed decision:

"If it was true that appellant lost control of his vehicle as early as when his car hit the shoulder of the road, it was extremely stupid of him to move his car back to the highway

while his car was still out of control. This is especially true in the face of his own admission that he saw the Rabbit bus for the first time when it was still about 200 meters away overtaking a vehicle (jeep of Robert Ha) which was immediately behind a tricycle' (p. 2, ibid.). Assuming that appellant indeed lost control of his car as he hit the shoulder, he should have applied full not a little pressure upon his brakes. He should have stopped his vehicle instead of driving it back to the highway and risking collision with oncoming vehicles." 10

 As the car was "still out of

control," why is it assumed that the petitioner would nonetheless be able, although this would be "extremely stupid," to move it back to the highway? It is really mystifying that the respondent court would still expect the petitioner to control the car which, as it says so itself, was then "out of control." "Assuming the appellant indeed lost control of his car as he hit the shoulder," the decision adds, "he should have stopped his vehicle instead of driving it back to the highway and risking collision with oncoming vehicles." This is hardly logical. The court cannot assume that the petitioner lost control of his vehicle and on that assumption fault him for not correctly controlling it. That would be impossible, to say the least. When one loses control of his car, he cannot direct it the way he wants, or move it in the direction he chooses, or accelerate or stop it, for the simple reason that it is precisely out of control. A car out of control is simply out of control, period. As for the "little pressure" the petitioner says he applied on the brakes, the purpose, according to him, was to prevent his car from turning turtle as a result of a sudden stop that would have been caused by his jamming on the brakes. prLL

The real culprit in this unfortunate incident, as the Court sees it, could be the driver of the Philippine Rabbit bus whose recklessness was the cause of the collision between the petitioner's car and Robert Ha's jeep. We notice that the trial court made the meaningful observation that "the Philippine Rabbit bus may be

faulted," but added rather helplessly, that "it is not here charged." 11 We hope it did not mean by this that someone else had to be made liable, to vindicate the victims' rights.

It seems to us that a simple investigation would have uncovered the identity and whereabouts of the Rabbit bus driver, with a view to his prosecution for his involvement in the collision. Why this was not done reflects on the sense of duty of the law-enforcement officers who investigated this matter and on the resourcefulness of the petitioner and his counsel whose cause could have improved with the indictment of the said driver.

At any rate, it is the finding of the Court, in view of the misappreciation of the evidence of record by the respondent court and the trial court, that the guilt of the petitioner has not been proved beyond reasonable doubt. Consequently, he should not have been held guilty of even simple negligence and instead is entitled to be completely absolved of criminal responsibility.

The civil liability is, however, a different question.

While the quantum of proof necessary for conviction has not been established, there is, in our view, a preponderance of evidence to hold the petitioner liable in damages for the injuries sustained by the victims of this accident. Although it is really doubtful that he was criminally negligent, we find there is enough evidence to sustain the conclusion that a little more caution and discretion on his part in reacting to the threat of a head-on collision with the oncoming bus, could have avoided the unfortunate accident. For this shortcoming, we hold him liable for the hospitalization expenses and unearned salaries of the victims as itemized by the trial court and affirmed by the respondent court. We absolve him, however, from the payment of moral damages and so reduce his total civil liability to P46,131.04.

We apply here the doctrine announced in the recent case of People v. Ligon, 12 where the accused was acquitted of the crime of homicide for lack of clear and convincing proof that he had criminally caused a cigarette vendor to fall to his death from the jeep where he was hanging onto. Nevertheless, from the totality of the facts presented, we declared there was a preponderance of evidence to hold the accused liable in damages for the tragic mishap that befell the victim. We

make a similar finding in this case and hold the petitioner civilly answerable for his quasi-delict.

WHEREFORE, the petitioner is ACQUITTED and his conviction is REVERSED, but he is held liable in the total sum of P46,131.04 for damages as above specified. No costs.

SO ORDERED.

Teehankee, (C.J.), Narvasa, Paras and Gancayco, JJ., concur.

FIRST DIVISION

[G.R. No. 153004. November 5, 2004.]

SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and RIVERLAND, INC., respondents.

D E C I S I O N

QUISUMBING, J p:

Subject of the present petition for review on certiorari is the Decision, 1 dated January 30, 2002, as well as the April 12, 2002, Resolution 2 of the Court of Appeals in CA-G.R. CV No. 55122. The appellate court reversed the Decision, 3 dated October 4, 1996, of the Regional Trial Court of Makati City, Branch 148, in Civil Case No. 95-811, and likewise denied petitioner's Motion for Reconsideration.

The facts of this case are undisputed.

Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and defendant, respectively, in several civil cases filed in different courts in the Philippines. On October 26, 1990, the parties executed a Compromise Agreement 4 which amicably ended all their pending litigations. The pertinent portions of the Agreement read as follows:

1.Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:

a.P1.5 Million immediately upon the execution of this agreement;

b.The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement; provided, however, that in the event that the Foundation does not pay the whole or any part of such balance, the same shall be paid with the corresponding portion of the land or real properties subject of the aforesaid cases and previously covered by the notices of lis pendens, under such terms and conditions as to area, valuation, and location mutually acceptable to both parties; but in no case shall the payment of such balance be later than two (2) years from the date of this agreement; otherwise, payment of any

unpaid portion shall only be in the form of land aforesaid; SaETCI

2.Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the aforesaid various notices of lis pendens on the real properties aforementioned (by signing herein attached corresponding documents, for such lifting); provided, however, that in the event that defendant Foundation shall sell or dispose of any of the lands previously subject of lis pendens, the proceeds of any such sale, or any part thereof as may be required, shall be partially devoted to the payment of the Foundation's obligations under this agreement as may still be subsisting and payable at the time of any such sale or sales;

xxx xxx xxx

5.Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this

agreement. [Emphasis supplied] 5

In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.

Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real properties, which were previously subjects of lis pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner demanding the payment of the remaining P13 million, which was ignored by the latter. Meanwhile, on September 30, 1991, the Regional Trial Court of Makati City, Branch 62, issued a Decision 6 approving the compromise agreement.

On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ. Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner, which were formerly subjects of the lis pendens. Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile.

On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one year from the date of registration of the said properties.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages 7 alleging that there was delay on the part of petitioner in paying the balance of P13 million. They further alleged that under the Compromise Agreement, the obligation became due on October 26, 1992, but payment of the remaining P12 million was effected only on November 22, 1994. Thus, respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty, attorney's

fees and costs of litigation. Furthermore, they prayed that the aforesaid sales be declared final and not subject to legal redemption.

In its Answer, 8 petitioner countered that respondents have no cause of action against it since it had fully paid its obligation to the latter. It further claimed that the alleged delay in the payment of the balance was due to its valid exercise of its rights to protect its interests as provided under the Rules. Petitioner counterclaimed for attorney's fees and exemplary damages. aSADIC

On October 4, 1996, the trial court rendered a Decision 9 dismissing herein respondents' complaint and ordering them to pay attorney's fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals. The appellate court reversed the ruling of the trial court:

WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on the principal amount of P13 million at the rate of 12% per annum from the date of demand on October 28, 1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of suit.

SO ORDERED.

Hence this petition for review on certiorari where petitioner assigns the following issues:

I

WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT AWARDED LEGAL INTEREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT NEITHER IN THE COMPROMISE AGREEMENT NOR IN THE COMPROMISE JUDGMENT OF HON. JUDGE DIOKNO PROVIDES FOR PAYMENT OF INTEREST TO THE RESPONDENT

II

WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAL IN[T]EREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE PETITIONER TO RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD BEEN CONVERTED TO AN OBLIGATION TO PAY IN KIND — DELIVERY OF REAL PROPERTIES OWNED BY THE PETITIONER — WHICH HAD BEEN FULLY PERFORMED

III

WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING PAYMENT OF INTEREST BY REASON OF THE WAIVER PROVISION IN THE COMPROMISE AGREEMENT, WHICH BECAME THE LAW AMONG THE PARTIES 10

The only issue to be resolved is whether the respondents are entitled to legal interest.

Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not provide for the payment of interest, the legal interest by way of penalty on account of fault or delay shall not be due and payable, considering that the obligation or loan, on which the payment of legal interest could be based, has been superseded by the compromise agreement. 11 Furthermore, the petitioner argues that the respondents are barred by res judicata from seeking legal interest on account of the waiver clause in the duly approved compromise agreement. 12 Article 4 of the compromise agreement provides:

Plaintiff Santos waives and renounces any and all other claims that he and his family may have on the defendant Foundation arising from and in connection with the aforesaid civil cases, and defendant Foundation, on the other hand, also waives and renounces any and all claims that it may have against plaintiff Santos in connection with such

cases. 13 [Emphasis supplied.] ETCcSa

Lastly, petitioner alleges that since the compromise agreement did not provide for a period within which the obligation will become due and demandable, it is incumbent upon respondent Santos to ask for judicial intervention for purposes of fixing the period. It is only when a fixed period exists that the legal interests can be computed.

Respondents profer that their right to damages is based on delay in the payment of the obligation provided in the Compromise Agreement. The Compromise Agreement provides that payment must be made within the two-year period from its execution. This was approved by the trial court and became the law governing their contract. Respondents posit that petitioner's failure to comply entitles them to damages, by way of interest. 14

 

The petition lacks merit.

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. 15 It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing. 16

The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have been included therein.17 This holds true even if the agreement has not been judicially approved. 18

In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. 19 It was judicially approved on September 30, 1991. 20 Applying existing jurisprudence, the compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims. 21

In accordance with the compromise agreement, the respondents asked for the dismissal of the pending civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the execution of the agreement. This act of the petitioner showed that it

acknowledges that the agreement was immediately executory and enforceable upon its execution.

As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides:

xxx xxx xxx

b.The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement. . . . 22[Emphasis supplied.]

xxx xxx xxx

The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on the judicial approval of the compromise agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on October 28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after the demand was made, it incurred delay.

Article 1169 of the New Civil Code provides:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. [Emphasis supplied]

Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. 23

In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. 24

In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. The two-year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and demandable. Furthermore, the obligation is

liquidated because the debtor knows precisely how much he is to pay and when he is to pay it. ADcSHC

The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle its outstanding balance only on February 8, 1995, which is more than two years after the extra-judicial demand. Moreover, it filed several motions and elevated adverse resolutions to the appellate court to hinder the execution of a final and executory judgment, and further delay the fulfillment of its obligation.

Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an extra-judicial demand contemplated by law.

Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is provided for in Article 1170 25 of the New Civil Code.

When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. 26 The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest. 27 In the absence of agreement, the legal rate of interest shall prevail. 28The legal interest for loan as forbearance of money is 12% per annum 29 to be computed from default, i.e., from judicial or extra-judicial demand under and subject to the provisions of Article 1169 of the Civil Code. 30

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J ., Ynares-Santiago and Carpio, JJ ., concur.

Azcuna, J ., is on leave.

FIRST DIVISION

[G.R. No. 150097. February 26, 2007.]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.

ALEJANDRO and ADELAIDA LICUANAN, respondents.

D E C I S I O N

CORONA, J p:

In this petition for review on certiorari, 1 petitioner Development Bank of the Philippines assails the February 9, 2001 decision 2 and September 17, 2001 resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 37784.

Respondent spouses Alejandro and Adelaida Licuanan were granted a piggery loan in the amount of P4,700 by petitioner, evidenced by a promissory note dated September 20, 1974 and secured by a real estate mortgage 4 over a 980-square meter parcel of land with a two-storey building. The loan's maturity date was September 23, 1979. 5

Petitioner granted respondents an additional loan of P12,000 evidenced by a promissory note dated May 29, 1975 payable on or before the year 1980. This was secured by a real estate mortgage over four parcels of land situated in Pangasinan covered by TCT Nos. 109825, 109762, 109763 and 109764. 6

On October 2, 1975, petitioner granted respondent spouses another loan of P22,000 evidenced by a promissory note maturing on October 3, 1985. This was secured by a real estate mortgage executed in favor of petitioner over three parcels of land covered by TCT Nos. 112608, 112607 and 112609, all of the Registry of Deeds of Pangasinan. 7

On August 6, 1979, petitioner and respondents restructured the P12,000 loan, extending the maturity date from June 22, 1979 to June 22, 1982. On the same date, respondents executed a promissory note for P12,320.73 and another for P6,519.90. 8

On July 6, 1981, petitioner sent a letter by registered mail to respondents informing them that, since the conditions of the mortgage had been breached, petitioner would have the mortgaged properties sold by the sheriff under Act 3135. The total amount due from the three loans had by then ballooned to P75,298.32. 9

On July 20, 1981, petitioner filed an application for extrajudicial foreclosure. 10 The mortgaged properties were sold in a public auction on December 16, 1981. Petitioner, as the highest bidder, acquired them for a

total of P16,340. The certificate of sale was registered on January 25, 1982. 11

On February 4, 1983, petitioner consolidated its ownership over the properties. After more than a year or on October 16, 1984, petitioner wrote respondents by registered mail, informing them that the properties (now acquired assets of the bank) would be disposed of by public auction. On November 11, 1984, petitioner published an advertisement stating that on November 14, 1984, the properties would be sold by oral bidding. On this date, however, there were no bidders. 12

On November 16, 1984, petitioner sent respondents a letter informing them that the properties could be reacquired by negotiated sale for cash or installment. 13 Three days later, however, on November 19, 1984, the properties were sold through negotiated sale to one Emelita A. Peralta. Respondents were informed of the sale by petitioner through a letter dated December 6, 1984. CIAcSa

On the same day, petitioner executed a deed of conditional sale in favor of Peralta. 14 On December 11, 1984, respondents offered to repurchase the properties from petitioner but they had already been sold to Peralta. 15

Respondents then filed a complaint for recovery of real properties and damages on July 18, 1985 in the Regional Trial Court (RTC) of Lingayen, Pangasinan, Branch 39 against petitioner and Peralta. 16 The RTC rendered judgment dated September 17, 1991 in favor of respondents.

The trial court found that there was no demand for payment prior to the extrajudicial foreclosure. Thus, the foreclosure proceedings were null and void. It ordered Peralta to reconvey the properties to respondents subject to Peralta's right to be paid by respondents the amount of P104,000 in consideration of such reconveyance. It also held that petitioner did not deal fairly with respondents making it liable for nominal and moral damages to the latter. The RTC further ordered petitioner to pay respondents attorney's fees and litigation expenses.

On appeal, the CA affirmed the RTC but decreased the amount of nominal damages from P75,000 to P50,000. 17

Hence this petition. 18

The main issues to be resolved are the following:

1)whether a demand for payment of the loans was made

before the mortgage was foreclosed;

2)whether demand is necessary to make respondents guilty of default;

3)whether or not respondents are liable for the deficiency claim of petitioner and

4)whether or not petitioner is liable for damages.

The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation. 19

Whether or not demand was made is a question of fact. In petitions for review on certiorari under Rule 45, only questions of law may be raised by the parties and passed upon by this Court. 20 Factual findings of the trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court and will generally not be reviewed on appeal.21 Inquiry into the veracity of the CA's factual findings and conclusions is not the function of the Supreme Court for the Court is not a trier of facts. 22 Neither is it our function to re-examine and weigh anew the respective evidence of the parties. 23 While this Court has recognized several exceptions to this rule, 24 none of these exceptions finds application here.

Both the CA and RTC found that demand was never made. No compelling reason whatsoever has been shown by petitioner for this Court to review and reverse the trial court's findings and conclusions, as affirmed by the CA.

Petitioner asserts that demand was unnecessary because the maturity dates of all loans were specified, i.e., the notes expressly stated the specific dates when the amortizations were to fall due. 25

We disagree.

Unless demand is proven, one cannot be held in default. 26 Petitioner's cause of action did not accrue on the maturity dates stated in the promissory notes. It is only when demand to pay is made and subsequently refused that respondents can be

considered in default and petitioner obtains the right to file an action to collect the debt or foreclose the mortgage. 27 As we held in China Banking Corporation v. Court of Appeals: 28

Well-settled is the rule that since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative duty of the defendant but also "an act or omission of the defendant in violation of said legal right," the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty.

Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff.

It bears stressing that it is only when the last element occurs that a cause of action arises. Accordingly, a cause of action on a written contract accrues only when an actual breach or violation thereof occurs. EHTADa

Applying the foregoing principle to the instant case, we rule that private respondent's cause of action accrued only on July 20, 1995, when its demand for payment of the Home Notes was refused by petitioner. It was only at that time, and not before that, when the written contract was breached and private respondent could properly file an action in court.

The cause of action cannot be said to accrue on the uniform maturity date of the Home Notes as petitioner posits because at that point, the third essential element of a cause of action, namely, an act or

omission on the part of petitioner violative of the right of private respondent or constituting a breach of the obligation of petitioner to private respondent, had not yet occurred.29 (emphasis supplied)

The acceleration clause of the promissory notes stated that "[i]n case of non-payment of this note or any portion of iton demand, when due, on account of this note, the entire obligation shall become due and demandable . . . ." 30Hence, the maturity dates only indicate when payment can be demanded. It is the refusal to pay after demand that gives the creditor a cause of action against the debtor.

Since demand, which is necessary to make respondents guilty of default, was never made on respondents, the CA and RTC correctly ruled that the foreclosure was premature and therefore null and void.

In arguing that the foreclosure was valid, petitioner also avers that respondents are estopped from questioning the validity of the foreclosure sale since they offered to repurchase the foreclosed properties. 31 We are not persuaded. The reason why respondents offered to repurchase the properties was clearly stated in their letter to petitioner:

I am very much interested in repurchasing back these properties because they are the only properties which my family have and because our house is located inside this property and for this matter I am willing to pay [for] these properties in cash which I already told the bank when I went there. 32

 

Besides, we have already ruled that an offer to repurchase should not be construed as a waiver of the right to question the sale. 33 Instead, it must be taken as an intention to avoid further litigation and thus is in the nature of an offer to compromise. 34 By offering to redeem the properties, respondents can attain their ultimate objective: to pay off their debt and regain ownership of their lands. 35

Moreover, it was petitioner, in its November 16, 1984 letter, which informed respondents that the properties were available for sale. Respondents merely took up petitioner's offer for them to reacquire their properties.

Petitioner assigns as error the failure of the CA to rule on its deficiency claim. It alleged that the price the mortgaged property was sold for (P104,000) was less than the amount of respondents' indebtedness (P131,642.33), thus it is entitled to claim the difference (P27,642.33) with interest. Respondents cannot be held liable for the deficiency claim. While it is true that in extrajudicial foreclosure of mortgage, the mortgagee has the right to recover the deficiency from the debtor, 36 this presupposes that the foreclosure must first be valid. 37

The last issue is whether the award of moral and nominal damages, expenses of litigation and attorney's fees is proper. Crucial to the determination of the propriety of the award of damages are the findings of the RTC, which were affirmed by the CA, on the matter of bad faith:

Apart from the precipitate foreclosure proceedings, the Court observes that certain acts of [petitioner] were most certainly less than fair and less than honest, which negates the rehabilitation (prior name of the bank) or development aspect or purpose of [petitioner]. These certainly caused serious anxiety and wounded feelings to [respondents]. They are: —

FIRST. — [Petitioner] granted a loan of P4,700.00; then a second loan of P12,000.00 re-structured to P18,840.61; and a third loan of P22,200.00, or a total of P45,740.61 during the period from September 1974 to October 2, 1975. Obviously, these loans were granted because the market value of the collaterals exceeds P100,000.00 and [petitioner's] appraisal value is more or less P80,000.00. However, six (6) years later, when the value must have appreciated in terms of pesos, the [petitioner] bidded for a [measly] P16,000.00 and [claimed] a deficiency. That it was [measly] and shocking to the conscience was conclusively proven by the fact that [Peralta] offered and did in fact buy the properties for P104,000.00 barely three (3) years later. To the mind of the Court, the actuations of the bank must have been revolting to [respondents] and to honest men, especially considering that [petitioner] is a government

financial institution, capitalized with the money of the people, and created principally "to assist agricultural producers . . . in developing their farms . . . to accelerate national progress", more than to realize profit. DACaTI

SECOND. — [Respondents] are simple-minded persons in the country side. It strikes the court as odd and certainly less than candid WHY on AUGUST 6, 1979, [petitioner] restructured the second loan which will mature on May 1980, but did not restructure the first loan which was due to mature on September 23, 1979 or barely one month hence. It appears that the result lulled [respondents] into a false sense of security and a feeling of relief that the entire loan accommodation will mature in 1985. And then like a bolt of lightning from a clear sky, [respondents] were hit with [foreclosure] proceedings, causing them to suffer sleepless nights.

THIRD. — A letter dated November 16, 1984 was addressed to [respondents] informing them practically that they are given the priority to recover their properties by negotiated sale. And yet before the letter was sent, or on November 14, 1984 the [petitioner] had already negotiated with [Peralta] for the latter to buy the assets for P104,000.00 in installment and as a matter of fact the Contract for Conditional Sale was executed on November 19, 1984 — even before the letter was received by [respondents]. [Heart-rending] was the plea of [respondents] which we quote: —

"I am very much interested in repurchasing back these properties because they are the only properties which my family have and because our house is located inside this

property and for this matter I am willing to pay [for] these properties in cash which I already told the bank when I went there." (underscoring supplied)

Nevertheless, such supplications fell on deaf ears and did not even merit sympathy from a heartless [petitioner]. At the very least, the letter of 16 November 1984 was a very bad joke gleefully made in bad taste and foisted on the hapless [respondents]. It added insult to injury.

And to top it all, [petitioner] even has the temerity to allege in paragraph 2 of its compulsory counterclaim "that as of November 7, 1984 the total obligations of [respondents] on account of their loans with [petitioner] amounted to P131,642.33" and making a deficiency claim of P27,642.33 plus daily interest of P9.61 beginning November 8, 1984 "which [respondents] are allegedly still liable to pay the [petitioner]". This is unconscionable.

Certainly, there is abundant evidence that the rights of [respondents] have been violated or invaded with unconcerned ruthlessness by the [petitioner]. 38

Both the RTC and CA found that there was factual basis for the moral damages adjudged against petitioner. They found that petitioner was guilty of bad faith in its actuations against respondents. Again, this is a factual matter binding and conclusive on this Court:

It is settled that bad faith must be duly proved and not merely presumed. The existence of bad faith, being a factual question, and the Supreme Court not being a trier of facts, the findings thereon of the trial court as well as of the Court of Appeals shall not be disturbed on appeal and are entitled to great weight and respect. Said findings are final

and conclusive upon the Supreme Court except, inter alia, where the findings of the Court of Appeals and the trial court are contrary to each other. 39

The lower court also found that respondents' property rights were invaded or violated, 40 hence the grant of nominal damages was also proper. aIAEcD

Respondents are likewise entitled to the award of attorney's fees and expenses of litigation since the premature foreclosure by petitioner compelled them to incur expenses to protect their interest. 41

WHEREFORE, we hereby AFFIRM the decision of the Court of Appeals in CA-G.R. CV No. 37784.

Costs against petitioner.

SO ORDERED.

Puno, C.J., Sandoval-Gutierrez and Garcia, JJ., concur.

Azcuna, J., is on official leave.

FIRST DIVISION

[G.R. No. 115129. February 12, 1997.]

IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO ALVIAR, respondents.

Franco L. Loyola for petitioners.

Monsod Valencia and Associates for private respondent.

SYLLABUS

1.CIVIL LAW; OBLIGATION AND CONTRACTS; EFFECT OF OBLIGATIONS; A PARTY GUILTY OF NEGLIGENCE AND DELAY IN THE PERFORMANCE OF HIS CONTRACTUAL OBLIGATION IS LIABLE FOR DAMAGES. — An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual

obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.

2.ID.; ID.; ID.; ID.; THE ARGUMENT THAT THE INVOICES NEVER INDICATED A SPECIFIC DELIVERY TIME MUST FALL IN THE FACE OF THE POSITIVE VERBAL COMMITMENT OF RESPONDENT'S STOREKEEPER; CASE AT BAR. — Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery materials to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices.

3.ID.; ID.; ID.; ID.; THE DELIBERATE SUPPRESSION OF MATERIAL INFORMATION BY ITSELF MANIFESTS A CERTAIN DEGREE OF BAD FAITH. — One piece of testimony by respondent's witness Marina Boncales has caught our attention — that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmariñas, Cavite. Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the materials from respondent's hardware store but elsewhere which would meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper.

4.ID.; ID.; ID.; ID.; CASE AT BAR; A CASE OF NON-PERFORMANCE OF A RECIPROCAL OBLIGATION. — This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase and sale, petitioner had already complied fully with what

was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach.

5.ID.; DAMAGES; AWARD OF MORAL DAMAGES; SUSTAINED. — We sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into.

6.ID.; ID.; GROSS NEGLIGENCE IN THE FULFILLMENT OF ONE'S BUSINESS OBLIGATIONS ENTITLES THE AGGRIEVED PARTY TO EXEMPLARY DAMAGES. — We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish.

7.ID.; ID.; TEMPERATE DAMAGES; MAY NOT BE AWARDED IN CASES WHERE THE AMOUNT OF PECUNIARY LOSSES, BY THEIR VERY NATURE, COULD BE ESTABLISHED WITH CERTAINTY. — We delete the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts.

8.ID.; ID.; ACTUAL OR COMPENSATORY DAMAGES; PARTY'S FAILURE TO PROVE ACTUAL

EXPENDITURE CONDUCES TO A FAILURE OF HIS CLAIM. — Petitioner's claim falls unequivocally within the realm of actual or compensatory damages. However, his failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.

D E C I S I O N

BELLOSILLO, J p:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer.

Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelisto her dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever.

This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. With that reply petitioner left.

At seven o' clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmariñas, Cavite, by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items

at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a kilometer away, to await the delivery.

The construction materials did not arrive at eight o'clock as promised. At nine o' clock, the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they would just follow with his construction materials.

After hours of waiting — which seemed interminable to him — Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already there but the materials he purchased were not yet ready for loading. Distressed that Alviar's employees were not the least concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere.

 

In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the niche would not be finished in time for the scheduled burial the following day. His laborers had to take a break on Christmas Day and they could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.

On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional Trial Court. 1

Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought about all his personal woes. cda

Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees.

On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. 2

The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still had sufficient time to construct the tomb and hold his wife's burial as she wished.

We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. 3

Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices. 4

Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife.

This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " . . . they (respondent's employees) were making a fool out of me." 5

We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was foreseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private respondent's business requires that he should be ready at all times to meet contingencies of this kind. One piece of testimony by respondent's witness Marina Boncales has caught our attention — that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmariñas, Cavite. 6 Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the

materials from respondent's hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper.

The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day.

This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach.

We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into.

We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish.

We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than

compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. As such, the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner's failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. 8

We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is left to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on appeal. 9

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs.

SO ORDERED.

Padilla, Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.

SECOND DIVISION

[G.R. No. 147324. May 25, 2004.]

PHILIPPINE COMMUNICATIONS

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

[G.R. No. 147334. May 25, 2004.]

GLOBE TELECOM, INC., petitioner, vs. PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

D E C I S I O N

TINGA, J p:

Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619. 1

The facts of the case are undisputed.

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

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA. 2 The term of the contract was for 60 months, or five (5) years. 3 In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. 4

At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new treaty is recognized as such by the US Government.

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

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

FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it

Resolved by the Senate, as it is hereby resolved, To express its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its desire to continue friendly relations with the government and people of the United States of America. 6

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

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

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

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

7.DISCONTINUANCE OF SERVICE

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

subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as may be agreed upon by the parties. 8

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

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

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

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

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

1.Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate prevailing at the time of compliance or payment)

representing rentals for the month of December 1992 with interest thereon at the legal rate of twelve percent (12%) per annum starting December 1992 until the amount is fully paid;

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

3.Ordering the DISMISSAL of defendant's counterclaim for lack of merit; and

4.With costs against the defendant.

SO ORDERED. 9

Both parties appealed the trial court's Decision to the Court of Appeals.

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

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

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

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

 

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

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

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

A.THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT.

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

C.THE HONORABLE COURT OF APPEALS ERRED IN DELETING THE TRIAL COURT'S AWARD OF ATTORNEY'S FEES IN FAVOR OF PHILCOMSAT.

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

Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event because the happening thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section 8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the validity of the parties' definition of force majeure in Section 8 of the Agreement as "circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen, or which, though foreseen, were inevitable. 13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is inconsistent with the appellate court's pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated Philcomsat's services effective 08 November 1992, because the US military and personnel completely

withdrew from Cubi Point only in December 1992. Philcomsat points out that it was Globe which proposed the five-year term of the Agreement, and that the other provisions of the Agreement, such as Section 4.1 14 thereof, evince the intent of Globe to be bound to pay rentals for the entire five-year term. 15

Philcomsat also maintains that contrary to the appellate court's findings, it is entitled to attorney's fees and exemplary damages. 16

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

In G.R. No. 147334, 19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the amount of US$92,238.00, representing rentals for December 1992, since Philcomsat's services were actually terminated on 08 November 1992. 20

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

On 15 August 2001, the Court issued a Resolution giving due course to Philcomsat's Petition in G.R. No. 147324 and required the parties to submit their respective memoranda. 22

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

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

The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement, the non-ratification of the Treaty of

Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorney's fees and exemplary damages.

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

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

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

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

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

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

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

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

2.Strikes or other labor difficulties;

3.Insurrection;

4.Riots;

5.National emergencies;

6.War;

7.Acts of public enemies;

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

9.Other circumstances beyond the control of the parties.

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

Furthermore, under Article 1306 26 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public order or public policy. 27

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

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

In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements

must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. 31

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

 

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

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts, direction or request of the Government of the Philippines and circumstances

beyond the control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant.

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

xxx xxx xxx

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

As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to render the service it was obligated under the Agreement. To put it blantly (sic), since the US military forces and personnel left or withdrew from Cubi Point in the year end December 1992, there was no longer any necessity for the plaintiff to continue maintaining the IBS facility . . .32 (Emphasis in the original.)

The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement. SEIDAC

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

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

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

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject of the Agreement was not established during the trial. 34 However, the trial court found that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time. Hence, the Court of Appeals did not err when it affirmed the trial court's ruling that Globe is liable for payment of rentals until December 1992.

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

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

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

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

SO ORDERED.

Quisumbing, Austria-Martinez and Callejo, Sr., JJ ., concur.

Puno, J ., is on official leave.

SECOND DIVISION

[G.R. No. 124922. June 22, 1998.]

JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING,petitioner, vs. COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION,respondents.

Lorenzo G. Parungao for petitioner.

Samson S. Alcantara for private respondent.

SYNOPSIS

On July 18, 1990, petitioner entrusted his car to private respondent for some repair including battery replacement, the latter undertaking to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by an employee of private respondent.

The RTC, in a suit for damages filed by petitioner against private respondent, found the latter guilty of delay in the performance of its obligation and held it liable to petitioner for the value of the lost vehicle and its accessories plus interest and attorney's fees. On appeal, the Court of Appeals reversed the lower court's ruling. It ruled that the vehicle was lost due to a fortuitous event. Hence this petition for review.

In reversing the Court of Appeals, the Supreme Court held that carnapping per se cannot be considered as a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it. Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165 of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery.

SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE, PRE-TRIAL; RULE THAT THE DETERMINATION OF ISSUES AT PRE-TRIAL CONFERENCE BARS THE CONSIDERATION OF OTHER ISSUES ON APPEAL, INAPPLICABLE IN CASE AT BAR. — Contrary to the CA's pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other issues on appeal, except those that may involve privilege or impeaching matter, is inapplicable to this case. The question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected

with the principal issue agreed upon by the parties, i.e., who will bear the loss and whether there was negligence. Petitioner's imputation of negligence to private respondent is premised on delay which is the very basis of the former's complaint. Thus, it was unavoidable for the court to resolve the case, particularly the question of negligence without considering whether private respondent was guilty of delay in the performance of its obligation. aDACcH

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

3.CIVIL LAW; OBLIGATIONS AND CONTRACT; AN OBLIGOR GUILTY OF DELAY IS RESPONSIBLE EVEN FOR A FORTUITOUS EVENT UNTIL HE HAS EFFECTED DELIVERY. — Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165 of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such occasion cannot be construed as waiver of petitioner's right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it.

4.ID.; ID.; LEGAL PRESUMPTION THAT THE LOSS OF A THING WAS DUE TO THE FAULT OF THE ONE IN POSSESSION AT THE TIME OF THE LOSS. — Assuming further that there was no delay, still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault. This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent's possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances — earthquake, flood, storm or other natural calamity — when the presumption of fault is not applicable do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions, private respondent is answerable for the loss.

5.ID.; ID.; REPAIR SHOPS ARE REQUIRED TO SECURE AN INSURANCE POLICY COVERING THE MOTOR VEHICLE ENTRUSTED FOR REPAIR; VIOLATION OF THIS STATUTORY DUTY CONSTITUTES NEGLIGENCE PER SE. — It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk." Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI) and to secure an insurance policy for the "shop covering the property entrusted by its customer for repair, service or maintenance" as an pre-requisite for such registration/accreditation. Violation of this statutory duty constitutes negligence per se. Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he losses immediate control. An owner who cannot exercise the seven (7) juses or attributes of ownership — the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate and to the fruits — is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent's repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it

will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies.

