OBLICON+CASES-NOV.+8,+2011-ARTs.+1156-1177 (1)

7/28/2019 OBLICON+CASES-NOV.+8,+2011-ARTs.+1156-1177 (1)

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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 98695 January 27, 1993

JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIAand ANTHONY C. SYQUIA, petitioners,vs.THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARKCEMETERY, INC., respondents.

Pacis & Reyes Law Offices for petitioners.

Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.

CAMPOS, JR.,J.:

Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C.Syquia, and Anthony Syquia, were the parents and siblings, respectively, of thedeceased Vicente Juan Syquia. On March 5, 1979, they filed a complaint 1in the thenCourt of First Instance against herein private respondent, Manila Memorial ParkCemetery, Inc. for recovery of damages arising from breach of contract and/or quasi-delict. The trial court dismissed the complaint.

The antecedent facts, as gathered by the respondent Court, are as follows:

On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants herein, filed a complaint for damages against defendant-appellee, ManilaMemorial Park Cemetery, Inc.

The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885)dated August 27, 1969 and Interment Order No. 7106 dated July 21, 1978 executed betweenplaintiff-appellant Juan J. Syquia and defendant-appellee, the former, father of deceasedVicente Juan J. Syquia authorized and instructed defendant-appellee to inter the remains ofdeceased in the Manila Memorial Park Cemetery in the morning of July 25, 1978 conformablyand in accordance with defendant-appellant's (sic) interment procedures; that on September4, 1978, preparatory to transferring the said remains to a newly purchased family plot alsoat the Manila Memorial Park Cemetery, the concrete vault encasing the coffin of thedeceased was removed from its niche underground with the assistance of certain employeesof defendant-appellant (sic); that as the concrete vault was being raised to the surface,plaintiffs-appellants discovered that the concrete vault had a hole approximately three (3)inches in diameter near the bottom of one of the walls closing out the width of the vault on

one end and that for a certain length of time (one hour, more or less), water drained out ofthe hole; that because of the aforesaid discovery, plaintiffs-appellants became agitated andupset with concern that the water which had collected inside the vault might have risen as itin fact did rise, to the level of the coffin and flooded the same as well as the remains of thedeceased with ill effects thereto; that pursuant to an authority granted by the MunicipalCourt of Paraaque, Metro Manila on September 14, 1978, plaintiffs-appellants with theassistance of licensed morticians and certain personnel of defendant-appellant (sic) causedthe opening of the concrete vault on September 15, 1978; that upon opening the vault, thefollowing became apparent to the plaintiffs-appellants: (a) the interior walls of the concretevault showed evidence of total flooding; (b) the coffin was entirely damaged by water, filthand silt causing the wooden parts to warp and separate and to crack the viewing glass panellocated directly above the head and torso of the deceased; (c) the entire lining of the coffin,


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the clothing of the deceased, and the exposed parts of the deceased's remains weredamaged and soiled by the action of the water and silt and were also coated with filth.

Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligationto deliver a defect-free concrete vault designed to protect the remains of the deceased andthe coffin against the elements which resulted in the desecration of deceased's grave and inthe alternative, because of defendant-appellee's gross negligence conformably to Article2176 of the New Civil Code in failing to seal the concrete vault, the complaint prayed that

judgment be rendered ordering defendant-appellee to pay plaintiffs-appellants P30,000.00

for actual damages, P500,000.00 for moral damages, exemplary damages in the amountdetermined by the court, 20% of defendant-appellee's total liability as attorney's fees, andexpenses of litigation and costs of suit. 2

In dismissing the complaint, the trial court held that the contract between the parties didnot guarantee that the cement vault would be waterproof; that there could be no quasi-delict because the defendant was not guilty of any fault or negligence, and becausethere was a pre-existing contractual relation between the Syquias and defendant ManilaMemorial Park Cemetery, Inc.. The trial court also noted that the father himself, JuanSyquia, chose the gravesite despite knowing that said area had to be constantlysprinkled with water to keep the grass green and that water would eventually seepthrough the vault. The trial court also accepted the explanation given by defendant forboring a hole at the bottom side of the vault: "The hole had to be bored through theconcrete vault because if it has no hole the vault will (sic) float and the grave would befilled with water and the digging would caved (sic) in the earth, the earth would caved(sic) in the (sic) fill up the grave." 3

From this judgment, the Syquias appealed. They alleged that the trial court erred inholding that the contract allowed the flooding of the vault; that there was nodesecration; that the boring of the hole was justifiable; and in not awarding damages.

The Court of Appeals in the Decision 4dated December 7, 1990 however, affirmed thejudgment of dismissal. Petitioner's motion for reconsideration was denied in a Resolutiondated April 25, 1991. 5

Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition.They allege herein that the Court of Appeals committed the following errors when it:

1. held that the contract and the Rules and Resolutions of private respondent allowed theflooding of the vault and the entrance thereto of filth and silt;

2. held that the act of boring a hole was justifiable and corollarily, when it held that no act ofdesecration was committed;

3. overlooked and refused to consider relevant, undisputed facts, such as those which havebeen stipulated upon by the parties, testified to by private respondent's witnesses, andadmitted in the answer, which could have justified a different conclusion;

4. held that there was no tort because of a pre-existing contract and the absence offault/negligence; and

5. did not award the P25,000.00 actual damages which was agreed upon by the parties,moral and exemplary damages, and attorney's fees.

At the bottom of the entire proceedings is the act of boring a hole by private respondenton the vault of the deceased kin of the bereaved petitioners. The latter allege that such


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act was either a breach of private respondent's contractual obligation to provide a sealedvault, or, in the alternative, a negligent act which constituted a quasi-delict. Nonetheless,petitioners claim that whatever kind of negligence private respondent has committed,the latter is liable for desecrating the grave of petitioners' dead.

In the instant case, We are called upon to determine whether the Manila Memorial ParkCemetery, Inc., breached its contract with petitioners; or, alternatively, whether privaterespondent was guilty of a tort.

We understand the feelings of petitioners and empathize with them. Unfortunately,however, We are more inclined to answer the foregoing questions in the negative. Thereis not enough ground, both in fact and in law, to justify a reversal of the decision of therespondent Court and to uphold the pleas of the petitioners.

