SECOND DIVISION

POLO S. PANTALEON,
Petitioner,

G.R. No. 174269

Present:

CARPIO MORALES, J.,*

Acting Chairperson,
- versus TINGA,
VELASCO,
LEONARDO-DE CASTRO,** and
BRION, JJ.
AMERICAN EXPRESS
INTERNATIONAL, INC.,
Respondent.

Promulgated:
May 8, 2009

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DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the second
to the last day of the tour. As the group had arrived late in the city, they failed to engage in any sightseeing. 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 stores 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 cards imprint, and asked Pantaleon
to sign the charge slip. The charge purchase was then referred electronically to respondents
Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
His son, who had already boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was waiting for them. As it was already
9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon asked
the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more minutes.
After 15 minutes, the store manager informed Pantaleon that respondent had demanded bank
references. Pantaleon supplied the names of his depositary banks, then instructed his daughter to return
to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the items
even without respondents 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 groups
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 Pantaleons purchase was first transmitted for approval to respondents Amsterdam
office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33 a.m, then
finally approved at 10:19 a.m., Amsterdam time.[6] The Approval Code was transmitted to
respondents 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
respondents 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 childrens 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 respondents 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 Pantaleons 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 attorneys 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 attorneys
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 Pantaleons motion for partial
reconsideration, and thereafter gave due course to respondents 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 respondents
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was a matter of
seconds. Based on that standard, respondent had been in clear delay with respect to the three subject
transactions. As it appears, the Court of Appeals conceded that there had been delay on the part of
respondent in approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or gross
negligence. Second, it ruled that respondent had exercised diligent efforts to effect the approval of
the purchases, which were not in accordance with the charge pattern petitioner had established for
himself, as exemplified by the fact that at Coster, he was making his very first single charge purchase
of US$13,826, and the record of [petitioner]s past spending with [respondent] at the time does not
favorably support his ability to pay for such purchase.[17]
On the premise that there was an obligation on the part of respondent to approve or disapprove
with dispatch the charge purchase, petitioner argues that the failure to timely approve or disapprove
the purchase constituted mora solvendi on the part of respondent in the performance of its obligation.
For its part, respondent characterizes the depiction by petitioner of its obligation to him as to approve
purchases instantaneously or in a matter of seconds.
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that
the obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially
or extrajudicially requires the debtors 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, petitioners 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 debtors 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 petitioners 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 petitioners purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customers 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.
Defendants 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, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs 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 defendants Amsterdam
office received the request to approve plaintiffs 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.
x x x
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix time
from 01:20 when the charge purchased was referred for authorization, defendants own record shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification of the cardmember has been presented and
he is buying jewelries worth US $13,826.
01:33 Netherlands asks How long will this take?
02:08 Netherlands is still asking How long will this take?
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on
his use of the card abroad with special handling.[22] (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved within seconds,
there really is no strict, legally determinative point of demarcation on how long must it take for a credit
card company to approve or disapprove a customers purchase, much less one specifically contracted
upon by the parties. Yet this is one of those instances when youd know it when youd see it, and one
hour appears to be an awfully long, patently unreasonable length of time to approve or disapprove a
credit card purchase. It is long enough time for the customer to walk to a bank a kilometer away,
withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as to approve or disapprove the purchase in
timely dispatch, and not to approve the purchase instantaneously or within seconds. Certainly, had
respondent disapproved petitioners 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 petitioners purchase, but the more elemental failure to timely act on

the same, whether favorably or unfavorably. Even assuming that respondents 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 respondents 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 travellers 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 Courts 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]
x x x
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 plaintiffs 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
plaintiffs billing history that would warrant the imprudent suspension of action by defendant in
processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no delinquencies in plaintiffs 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] Petitioners 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 attorneys 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.
SO ORDERED.
=o=o=o=o
FIRST DIVISION
[G.R. No. 115129. February 12, 1997]
IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO ALVIAR,
respondents.
DECISION
BELLOSILLO, J.:
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 fidelis to 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 Dasmarias, 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 finish 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.
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 " x x x they (respondent's employees) were
making a fool out of me."[5]
We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if
indeed it happened, was forseeable according to the trial court, and as such should have been
reasonably guarded against. The nature of private respondent's business requires that he should be
ready at all times to meet contingencies of this kind. One piece of testimony by respondent's witness
Marina Boncales has caught our attention - that the delivery truck arrived a little late than usual
because it came from a delivery of materials in Langcaan, Dasmarias, 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.
SECOND DIVISION
[G.R. No. 145483. November 19, 2004]
LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL INTERNATIONAL, INC.,
respondent.
DECISION
CHICO-NAZARIO, J.:
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 petitioners 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
latters 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.
Description

Qty.