6.ID.; ID.; LIABILITY OF REPAIR SHOP ON LOST VEHICLES AND ACCESSORIES SHOULD BE BASED ON ITS FAIR MARKET VALUE AT THE TIME IT WAS ENTRUSTED OR SUCH VALUE AS AGREED UPON SUBSEQUENT TO THE LOSS. — One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it should be based on the fair market value that the property would command at the time it was entrusted to it or such other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other damages that a claimant is entitled under applicable laws. AECDHS

D E C I S I O N

MARTINEZ, J p:

On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model 1 to private respondent — which is engaged in the sale, distribution and repair of motor vehicles — for the following job repair services and supply of parts:

 

—Bleed injection pump and all nozzles;

—Adjust valve tappet;

—Change oil and filter;

—Open up and service four wheel brakes, clean and adjust;

—Lubricate accelerator linkages;

—Replace aircon belt; and

—Replace battery 2

Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. After petitioner paid in full the repair bill in the amount of

P1,397.00, 3 private respondent issued to him a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by private respondent's employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident was reported to the police.

Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against private respondent anchoring his claim on the latter's alleged negligence. For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous event — the carnapping. During pre-trial, the parties agreed that:

"(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the defendant is P332,500.00 excluding accessories which were installed in the vehicle by the plaintiff consisting of four (4) brand new tires, magwheels, stereo speaker, amplifier which amount all in all to P20,000.00. It is agreed that the vehicle was lost on July 24, 1990 'approximately two (2) years and five (5) months from the date of the purchase'. It was agreed that the plaintiff paid the defendant the cost of service and repairs as early as July 21, 1990 in the amount of P1,397.00 which amount was received and duly receipted by the defendant company. It was also agreed that the present value of a brand new vehicle of the same type at this time is P425,000.00 without accessories." 4

They likewise agreed that the sole issue for trial was who between the parties shall bear the loss of the vehicle which necessitates the resolution of whether private respondent was indeed negligent. 5 After trial, the court a quo found private respondent guilty of delay in the performance of its obligation and held it liable to petitioner for the value of the lost vehicle and its accessories plus interest and attorney's fees. 6 On appeal, the Court of Appeals (CA) reversed the ruling of the lower court and ordered the dismissal of

petitioner's damage suit. 7 The CA ruled that: (1) the trial court was limited to resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on the issue of delay; and (2) the vehicle was lost due to a fortuitous event.

In a petition for review to this Court, the principal query raised is whether a repair shop can be held liable for the loss of a customer's vehicle while the same is in its custody for repair or other job services?

The Court resolves the query in favor of the customer. First, on the technical aspect involved. Contrary to the CA's pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other issues on appeal, except those that may involve privilege or impeaching matter, 8 is inapplicable to this case. The question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i.e. who will bear the loss and whether there was negligence. Petitioner's imputation of negligence to private respondent is premised on delay which is the very basis of the former's complaint. Thus, it was unavoidable for the court to resolve the case, particularly the question of negligence without considering whether private respondent was guilty of delay in the performance of its obligation.

On the merits. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. 9 In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it 10 — which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.

Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165 11 of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot be construed as waiver of petitioner's right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it.

Assuming further that there was no delay, still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault. 12 This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent's possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances — earthquake, flood, storm or other natural calamity — when the presumption of fault is not applicable 13 do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions, private respondent is answerable for the loss.

It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk". 14 Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI) 15 and to secure an insurance policy for the "shop covering the property entrusted by customer for repair, service or maintenance" as a pre-requisite for such registration/accreditation. 16Violation of this statutory duty constitutes negligence per se. 17 Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he loses immediate control. An owner who cannot exercise the seven (7) juses or attributes of ownership — the right to possess, to use and enjoy, to abuse or consume, to

accessories, to dispose or alienate, to recover or vindicate and to the fruits — 18 is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent's repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies.

One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it should be based on the fair market value that the property would command at the time it was entrusted to it or such other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other damages that a claimant is entitled under applicable laws.

WHEREFORE, premises considered, the decision of the Court Appeals is REVERSED and SET ASIDE and the decision of the court a quo is REINSTATED.

SO ORDERED.

Regalado, Puno and Mendoza, JJ ., concur.

Melo, J ., is on leave.

THIRD DIVISION

[G.R. No. 159617. August 8, 2007.]

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners, vs. LULU V. JORGE and CESAR JORGE, respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J p:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision 1 of the Court of Appeals dated

March 31, 2003, and its Resolution 2 dated August 8, 2003, in CA G.R. CV No. 56633. DcICEa

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

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

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

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

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

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

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

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

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

After trial on the merits, the RTC rendered its Decision 6 dated January 12, 1993, dismissing respondents' complaint as well as petitioners' counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder.

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

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

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993, of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00. 8 TAECaD

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

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

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

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

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

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

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR

BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD. 9

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

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

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

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

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

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

(1)There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault

inside the pawnshop premises and no other place;

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

(3)In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda.

We find no merit in the petition.

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

 

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

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

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of

corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them. 15

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

Even petitioners' counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

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

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

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

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

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

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

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

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

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

Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the real party in interest in this case."

It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit of which can

only be reached after consideration of the evidence to be presented in due course. 19

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

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

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

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

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

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of

piercing the corporate veil should or should not apply to the case.

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

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

We are not persuaded.

Article 1174 of the Civil Code provides:

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

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

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

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

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event

would not exempt one from liability. When the effect is found to be partly the result of a person's participation — whether by active intervention, neglect or failure to act — the whole occurrence is humanized and removed from the rules applicable to acts of God. 26

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

 

Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.

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

It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event

rests on him who invokes it — which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. 28

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

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

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

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

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

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

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

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

We expounded in Cruz v. Gangan 30 that negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do. 31 It is want of care required by the circumstances.

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

Court:

Q.Do you have security guards in your pawnshop?

A.Yes, your honor.

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

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

Q.I am asking you how were the robbers able to enter despite the fact that there was a security guard? TECIaH

A.At the time of the incident which happened about 1:00 and 2:00 o'clock in

the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque they pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a hold up.

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

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

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

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

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

A.Yes sir. 32

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

employees who were present during the robbery incident testified in court.

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

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

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

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

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

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

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

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the

pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent.

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

The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform. 34 Thus, the cases of Austria v. Court of Appeals, 35 Hernandez v. Chairman, Commission on Audit 36 and Cruz v. Gangan 37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability, find no application to the present case.

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

 

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

previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.

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

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

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

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

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

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

Costs against petitioners.

SO ORDERED.

Ynares-Santiago, Chico-Nazario and Nachura, JJ., concur.

SECOND DIVISION

[G.R. No. 122195. July 23, 1998.]

NATIONAL POWER CORPORATION, petitioner, vs. COURT OF APPEALS and DENNIS COO,respondents.

The Solicitor General for petitioner.

Segundo Y. Chua for private respondent.

SYNOPSIS

Private respondent Dennis Coo purchased six (6) tons of assorted scrap aluminum wires and allied accessories from the New Alloy Metal Company in Manila. The goods, however, were seized by elements of the 331st PC from Coos residence and deposited in the PC headquarters. The PC Provincial Commander filed a criminal complaint against Coo for violation of the anti-fencing law. However, the Investigating Fiscal dismissed it for insufficiency of evidence. Upon representation of petitioner NPC, the complaint was re-investigated, resulting in the filing of an Information before the Regional Trial Court of Bacolod City. The trial court rendered a decision acquitting Coo on the ground that the wares belonged to him. Notwithstanding this decision, petitioner got the property from the PC Headquarters. Coo demanded the return of the wares, which NPC refused. Coo filed a complaint for replevin against NPC and its officers. After trial, Coo was declared the owner and possessor of the aluminum wires and allied accessories. On appeal, the Court of Appeals affirmed the trial courts decision with the modification that the NPC's officers were absolved from any liability in their personal capacity. NPC was ordered to pay nominal damages and attorneys fees. NPC moved for reconsideration but it was denied. Hence, this petition for review on certiorari.

Anent the requirement that the personal property be unlawfully detained by another not entitled to its possession, it is to be remembered that petitioner NPC was the complainant in the criminal case against private respondent and, as such, knew of the decision

in the case. Because of the said decision, private respondent Coo should have been given possession of the subject property. However, petitioner NPC refused to relinquish possession of the same after the decision in the criminal case declaring Coo to be owner of the goods. It is thus wrongfully withholding possession of the property, thus entitling private respondent to the writ of replevin. In view of the foregoing, the contention that the Court of Appeals erred in not awarding expenses of litigation and attorneys fees in favor of petitioner NPC is clearly without merit.

SYLLABUS

1.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF APPEALS; BINDING AND CONCLUSIVE UPON THE SUPREME COURT, AS A GENERAL RULE; EXCEPTION NOT PRESENT IN CASE AT BAR. — As a general rule, findings of fact of the Court of Appeals are binding and conclusive upon the Supreme Court, and the Court will not normally disturb such factual findings unless the findings of the court are palpably unsupported by the evidence on record or unless the judgment itself is based on a misapprehension of facts. The present case not falling under the exceptions, the general rule applies.

2.ID.; ID.; PREPONDERANCE OF EVIDENCE, CONSTRUED. — As against documents presented by the private respondent and the judgment in the criminal case acquitting him, the petitioner presented only its employees whose testimonies consisted merely of assumptions and opinions. By preponderance of evidence is meant simply evidence which is of greater weight, or more convincing than that which is offered in opposition to it. Clearly, private respondent Coo has provided evidence of greater weight than the petitioner relevant to the determination of who is entitled to the possession of the subject property.

3.ID.; ACTION; REPLEVIN; NATURE THEREOF CONSTRUED; CASE AT BAR. — In a case for replevin, it is sufficient that the plaintiff prove entitlement to legal possession. It is not necessary to prove ownership. It is worth stressing at this point, that a suit for replevin is founded solely on the claim that the defendant wrongfully withholds the property sought to be recovered. It lies to recover possession of personal chattels that are unlawfully detained. "To detain" is defined as to mean "to hold or keep in custody," and it has been held that there is tortious taking whenever there is an unlawful meddling with the property, or an exercise or claim of dominion over it, without any pretense of authority or right; this, without manual seizing of the property is sufficient. Under the Rules of Court, it is indispensable in

replevin proceeding that the plaintiff must show by his own affidavit that he is entitled to the possession of property, that the property is wrongfully detained by the defendant, alleging the cause of detention, that the same has not been taken for tax assessment, or seized under execution, or attachment, or if so seized, that it is exempt from such seizure, and the actual value of the property. A perusal of the way bill shows that the consignee is private respondent. Hence, it is sufficient to support the claim that private respondent is entitled to a writ of replevin. It is evidence that he is entitled to the possession of the property subject of this case.

4.CIVIL LAW; DAMAGES; NOMINAL DAMAGES; WHEN ENTITLED; CASE AT BAR. — After private respondent Coo had shown that he was entitled to possession of the property, it became the duty of petitioner to yield possession of the goods. Article 2221 of the Civil Code provides: Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Based on this provision, petitioner is liable to private respondent for nominal damages. Nor did the Court of Appeals err in awarding attorney's fees to private respondent, considering that petitioner's refusal to return the property compelled private respondent to incur expenses to protect his interest. Moreover, petitioner acted in gross and evident bad faith in refusing to satisfy private respondent's plainly valid, just, and demandable claim.

D E C I S I O N

MENDOZA, J p:

Petitioner seeks a review of the decision 1 of the Court of Appeals which affirmed with modification the decision of the Regional Trial Court of Bacolod City, Branch 51, and the subsequent resolution which denied petitioner's motion for reconsideration. LLphil

It appears that on July 23, 1984, private respondent Dennis Coo purchased six (6) tons of assorted scrap aluminum wires and allied accessories from the New Alloy Metal Company in Manila. The assorted goods were shipped to Bacolod City and were there received by Coo on July 30, 1984. However, the next day, July 31, 1984, the goods were seized by elements of the 331st PC from Coo's residence and deposited in the PC headquarters. 2

On August 6, 1984, the PC Provincial Commander filed a criminal complaint against Coo for violation of

the anti-fencing law. However, the Investigating Fiscal dismissed it for insufficiency of evidence. 3 Upon representation of petitioner NPC, the complaint was re-investigated, 4 resulting in the filing of an Information before the Regional Trial Court of Bacolod City, Branch 48.

On August 23, 1985, the trial court rendered a decision acquitting Coo on the ground that the wares belonged to him. 5Notwithstanding this decision, petitioner got the property from the PC Headquarters. 6 Private respondent wrote petitioner NPC demanding the return of the wares. Because of petitioner's refusal to return the subject property, private respondent Coo filed a complaint for replevin against NPC and its officers in the Regional Trial Court of Bacolod City. 7

After posting a surety bond for P120,000.00, Coo was able to obtain possession of the seized items on August 5, 1986. 8After trial, Coo was declared the owner and possessor of the aluminum wires and allied accessories. 9

On appeal, the Court of Appeals affirmed the trial court's decision with the modification that Alfredo Arzaga, Jr. and Zosimo Briones, NPC's Branch Manager and NPC's officer-in-charge for Negros Occidental, respectively, were absolved from any liability in their personal capacity and the awards of compensatory and moral damages were deleted. Instead, NPC was ordered to pay nominal damages and attorney's fees. 10

NPC moved for reconsideration but its motion was denied. Hence, this petition for review on certiorari. 11

Petitioner contends that the Court of Appeals erred in relying on the decision in the criminal case acquitting Dennis Coo for its ruling that the aluminum conductor wires in question belonged to him. Petitioner claims that the acquittal was based on reasonable doubt and, therefore, was not conclusive of the ownership of the goods. On the other hand, according to petitioner, the following facts support its claim that the aluminum wires bought by Coo from the New Alloy Metal Company were different from those seized by the PC from Coo and delivered to NPC: 12

1.The sales invoice as well as the way bill submitted by private respondent indicates that the assorted scrap aluminum wires were delivered to private respondent Coo's factory while the property seized by the PC was found in Coo's residence.

2.The sales invoice covers only six (6) tons of scrap aluminum wires while the property seized by the PC weighs nine (9) tons.

3.The sales invoice only states "aluminum wires," while the property seized from Coo's residence consisted not only of aluminum wires but included transmission hardware as well.

4.The "fact" that in the entire Philippines only petitioner NPC imports and uses aluminum conductor wires rated 795 MCR ACSR and 336 MCR ACSR.

From these premises, NPC concludes that the property seized by the PC and later turned over to it is not the same as that covered by the sales invoice and the way bill which private respondent presented in court. 13 The Court of Appeals thus overlooked or misapprehended the aforesaid material facts. 14

 

Petitioner also contends that although it may be argued that private respondent uses aluminum wires as raw materials in manufacturing kitchen utensils, the business in which he is engaged, he has not explained why he also purchased transmission line hardware which his business obviously does not need. It maintains that the aluminum conductor wires and hardware were pilfered from its transmission towers which had been blown down. 15

Private respondent denies petitioner's allegations and argues that the issues raised by the petitioners are factual and insubstantial.

We find the petition to be without merit.

First. It should be pointed out that the petitioner does not dispute the value of the invoice and way bill either here or in the court below. Neither does it question their genuineness. What it questions is whether the property subject of the case is the same property covered by the said documents.

Petitioner calls attention to the fact that the goods covered by the documents were delivered to private respondent's warehouse, whereas the goods seized by the PC were taken from his residence. 16 This has, however, already been explained by Coo during cross-examination 17 at the trial of the case: The goods were moved to his residence because the warehouse had already become overcrowded. In addition, petitioner points out that the documents only cover six (6) tons of scrap aluminum, while what was seized weighed nine (9) tons. 18

In his Comment, private respondent Coo points out that the receipt issued by the PC raiding team listed the items seized from Coo as five (5) tons of assorted aluminum conductor wires. 19

Indeed, the affidavit 20 of a member of the PC raiding team, which is appended to the private respondent's Rejoinder in this case, states that the property seized weighed "about 5 tons." This has not been denied by petitioner. Moreover, it is important to note that in the stipulation of facts, both the petitioner and private respondent agreed that the very same property subject of the criminal case is the property subject of the present civil case, without reference to its weight. 21The records do not in fact show that this question was ever raised in the court below. It was only in the petitioner's Appellants-Brief 22 in the Court of Appeals where such a question was raised. Clearly, the records do not support the claim that the property seized from private respondent's residence weighed nine (9) tons. 23

Petitioner makes much of the fact that the documents state "scrap aluminum" while the property seized consisted of "aluminum conductor wires and transmission hardware." 24 Thus, the invoice and way bill show that they cover "Scrap asst. alum. wire"/"Assorted Scrap alum. wires." 25 The word "scrap" is defined as "manufactured articles or parts rejected for imperfection or discarded because of excessive wear or lack of demand and useful only as raw material for reprocessing." 26 The term is broad enough to cover different types of property as long as they are rejected or discarded and useful only as raw material for reprocessing. Indeed, the petitioner's own witness, Rolando Bulfa, a property custodian of petitioner, described the property turned over by the PC to NPC as "all already broken." 27 Thus, the fact that the documents describe the property as "scrap" is consistent with the description given by petitioner's own witness. It is of no moment that the seized property consisted of aluminum wires and transmission hardware. What is important is the condition of the materials, that is, all broken up and hence useful only as raw material for reprocessing. cdrep

It should also be pointed out that it is common practice for scrap material to be sold and bought by lot. They are not normally bought sorted out. Hence, it is quite possible that transmission hardware formed part of the property sold to private respondent Coo. It is not surprising that aluminum conductor wires are attached to such hardware. As for the fact that the documents refer specifically to said wires and not the hardware, it is understandable since the wires were the ones private respondent Coo primarily wanted to buy from the establishment.

Lastly, petitioner points out that even if Coo claims the property to be needed as raw material in the manufacture of kitchen utensils, it cannot be argued that transmission hardware would also be needed. 28

This is mere opinion. Moreover, as already pointed out, it is a practice that scrap material is bought by lot.

Hence, assuming petitioner is correct that transmission hardware is not needed in private respondent's business, the fact that such type of ware is found with the aluminum scrap wires seized from private respondent's residence is not enough to find that the subject property belonged to it and not to private respondent.

As a general rule, findings of fact of the Court of Appeals are binding and conclusive upon the Supreme Court, and the Court will not normally disturb such factual findings unless the findings of the court are palpably unsupported by the evidence on record or unless the judgment itself is based on a misapprehension of facts.29

The present case not falling under the exceptions, the general rule applies.

Petitioner claims to be the only entity in the Philippines that imports and uses aluminum conductor wires such as those subject of the present controversy, 30 and that the purchase price for the aluminum wires indicated in the invoice presented by private respondent Coo was only P5.00 per kilo when the going price for aluminum scrap during 1984 was already P19.00 a kilo.

These are mere allegations of witnesses who are not experts. They are not supported by any evidence. The witnessescannot even state with certainty that the property belongs to NPC . All they can say is that the subject property issimilar to that used by petitioner NPC in its power transmission lines.

Anent the claim that NPC has exclusive access to the type of aluminum wires subject of the case, the Court of Appeals found that the petitioner conducts public biddings, 31 thus implying that petitioner does not have exclusive access to the material in question.

The trial court correctly found that private respondent Coo had proven by a preponderance of evidence that he and not petitioner NPC is entitled to the possession of the subject property. It pointed out that while private respondent had consistently presented his documentary evidence showing his purchase of the property and its delivery to his residence, petitioner merely relied on mere opinions and assumptions unsupported by any concrete evidence. It correctly observed that while there may be no denying the fact that the petitioner may be using a similar type of hardware as that involved in the present case, no iota of evidence was ever presented to show that the particular items involved in the case belong to it. 32

As against documents presented by the private respondent and the judgment in the criminal case acquitting him, the petitioner presented only its employees whose testimonies consisted merely of assumptions and opinions.

By preponderance of evidence is meant simply evidence which is of greater weight, or more convincing than that which is offered in opposition to it. 33

Clearly, private respondent Coo has provided evidence of greater weight than the petitioner relevant to the determination of who is entitled to the possession of the subject property.

At any rate, in a case for replevin, it is sufficient that the plaintiff prove entitlement to legal possession. It is not necessary to prove ownership.

It is worth stressing at this point, that a suit for replevin is founded solely on the claim that the defendant wrongfully withholds the property sought to be recovered. It lies to recover possession of personal chattels that are unlawfully detained. "To detain" is defined as to mean "to hold or keep in custody," and it has been held that there is tortious taking whenever there is an unlawful meddling with the property, or an exercise or claim of dominion over it, without any pretense of authority or right; this, without manual seizing of the property is sufficient. Under the Rules of Court, it is indispensable in replevin proceeding that the plaintiff must show by his own affidavit that he is entitled to the possession of property, that the property is wrongfully detained by the defendant, alleging the cause of detention, that the same has not been taken for tax assessment, or seized under execution, or attachment, or if so seized, that it is exempt from such seizure, and the actual value of the property. 34

A perusal of the way bill shows that the consignee is private respondent. Hence, it is sufficient to support the claim that private respondent is entitled to a writ of replevin. It is evidence that he is entitled to the possession of the property subject of this case.

Anent the requirement that the personal property be unlawfully detained by another not entitled to its possession, it is to be remembered that petitioner NPC was the complainant in the criminal case against private respondent and, as such, knew of the decision in the case. As a consequence of the said decision, private respondent Coo should have been given possession of the subject property. 35 However, petitioner NPC refused to relinquish possession of the same even after the decision in the criminal case declaring Coo to be the owner of the goods. It is thus wrongfully withholding possession of the property, thus entitling private respondent to the writ of replevin.

Second. The petitioner also assigns as error respondent Court of Appeals' order to pay respondent Coo nominal damages and attorney's fees. Petitioner contends that it cannot be held liable for damages because the law requires that one be injured by a wrongful act or omission of another in order to be entitled to compensation. It argues that it was not guilty of any wrongful act but that it was merely exercising its legal right when it recovered possession of the aluminum wires and the hardware. At any rate, it is claimed, petitioner acted in good faith when it refused to release the said property.36

 

As already discussed, after private respondent Coo had shown that he was entitled to possession of the property, it became the duty of petitioner to yield possession of the goods. Article 2221 of the Civil Code provides:

Art. 2221.Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. LLjur

Based on this provision, petitioner is liable to private respondent for nominal damages.

Nor did the Court of Appeals err in awarding attorney's fees to private respondent, considering that petitioner's refusal to return the property compelled private respondent to incur expenses to protect his interest. 37 Moreover, petitioner acted in gross and evident bad faith in refusing to satisfy private respondent's plainly valid, just, and demandable claim.38

In view of the foregoing rulings, the contention that the Court of Appeals erred in not awarding expenses

of litigation and attorney's fees in favor of petitioner NPC is clearly without merit. 39

WHEREFORE, the decision dated March 28, 1995 and the resolution dated September 29, 1995 of the Court of Appeals are AFFIRMED.

SO ORDERED.

Regalado, Melo, Puno and Martinez, JJ .,concur.

SECOND DIVISION

[G.R. No. L-44748. August 29, 1986.]

RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI), petitioner, vs. COURT OF APPEALS and LORETO DIONELA, respondents.

O. Pythogoras Oliver for respondents.

D E C I S I O N

PARAS, J p:

Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying the decision of the trial court in a civil case for recovery of damages against petitioner corporation by reducing the award to private respondent Loreto Dionela of moral damages from P40,000 to P15,000, and attorney's fees from P3,000 to P2,000.

The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended party, Loreto Dionela, reading as follows:

"176 AS JR 1215 PM 9 PAID

MANDALUYONG JUL 22-66

LORETO DIONELA

CABANGAN LEGASPI CITY.

WIRE ARRIVAL OF CHECK

FER.

LORETO DIONELA — CABANGAN — WIRE ARRIVAL OF CHECK-PER.

115 PM.

SA IYO WALANG PAKINABANG DUMATING — KA DIYAN — WALA KANG PADALA DITO — KAHIT BULBULMO" (p. 19, Annex "A")

Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to him not only wounded his feelings but also caused him undue embarrassment and affected adversely his business as well because other people have come to know of said defamatory words. Defendant-corporation as a defense, alleges that the additional words in Tagalog was a private joke between the sending and receiving operators and that they were not addressed to or intended for plaintiff and therefore did not form part of the telegram and that the Tagalog words are not defamatory. The telegram sent through its facilities was received in its station at Legaspi City. Nobody other than the operator manned the teletype machine which automatically receives telegrams being transmitted. The said telegram was detached from the machine and placed inside a sealed envelope and delivered to plaintiff, obviously as is. The additional words in Tagalog were never noticed and were included in the telegram when delivered.

The trial court in finding for the plaintiff ruled as follows:

"There is no question that the additional words in Tagalog are libelous. They clearly impute a vice or defect of the plaintiff. Whether or not they were intended for the plaintiff, the effect on the plaintiff is the same. Any person reading the additional words in Tagalog will naturally think that they refer to the addressee, the plaintiff. There is no indication from the face of the telegram that the additional words in Tagalog were sent as a private joke between the operators of the defendant.

"The defendant is sued directly — not as an employer. The business of the defendant is to transmit telegrams. It will open the door to frauds and allow the defendant to act with impunity if it can escape liability by the simple expedient of showing that its

employees acted beyond the scope of their assigned tasks.

"The liability of the defendant is predicated not only on Article 33 of the Civil Code of the Philippines but on the following articles of said Code:

"ART. 19. — Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

"ART. 20. — Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same."

"There is sufficient publication of the libelous Tagalog words. The office file of the defendant containing copies of telegrams received are open and held together only by a metal fastener. Moreover, they are open to view and inspection by third parties.

"It follows that the plaintiff is entitled to damages and attorney's fees. The plaintiff is a businessman. The libelous Tagalog words must have affected his business and social standing in the community. The Court fixes the amount of P40,000.00 as the reasonable amount of moral damages and the amount of P3,000.00 as attorney's fees which the defendant should pay the plaintiff." (pp. 15-16, Record on Appeal).

The respondent appellate court in its assailed decision confirming the aforegoing findings of the lower court stated:

"The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident now complained of. The company had not imposed any safeguard against such

eventualities and this void in its operating procedure does not speak well of its concern for their clientele's interests. Negligence here is patent. This negligence is imputable to appellant and not to its employees.

"The claim that there was no publication of the libelous words in Tagalog is also without merit. The fact that a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see, open for inspection by a third party is sufficient publication. It would have been otherwise perhaps had the telegram been placed and kept in a secured place where no one may have had a chance to read it without appellee's permission.

"The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower court, libelous per se, and from which malice may be presumed in the absence of any showing of good intention and justifiable motive on the part of the appellant. The law implies damages in this instance (Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award of P40,000.00 as moral damages is hereby reduced to P15,000.00 and for attorney's fees the amount of P2,000.00 is awarded." (pp. 22-23, record)

After a motion for reconsideration was denied by the appellate court, petitioner came to Us with the following:

ASSIGNMENT OF ERRORS.

I

The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly and primarily for the civil liability arising from the criminal act of its employee.

II

The Honorable Court of Appeals erred in holding that there was sufficient publication of the alleged libelous telegram in question, as contemplated by law on libel.

III

The Honorable Court of Appeals erred in holding that the liability of petitioner-company-employer is predicated on Articles 19 and 20 of the Civil Code, Articles on Human Relations.

IV

The Honorable Court of Appeals erred in awarding Atty's fees. (p. 4, Record).

Petitioner's contentions do not merit our consideration. The action for damages was filed in the lower court directly against respondent corporation not as an employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of action of the private respondent is based on Arts. 19 and 20 of the New Civil Code (supra). As well as on respondent's breach of contract thru the negligence of its own employees. 1

Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private respondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the acts of its employees in the pursuit of petitioner's business is to deprive the general public availing of the services of the petitioner of an effective and adequate remedy. In most cases, negligence must be proved in order that plaintiff may recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury.

WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED.

SO ORDERED.

Feria (Chairman), Fernan Alampay, and Gutierrez, Jr., JJ., concur.

THIRD DIVISION

[G.R. No. 110672. September 14, 1999.]

RURAL BANK OF STA. MARIA, PANGASINAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, ROSARIO R. RAYANDAYAN, CARMEN R. ARCEÑO, respondents.

[G.R. No. 111201. September 14, 1999.]

ROSARIO R. RAYANDAYAN and CARMEN R. ARCEÑO, petitioners, vs. COURT OF APPEALS, HALSEMA INC. and RURAL BANK OF STA. MARIA, PANGASINAN, INC., respondents.

Stephen C. Arseno for R. Rayandayan and C. Arceño.

Panganiban Benitez, Pulada Africa and Barinaga Law Office for Halsema, Inc.

Gregorio T. Fabros for Rural Bank of Sta. Maria, Pangasinan.

SYNOPSIS

On January 9, 1985 Manuel Behis mortgaged a parcel of land in favor of the Rural Bank of Sta. Maria, Pangasinan. After being delinquent in paying his debts, Manuel sold the land to plaintiffs Rosario Rayandayan and Carmen Arceño in a Deed of Absolute Sale with Assumption of Mortgage. On the same date, they executed another agreement whereby the plaintiffs were indebted to Manuel in the amount of P2,400,000.00, which was the real consideration of the sale. The title to the land, remained in the name of Manuel Behis. After Manuel Behis died, plaintiffs Rayandayan and Arceño

negotiated with the rural bank for the assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the property by the bank. The bank was not informed of the real consideration of the sale. Subsequently, the bank consented to the substitution of Rayandayan and Arceño as mortgage debtors in place of Behis in a Memorandum of Agreement with restructured and liberalized terms for the payment of the mortgage debt. When the bank came to know the real consideration of the agreement, the bank changed heart and transacted the Behis mortgage with Halsema, Inc. The bank considered its contract with Rayandayan and Arceño as cancelled. Hence, Rayandayan and Arceño instituted a civil case against the Rural Bank and Halsema, Inc. for specific performance, declaration of nullity and/or annulment of mortgage and damages. The lower court declared that the Deed of Sale with Assumption of Mortgage and the Agreement between the bank and plaintiffs was valid until annulled or cancelled. However, the plaintiffs were ordered to pay the bank damages as litigation expenses because of plaintiffs' bad faith in deceiving the bank to enter into the Memorandum of Agreement by concealing the real purchase price of the land sold to them by Manuel Behis. The plaintiffs and defendant Halsema, Inc. appealed. The Court of Appeals affirmed the validity of the Memorandum of Agreement between the parties, but reversed the finding that there was bad faith on the part of the plaintiffs when the bank entered into the Memorandum of Agreement.

The Supreme Court affirmed the decision of the Court of Appeals. Rayandayan and Arceño had no duty to disclose the real consideration of the sale between them and Manuel Behis. The bank security remained unimpaired regardless of the consideration of the sale. Under the terms of the Agreement, the property remains as security for the payment of the indebtedness, in case of default of payment.

SYLLABUS

1.CIVIL LAW; CONTRACTS; FRAUD VITIATING CONSENT; ELEMENTS; NOT ESTABLISHED IN CASE AT BAR. — All the elements of fraud vitiating consent for purposes of annulling a contract must concur, to wit: (a) It was employed by a contracting party upon the other; (b) It induced the other party to enter into the contract; (c) It was serious; and; (d) It resulted in damages and injury to the party seeking annulment. Petitioner bank has not sufficiently shown that it was induced to enter into the agreement by the non-disclosure of the purchase price and that the same resulted in damages to the bank. Indeed, the general rule is that whosoever alleges fraud or mistake in any transaction must substantiate his allegation, since it is presumed that a person takes ordinary care for his concerns and that private

transactions have been fair and regular. Petitioner bank's allegation of fraud and deceit have not been established sufficiently and competently to rebut the presumption of regularity and due execution of the agreement. ESCcaT

2.ID.; ID.; ID.; MUST BE THE DETERMINING CAUSE OF THE CONTRACT, OR MUST HAVE CAUSED THE CONSENT TO BE GIVEN; NOT PRESENT IN CASE AT BAR. — The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. Simply stated, the fraud must be the determining cause of the contract, or must have caused the consent to be given. It is believed that the non-disclosure to the bank of the purchase price of the sale of the land between private respondents and Manuel Behis cannot be the "fraud" contemplated by Article 1338 of the Civil Code. From the sole reason submitted by the petitioner bank that it was kept in the dark as to the financial capacity of private respondents, the Court cannot see how the omission or concealment of the real purchase price could have induced the bank into giving its consent to the agreement; or that the bank would not have otherwise given its consent had it known of the real purchase price. The bank had other means and opportunity of verifying the financial capacity of private respondents and cannot avoid the contract on the ground that they were kept in the dark as to the financial capacity by the non-disclosure of the purchase price. As correctly pointed out by respondent court, the bank security remained unimpaired regardless of the consideration of the sale. Under the terms of the Memorandum of Agreement, the property remains as security for the payment of the indebtedness, in case of default of payment. Thus, petitioner bank does not and can not even allege that the agreement was operating to its disadvantage. In fact, the bank admits that no damages has been suffered by it.

3.ID.; ID.; ID.; SILENCE OR CONCEALMENT; WHEN TO CONSTITUTE FRAUD. — Pursuant to Article 1339 of the Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication should be made.