With respect to herein petitioners' averment that private respondent has committedculpa aquiliana, the Court of Appeals found no negligent act on the part of privaterespondent to justify an award of damages against it. Although a pre-existing contractualrelation between the parties does not preclude the existence of a culpa aquiliana, Wefind no reason to disregard the respondent's Court finding that there was no negligence.

Art. 2176. Whoever by act or omission causes damage to another, there being fault ornegligence, 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. . . . (Emphasissupplied).

In this case, it has been established that the Syquias and the Manila Memorial ParkCemetery, Inc., entered into a contract entitled "Deed of Sale and Certificate ofPerpetual Care" 6on August 27, 1969. That agreement governed the relations ofthe parties and defined their respective rights and obligations. Hence, had therebeen actual negligence on the part of the Manila Memorial Park Cemetery, Inc., it

would be held liable not for a quasi-delictor culpa aquiliana, but for culpacontractual as provided by Article 1170 of the Civil Code, to wit:

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.

The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to besend in the interment. Rule 17 of the Rules and Regulations of private respondentprovides that:

Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wallof stone, brick or concrete, the actual installment of which shall be made by the employees

of the Association. 7

Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978,the day before the interment, and was, on the same day, installed by privaterespondent's employees in the grave which was dug earlier. After the burial, the vaultwas covered by a cement lid.

Petitioners however claim that private respondent breached its contract with them as thelatter held out in the brochure it distributed that the . . . lot may hold single or doubleinternment (sic) underground in sealed concrete vault." 8Petitioners claim that the vault


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provided by private respondent was not sealed, that is, not waterproof. Consequently,water seeped through the cement enclosure and damaged everything inside it.

We do not agree. There was no stipulation in the Deed of Sale and Certificate ofPerpetual Care and in the Rules and Regulations of the Manila Memorial Park Cemetery,Inc. that the vault would be waterproof. Private respondent's witness, Mr. DexterHeuschkel, explained that the term "sealed" meant "closed." 9On the other hand, theword "seal" is defined as . . . any of various closures or fastenings . . . that cannot be

opened without rupture and that serve as a check against tampering or unauthorizedopening." 10The meaning that has been given by private respondent to the wordconforms with the cited dictionary definition. Moreover, it is also quite clear that "sealed"cannot be equated with "waterproof". Well settled is the rule that when the terms of thecontract are clear and leave no doubt as to the intention of the contracting parties, thenthe literal meaning of the stipulation shall control. 11Contracts should be interpretedaccording to their literal meaning and should not be interpreted beyond their obviousintendment. 12As ruled by the respondent Court:

When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A")and the attached Rules and Regulations (Exhibit "1"), it can be assumed that he has

accepted defendant-appellee's undertaking to merely provide a concrete vault. He can notnow claim that said concrete vault must in addition, also be waterproofed (sic). It is basicthat the parties are bound by the terms of their contract, which is the law between them(Rizal Commercial Banking Corporation vs. Court of Appeals, et al. 178 SCRA 739). Wherethere is nothing in the contract which is contrary to law, morals, good customs, public order,or public policy, the validity of the contract must be sustained (Phil. American Insurance Co.vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a contracting party cannotincur a liability more than what is expressly specified in his undertaking. It cannot beextended by implication, beyond the terms of the contract (Rizal Commercial BankingCorporation vs. Court of Appeals, supra). And as a rule of evidence, where the terms of anagreement are reduced to writing, the document itself, being constituted by the parties asthe expositor of their intentions, is the only instrument of evidence in respect of thatagreement which the law will recognize, so long as its (sic) exists for the purpose of

evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco,Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if the terms of the contract areclear and leave no doubt upon the intention of the contracting parties, the literal meaning ofits stipulations shall control (Santos vs. CA, et al., G. R. No. 83664, Nov. 13, 1989; PrudentialBank & Trust Co. vs. Community Builders Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154SCRA 530). 13

We hold, therefore, that private respondent did not breach the tenor of its obligation tothe Syquias. While this may be so, can private respondent be liable for culpa aquilianafor boring the hole on the vault? It cannot be denied that the hole made possible theentry of more water and soil than was natural had there been no hole.

The law defines negligence as the "omission of that diligence which is required by thenature of the obligation and corresponds with the circumstances of the persons, of thetime and of the place." 14In the absence of stipulation or legal provision providing thecontrary, the diligence to be observed in the performance of the obligation is that whichis expected of a good father of a family.

The circumstances surrounding the commission of the assailed act boring of the hole negate the allegation of negligence. The reason for the act was explained by HenryFlores, Interment Foreman, who said that:


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Q It has been established in this particular case that a certain Vicente JuanSyquia was interred on July 25, 1978 at the Paraaque Cemetery of the ManilaMemorial Park Cemetery, Inc., will you please tell the Hon. Court what orwhether you have participation in connection with said internment (sic)?

A A day before Juan (sic) Syquia was buried our personnel dug a grave. Afterdigging the next morning a vault was taken and placed in the grave and whenthe vault was placed on the grave a hole was placed on the vault so thatwater could come into the vault because it was raining heavilythen because

the vault has no hole the vault will float and the grave would be filled withwater and the digging would caved (sic) in and the earth, the earth would (sic)caved in and fill up the grave. 15(Emphasis ours)

Except for the foreman's opinion that the concrete vault may float should there be aheavy rainfall, from the above-mentioned explanation, private respondent has exercisedthe diligence of a good father of a family in preventing the accumulation of water insidethe vault which would have resulted in the caving in of earth around the grave filling thesame with earth.

Thus, finding no evidence of negligence on the part of private respondent, We find noreason to award damages in favor of petitioners.

In the light of the foregoing facts, and construed in the language of the applicable lawsand jurisprudence, We are constrained to AFFIRM in toto the decision of the respondentCourt of Appeals dated December 7, 1990. No costs.

SO ORDERED.

Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.

# Footnotes

1 Civil Case No. Q-27112, "Juan J. Syquia, et al. vs. Manila Memorial Park Cemetery, Inc.".

2 Rollo, pp. 59-60.

3 Ibid., p. 65.

4 Penned by Associate Justice Arturo B. Buena, concurred in by Associate Justices Minerva P.Gonzaga-Reyes and Jainal D. Rasul.