Unit Price

Nozzle Tip
6 pcs.
P 5,520.00
Plunger & Barrel
6 pcs.
27,630.00
Cylinder Head
2 pcs.
1,035,000.00
Cylinder Liner
1 set
TOTAL PRICE FOB
P2,745,900.00
MANILA
___________

Total Price
33,120.00
165,780.00
2,070,000.00
477,000.00

DELIVERY: Within 2 months after receipt of firm order.

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
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., petitioners vice-president, and Henry
Pajarillo. Quoted hereunder is the pertinent portion of the purchase order:
Name of Description
CYL. LINER M/E

Qty.
1 SET

Amount
P477,000.00

NOTHING 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 formers 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 liners delivery.
On 26 January 1990, respondent deposited petitioners 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 petitioners 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, petitioners 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.,
respondents 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
respondents counsel requiring the former to settle its obligation to respondent together with accrued
interest and attorneys fees.
Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and
damages before the Regional Trial Court (RTC) of Makati City. In its complaint,[12] respondent
(plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately
refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of
the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per
annum to be reckoned from June 1991 until the full payment of the principal; attorneys 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 respondents 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 petitioners 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, attorneys fees plus
appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25
October 1991.[19] The amendment introduced dealt solely with the number of postdated checks issued
by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first
amended complaint, only nine postdated checks were involved, in its second amended complaint,
respondent claimed that petitioner actually issued ten postdated checks. Despite the opposition by
petitioner, the trial court admitted respondents 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 attorneys 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. Respondents counterclaims for moral, exemplary, and compensatory damages were
dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial courts 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
petitioners 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 respondents 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 respondents 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 (petitioners) 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
petitioners Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first
cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did
not indicate the due date of delivery of the second cylinder liner.
In the case of Bugatti v. Court of Appeals,[37] we reiterated the principle that [a] contract undergoes
three distinct stages preparation or negotiation, its perfection, and finally, its consummation.
Negotiation begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. The perfection or birth of the contract
takes place when the parties agree upon the essential elements of the contract. The last stage is the
consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.
In the instant case, the formal quotation provided by respondent represented the negotiation phase of
the subject contract of sale between the parties. As of that time, the parties had not yet reached an
agreement as regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner
could very well have ignored the offer or tendered a counter-offer to respondent while the latter could
have, under the pertinent provision of the Civil Code,[38] withdrawn or modified the same. The parties
were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this connection,
we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed,
renegotiated prior to the issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping
Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder
liner, did you not?
A: Yes sir.
Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that
the delivery of the cylinder liner will be made in two months time from the time you received the
confirmation of the order. Is that correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant

make a confirmation of the order?

A: After six months.
Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of
payment which you required of them of 25% down payment, now, it is stated in the purchase order the
date of delivery, will you explain to the court why the date of delivery of the cylinder liner was not
mentioned in the purchase order which is the contract between you and Lorenzo Shipping Corporation?
A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired
[with] our supplier in Japan to give us the price and delivery of that item. When we received that
quotation from our supplier it is stated there that they can deliver within two months but we have to get
our confirmed order within June.
Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese
supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the
order with your Japanese supplier after receiving the purchase order dated November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.[39]
For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in
the following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed
upon by both parties was 25% down payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?

A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the
earliest possible time. Again, that would depend on the customers. Even after receipt of the purchase
order which was what happened here, they re-negotiated the terms and sometimes we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.[40]
The above declarations remain unassailed. Other than its bare assertion that the subject contracts of
sale did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the
above testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No.
14011 yet it utterly failed to adduce any justification as to why said documents contained terms which
are at variance with those stated in the quotation provided by respondent. The only plausible reason for
such failure on the part of petitioner is that the parties had, in fact, renegotiated the proposed terms of
the contract of sale. Moreover, as the obscurity in the terms of the contract between respondent and
petitioner was caused by the latter when it omitted the date of delivery of the cylinder liners in the
purchase orders and varied the term with respect to the due date of the down payment,[41] said
obscurity must be resolved against it.[42]
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti,[43] instructive.
There, we held that
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the
essence of the contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in
the absence of anything to show that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for
dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December
1989 to early January 1990, the record is bereft of any indication that respondent was aware of such
fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the
essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the Court of Appeals:

. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and
January 15, 1990, no specific date of delivery was indicated therein. If time was really of the essence
as claimed by the appellee, they should have stated the same in the said purchase orders, and not
merely relied on the quotation issued by the appellant considering the lapse of time between the
quotation issued by the appellant and the purchase orders of the appellee.
In the instant case, the appellee should have provided for an allowance of time and made the purchase
order earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the
first week of January, 1990. In fact, the appellee should have cancelled the first purchase order when
the cylinder liner was not delivered on the date it now says was necessary. Instead it issued another
purchase order for the second set of cylinder liner. This fact negates appellees claim that time was
indeed of the essence in the consummation of the contract of sale between the parties.[44]
Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent
as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January
1990 fail to impress. It is not an indication of failure to honor a commitment on the part of the
respondent. The earliest maturity date of the checks was 18 January 1990. As delivery of said checks
could produce the effect of payment only when they have been cashed,[45] respondents 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 partys subsequently treating the contract
as still in force.[46] Petitioners 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 others 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, respondents act of proceeding with the opening of an
irrevocable letter of credit on 23 February 1990 belies petitioners claim that it notified respondent of
the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action
knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by
the other party.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are
hereby AFFIRMED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, 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.
DECISION
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passengers 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 Cathays 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 Cathays 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 Cathays
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 Cathays Country Manager Argus Guy
Robson, informed the Vazquezes that Cathay would investigate the incident and get back to them
within a weeks time.
On 8 November 1996, after Cathays 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
attorneys 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. Chius 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, Cathays 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.
Vazquezs 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 Cathays 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
attorneys fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for
exemplary damages and P300,000 as attorneys 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
Cathays 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 attorneys 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)
and

Attorneys fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff;

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 Cathays revenues. Cathays 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 attorneys 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 formers 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[3] where we
recognized that, in accordance with the Civil Aeronautics Boards 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
attorneys 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 attorneys 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 passengers 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 Cathays
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 Cathays 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
defendants 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 attorneys fees.[17]
The most that can be adjudged in favor of the Vazquezes for Cathays 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 Cathays 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 courts 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
attorneys 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 Courts 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 attorneys fees are set aside and deleted, and the award for nominal damages is
reduced to P5,000.
No pronouncement on costs.
SO ORDERED.
Vitug, Carpio, and Azcuna, JJ., concur.
Ynares-Santiago, J., on leave.
THIRD DIVISION

MANILA ELECTRIC COMPANY,

G.R. No. 158911
Petitioner,

Present:

- versus YNARES-SANTIAGO, J.,

Chairperson,
AUSTRIA-MARTINEZ,
MATILDE MACABAGDAL RAMOY,
CHICO-NAZARIO,
BIENVENIDO RAMOY, ROMANA
NACHURA, and
RAMOY-RAMOS, ROSEMARIE
REYES, JJ.
RAMOY, OFELIA DURIAN and
CYRENE PANADO,
Promulgated:
Respondents.
March 4, 2008
x------------------- -------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:

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 x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from liability for any kind of misperformance of
the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers
upon the injured party a valid cause for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee that may include his expectation interest,
which is his interest in having the benefit of his bargain by being put in as good a position as he would
have been in had the 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 obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event,
to excuse him from his ensuing liability.[9] (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. The Court emphasized in Ridjo Tape & Chemical
Corporation v. Court of 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 NPCs 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 its provider is a public utility subject to strict regulation by the State in the exercise of police
power. Failure to comply with these regulations will give rise to the presumption of bad faith or abuse
of right.[15] (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance
of its obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy testified
that he suffered wounded feelings because of MERALCO's actions.[16] Furthermore, due to the lack
of power supply, the lessees of his four apartments on subject lot left the premises.[17] Clearly,
therefore, Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the
effects on him of MERALCO's electric service disconnection. His co-respondents Matilde Ramoy,
Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of damages they
suffered.
It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez, Jr.,
[18] the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint that he
suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed to prove them
during the trial. Indeed, respondent should have taken the witness stand and should have testified on the
mental anguish, serious anxiety, wounded feelings and other emotional and mental suffering he
purportedly suffered to sustain his claim for moral damages. Mere allegations do not suffice; they must
be substantiated by clear and convincing proof. No other person could have proven such damages
except the respondent himself as they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:

While no proof of pecuniary loss is necessary in order that moral damages may be awarded,
the amount of indemnity being left to the discretion of the court, it is nevertheless essential that the
claimant should satisfactorily show the existence of the factual basis of damages and its causal
connection to defendants acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held that there
must be clear testimony on the anguish and other forms of mental suffering. Thus, if the plaintiff fails
to take the witness stand and testify as to his/her social humiliation, wounded feelings and anxiety,
moral damages cannot be awarded. In Cocoland Development Corporation vs. National Labor
Relations Commission, the Court held that additional facts must be pleaded and proven to warrant the
grant of moral damages under the Civil Code, these being, x x x social humiliation, wounded feelings,
grave anxiety, etc. that resulted therefrom.
x x x The award of moral damages must be anchored to a clear showing that respondent
actually experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or
similar injury. There was no better witness to this experience than respondent himself. Since respondent
failed to testify on the witness stand, the trial court did not have any factual basis to award moral
damages to him.[19] (Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded
moral damages.[20]
With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts
and quasi-contracts, the court may award exemplary damages if the defendant, in this case MERALCO,
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the
same Code provides that such damages cannot be recovered as a matter of right and the adjudication of
the same is within the discretion of the court.
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, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1)