4.REMEDIAL LAW; ACTIONS; APPEAL; A PARTY WHO DOES NOT APPEAL FROM THE DECISION MAY NOT OBTAIN ANY AFFIRMATIVE RELIEF FROM THE APPELLATE COURT. — It is well-settled that a party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court, if any, whose decision is brought up on appeal.

D E C I S I O N

GONZAGA-REYES, J p:

Before us are two consolidated 1 petitions for review on certiorari under Rule 45 of the Revised Rules of Court. In G.R. No. 110672, petitioner Rural Bank of Sta. Maria, Pangasinan, assails portions of the Decision dated March 17, 1993, and the Resolution dated January 25, 1993, of the Court of Appeals 2 in CA-G.R. CV No. 21918, which affirmed with modification the Decision of the Regional Trial Court (Branch 6, Baguio City) 3 in Civil Case No. 890-R entitled "Rosario R. Rayandayan and Carmen R. Arceño versus Rural Bank of Sta. Maria, Pangasinan and Halsema, Inc." In G.R. No. 111201, petitioners Rosario R. Rayandayan and Carmen R. Arceño likewise assail portions of said Decision adverse to it.cda

The facts as found by the trial court and adopted by the Court of Appeals insofar as pertinent to the instant petitions are as follows:

". . ., the Court Finds that a parcel of land of about 49,969 square meters, located in Residence Section J, Camp 7, Baguio City, covered by TCT T-29817 (land for short) is registered in the name of Manuel Behis, married to Cristina Behis (Exhibit "B"). Said land originally was part of a bigger tract of land owned by Behis (one name), father of Manuel Behis, covered by OCT-0-33 (Exhibit "26", Halsema, for history of the land). And upon the latter's death on September 24, 1971, his children, namely: Saro Behis, Marcelo Behis, Manuel Behis, Lucia Behis, Clara Behis and Arana Behis, in an extrajudicial settlement with Simultaneous Sale of Inheritance dated September 28, 1978, agreed to sell the land to Manuel Behis, married to Cristina Behis (Exhibit '2', Halsema) but which subsequently was explained as only an arrangement adopted by them to facilitate transactions over the land in a Confirmation of Rights of Co-Ownership over real Property dated September 26, 1983, showing that the Behis brothers and sisters, including Manuel Behis, are still co-owners

thereof (Exhibit '30', Halsema, Exhibit 'AA').

Manuel Behis mortgaged said land in favor of the Bank in a Real Estate Mortgage dated October 23, 1978(Exhibit 'Q-1') as security for loans obtained, covered by six promissory notes and trust receipts under the Supervised Credit Program in the total sum of P156,750.00 (Exhibit 'Q-2' to 'Q-7', Exhibits '4-A' to '4-F', Halsema) and annotated at the back of the title on February 13, 1979 as Entry No. 85538-10-231 (Exhibit "1-A-1", Halsema). The mortgage, the promissory notes and trust receipts bear the signatures of both Manuel Behis and Cristina Behis.

Unfortunately thereafter, Manuel Behis was delinquent in paying his debts. LibLex

On January 9, 1985, Manuel Behis sold the land to the plaintiffs 4 in a Deed of Absolute Sale with Assumption of Mortgage for the sum of P250,000.00 (Exhibit 'A') which bears the signature of his wife Cristina Behis. Manuel Behis took it upon himself to secure the signature of his wife and came back with it. On the same date of January 9, 1985, plaintiffs and Manuel Behis simultaneously executed another Agreement (Exhibit '15')whereby plaintiffs are indebted to Manuel Behis for the sum of P2,400,000.00 payable in installments with P10,000.00 paid upon signing and in case of default in the installments, Manuel Behis shall have legal recourse to the portions of the land equivalent to the unpaid balance of the amounts in installments. Obviously, the real consideration of the sale of the land of Manuel Behis to the plaintiffs is contained in this Agreement (Exhibit '15').

 

Plaintiffs did not present to the Register of Deeds of Baguio said two contracts and ask that the title, TCT T-29817 in the name of Manuel Behis be cancelled and a new one issued in their name which normally a buyer does. Neither did plaintiffs annotate at the back of the title the aforesaid two contracts. Nor did they immediately go to the Bank and present said two contracts. Thus, the title to the land, TCT No. T-29817, remained in the name of Manuel Behis.

Pursuant to their two contracts with Manuel Behis, plaintiffs paid him during his lifetime the sum of P10,000.00 plus P50,000.00 plus P145,800.00 (Exhibit 'U' as stipulated in the hearing), and the sum of P21,353.75 for the hospitalization, medical and burial expenses of Manuel Behis when he died on June 21, 1985 (Exhibit 'II', 'JJ', 'KK', 'LL', 'PP', 'OO', and 'RR'). Obviously, from the above payments, the plaintiffs were unable to complete their full payment to Manuel Behis of the sale of the land as it is nowhere near P2,400,000.00.

Meantime, the loan in the name of Manuel Behis with the Bank secured by the Real Estate Mortgage on the land continued to accumulate being delinquent. By May 30, 1985, in a Statement of Account (Exhibit 'D') sent to Manuel Behis by the Bank thru the Paredes Law Office for collection, the debt of P150,750.00 has ballooned into P316,368.13, with interest and other charges. In fact, the Bank, thru its President, Vicente Natividad, initiated foreclosure proceedings. But after the usual publication, the same was discontinued since many parties were interested to buy the land outside the said procedure but none materialized. cdasia

On June 19, 1985, Atty. William Arceño, in behalf of Manuel Behis, wrote a letter asking for a more detailed Statement of Account from the Bank broken

down as to principal, interest and other charges (Exhibit 'E').

Thereafter, plaintiffs finally presented the Deed of Absolute Sale with Assumption of Mortgage (Exhibit 'A') to the Bank when negotiating with its principal stockholder, Engr. Edilberto Natividad, in Manila, but did not showto the latter the Agreement (Exhibit '15') with Manuel Behis providing for the real consideration of P2,400,000.00. And thus, on August 1, 1985, a Memorandum of Agreement (Exhibit 'F') was entered into between plaintiffs, as assignees of Manuel Behis, and the Bank, the salient features of which are:

'xxx xxx xxx

'3.That during the lifetime of Manuel Behis he had executed a Deed of Absolute Sale with Assumption of Mortgage in favor of Carmen Arceño and Rosario Rayandayan;

'4.That the total obligation of the late Manuel Behis to the Bank amounts to P343,782.22;

'5.That the assignees hereby offer to redeem the aforesaid real property and the Bank hereby agrees to release the mortgage thereon under the following terms and conditions: dctai

(a).That the amount of P35,000.00 shall be paid by the assignees to the Bank upon execution of this Agreement;

(b).That the amount of P108,000.00 shall be paid by the assignees to the Bank at the rate of P36,000.00 a month payable on September 15, 1985, October 15, 1985 and November 15, 1985;

(c).That the balance of P200,000.00 shall be renewed for one year and shall be secured by another mortgage over the same property which is renewable every year upon payment of interests and at least 10 percent of the principal;

(d).That the bank shall release the mortgage of Manuel Behis and a new mortgage shall be executed by the assignees and the bank shall give its consent for the transfer of the title under the name of the assignees.

"xxx xxx xxx."

Plaintiffs did not annotate the Memorandum of Agreement in the title, TCT T-29817.

Pursuant to the Memorandum of Agreement, plaintiffs paid the Bank the following:

(1)P35,000.00 on August 1, 1985 as initial deposit when the Agreement was signed (Exhibits 'G' and 'H');

(2)P15,000.00 on September 16, 1985 (Exhibit 'I') and P21,000.00 on September 20, 1985 (Exhibit 'J') to cover the obligation of P36,000.00 on September 15, 1985;

(3)P20,000.00 on October 17, 1985 (Exhibit 'K') and P16,000.00 on October 25, 1985 (Exhibit 'L') to cover the obligation to pay P36,000.00 on October 15, 1985;

(4)P36,000.00 in the form of dollars remitted to Engr. Edilberto Natividad on December 18, 1985 (Exhibit 'N') to cover the obligation to pay P36,000.00 on November 15, 1985. LLpr

After the last payment of P36,000.00 on December 18, 1985, received in dollars (Exhibit 'N') which completed the P143,000.00 under paragraphs 5 (a) and 5 (b) of the Memorandum

of Agreement Engr. Edilberto Natividad, wrote a letter (Exhibit 'M') to Vicente Natividad, with instructions that payment be duly credited and Atty. Arceño will communicate about the transfer of title to them and to consult the Bank's counsel on the matter, and with instructions also to Ana Acosta of the Rural Bank of Tuba to debit said amount from the savings of Edilberto Natividad . . . . .

From the above payments made, the total amount of P143,000.00 as required by paragraphs 5 (a) and 5 (b) of the Memorandum of Agreement was fully paid by plaintiffs although they were not paid on time.

Meanwhile, on September 5, 1985, Cristina Behis, widow of Manuel Behis, wrote a letter to the Bank (Exhibit '3', Halsema) claiming the Real Estate mortgage was without her signature. And in another letter dated October 28, 1985 to the Bank (Exhibit 4, Halsema), Cristina Behis stressed she did not authorize anybody to redeem the property in her behalf as one of the mortgagors of the land.

On January 7, 1986, plaintiffs demanded in a letter (Exhibit 'O') that the Bank comply with its obligation under the Memorandum of Agreement to (1) release the mortgage of Manuel Behis, (2) give its consent for the transfer of title in the name of the plaintiffs, and (3) execute a new mortgage with plaintiffs for the balance of P200,000.00 over the same land.

Meanwhile on January 18, 1986, Cristina Behis went to the Bank inquiring about her protest about her signature. The Bank told her it did not receive her two letters and instead advised her to write the Bank again as well as the plaintiffs about her objections.

In a reply letter dated February 11, 1986, (Exhibit 'B') to the

demand of the plaintiffs, the Bank said it cannot comply because of supervening circumstances, enclosing the two letters of Cristina Behis dated September 5, 1985 and October 28, 1985 which they said were both self explanatory, and suggested that plaintiffs take up the matter with Mrs. Cristina Behis. cda

On February 15, 1986, as suggested by the Bank, Cristina Behis wrote another letter to the Bank claiming this time that she was not a party to the Deed of Absolute Sale with Assumption of Mortgage and her signature was forged (Exhibit '5', Halsema) and requesting the Bank not to release the title with copy furnished to the plaintiffs (Exhibit '5-B', Halsema).

Then, months passed, and nothing was heard from the plaintiffs by the Bank. On the first week of July, 1986, Teodoro Verzosa, President of Halsema, Inc., heard about the land and got interested and had preliminary talks with Vicente Natividad, President of the Bank, and with Edilberto Natividad, the principal stockholder of the bank.

xxx xxx xxx.

. . ., upon suggestion of the lawyer of Halsema, an Assignment of Mortgage was entered into on July 28, 1986 between Halsema and the Bank for the consideration of P520,765.45 (Exhibit '1', Bank) which amount was the total indebtedness of Manuel Behis with the Bank at the time (Exhibit '7-A', Halsema). Note however, that what was assigned was the Mortgage made originally by Manuel Behis and not the Mortgage as assumed by plaintiffs under a restructured and liberalized terms.

As explained by Halsema lawyer, she suggested the Assignment of Mortgage as the cheapest and fastest way for Halsema to

acquire the property of Manuel Behis as (1) they assume the role of the Bank as Mortgagee with the assignment of mortgage credit, (2) they acquire the property for the amount only of the mortgage debt at the time, (3) after execution thereof, the Bank is out of the picture, and (4) in case of foreclosure, Halsema controls the foreclosure proceedings and is assured of its legality. cda

In turn, the Bank explained it entered into the Assignment of Mortgage because at the time it considered the Memorandum of Agreement cancelled as first, plaintiffs failed to settle the objections of Cristina Behis aforesaid on her signature being forged in the Deed of Sale with Assumption of Mortgage despite the lapse of time from February, 1986 to July, 1986. Second, the terms of the Memorandum of Agreement have not been fully complied with as the payments were not made on time on the dates fixed therein; and third, their consent to the Memorandum of Agreement was secured by the plaintiffs thru fraud as the Bank was not shown theAgreement containing the real consideration of P2,400,000.00 of the sale of the land of Manuel Behis to plaintiffs.

On the same date of July 28, 1986, Vicente Natividad of the Bank sent notice of the Assignment of Mortgage to the debtor mortgagor, Manuel Behis (already dead at the time) and Cristina Behis. Notice of the Assignment of Mortgage was not sent to plaintiffs for as aforesaid what was assigned was the Mortgage originally made by Manuel Behis and not the Mortgage as assumed by plaintiffs under the restructured and liberalized terms in the Memorandum of Agreement which was considered by the Bank as cancelled. cdphil

xxx xxx xxx.

After the assignment of mortgage, the Bank returned the P143,000.00 to plaintiffs (Exhibit '13', Bank). But the latter rejected the same maintaining the Memorandum of Agreement is valid until annulled by Court Action. Subsequently, however, the Bank paid plaintiffs P143,000.00 and P90,000.00 interest in settlement of the criminal case of Estafa against Edilberto Natividad and Vicente Natividad (Exhibit '14', Bank).

 

In the meantime, since the account of the late Manuel Behis has been delinquent and his widow, Cristina Behis, and his brothers and sisters could not pay as in fact they have already assigned their rights to redeem, Halsema as Mortgage Creditor in place of the Bank instituted foreclosure proceedings by filing an Application for Foreclosure of Real Estate Mortgage in the Office of the Sheriff on July 31, 1986 (Exhibit '37', Halsema) setting the public auction sale on September 2, 1986 and was published and posted as required by law. A Notice of Foreclosure was sent directly to the mortgagor (Exhibit '38', Halsema) and the public auction sale was held on September 2, 1986 at 10:00 a.m. at the City Hall, Baguio City, with Halsema as the only bidder to whom accordingly the Sheriff's Certificate of Sale was issued (Exhibit '8', Halsema).

At the auction sale, the lawyer of Halsema was approached by the plaintiff Rosario Rayandayan who told the former that the land foreclosed was also sold to the plaintiffs. Since plaintiffs could not do anything anymore, they registered and annotated on the title, TCT T-29817, their adverse claim on September 3, 1986." 5

Since the Bank could not comply with the Memorandum of Agreement, petitioners Rayandayan and Arceño instituted Civil Case No. 890-R before the Regional Trial Court of Baguio City (Branch 6) against the Rural Bank of Sta. Maria, Pangasinan and

Halsema, Inc. for "Specific Performance, Declaration of Nullity and/or Annulment of Assignment of Mortgage and Damages" on September 5, 1986, and caused a notice of lis pendens annotated at the back of the title, TCT T-29817, on the same date. On March 6, 1989, judgment was rendered, the dispositive portion of the decision pertinent to this case reads:

"WHEREFORE, in view of All the Foregoing, Judgment is hereby rendered, as follows:

1.. . .;

2.Declaring the Deed of Sale with assumption of Mortgage (Exhibit "A") and the Agreement (Exhibit "15") taken together valid until annulled or cancelled; LLjur

3.Ordering the Bank to pay the plaintiffs the sum of P30,000.00 as Moral Damages, P10,000.00 as Exemplary Damages, P20,000.00 as Attorney's fees and P5,000.00 as litigation expenses for their bad faith in violating the Memorandum of Agreement which took place while the Memorandum of Agreement was still valid there being no court action first filed to nullify it before entering into the Assignment of Mortgage;

4.Ordering the plaintiffs to pay the Bank the sum of P30,000.00 as Moral Damages, P10,000.00 as Exemplary Damages, P20,000.00 as Attorney's fees and P5,000.00 as litigation expenses for plaintiffs' bad faith in deceiving the Bank to enter into the Memorandum of Agreement;

5.Ordering the setting off in compensation the

Damages awarded to plaintiffs and the Bank.

6.. . .;

7.Declaring the Memorandum of Agreement as annulled due to the fraud of plaintiffs;

8.. . .;

9.. . .;

10.. . .;

Without pronouncement as to costs.

SO ORDERED." 6

From the decision, plaintiffs Rayandayan and Arceño and defendant Halsema, Inc. appealed. Defendant Rural Bank of Sta. Maria, Pangasinan did not appeal. 7 The Court of Appeals rendered herein assailed decision, the dispositive portion insofar as pertinent to this case reads: Cdpr

"WHEREFORE, premises considered, decision is hereby rendered:

1.. . .;

2.. . .;

3.. . .;

4.Declaring the Deed of Absolute Sale with Assumption of Mortgage, Exhibit A and the Memorandum of Agreement, Exhibit F, valid as between the parties thereto;

5.Ordering and sentencing defendant Rural Bank of Sta. Maria, Pangasinan to pay plaintiffs-appellants the sum of P229,135.00 as actual damages, the sum of P30,000.00 as moral damages, P10,000.00 as exemplary damages, P20,000.00 as

attorney's fees and P5,000.00 as litigation expenses;

6.Affirming the dismissal of all other counterclaims for damages;

7.Reversing and setting aside all other dispositions made by the trial court inconsistent with this decision;

8.There is no pronouncement as to costs.

SO ORDERED." 8

In sum, the Court of Appeals in its assailed decision: (1) affirmed the validity of the Memorandum of Agreement between the parties thereto; (2) reversed and set aside the finding of the trial court on the bad faith of Rayandayan and Arceño in concealing the real purchase price of the land sold to them by Manuel Behis during negotiations with the bank on the assumption of the mortgage debt; (3) modified the trial court's finding as to the damages due Rayandayan and Arceño from the bank by adding P229,135.00 as actual damages; (4) dismissed the counterclaim for damages by the bank and deleted the portion on the set-off of damages due between the bank on the one hand, and Rayandayan and Arceño on the other. cdtai

Motions for reconsideration were filed by plaintiffs-appellants Rayandayan and Arceño and defendant Rural Bank of Sta. Maria, Pangasinan which were denied for lack of merit. 9

Hence, the instant consolidated petitions.

In a Resolution dated August 25, 1993, this Court denied the petition for review on certiorari (G.R. No. 111201) filed by Rayandayan and Arceño for having been filed out of time and for late payment of docket fees. 10 Petitioners Rayandayan and Arceño moved to reconsider; this Court in a Resolution dated November 22, 1993, resolved to deny the same with finality considering petitioners failed to show any compelling reason and to raise any substantial argument which would warrant a modification of the said resolution. 11

What remains for resolution then is G.R. No. 110672, wherein petitioner Rural Bank of Sta. Maria, Pangasinan, contends that:

I

THE MEMORANDUM OF AGREEMENT (EXH. "F") ENTERED INTO BETWEEN PRIVATE RESPONDENTS, AS ALLEGED ASSIGNEES OF MANUEL BEHIS, AND PETITIONER BANK IS VOIDABLE AND MUST BE ANNULLED.

II

PRIVATE RESPONDENTS ARE IN BAD FAITH, HENCE, THEY ARE NOT ENTITLED TO THE SUMS OF P30,000.00 AS MORAL DAMAGES; P10,000.00 AS EXEMPLARY DAMAGES; P20,000.00 AS ATTORNEY'S FEES; AND P5,000.00 AS LITIGATION EXPENSES. 12

The petition is devoid of merit. Cdpr

Briefly, the antecedents material to this appeal are as follows: A Deed of Absolute Sale with Assumption of Mortgage was executed between Manuel Behis as vendor/assignor and Rayandayan and Arceño as vendees/assignees for the sum of P250,000.00. On the same day, Rayandayan and Arceño together with Manuel Behis executed another Agreement embodying the real consideration of the sale of the land in the sum of P2,400,000.00. Thereafter, Rayandayan and Arceño negotiated with the principal stockholder of the bank, Engr. Edilberto Natividad in Manila, for the assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the property by the bank. Rayandayan and Arceño did not show to the bank the Agreement with Manuel Behis providing for the real consideration of P2,400,000.00 for the sale of the property to the former. Subsequently, the bank consented to the substitution of plaintiffs as mortgage debtors in place of Manuel Behis in a Memorandum of Agreement between private respondents and the bank with restructured and liberalized terms for the payment of the mortgage debt. Instead of the bank foreclosing immediately for non-payment of the delinquent account, petitioner bank agreed to receive only a partial payment of P143,000.00 by installment on specified dates. After payment thereof, the bank agreed to release the mortgage of Manuel Behis; to give its consent to the transfer of title to the private respondents; and to the payment of the balance of P200,000.00 under new terms with a new mortgage to be executed by the private respondents over the same land.

This brings us to the first issue raised by petitioner bank that the Memorandum of Agreement is voidable

on the ground that its consent to enter said agreement was vitiated by fraud because private respondents withheld from petitioner bank the material information that the real consideration for the sale with assumption of mortgage of the property by Manuel Behis to Rayandayan and Arceño is P2,400,000.00, and not P250,000.00 as represented to petitioner bank. According to petitioner bank, had it known of the real consideration for the sale, i.e. P2.4 million, it would not have consented into entering the Memorandum of Agreement with Rayandayan and Arceño as it was put in the dark as to the real capacity and financial standing of private respondents to assume the mortgage from Manuel Behis. Petitioner bank pointed out that it would not have assented to the agreement, as it could not expect the private respondents to pay the bank the approximately P343,000.00 mortgage debt when private respondents have to pay at the same time P2,400,000.00 to Manuel Behis on the sale of the land.

The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. 13Simply stated, the fraud must be the determining cause of the contract, or must have caused the consent to be given. It is believed that the non-disclosure to the bank of the purchase price of the sale of the land between private respondents and Manuel Behis cannot be the "fraud" contemplated by Article 1338 of the Civil Code. 14 From the sole reason submitted by the petitioner bank that it was kept in the dark as to the financial capacity of private respondents, we cannot see how the omission or concealment of the real purchase price could have induced the bank into giving its consent to the agreement; or that the bank would not have otherwise given its consent had it known of the real purchase price. cda

First of all, the consideration for the purchase of the land between Manuel Behis and herein private respondents Rayandayan and Arceño could not have been the determining cause for the petitioner bank to enter into the memorandum of agreement. To all intents and purposes, the bank entered into said agreement in order to effect payment on the indebtedness of Manuel Behis. As correctly ruled by the Court of Appeals:

 

". . . . The real consideration for the sale with assumption of mortgage, or the non-disclosure thereof, was not the determining influence on the consent of the bank.

The bank received payments due under the Memorandum of Agreement, even if delayed. It initially claimed that the sale with assumption of mortgage was invalid not because of the concealment of the real consideration of P2,400,000.00 but because of the information given by Cristina Behis, the widow of the mortgagor Manuel Behis that her signature on the deed of absolute sale with assumption of mortgage was forged. Thus, the alleged nullity of the Memorandum of Agreement, Exhibit F, is a clear afterthought. It was raised by defendant bank, by way of counterclaim only after it was sued.

The deceit which avoids the contract exists where the party who obtains the consent does so by means of concealing or omitting to state material facts, with intent to deceive, by reason of which omission or concealment the other party was induced to give a consent which he would not otherwise have given (Tolentino, Commentaries and Jurisprudence on the Civil Code, Vol. IV, p. 480). In this case, the consideration for the sale with assumption of mortgage was not the inducement to defendant bank to give a consent which it would not otherwise have given. cdtai

Indeed, whether the consideration of the sale with assumption of mortgage was P250,000.00 as stated in Exhibit A, or P2,400,000.00 as stated in the Agreement, Exhibit 15, should not be of importance to the bank. Whether it was P250,000.00 or P2,400,000.00 the bank's security remained unimpaired.

The stipulation in Exhibit 15, reading "in case of default in all of the above, Manuel Behis shall have legal recourse to the portion of the parcel of land under TCT No. T-29817 equivalent to the unpaid balance of the amount

subject of this Agreement", obviously even if revealed would not have induced defendant bank to withhold its consent. The legal recourse to TCT No. T-29817 given to Manuel Behis, under the Agreement, is subordinate and inferior to the mortgage to the bank.

We are, therefore, constrained to uphold the validity of the Memorandum of Agreement, Exhibit F, and reverse and set aside the ruling declaring the same annulled allegedly due to fraud of plaintiffs-appellants (paragraph 7, dispositive portion).

With the above conclusion reached, the award of moral and exemplary damages, attorney's fees and expenses of litigation in favor of defendant bank and against plaintiffs-appellants in paragraph 4 of the dispositive portion of the decision of the trial court must likewise be reversed and set aside; and similarly, paragraph 5. The basis for the award, which we quote "for plaintiffs' bad faith in deceiving the Bank to enter into the Memorandum of Agreement" is not correct as we have discussed." 15

Secondly, pursuant to Article 1339 of the Civil Code 16 , silence or concealment, by itself, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication should be made. Verily, private respondents Rayandayan and Arceño had no duty, and therefore did not act in bad faith, in failing to disclose the real consideration of the sale between them and Manuel Behis. LLpr

Thirdly, the bank had other means and opportunity of verifying the financial capacity of private respondents and cannot avoid the contract on the ground that they were kept in the dark as to the financial capacity by the non-disclosure of the purchase price. As correctly pointed out by respondent court, the bank security remained unimpaired regardless of the consideration of the sale. Under the terms of the Memorandum of Agreement, the property remains as security for the payment of the indebtedness, in case of default of payment. Thus, petitioner bank does not and can not even allege that the agreement was operating to its

disadvantage. In fact, the bank admits that no damages has been suffered by it. 17

Consequently, not all the elements of fraud vitiating consent for purposes of annulling a contract concur, to wit: (a) It was employed by a contracting party upon the other; (b) It induced the other party to enter into the contract; (c) It was serious; and, (d) It resulted in damages and injury to the party seeking annulment. 18 Petitioner bank has not sufficiently shown that it was induced to enter into the agreement by the non-disclosure of the purchase price, and that the same resulted in damages to the bank. Indeed, the general rule is that whosoever alleges fraud or mistake in any transaction must substantiate his allegation, since it is presumed that a person takes ordinary care for his concerns and that private transactions have been fair and regular. Petitioner bank's allegation of fraud and deceit have not been established sufficiently and competently to rebut the presumption of regularity and due execution of the agreement.

Based on the foregoing, the second issue raised by petitioner bank must likewise fail. Petitioner bank's imputation of bad faith to private respondents premised on the same non-disclosure of the real purchase price of the sale so as to preclude their entitlement to damages must necessarily be resolved in the negative. Petitioner bank does not question the actual damages awarded to private respondents in the amount of P229,135.00, but only the moral damages of P30,000.00, exemplary damages of P10,000.00, attorney's fees of P20,000.00 and litigation expenses of P5,000.00. We may no longer examine the amounts awarded by the trial court and affirmed by the appellate court as petitioner bank did not appeal from the decision of the trial court. It is well-settled that a party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court, if any, whose decision is brought up on appeal. 19

WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals, dated March 17, 1993 is AFFIRMED. No costs.

SO ORDERED.

Melo, Vitug and Purisima, JJ., concur.

Panganiban, J., took no part; former counsel of a party.

EN BANC

[G.R. No. L-15645. January 31, 1964.]

PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees, vs. NATIONAL RICE AND CORN CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC.,defendant-appellee.

Teehankee & Carreon for plaintiffs-appellees.

The Government Corporate Counsel for defendant-appellant.

Isidro A. Vera for defendant-appellee.

SYLLABUS

1.OBLIGATIONS AND CONTRACTS; LIABILITY FOR NON-PERFORMANCE; FAILURE TO PUT UP LETTER OF CREDIT WITHIN AGREED PERIOD. — One who assumes a contractual obligation and fails to perform the same on account of his inability to meet certain bank requirements, which inability he knew and was aware of when he entered into the contract, should be held liable in damages for breach of contract.

2.OBLIGATIONS AND CONTRACTS; LIABILITY OF NON-PERFORMANCE. — Under Article 1170 of the Civil Code, not only debtors guilty of fraud, negligence or default but also every debtor, in general, who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby.

3.ID.; ID.; MEANING OF PHRASE "IN ANY MANNER CONTRAVENE THE TENOR" OF THE OBLIGATION IN ART. 1170, CIVIL CODE. — The phrase "in any manner contravene the tenor" of the obligation in Art. 1170, Civil Code, includes any illicit task which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance.

4.ID.; ID.; WAIVER OF BREACH OF CONTRACT NOT PRESUMED. — Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting of no other reasonable explanation.

5.ID.; PAYMENT OF AWARD; PHILIPPINE CURRENCY. — In view of Republic Act 529 which specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debt", the award of damages in U.S. dollars made by the lower court in the case at bar is modified by converting it into

Philippine pesos at the rate of exchange prevailing at the time the obligation was incurred or when the contract in question was executed.

D E C I S I O N

REGALA, J p:

This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20, 1958, awarding to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract and dismissing the counterclaim and third party complaint of the defendant-appellant NARIC.

In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn Administration (NARIC) is hereby abolished and all its assets, liabilities, functions, powers which are not inconsistent with the provisions of this Act, and all personnel are transferred" to the Rice and Corn Administration (RCA).

All references, therefore, to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the aforementioned law.

On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately."

Despite the commitment to pay immediately "by means of an irrevocable, confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant corporation, thru its general manager, took the first step to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter of Credit. The application was accompanied by a transmittal letter, the relevant paragraphs of which read:

"In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount required to be deposited as a condition for the opening of letters of credit, we will appreciate it if this application could be considered a special case.

"We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4, 1952, and in order to comply therewith, it is imperative that the L/C be opened prior to that date. We would therefore request your full cooperation on this matter."

On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant corporation of the extreme necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in Rangoon, Burma "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952."

On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application, "for a letter of credit for $3,614,000.00 in favor of Thiri Setkya has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment" (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits) Furthermore, the Bank represented that it "will hold your application in abeyance pending compliance with the above stated requirement."

As it turned out, however, the appellant corporation was not in any financial position to meet the condition. As a matter of fact, in a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this connection, please be advised that our application for the opening of the letter of credit has been presented to the bank since July 30th but the latter requires that we first deposit 50% of the value of the letter amounting to approximately $3,614,000.00 which we are not in a position to meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-Pl., p. 18, Folder of Exhibits)

Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of credit.

As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it must be made of record that although the Burmese authorities had set August 4, 1952 as the deadline for the remittance of the required letter of credit, the cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20, 1952, or, a full half month after the expiration of the deadline. And yet, even with that 15-day grace, appellant corporation was unable to make good its commitment to open the disputed letter of credit.

The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating the same became apparent, she offered to substitute Thailand rice instead to the defendant NARIC, communicating at the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time." (Exh. Y-Pl.; Exh. 25—Def., p. 38, Folder of Exhibits) This offer for substitution, however, was rejected by the appellant in a resolution dated November 15, 1952.

On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages caused her in the sum of $286,000.00, U.S. currency, representing unrealized profit. The demand having been rejected, she instituted this case now on appeal.

At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters Insurance Company was brought to the suit as a third party defendant to hold it liable on the performance bond it executed in favor of the plaintiff-appellees.

We find for the appellee.

It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the appellee herein in Rangoon, Burma was the failure of the letter of credit to be opened within the contemplated period. This failure must, therefore, be taken as the immediate cause for the consequent damage which resulted. As it is then, the disposition of this case depends on a determination of who was responsible for such failure. Stated differently, the issue is whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the contract of July 1, 1952 for which it may be held liable in damages.

Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. On the contrary, it insists that the fault lies with the appellee. Appellant contends that the disputed negotiable instrument was not promptly secured because the appellee failed to seasonably furnish data necessary and required for opening the same, namely, "(1) the

amount of the letter of credit, (2) the person, company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated." Appellant would have this Court believe, therefore, that had these information been forthwith furnished it, there would have been no delay in securing the instrument.

Appellant's explanation has neither force nor merit. In the first place, the explanation reaches into an area of the proceedings into which We are not at liberty to encroach. The explanation refers to a question of fact. Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the ruling. His conclusion on the matter is sufficiently borne out by the evidence presented. We are denied, therefore, the prerogative to disturb that finding, consonant to the time honored tradition of this Tribunal to hold trial judges better situated to make conclusions on questions of fact. For the record, We quote hereunder the lower court's ruling on the point:

 

"The defense that the delay, if any in opening the letter of credit was due to the failure of plaintiff to name the supplier, the amount and the bank is not tenable. Plaintiff stated in Court that these facts were known to defendant even before the contract was executed because these facts were necessarily revealed to the defendant before she could qualify as a bidder. She stated too that she had given the necessary data immediately after the execution of Exh. "A" (the contract of July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally and in writing and that she also pressed for the opening of the letter of credit on these occasions. These statements have not been controverted and defendant NARIC, notwithstanding its previous intention to do so, failed to present Mr. Belmonte to testify or refute this. . . ."

Secondly, from the correspondence and communications which form part of the record of this case, it is clear that what singularly delayed the opening of the stipulated letter of credit and which, in turn, caused the cancellation of the allocation in Burma, was the inability of the appellant corporation

to meet the condition imposed by the Bank for granting the same.