5 Rollo, p. 87-A.

6 Exhibit "D"; Records, p. 10.

7 Annex A of Answer; Records, p. 31.

8 Petition, p. 5; Rollo, p. 13.

9 TSN, November 4, 1981, p. 7.

10 Webster's Third International Dictionary 2046 (1970).


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11 Mercantile Insurance Co., Inc. vs. Felipe Ysmael, Jr. and Co., Inc., 169 SCRA 66 (1989);Papa vs. Alonzo, 198 SCRA 564 (1991); Alim vs. CA, 200 SCRA 450 (1991); Republic vs.Sandiganbayan, 203 SCRA 310 (1991).

12 Mercantile Insurance Co., Inc., vs. Felipe Ysmael, Jr. and Co., Inc., 169 SCRA 66 (1989).

13 Rollo, pp. 64-65.

14 CIVIL CODE, Article 1173.

15 TSN, June 28, 1982, p. 2.


Manila

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.

VITUG,J.:

Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, aFAREASTCARD issued by petitioner Far East Bank and Trust Company ("FEBTC") at its PasigBranch. Upon his request, the bank also issued a supplemental card to private respondent ClaritaS. Luna.

In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace thelost card, Clarita submitted an affidavit of loss. In cases of this nature, the bank's internalsecurity procedures and policy would appear to be to meanwhile so record the lost card, alongwith 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, andanother guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay forthe lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had it verified


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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 bythis incident.

In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demandedfrom FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the bank, expressedthe 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 thenecessary action to avert its unauthorized use (such as tagging the card as hotlisted), as itis always our intention to protect our cardholders.

An investigation of your case however, revealed that FAREASTCARD failed to inform youabout its security policy. Furthermore, an overzealous employee of the Bank's Credit CardDepartment did not consider the possibility that it may have been you who was presentingthe 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 latterthat private respondents were "very valued clients" of FEBTC. William Anthony King, Food andBeverage 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 complaintfor 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 decisionordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b) P50,000.00exemplary 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 haveacted in bad faith or with malice in the breach of the contract.2The Civil Code provides:

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages ifthe court should find that, under the circumstances, such damages are justly due. Thesame rule applies to breaches of contract where the defendant acted fraudulently or inbad faith. (Emphasis supplied)

Bad faith, in this context, includes gross, but not simple, negligence. 3Exceptionally, in a contractofcarriage, moral damages are also allowed in case of death of a passenger attributable to thefault (which is presumed 4) of the common carrier. 5

Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card'scancellation. Nothing in the findings of the trial court and the appellate court, however, cansufficiently indicate any deliberate intent on the part of FEBTC to cause harm to privaterespondents. Neither could FEBTC's negligence in failing to give personal notice to Luis beconsidered so gross as to amount to malice or bad faith.


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Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonestpurpose or moral obliquity; it is different from the negative idea of negligence in that malice orbad 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 ExpressInternational, Inc., vs. Intermediate Appellate Court(167 SCRA 209) and Bank of PhilippineIslands vs. Intermediate Appellate Court(206 SCRA 408), sanctioning the application of Article21, in relation to Article 2217 and Article 2219 7of the Civil Code to a contractual breach similarto the case at bench. Article 21 states:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that iscontrary to morals, good customs or public policy shall compensate the latter for thedamage.

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, itsapplication can be warranted only when the defendant's disregard of his contractual obligation isso deliberate as to approximate a degree of misconduct certainly no less worse than fraud or badfaith. Most importantly, Article 21 is a mere declaration of a general principle in human relationsthat 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 tofraud or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda 8explained with great clarity thepredominance 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 bediscarded. 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 breachof the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code,which provide as follows:

Art. 2219. Moral damages may be recovered in the following and analogouscases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx xxx xxx

Art. 2220. Wilful injury to property may be a legal ground for awarding moraldamages if the court should find that, under the circumstances, suchdamages are justly due. The same rule applies to breaches of contract wherethe 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 orfraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an awardof 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


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the damages that are caused contractual breach, but because the definition of quasi-delictin Art. 2176 of the Code expressly excludes the cases where there is a "preexisitngcontractual relations between the parties."

Art. 2176. Whoever by act or omission causes damage to another, therebeing fault or negligence, is obliged to pay for the damage done. Such faultor negligence, if there is no pre-existing contractual relation between theparties, is called a quasi-delict and is governed by the provisions of thisChapter.

The exception to the basic rule of damages now under consideration is a mishap resultingin the death of a passenger, in which case Article 1764 makes the common carrierexpressly subject to the rule of Art. 2206, that entitles the spouse, descendants andascendants of the deceased passenger to "demand moral damages for mental anguish byreason of the death of the deceased" (Necesito vs. Paras, 104 Phil. 84, Resolution onmotion to reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes itall the more evident that where the injured passenger does not die, moral damages arenot recoverable unless it is proved that the carrier was guilty of malice or bad faith. Wethink it is clear that the mere carelessness of the carrier's driver does not per se constituteor 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 bythe Court of Appeals. To award moral damages for breach of contract, therefore, withoutproof of bad faith or malice on the part of the defendant, as required by Art. 2220, wouldbe to violate the clear provisions of the law, and constitute unwarranted judiciallegislation.

xxx xxx xxx

The distinction between fraud, bad faith or malice in the sense of deliberate or wantonwrong doing and negligence (as mere carelessness) is too fundamental in our law to beignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code.

Art. 2201. In contracts and quasi-contracts, the damages for which theobligor who acted in good faith is liable shall be those that are the naturaland probable consequences of the breach of the obligation, and which theparties have foreseen or could have reasonably foreseen at the time theobligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall beresponsible 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 thisdifference 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 beoccasionally so gross as to amount to malice; but the fact must be shown in evidence, anda carrier's bad faith is not to be lightly inferred from a mere finding that the contract wasbreached through negligence of the carrier's employees.

The Court has not in the process overlooked another rule that a quasi-delict can be the cause forbreaching a contract that might thereby permit the application of applicable principles on tort 9even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlinesvs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117; and AirFrance vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve privaterespondents' case for it can aptly govern only where the act or omission complained of would


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constitute an actionable tort independently of the contract. The test (whether a quasi-delict canbe 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 anactionable tort by itself, the fact that the parties are contractually bound is no bar to theapplication of quasi-delict provisions to the case. Here, private respondents' damage claim ispredicated solely on their contractual relationship; without such agreement, the act or omissioncomplained of cannot by itself be held to stand as a separate cause of action or as anindependent actionable tort.