When exemplary damages are awarded;

(2) When the defendants 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 plaintiffs
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 workmens compensation and employers 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 attorneys fees and expenses of
litigation should be recovered.
In all cases, the attorneys 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.
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.
Gutierrez, Cortes & Gonzales for petitioners.
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:

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.
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:
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 you 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 petitionerinsured that the cancellation of the policy was a mistake but he would personally see to its rectification.
However, petitioner-insured failed to receive any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that
he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015
commencing upon its receipt of his letter, or that the current commercial rate of increase on the
payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola also
warned that should his demands be unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial
payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of
the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail
to pay the balance, the company's liability would cease to operate. 7
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that
the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized
that the official receipt should have been issued seven days from the issuance of the provisional receipt
but because no official receipt had been issued in Areola's name, there was reason to believe that no
payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern
by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this
matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered
by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence,
Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or
one year from the date when payment was received." Apologizing again for the inconvenience caused
Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided
for in the letter. 9
The letter was personally delivered by Carlito Ang to Areola on
August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a
complaint for breach of contract with damages before the lower court.
In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's
policy was due to the failure of Malapit to turn over the premiums collected, for which reason no
official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused
on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy
prior to the filing of the complaint, respondent insurance company had complied with its obligation
under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it.
It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated

fully well its fulfillment of its obligation.

The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former the following:
a)

P1,703.65 as actual damages;

b)

P200,000.00 as moral damages; and

c)

P50,000.00 as exemplary damages;

2.

To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and

3.

To pay the costs.

In its decision, the court below declared that respondent insurance company acted in bad faith in
unilaterally cancelling subject insurance policy, having done so only after seven months from the time
that it had taken force and effect and despite the fact of full payment of premiums and other charges on
the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower
court, meant that the protection sought by petitioner-insured from the risks insured against was never
extended by respondent insurance company. Had the insured met an accident at the time, the insurance
company would certainly have disclaimed any liability because technically, the petitioner could not
have been considered insured. Consequently, the trial court held that there was breach of contract on
the part of respondent insurance company, entitling petitioner-insured to an award of the damages
prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in
unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court,
convinced that the latter had erred in finding respondent insurance company in bad faith for the
cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance
company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the
cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an
official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court
of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of
which must be established convincingly. On the contrary, it further observed, the following acts
indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on
petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid
the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December
17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December
17, 1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon
petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit,
its Baguio City manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals
denied. Hence, this petition for review on certiorari anchored on these arguments:

I
Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and
reversible error in not holding Respondent Prudential liable for the cancellation of the insurance
contract which was admittedly caused by the fraudulent acts and bad faith of its own officers.
II
Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling
that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and
evident bad faith.
III
Respondent Court of Appeals committed a reversible error in not finding that even without considering
the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in
cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude
amounting to bad faith, because among others, it was
Mr. Malapit the person who committed the fraud who sent and signed the notice of cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to law and applicable
decision of the Supreme Court when it refused to award damages in favor of herein PetitionerAppellants.
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 petitionerinsured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act
committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an
artificial corporate being which can act only through its officers or employees. Malapit's actuation,
concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance
company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences
of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own
employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not
possibly absolve respondent insurance company from liability, there being an obvious breach of
contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no
amount of rectification could remedy the same.
Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief
sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the
complaint, petitioner-insured is left without a cause of action on which to predicate his claim for
damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights
under the policy. Hence, whatever cause of action there might have been against it, no longer exists and
the consequent award of damages ordered by the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums

paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A

corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are
considered as its own for which it can be held to account. 11 The facts are clear as to the relationship
between private respondent insurance company and Malapit. As admitted by private respondent
insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt
that he represented its interest and acted in its behalf. His act of receiving the premiums collected is
well within the province of his authority. Thus, his receipt of said premiums is receipt by private
respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil
Code, is bound by the acts of its agent.
Article 1910 thus reads:
Art. 1910.
The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent
insurance company; no exoneration from liability could result therefrom. The fact that private
respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio
branch office, such as the non-accrual of said premiums to its account, does not free the same from its
obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in
McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their
authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment;
nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to
the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing his authority and attempting
to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its
earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured.
Respondent company should be reminded that a contract of insurance creates reciprocal obligations for
both insurer and insured. Reciprocal obligations are those which arise from the same cause and in
which each party is both a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. 15
Under the circumstances of instant case, the relationship as creditor and debtor between the parties
arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance
under whose terms, respondent insurance company promised to extend protection to petitioner-insured
against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the
law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured
party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the