We do not think the appellant corporation can refute the fact that had it been able to put up the 50% marginal cash deposit demanded by the bank, then the letter of credit would have been approved, opened and released as early as August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the said date, appellant's "application for a letter of credit . . . has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment." (Emphasis supplied)

The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements of the bank. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the presentation. We base this judgment upon the letter which accompanied the application filed by the appellant with the bank, a part of which letter was quoted earlier in this decision. In the said accompanying correspondence, appellant admitted and owned that it did "not have sufficient deposit with your institution (the PNB) with which to cover the amount required to be deposited as a condition for the opening of letters of credit. . . ."

A number of logical inferences may be drawn from the aforementioned admission. First, that the appellant knew the bank requirements for opening letters of credit; second, that appellant also knew it could not meet those requirements. When, therefore, despite this awareness that it was financially incompetent to open a letter of credit immediately, appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable, confirmed and assignable letter of credit," it must be similarly be held to have bound itself too answer far all and every consequences that would result from the representation. As aptly observed by the trial court:

". . . Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it should have ascertained its ability and capacity to comply with the inevitable requirements in cash to pay for such importation. Having announced the bid, it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the importation within the required period, especially since it had imposed on the supplier the 90-day period within which the shipment of the rice must be

brought into the Philippines. Having entered into the contract, it should have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired into the possibility of its issuance."

In relation to the aforequoted observation of the trial court, We would like to make reference also to Article 1170 of the Civil Code which provides:

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

Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations are decreed liable: in general, every debtor who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby (De la Cruz v. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657.) The phrase "in any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. (IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103)

The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have derived from the breach of the contract. We disagree. Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting no other reasonable explanation. (Ramirez v. Court of Appeals, 98 Phil., 225; 52 O. G. 779). In the case at bar, no such intent to waive has been established.

We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the lower court based its award. Under the contract, the NARIC bound itself to buy 20,000 metric tons of Burmese rice at "$203.00 U. S. Dollars per metric ton, all net shipped weight, and all in U. S. currency, C.I.F. Manila. . . ." On the other hand, documentary and other evidence establish with equal certainty that the plaintiff-appellee was able to secure the contracted commodity at the cost price of $180.70 per metric ton from her supplier in Burma. Considering freights, insurance and charges incident

to its shipment here and the forfeiture of the 5% deposit, the award granted by the lower court is fair and equitable. For a clearer view of the equity of the damages awarded, We reproduce below the testimony of the appellee, adequately supported by the evidence and record:

"Q.Will you please tell the court, how much is the damage you suffered?

"ABecause the selling price of my rice is $203.00 per metric ton, and the cost price of my rice is $180.00. We had to pay also $6.25 for shipping and about $164 for insurance. So adding the cost of the rice, the freight, the insurance, the total would be about $187.99 that would be $15.01 gross profit per metric ton, multiply by 20,000 equals $300,200, that is my supposed profit if I went through with the contract."

The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction. A precise and more exact demonstration of the equity of the award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as germane:

"It is equally of record of now that as shown in her request, dated July 29, 1959, and other communications subsequent thereto for the opening by your corporation of the required letter of credit, Mrs. Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight Dollars ($8.00) in the same currency per ton for shipping and other handling expenses, so that she is already assured of a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S. Currency, per ton or a total of Two Hundred and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in the aforesaid transaction. . . ."

Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way of unrealized profit, damages in the total sum of $406,000 from the failure of the projected contract to materialize. This counterclaim was supported by a cost study made and submitted by the appellant itself and wherein it was illustrated how indeed, had the importation pushed thru, NARIC would have realized in profit the amount asserted in the counterclaim. And yet, the said amount of P406,000.00 was realizable by the appellant despite a number of expenses which the appellee, under the contract, did not have to incur. Thus, under the cost study submitted by the appellant, banking and unloading charges were to be shouldered by it, including an Import License Fee of 2% and superintendence fee of $0.25 per metric ton. If the NARIC stood to profit over P400,000.00 from the disputed transaction in spite of the above extra expenditures from which the herein appellee was exempt, We are convinced of the fairness of the judgment presently under appeal.

In the premises, however, a minor modification must be effected in the dispositive portion of the decision appealed from insofar as it expresses the amount of damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debts." In view of that law, therefore, the award should be converted into and expressed in Philippine Peso.

This brings us to a consideration of what rate of exchange should apply in the conversion here decreed. Should it be at the time of the breach, at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation of this decision.

In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery of damages for breach of contract, even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of the judgment rather than at the rate of exchange prevailing on the date of defendant's breach. This ruling, however, can either be applied nor extended to the case at bar for the same was laid down when there was no law against stipulating foreign currencies in Philippine contracts. But now we have Republic Act No. 529 which expressly declares such stipulations as contrary to public policy, void and of no effect. And, as We already pronounced in the case of Eastboard Navigation, Ltd., v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10, 1957, if there is any agreement to pay an obligation in the currency other than Philippine legal tender, the same is null and void as contrary to public policy (Republic Act 529), and

the most that could be demanded is to pay said obligation in Philippine currency "to be measured in the prevailing rate of exchange at the time the obligation was incurred (Sec. 1, Idem.)"

 

UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1, 1952 when the contract was executed. The appellee insurance company, in the light of this judgment, is relieved of any liability under this suit. No pronouncement as to costs.

Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon, and Makalintal, JJ., concur.

Reyes, J.B.L., J., reserves his vote.

Barrera, J., took no part.

SECOND DIVISION

[G.R. No. L-37120. April 20, 1983.]

VICTORINO D. MAGAT, petitioner, vs. HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO,respondents.

Sinesio S. Vergara for petitioner.

Eladio B. Samson for respondents.

SYLLABUS

1.REMEDIAL LAW; ACTION; CAUSE OF ACTION; SUFFICIENCY THEREOF DETERMINED ON BASIS OF FACTS ALLEGED IN THE COMPLAINT; REQUISITES; CASE AT BAR. — Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause of action, the sufficiency of the cause of action can only be determined on the basis of the facts alleged in the complaint; that the facts alleged are deemed hypothetically admitted, including those which are fairly deducible therefrom; and that, admitting the facts as alleged, whether or not the court can render a valid judgment against the defendant upon said facts in accordance with the prayer in the complaint. After a thorough examination of the complaint at bar, the

Supreme Court finds the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain (paragraph 8 of the Complaint), private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him (paragraphs 11 & 12 of the Complainant), and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present, to wit: (1) the existence of a legal right of the plaintiff; (2) a correlative duty of the defendant; and (3) an act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. In fine, the Supreme Court holds that on the basis of the facts alleged in the complaint, the Court could render a valid judgment in accordance with the prayer thereof.

2.CIVIL LAW; DAMAGES; BREACH OF CONTRACT; LOSS SUFFERED BY VIRTUE THEREOF BECOMES REAL, FIXED AND VESTED AT THE VERY MOMENT OF BREACH. — Indisputably, the parties, both businessman, entered into the aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested'' and therefore, recoverable under the law.

3.ID.; ID.; ARTICLE 11700 of N.C.C.; PROVIDES FOR RECOVERY OF DAMAGES; PHRASE "IN ANY MANNER CONTRAVENE THE TENOR" CONSTRUED. — Article 1170 of the Civil Code provides: "Those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages." The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance.

4.ID.; ID.; EXTENT OF DAMAGES RECOVERABLE DEPENDS ON THE PRESENCE OR ABSENCE OF BAD FAITH ATTENDANT IN THE BREACH. — The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee (daño emergente) but also the profits which the latter failed to obtain (lucro cesante). If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have

foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the non- performance of the obligation.

5.ID.; ID.; MORAL AND EXEMPLARY DAMAGES; RECOVERABLE IN CASES OF BAD FAITH. — The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith. The Supreme Court finds that the complaint sufficiently alleges bad faith on the part of the defendant.

D E C I S I O N

ESCOLIN, J p:

Put to test in this petition for review on certiorari is the sufficiency of the averments contained in the complaint for alleged breach of contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero in Civil Case No. 17827 of the Court of First Instance of Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, which complaint was dismissed for failure to state a cause of action. cdrep

The pertinent allegations in the complaint, subject of inquiry, are as follows: 1

"3.That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines;

"4.That Isidro Q. Aligada, acting as agent of the defendant herein conducted the necessary project studies on how best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay, Philippines, and because of the experience of the plaintiff in

connection with his various contracts with the U.S. Navy, Subic Bay, Philippines, and his goodwill already established with the Naval personnel of Subic Bay, Philippines, especially in providing the U.S. Navy with needed materials or goods on time as specified by the U.S. Navy, be they of local origin or imported either from the United States or from Japan, the said Isidro Q. Aligada approached the plaintiff herein in behalf of the defendant and proposed to import from Japan thru the plaintiff herein or thru plaintiff's Japanese business associates, all taximeters and radio transceivers needed by the defendant in connection with his contract with the U.S. Navy Exchange, Subic Bay, Philippines;

"5.That the defendant herein and his aforesaid agent Isidro Q. Aligada were able to import from Japan with the assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay, Philippines, the plaintiff's assistance in this matter having been given to the defendant gratis et amore;

"6.That Isidro Q. Aligada, also acting as agent of the defendant, made representations with the plaintiff herein to the effect that defendant desired to procure from Japan thru the plaintiff herein the needed radio transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, a copy of which is hereto attached marked as Annex 'A' and made an integral part of this complaint, wherein the plaintiff quoted in his offer a total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein offered for sale by the plaintiff to the defendant to be delivered sixty to ninety [60-90]

days after receipt of advice from the defendant of the radio frequency assigned to the defendant by the proper authorities;

"7.That the plaintiff received notice of the fact that the defendant accepted plaintiff's offer to sell to the defendant the items specified in Annex 'A', as well as the terms and conditions of said offer, as shown by the signed conformity of the defendant appearing on Annex 'A' which was duly delivered by the defendant's agent to the plaintiff herein, whereupon all that the plaintiff had to do in the meantime was to await advice from the defendant as to the radio frequency to be assigned by the proper authorities to the defendant;

"8.That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his signed conformity appearing in Annex 'A' hereof as well as the letter dated October 4, 1972, of his agent aforementioned which is attached hereto and marked as Annex 'B' and made an integral part of this complaint, and in order that plaintiff's promised delivery would not be delayed, the plaintiff herein took steps to advise the Japanese entity entrusted with the manufacture of the items listed in Annex 'A' to the effect that the contract between the defendant herein and the plaintiff has been perfected and that advice with regards to radio frequency would follow as soon as same is received by the plaintiff from the defendant;

"9.That in his letter dated October 6, 1972, a copy of which is hereto attached marked as Annex 'C', the defendant advised his aforementioned agent to the effect that the U.S. Navy provided him with the radio frequency of 34.2 MHZ [Megahertz] and defendant requested his said agent to proceed with his order placed with the plaintiff herein,

which fact was duly communicated to the plaintiff by the defendant's aforementioned agent;

"10.That by his letter dated October 7, 1972, addressed to the plaintiff by the defendant's agent, a copy of which is hereto attached and marked as Annex 'D', defendant's agent qualified defendant's instructions contained in his letter of October 6, 1972 [Annex 'C'] in the sense that plaintiff herein should proceed to fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter of credit;

"11.That it being normal business practice in case of foreign importation that the buyer opens a letter of credit in favor of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of such a letter of credit by the defendant;

 

"12.That the defendant and his agent have repeatedly assured plaintiff herein of the defendant's financial capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter of credit with his banker, but he subsequently instructed his banker not to give due course to his application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover payment of the goods ordered by him;

"13.That it has come to the knowledge of the plaintiff herein that the defendant has been operating his taxicabs without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing defendant for compliance with his commitments with respect to the installations of radio transceivers on his taxicabs, he impliedly laid the

blame for the delay upon the plaintiff herein, thus destroying the reputation of the plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein transacts business;

"14.That on March 27, 1973, plaintiff wrote a letter thru his counsel, copy attached marked as Annex 'E', to ascertain from the defendant as to whether it is his intention to fulfill his part of the agreement with the plaintiff herein or whether he desired to have the contract between them definitely cancelled, but defendant did not even have the courtesy to answer plaintiff's demand;

"15.That the defendant herein entered into a contract with the plaintiff herein as set forth in Annex 'A' without the least intention of faithfully complying with his obligations thereunder, but he did so only in order to obtain the concession from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside the U.S. Naval Base to hi financial benefit and at the expense and prejudice of third parties such as the plaintiff herein;

"16.That in view of the defendant's failure to fulfill his contractual obligations with the plaintiff herein, the plaintiff will suffer the following damages:.

[a]As the radio transceivers ordered by the defendant are now in the hands of the plaintiff's Japanese representative, the plaintiff will have to pay for them, thus he will have to suffer as total loss to him the amount of P523,938.98 (converting the amount of $77,620.59 to pesos at the rate of P6.75 to the dollar) as said radio transceivers were purposely made or manufactured solely for the use of the defendant herein and cannot possibly be marketed by the plaintiff herein to the general public;

[b]The amount of P52,393.89 or 10% of the purchase price by way of loss of expected profits from the transaction or contract between plaintiff and the defendant;

[c]Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business dealings with Japanese firms, thereby resulting also in loss of possible profits in the future which plaintiff assess at no less than P200,000.00;

[d]That in view of the defendant's bad faith in inducing plaintiff to enter into the contract with him as set forth hereinabove, defendant should be assessed by this Honorable Court in favor of the plaintiff the sum of P200,000.00 as moral and exemplary damages;

[e]That in view of the defendant's fault and to protect his interests, plaintiff herein is constrained to retain the services of counsel with whom he agreed to pay by way of attorney's fees the sum of P50,000.00".

Respondent Guerrero filed a motion to dismiss said complaint for lack of cause of action, which ground is propounded by respondent's counsel thus: 2

". . . it is clear that plaintiff was merely anticipating his loss or damage which might result from the alleged failure of defendant to comply with the terms of the alleged contract. Hence, plaintiff's right of recovery under his cause of action is premised not on any loss or damage which he is expecting to incur in the near future. Plaintiff's right therefore under his cause of action is not yet fixed or vested.

"Inasmuch as there is no other allegation in the present Complaint wherein the same could be maintained against defendant, the present Complaint should be dismissed for its failure to state a cause of action against defendant".

The respondent judge, over petitioner's opposition, issued a minute order dismissing the complaint as follow: 3

"Acting upon the 'Motion to Dismiss' filed by the defendant, through counsel, date June 7, 1973, as well as the opposition thereto filed by the plaintiff, through counsel, dated June 14, 1973, for the reasons therein alleged, this Court hereby grants said motion and, as prayed for, the complaint in the above-entitled case is dismissed.

"SO ORDERED".

Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause of action, the sufficiency of the case of action can only be determined on the basis of the facts alleged in the complaint 4 ; that the facts alleged are deemed hypothetically admitted, including those which are fairly deducible therefrom 5 ; and that, admitting the facts as alleged, whether or not the Court can render a valid judgment against the defendant upon said facts in accordance with the prayer in the complaint 6

After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain [paragraph 8 of the Complaint], private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him [paragraphs 11 & 12 of the Complaint], and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present, to wit: [1] the existence of a legal right to the plaintiff; [2] a correlative duty of the defendant and [3] an act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. 7

Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law. LibLex

Article 1170 of the Civil Code provides:

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

The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance. 8

The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to obtain [lucro cesante] 9 . If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the nonperformance of the obligation 10

The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith. To Our mind, the complaint sufficiently alleges bad faith on the part of the defendant.

In fine, We hold that on the basis of the facts alleged in the complaint, the court could render a valid judgment in accordance with the prayer thereof. LLphil

ACCORDINGLY, the questioned order of dismissal is hereby set aside and the case ordered remanded to the court of origin for further proceedings. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerrero and Abad Santos, JJ., concur.

Aquino, J., is on leave.

De Castro, J., took no part.

SECOND DIVISION

[G.R. No. 108253. February 23, 1994.]

LYDIA L. GERALDEZ, petitioner, vs. HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.

D E C I S I O N

REGALADO, J p:

Our tourism industry is not only big business; it is a revenue support of the nation's economy. It has become a matter of public interest as to call for its promotion and regulation on a cabinet level. We have special laws and policies for visiting tourists, but such protective concern has not been equally extended to Filipino tourists going abroad. Thus, with the limited judicial relief available within the ambit of present laws, our tourists often prefer to forget their grievances against local tour operators who fail to deliver on their undertakings. This case illustrates the recourse of one such tourist who refused to forget.

An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against private respondent Kenstar Travel Corporation, docketed as Civil Case No. Q-90-4649 of the Regional Trial Court of Quezon City, Branch 80. 1 After the parties failed to arrive at an amicable settlement, trial on the merits ensued.

Culling from the records thereof, we find that sometime in October, 1989, Petitioner came to know about private respondent from numerous advertisements in newspapers of general circulation regarding tours in Europe. She then contacted private respondent by phone and the latter sent its representative, Alberto Vito Cruz, who gave her the brochure for the tour and later discussed its highlights. The European tours offered were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a 22-day tour of Europe for $2,990.00. She paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores. prLL

Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that, contrary to what was stated in the brochure, there was no European tour manager for their group of tourists, the hotels in which she and the group were billeted were not first-class, the UGC Leather Factory which was specifically added as a highlight of the tour was not visited, and the Filipino lady tour guide by private respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first time. 2

In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the issuance of a writ of preliminary attachment against private respondent on the ground that it committed fraud in contracting an obligation, as contemplated in Section 1 (d), Rule 57 of the Rules of Court, to which no opposition by the latter appears on the record. This was granted by the court a quo 3 but the preliminary attachment was subsequently lifted upon the filing by private respondent of a counterbond amounting to P990,000.00. 4

During the pendency of said civil case for damages, petitioner also filed other complaints before the Department of Tourism in DOT Case No. 90-121 and the Securities and Exchange Commission in PED Case No. 90-3738, 5 wherein, according to petitioner, herein private respondent was meted out a fine of P10,000.00 by the Commission and P5,000.00 by the Department, 6 which facts are not disputed by private respondent in its comment on the present petition.

On July 9, 1991, the court a quo rendered its decision 7 ordering private respondent to pay petitioner P500.000.00 as moral damages, P200,000.00 as nominal damages, P300,000.00 as exemplary damages, P50,000.00 as and for attorney's fees, and the costs of the suit. 8 On appeal, respondent court 9 deleted the award for moral and exemplary damages, and reduced the awards for nominal damages and attorney's fees to P30,000.00 and P10,000.00, respectively.10

Hence, the instant petition from which, after sifting through the blades of contentions alternately thrust and parried in the exchanges of the parties, the pivotal issue that emerges is whether or not private respondent acted in bad faith or with gross negligence in discharging its obligations under the contract.

Both the respondent court and the court a quo agree that private respondent failed to comply faithfully with its commitments under the Volare 3 tour program, more particularly in not providing the members of the tour group with a European tour manger whose duty, inter alia, was to explain the points of interest of and familiarize the tour group with the places they would visit in Europe, and in assigning instead a first timer Filipino tour guide, in the person of Rowena Zapanta, 11 to perform that role which definitely requires experience and knowledge of such places. It is likewise undisputed that while the group was able to pay a visit to the site of the UGC Leather Factory, they were brought there at a very late hour such that the factory was already closed and they were unable to make purchases at supposedly discounted prices. 12 As to the first-class hotels, however, while the court a quo found that the hotels were not fist-class, respondent court believed otherwise, or that, at least, there was substantial compliance with such a representation.

While clearly there was therefore a violation of the rights of petitioner under the aforementioned circumstances, respondent court, contrary to the findings of the trial court, ruled that no malice or bad faith could be imputed to private respondent, hence there is no justification for the award of moral and exemplary damages. Furthermore, it held that while petitioner is entitled to nominal damages, the amount awarded by the trial court was unconscionable since petitioner did not suffer actual or substantial damage

from the breach of contract, 13 hence its reduction of such award as hereinbefore stated. LibLex

After thorough and painstaking scrutiny of the case records of both the trial and appellate courts, we are satisfactorily convinced, and so hold, that private respondent did commit fraudulent misrepresentations amounting to bad faith, to the prejudice of petitioner and the members of the tour group.

By providing the Volare 3 tourist group, of which petitioner was a member, with an inexperienced and a first timer tour escort, private respondent manifested its indifference to the convenience, satisfaction and peace of mind of its clients during the trip, despite its express commitment to provide such facilities under the Volare 3 Tour Program which had the grandiose slogan "Let your heart sing." 14

Evidently, an inexperienced tour escort, who admittedly had not even theretofore been to Europe, 15 cannot effectively acquaint the tourists with the interesting areas in the cities and places included in the program, or to promptly render necessary assistance, especially where the latter are complete strangers thereto, like witnesses Luz Sui Haw and her husband who went to Europe for their honeymoon. 16

We agree with petitioner that the selection of Zapanta as the group's tour guide was deliberate and conscious choice on the part of private respondent in order to afford her an on-the-job training and equip her with the proper opportunities so as to later qualify her as an "experienced" tour guide and eventually be an asset of respondent corporation. 17 Unfortunately, this resulted in a virtual project experimentation with petitioner and the members of the tour as the unwitting participants.

We are, therefore, one with respondent court in faulting private respondent's choice of Zapanta as a qualified tour guide for the Volare 3 tour package. It brooks no argument that to be true to its undertakings, private respondent should have selected an experienced European tour guide, or it could have allowed Zapanta to go merely as an understudy under the guidance, control and supervision of an experienced and competent European or Filipino tour guide, 18 who could give her the desired training. LexLib

Moreover, a tour guide is supposed to attend to the routinary needs of the tourists, not only when the latter ask for the assistance but at the moment such need becomes apparent. In other words, the tour guide, especially by reason of her experience in previous tours, must be able to anticipate the possible needs and problems of the tourists instead of waiting for them to bring it to her attention. While this is stating the obvious, it is her duty to see to it that basic

personal necessities such as soap, towels and other daily amenities are provided by the hotels. It is also expected of her to see to it that the tourists are provided with sanitary surroundings and to actively arrange for medical attention in case of accidents, as what befell petitioner's sister and wherein the siblings had to practically fend for themselves since, after merely calling for an ambulance, Zapanta left with the other tour participants. 19

Zapanta fell far short of the performance expected by the tour group, her testimony in open court being revelatory of her inexperience even on the basic function of a tour guide, to wit:

"QNow, are you aware that there were times that the tourists under the 'Volare 3' were not provided with soap and towels?

AThey did not ell me that but I was able to ask them later on but then nobody is complaining." 20

The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness of Zapanta in attentively following the itinerary of the day. This incompetence must necessarily be traced to the lack of due diligence on the part of private respondent in the selection of its employees. It is true that among the thirty-two destinations, which included twenty-three cities and special visits to nine tourist spots, this was the only place that was not visited.21 It must be noted, however, that the visit to the UGC Leather Factory was one of the highlights 22 of the Volare 3 program which even had to be specifically inserted in the itinerary, hence it was incumbent upon the organizers of the tour to take special efforts to ensure the same. Besides, Petitioner did expect much from the visit to that factory since it was represented by private respondent that quality leather goods could be bought there at lower prices. 23

 

Private respondent represents Zapanta's act of making daily overseas calls to Manila as an exercise of prudence and diligence on the latter's part as a tour guide. 24 It further claims that these calls were needed so that it could monitor the progress of the tour and respond to any problem immediately. 25 We are not persuaded. The truth of the matter is that Zapanta, as an inexperienced trainee-on-the-job, was required to make these calls to private respondent for the latter to gauge her ability in coping with her first assignment and to provide instructions to her. 26

Clearly, therefore, private respondent's choice of Zapanta as the tour guide is a manifest disregard of its specific assurance to the tour group, resulting in agitation and anxiety on their part, and which deliberate omission is contrary to the elementary rules of good faith and fair play. It is extremely doubtful if any group of Filipino tourists would knowingly agree to be used in effect as guinea pigs in an employees' training program of a travel agency, to be conducted in unfamiliar European countries with their diverse cultures, lifestyles and languages. LexLib

On the matter of the European tour manager, private respondent's advertisement in its tour contract declares and represents as follows:

"FILIPINO TOUR ESCORT!

He will accompany you throughout Europe. He speaks your language, shares your culture and feels your excitement.

He won't be alone because you will also be accompanied by a . . .

EUROPEAN TOUR MANAGER!

You get the best of both worlds. Having done so many tours in the past with people like you, he knows your sentiments, too. So knowledgeable about Europe, there is hardly a question he can't answer." 27

Private respondent contends that the term "European Tour Manager" does not refer to an individual but to an organization, allegedly the Kuoni Travel of Switzerland which supposedly prepared the itinerary for its "Volare Europe Tour," negotiated with all the hotels in Europe, selected tourist spots and historical places to visit, and appointed experienced local tour guides for the tour group. 28

We regret this unseemly quibbling which perforce cannot be allowed to pass judicial muster.

A cursory reading of said advertisement will readily reveal the express representation that the contemplated European tour manager is a natural person, and not a juridical one as private respondent asserts. A corporate entity could not possibly accompany the members of the tour group to places in Europe; neither can it answer questions from the tourist during the tour. Of course, it is absurd that if a tourist would want to know how he could possibly go to the nearest store or supermarket, he would still have to call Kuoni Travel of Switzerland. LexLib

Furthermore, both lower courts observed, and we uphold their observations, that indeed private respondent had the obligation to provide the tour group not only with a European tour manager, but also with local European tour guides. The latter, parenthetically, were likewise never made available. 29 Zapanta claims that she was accompanied by a European local tour guide in most of the major cities in Europe. We entertain serious doubts on, and accordingly reject, this pretension for she could not even remember the name of said European tour guide. 30 If such a guide really existed, it is incredible why she could not even identify the former when she testified a year later, despite the length of their sojourn and the duration of their association.

As to why the word "he" was used in the aforequoted advertisement, private respondent maintains that the pronoun "he" also includes the word "it," as where it is used as a "nominative case form in general statements (as in statutes) to include females, fictitious persons (as corporations)." 31 We are constrained to reject this submission as patently strained and untenable. As already demonstrated, it is incredible that the word "he" was used by private respondent to denote an artificial or corporate being. From its advertisement, it is beyond cavil that the import of the word "he" is a natural and not a juridical person. There is no need for further interpretation when the wordings are clear. The meaning that will determine the legal effect of a contract is that which is arrived at by objective standards; one is bound, not by what he subjectively intends, but by what he leads others reasonably to think he intends. 32

In an obvious but hopeless attempt to arrive at a possible justification, private respondent further contends that it explained the concept of a European tour manager to its clients at the pre-departure briefing, which petitioner did not attend. 33 Significantly, however, private respondent failed to present even one member of the tour group to substantiate its claim. It is a basic rule of evidence that a party must prove his own affirmative allegations. 34 Besides, if it was really its intention to provide a juridical European tour manager, it could not have kept on promising its tourists during the tour that a European tour manager would come, 35 supposedly to join and assist them. LLjur

Veering to another line of defense, private respondent seeks sanctuary in the delimitation of its responsibility as printed on the face of its brochure on the Volare 3 program, to wit:

"RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR TRAVEL AGENT, THEIR EMPLOYEES OR SUB-AGENTS

SHALL BE RESPONSIBLE ONLY FOR BOOKING AND MAKING ARRANGEMENTS AS YOUR AGENTS. Kenstar Travel Corporation, your Travel Agent, their employees or sub-agents assume no responsibility or liability arising out of or in connection with the services or lack of services, of any train, vessel, other conveyance or station whatsoever in the performance of their duty to the passengers or guests, neither will they be responsible for any act, error or omission, or of any damages, injury, loss, accident, delay or irregularity which may be occasioned by reason (of) or any defect in . . . lodging place or any facilities. . . . (Emphasis by private respondent.) 36

While, generally, the terms of a contract result from the mutual formulation thereof by the parties thereto, it is of common knowledge that there are certain contracts almost all the provisions of which have been drafted by only one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion" thereto. 37 In situations like these, when a party imposes upon another a ready-made form of contract, 38 and the other is reduced to the alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing, a contract of adhesion results. While it is true that an adhesion contract is not necessarily void, it must nevertheless be construed strictly against the one who drafted the same. 39 This is especially true where the stipulations are printed in fine letters and are hardly legible, as is the case of the tour contract 40 involved in the present controversy.

Yet, even assuming arguendo that the contractual limitation aforequoted is enforceable, private respondent still cannot be exculpated for the reason that responsibility arising from fraudulent acts, as in the instant case, cannot be stipulated against by reason of public policy. Consequently, for the foregoing reasons, private respondent cannot rely on its defense of "substantial compliance" with the contract.

Private respondent submits likewise that the tour was satisfactory, considering that only petitioner, out of eighteen participants in the Volare 3 Tour Program, actually complained. 41 We cannot accept this argument. Section 28, Rule 130 of the Rules of Court declares that the rights of a party cannot be prejudiced by an act, declaration, or omission of

another, a statutory adaptation of the first branch of the hornbook rule of res inter alios acta 42 which we do not have to belabor here.

Besides, it is a commonly known fact that there are tourists who, although the tour was far from what the tour operator undertook under the contract, choose to remain silent and forego recourse to a suit just to avoid the expenses, hassle and rancor of litigation, and not because the tour was in accord with what was promised. One does not relish adding to the bitter memory of a misadventure the unpleasantness of another extended confrontation. Furthermore, contrary to private respondent's assertion, not only petitioner but two other members of the tour group. Luz Sui Haw and Ercilla Ampil, confirmed petitioner's complaints when they testified as witnesses for her as plaintiff in the court below. 43

Private respondent likewise committed a grave misrepresentation when it assured in its Volare 3 tour package that the hotels it had chosen would provide the tourists complete amenities and were conveniently located along the way for the daily itineraries. 44 It turned out that some of the hotels were not sufficiently equipped with even the basic facilities and were at a distance from the cities covered by the projected tour. Petitioner testified on her disgust with the conditions and locations of the hotels, thus: prcd

"QAnd that these bathrooms ha(ve) bath tub(s) and hot and cold shower(s)?

ANot all, sir.

QDid they also provide soap and towels?

ANot all, sir, some (had) no toilet paper. 45

QWhich one?

AThe 2 stars, the 3 stars and some 4 stars (sic) hotels.

QWhat I am saying . . .

AYou are asking a question? I am answering you. 2 stars, 3 stars and some 4 stars (sic) hotels, no soap, toilet paper and (the) bowl stinks. . . .

xxx xxx xxx

QAnd that except for the fact that some of these four star hotels were outside the city they provided you with the comfort?

 

ANot all, sir.

QCan you mention some which did not provide you that comfort?

AFor example, if Ramada Hotel Venezia is in Quezon City, our hotel is in Meycauayan. And if Florence or Ferenze is in Manila, our hotel is in Muntinlupa. 46

xxx xxx xxx

AOne more hotel, sir, in Barcelona, Hotel Saint Jacques is also outside the city. Suppose Barcelona is in Quezon City, our hotel is in Marilao. We looked for this hotel inside the city of Barcelona for three (3) hours. We wasted our time looking for almost all the hotels and places where to eat. That is the kind of tour that you have." 47

Luz Sui Haw, who availed of the Volare 3 tour package with her husband for their honeymoon, shared the sentiments of petitioner and testified as follows:

Q. . . Will you kindly tell us why the hotels where you stayed are not considered first class hotels? LLpr

ABecause the hotels where we went, sir, (are) far from the City and the materials used are not first class and at times there were no towels

and soap. And the two (2) hotels in Nevers and Florence the conditions (are) very worse (sic). 48

QConsidering that you are honeymooners together with your husband, what (were) your feelings when you found out that the condition were not fulfilled by the defendant?

AI would like to be very honest. I got sick when I reached Florence and half of my body got itch (sic). I think for a honeymooner I would like to emphasize that we should enjoy that day of our life and it seems my feet kept on itching because of the condition of the hotel. And I was so dissatisfied because the European Tour Manger was not around there (were) beautiful promises. They kept on telling us that a European Tour Manager will come over; until our Paris tour was ended there was no European tour manager. 49

xxx xxx xxx

QYou will file an action against the defendant because there was a disruption of your happiness, in your honeymoon, is that correct?

AThat is one of my causes of (sic) coming up here. Secondly, I was very dissatisfied (with) the condition. Thirdly, that Volare 89 it says it will let your heart sing. That is not true. There was no European tour (manager) and the highlights of the tour (were) very poor. The

hotels were worse (sic) hotels. 50

QAll the conditions of the hotels as you . . .

ANot all but as stated in the brochure that it is first class hotel. The first class hotels state that all things are beautiful and it is neat and clean with complete amenities and I encountered the Luxembourg hotel which is quite very dilapidated because of the flooring when you step on the side 'kumikiring' and the cabinets (are) antiques and as honeymooners we don't want to be disturbed or seen. 51

xxx xxx xxx

QNone of these are first class hotels?

AYes, sir.

QSo, for example Ramada Hotel Venezia which according to Miss Geraldez is first class hotel is not first class hotel?

AYes, sir.

QYou share the opinion of Miss Geraldez?

AYes, sir.

QThe same is true with Grand Hotel Palatino which is not a first class hotel?

AYes, sir.

QAnd Hotel Delta Florence is not first class hotel?

AThat is how I got my itch, sir. Seven (7) days of itch.

QHow about Hotel Saint-Jacquez, Paris?

AIt is far from the city. It is not first class hotel.

QSo with Hotel Le Prieure Du Coeur de Jesus neither a first class hotel?