The Court finds, therefore, the award of moral damages made by the court a quo, affirmed bythe 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 correctionfor 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. PanAmerican World Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposedwhen the crime is committed with one or more aggravating circumstances (Art. 2230, CivilCode). In quasi-delicts, such damages are granted if the defendant is shown to have been soguilty 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 thedefendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolentmanner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).

Given the above premises and the factual circumstances here obtaining, it would also be just asarduous to sustain the exemplary damages granted by the courts below (see De Leon vs. Courtof Appeals, 165 SCRA 166).

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued toprivate respondent Luis should entitle him to recover a measure of damages sanctioned underArticle 2221 of the Civil Code providing thusly:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which hasbeen violated or invaded by the defendant, may be vindicated or recognized, and not forthe purpose of indemnifying the plaintiff for any loss suffered by him.

Reasonable attorney's fees may be recovered where the court deems such recovery to be justand equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part of theappellate court in allowing the award thereof by the trial court.

WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED bydeleting 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 ofnominal 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.

Footnotes

1 Rollo, p. 52.


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2 Necesito vs. Paras, 104 Phil. 75; Panay Electric Co. vs. CA, 119 SCRA 456; Sweet Lines, Inc.vs. CA, 121 SCRA 769; Rex Taxicab Co., Inc. vs. Bautista, 109 Phil. 712.

3 Philippine Airlines vs. Court of Appeals, 106 SCRA 143.

4 Art. 1756, Civil Code.

5 Art. 1764. Damages in cases comprised in this Section shall be awarded in accordancewith the Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the

death of a passenger caused by the breach of contract by a common carrier.

6 See Luzon Brokerage, Co., Inc. vs. Maritime Building, Co., Inc., 43 SCRA 93; also Black'sLaw Dictionary.

7 Art. 2217. Moral damages include physical suffering, mental anguish, fright, seriousanxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, andsimilar injury. Though incapable of pecuniary computation, moral damages may berecovered if they are the proximate result of the defendant's wrongful act for omission.

Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

(9) Acts mentioned in article 309;

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

The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of thisarticle, may also recover moral damages.

The spouse, descendants, ascendants, and brother and sisters may bring action mentioned

in No. 9 of this article, in the order named.

8 105 Phil. 266, 273-276.

9 In culpa aquiliana, moral damages may be recovered when the act or omission complainedof causes physical injuries or where the defendant is guilty of intentional tort (Article 2219[2][10], Civil Code).


Manila


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THIRD DIVISION

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,vs.COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.

Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR.,J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August1991, 1 reversing and setting aside the Decision, dated 19 February 1990, 2of Branch 47 of the Regional

Trial Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUSTCO.," is challenged in this petition for review on certiorari under Rule 45 of the Rules Court.

Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stampcollection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rentedfrom the defendant pursuant to a contract denominated as a Lease Agreement. 3Judgment therein wasrendered in favor of the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant,Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of

a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;

b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and

c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.

The counterclaim set up by the defendant are hereby dismissed for lack of merit.

No costs.

SO ORDERED.4

The antecedent facts of the present controversy are summarized by the public respondent in itschallenged decision as follows:

The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch locatedat the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety depositbox leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at itsaforesaid Binondo Branch.

During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped intothe safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The

defendant bank rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff institutedan action for damages against the defendant bank.

The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the "Rules andRegulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads(sic):

"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of thesafe by any person other than the Renter, his authorized agent or legal representative;

xxx xxx xxx


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"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same.The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability inconnection therewith."

The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease andnot of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable law; thatthe destruction of the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify the plaintiffabout the floodwaters that inundated its premises at Binondo branch which allegedly seeped into the safety deposit boxleased to the plaintiff.

The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted, whichwas done on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon wasthen submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel duringthe hearing on the same date (Ibid., p. 102) stating:

"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting BranchManager Jimmy B. Ynion in the presence of the undersigned, plaintiff's and defendant's counsel. SaidSafety Box when opened contains two albums of different sizes and thickness, length and width and atin box with printed word 'Tai Ping Shiang Roast Pork in pieces with Chinese designs and character."

Condition of the above-stated Items

"Both albums are wet, moldy and badly damaged.

1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the album areattached to every page and cannot be lifted without destroying it, hence the stamps contained therein are no longer

visible.

2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages can still be lifted. Thestamps therein can still be distinguished but beyond restoration. Others have lost its original form.

3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of the box. The

condition of the album is the second abovementioned album."5

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court'sdecision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.

In urging the public respondent to reverse the decision of the trial court, SBTC contended that the lattererred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had

failed to exercise the required diligence expected of a bank in maintaining the safety deposit box; (c)awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount ofP100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing thecounterclaim.

On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's complaint is hereby DISMISSED.

The appellant bank's counterclaim is likewise DISMISSED. No costs.6

In reversing the trial court's decision and absolving SBTC from liability, the public respondent found andruled that:

a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions ofthe contract of lease which the appellee (now petitioner) had voluntarily and knowingly executed withSBTC;

b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of depositwherein the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, theprovisions of Book IV, Title XII of the Civil Code on deposits do not apply;

c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC'sliability:


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9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of theSafe by any person other than the Renter, his authorized agent or legal representative.

xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same.The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability inconnection therewith.

are valid since said stipulations are not contrary to law, morals, good customs, public order or public

policy; and

d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintainingthe safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond thecontrol of SBTC, caused the damage to the stamp collection; said floods were fortuitous events which SBTCshould not be held liable for since it was not shown to have participated in the aggravation of the damageto the stamp collection; on the contrary, it offered its services to secure the assistance of an expert inorder to save most of the stamps, but the appellee refused; appellee must then bear the lose under theprinciple of "res perit domino."

Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7petitioner filedthe instant petition wherein he contends that:

I

IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT RULED THATRESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF

THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.

II

THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY WHATSOEVERBY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND "A-1").

III

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR ACTUAL AND

MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE PETITIONER.

8

We subsequently gave due course the petition and required both parties to submit their respectivememoranda, which they complied with. 9

Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligenceexpected of a bank maintaining such safety deposit box . . . in the light of the environmental circumstanceof said safety deposit box after the floods of 1985 and 1986." He argues that such a conclusion issupported by the evidence on record, to wit: SBTC was fully cognizant of the exact location of the safetydeposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 andconsidering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was alsoaware of the inundation of the premises where the safety deposit box was located; despite suchknowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate

measures to insure the safety and good maintenance of the safety deposit box in question.

SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court ofAppeals, when supported by substantial exidence, are not reviewable on appeal by certiorari. 10

The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparitybetween the factual findings and conclusions of the Court of Appeals and the trial court. 11Such a disparityobtains in the present case.

As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement "covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease and not a


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contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank's liability asfollows:

9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of theSafe by any person other than the Renter, his autliorized agent or legal representative;

xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same.The Bank has no interest whatsoever said contents, except as herein provided, and it assumes absolutely no liability in

connection therewith.12

are valid and binding upon the parties. In the challenged decision, the public respondent further avers thateven without such a limitation of liability, SBTC should still be absolved from any responsibility for thedamage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous eventand that the respondent bank was free from any participation in the aggravation of the injury.

We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressedwith merit.

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals,13this Court explicitlyrejected the contention that a contract for the use of a safety deposit box is a contract of lease governedby Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of depositto be strictly governed by the Civil Code provision on deposit; 14it is, as We declared, a special kind ofdeposit. The prevailing rule in American jurisprudence that the relation between a bank renting out safedeposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, thebailment for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in thisjurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, asamended] pertinently provides:

"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than buildingand loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for thesafequarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or asagents. . . ."(emphasis supplied)

Note that the primary function is still found within the parameters of a contract ofdeposit, i.e., the receiving in custody offunds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is notindependent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered intoorally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establishsuch stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objectsdeposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if,in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement[Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of afamily is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the

loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and publicpolicy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the safetydeposit box, which read:

"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same.

"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutelyno liability in connection therewith."

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, saidprovisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the GeneralBanking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty toexercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:


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"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safeand beyond this, the Bank will not be responsible for the contents of any safe rented from it."

Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct toassert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit boxitself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to thesaid box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and usingthis guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void andineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, theparties, since the relation is a contractual one, may by special contract define their respective duties orprovide for increasing or limiting the liability of the deposit company, provided such contract is not inviolation of law or public policy. It must clearly appear that there actually was such a special contract,however, in order to vary the ordinary obligations implied by law from the relationship of the parties;liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. Thecompany, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by itsown fraud or negligence or that, of its agents or servants, and if a provision of the contract may beconstrued as an attempt to do so, it will be held ineffective for the purpose. Although it has been heldthat the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through itsown negligence, the view has been taken that such a lessor may limit its liability to some extent byagreement or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CAAgro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On theother hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in thepresent case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it

that only the renter, his authorized agent or his legal representative should open or have access to thesafety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercisediligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 ofthe "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be strickendown for being contrary to law and public policy as they are meant to exempt SBTC from any liability fordamage, loss or destruction of the contents of the safety deposit box which may arise from its own or itsagents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of thestamp collection because the flooding was a fortuitous event and there was no showing of SBTC'sparticipation in the aggravation of the loss or injury. It states:

Article 1174 of the Civil Code provides:

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

In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola17says: "In a legal sense and,

consequently, also in relation to contracts, a "caso fortuito" prevents (sic)18

the following essential characteristics: (1) thecause of the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply with his obligation, must beindependent of the human will; (2) it must be impossible to foresee the event which constitutes the "caso fortuito," or if itcan be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for one debtorto fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the aggravation of the

injury resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra).19

Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter wasnot shown to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the appellantbank offered its services to secure the assistance of an expert to save most of the then good stamps but the appelle

refused and let (sic) these recoverable stamps inside the safety deposit box until they were ruined.20

Both the law and authority cited are clear enough and require no further elucidation. Unfortunately,however, the public respondent failed to consider that in the instant case, as correctly held by the trialcourt, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition andhave been summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the stampcollection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated theroom where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifyingthe petitioner in order that the box could have been opened to retrieve the stamps, thus saving the samefrom further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence


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expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss.Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of theCivil Code, which reads:

Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any mannercontravene the tenor thereof, are liable for damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in thelanguage of the trial court, the "product of 27 years of patience and diligence" 21caused the petitionerpecuniary loss; hence, he must be compensated therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since therelationship between the petitioner and SBTC is based on a contract, either of them may be held liable formoral damages for breach thereof only if said party had acted fraudulently or in bad faith. 22There is hereno proof of fraud or bad faith on the part of SBTC.

WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the publicrespondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No.26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional TrialCourt of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moraldamages which is hereby set aside.

Costs against the private respondent.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

# Footnotes

1 Rollo, 34-41. Per Associate Justice Lucio L. Victor, concurred in by Associate Justices Santiago M. Kapunan and SegundinoG. Chua.

2 Id., 52-55.

3 Exhibit "A" and "1", Original Records of Civil Case No. 87-42601, 87.

4 Rollo, 55.

5 Rollo, 34-36.

6 Rollo, 41.

7 Rollo, 43-49.

8 Id., 17.

9 Id., 63.

10 Rollo, 61, citing Gonzales vs. Court of Appeals, 90 SCRA 183 [1979].

11 Sacay vs. Sandiganbayan, 142 SCRA 593 [1986]; Remalante vs. Tibe, 158 SCRA 138 [1988]; Medina vs. Asisitio, 191SCRA 218 [1990].

12 Exhibit "A-1", Original Records, dorsal side of page 87.

13 G.R. No. 90027, 3 March 1993.

14 Title XII, Book IV, Civil Code.

15 10 Am Jur 2d, 440-441.


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16 Entries in brackets appear as footnotes in the decision.

17 5 Enciclopedia Juridicada Espaola.

18 Should be presents.

19 117 SCRA 832 [1982].

20 Rollo, 40.

21 Rollo, 54.

22 Article 2220, Civil Code.


Manila

THIRD DIVISION

G.R. No. 170479 February 18, 2008

ANDRE T. ALMOCERA, petitioner,vs.JOHNNY ONG, respondent.