obligation in case one of the obligors, such as respondent insurance company, fails to comply with what
is incumbent upon him. However, said article entitles the injured party to payment of damages,
regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is
reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment
of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim
finds no support in our laws on obligations and contracts.
The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary
to that granted by the court below. Although the erroneous cancellation of the insurance policy
constituted a breach of contract, private respondent insurance company, within a reasonable time took
steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no
actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy
was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must
be vindicated against an invasion that has produced no actual present loss of any kind, or where there
has been a breach of contract and no substantial injury or actual damages whatsoever have been or can
be shown. 18
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court
of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC
Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to
the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner
in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages
awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest
computed from date of filing of complaint until final payment thereof.
SO ORDERED.
Feliciano, Melo and Vitug, JJ., concur.
Bidin, J., is on leave.
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.
DECISION
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J. M.
T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a
windmill system for him. After some negotiations they agreed on the construction of the windmill for a
consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by
respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down
payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a
complaint to collect the amount. In his Answer before the trial court respondent denied the claim
saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI)
which constructed the deep well to which the windmill system was to be connected. According to
respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be
credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the windmill system which caused the structure to
collapse after a strong wind hit their place.[1]
Petitioner denied that the construction of a deep well was included in the agreement to build the
windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its
installation, exclusive of other incidental materials needed for the project. He also disowned any
obligation to repair or reconstruct the system and insisted that he delivered it in good and working
condition to respondent who accepted the same without protest. Besides, its collapse was attributable
to a typhoon, a force majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not part of the
windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent.[2]
It noted that "[i]f the intention of the parties is to include the construction of the deep well in the
project, the same should be stated in the proposals. In the absence of such an agreement, it could be
safely concluded that the construction of the deep well is not a part of the project undertaken by the
plaintiff."[3] With respect to the repair of the windmill, the trial court found that "there is no clear and
convincing proof that the windmill system fell down due to the defect of the construction."[4]
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was
included in the agreement of the parties because the term "deep well" was mentioned in both proposals.
It also gave credence to the testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI
which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep
well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court
concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining
balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected
petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with
the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief
from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system
included the installation of a deep well and, secondly, whether petitioner is under obligation to
reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation of a deep well
was not included in the proposals of petitioner to construct a windmill system for respondent. There
were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00
(Exh. "1"). This was rejected by respondent. The other was submitted three days later, i.e., on 22 May
1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh.
"A"). The latter proposal was accepted by respondent and the construction immediately followed. The
pertinent portions of the first letter-proposal (Exh. "1") are reproduced hereunder -

In connection with your Windmill System and Installation, we would like to quote to you as follows:
One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter,
with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate
during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system Supply of Labor Materials and Installation, operated water
pump, we would like to quote to you as follows One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter,
1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump,
shafting U.S. adjustable International Metal.
One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.
One (1) lot - Float valve.
One (1) lot - Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely.
Neither is there an itemization or description of the materials to be used in constructing the deep well.
There is absolutely no mention in the two (2) documents that a deep well pump is a component of the
proposed windmill system. The contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words "deep well" and "deep well pump" are
mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely
describe the type of deep well pump for which the proposed windmill would be suitable. As correctly
pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for"
were meant only to convey the idea that the proposed windmill would be appropriate for a deep well
pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in
the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with."
Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be
disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties
shall be accorded primordial 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, (Chairman), Vitug, Kapunan, and Hermosisima, JJ., concur.
G.R. No. L-21749

September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant.

REYES, J.B.L., J.:

The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case
No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to
the plaintiff-appellee Republic of the Philippines.
In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation
was being towed down the Pasig river by tugboats "Bangus" and "Barbero"1 also belonging to the
same corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey
bridge, smashing the posts and causing the bridge to list. The river, at the time, was swollen and the
current swift, on account of the heavy downpour of Manila and the surrounding provinces on August
15 and 16, 1960.
Sued by the Republic of the Philippines for actual and consequential damage caused by its employees,
amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring
Corporation disclaimed liability therefor, on the grounds that it had exercised due diligence in the
selection and supervision of its employees; that the damages to the bridge were caused by force
majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to
navigation.
After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the
damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the
Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of
the filing of the complaint.
Defendant appealed directly to this Court assigning the following errors allegedly committed by the
court a quo, to wit:
I The lower court erred in not holding that the herein defendant-appellant had exercised the
diligence required of it in the selection and supervision of its personnel to prevent damage or injury to
others.1awphl.nt
II The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by barge L1892 was caused by force majeure.
III The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if not a
menace, to navigation in the Pasig river.
IV The lower court erred in not blaming the damage sustained by the Nagtahan bailey bridge to the
improper placement of the dolphins.
V The lower court erred in granting plaintiff's motion to adduce further evidence in chief after it has
rested its case.
VI The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for damages
which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that when a party appeals
directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived the