AYes, sir.

QHotel De Nevers is not a first class hotel?

AYes, sir.

QHotel Roc Blanc Andorra is not a first class hotel?

AYes, sir.

QSaint Just Hotel, Barcelona is not a first class hotel?

AYes, sir.

QHotel Pullman Nice neither is not a first class hotel?

AYes, sir.

QHotel Prinz Eugen and Austrotel are not first class hotels?

AYes, sir." 52

Private respondent cannot escape responsibility by seeking refuge under the listing of first-class hotels in publications like the "Official Hotel and Resort Guide" and "Worldwide Hotel Guide." 53 Kuoni Travel, its tour operator, 54 which prepared the hotel listings, is a European-based travel agency 55 and, as such, could have easily verified the matter of first-class accommodations. Nor can it logically claim that the first-class hotels in Europe may not necessarily be the first-class hotels here in the Philippines. 56 It is reasonable for petitioner to assume that the promised first-class hotels are equivalent to what are considered first-class hotels in Manila. Even assuming arguendo that there is indeed a difference in classifications, it cannot be gainsaid that a first-class hotel could at the very least provide basic necessities and sanitary accommodations. We are accordingly not at all impressed by private

respondent's attempts to trivialize the complaints thereon by petitioner and her companions. cdphil

In a last ditch effort to justify its choice of the hotels, private respondent contends that it merely provided such "first class" hotels which were commensurate to the tourists' budget, or which were, under the given circumstances, the "best for their money." It postulated that it could not have offered better hostelry when the consideration paid for hotel accommodations by the tour participants was only so much, 57 and the tour price of $2,990.00 covers a European tour for 22 days inclusive of lower room rates and meals. 58 This is implausible, self-serving and borders on sophistry.

The fact that the tourists were to pay a supposedly lower amount, such that private respondent allegedly retained hardly enough as reasonable profit, 59 does not justify a substandard form of service in return. It was private respondent, in the first place, which fixed the charges for the package tour and determined the services that could be availed of corresponding to such price. Hence, it cannot now be heard to complain that it only made a putative marginal profit out of the transaction. If it could not provide the tour participants with first-class lodgings on the basis of the amount that they paid, it could and should have instead increased the price to enable it to arrange for the promised first-class accommodations.

On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary damages. Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in bad faith. 60 From the facts earlier narrated, private respondent can be faulted with fraud in the inducement, which is employed by a party to a contract in securing the consent of the other. llcd

This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either be dolocausante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those which are not serious in character and without which the other party would still have entered into the contract. 61 Dolo causantedetermines or is the essential cause of the consent, while dolo incidente refers only to some particular or accident of the obligations. 62 The effects of dolo causante are the nullity of the contract and the indemnification of damages, 63 anddolo incidente also obliges the person employing it to pay damages. 64

In either case, whether private respondent has committed dolo causante or dolo incidente by making misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions became patent in the light of after-events when, contrary to its representations, it employed an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a European tour manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.

In the belief that an experienced tour escort and a European tour manager would accompany them, with the concomitant reassuring and comforting thought of having security and assistance readily at hand, petitioner was induced to join the Volare 3 tourists, instead of travelling alone. 65 She likewise suffered serious anxiety and distress when the group was unable to visit the leather factory and when she did not receive first-class accommodations in their lodgings which were misrepresented as first-class hotels. These, to our mind, justify the award for moral damages, which are in the category of an award designed to compensate the claimant for that injury which she had suffered, and not as a penalty on the wrongdoer, 66 we believe that an award of P100,000.00 is sufficient and reasonable. cdphil

When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also be decreed. Exemplary damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. According to the Code Commission, exemplary damages are required by public policy, for wanton acts must be suppressed. 67 An award, therefore, of P50,000.00 is called for to deter travel agencies from resorting to advertisements and enticements with the intention of realizing considerable profit at the expense of the public, without ensuring compliance with their express commitments. While, under the present state of the law, extraordinary diligence is not required in travel or tour contracts, such as that in the case at bar, the travel agency acting as tour operator must nevertheless be held to strict accounting for contracted services, considering the public interest in tourism, whether in the local or in the international scene. Consequently, we have to likewise reject the theory of private respondent that the promise it made in the tour brochure may be regarded only as "commendatory trade talk." 68

With regard to the honorarium for counsel as an item of damages, since we are awarding moral and exemplary damages, 69 and considering the legal importance of the instant litigation and the efforts of counsel evident from the records of three levels of the judicial hierarchy, we favorably consider the amount of P20,000.00 therefor.

WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET ASIDE, and another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L. Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and P20,000.00 as and for attorney's fees, with costs against private respondent. The award for nominal damages is hereby deleted. llcd

SO ORDERED.

Padilla, Nocon and Puno, JJ ., concur.

Narvasa, C .J ., took no part.

SECOND DIVISION

[G.R. No. 174269. May 8, 2009.]

POLO S. PANTALEON, petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC., respondent.

D E C I S I O N

TINGA, J p:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the group had arrived late in the city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the entire city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond polishing that lasted for around ten minutes. 1 Afterwards, the group was led to the store's showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to

purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation that she decided to buy. 2 Mrs. Pantaleon also selected for purchase a pendant and a chain, 3 all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated to depart from the store. The sales clerk took the card's imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to respondent's Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His son, who had already boarded the tour bus, soon returned to Coster and informed the other members of the Pantaleon family that the entire tour group was waiting for them. As it was already 9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent had demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed his daughter to return to the bus and apologize to the tour group for the delay. CAIaDT

At around 10:00 a.m., or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes after the tour group was supposed to have left the store, Coster decided to release the items even without respondent's approval of the purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of apology were met by their tourmates with stony silence. 4 The tour group's visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London. 5 Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his nerves.

It later emerged that Pantaleon's purchase was first transmitted for approval to respondent's Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent's Manila office at 9:33 a.m., then finally approved at 10:19 a.m., Amsterdam time. 6 The Approval Code was transmitted to respondent's Amsterdam office at 10:38 a.m., several minutes after petitioner had already left Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry store to respondent's Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use his AmEx card, several times without hassle or delay, but with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money instead from a friend, after more than 30 minutes had transpired without the purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase children's shoes worth $87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and his family thereby suffered" for respondent's refusal to provide credit authorization for the aforementioned purchases. 8 In response, respondent sent a letter dated 24 March 1992, 9 stating among others that the delay in authorizing the purchase from Coster was attributable to the circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase pattern established".10 Since respondent refused to accede to Pantaleon's demand for an apology, the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch 145. 11 Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary damages; P100,000.00, as attorney's fees; and P50,000.00 as litigation expenses. 12

On 5 August 1996, the Makati City RTC rendered a decision 13 in favor of Pantaleon, awarding him P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorney's fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial reconsideration, praying that the trial court award the increased amount of moral and exemplary damages he had prayed for. 14 The RTC denied Pantaleon's motion for partial reconsideration, and thereafter gave due course to respondent's Notice of Appeal. 15

On 18 August 2006, the Court of Appeals rendered a decision 16 reversing the award of damages in favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this petition.

The key question is whether respondent, in connection with the aforementioned transactions, had committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming that

respondent had not been in breach of its obligations, it still remained liable for damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondent's credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of seconds". Based on that standard, respondent had been in clear delay with respect to the three subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the part of respondent in approving the purchases. However, it made two critical conclusions in favor of respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had established for himself, as exemplified by the fact that at Coster, he was "making his very first single charge purchase of US$13,826", and "the record of [petitioner]'s past spending with [respondent] at the time does not favorably support his ability to pay for such purchase." 17 SHaIDE

On the premise that there was an obligation on the part of respondent "to approve or disapprove with dispatch the charge purchase", petitioner argues that the failure to timely approve or disapprove the purchase constituted mora solvendi on the part of respondent in the performance of its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation to him as "to approve purchases instantaneously or in a matter of seconds."

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially or extrajudicially requires the debtor's performance. 18 Petitioner asserts that the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the part of the obligee in accepting the performance of the obligation by the obligor. The requisites of mora accipiendi are: an offer of performance by the debtor who has the required capacity; the offer must be to comply with the prestation as it should be performed; and the creditor refuses the performance without just cause. 19 The error of the appellate court, argues petitioner, is in relying on the invocation by respondent of "just cause" for the delay, since while just cause is determinative of mora accipiendi, it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the relationship between a credit card provider and its card holders is that of creditor-debtor, 20 with the card

company as the creditor extending loans and credit to the card holder, who as debtor is obliged to repay the creditor. This relationship already takes exception to the general rule that as between a bank and its depositors, the bank is deemed as the debtor while the depositor is considered as the creditor. 21 Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit card company as the debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to act promptly on its purchases on credit.

 

Ultimately, petitioner's perspective appears more sensible than if we were to still regard respondent as the creditor in the context of this cause of action. If there was delay on the part of respondent in its normal role as creditor to the cardholder, such delay would not have been in the acceptance of the performance of the debtor's obligation (i.e., the repayment of the debt), but it would be delay in the extension of the credit in the first place. Such delay would not fall under mora accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases on credit, has already been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had not yet been perfected, as it remained pending the approval or consent of the respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that there was indeed an obligation on the part of respondent to act on petitioner's purchases with "timely dispatch", or for the purposes of this case, within a period significantly less than the one hour it apparently took before the purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting on petitioner's purchase at Coster did constitute culpable delay on its part in complying with its obligation to act promptly on its customer's purchase request, whether such action be favorable or unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a matter of seconds.

Plaintiff testified that his personal experience with the use of the card was that except for the three charge purchases subject of this case, approvals of his charge

purchases were always obtained in a matter of seconds.cDCIHT

Defendant's credit authorizer Edgardo Jaurique likewise testified:

Q.You also testified that on normal occasions, the normal approval time for charges would be 3 to 4 seconds?

A.Yes, Ma'am.

Both parties likewise presented evidence that the processing and approval of plaintiff's charge purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of seconds".

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that defendant's Amsterdam office received the request to approve plaintiff's charge purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18] minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive Identification of Card holder necessary further charges require bank information due to high exposure. By Jack Manila".

The delay in the processing is apparent to be undue as shown from the frantic successive queries of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and

02:08, all times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase referred to it, yet it sat on its hand, unconcerned.

xxx xxx xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants own record shows:

01:22 — the authorization is referred to Manila Amexco

01:32 — Netherlands gives information that the identification of the cardmember has been presented and he is buying jewelries worth US $13,826.

01:33 — Netherlands asks "How long will this take?"

02:08 — Netherlands is still asking "How long will this take?"

The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on his use of the card abroad "with special handling". 22 (Citations omitted)

xxx xxx xxx

Notwithstanding the popular notion that credit card purchases are approved "within seconds", there really

is no strict, legally determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a customer's purchase, much less one specifically contracted upon by the parties. Yet this is one of those instances when "you'd know it when you'd see it", and one hour appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a kilometer away, withdraw money over the counter, and return to the store. cIaHDA

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in timely dispatch", and not "to approve the purchase instantaneously or within seconds". Certainly, had respondent disapproved petitioner's purchase "within seconds" or within a timely manner, this particular action would have never seen the light of day. Petitioner and his family would have returned to the bus without delay — internally humiliated perhaps over the rejection of his card — yet spared the shame of being held accountable by newly-made friends for making them miss the chance to tour the city of Amsterdam.

We do not wish do * dispute that respondent has the right, if not the obligation, to verify whether the credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is within his means to make such transaction. The culpable failure of respondent herein is not the failure to timely approve petitioner's purchase, but the more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that respondent's credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason why respondent could not have promptly informed petitioner the reason for the delay, and duly advised him that resolving the same could take some time. In that way, petitioner would have had informed basis on whether or not to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the wrath of foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith, and the court should find that under the circumstances, such damages are due. The findings of the trial court are ample in establishing the bad faith and unjustified neglect of respondent, attributable in particular to the "dilly-dallying" of respondent's Manila credit authorizer, Edgardo Jaurique. 23 Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is

silent as to the amount of time it should take defendant to grant authorization for a charge purchase, defendant acknowledged that the normal time for approval should only be three to four seconds. Specially so with cards used abroad which requires "special handling", meaning with priority. Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and consumers would be better off carrying bundles of currency or traveller's checks, which can be delivered and accepted quickly. Such right was not accorded to plaintiff in the instances complained off * for reasons known only to defendant at that time. This, to the Court's mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract. 24

xxx xxx xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have consumed more than one hour to simply go over plaintiff's past credit history with defendant, his payment record and his credit and bank references, when all such data are already stored and readily available from its computer. This Court also takes note of the fact that there is nothing in plaintiff's billing history that would warrant the imprudent suspension of action by defendant in processing the purchase. Defendant's witness Jaurique admits:

Q.But did you discover that he did not have any outstanding account?

A.Nothing in arrears at that time.

Q.You were well aware of this fact on this very date?

A.Yes, sir. HaTISE

Mr. Jaurique further testified that there were no "delinquencies" in plaintiff's account. 25

It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages are remunerative. 26 Moral damages do not avail to soothe the plaints of the simply impatient, so this decision should not be cause for relief for those who time the length of their credit card transactions with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster — that there was a deadline for the completion of that purchase by petitioner before any delay would redound to the injury of his several traveling companions — gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by the RTC. 27 Those circumstances are fairly unusual, and should not give rise to a general entitlement for damages under a more mundane set of facts.

 

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts, however, it must be commensurate to the loss or injury suffered. 28 Petitioner's original prayer for P5,000,000.00 for moral damages is excessive under the circumstances, and the amount awarded by the trial court of P500,000.00 in moral damages more seemly.

Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00 appropriate. There is similarly no cause though to disturb the determined award of P100,000.00 as attorney's fees, and P85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent. TCIDSa

SO ORDERED.

Carpio Morales, Velasco, Jr., Leonardo-de Castro * and Brion, JJ., concur.

EN BANC

[G.R. No. 1904. March 3, 1906.]

FRANCISCO GONZALEZ QUIROS, plaintiff-appellee, vs. CARLOS PALANCA TAN-GUINLAY,defendant-appellant.

Chicote, Miranda & Sierra, for appellant.

Joaquin R. Serra, for appellee.

SYLLABUS

1.BILL OF EXCHANGE; PROTEST. — In order to pay for merchandise sold by the plaintiff to the defendant the latter delivered to the former a bill of exchange drawn by A. on B. in favor of C., indorsed by C. and the defendant, and accepted apparently by B. When the acceptance matured. B. refused to pay the bill on its being presented by the plaintiff, alleging that the acceptance was a forgery. The plaintiff neglected to have the bill protested. Held, That by reason of this neglect the delivery of the bill by the defendant to the plaintiff operated as a payment for the merchandise. (Civil Code, art. 1170)

2.CIVIL PROCEDURE (OLD); "LIS PENDENS." — Under the Spanish Law of Civil Procedure there was no lis pendens until the complaint had been answered.

3.CRIMINAL LAW; MALICIOUS PROSECUTION; CIVIL ACTION. — No civil action for damages non account of malicious prosecution can be maintained unless the court, in acquitting the defendant of the criminal charge orders a criminal prosecution to be commenced against the complaining witness for false accusation. (Penal Code, art. 326)

4.OBLIGATIONS, NONFULFILLMENT OF; DAMAGES. — Damages for nonfulfillment of an obligation to pay money are those only which are provided for in article 11808 of the Civil Code.

5.ORDER OF THE COURT; REOPENING OF THE CASE. — An order of the court refusing to open the case and allow further evidence to be introduced is not subject to exception. (Section 141, Code of Civil Procedure.)

D E C I S I O N

WILLARD, J p:

The plaintiff brought this action to recover the sum of 10,217.75 pesos, the value of goods sold by him to the defendant, and the sum of 64,984.89 pesos, as damages caused to plaintiff by the failure of the defendant to pay for the goods at the time agreed upon. The defendant in his answer denied all the allegations of the complaint, and further, alleged the pendency of another action for the same cause; a counterclaim to the amount of 40,000 pesos, for damages suffered by the defendant by reason of an attachment wrongfully secured by the plaintiff in 1893; and a further counterclaim for damages caused by reason of a prosecution for estafa instituted against him maliciously by the plaintiff. The court below ordered judgment in favor of the plaintiff for the value of the goods sold and delivered to the defendant, with interest thereon. He sustained the first counterclaim of the defendant, and assessed the damages suffered by the defendant by reason of the attachment referred to in the answer, at 6,347.75 pesos. The other defenses and counterclaims of the defendant the court held not to have been proven, and final judgment was entered for the plaintiff and against the defendant for 10,000 pesos and costs. Both parties have appealed from the judgment.

(1)It is claimed by the defendant that there is no evidence to show the value of the goods sold by the plaintiff to the defendant, and that the documents introduced for the purpose of proving the value were not properly received. It is not necessary to pass upon the question as to the admissibility of this evidence, since the plaintiff testifying at the trial, stated that the value of the goods so sold by him to the defendant was the amount which the court named in its judgment.

(2)The goods referred to in the complaint were sold to the defendant in two parcels. The value of the first lot was 2,235.95 pesos. For the purpose of paying this sum the defendant delivered to the plaintiff a bill of exchange for 2,700 pesos, purporting to be drawn by Juan Vy-Teco to the order of Chua-Sengco on Lucio Icaza. When this bill of exchange was delivered to the plaintiff by the defendant it had been indorsed by Chua-Sengco, and by the defendant, and apparently accepted by Lucio Icaza. By the terms of the acceptance the bill of exchange was payable on the 26th of December, 1893. The plaintiff took the bill of exchange and paid the defendant in cash the difference between 2,700 pesos and the value of the goods sold, 2,235.95 pesos. At the maturity

of the acceptance Icaza refused to pay the bill of exchange, on the ground that his signature thereto was a forgery, and nothing was over realized thereon. The plaintiff neglected to have the bill of exchange protested for this nonpayment. The defendant claims that the court committed an error in ordering judgment for the full value of the goods sold, inasmuch as the plaintiff, by reason of his failure to protest the bill of exchange, must suffer the loss occasioned by its nonpayment. This contention, we think, should be sustained. Article 1170 of the Civil Code is as follows:

"Payments of debts of money shall be made in the specie stipulated and, should it not be possible to deliver the specie, then in legal silver or gold coin current in Spain.

"The delivery of promissory notes to order or drafts or other commercial paper shall only produce the effects of payment when collected or when, by the fault of the creditor, their value has been affected.

"In the meantime the action arising from the original obligation shall be suspended."We have already held, in the case of

Compania General de Tobacos vs Molina 1 (No. 2091, 3 Off Gaz., 678) that this section applies both to mercantile documents executed by the debtors themselves, and to those executed by third persons and delivered by the debtor to the creditor. The bill of exchange in this case comes within the second class, and by the terms of the second paragraph of article 1170 it must be considered as a payment of the debt, inasmuch as its value has been affected by the fault of the of the creditor (the plaintiff) in failing to have the bill of exchange protested for nonpayment. There should be deducted, therefore, from the sum allowed the plaintiff, 2,235.95 pesos.

(3)In order to prove the first special defense set out by the defendant in his answer, viz, the pendency of another suit for the same cause of action, he presented in evidence a certified copy of a complaint presented in 1895 by the plaintiff against the defendant. No evidence was presented to show that the complaint had ever been answered. Under the former practice there was no lis pendens until the defendant had answered the complaint, and although it appears that various proceedings were taken in this suit relating to the attachment of the goods of the defendant, yet it nowhere appears that the defendant ever answered the complaint. This assignment of error can not, therefore, be sustained.

(4)In December, 1893, the plaintiff procured an attachment of the defendant's

goods. This attachment was dissolved in 1897, and judgment ordered in favor of the defendant and against the plaintiff for damages suffered by the defendant by reason of the attachment. No proceedings were ever had to assess the damages until the defendant presented his counterclaim in the present case. It appears from the evidence that the goods of the defendant were seized under the plaintiff's attachment upon the 5th of December, 1893; that upon the 28th of January, 1894, the same goods were again attached in a suit by Germann & Co. against this defendant. What became of the goods does not appear, although there are indications that they were sold upon the attachment secured by Germann & Co. Under these circumstances the plaintiff can not be held responsible for the value of the goods. His responsibility would be limited to the damages suffered by the goods while they were held under his own attachment from the 5th day of December, 1893, until the 28th day of January, 1894, and for the time elapsing after the 28th of January he would incur certain responsibility in connection with Germann & Co., but under the evidence in the case there is no ground for holding that he is responsible for th value of the goods. There was no evidence to show how much the goods had been damages, if at all, while they were in the possession of the plaintiff, nor was there any evidence to show how much they had been damaged after the 28th of January, and while they were subject to both attachment. The only evidence in regard to damages which the defendant offered was evidence relating to the value of the goods when they were seized under the plaintiff's attachment. As we have said, that, is not the measure of damages in this case, and the defendant having failed to prove any other kind of damages, the decision of the court below allowing him the sum of 6,347 pesos as damages, can not be sustained.

(5)In 1894 the plaintiff presented a criminal complaint against the defendant for estafa, by reason whereof the defendant was arrested and kept in confinement for nearly two years and a half. He was released by an order of the United States military authorities on the 13th of April, 1899, but there does not appear in the record any order issued by any court authorizing this release. On the 27th of November, 1900, the plaintiff presented another criminal complaint for estafa against the defendant, based upon the same facts as was the first one. This complaint was later dismissed by the court, and the defendant discharged from custody. Article 326 of the Penal Code provides, as we have held in the case of United States vs. Agustina Barrera 2 (3 Off. Gaz., 411), that no prosecution for a false accusation or complaint in a criminal case can be commenced unless the judge, in dismissing the first complaint, orders a complaint

to be filed against the complaining witness for false accusation. The judgment dismissing the complaint against this defendant contained no such provision. We hold that this article applies not only to a criminal proceeding against the complaining witness, but also to civil proceedings, and that no action to recover damages in a civil suit can be maintained by the person arrested against the person presenting the complaint, unless in the order acquitting the person arrested the judge certifies that the complaint was malicious, as required by said article 326. The defendant in this case, therefore, is not entitled to recover any damages by reason of the criminal prosecution against him.

 This disposes of all the errors assigned

by the defendant.(6)The plaintiff also appealed, and

claims that he is entitled to recover 60,000 pesos as damages which he suffered by reason of the nonpayment by the defendant of the amount due for goods sold to him by the plaintiff, saying that if the defendant had paid for the goods as he agreed to do, the plaintiff could, by using the money so paid, have made 60,000 pesos in his business. This claim is based upon article 1101 of the Civil Code, which is as follows:

"Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manners whatsoever act in contravention of the stipulations of the same, shall be subject to indemnify for the losses and damages caused thereby."Plaintiff says that the defendant in

refusing to pay for these goods acted in a fraudulent manner. We do not think this article is at all applicable to the case at bar. Damages may be recovered under this article when the obligation is to do something other than the payment of money, but when the obligation which the defendant has failed to perform consists only in the payment of money the rule of damages is that laid down by article 1108 of the Civil Code, which is as follows:

"Should the obligation consist in the payment of a sum of money, and the debtor should be in default, the indemnity for losses and damages, should there not be a stipulation to the contrary, shall consist in the payment of the interest agreed upon, and should there be no agreement, in that of the legal interest.

"Until another rate is fixed by the Government interest at the rate of six per cent per

annum shall be considered as legal."And the only damages which the plaintiff

can recover in this case for the nonpayment of the debt are those declared in this article, viz, interest at the rate of 6 per cent per annum. This being a mercantile contract the interest should commence to run from the time the debt became due. (Art. 341 of the Code of Commerce.)

It is to be observed, moreover, that the plaintiff introduced no evidence showing the amount of his damages. The two mercantile experts whom he presented as witnesses testified that, from the examination they had already made, it would not be possible for them to state how much the plaintiff's damages were. The plaintiff, after they had testified, caused them to make a further examination of his books, and after the evidence in the case had been closed, made an application to the court to be allowed to present the result of this examination. The court refused to open the case for this purpose, to which refusal the plaintiff excepted. The order made by the court in this respect falls within section 141 of the Code of Civil Procedure, and was not subject to exception.

The result of an examination of the whole case is that from the sum of 10,217.75 pesos, the value of the goods sold and delivered by the plaintiff to the defendant, there should be deducted the sum of 2,235.95 pesos, on account of the bill of exchange hereinbefore referred to. The defendant is not entitled to recover any damages on account of the attachment of the goods procured by the plaintiff, for which he was allowed by the court below 6,347.75 pesos. The plaintiff therefore, is entitled to judgment against the defendant for the sum of 7,981.80 pesos, with interest at the rate of six per cent per annum from the 1st day of January,, 1894, until the amount is paid, and the costs of this suit.

The judgment of the court below is reversed and the case remanded, with instructions to enter judgment for the plaintiff for 7, 981.80 pesos, with thereon at 6 per cent per annum from the 1st day of January, 1894, and for costs. No costs will be allowed to either party in this court. So ordered.

Arellano, C.J., Torres, Johnson and Carson, JJ., concur.

Mapa, J., I concur with the result.

FIRST DIVISION

[G.R. No. 133107. March 25, 1999.]

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.

COURT OF APPEALS and FELIPE LUSTRE, respondents.

Valdez Gonzales Lucero & Associates for petitioner.

F. Washington Lustre for private respondent.

SYNOPSIS

In March 1991, private respondent Atty. Felipe Lustre purchased a Toyota Corolla. He made a down payment of P164,620.00, the balance of which was to be paid in 24 equal monthly installments thru RCBC as the financing agent. He issued 24 postdated checks in the amount of P14,976.00 each. All the checks were thereafter encashed and debited from private respondent's account, except for the check representing the payment for August 1991 which was unsigned and because of which the amount representing it was recalled and re-credited to private respondent's account. Because of the recall, the last two checks dated February 10, 1993 and March 10, 1993 were no longer presented for payment, purportedly in conformity with petitioner bank's procedure. It demanded payment of the balance including liquidated damages, but private respondent refused to pay, prompting petitioner to file an action for replevin and damages before the RTC. Private respondent in his answer interposed a counterclaim for damages. The RTC decided against petitioner (plaintiff) and granted the counterclaim of private respondent for moral and exemplary damages and attorney's fees. The Court of Appeals affirmed the RTC decision. In its appeal before the Supreme Court, petitioner contended that private respondent's check representing the fifth installment was "not encashed," such that the installment for August 1991 was not paid, hence, by virtue of the acceleration clause in the Chattel Mortgage executed by private respondent, petitioner was justified in treating the entire balance as due and demandable, and despite its demand private respondent refused to pay. In sum, petitioner imputed delay on private respondents.

Article 1170 of the Civil Code states that those who in the performance of their obligations are guilty of delay are liable for damages. The delay in the performance of the obligation, however, must either be malicious or negligent. Thus, assuming that private respondent was guilty of delay in the payment of the value of the unsigned check, private respondent can not be held liable for damages. There is no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check. If there was omission on his part, such was a mere "inadvertence."

SYLLABUS

1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF ADHESION; JUST AS BINDING AS ORDINARY CONTRACTS. — It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se; they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.

2.ID.; ID.; ID.; IF TERMS THEREOF ARE CLEAR, LITERAL MEANING OF ITS STIPULATION SHALL CONTROL. — While ambiguities in a contract of adhesion are to be construed against the party that prepared the same, this rule applies only if the stipulations in such contract are obscure or ambiguous. If the terms thereof are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. In the latter case, there would be no need for construction.

3.ID.; ID.; DELAY; MUST BE EITHER MALICIOUS OR NEGLIGENT. — Article 1170 of the Civil Code states that those who in the performance of their obligations are guilty of delay are liable for damages. The delay in the performance of the obligation, however, must be either malicious or negligent. Thus, assuming that private respondent was guilty of delay in the payment of the value of the unsigned check, private respondent cannot be held liable for damages. There is no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check.

4.ID.; DAMAGES; LACK OF GOOD FAITH MADE PETITIONER LIABLE FOR DAMAGES IN CASE AT BAR. — As pointed out by the trial court, this whole controversy could have been avoided if only petitioner bothered to call up private respondent and ask him to sign the check. Good faith not only in compliance with its contractual obligations, but also in observance of the standard in human relations, for every person "to act with justice, give everyone his due, and observe honesty and good faith," behooved the bank to do so. Failing thus, petitioner is liable for damages caused to private respondent. These include moral damages for the mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation suffered by the latter. To deter others from emulating petitioner's callous example, we affirm the award of exemplary damages. As exemplary damages are warranted, so are attorney's fees.

5.ID.; ID.; AWARDED DAMAGES IN CASE AT BAR IS EXCESSIVE. — We, however, find excessive the amount of damages awarded by the trial court in favor of private respondent with respect to his counterclaims and, accordingly, reduce the same as follows: (a) Moral damages - from P200,000.00 to P100,000.00, (b) Exemplary damages - from P100,000.00 to P75,000.00, (c) Attorney's fees - from P50,000.00 to P30,000.00.

D E C I S I O N

KAPUNAN, J p:

A simple telephone call and an ounce of good faith on the part of petitioner could have prevented the present controversy.

On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the purchase price to be paid in 24 equal monthly installments. Private respondent thus issued 24 postdated checks for the amount of P14,976.00 each. The first was dated April 10, 1991; subsequent checks were dated every 10th day of each succeeding month.

To secure the balance, private respondent executed a promissory note 1 and a contract of chattel mortgage 2 over the vehicle in favor of Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph 11 thereof, provided for an acceleration clause stating that should the mortgagor default in the payment of any installment, the whole amount remaining unpaid shall become due. In addition, the mortgagor shall be liable for 25% of the principal due as liquidated damages.

On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to petitioner Rizal Commercial Banking Corporation (RCBC).

All the checks dated April 10, 1991 to January 10, 1993 were thereafter encashed and debited by RCBC from private respondent's account, except for RCBC Check No. 279805 representing the payment for August 10, 1991, which was unsigned. Previously, the amount represented by RCBC Check No. 279805 was debited from private respondent's account but was later recalled and re-credited to him. Because of the recall, the last two checks, dated February 10, 1993 and March 10, 1993, were no longer presented for payment. This was purportedly in conformity with petitioner bank's procedure that once a client's

account was forwarded to its account representative, all remaining checks outstanding as of the date the account was forwarded were no longer presented for payment.

On the theory that respondent defaulted in his payments, the check representing the payment for August 10, 1991 being unsigned, petitioner, in a letter dated January 21, 1993, demanded from private respondent the payment of the balance of the debt, including liquidated damages. The latter refused, prompting petitioner to file an action for replevin and damages before the Pasay City Regional Trial Court (RTC). Private respondent, in his Answer, interposed a counterclaim for damages.

After trial, the RTC 3 rendered a decision disposing of the case as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

I.The complaint, for lack of cause of action, is hereby DISMISSED and plaintiff RCBC is hereby ordered,

A.To accept the payment equivalent to the three checks amounting to a total of P44,938.00, without interest

B.To release/cancel the mortgage on the car . . . upon payment of the amount of P44,938.00 without interest.

C.To pay the cost of suit

II.On The Counterclaim

A.Plaintiff RCBC to pay Atty. Lustre the amount of P200,000.00 as moral damages.

B.RCBC to pay P100,000.00 as exemplary damages.

C.RCBC to pay Atty. Obispo P50,000.00 as Attorney's fees. Atty. Lustre is not entitled to any fee for lawyering for himself.

All awards for damages are subject to payment of fees to be assessed by the Clerk of Court, RTC, Pasay City.

SO ORDERED.

On appeal by petitioner, the Court of Appeals affirmed the decision of the RTC, thus:

We . . . concur with the trial court's ruling that the Chattel Mortgage contract being a contract of adhesion — that is, one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto . . . — is to be strictly construed against appellant bank which prepared the form Contract . . . . Hence . . . paragraph 11 of the Chattel Mortgage contract [containing the acceleration clause] should be construed to cover only deliberate and advertent failure on the part of the mortgagor to pay an amortization as it became due in line with the consistent holding of the Supreme Court construing obscurities and ambiguities in the restrictive sense against the drafter thereof . . . in the light of Article 1377 of the Civil Code.

In the case at bench, plaintiff-appellant's imputation of default to defendant-appellee rested solely on the fact that the 5th check issued by appellee . . . was recalled for lack of signature. However, the check was recalled only after the amount covered

thereby had been deducted from defendant-appellee's account, as shown by the testimony of plaintiff's own witness Francisco Bulatao who was in charge of the preparation of the list and trial balances of bank customers . . . . The "default" was therefore not a case of failure to pay, the check being sufficiently funded, and which amount was in fact already debitted [sic] from appellee's account by the appellant bank which subsequently re-credited the amount to defendant-appellee's account for lack of signature. All these actions RCBC did on its own without notifying defendant until sixteen (16) months later when it wrote its demand letter dated January 21, 1993.

 

Clearly, appellant bank was remiss in the performance of its functions for it could have easily called the defendant's attention to the lack of signature on the check and sent the check to, or summoned, the latter to affix his signature. It is also to be noted that the demand letter contains no explanation as to how defendant-appellee incurred arrearages in the amount of P66,255.70, which is why defendant-appellee made a protest notation thereon.