D E C I S I O N

CHICO-NAZARIO,J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of CivilProcedure which seeks to set aside the Decision1 of the Court of Appeals dated 18 July2005 in CA-G.R. CV No. 75610 affirming in toto the Decision2 of Branch 11 of theRegional Trial Court (RTC) of Cebu City in Civil Case No. CEB-23687 and its Resolution3dated 16 November 2005 denying petitioners motion for reconsideration. The RTCdecision found petitioner Andre T. Almocera, Chairman and Chief Executive Officer ofFirst Builder Multi-Purpose Cooperative (FBMC), solidarily liable with FMBC for damages.
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Stripped of non-essentials, the respective versions of the parties have been summarizedby the Court of Appeals as follows:

Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" describedas Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell,the selling price of the unit was P3,400,000.00 pesos, for a lot area of eighty-eight(88) square meters with a three-storey building. Out of the purchase price, plaintiffwas able to pay the amount of P1,060,000.00. Prior to the full payment of this

amount, plaintiff claims that defendants Andre Almocera and First Buildersfraudulently concealed the fact that before and at the time of the perfection of theaforesaid contract to sell, the property was already mortgaged to and encumberedwith the Land Bank of the Philippines (LBP). In addition, the construction of thehouse has long been delayed and remains unfinished. On March 13, 1999, Lot 4-acovered by TCT No. 148818, covering the unit was advertised in a local tabloid forpublic auction for foreclosure of mortgage. It is the assertion of the plaintiff thathad it not for the fraudulent concealment of the mortgage and encumbrance bydefendants, he would have not entered into the contract to sell.

On the other hand, defendants assert that on March 20, 1995, First Builders Multi-

purpose Coop. Inc., borrowed money in the amount of P500,000.00 from TommyOng, plaintiffs brother. This amount was used to finance the documentationrequirements of the LBP for the funding of the Atrium Town Homes. This loan willbe applied in payment of one (1) town house unit which Tommy Ong mayeventually purchase from the project. When the project was under way, TommyOng wanted to buy another townhouse for his brother, Johnny Ong, plaintiff herein,which then, the amount of P150,000.00 was given as additional partial payment.However, the particular unit was not yet identified. It was only on January 10, 1997that Tommy Ong identified Unit No. 4 plaintiffs chosen unit and again tenderedP350,000.00 as his third partial payment. When the contract to sell for Unit 4 wasbeing drafted, Tommy Ong requested that another contract to sell covering Unit 5be made so as to give Johnny Ong another option to choose whichever unit hemight decide to have. When the construction was already in full blast, defendantswere informed by Tommy Ong that their final choice was Unit 5. It was only uponknowing that the defendants will be selling Unit 4 to some other persons forP4million that plaintiff changed his choice from Unit 5 to Unit 4.4

In trying to recover the amount he paid as down payment for the townhouse unit,respondent Johnny Ong filed a complaint for Damages before the RTC of Cebu City,docketed as Civil Case No. CEB-23687, against defendants Andre T. Almocera and FBMCalleging that defendants were guilty of fraudulent concealment and breach of contractwhen they sold to him a townhouse unit without divulging that the same, at the time ofthe perfection of their contract, was already mortgaged with the Land Bank of thePhilippines (LBP), with the latter causing the foreclosure of the mortgage and theeventual sale of the townhouse unit to a third person.

In their Answer, defendants denied liability claiming that the foreclosure of the mortgageon the townhouse unit was caused by the failure of complainant Johnny Ong to pay thebalance of the price of said townhouse unit.
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After the pre-trial conference was terminated, trial on the merits ensued. Respondentand his brother, Thomas Y. Ong, took the witness stand. For defendants, petitionertestified.

In a Decision dated 20 May 2002, the RTC disposed of the case in this manner:

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered inthis case in favor of the plaintiff and against the defendants:

(a) Ordering the defendants to solidarily pay to the plaintiff the sum ofP1,060,000.00, together with a legal interest thereon at 6% per annum from April21, 1999 until its full payment before finality of the judgment. Thereafter, if theamount adjudged remains unpaid, the interest rate shall be 12% per annumcomputed from the time when the judgment becomes final and executory untilfully satisfied;

(b) Ordering the defendants to solidarily pay to the plaintiff the sum ofP100,000.00 as moral damages, the sum of P50,000.00 as attorneys fee and thesum of P15,619.80 as expenses of litigation; and

(c) Ordering the defendants to pay the cost of this suit.5

The trial court ruled against defendants for not acting in good faith and for not complyingwith their obligations under their contract with respondent. In the Contract to Sell6involving Unit 4 of the Atrium Townhomes, defendants agreed to sell said townhouse torespondent for P3,400,000.00. The down payment was P1,000,000.00, while the balanceof P2,400,000.00 was to be paid in full upon completion, delivery and acceptance of thetownhouse. Under the contract which was signed on 10 January 1997, defendants agreedto complete and convey to respondent the unit within six months from the signingthereof.

The trial court found that respondent was able to make a down payment or partialpayment of P1,060,000.00 and that the defendants failed to complete the constructionof, as well as deliver to respondent, the townhouse within six months from the signing ofthe contract. Moreover, respondent was not informed by the defendants at the time ofthe perfection of their contract that the subject townhouse was already mortgaged toLBP. The mortgage was foreclosed by the LBP and the townhouse was eventually sold atpublic auction. It said that defendants were guilty of fraud in their dealing withrespondent because the mortgage was not disclosed to respondent when the contractwas perfected. There was also non-compliance with their obligations under the contractwhen they failed to complete and deliver the townhouse unit at the agreed time. On thepart of respondent, the trial court declared he was justified in suspending furtherpayments to the defendants and was entitled to the return of the down payment.

Aggrieved, defendants appealed the decision to the Court of Appeals assigning thefollowing as errors:

1. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF HAS A VALID CAUSE OFACTION FOR DAMAGES AGAINST DEFENDANT(S).
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2. THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERAIS SOLIDARILY LIABLE WITH THE COOPERATIVE FOR THE DAMAGES TO THEPLAINTIFF.7

The Court of Appeals ruled that the defendants incurred delay when they failed to deliverthe townhouse unit to the respondent within six months from the signing of the contractto sell. It agreed with the finding of the trial court that the nonpayment of the balance ofP2.4M by respondent to defendants was proper in light of such delay and the fact that

the property subject of the case was foreclosed and auctioned. It added that the trialcourt did not err in giving credence to respondents assertion that had he knownbeforehand that the unit was used as collateral with the LBP, he would not haveproceeded in buying the townhouse. Like the trial court, the Court of Appeals gave noweight to defendants argument that had respondent paid the balance of the purchaseprice of the townhouse, the mortgage could have been released. It explained:

We cannot find fault with the choice of plaintiff not to further dole out money for aproperty that in all events, would never be his. Moreover, defendants could, if theywere really desirous of satisfying their obligation, demanded that plaintiff pay theoutstanding balance based on their contract. This they had not done. We can fairly

surmise that defendants could not comply with their obligation themselves,because as testified to by Mr. Almocera, they already signified to LBP that theycannot pay their outstanding loan obligations resulting to the foreclosure of thetownhouse.8

Moreover, as to the issue of petitioners solidary liability, it said that this issue wasbelatedly raised and cannot be treated for the first time on appeal.