right to dispute any finding of fact made by the trial Court. The only questions that may be raised are
those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30,
1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of
Appeals, and submits his case for decision there, is barred from contending later that his claim was
beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage the
undesirable practice of appellants' submitting their cases for decision to either court in expectation of
favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable
(Tyson Tan, et al. vs. Filipinas Compaia 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 doublechecked and inspected; that it instructed its patrons to take extra precautions; and concludes that it had
done all it was called to do, and that the accident, therefore, should be held due to force majeure or
fortuitous event.
These very precautions, however, completely destroy the appellant's defense. For caso fortuito or force
majeure (which in law are identical in so far as they exempt an obligor from liability)2 by definition,
are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which,
though foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough
that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to
foresee the same: "un hecho no constituye caso fortuito por la sola circunstancia de que su existencia
haga mas dificil o mas onerosa la accion diligente del presento ofensor" (Peirano Facio,
Responsibilidad Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569).
The very measures adopted by appellant prove that the possibility of danger was not only foreseeable,
but actually foreseen, and was not caso fortuito.

Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils
posed by the swollen stream and its swift current, voluntarily entered into a situation involving obvious
danger; it therefore assured the risk, and can not shed responsibility merely because the precautions it
adopted turned out to be insufficient. Hence, the lower Court committed no error in holding it negligent
in not suspending operations and in holding it liable for the damages caused.
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.
EN BANC
[G.R. No. 108164. February 23, 1995.]
FAR EAST BANK AND TRUST COMPANY, Petitioner, v. THE HONORABLE COURT OF
APPEALS, LUIS A. LUNA and CLARITA S. LUNA, Respondents.
DECISION
VITUG, J.:
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 banks 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 banks 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 banks
apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part, said:jgc:chanrobles.com.ph
"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 Banks 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 attorneys 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:jgc:chanrobles.com.ph
"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)chanroblesvirtuallawlibrary
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 the common carrier. 5
Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own cards
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
FEBTCs negligence in failing to give personal notice to Luis be considered so gross as to amount to
malice or bad faith.chanrobles lawlibrary : rednad
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., v. Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine Islands v. 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:jgc:chanrobles.com.ph
"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."cralaw virtua1aw
library
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 defendants 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 v. Miranda 8 explained with great clarity the
predominance that we should give to Article 2220 in contractual relations; we
quote:jgc:chanrobles.com.ph
"Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have
repeatedly ruled (Cachero v. Manila Yellow Taxicab Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599;
Necesito, Et. Al. v. 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:chanroblesvirtuallawlibrary
"ART. 2219. Moral damages may be recovered in the following and analogous cases:chanrob1es
virtual 1aw library
(1)

A criminal offense resulting in physical injuries;

(2)
x

Quasi-delicts causing physical injuries;

x

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:jgc:chanrobles.com.ph
"(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud
(dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages;
and
"(b) That a breach of contract can not be considered included in the descriptive term analogous
cases used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are
caused contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly
excludes the cases where there is a preexisitng contractual relations between the parties.cralawnad
"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 v. 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 carriers 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.
x

"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.chanroblesvirtuallawlibrary
"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."cralaw virtua1aw library
"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 carriers bad faith is not to be lightly inferred from a mere
finding that the contract was breached through negligence of the carriers employees." chanrobles law
library
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 v. Court of
Appeals, 106 SCRA 143; Singson v. Bank of Phil. Islands, 23 SCRA 1117; and Air France v.
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.chanroblesvirtualawlibrary
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 v. Alliance Transport System, 148 SCRA 440; Lopez v. 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; CLC E.G. Gochangco Workers Union v. NLRC, 161
SCRA 655; Globe Mackay Cable and Radio Corp. v. CA, 176 SCRA 778. In contracts and quasicontracts, 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 v. Gen.
Acceptance and Finance Corp., 161 SCRA 449).chanroblesvirtuallawlibrary
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 v. Court of Appeals, 165
SCRA 166).
Nevertheless, the banks 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:jgc:chanrobles.com.ph

"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." chanrobles lawlibrary : rednad
Reasonable attorneys fees may be recovered where the court deems such recovery to be just and
equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part of the appellate court
in allowing the award thereof by the trial court.
WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by
deleting the award of moral and exemplary damages to private respondents; in its stead, petitioner is
ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way of nominal damages.
In all other respects, the appealed decision is AFFIRMED. No costs.
SO ORDERED.
Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr ., Romero, Bellosillo, Melo, Quiason,
Puno, Kapunan, Mendoza and Francisco, JJ., concur.
G.R. No. 179337