Notably, all the other checks issued by the appellee dated subsequent to August 10, 1991 and dated earlier than the demand letter, were duly encashed. This fact should have already prompted the appellant bank to review its action relative to the unsigned check. . . . 4

We take exception to the application by both the trial and appellate courts of Article 1377 of the Civil Code, which states:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. 5 It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 6 Nevertheless, contracts of adhesion are not invalid per se; 7 they are not entirely prohibited. 8The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 9

While ambiguities in a contract of adhesion are to be construed against the party that prepared the same, 10 this rule applies only if the stipulations in such contract are obscure or ambiguous. If the terms thereof are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. 11 In the latter case, there would be no need for construction. 12

Here, the terms of paragraph 11 of the Chattel Mortgage Contract 13 are clear. Said paragraph states:

11.In case the MORTGAGOR fails to pay any of the installments, or to pay the interest that may be due as provided in the said promissory note, the whole amount remaining unpaid therein shall immediately become due and payable and the mortgage on the property (ies) herein-above described may be foreclosed by the MORTGAGEE, or the MORTGAGEE may take any other legal action to enforce collection of the obligation hereby secured, and in either case the MORTGAGOR further agrees to pay the MORTGAGEE an additional sum of 25% of the principal due and unpaid, as liquidated damages, which said sum shall become part thereof. The MORTGAGOR hereby waives reimbursement of the amount heretofore paid by him/it to the MORTGAGEE.

The above terms leave no room for construction. All that is required is the application thereof.

Petitioner claims that private respondent's check representing the fifth installment was "not encashed," 14 such that the installment for August 1991 was not paid. By virtue of paragraph 11 above, petitioner submits that it "was justified in treating the entire balance of the obligation as due and

demandable." 15 Despite demand by petitioner, however, private respondent refused to pay the balance of the debt. Petitioner, in sum, imputes delay on the part of private respondent.

We do not subscribe to petitioner's theory.

Article 1170 of the Civil Code states that those who in the performance of their obligations are guilty of delay are liable for damages. The delay in the performance of the obligation, however, must be either malicious or negligent. 16 Thus, assuming that private respondent was guilty of delay in the payment of the value of the unsigned check, private respondent cannot be held liable for damages. There is no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check. Indeed, we agree with the Court of Appeals' finding that such omission was mere "inadvertence" on the part of private respondent. Toyota salesperson Jorge Geronimo testified that he even verified whether private respondent had signed all the checks and in fact returned three or four unsigned checks to him for signing:

Atty. Obispo:

After these receipts were issued, what else did you do about the transaction?

A:During our transaction with Atty. Lustre, I found out when he issued to me the 24 checks, I found out 3 to 4 checks are unsigned and I asked him to sign these checks.

Atty. Obispo:

What did you do?

A:I asked him to sign the checks. After signing the checks, I reviewed again all the documents, after I reviewed all the documents and found out that all are completed and the downpayments was completed, we released to him the car. 17

Even when the checks were delivered to petitioner, it did not object to the unsigned check.

In view of the lack of malice or negligence on the part of private respondent, petitioner's blind and mechanical invocation of paragraph 11 of the contract of chattel mortgage was unwarranted.

Petitioner's conduct, in the light of the circumstances of this case, can only be described as mercenary. Petitioner had already debited the value of the unsigned check from private respondent's account only to re-credit it much later to him. Thereafter, petitioner encashed checks subsequently dated, then abruptly refused to encash the last two. More than a year after the date of the unsigned check, petitioner, claiming delay and invoking paragraph 11, demanded from private respondent payment of the value of said check and that of the last two checks, including liquidated damages. As pointed out by the trial court, this whole controversy could have been avoided if only petitioner bothered to call up private respondent and ask him to sign the check. Good faith not only in compliance with its contractual obligations, 18 but also in observance of the standard in human relations, for every person "to act with justice, give everyone his due, and observe honesty and good faith," 19 behooved the bank to do so. cdasia

Failing thus, petitioner is liable for damages caused to private respondent. 20 These include moral damages for the mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation suffered by the latter.21 The trial court found that private respondent was

[a] client who has shared transactions for over twenty years with a bank . . . . The shabby treatment given the defendant is unpardonable since he was put to shame and embarrassment after the case was filed in Court. He is a lawyer in his own right, married to another member of the bar. He sired children who are all professionals in their chosen field. He is known to the community of golfers with whom he gravitates. Surely, the filing of the case made defendant feel bad and bothered.

To deter others from emulating petitioner's callous example, we affirm the award of exemplary damages. 22 As exemplary damages are warranted, so are attorney's fees. 23

We, however, find excessive the amount of damages awarded by the trial court in favor of private respondent with respect to his counterclaims and, accordingly, reduce the same as follows:

(a)Moral damagesfrom P200,000.00 to P100,000.00,

(b)Exemplary damagesfrom P100,000.00 to P75,000.00,

(c)Attorney's feesfrom P50,000.00 to P30,000.00.

WHEREFORE, subject to these modifications, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., Melo and Pardo, JJ., concur.

SECOND DIVISION

[G.R. No. 145483. November 19, 2004.]

LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL INTERNATIONAL, INC., respondent.

D E C I S I O N

CHICO-NAZARIO, J p:

This is a petition for review seeking to set aside the Decision 1 of the Court of Appeals in CA-G.R. CV No. 54334 and its Resolution denying petitioner's motion for reconsideration.

The factual antecedents of this case are as follows:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts.

From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine

parts. Acceding to this request, respondent furnished petitioner with a formal quotation, 2 thus:

May 31, 1989

MINQ-6093

LORENZO SHIPPING LINES

Pier 8, North Harbor

Manila

SUBJECT: PARTS FOR ENGINE MODEL

MITSUBISHI 6UET 52/60

Dear Mr. Go:

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

DescriptionQty.Unit PriceTotal Price

Nozzle Tip6 pcs.P5,520.0033,120.00

Plunger & Barrel6 pcs.27,630.00165,780.00

Cylinder Head2 pcs.1,035,000.002,070,000.00

Cylinder Liner1 set477,000.00

——————

TOTAL PRICE FOBP2,745,900.00

MANILA——————

DELIVERY: Within 2 months after receipt of firm order. cAaDCE

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal Installment[s] not to exceed 90 days.

We trust you find our above offer acceptable and look forward to your most valued order.

Very truly yours,

(SGD) HENRY PAJARILLO

Sales Manager

Petitioner thereafter issued to respondent Purchase Order No. 13839, 3 dated 02 November 1989, for the procurement of one set of cylinder liner, valued at

P477,000, to be used for M/V Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase order:

Name of DescriptionQty.AmountCYL. LINER M/E1 SETP477,000.00NOTHING FOLLOW

INV. #TERM OF PAYMENT:25% DOWN PAYMENT

5 BI-MONTHLY INSTALLMENT[S]

Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks 4 to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner.

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

On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner.

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

Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices 7 evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared.

Respondent thereafter sent a Statement of Account dated 15 November 1990 8 to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02 January 1991 9 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991 10 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale.

Shortly thereafter, another demand letter dated 27 March 1991 11 was furnished petitioner by respondent's counsel requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees. THcaDA

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint, 12 respondent (plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages.

On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court. 13 Aside from the prayer for the issuance of writ of preliminary attachment, the amendments also pertained to the issuance by petitioner of the postdated checks and the amounts of damages claimed.

In an Order dated 25 July 1991, 14 the court a quo granted respondent's prayer for the issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment 15 attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order 16 lifting the levy on petitioner's properties and the garnishment of its bank accounts.

Petitioner afterwards filed its Answer 17 alleging therein that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order" 18 from petitioner. Petitioner likewise sought counterclaims for moral damages, exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.

Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991. 19The amendment introduced dealt solely with the number of postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine postdated checks were involved, in its second amended complaint, respondent claimed that petitioner actually issued ten postdated checks. Despite the opposition by petitioner, the trial court admitted respondent's Second Amended Complaint with Preliminary Attachment. 20

Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners) 21 alleging therein that "[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of obsolescence and deterioration" 22 to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This motion, unopposed by respondent, was granted by the trial court through the Order of 17 March 1991. 23

After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:

WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay P50,000.00 to the defendant as and by way of attorney's fees. 24

The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and compensatory damages were dismissed for insufficiency of evidence. IaCHTS

Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of merit. 25

Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals 26 which reversed and set aside the Decision of the court a quo. The appellate court brushed aside petitioner's claim that time was of the essence in the contract of sale between the parties herein considering the fact that a significant period of time had lapsed between respondent's offer and the issuance by petitioner of its purchase orders. The dispositive portion of the Decision of the appellate court states:

 

WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per annum reckoned from May, 1991. 27

The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of Article 1169 of the Civil Code which provides:

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

Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.

On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but this was denied through the resolution of 06 October 2000. 28 Hence, this petition for review which basically raises the issues of whether or not respondent incurred delay in performing its obligation under the contract of sale and whether or not said contract was validly rescinded by petitioner.

That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that its obligation to pay fully the purchase price was extinguished because the adverted contract was validly terminated due to respondent's failure to deliver the cylinder liners within the two-month period stated in the formal quotation dated 31 May 1989.

The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to disregard the terms of the contract considering that time was of the essence thereof?

In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention. 29 Petitioner insists that although its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to petitioner. 30 Petitioner theorizes that the quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of the proposed terms of the contract of sale. 31 Thus, petitioner is of the view that these two documents "cannot be taken separately as if there were two distinct contracts." 32 We do not agree.

It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control. 33 However, in order to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. 34 While this Court recognizes the principle that contracts are respected as the law between the contracting parties, this principle is tempered by the rule that the intention of the parties is primordial 35 and "once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms."36

In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody the terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in the formal quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first cylinder liner and the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the second cylinder liner. While the quotation provided by respondent evidently stated that the cylinder liners were supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did not indicate the due date of delivery of the second cylinder liner. cIECaS

In the case of Bugatti v. Court of Appeals, 37 we reiterated the principle that "[a] contract undergoes three distinct stages — preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof."

In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject contract of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or tendered a counter-offer to respondent while the latter could have, under the pertinent provision of the Civil Code, 38withdrawn or modified the same. The parties were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed, renegotiated prior to the issuance of Purchase Order No. 13839.

During the hearing of the case on 28 January 1993, Pajarillo testified as follows:

Q:You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder liner, did you not?

A:Yes sir.

Q:I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that the delivery of the cylinder liner will be made in two months' time from the time you received the confirmation of the order. Is that correct?

A:Yes sir.

Q:Now, after you made the formal quotation which is Exhibit A how long a time did the defendant make a confirmation of the order?

A:After six months.

Q:And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?

A:Yes sir.

Q:Now, in the purchase order dated November 2, 1989 there appears only the date the terms of payment which you required of them of 25% down payment, now, it is stated in the purchase order the date of delivery, will you explain to the court why the date of delivery of the cylinder liner was not mentioned in the purchase order which is the contract between you and Lorenzo Shipping Corporation?

A:When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired [with] our supplier in Japan to give us the price and delivery of that item. When we received that quotation from our supplier it is stated there that they can deliver within two months but we have to get our confirmed order within June.

Q:But were you able to confirm the order from your Japanese supplier on June of that year?

A:No sir.

Q:Why? Will you tell the court why you were not able to confirm your order with your Japanese supplier?

A:Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.

Q:And it was only on November 2, 1989 when they gave you the purchase order?

A:Yes sir.

Q:So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the order with your Japanese supplier after receiving the purchase order dated November 2, 1989?

A:Only when Lorenzo Shipping Corporation will give us the down payment of 25%. 39

For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the following manner:

WITNESS:

This term said 25% upon delivery. Subsequently, in the final contract, what was agreed upon by both parties was 25% down payment. HTcDEa

Q:When?

A:Upon confirmation of the order.

xxx xxx xxx

Q:And when was the down payment supposed to be paid?

A:It was not stated when we were supposed to receive that. Normally, we

expect to receive at the earliest possible time. Again, that would depend on the customers. Even after receipt of the purchase order which was what happened here, they re-negotiated the terms and sometimes we do accept that.

Q:Was there a re-negotiation of this term?

A:This offer, yes. We offered a final requirement of 25% down payment upon delivery.

Q:What was the re-negotiated term?

A:25% down payment.

Q:To be paid when?

A:Supposed to be paid upon order. 40

The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the above testimonies of Pajarillo and Kanaan, Jr.

Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011 yet it utterly failed to adduce any justification as to why said documents contained terms which are at variance with those stated in the quotation provided by respondent. The only plausible reason for such failure on the part of petitioner is that the parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in the terms of the contract between respondent and petitioner was caused by the latter when it omitted the date of delivery of the cylinder liners in the purchase orders and varied the term with respect to the due date of the down payment, 41 said obscurity must be resolved against it. 42

 

Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti, 43 instructive. There, we held that —

When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of the contract. . . .

In such cases, the delivery must be made within a reasonable time.

The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of anything to show that an immediate delivery intended. . . .

We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the essence in the subject contracts of sale.

In addition, we quote, with approval, the keen observation of the Court of Appeals:

. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and January 15, 1990, no specific date of delivery was indicated therein. If time was really of the essence as claimed by the appellee, they should have stated the same in the said purchase orders, and not merely relied on the quotation issued by the appellant considering the lapse of time between the quotation issued by the appellant and the purchase orders of the appellee. DSacAE

In the instant case, the appellee should have provided for an allowance of time and made the purchase order earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first week of January, 1990. In fact, the appellee should have cancelled the first purchase order when the cylinder liner was not delivered on the date it now says was necessary. Instead it issued another purchase order for the

second set of cylinder liner. This fact negates appellee's claim that time was indeed of the essence in the consummation of the contract of sale between the parties. 44

Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of the checks was 18 January 1990. As delivery of said checks could produce the effect of payment only when they have been cashed, 45respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the cylinder liners with its principal in Japan solely on the basis of its previously harmonious business relationship with petitioner.

As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party's subsequently treating the contract as still in force." 46 Petitioner's receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was "subject to verification." By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items.

We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to place the order for the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. 47

There having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should

not comply with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the obligation assumed thereunder. 48 The right, however, is not an unbridled one. This Court in the case of University of the Philippines v. De los Angeles, 49 speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denied that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis supplied)

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages. 50

Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party. THaDAE

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs.

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr. and Tinga, JJ ., concur.

SECOND DIVISION

[G.R. No. 176868. July 26, 2010.]

SOLAR HARVEST, INC., petitioner, vs. DAVAO CORRUGATED CARTON CORPORATION,respondent.

DECISION

NACHURA, J p:

Petitioner seeks a review of the Court of Appeals (CA) Decision 1 dated September 21, 2006 and Resolution 2 dated February 23, 2007, which denied petitioner's motion for reconsideration. The assailed Decision denied petitioner's claim for reimbursement for the amount it paid to respondent for the manufacture of corrugated carton boxes.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for petitioner's business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get the production underway, petitioner deposited, on March 31, 1998,

US$40,150.00 in respondent's US Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.

Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount paid. 3 On February 19, 2001, respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the former's warehouse 30 days from completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. It further alleged: AEScHa

6.That repeated follow-up was made by the plaintiff for the immediate production of the ordered boxes, but every time, defendant [would] only show samples of boxes and ma[k]e repeated promises to deliver the said ordered boxes.

7.That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d] to cancel the same and demand payment and/or refund from the defendant but the latter refused to pay and/or refund the US$40,150.00 payment made by the former for the ordered boxes. 4

In its Answer with Counterclaim, 5 respondent insisted that, as early as April 3, 1998, it had already completed production of the 36,500 boxes, contrary to petitioner's allegation. According to respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had been completed without waiting for petitioner's payment. Respondent stated that petitioner was to pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent averred that, on October 8, 1998, petitioner's representative, Bobby Que (Que), went to the factory and saw that the boxes were ready for pick up. On February 20, 1999, Que visited the factory

again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioner's transaction to ship bananas to China did not materialize. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60.00 per square meter for every month from April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay $15,400.00, plus interest, moral and exemplary damages, attorney's fees, and costs of the suit.

In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent already completed the initial order of 36,500 boxes and 14,000 boxes out of the second order. It maintained that respondent only manufactured a sample of the ordered boxes and that respondent could not have produced 14,000 boxes without the required pre-payments. 6

During trial, petitioner presented Que as its sole witness. Que testified that he ordered the boxes from respondent and deposited the money in respondent's account. 7 He specifically stated that, when he visited respondent's factory, he saw that the boxes had no print of petitioner's logo. 8 A few months later, he followed-up the order and was told that the company had full production, and thus, was promised that production of the order would be rushed. He told respondent that it should indeed rush production because the need for the boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the order because it was already late for them to meet their commitment to ship the bananas to China. 9 On cross-examination, Que further testified that China Zero Food, the Chinese company that ordered the bananas, was sending a ship to Davao to get the bananas, but since there were no cartons, the ship could not proceed. He said that, at that time, bananas from Tagum Agricultural Development Corporation (TADECO) were already there. He denied that petitioner made an additional order of 24,000 boxes. He explained that it took three years to refer the matter to counsel because respondent promised to pay. 10 HIaAED

For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October 1998 to inspect the boxes and that the latter got samples of them. In February 2000, they inspected the boxes again and Que got more samples. Estanislao said that petitioner did not pick up the boxes because the ship did not arrive. 11 Jaime Tan (Tan), president of respondent, also testified that his company finished production of the 36,500 boxes on April 3, 1998 and that petitioner made a second order of 24,000 boxes. He said that the agreement was for respondent to produce the boxes and for petitioner to pick them up from the warehouse. 12 He also said that the reason why petitioner did not pick up the boxes was that the

ship that was to carry the bananas did not arrive. 13 According to him, during the last visit of Que and Estanislao, he asked them to withdraw the boxes immediately because they were occupying a big space in his plant, but they, instead, told him to sell the cartons as rejects. He was able to sell 5,000 boxes at P20.00 each for a total of P100,000.00. They then told him to apply the said amount to the unpaid balance.

In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive. It thus dismissed the complaint and respondent's counterclaims, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and against the plaintiff and, accordingly, plaintiff's complaint is hereby ordered DISMISSED without pronouncement as to cost. Defendant's counterclaims are similarly dismissed for lack of merit.

SO ORDERED. 14

Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of merit. 15 The appellate court held that petitioner failed to discharge its burden of proving what it claimed to be the parties' agreement with respect to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more than two years, petitioner did not even demand for the delivery of the boxes. The CA added that even assuming that the agreement was for respondent to deliver the boxes, respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes. 16

Petitioner moved for reconsideration, 17 but the motion was denied by the CA in its Resolution of February 23, 2007. 18

In this petition, petitioner insists that respondent did not completely manufacture the boxes and that it was respondent which was obliged to deliver the boxes to TADECO. cCTESa

We find no reversible error in the assailed Decision that would justify the grant of this petition.

Petitioner's claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code, which reads:

Art. 1191.The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law, which provides:

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

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1)When the obligation or the law expressly so declares; or

(2)When from the nature and the circumstances of the obligation it appears that the

designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or 

(3)When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties' respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of the present article, 19 that is, the other party would incur in delay only from the moment the other party demands fulfillment of the former's obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. cEDaTS

Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a "follow-up" upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioner's witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation.

Even assuming that a demand had been previously made before filing the present case, petitioner's claim for reimbursement would still fail, as the circumstances would show that respondent was not guilty of breach of contract.

The existence of a breach of contract is a factual matter not usually reviewed in a petition for review under Rule 45. 20The Court, in petitions for review, limits its inquiry only to questions of law. After all, it is not a trier of facts, and findings of fact made by the trial court, especially when reiterated by the CA, must be given great respect if not considered as final. 21 In dealing with this petition, we will not veer away from this doctrine and will thus sustain the factual findings of the CA, which we find to be adequately supported by the evidence on record.

As correctly observed by the CA, aside from the pictures of the finished boxes and the production report thereof, there is ample showing that the boxes had already been manufactured by respondent. There is the testimony of Estanislao who accompanied Que to the factory, attesting that, during their first visit to the company, they saw the pile of petitioner's boxes and Que took samples thereof. Que, petitioner's witness, himself confirmed this incident. He testified that Tan pointed the boxes to him and that he got a sample and saw that it was blank. Que's absolute assertion that the boxes were not manufactured is, therefore, implausible and suspicious.

In fact, we note that respondent's counsel manifested in court, during trial, that his client was willing to shoulder expenses for a representative of the court to visit the plant and see the boxes. 22 Had it been true that the boxes were not yet completed, respondent would not have been so bold as to challenge the court to conduct an ocular inspection of their warehouse. Even in its Comment to this petition, respondent prays that petitioner be ordered to remove the boxes from its factory site, 23 which could only mean that the boxes are, up to the present, still in respondent's premises.

We also believe that the agreement between the parties was for petitioner to pick up the boxes from respondent's warehouse, contrary to petitioner's allegation. Thus, it was due to petitioner's fault that the boxes were not delivered to TADECO. HCacTI

Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the boxes within 30 days from payment, as alleged in the Complaint. Its sole witness, Que, was not even competent to testify on the terms of the agreement and, therefore, we cannot give much credence to his testimony. It appeared from the testimony of Que that he did not personally place the order with Tan, thus:

Q.No, my question is, you went to Davao City and placed your order there?

A.I made a phone call.

Q.You made a phone call to Mr. Tan?

A.The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr. Tan.

Q.So, your first statement that you were the one who placed the order is not true?

A.That's true. The Solar Harvest made a contact with Mr. Tan and I deposited the money in the bank.

Q.You said a while ago [t]hat you were the one who called Mr. Tan and placed the order for 36,500 boxes, isn't it?

A.First time it was Mr. Alfred Ong.

Q.It was Mr. Ong who placed the order[,] not you?

A.Yes, sir. 24

Q.Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?

A.Yes, sir. 25

Moreover, assuming that respondent was obliged to deliver the boxes, it could not have complied with such obligation. Que, insisting that the boxes had not been manufactured, admitted that he did not give respondent the authority to deliver the boxes to TADECO:

Q.Did you give authority to Mr. Tan to deliver these boxes to TADECO?

A.No, sir. As I have said, before the delivery, we must

have to check the carton, the quantity and quality. But I have not seen a single carton.

Q.Are you trying to impress upon the [c]ourt that it is only after the boxes are completed, will you give authority to Mr. Tan to deliver the boxes to TADECO[?] DAEcIS

A.Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan to rush the carton but not. . . 26

Q.Did you give any authority for Mr. Tan to deliver these boxes to TADECO?

A.Because I have not seen any of my carton.

Q.You don't have any authority yet given to Mr. Tan?

A.None, your Honor. 27

Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes within its premises.

In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the evidence having shown that respondent did not commit any breach of its contractual obligation. As previously stated, the subject boxes are still within respondent's premises. To put a rest to this dispute, we therefore relieve respondent from the burden of having to keep the boxes within its premises and, consequently, give it the right to dispose of them, after petitioner is given a period of time within which to remove them from the premises.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In addition, petitioner is given a period of 30 days from notice within which to cause the removal of the 36,500 boxes from respondent's warehouse. After the lapse of said period and petitioner fails to effect such removal, respondent shall have the right to dispose of the boxes in any manner it may deem fit.

SO ORDERED.

Carpio, Peralta, Abad and Mendoza, JJ., concur.

FIRST DIVISION

[G.R. No. 150843. March 14, 2003.]

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ, respondents.

Quasha Ancheta Peña Nolasco for petitioner.

Candelaria Candelaria & Candelaria Law Firm and Bello Gozon Elma Parel Asuncion & Lucila for private respondents.

SYNOPSISRespondents-spouses Dr. Daniel

Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of petitioner Cathay Pacific Airways, Ltd., and are Gold Card members of its Marco Polo Club. The Vazquezes, together with their maid and two friends, Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and business. For their return flight to Manila, they were booked on Cathay's Flight CX-905 Business Class Section. When boarding time was announced, a ground attendant approached Dr. Vazquez and told him that the Vazquezes' accommodations were upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their guests, in the Business Class; and moreover, they were going to discuss business matters during the flight. Dr. Vazquez continued to refuse, so the ground stewardess told them that if they would not avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. Upon their return to Manila, the Vazquezes instituted before the Regional Trial Court of Makati City an action for damages against Cathay. In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the next better class of accommodation, whenever an opportunity arises, such as when a certain section is fully booked. Priority in upgrading is given to its frequent flyers, who are considered favored passengers, like the Vazquezes. The trial court found for the Vazquezes and awarded them damages. On appeal by the petitioner, the Court of Appeals deleted the award for exemplary damages; and it reduced the awards for moral and nominal

damages for each of the Vazquezes to P250,000 and P50,000, respectively, and the attorney's fees and litigation expenses to P50,000 for both of them. Hence this petition.

The Supreme Court partly granted the petition. According to the Court, the Vazquezes should have been consulted first whether they wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat assignments were given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a better accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding passes. They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes. The Court, however, was not convinced that the upgrading or the breach of contract was attended by fraud or bad faith. The Vazquezes were not induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of material facts. The attendant was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. The attendant might have failed to consider the remedy of offering the First. Class seats to other passengers. But, the Court found no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment. The Court set aside and deleted the award of moral damages and attorney's fees and reduced the award for nominal damages to P5,000.

SYLLABUS

1.CIVIL LAW; CONTRACTS; BREACH OF CONTRACT; DEFINED. — A contract is a meeting of minds between two persons whereby one agrees to give something or render some service to another for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the cause of the obligation which is established. Undoubtedly, a contract of carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave their consent to an agreement whose object was the transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to

Cathay. The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it constitute a breach of contract? Breach of contract is defined as the "failure without legal reason to comply with the terms of a contract." It is also defined as the "[f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract." acIASE

2.ID.; ID.; ID.; BY INSISTING ON THE UPGRADE, PETITIONER BREACHED ITS CONTRACT OF CARRIAGE WITH THE RESPONDENTS. — The contract between the parties was for Cathay to transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards indicating their seat assignments in the Business Class Section. However, during the boarding time, when the Vazquezes presented their boarding passes, they were informed that they had a seat change from Business Class to First Class. It turned out that the Business Class was overbooked in that there were more passengers than the number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of the Marco Polo Club, were upgraded from Business Class to First Class. We note that in all their pleadings, the Vazquezes never denied that they were members of Cathay's Marco Polo Club. They knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost when an opportunity arises. But, just like other privileges, such priority could be waived. The Vazquezes should have been consulted first whether they wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat assignments were given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a better accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding passes. They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.

3.ID.; ID.; NO PROOF OF FRAUD OR BAD FAITH ON THE PART OF PETITIONER AIRLINE'S EMPLOYEE. — Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them. Fraud has been defined to

include an inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not otherwise have been given. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud. We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathay's Marco Polo Club. She was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other passengers. But, we find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment. Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew; thus, the difference in fare between the First Class and Business Class at that time was $250. Needless to state, an upgrading is for the better condition and, definitely, for the benefit of the passenger.

4.CIVIL LAW; DAMAGES; MORAL DAMAGES; NOT APPLICABLE IN CASE AT BAR; AIRLINE NOT SHOWN TO HAVE ACTED FRAUDULENTLY OR IN BAD FAITH. — Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. Thus, case law establishes the following requisites for the award of moral damages: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code. Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the death of a passenger. Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith,

liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages. In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary upgrading of the Vazquezes' seat accommodation, was not attended by fraud or bad faith. The Court of Appeals' award of moral damages has, therefore, no leg to stand on.

 

5.ID.; ID.; EXEMPLARY DAMAGES; REQUISITE THAT THE ACT OF THE OFFENDER WAS ACCOMPANIED BY BAD FAITH OR DONE IN WANTON, FRAUDULENT OR MALEVOLENT MANNER, ABSENT IN CASE AT BAR. — The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner. Such requisite is absent in this case. Moreover, to be entitled thereto the claimant must first establish his right to moral, temperate, or compensatory damages. Since the Vazquezes are not entitled to any of these damages, the award for exemplary damages has no legal basis. And where the awards for moral and exemplary damages are eliminated, so must the award for attorney's fees.

6.ID.; ID.; NOMINAL DAMAGES; REDUCED. — The most that can be adjudged in favor of the Vazquezes for Cathay's breach of contract is an award for nominal damages under Article 2221 of the Civil Code. Worth noting is the fact that in Cathay's Memorandum filed with this Court, it prayed only for the deletion of the award for moral damages. It deferred to the Court of Appeals' discretion in awarding nominal damages; thus: As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of Appeals' discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the normally-appreciated gesture of petitioner to upgrade their accommodations, petitioner may have disturbed the respondents-spouses' wish to be with their companions (who traveled to Hong Kong with them) at the Business Class on their flight to Manila. Petitioner regrets that in its desire to provide the respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension ensued. Nonetheless, considering, that the breach was intended to give more benefit and advantage to the Vazquezes by upgrading their Business Class accommodation to First Class because of their valued status as Marco Polo members, we reduce the award for nominal damages to P5,000. EIAaDC

D E C I S I O N

DAVIDE, JR., C.J p:

Is an involuntary upgrading of an airline passenger's accommodation from one class to a more superior class at no extra cost a breach of contract of carriage that would entitle the passenger to an award of damages? This is a novel question that has to be resolved in this case.

The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as follows:

Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among the many routes it services is the Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The members enjoy several privileges, such as priority for upgrading of booking without any extra charge whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the Business Class Section is fully booked.

Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of Cathay and are Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes, together with their maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and business.

For their return flight to Manila on 28 September 1996, they were booked on Cathay's Flight CX-905, with departure time at 9:20 p.m. Two hours before their time of departure, the Vazquezes and their companions checked in their luggage at Cathay's check-in counter at Kai Tak Airport and were given their respective boarding passes, to wit, Business Class boarding passes for the Vazquezes and their two friends, and Economy Class for their maid. They then proceeded to the Business Class passenger lounge.

When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No. 28, which was designated for Business Class passengers. Dr. Vazquez presented his boarding pass to the ground stewardess, who in turn inserted it into an electronic machine reader or computer at the gate. The ground stewardess was assisted by a ground attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw a message that there was a "seat change" from Business Class to First Class for the Vazquezes.

Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes' accommodations were upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their guests, in the Business Class; and moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu that she could have other passengers instead transferred to the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that the Business Class was fully booked, and that since they were Marco Polo Club members they had the priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin.

Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathay's Country Manager, demanded that they be indemnified in the amount of P1million for the "humiliation and embarrassment" caused by its employees. They also demanded "a written apology from the management of Cathay, preferably a responsible person with a rank of no less than the Country Manager, as well as the apology from Ms. Chiu" within fifteen days from receipt of the letter.

In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathay's Country Manager Argus Guy Robson, informed the Vazquezes that Cathay would investigate the incident and get back to them within a week's time.

On 8 November 1996, after Cathay's failure to give them any feedback within its self-imposed deadline, the Vazquezes instituted before the Regional Trial Court of Makati City an action for damages against Cathay, praying for the payment to each of them the amounts of P250,000 as temperate damages; P500,000 as moral damages; P500,000 as exemplary or corrective damages; and P250,000 as attorney's fees.

In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay in Business Class, Ms. Chiu "obstinately, uncompromisingly and in a loud, discourteous and harsh voice threatened" that they could not board and leave with the flight unless they go to First Class, since the Business Class was overbooked. Ms. Chiu's loud and stringent shouting annoyed, embarrassed, and humiliated them because the incident was witnessed by all the other passengers waiting for boarding. They also claimed that they were

unjustifiably delayed to board the plane, and when they were finally permitted to get into the aircraft, the forward storage compartment was already full. A flight stewardess instructed Dr. Vazquez to put his roll-on luggage in the overhead storage compartment. Because he was not assisted by any of the crew in putting up his luggage, his bilateral carpal tunnel syndrome was aggravated, causing him extreme pain on his arm and wrist. The Vazquezes also averred that they "belong to the uppermost and absolutely top elite of both Philippine Society and the Philippine financial community, [and that] they were among the wealthiest persons in the Philippine[s]."

In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the next better class of accommodation, whenever an opportunity arises, such as when a certain section is fully booked. Priority in upgrading is given to its frequent flyers, who are considered favored passengers like the Vazquezes. Thus, when the Business Class Section of Flight CX-905 was fully booked, Cathay's computer sorted out the names of favored passengers for involuntary upgrading to First Class. When Ms. Chiu informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He then stood at the entrance of the boarding apron, blocking the queue of passengers from boarding the plane, which inconvenienced other passengers. He shouted that it was impossible for him and his wife to be upgraded without his two friends who were traveling with them. Because of Dr. Vazquez's outburst, Ms. Chiu thought of upgrading the traveling companions of the Vazquezes. But when she checked the computer, she learned that the Vazquezes' companions did not have priority for upgrading. She then tried to book the Vazquezes again to their original seats. However, since the Business Class Section was already fully booked, she politely informed Dr. Vazquez of such fact and explained that the upgrading was in recognition of their status as Cathay's valued passengers. Finally, after talking to their guests, the Vazquezes eventually decided to take the First Class accommodation.

Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act of disrespect against them (the Vazquezes). Assuming that there was indeed a breach of contractual obligation, Cathay acted in good faith, which negates any basis for their claim for temperate, moral, and exemplary damages and attorney's fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for exemplary damages and P300,000 as attorney's fees and litigation expenses.