On 18 July 2005, the Court of Appeals denied the appeal and affirmed in toto thedecision of the trial court. The dispositive portion of the decision reads:

IN LIGHT OF ALL THE FOREGOING, this appeal is DENIED. The assaileddecision of the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB-23687 is AFFIRMEDin toto.9

In a Resolution dated 16 November 2005, the Court of Appeals denied defendantsmotion for reconsideration.

Petitioner is now before us pleading his case via a Petition for Review on Certiorari underRule 45 of the 1997 Rules of Civil Procedure. The petition raises the following issues:

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THATDEFENDANT HAS INCURRED DELAY.

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAININGRESPONDENTS REFUSAL TO PAY THE BALANCE OF THE PURCHASE PRICE.

III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THATDEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE DEFENDANTCOOPERATIVE FOR DAMAGES TO PLAINTIFF.10
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It cannot be disputed that the contract entered into by the parties was a contract to sell.The contract was denominated as such and it contained the provision that the unit shallbe conveyed by way of an Absolute Deed of Sale, together with the attendant documentsof Ownership the Transfer Certificate of Title and Certificate of Occupancy and thatthe balance of the contract price shall be paid upon the completion and delivery of theunit, as well as the acceptance thereof by respondent. All these clearly indicate thatownership of the townhouse has not passed to respondent.

In Serrano v. Caguiat, 11 we explained:

A contract to sell is akin to a conditional sale where the efficacy or obligatory forceof the vendors obligation to transfer title is subordinated to the happening of afuture and uncertain event, so that if the suspensive condition does not take place,the parties would stand as if the conditional obligation had never existed. Thesuspensive condition is commonly full payment of the purchase price.

The differences between a contract to sell and a contract of sale are well-settled injurisprudence. As early as 1951, in Sing Yee v. Santos [47 O.G. 6372 (1951)], weheld that:

"x x x [a] distinction must be made between a contract of sale in which titlepasses to the buyer upon delivery of the thing sold and a contract to sell x xx where by agreement the ownership is reserved in the seller and is not topass until the full payment of the purchase price is made. In the first case,non-payment of the price is a negative resolutory condition; in the secondcase, full payment is a positive suspensive condition. Being contraries, theireffect in law cannot be identical. In the first case, the vendor has lost andcannot recover the ownership of the land sold until and unless the contractof sale is itself resolved and set aside. In the second case, however, the titleremains in the vendor if the vendee does not comply with the conditionprecedent of making payment at the time specified in the contract."

In other words, in a contract to sell, ownership is retained by the seller and isnot to pass to the buyer until full payment of the price.

The Contract to Sell entered into by the parties contains the following pertinentprovisions:

4. TERMS OF PAYMENT:

4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as Downpaymentfor the above-mentioned Contract Price.

4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED PESOS(P2,400,000.00) shall be paid thru financing Institution facilitated by the SELLER,preferably Landbank of the Philippines (LBP).

Upon completion, delivery and acceptance of the BUYER of the Townhouse Unit,the BUYER shall have paid the Contract Price in full to the SELLER.

x x x x


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6. COMPLETION DATES OF THE TOWNHOUSE UNIT:

The unit shall be completed and conveyed by way of an Absolute Deed of Saletogether with the attendant documents of Ownership in the name of the BUYER the Transfer Certificate of Title and Certificate of Occupancy within a period of six(6) months from the signing of Contract to Sell.12

From the foregoing provisions, it is clear that petitioner and FBMC had the obligation to

complete the townhouse unit within six months from the signing of the contract. Uponcompliance therewith, the obligation of respondent to pay the balance of P2,400,000.00arises. Upon payment thereof, the townhouse shall be delivered and conveyed torespondent upon the execution of the Absolute Deed of Sale and other relevantdocuments.

The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation --to complete and deliver the townhouse within the six-month period. With petitioner andFBMCs non-fulfillment of their obligation, respondent refused to pay the balance of thecontract price. Respondent does not ask that ownership of the townhouse be transferredto him, but merely asks that the amount or down payment he had made be returned to

him.

Article 1169 of the Civil Code reads:

Art. 1169. Those obliged to deliver or to do something incur in delay from the timethe obligee judicially or extrajudicially demands from them the fulfillment of theirobligation.

However, the demand by the creditor shall not be necessary in order that delaymay 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 thatthe designation of the time when the thing is to be delivered or the service is to berendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyondhis power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not complyor 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 otherbegins.

The contract subject of this case contains reciprocal obligations which were to be fulfilledby the parties, i.e., to complete and deliver the townhouse within six months from theexecution of the contract to sell on the part of petitioner and FBMC, and to pay thebalance of the contract price upon completion and delivery of the townhouse on the partof the respondent.


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In the case at bar, the obligation of petitioner and FBMC which is to complete and deliverthe townhouse unit within the prescribed period, is determinative of the respondentsobligation to pay the balance of the contract price. With their failure to fulfill theirobligation as stipulated in the contract, they incurred delay and are liable for damages.13They cannot insist that respondent comply with his obligation. Where one of the partiesto a contract did not perform the undertaking to which he was bound by the terms of theagreement to perform, he is not entitled to insist upon the performance of the otherparty.14

On the first assigned error, petitioner insists there was no delay when the townhouseunit was not completed within six months from the signing of the contract inasmuch asthe mere lapse of the stipulated six (6) month period is not by itself enough to constitutedelay on his part and that of FBMC, since the law requires that there must either bejudicial or extrajudicial demand to fulfill an obligation so that the obligor may be declaredin default. He argues there was no evidence introduced showing that a prior demand wasmade by respondent before the original action was instituted in the trial court.