April 30, 2008

JOSEPH SALUDAGA, petitioner,

vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of
FEU, respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007
Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the
November 10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 9889483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007 Resolution4
denying the Motion for Reconsideration.5
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU)
when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school
premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation
(FEU-NRMF) due to the wound he sustained.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 Complaint7 against Galaxy
Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to

provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to
indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees
and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against
AFP General Insurance.8
On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion
of which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered ordering:
1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from the filing of
the complaint until fully paid; moral damages of P300,000.00, exemplary damages of P500,000.00,
attorney's fees of P100,000.00 and cost of the suit;
2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify
jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of
FEU) for the above-mentioned amounts;
3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs.
SO ORDERED.9
Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal
portion of which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby
REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern
University and its President in Civil Case No. 98-89483 is DISMISSED.
SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the
following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND
JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM
A GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS
THAN THEIR OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL
OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE
HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS
WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR
EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN

GALAXY AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A
PARTY TO IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF
CONTRACTS; and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY
WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT
FEU.11
Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a
safe learning environment. The pertinent portions of petitioner's Complaint read:
6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to
visit and inquire about his condition. This abject indifference on the part of the defendants continued
even after plaintiff was discharged from the hospital when not even a word of consolation was heard
from them. Plaintiff waited for more than one (1) year for the defendants to perform their moral
obligation but the wait was fruitless. This indifference and total lack of concern of defendants served to
exacerbate plaintiff's miserable condition.
xxxx
11.0. Defendants are responsible for ensuring the safety of its students while the latter are within the
University premises. And that should anything untoward happens to any of its students while they are
within the University's premises shall be the responsibility of the defendants. In this case, defendants,
despite being legally and morally bound, miserably failed to protect plaintiff from injury and thereafter,
to mitigate and compensate plaintiff for said injury;
12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under
this contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere
conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the
instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff
when he was shot at by, of all people, their security guard who was tasked to maintain peace inside the
campus.12
In Philippine School of Business Administration v. Court of Appeals,13 we held that:
When an academic institution accepts students for enrollment, there is established a contract between
them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the
school undertakes to provide the student with an education that would presumably suffice to equip him
with the necessary tools and skills to pursue higher education or a profession. On the other hand, the
student covenants to abide by the school's academic requirements and observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-in" obligation of providing their students
with an atmosphere that promotes or assists in attaining its primary undertaking of imparting
knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore
the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or
where there looms around the school premises a constant threat to life and limb. Necessarily, the school
must ensure that adequate steps are taken to maintain peace and order within the campus premises and
to prevent the breakdown thereof.14

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such,
there was created a contractual obligation between the two parties. On petitioner's part, he was obliged
to comply with the rules and regulations of the school. On the other hand, respondent FEU, as a
learning institution is mandated to impart knowledge and equip its students with the necessary skills to
pursue higher education or a profession. At the same time, it is obliged to ensure and take adequate
steps to maintain peace and order within the campus.
It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.15 In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard who was hired to maintain peace
and secure the premises, there is a prima facie showing that respondents failed to comply with its
obligation to provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event
because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was
not their employee;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.
After a thorough review of the records, we find that respondents failed to discharge the burden of
proving that they exercised due diligence in providing a safe learning environment for their students.
They failed to prove that they ensured that the guards assigned in the campus met the requirements
stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented
during trial; however, no evidence as to the qualifications of Rosete as a security guard for the
university was offered.
Respondents also failed to show that they undertook steps to ascertain and confirm that the security
guards assigned to them actually possess the qualifications required in the Security Service Agreement.
It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital
documents enumerated in its contract with Galaxy. Total reliance on the security agency about these
matters or failure to check the papers stating the qualifications of the guards is negligence on the part of
respondents. A learning institution should not be allowed to completely relinquish or abdicate security
matters in its premises to the security agency it hired. To do so would result to contracting away its
inherent obligation to ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In order for force majeure to be
considered, respondents must show that no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a loss. One's negligence may have concurred with
an act of God in producing damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person's participation - whether by active
intervention, neglect or failure to act - the whole occurrence is humanized and removed from the rules
applicable to acts of God.17
Article 1170 of the Civil Code provides that those who are negligent in the performance of their
obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a
safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the
award of damages that the claimant must have satisfactorily proven during the trial the existence of the