 

During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was corroborated by his two friends who were with him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de Dios.

For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathay's policy of upgrading the seat accommodation of its Marco Polo Club members when an opportunity arises. The upgrading of the Vazquezes to First Class was done in good faith; in fact, the First Class Section is definitely much better than the Business Class in terms of comfort, quality of food, and service from the cabin crew. They also testified that overbooking is a widely accepted practice in the airline industry and is in accordance with the International Air Transport Association (IATA) regulations. Airlines overbook because a lot of passengers do not show up for their flight. With respect to Flight CX-905, there was no overall overbooking to a degree that a passenger was bumped off or downgraded. Yuen and Robson also stated that the demand letter of the Vazquezes was immediately acted upon. Reports were gathered from their office in Hong Kong and immediately forwarded to their counsel Atty. Remollo for legal advice. However, Atty. Remollo begged off because his services were likewise retained by the Vazquezes; nonetheless, he undertook to solve the problem in behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this case. For her part, Ms. Chiu denied that she shouted or used foul or impolite language against the Vazquezes. Ms. Barrientos testified on the amount of attorney's fees and other litigation expenses, such as those for the taking of the depositions of Yuen and Chiu.

In its decision 1 of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd., ordering the latter to pay each plaintiff the following:

a)Nominal damages in the amount of P100,000.00 for each plaintiff;

b)Moral damages in the amount of

P2,000,000.00 for each plaintiff;

c)Exemplary damages in the amount of P5,000,000.00 for each plaintiff;

d)Attorney's fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff; and

e)Costs of suit.

SO ORDERED.

According to the trial court, Cathay offers various classes of seats from which passengers are allowed to choose regardless of their reasons or motives, whether it be due to budgetary constraints or whim. The choice imposes a clear obligation on Cathay to transport the passengers in the class chosen by them. The carrier cannot, without exposing itself to liability, force a passenger to involuntarily change his choice. The upgrading of the Vazquezes' accommodation over and above their vehement objections was due to the overbooking of the Business Class. It was a pretext to pack as many passengers as possible into the plane to maximize Cathay's revenues. Cathay's actuations in this case displayed deceit, gross negligence, and bad faith, which entitled the Vazquezes to awards for damages.

On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001, 2 deleted the award for exemplary damages; and it reduced the awards for moral and nominal damages for each of the Vazquezes to P250,000 and P50,000, respectively, and the attorney's fees and litigation expenses to P50,000 for both of them.

The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the contract of carriage without the former's consent. There was a breach of contract not because Cathay overbooked the Business Class Section of Flight CX-905 but because the latter pushed through with the upgrading despite the objections of the Vazquezes.

However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be discourteous to, Dr. Vazquez, although it might seemed that way to

the latter, who was a member of the elite in Philippine society and was not therefore used to being harangued by anybody. Ms. Chiu was a Hong Kong Chinese whose fractured Chinese was difficult to understand and whose manner of speaking might sound harsh or shrill to Filipinos because of cultural differences. But the Court of Appeals did not find her to have acted with deliberate malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering the First Class accommodations to other passengers. Neither can the flight stewardess in the First Class Cabin be said to have been in bad faith when she failed to assist Dr. Vazquez in lifting his baggage into the overhead storage bin. There is no proof that he asked for help and was refused even after saying that he was suffering from "bilateral carpal tunnel syndrome." Anent the delay of Yuen in responding to the demand letter of the Vazquezes, the Court of Appeals found it to have been sufficiently explained.

The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which were denied by the Court of Appeals.

Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral damages has no basis, since the Court of Appeals found that there was no "wanton, fraudulent, reckless and oppressive" display of manners on the part of its personnel; and that the breach of contract was not attended by fraud, malice, or bad faith. If any damage had been suffered by the Vazquezes, it was damnum absque injuria, which is damage without injury, damage or injury inflicted without injustice, loss or damage without violation of a legal right, or a wrong done to a man for which the law provides no remedy. Cathay also invokes our decision in United Airlines, Inc. v. Court of Appeals 3where we recognized that, in accordance with the Civil Aeronautics Board's Economic Regulation No. 7, as amended, an overbooking that does not exceed ten percent cannot be considered deliberate and done in bad faith. We thus deleted in that case the awards for moral and exemplary damages, as well as attorney's fees, for lack of proof of overbooking exceeding ten percent or of bad faith on the part of the airline carrier.

On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for moral and nominal damages and attorney's fees in view of the breach of contract committed by Cathay for transferring them from the Business Class to First Class Section without prior notice or consent and over their vigorous objection. They likewise argue that the issuance of passenger tickets more than the seating capacity of each section of the plane is in itself fraudulent, malicious and tainted with bad faith.

The key issues for our consideration are whether (1) by upgrading the seat accommodation of the

Vazquezes from Business Class to First Class Cathay breached its contract of carriage with the Vazquezes; (2) the upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are entitled to damages.

We resolve the first issue in the affirmative.

A contract is a meeting of minds between two persons whereby one agrees to give something or render some service to another for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the cause of the obligation which is established. 4 Undoubtedly, a contract of carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave their consent to an agreement whose object was the transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.

The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it constitute a breach of contract?

Breach of contract is defined as the "failure without legal reason to comply with the terms of a contract." 5 It is also defined as the "[f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract." 6

In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger with confirmed reservation or the downgrading of a passenger's seat accommodation from one class to a lower class. In this case, what happened was the reverse. The contract between the parties was for Cathay to transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards indicating their seat assignments in the Business Class Section. However, during the boarding time, when the Vazquezes presented their boarding passes, they were informed that they had a seat change from Business Class to First Class. It turned out that the Business Class was overbooked in that there were more passengers than the number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of the Marco Polo Club, were upgraded from Business Class to First Class.

We note that in all their pleadings, the Vazquezes never denied that they were members of Cathay's Marco Polo Club. They knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost when an opportunity

arises. But, just like other privileges, such priority could be waived. The Vazquezes should have been consulted first whether they wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat assignments were given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a better accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding passes. They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.

 

We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad faith. Thus, we resolve the second issue in the negative.

Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them.

Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not otherwise have been given. 7

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud. 8

We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathay's Marco Polo Club. She was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider the

remedy of offering the First Class seats to other passengers. But, we find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment.

Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew; thus, the difference in fare between the First Class and Business Class at that time was $250. 9 Needless to state, an upgrading is for the better condition and, definitely, for the benefit of the passenger.

We are not persuaded by the Vazquezes' argument that the overbooking of the Business Class Section constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as amended, provides:

Sec 3.Scope. — This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or portions of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful act of non-accommodation.

It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does not amount to bad faith. 10 Here, while there was admittedly an overbooking of the Business Class, there was no evidence of overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was refused to board the aircraft.

Now we come to the third issue on damages.

The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000. Article 2220 of the Civil Code provides:

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

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. 11 Thus, case law establishes the following requisites for the award of moral damages: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code. 12

Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the death of a passenger. 13 Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages. 14

In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary upgrading of the Vazquezes' seat accommodation, was not attended by fraud or bad faith. The Court of Appeals' award of moral damages has, therefore, no leg to stand on.

The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner. 15 Such requisite is absent in this case. Moreover, to be entitled thereto the claimant must first establish his right to moral, temperate, or compensatory damages. 16 Since the Vazquezes are not entitled to

any of these damages, the award for exemplary damages has no legal basis. And where the awards for moral and exemplary damages are eliminated, so must the award for attorney's fees. 17

The most that can be adjudged in favor of the Vazquezes for Cathay's breach of contract is an award for nominal damages under Article 2221 of the Civil Code, which reads as follows:

Article 2221 of the Civil Code provides:

Article 2221.Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

Worth noting is the fact that in Cathay's Memorandum filed with this Court, it prayed only for the deletion of the award for moral damages. It deferred to the Court of Appeals' discretion in awarding nominal damages; thus:

As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of Appeals' discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the normally-appreciated gesture of petitioner to upgrade their accommodations, petitioner may have disturbed the respondents-spouses' wish to be with their companions (who traveled to Hong Kong with them) at the Business Class on their flight to Manila. Petitioner regrets that in its desire to provide the respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension ensued. 18

Nonetheless, considering, that the breach was intended to give more benefit and advantage to the Vazquezes by upgrading their Business Class accommodation to First Class because of their valued status as Marco Polo members, we reduce the award for nominal damages to P5,000.

Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of Appeals regarding the awards adjudged by the trial court:

We are not amused but alarmed at the lower court's unbelievable alacrity, bordering on the scandalous, to award excessive amounts as damages. In their complaint, appellees asked for P1 million as moral damages but the lower court awarded P4 million; they asked for P500,000.00 as exemplary damages but the lower court cavalierly awarded a whooping P10 million; they asked for P250,000.00 as attorney's fees but were awarded P2 million; they did not ask for nominal damages but were awarded P200,000.00. It is as if the lower court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the excessiveness of the total award invites the suspicion that it was the result of "prejudice or corruption on the part of the trial court."

The presiding judge of the lower court is enjoined to hearken to the Supreme Court's admonition in Singson vs. CA (282 SCRA 149 [1997]), where it said:

The well-entrenched principle is that the grant of moral damages depends upon the discretion of the court based on the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably and scandalously excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court . . .

and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not prey on international airlines for damage awards, like "trophies in a safari." After all neither the social standing nor prestige of the passenger should determine the extent to which he would suffer because of a wrong done, since the dignity affronted in the individual is a quality inherent in him and not conferred by these social indicators. 19

 

We adopt as our own this observation of the Court of Appeals.

WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages and attorney's fees are set aside and deleted, and the award for nominal damages is reduced to P5,000. DSCIEa

No pronouncement on costs.

SO ORDERED.

Vitug, Carpio and Azcuna, JJ., concur.

Ynares-Santiago, J., is on leave.

THIRD DIVISION

[G.R. No. 158911. March 4, 2008.]

MANILA ELECTRIC COMPANY, petitioner, vs. MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE PANADO, respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J p:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision 1 of the Court of Appeals (CA) dated December 16, 2002, ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy 2 moral and exemplary damages and attorney's fees, and the CA Resolution 3 dated July 1, 2003, denying petitioner's motion for reconsideration, be reversed and set aside.

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

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

On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines along Baesa, Quezon City (Exh. 7, p. 143,

Record). Attached to the letter was a list of establishments affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After deliberating on NPC's letter, Meralco decided to comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).

In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine all the establishments which are considered under NPC property in view of the fact that "the houses in the area are very close to each other" (Exh. 12). Shortly thereafter, a joint survey was conducted and the NPC personnel pointed out the electric meters to be disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).

In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).

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

men who accompanied the Meralco employees. After the electric power in Ramoy's apartment was cut off, the plaintiffs-lessees left the premises.

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

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

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

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

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

I

THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.

II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. 5

The petition is partly meritorious.

MERALCO admits 6 that respondents are its customers under a Service Contract whereby it is obliged to supply respondents with electricity. Nevertheless, upon request of the NPC, MERALCO disconnected its power supply to respondents on the ground that they were illegally occupying the NPC's right of way. Under the Service Contract, "[a] customer of electric service must show his right or proper interest over the property in order that he will be provided with and assured a continuous electric service." 7 MERALCO argues that since there is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents were among the illegal occupants of the NPC's right of way, MERALCO was justified in cutting off service to respondents.

Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or breach of contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code which provides:

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

In Radio Communications of the Philippines, Inc. v. Verchez, 8 the Court expounded on the nature of culpa contractual,thus:

"In culpa contractual . . . the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free

from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligationunless he can show extenuating circumstances, like proof of his exercise of due diligence . . . or of theattendance of fortuitous event, to excuse him from his ensuing liability. 9 (Emphasis supplied)

Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. The Court emphasized in Ridjo Tape & Chemical Corporation v. Court of Appeals 10 that "as a public utility, MERALCO has the obligation to discharge its functions with utmost care and diligence." 11

The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the utmost degree of care and diligence required of it. To repeat, it was not enough for MERALCO to merely rely on the Decision of the MTC

without ascertaining whether it had become final and executory. Verily, only upon finality of said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property, thus, are not entitled to the services of MERALCO.

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

 

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

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

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

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

Article 2220 of the Civil Code provides:

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

In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. This is contrary to public policy because, as discussed above, MERALCO, being a vital public utility, is expected to exercise utmost care and diligence in the performance of its obligation. It was incumbent upon MERALCO to do everything within its power to ensure that the improvements built by respondents are within the NPC's right of way before disconnecting their power supply. The Court emphasized in Samar II Electric Cooperative, Inc. v. Quijano 14 that:

Electricity is a basic necessity the generation and distribution of which is imbued with public interest, and itsprovider is a public utility subject to strict regulation by the State in the exercise of police power.Failure to comply with these regulations will give rise to the presumption of bad faith or abuse of right. 15 (Emphasis supplied)

Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance of its obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded feelings because of MERALCO's actions. 16 Furthermore, due to the lack of power supply, the lessees of his four apartments on subject lot left the premises. 17 Clearly, therefore, Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the effects on him of MERALCO's electric service disconnection. His co-respondents Matilde Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of damages they suffered.

It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez, Jr., 18 the Court held thus:

In order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental anguish, fright and the like. While respondent alleged in his complaint that he suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed to prove them during the trial. Indeed,

respondent should have taken the witness stand and should have testified on the mental anguish, serious anxiety, wounded feelings and other emotional and mental suffering he purportedly suffered to sustain his claim for moral damages. Mere allegations do not suffice; they must be substantiated by clear and convincing proof. No other person could have proven such damages except the respondent himself as they were extremely personal to him.

In Keirulf vs. Court of Appeals, we held:

"While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court, it is nevertheless essential that the claimant should satisfactorily show the existence of the factual basis of damages and its causal connection to defendant's acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court

held that there must be clear testimony on the anguish and other forms of mental suffering. Thus, if the plaintiff fails to take the witness stand and testify as to his/her social humiliation, wounded feelings and anxiety, moral damages cannot be awarded. In Cocoland Development Corporation vs. National Labor Relations Commission, the Court held that "additional facts must be pleaded and proven to warrant the grant of moral damages under the Civil Code, these being, . . . social humiliation, wounded feelings, grave anxiety, etc. that resulted therefrom."

. . . The award of moral damages must be anchored to a clear showing that respondent actually experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury. There was no better witness to this experience than respondent himself. Since respondent failed to testify on the witness stand, the trial court did not have any factual basis to award moral damages to him. 19(Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded moral damages. 20

With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and quasi-

contracts, the court may award exemplary damages if the defendant, in this case MERALCO, acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the same Code provides that such damages cannot be recovered as a matter of right and the adjudication of the same is within the discretion of the court.

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

Since the Court does not deem it proper to award exemplary damages in this case, then the CA's award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in the absence of stipulation, attorney's fees cannot be recovered except in cases provided for in said Article, to wit:

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

(1)When exemplary damages are awarded;

(2)When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

(3)In criminal cases of malicious prosecution against the plaintiff;

(4)In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5)Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;

(6)In actions for legal support;

(7)In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8)In actions for indemnity under workmen's compensation and employer's liability laws;

(9)In a separate civil action to recover civil liability arising from a crime;

(10)When at least double judicial costs are awarded;

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

In all cases, the attorney's fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees is DELETED.

No costs.

SO ORDERED.

Ynares-Santiago, Chico-Nazario, Nachura and Reyes, JJ., concur.

THIRD DIVISION

[G.R. No. 95641. September 22, 1994.]

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees.

D E C I S I O N

ROMERO, J p:

On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured failed to pay his premiums.

On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager. LLphil

These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured before Branch 40 RTC, Dagupan City against respondent insurance company.

There are two issues for resolution in this case:

(1)Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages?

(2)Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom?

From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed: llcd

"This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account.

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

If payment is made to our office, demand for an OFFICIAL RECEIPT."

On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitioner-insured for the amount of P1,609.65. 3 On the lower portion of the receipt the following is written in capital letters:

"Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us." 4

On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-insured Endorsement No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the insured.

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential.

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing rate of increase on the payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola also warned that should his demands be unsatisfied, he would sue for damages.

On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should he fail to pay the balance, the company's liability would cease to operate. 7

In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment had in fact been remitted to said company and why no official receipt had been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there was reason to believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this matter is cleared." 8

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided for in the letter. 9

The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation. LLjur

The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay the former the following:

"a)P1,703.65 as actual damages;

b)P200,000.00 as moral damages; and

c)P50,000.00 as exemplary damages;

2.To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and

3.To pay the costs."

In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed for. cdll

This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling subject insurance policy.

After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design or ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-insured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17, 1985; and (d) respondent insurance company's

apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign.

Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on these arguments:

 

"I

Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad faith of its own officers.

II

Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith.

III

Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad faith, because among others, it was Mr. Malapit — the person who committed the fraud — who sent and signed the notice of cancellation.

IV

Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the

Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants."

It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the same. LLphil

Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured was granted at an opportune moment i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of damages ordered by the lower court is unsustainable.

We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. 11 The facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interests and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance

company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.

Article 1910 thus reads:

"ART. 1910.The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly."

Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.: 14

"A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enable to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit."

Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 15

Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause; i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is respondent insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts. cdphil

The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown." 18

WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on

June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final payment thereof. cdrep

SO ORDERED.

Feliciano, Melo and Vitug, JJ., concur.

Bidin, J., is on leave.

SECOND DIVISION

[G.R. No. L-47851. October 3, 1986.]

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners, vs. THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION, respondents.

[G.R. No. L-47863. October 3, 1986.]

THE UNITED CONSTRUCTION CO., INC., petitioner, vs. COURT OF APPEALS, ET AL., respondents.

[G.R. No. L-47896. October 3, 1986.]

PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, vs. COURT OF APPEALS, ET AL.,respondents.

SYLLABUS

1.CIVIL LAW; ACT OF GOD; DEFINED. — An act of God has been defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (1 Corpus Juris 1174).

2.ID.; ID.; GENERAL RULE; REQUISITES TO EXEMPT OBLIGOR FROM LIABILITY. — The general rule is that no person shall be responsible for events which could not be foreseen or which, though foreseen, were inevitable (Article 1174, New Civil Code). To exempt the obligor from liability under this Article, for a breach of an obligation due to an "act of God", the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657). The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief.

3.ID.; ID.; INSTANCES WHEN THE RULE DOES NOT APPLY. — When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175) Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. It has also been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657)

4.ID.; QUASI-DELICTS; NEGLIGENCE EQUIVALENT TO BAD FAITH; — The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans, designs, specifications, and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks. Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379 ,4380) which may be in

point in this case, reads: "One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss."

5.REMEDIAL LAW; COURT OF APPEALS; FINDINGS OF FACTS CONCLUSIVE ON THE PARTIES AND ON THE SUPREME COURT; EXCEPTIONS. — It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this Court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the findings of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the Court of Appeals are contrary to those of the trial court; (8) said findings of facts are conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986).

D E C I S I O N

PARAS, J p:

These are petitions for review on certiorari of the November 28, 1977 decision of the Court of Appeals in CA G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila, Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order of the lower court dated December 8, 1971. The Court of Appeals in modifying the decision of the lower court included an award of an additional amount of P200,000.00 to the Philippine Bar Association to be paid jointly and severally by the defendant United Construction Co. and by the third-party defendants Juan F. Nakpil and Sons and Juan F. Nakpil.

The dispositive portion of the modified decision of the lower court reads: cdll

"WHEREFORE, judgment is hereby rendered:

"(a)Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman Ozaeta) to pay the plaintiff, jointly and severally, the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment;

"(b)Dismissing the complaint with respect to defendant Juan J. Carlos;

"(c)Dismissing the third-party complaint;

"(d)Dismissing the defendant's and third-party defendants' counterclaims for lack of merit;

"(e)Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman Ozaeta) to pay the costs in equal shares.

"SO ORDERED." (Record on Appeal, p. 521; Rollo, L-47851, p. 169).

The dispositive portion of the decision of the Court of Appeals reads:

"WHEREFORE, the judgment appealed from is modified to include an award of P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with interest at the legal rate from November 29, 1968 until full payment to be paid jointly and severally by defendant United Construction Co., Inc. and third party defendants (except Roman Ozaeta). In all other respects, the judgment dated September 21, 1971 as modified in the December 8, 1971 Order of the lower court is hereby affirmed with COSTS to be paid by the defendant and third party

defendant (except Roman Ozaeta) in equal shares.

"SO ORDERED."

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals, among other things, for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees. cdrep

These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated by this Court in the resolution of May 10, 1978 requiring the respective respondents to comment. (Rollo, L-47851, p. 172).

The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:

The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided to construct an office building on its 840 square meters lot located at the corner of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the president and general manager of said corporation. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The plans and specifications for the building were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966.

In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. The front columns of the building buckled, causing the building to tilt forward dangerously. The tenants vacated the building in view of its precarious condition. As a temporary remedial measure, the building was shored up by United Construction, Inc. at the cost of P13,661.28.

On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction, Inc. and its President and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building was accused

by defects in the construction, the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract.

 

Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications, alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. Carlos, President of the United Construction Co., Inc. as party defendant. LLjur

On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F. Nakpil presented a written stipulation which reads:

"1.That in relation to defendants' answer with counterclaims and third-party complaints and the third-party defendants Nakpil & Sons' answer thereto, the plaintiff need not amend its complaint by including the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties defendant.

2.That in the event (unexpected by the undersigned) that the Court should find after the trial that the above-named defendants Juan J. Carlos and United Construction Co., Inc. are free from any blame and liability for the collapse of the PBA Building, and should further find that the collapse of said building was due to defects and/or inadequacy of the plans, designs, and specifications prepared by the third-party defendants, or in the event that the Court may find Juan F. Nakpil and Sons and/or Juan F. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants, judgment may be rendered in whole or in part, as the case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by including the said Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant

and by alleging causes of action against them including, among others, the defects or inadequacy of the plans, designs, and specifications prepared by them and/or failure in the performance of their contract with plaintiff.

3.Both parties hereby jointly petition this Honorable Court to approve this stipulation." (Record on Appeal, pp. 274-275; Rollo, L-47851, p. 169).

Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among others, the parties agreed to refer the technical issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as Commissioner, charged with the duty to try the following issues:

"1.Whether the damage sustained by the PBA building during the August 2, 1968 earthquake had been caused, directly or indirectly, by:

(a)The inadequacies or defects in the plans and specifications prepared by third-party defendants;

(b)The deviations, if any, made by the defendants from said plans and specifications and how said deviations contributed to the damage sustained;

(c)The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building;

(d)The alleged failure to exercise the requisite degree of supervision expected of the architect, the contractor and/or the owner of the building;

(e)An act of God or a fortuitous event; and

(f)Any other cause not herein above specified.

2.If the cause of the damage suffered by the building arose from a combination of the above-enumerated factors, the degree or proportion in which each individual factor contributed to the damage sustained;

3.Whether the building is now a total loss and should be completely demolished or whether it may still be repaired and restored to a tenantable condition. In the latter case, the determination of the cost of such restoration or repair, and the value of any remaining construction, such as the foundation, which may still be utilized or availed of." (Record on Appeal pp. 275-276; Rollo, L-47851, p. 169).

Thus, the issues of this case were divided into technical issues and non-technical issues. As aforestated the technical issues were referred to the Commissioner. The non-technical issues were tried by the Court. prcd

Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a strong earthquake. The motions were opposed by the defendants and the matter was referred to the Commissioner. Finally, on April 30, 1979 the building was authorized to be demolished at the expense of the plaintiff, but not another earthquake of high intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970, caused further damage to the property. The actual demolition was undertaken by the buyer of the damaged building. (Record on Appeal, pp. 278-280; Ibid.).

After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the defects in the plans and specifications prepared by the third-party defendants' architects, deviations from said plans and specifications by the defendant contractors

and failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects and even the owners to exercise the requisite degree of supervision in the construction of subject building.

All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner.

The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full time supervision of the construction. The Court sees no legal or contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid.).

Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified by the Intermediate Appellate Court on November 28, 1977.

All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence, these petitions.

On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. They proposed to present a position paper on the liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent views on the design and plans as submitted by the experts procured by the parties. The motion having been granted, the amicus curiae were granted a period of 60 days within which to submit their position.

After the parties had all filed their comments, We gave due course to the petitions in Our Resolution of July 21, 1978.

The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.

The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion that the defects in the plans and specifications indeed existed. LLpr

Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No. 4131) and the 1966 Asep Code, the Commissioner added that even if it can be proved that the defects in the construction alone (and not in the plans and design) caused the damage to the building, still the deficiency in the original design and lack of specific

provisions against torsion in the original plans and the overload on the ground floor columns (found by all the experts including the original designer) certainly contributed to the damage which occurred. (Ibid, p. 174).

In their respective briefs petitioners, among others, raised the following assignments of errors: Philippine Bar Association claimed that the measure of damages should not be limited to P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co., Inc. and the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility and not the defective construction, poor workmanship, deviations from plans and specifications and other imperfections in the case of United Construction Co., Inc. or the deficiencies in the design, plans and specifications prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils object to the payment of the additional amount of P200,000.00 imposed by the Court of Appeals. UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13,661.28 while the Nakpils opposed the payment of damages jointly and solidarily with UCCI. cdll

The pivotal issue in this case is whether or not an act of God, — an unusually strong earthquake — which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence.

The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code, which provides:

"Art. 1723.The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans and specifications, or due to the defects in the ground. The contractor is likewise responsible for the damage if the edifice falls within the same period on account of defects in the construction or the use of materials of inferior quality furnished by him, or due to any violation of the terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable with the contractor.

Acceptance of the building, after completion, does not imply waiver of any of the causes of action by reason of any defect mentioned in the preceding paragraph.

The action must be brought within ten years following the collapse of the building."

 

On the other hand, the general rule is that no person shall be responsible for events which could not be foreseen or which, though foreseen, were inevitable (Article 1174, New Civil Code).

An act of God has been defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (1 Corpus Juris 1174).

There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to an "act of God, " the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it

were, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).

Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). LLjur

The negligence of the defendant and the third-party defendants petitioners was established beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant United Construction Co., Inc. was found to have made substantial deviations from the plans and specifications, and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision; while the third-party defendants were found to have inadequacies or defects in the plans and specifications prepared by them. As correctly assessed by both courts, the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August 2, 1968. For this reason the defendant and third-party defendants cannot claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).

It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on speculation surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the findings of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the Court of Appeals are contrary to those of the trial court; (8) said findings of facts are conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised on the supposed absence of

evidence and is contradicted by evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986).

It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On the contrary, the records show that the lower court spared no effort in arriving at the correct appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus curiae who were allowed to intervene in the Supreme Court.

In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that "while it is not possible to state with certainty that the building would not have collapsed were those defects not present, the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected," cannot be ignored.

The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse (and eventual complete collapse) of its building.

The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that the total amount required to repair the PBA building and to restore it to tenantable condition was P900,000.00 inasmuch as it was not initially a total loss. However, while the trial court awarded the PBA said amount as damages, plus unrealized rental income for one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of P200,000.00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92). LLphil

The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and UNITED question the additional award of P200,000.00 in favor of the PBA (L-47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p, 25). The PBA further urges that the unrealized rental income awarded to it should not be limited to a period of one-half year but should be computed on a continuing basis at the rate of P178,671.76 a year until the judgment for the principal amount shall have been satisfied (L-47896, PBA's No. 11 Assignment of Errors, p. 19).

The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial and it is

undisputed that the building could then still be repaired and restored to its tenantable condition. The PBA, however, in view of its lack of needed funding, was unable, thru no fault of its own, to have the building repaired. UNITED, on the other hand, spent P13,661.28 to shore up the building after the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on April 7, 1970, the trial court after the needed consultations, authorized the total demolition of the building (L-47896, Vol. 1, pp. 53-54).

There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the partial and eventual collapse of the PBA building as a result of the earthquakes.

We quote with approval the following from the erudite decision penned by Justice Hugo E. Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of, Appeals:

"There is no question that an earthquake and other forces of nature such as cyclones, drought, floods, lightning, and perils of the sea are acts of God. It does not necessarily follow, however, that specific losses and suffering resulting from the occurrence of these natural force are also acts of God. We are not convinced on the basis of the evidence on record that from the thousands of structures in Manila, God singled out the blameless PBA building in Intramuros and around six or seven other buildings in various parts of the city for collapse or severe damage and that God alone was responsible for the damages and losses thus suffered.

The record is replete with evidence of defects and deficiencies in the designs and plans, defective construction, poor workmanship, deviation from plans and specifications and other imperfections. These deficiencies are attributable to negligent men and not to a perfect God.

The act-of-God arguments of the defendants-appellants and third party defendants-appellants presented in their briefs are premised on legal generalizations

or speculations and on theological fatalism both of which ignore the plain facts. The lengthy discussion of United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous events and extraordinary fortuitous events leads to its argument that the August 2, 1968 earthquake was of such an overwhelming and destructive character that by its own force and independent of the particular negligence alleged, the injury would have been produced. If we follow this line of speculative reasoning, we will be forced to conclude that under such a situation scores of buildings in the vicinity and in other parts of Manila would have toppled down. Following the same line of reasoning, Nakpil and Sons alleges that the designs were adequate in accordance with pre-August 2, 1968 knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. If this were so, hundreds of ancient buildings which survived the earthquake better than the two-year old PBA building must have been designed and constructed by architects and contractors whose knowledge and foresight were unexplainably auspicious and prophetic. Fortunately, the facts on record allow a more down to earth explanation of the collapse. The failure of the PBA building, as a unique and distinct construction with no reference or comparison to other buildings, to weather the severe earthquake forces was traced to design deficiencies and defective construction, factors which are neither mysterious nor esoteric. The theological allusion of appellant United that God acts in mysterious ways His wonders to perform impresses us to be inappropriate. The evidence reveals defects and deficiencies in design and construction. There is no mystery about these acts of negligence. The collapse of the PBA building was no wonder performed by God. It was a result of the imperfections in the work of

the architects and the people in the construction company. More relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount, "which built his house upon a rock; and the rain descended and the floods came and the winds blew and beat upon that house: and it fell not; for it was founded upon a rock" and of the "foolish man which built his house upon the sand. And the rain descended and the floods came, and the winds blew, and beat upon that house; and it fell and great was the fall of it. (St. Matthew 7: 24-27)." The requirement that a building should withstand rains, floods, winds, earthquakes, and natural forces is precisely the reason why we have professional experts like architects, and engineers. Designs and constructions vary under varying circumstances and conditions but the requirement to design and build well does not change.

 

The findings of the lower Court on the cause of the collapse are more rational and accurate. Instead of laying the blame solely on the motions and forces generated by the earthquake, it also examined the ability of the PBA building, as designed and constructed, to withstand and successfully weather those forces.

The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons, not a mysterious act of an inscrutable God, were responsible for the damages. The Report of the Commissioner, Plaintiff's Objections to the Report, Third Party Defendants' Objections to the Report, Defendants' Objections to the Report, Commissioner's Answer to the various Objections, Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply to the Commissioner's Answer, Counter-Reply to Defendants'

Reply, and Third-Party Defendants' Reply to the Commissioner's Report not to mention the exhibits and the testimonies show that the main arguments raised on appeal were already raised during the trial and fully considered by the lower Court. A reiteration of these same arguments on appeal fails to convince us that we should reverse or disturb the lower Court's factual findings and its conclusions drawn from the facts, among them:

"The Commissioner also found merit in the allegations of the defendants as to the physical evidence before and after the earthquake showing the inadequacy of design, to wit:

"Physical evidence before the earthquake, providing (sic) inadequacy of design;

1.Inadequate design was the cause of the failure of the building.

2.Sub-baffles on the two sides and in front of the building;

a.

Increase the inertia forces that move the building laterally t

oward the Manila Fire Department.b.Create another stiffness-im

balance.3

.The embedded 4" diameter cast iron downspout on all exterior columns reduces the cross-sectional area of each of the columns and the strength thereof.

4.Two front corners, A7 and D7 columns were very much less reinforced.

Physical Evidence After the Earthquake, Proving Inadequacy of design;

1.Column A7 suffered the severest fracture

and maximum sagging Also D7.

2.There are more damages in the front part of the building than towards the rear, not only in columns but also in slabs.

3.Building leaned and sagged more on the front part of the building.

4.Floors showed maximum sagging on the sides and toward the front corner parts of the building.

5.There was a lateral displacement of the building of about 8", Maximum sagging occurs

at the column A7 where the floor is lower by 80 cm. than the highest slab level.

6.Slab at the corner column D7 sagged by 38 cm."

The Commissioner concluded that there were deficiencies or defects in the design, plans and specifications of the PBA building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. He conceded, however, that the fact that those deficiencies or defects may have arisen from an obsolete or not too conservative code or even a code that does not require a design for earthquake forces mitigates in a large measure the responsibility or liability of the architect and engineer designer.