We do not agree.

Demand is not necessary in the instant case. Demand by the respondent would beuseless because the impossibility of complying with their (petitioner and FBMC)obligation was due to their fault. If only they paid their loans with the LBP, the mortgageon the subject townhouse would not have been foreclosed and thereafter sold to a thirdperson.

Anent the second assigned error, petitioner argues that if there was any delay, the samewas incurred by respondent because he refused to pay the balance of the contract price.

We find his argument specious.

As above-discussed, the obligation of respondent to pay the balance of the contract pricewas conditioned on petitioner and FBMCs performance of their obligation. Consideringthat the latter did not comply with their obligation to complete and deliver thetownhouse unit within the period agreed upon, respondent could not have incurreddelay. For failure of one party to assume and perform the obligation imposed on him, theother party does not incur delay.15

Under the circumstances obtaining in this case, we find that respondent is justified inrefusing to pay the balance of the contract price. He was never in possession of thetownhouse unit and he can no longer be its owner since ownership thereof has beentransferred to a third person who was not a party to the proceedings below. It wouldsimply be the height of inequity if we are to require respondent to pay the balance of thecontract price. To allow this would result in the unjust enrichment of petitioner andFBMC. The fundamental doctrine of unjust enrichment is the transfer of value withoutjust cause or consideration. The elements of this doctrine which are present in this caseare: enrichment on the part of the defendant; impoverishment on the part of theplaintiff; and lack of cause. The main objective is to prevent one to enrich himself at theexpense of another. It is commonly accepted that this doctrine simply means a personshall not be allowed to profit or enrich himself inequitably at another's expense.16 Hence,to allow petitioner and FBMC keep the down payment made by respondent amounting to
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P1,060,000.00 would result in their unjust enrichment at the expense of the respondent.Thus, said amount should be returned.

What is worse is the fact that petitioner and FBMC intentionally failed to informrespondent that the subject townhouse which he was going to purchase was alreadymortgaged to LBP at the time of the perfection of their contract. This deliberatewithholding by petitioner and FBMC of the mortgage constitutes fraud and bad faith. Thetrial court had this say:

In the light of the foregoing environmental circumstances and milieu, therefore, itappears that the defendants are guilty of fraud in dealing with the plaintiff. Theyperformed voluntary and willful acts which prevent the normal realization of theprestation, knowing the effects which naturally and necessarily arise from suchacts. Their acts import a dishonest purpose or some moral obliquity and consciousdoing of a wrong. The said acts certainly gtive rise to liability for damages (8Manresa 72; Borrell-Macia 26-27; 3 Camus 34; OLeary v. Macondray & Company,454 Phil. 812; Heredia v. Salinas, 10 Phil. 157). Article 1170 of the New Civil Codeof the Philippines provides expressly that "those who in the performance of theirobligations are guilty of fraud and those who in any manner contravene the tenor

thereof are liable for damages.17

On the last assigned error, petitioner contends that he should not be held solidarily liablewith defendant FBMC, because the latter is a separate and distinct entity which is theseller of the subject townhouse. He claims that he, as Chairman and Chief ExecutiveOfficer of FBMC, cannot be held liable because his representing FBMC in its dealings is acorporate act for which only FBMC should be held liable.

This issue of piercing the veil of corporate fiction was never raised before the trial court.The same was raised for the first time before the Court of Appeals which ruled that it wastoo late in the day to raise the same. The Court of Appeals declared:

In the case below, the pleadings and the evidence of the defendants are one andthe same and never had it made to appear that Almocera is a person distinct andseparate from the other defendant. In fine, we cannot treat this error for the firsttime on appeal. We cannot in good conscience, let the defendant Almocera raisethe issue of piercing the veil of corporate fiction just because of the adversedecision against him. x x x.18

To allow petitioner to pursue such a defense would undermine basic considerations ofdue process. Points of law, theories, issues and arguments not brought to the attentionof the trial court will not be and ought not to be considered by a reviewing court, asthese cannot be raised for the first time on appeal. It would be unfair to the adverseparty who would have no opportunity to present further evidence material to the newtheory not ventilated before the trial court.19

As to the award of damages granted by the trial court, and affirmed by the Court ofAppeals, we find the same to be proper and reasonable under the circumstances.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 18July 2005 in CA-G.R. CV No. 75610 is AFFIRMED. Costs against the petitioner.
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SO ORDERED.

MINITA V. CHICO-NAZARIOAssociate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

RUBEN T. REYESAssociate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case wasassigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGOAssociate Justice

Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it ishereby certified that the conclusions in the above Decision were reached in consultation before the casewas assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNOChief Justice

Footnotes

1Associate Justice Pampio A. Abarintos with Associate Justices Mercedes Gozo-Dadole and Ramon M. Bato, Jr. , concurring; rollo, pp. 25-32;

2Penned by Hon. Isaias P. Dicdican.

3Id. at 33-34.

4Rollo, pp. 26-27.

5Id. at 47.

6Exhibit A.

7Rollo, pp. 15-16.

8Id. at 30.
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9Id. at 32.

10 Id. at 16.

11G.R. No. 139173, 28 February 2007, 517 SCRA 57, 64-65.

12Rollo, p. 28-29.

13Leao v. Court of Appeals, 420 Phil. 836, 848 (2001).

14

Agustin v. Court of Appeals, G.R. No. 84751, 6 June 1990, 186 SCRA 375, 383.

15Agustin v. Court of Appeals, id., citingAbaya v. Standard-Vacuum Oil Co., 101 Phil. 1262 (1957).

16P.C. Javier & Sons, Inc. v. Court of Appeals, G.R. No. 129552, 29 June 2005, 462 SCRA 36, 47.

17Rollo, p. 44.

18 Id. at 31.

19Valdez v. China Banking Corporation, G.R. No. 155009, 12 April 2005, 455 SCRA 687, 696.


Manila

SECOND DIVISION

G.R. No. L-57552 October 10, 1986

LUISA F. MCLAUGHLIN, petitioner,vs.

THE COURT OF APPEALS AND RAMON FLORES, respondents.

R.C. Domingo Jr. & Associates f

Documents

OBLICON+CASES-NOV.+8,+2011-ARTs.+1156-1177 (1)