The Third-party defendants, who are the most concerned with this portion of the Commissioner's report, voiced opposition to the same on the grounds that (a) the finding is based on a basic erroneous conception as to the design concept of the building, to wit, that the design is essentially that of a heavy rectangular box on stilts with shear wall at one end; (b) the finding that there were defects and a deficiency in the design of the building would at best be based on an approximation and, therefore, rightly belonged to the realm of speculation, rather than of certainty and could very possibly be outright error; (c) the

Commissioner has failed to back up or support his finding with extensive, complex and highly specialized computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical question; and (d) the Commissioner has analyzed the design of the PBA building not in the light of existing and available earthquake engineering knowledge at the time of the preparation of the design, but in the light of recent and current standards.

The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates or exhibits not presented during the hearing; that the resort to engineering references posterior to the date of the preparation of the plans was induced by the third-party defendants themselves who submitted computations of the third-party defendants are erroneous.'

The issue presently considered is admittedly a technical one of the highest degree. It involves questions not within the ordinary competence of the bench and the bar to resolve by themselves. Counsel for the third-party defendants has aptly remarked that "engineering, although dealing in mathematics, is not an exact science and that the present knowledge as to the nature of earthquakes and the behavior of forces generated by them still leaves much to be desired; so much so "that the experts of the different parties, who are all engineers, cannot agree on what equation to use, as to what earthquake co-efficients are, on the codes to be used and even as to the type of structure that the PBA building (is) was" (p. 29, Memo, of third-party defendants before the Commissioner).

The difficulty expected by the Court if this technical matter were to be tried and inquired into by

the Court itself, coupled with the intrinsic nature of the questions involved therein, constituted the reason for the reference of the said issues to a Commissioner whose qualifications and experience have eminently qualified him for the task, and whose competence had not been questioned by the parties until he submitted his report. Within the pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's report on this issue, and the objections voiced to the same, the Court sees no compelling reasons to disturb the findings of the Commissioner that there were defects and deficiencies in the design, plans and specifications prepared by third-party defendants, and that said defects and deficiencies involved appreciable risks with respect to the accidental forces which may result from earthquake shocks.

(2)(a) The deviations, if any, made by the defendants from the plans and specifications, and how said deviations contributed to the damage sustained by the building.

(b)The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building.

These two issues, being interrelated with each other, will be discussed together.

The findings of the Commissioner on these issues were as follows:

"We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the construction and violations or deviations from the plans and specifications. All these may be summarized as follows:

a.Summary of alleged defects as reported by Engineer Mario M. Bundalian.

(1)Wrongful and defective placing of reinforcing bars.

(2)Absence of effective and desirable integration of the 3 bars in the cluster.

(3)Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no larger than 1 inch.

(4)Reinforcement assembly is not concentric with the column, eccentricity being 3" off when on one face the main bars are only 1 1/2"

from the surface.

(5)Prevalence of honeycombs,

(6)Contraband construction joints,

(7)Absence, or omission, or over spacing of spiral hoops,

(8)Deliberate severance of spirals into semi-circles in noted on Col. A5, ground floor,

(9)Defective construction joints in Columns A3, C7, D7 and D4, ground floor.

(10)Undergraduate concrete is evident,

(11)Big cavity in core of Column 2A-4,

second floor,

(12)Columns buckled at different planes. Columns buckled worst where there are no spirals or where spirals are cut. Columns suffered worst displacement where the eccentricity of the columnar reinforcement assembly is more acute.

b.Summary of alleged defects as reported by Engr. Antonio Avecilla.

Columns are first (or ground) floor, unless otherwise stated.

(1)Column D4 — Spacing of spiral is changed from 2" to 5" on centers,

(2)Column D5 — No spiral up to a height of 22" from the ground floor,

(3)Column D6 — Spacing of spiral over 4 1/2,(4) Column D7 - Lack of lateral ties,

(5)Column C7 — Absence of spiral to a height of 20" from the ground level, Spirals are at 2" from the exterior column face and 6" from the inner column face,

(6)Column B6 — Lack of spiral on 2 feet below the floor beams,

(7)Column B5 — Lack of spirals at a distance of 26"

below the beam,

(8)Column B7 — Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to 4",

(9)Column A3 — Lack of lateral ties,

(10)Column A4 — Spirals cut off and welded to two separate clustered vertical bars,

(11)Column A4 — (second floor) Column is completely hollow to a height of 30"

(12)Column A5 — Spirals were cut from the floor level to the bottom

of the spandrel beam to a height of 6 feet,

(13)Column A6 — No spirals up to a height of 30" above the ground floor level,

(14)Column A7 — Lack of lateral ties or spirals,

c.Summary of alleged defects as reported by the experts of the Third-Party defendants.

Ground floor columns.

(1)Column A4 — Spirals are cut,

(2)Column A5 — Spirals are cut,

(3)Column A6 — At lower 18" spirals are absent,

(4)Column A7 — Ties are too far apart,

(5)Column B5 — At upper fourth of column spirals are either absent or improperly spliced,

(6)Column B6 — At upper 2 feet spirals are absent,

(7)Column B7 — At upper fourth of column spirals missing or improperly spliced.

(8)Column C7 — Spirals are absent at lowest 18"

(9)Column D5 — At lowest 2 feet spirals are absent,

(10)Column D6 — Spirals are too far apart and apparently

improperly spliced,

 (

11)Column D7 — Lateral ties are too far apart, spaced 16" on centers.

There is merit in many of these allegations. The explanations given by the engineering experts for the defendants are either contrary to general principles of engineering design for reinforced concrete or not applicable to the requirements for ductility and strength of reinforced concrete in earthquake-resistant design and construction.

We shall first classify and consider defects which may have appreciable bearing or relation to the earthquake-resistant property of the building.

As heretofore mentioned, details which insure ductility at or near the connections between columns and girders are desirable in earthquake-resistant design and construction. The omission of spirals and ties or hoops at the bottom and/or tops of columns contributed greatly to the loss of earthquake-resistant strength. The plans and specifications required that these spirals and ties be carried from the floor level to the bottom reinforcement of the

deeper beam (p. 1, Specifications, p. 970, Reference 11). There were several clear evidences where this was not done especially in some of the ground floor columns which failed.

There were also unmistakable evidences that the spacings of the spirals and ties in the columns were in many cases greater than those called for in the plans and specifications resulting again in loss of earthquake-resistant strength. The assertion of the engineering experts for the defendants that the improper spacings and the cutting of the spirals did not result in loss of strength in the column cannot be maintained and is certainly contrary to the general principles of column design and construction. And even granting that there be no loss in strength at the yield point (an assumption which is very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of the plastic range or ductility in the column and it is precisely this plastic range or ductility which is desirable and needed for earthquake-resistant strength. Cdpr

There is no excuse for the cavity or hollow portion in the column A4, second floor, and although this column did not fail, this is certainly an evidence on the part of the contractor of poor construction.

The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum may be approximated in relation to column loads and column and beam moments. The main effect of eccentricity is to change the beam or girder span. The effect on the measured eccentricity of 2 1/2 inches, therefore, is to increase or diminish the column load by a maximum of about 1% and to increase or diminish the column or beam movements by about a maximum of 2%. While these can certainly be absorbed within the factor of safety, they nevertheless diminish said factor of safety.

The cutting of the spirals in column A5, ground floor is the subject of great contention between the parties and deserves special consideration.

The proper placing of the main reinforcements and spirals in column A5, ground floor, is the responsibility of the general contractor which is the UCCI. The burden of proof, therefore that this cutting was done by others is upon the defendants. Other than a strong allegation and assertion that it is the plumber or his men who may have done the cutting (and this was flatly denied by the plumber) no conclusive proof was presented. The engineering experts for the defendants asserted that they could have no motivation for

cutting the bar because they can simply replace the spirals by wrapping around a new set of spirals. This is not quite correct. There is evidence to show that the pouring of concrete for columns was sometimes done through the beam and girder reinforcements which were already in place as in the case of column A4 second floor. If the reinforcement for the girder and column is to subsequently wrap around the spirals, this would not do for the elasticity of steel would prevent the making of tight column spirals and loose or improper spirals would result. The proper way is to produce correct spirals down from the top of the main column bars, a procedure which can not be done if either the beam or girder reinforcement is already in place. The engineering experts for the defendants strongly assert and apparently believe that the cutting of the spirals did not materially diminish the strength of the column. This belief together with the difficulty of slipping the spirals on the top of the column once the beam reinforcement is in place may be a sufficient motivation for the cutting of the spirals themselves. The defendants, therefore, should be held responsible for the consequences arising from the loss of strength or ductility in column A5 which may have contributed to the damages sustained by the building.

The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns where spalling of the concrete cover had taken place. This lack of proper splicing contributed in a small measure to the loss of strength.

The effects of all the other proven and visible defects although minor can certainly be accumulated so that they can contribute to an appreciable loss in earthquake-resistant strength. The engineering experts for the defendants submitted an estimate on some of these defects in the amount of a few percent. If accumulated, therefore, including the effect of eccentricity in the column the loss in strength due to these minor defects may run to as much as ten percent.

To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of the ground floor columns contributed greatly to the collapse of the PBA building since it is at these points where the greater part of the failure occurred. The liability for the cutting of the spirals in column A5, ground floor, in the considered opinion of the Commissioner rests on the shoulders of the defendants and the loss of strength in this column contributed to the damage which occurred.

It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2, 1968 and the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of the structure. In other words, these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. We may say, therefore, that the defects and deficiencies in the construction contributed greatly to the damage which occurred.

Since the execution and supervision of the construction work in the hands of the contractor is direct and positive, the presence of existence of all the major defects and deficiencies noted and proven manifests an element of negligence which may amount to imprudence in the construction work." (pp. 42-49, Commissioner's Report).

As the parties most directly concerned with this portion of the Commissioner's report, the defendants voiced their objections to the same on the grounds that the Commissioner should have specified the defects found by him to be "meritorious"; that the Commissioner failed to indicate the number of cases where the spirals and ties were not carried from the floor level to

the bottom reinforcement of the deeper beam, or where the spacing of the spirals and ties in the columns were greater than that called for in the specifications; that the hollow in column A-4, second floor, the eccentricities in the columns, the lack of proper length of splicing of spirals, and the cut in the spirals in column A-5, ground floor, did not aggravate or contribute to the damage suffered by the building; that the defects in the construction were within the tolerable margin of safety; and that the cutting of the spirals in column A-5, ground floor, was done by the lumber or his men, and not by the defendants.

Answering the said objections, the Commissioner stated that, since many of the defects were minor only the totality of the defects was considered. As regards the objection as to failure to state the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5, the first one without spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at the bottom. The Commissioner likewise specified the first storey columns where the spacings were greater than that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection to the failure of the Commissioner to specify the number of columns where there was lack of proper length of splicing of spirals, the Commissioner mentioned groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not welded, resulting in some loss of strength which could be critical near the ends of the columns. He answered the supposition of the defendants that the spirals and the ties must have been looted, by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns, which rendered said supposition to be improbable.

The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or contribute to the damage, but averred that it is "evidence of poor construction." On the claim that the eccentricity could be absorbed within the factor of safety, the Commissioner answered that, while the same may be true, it also contributed to or aggravated the damage suffered by the building.

The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the spirals, the defendants should be held liable for the same as the general contractor of the building. The Commissioner further stated that the loss of strength of the cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment in the column and resulted in the loss of strength, as evidenced by the actual failure of this column.

 

Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient cause to disregard or modify the same. As found by the Commissioner, the "deviations made by the defendants from the plans and specifications caused indirectly the damage sustained and that those deviations not only added but also aggravated the damage caused by the defects in the plans and specifications prepared by third-party defendants." (Rollo, Vol. I, pp. 128-142)

The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans, designs, specifications, and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which may be in point in this case, reads:

"One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss."

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal difference; gross negligence and evident bad faith, without which the damage would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, We deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta).

SO ORDERED

Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

EN BANC

[G.R. No. 108164. February 23, 1995.]

FAR EAST BANK AND TRUST COMPANY, petitioner, vs. THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents.

SYLLABUS

1.CIVIL LAW; DAMAGES; MORAL DAMAGES; WHEN MAY BE RECOVERED IN CASE OF CULPA CONTRACTUAL; RULE; CASE AT BAR. — In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of the contract. Bad faith, in this context, includes gross, but not simple, negligence. Exceptionally, in contract of carriage, moral damages are also allowed in case of death of a passenger attributable to the fault (which is presumed) of the common carrier. Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card's cancellation. Nothing in the findings of the trial court and the appellate court, however, can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private respondents. Neither could FEBTC's negligence in failing to give personal notice to Luis be considered so gross as to amount to malice or bad faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill-will. Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus, even if we are to assume that the provision could properly relate to a breach of contract, its application can be warranted only when the defendant's disregard of his contractual obligation is so deliberate as to approximate a degree of misconduct certainly no less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a general principle in human relations that clearly must, in anycase, give way to the specific provision of Article 2220 of the Civil Code authorizing the grant of moral damages in culpa contractual solely when the breach is due to fraud or bad faith.

2.ID.; ID.; ID.; ID.; ID.; APPLICATION OF THE PROVISION ON QUASI-DELICT. — The Court has not in the process overlooked another rule that a quasi-delict can be the cause for breaching a contract that might thereby permit the application of applicable principles on tort even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of the Phil. Islands, 23 SCRA 1117; andAir France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private respondents' case for it can aptly govern only where the act or omission complained of would constitute an actionable tort independently of the contract. The test (whether a quasi-delict can be deemed to underlie the breach of a contract) can be stated thusly: Where, without a pre-existing contract between two parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the parties are contractually bound is no bar to the application of

quasi-delict provisions to the case. Here, private respondents' damage claim is predicated solely on their contractual relationship; without such agreement, the act or omission complained of cannot by itself be held to stand as a separate cause of action or as an independent actionable tort.

3.ID.; ID.; EXEMPLARY OR CORRECTIVE DAMAGES; WHEN AVAILABLE. — Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for the public good in addition to moral, temperate, liquidated or compensatory damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance Transport System, 148 SCRA 440; Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposed when the crime is committed with one or more aggravating circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross negligence as to approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778. In contracts and quasi-contracts, the court may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).

4.ID.; ID.; NOMINAL DAMAGES; WHEN AVAILABLE; APPLICATION IN CASE AT BAR. — The bank's failure, even perhaps inadvertent, to honor its credit card issued to private respondent Luis should entitle him to recover a measure of damages sanctioned under Article 2221 of the Civil Code providing thusly: "Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him."

D E C I S I O N

VITUG, J p:

Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a FAREASTCARD issued by petitioner Far East Bank and Trust Company ("FEBTC") at its Pasig Branch. Upon his request, the bank also issued a supplemental card to private respondent Clarita S. Luna.

In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace the lost card, Clarita submitted an

affidavit of loss. In cases of this nature, the bank’s internal security procedures and policy would appear to be to meanwhile so record the lost card, along with the principal card, as a "Hot Card" or "Cancelled Card" in its master file.

On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American, and another guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay for the lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had it verified through a telephone call to the bank's Credit Card Department. Since the card was not honored, Luis was forced to pay in cash the bill amounting to P588.13. Naturally, Luis felt embarrassed by this incident.

In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded from FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the bank, expressed the bank's apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part, said:

"In cases when a card is reported to our office as lost, FAREASTCARD undertakes the necessary action to avert its unauthorized use (such as tagging the card as hotlisted), as it is always our intention to protect our cardholders.

"An investigation of your case however, revealed that FAREASTCARD failed to inform you about its security policy. Furthermore, an overzealous employee of the Bank's Credit Card Department did not consider the possibility that it may have been you who was presenting the card at that time (for which reason, the unfortunate incident occurred)." 1

Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter that private respondents were "very valued clients" of FEBTC. William Anthony King, Food and Beverage Manager of the Intercontinental Hotel, wrote back to say that the credibility of private respondent had never been "in question." A copy of this reply was sent to Luis by Festejo.

Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint for damages with the Regional Trial Court ("RTC") of Pasig against FEBTC.

On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b) P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees.

On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court.

Its motion for reconsideration having been denied by the appellate court, FEBTC has come to this Court with this petition for review.

There is merit in this appeal.

In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of the contract. 2 The Civil Code provides:

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

Bad faith, in this context, includes gross, but not simple, negligence. 3 Exceptionally, in a contract of carriage, moral damages are also allowed in case of death of a passenger attributable to the fault (which is presumed 4 ) of thecommon carrier. 5

Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card’s cancellation. Nothing in the findings of the trial court and the appellate court, however, can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private respondents. Neither could FEBTC's negligence in failing to give personal notice to Luis be considered so gross as to amount to malice or bad faith. llcd

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. 6

We are not unaware of the previous rulings of this Court, such as in American Express International, Inc. vs. Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine Islands vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the

application of Article 21, in relation to Article 2217 and Article 2219 7 of the Civil Code to a contractual breach similar to the case at bench. Article 21 states:

 

"Art. 21.Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage."

Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus, even if we are to assume that the provision could properly relate to a breach of contract, its application can be warranted only when the defendant's disregard of his contractual obligation is so deliberate as to approximate a degree of misconduct certainly no less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a general principle in human relations that clearly must, in any case, give way to the specific provision of Article 2220 of the Civil Code authorizing the grant of moral damages in culpa contractual solely when the breach is due to fraud or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda 8 explained with great clarity the predominance that we should give to Article 2220 in contractual relations; we quote:

"Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599;Necesito, et al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023, that moral damages are not recoverable in damage actions predicated on a breach of the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code, which provide as follows:cdasia

"'ART. 2219. Moral damages may be recovered in the following and analogous cases:

'(1)A criminal offense resulting in physical injuries;

'(2)Quasi-delicts causing physical injuries;

xxx xxx xxx

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

"By contrasting the provisions of these two articles it immediately becomes apparent that:

"(a)In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and

"(b)That a breach of contract can not be considered included in the descriptive term 'analogous cases' used in Art. 2219; not only because Art. 2220 specifically provides for the damages that

are caused contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where there is a 'pre-exisiting contractual relations between the parties.' LexLib

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

"The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the deceased passenger to 'demand moral damages for mental anguish by reason of the death of the deceased' (Necesito vs. Paras, 104 Phil. 84, Resolution on Motion to Reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does not die, moral damages are not recoverable unless it is proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith

on the part of the carrier; and in the case at bar there is no other evidence of such malice to support the award of moral damages by the Court of Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art. 2220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation.

"xxx xxx xxx.

"The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code. cdasia

"'ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

'In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation."

"It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract in bad faith. It is true that negligence may be

occasionally so gross as to amount to malice; but the fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was breached through negligence of the carrier’s employees." LLphil

The Court has not in the process overlooked another rule that a quasi-delict can be the cause for breaching a contract that might thereby permit the application of applicable principles on tort 9 even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117; and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private respondents' case for it can aptly govern only where the act or omission complained of would constitute an actionable tort independently of the contract. The test (whether a quasi-delict can be deemed to underlie the breach of a contract) can be stated thusly: Where, without a pre-existing contract between two parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the parties are contractually bound is no bar to the application of quasi-delict provisions to the case. Here, private respondents' damage claim is predicated solely on their contractual relationship; without such agreement, the act or omission complained of cannot by itself be held to stand as a separate cause of action or as an independent actionable tort. cdll

The Court finds, therefore, the award of moral damages made by the court a quo, affirmed by the appellate court, to be inordinate and substantially devoid of legal basis.

Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for the public good in addition to moral, temperate, liquidated or compensatory damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance Transport System, 148 SCRA 440; Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposed when the crime is committed with one or more aggravating circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross negligence as to approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778. In contracts and quasi-contracts, the court may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or

malevolent manner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).cdasia

Given the above premises and the factual circumstances here obtaining, it would also be just as arduous to sustain the exemplary damages granted by the courts below (see De Leon vs. Court of Appeals, 165 SCRA 166).

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to private respondent Luis should entitle him to recover a measure of damages sanctioned under Article 2221 of the Civil Code providing thusly:

"Art. 2221.Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." llcd

Reasonable attorney's fees may be recovered where the court deems such recovery to be just and equitable (Art. 2208, Civil Code). We see no misuse of sound discretion on the part of the appellate court in allowing the award thereof by the trial court.

WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by deleting the award of moral and exemplary damages to private respondents; in its stead, petitioner is ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way of nominal damages. In all other respects, the appealed decision is AFFIRMED. No costs.

SO ORDERED.

Narvasa, C.J ., Feliciano, Padilla, Bidin, Regalado, Davide, Jr ., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan, Mendoza and Francisco, JJ., concur.

THIRD DIVISION

[G.R. No. 179337. April 30, 2008.]

JOSEPH SALUDAGA, petitioner, vs. FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of FEU, respondents.

D E C I S I O N

YNARES-SANTIAGO, J p:

This Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court assails the June 29, 2007 Decision 2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November 10, 2004 Decision 3 of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007 Resolution 4 denying the Motion for Reconsideration. 5 cAEaSC

The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained. 6 Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint 7 against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. 8 AECacS

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1.FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and

severally Joseph Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from the filing of the complaint until fully paid; moral damages of P300,000.00, exemplary damages of P500,000.00, attorney's fees of P100,000.00 and cost of the suit;

2.Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned amounts;

3.And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs. cSEAHa

SO ORDERED. 9

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

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

SO ORDERED. 10

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

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

5.1.THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

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

5.3.SECURITY GUARD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and CTaSEI

5.4.RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU. 11

Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning environment. The pertinent portions of petitioner's Complaint read:

6.0.At the time of plaintiff's confinement, the defendants or any of their representative did not bother to visit and inquire about his condition. This abject indifference on the part of the defendants continued even after plaintiff was discharged from the hospital when not even a word of consolation was heard from them. Plaintiff waited for more than one (1) year for the defendants to perform their moral obligation but the wait was fruitless. This indifference and total lack of concern of defendants served to exacerbate plaintiff's miserable condition. SaCIDT

xxx xxx xxx

11.0.Defendants are responsible for ensuring the safety of its students while the latter are within the University premises. And that should anything untoward happens to any of its students while they are within the University's premises shall be the responsibility of the defendants. In this case, defendants, despite being legally and morally bound, miserably failed to protect plaintiff from injury and thereafter, to mitigate and compensate plaintiff for said injury;

12.0.When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure

the safety of the plaintiff while inside defendant FEU's premises. In the instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus. 12

In Philippine School of Business Administration v. Court of Appeals, 13 we held that: cCTAIE

When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. 14 ICASEH

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the rules and regulations of the school. On the other hand, respondent FEU, as a learning

institution is mandated to impart knowledge and equip its students with the necessary skills to pursue higher education or a profession. At the same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. 15 In the instant case, we find that, when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee; 16 and that they complied with their obligation to ensure a safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy. EDCcaS

After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students. aCATSI

 

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered, respondents must show that no

negligence or misconduct was committed that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation — whether by active intervention, neglect or failure to act — the whole occurrence is humanized and removed from the rules applicable to acts of God. 17

Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts.18 SECATH

In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical expenses. 19 While the trial court correctly imposed interest on said amount, however, the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the complaint until the finality of this Decision. 20 After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts. 21 In the absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner. HAICTD

As regards the award of moral damages, there is no hard and fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar circumstances. 22 The testimony of petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting from the shooting incident 23 justify the award of moral damages.

However, moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 24 We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of P100,000.00. HcISTE

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

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. InPowton Conglomerate, Inc. v. Agcolicol, 26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when — (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the

corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action. 27 aDcEIH

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

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

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

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

xxx xxx xxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. CADSHI

We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. 28

As held in Mercury Drug Corporation v. Libunao: 29

In Soliman, Jr. v. Tuazon, 30 we held that where the security

agency recruits, hires and assigns the works of its watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and not the client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client:

. . . [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the agency is the employer of such guards or watchmen. Liability for illegal or harmful acts committed by the security guards attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events, be demanded from the client whose premises or property are protected by the security guards. aETAHD

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The fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. 31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 32 we held that: HTScEI

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

 

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

For these acts of negligence and for having supplied respondent FEU with an unqualified security guard,

which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner.

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

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

a.respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction;

b.respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00;

c.the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are likewise DISMISSED.

Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial are ORDERED to jointly and severally pay respondent FEU damages equivalent to the above-mentioned amounts awarded to petitioner. ScAIaT

SO ORDERED.

Austria-Martinez, Chico-Nazario, Nachura and Reyes, JJ., concur.

FIRST DIVISION

[G.R. No. L-45637. May 31, 1985.]

ROBERTO JUNTILLA, petitioner, vs. CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL CAMORO, respondents.

Valentin A. Zozobrado for petitioner.

Ruperto N. Alfarara for respondents.

D E C I S I O N

GUTIERREZ, JR., J p:

This is a petition for review, on questions of law, of the decision of the Court of First Instance of Cebu which reversed the decision of the City Court of Cebu and exonerated the respondents from any liability arising from a vehicular accident.

The background facts which led to the filing of a complaint for breach of contract and damages against the respondents are summarized by the Court of First Instance of Cebu as follows:

"The facts established after trial show that the plaintiff was a passenger of the public utility jeepney bearing plate No. PUJ-71-7 on the course of the trip from Danao City to Cebu City. The jeepney was driven by

defendant Berfol Camoro. It was registered under the franchise of defendant Clemente Fontanar but was actually owned by defendant Fernando Banzon. When the jeepney reached Mandaue City, the right rear tire exploded causing the vehicle to turn turtle. In the process, the plaintiff who was sitting at the front seat was thrown out of the vehicle. Upon landing on the ground, the plaintiff momentarily lost consciousness. When he came to his senses, he found that he had a lacerated wound on his right palm. Aside from this, he suffered injuries on his left arm, right thigh and on his back. (Exh. "D"). Because of his shock and injuries, he went back to Danao City but on the way, he discovered that his `Omega' wrist watch was lost. Upon his arrival in Danao City, he immediately entered the Danao City Hospital to attend to his injuries, and also requested his father-in-law to proceed immediately to the place of the accident and look for the watch. In spite of the efforts of his father-in-law, the wrist watch, which he bought for P852.70 (Exh. "B") could no longer be found."

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Petitioner Roberto Juntilla filed Civil Case No. R-17378 for breach of contract with damages before the City Court of Cebu City, Branch I against Clemente Fontanar, Fernando Banzon and Berfol Camoro. prcd

The respondents filed their answer, alleging inter alia that the accident that caused losses to the petitioner was beyond the control of the respondents taking into account that the tire that exploded was newly bought and was only slightly used at the time it blew up.

After trial, Judge Romulo R. Senining of the City Court of Cebu rendered judgment in favor of the petitioner and against the respondents. The dispositive portion of the decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants and the latter are hereby ordered, jointly and

severally, to pay the plaintiff the sum of P750.00 as reimbursement for the lost Omega wrist watch, the sum of P246.64 as unrealized salary of the plaintiff from his employer, the further sum of P100.00 for the doctor's fees and medicine, an additional sum of P300.00 for attorney's fees and the costs."

The respondents appealed to the Court of First Instance of Cebu, Branch XIV.

Judge Leonardo B. Cañares reversed the judgment of the City Court of Cebu upon a finding that the accident in question was due to a fortuitous event. The dispositive portion of the decision reads:

"WHEREFORE, judgment is hereby rendered exonerating the defendants from any liability to the plaintiff without pronouncement as to costs."

A motion for reconsideration was denied by the Court of First Instance.

The petitioner raises the following alleged errors committed by the Court of First Instance of Cebu on appeal —

"a.The Honorable Court below committed grave abuse of discretion in failing to take cognizance of the fact that defendants and/or their employee failed to exercise 'utmost and/or extraordinary diligence' required of common carriers contemplated under Art. 1755 of the Civil Code of the Philippines.

"b.The Honorable Court below committed grave abuse of discretion by deciding the case contrary to the doctrine laid down by the Honorable Supreme Court in the case of Necesito et al. v. Paras, et al."

We find the petition impressed with merit.

The City Court and the Court of First Instance of Cebu found that the right rear tire of the passenger jeepney in which the petitioner was riding blew up causing the vehicle to fall on its side. The petitioner questions the conclusion of the respondent court drawn from this finding of fact. cdphil

The Court of First Instance of Cebu erred when it absolved the carrier from any liability upon a finding that the tire blow out is a fortuitous event. The Court of First Instance of Cebu ruled that:

"After reviewing the records of the case, this Court finds that the accident in question was due to a fortuitous event. A tire blow-out, such as what happened in the case at bar, is an inevitable accident that exempts the carrier from liability, there being absence of a showing that there was misconduct or negligence on the part of the operator in the operation and maintenance of the vehicle involved. The fact that the right rear tire exploded, despite being brand new, constitutes a clear case of caso fortuito which can be a proper basis for exonerating the defendants from liability. . . ."

The Court of First Instance relied on the ruling of the Court of Appeals in Rodriguez v. Red Line Transportation Co., CA-G.R. No. 8136, December 29, 1954, where the Court of Appeals ruled that:

"A tire blow-out does not constitute negligence unless the tire was already old and should not have been used at all. Indeed, this would be a clear case of fortuitous event."

The foregoing conclusions of the Court of First Instance of Cebu are based on a misapprehension of overall facts from which a conclusion should be drawn. The reliance of the Court of First Instance on the Rodriguez case is not in order. InLa Mallorca and Pampanga Bus Co. v. De Jesus, et al. (17 SCRA 23), we held that:

"Petitioner maintains that a tire blow-out is a fortuitous event and gives rise to no liability for negligence, citing the rulings of the Court of Appeals in Rodriguez v. Red Line Transportation Co., CA-G.R. No. 8136, December 29, 1954, and People v. Palapad, CA-G.R. No. 18480, June 27, 1958. These rulings, however, not only are not binding on this Court but were based on considerations quite different from those that obtain in the case at bar. The appellate

court there made no findings of any specific acts of negligence on the part of the defendants and confined itself to the question of whether or not a tire blow-out, by itself alone and without a showing as to the causative factors, would generate liability. . . ."

In the case at bar, there are specific acts of negligence on the part of the respondents. The records show that the passenger jeepney turned turtle and jumped into a ditch immediately after its right rear tire exploded. The evidence shows that the passenger jeepney was running at a very fast speed before the accident. We agree with the observation of the petitioner that a public utility jeep running at a regular and safe speed will not jump into a ditch when its right rear tire blows up. There is also evidence to show that the passenger jeepney was overloaded at the time of the accident. The petitioner stated that there were three (3) passengers in the front seat and fourteen (14) passengers in the rear. Cdpr

While it may be true that the tire that blew-up was still good because the grooves of the tire were still visible, this fact alone does not make the explosion of the tire a fortuitous event. No evidence was presented to show that the accident was due to adverse road conditions or that precautions were taken by the jeepney driver to compensate for any conditions liable to cause accidents. The sudden blowing-up, therefore, could have been caused by too much air pressure injected into the tire coupled by the fact that the jeepney was overloaded and speeding at the time of the accident.

In Lasam v. Smith (45 Phil. 657), we laid down the following essential characteristics of caso fortuito:

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". . . 'In a legal sense and, consequently, also in relation to contracts, a caso fortuito presents the following essential characteristics: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will. (2) It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be

foreseen, it must be impossible to avoid. (3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. And (4) the obligor (debtor) must be free from any participation in the aggravation of the injury resulting to the creditor.' (5 Encyclopedia Juridica Española, 309.)"

In the case at bar, the cause of the unforeseen and unexpected occurrence was not independent of the human will. The accident was caused either through the negligence of the driver or because of mechanical defects in the tire. Common carriers should teach their drivers not to overload their vehicles, not to exceed safe and legal speed limits, and to know the correct measures to take when a tire blows up thus insuring the safety of passengers at all times. Relative to the contingency of mechanical defects, we held in Necesito, et al. v. Paras, et al. (104 Phil. 75), that: cdphil

". . . 'The preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier from liability' (10 Am. Jur. 205, s, 1324; see also Pennsylvania R. Co. v.

Roy, 102 U.S. 451; 20 L. Ed. 141; Southern R. Co. v. Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed Note, 29 ALR 788; Ann. Cas. 1916E 929).

 

"The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. . . ."

It is sufficient to reiterate that the source of a common carrier's legal liability is the contract of carriage, and by entering into the said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with a due regard for all the circumstances. The records show that this obligation was not met by the respondents.

The respondents likewise argue that the petitioner cannot recover any amount for failure to prove such damages during the trial. The respondents submit that if the petitioner was really injured, why was he treated in Danao City and not in Mandaue City where the accident took place. The respondents argue that the doctor who issued the medical certificate was not presented during the trial, and hence not cross-examined. The respondents also claim that the petitioner was not wearing any wrist watch during the accident. LibLex

It should be noted that the City Court of Cebu found that the petitioner had a lacerated wound on his right palm aside from injuries on his left arm, right thigh and on his back, and that on his way back to Danao City, he discovered that his "Omega" wrist watch was lost. These are findings of facts of the City Court of Cebu which we find no reason to disturb. More so when we consider the fact that the Court of First Instance of Cebu impliedly concurred in these matters when it confined itself to the question of whether or not the tire blow out was a fortuitous event.

WHEREFORE, the decision of the Court of First Instance of Cebu, Branch IV appealed from is hereby REVERSED and SET ASIDE, and the decision of the City Court of Cebu, Branch I is REINSTATED, with the modification that the damages shall earn interest at 12% per annum and the attorney's fees are increased to SIX HUNDRED PESOS (P600.00). Damages shall earn interests from January 27, 1975.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.