factual basis of the damages and its causal connection to defendant's acts.18
In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other
medical expenses.19 While the trial court correctly imposed interest on said amount, however, the case
at bar involves an obligation arising from a contract and not a loan or forbearance of money. As such,
the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest
shall continue to run from the filing of the complaint until the finality of this Decision.20 After this
Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum
until its satisfaction.
The other expenses being claimed by petitioner, such as transportation expenses and those incurred in
hiring a personal assistant while recuperating were however not duly supported by receipts.21 In the
absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art. 2224
of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary
loss but the amount thereof cannot be proved with certainty. Hence, the amount of P20,000.00 as
temperate damages is awarded to petitioner.
As regards the award of moral damages, there is no hard and fast rule in the determination of what
would be a fair amount of moral damages since each case must be governed by its own peculiar
circumstances.22 The testimony of petitioner about his physical suffering, mental anguish, fright,
serious anxiety, and moral shock resulting from the shooting incident23 justify the award of moral
damages. However, moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo
ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the
award of exorbitant damages; they should exercise balanced restrained and measured objectivity to
avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court.24 We
deem it just and reasonable under the circumstances to award petitioner moral damages in the amount
of P100,000.00.
Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is
reasonable in view of Article 2208 of the Civil Code.25 However, the award of exemplary damages is
deleted considering the absence of proof that respondents acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton
Conglomerate, Inc. v. Agcolicol,26 we held that:
[A] corporation is invested by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who entered into contracts in
behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal
liability of a corporate director, trustee or officer along (although not necessarily) with the corporation
may so validly attach, as a rule, only when - (1) he assents to a patently unlawful act of the corporation,
or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict
of interest resulting in damages to the corporation, its stockholders or other persons; (2) he consents to
the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily

liable with the corporation; or (4) he is made by a specific provision of law personally answerable for
his corporate action.27
None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus
should not be held solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the instant case is the breach of the school-student
contract, petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of
the Civil Code, which provides:
Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.
We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages
under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was
employed by Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its
security guards are ordinarily no more than requests commonly envisaged in the contract for services
entered into by a principal and a security agency. They cannot be construed as the element of control as
to treat respondents as the employers of Rosete.28
As held in Mercury Drug Corporation v. Libunao:29
In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns the
works of its watchmen or security guards to a client, the employer of such guards or watchmen is such
agency, and not the client, since the latter has no hand in selecting the security guards. Thus, the duty to
observe the diligence of a good father of a family cannot be demanded from the said client:
[I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns
the work of its watchmen or security guards, the agency is the employer of such guards or watchmen.
Liability for illegal or harmful acts committed by the security guards attaches to the employer agency,
and not to the clients or customers of such agency. As a general rule, a client or customer of a security
agency has no hand in selecting who among the pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in the ordinary course of events, be demanded from the client whose
premises or property are protected by the security guards.
xxxx

The fact that a client company may give instructions or directions to the security guards assigned to it,
does not, by itself, render the client responsible as an employer of the security guards concerned and
liable for their wrongful acts or omissions.31
We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural device whereby a 'third party' who is neither a
party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with
leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's
claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's
complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently
and separately from the original complaint by the defendant against the third-party. But the Rules
permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of
action in respect of plaintiff's claim against a third-party in the original and principal case with the
object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing
expeditiously in one litigation the entire subject matter arising from one particular set of facts.33
Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the
trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is
negligent not only in the selection of its employees but also in their supervision. Indeed, no
administrative sanction was imposed against Rosete despite the shooting incident; moreover, he was
even allowed to go on leave of absence which led eventually to his disappearance.34 Galaxy also failed
to monitor petitioner's condition or extend the necessary assistance, other than the P5,000.00 initially
given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse petitioner's
medical expenses.
For these acts of negligence and for having supplied respondent FEU with an unqualified security
guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable
to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly
negligent in directing the affairs of the security agency. It was Imperial who assured petitioner that his
medical expenses will be shouldered by Galaxy but said representations were not fulfilled because they
presumed that petitioner and his family were no longer interested in filing a formal complaint against
them.35
WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CAG.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint as well as
the August 23, 2007 Resolution denying the Motion for Reconsideration are REVERSED and SET
ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483
finding respondent FEU liable for damages for breach of its obligation to provide students with a safe
and secure learning atmosphere, is AFFIRMED with the following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the
amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of
this Decision. After this decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of
P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses
in the amount of P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of
respondents are likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial
are ORDERED to jointly and severally pay respondent FEU damages equivalent to the abovementioned amounts awarded to petitioner.
SO ORDERED.
G.R. No. L-29640

June 10, 1971

GUILLERMO AUSTRIA, petitioner,

vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD,
respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.

REYES, J.B.L., J.:

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-G.R.
No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods for sale) it is
necessary that there be prior conviction for robbery before the loss of the article shall exempt the
consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo
Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to be
returned on demand. On 1 February 1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on the
face, while the other snatched her purse containing jewelry and cash, and ran away. Among the pieces
of jewelry allegedly taken by the robbers was the consigned pendant. The incident became the subject
of a criminal case filed in the Court of First Instance of Rizal against certain persons (Criminal Case
No. 10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in
the Court of First Instance of Manila an action against her and her husband for recovery of the pendant
or of its value, and damages. Answering the allegations of the complaint, defendants spouses set up the
defense that the alleged robbery had extinguished their obligation.

After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants spouses,
jointly and severally, to pay to the former the sum of P4,500.00, with legal interest thereon, plus the
amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants failed to
prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad was guilty of
negligence when she went home without any companion, although it was already getting dark and she
was carrying a large amount of cash and valuables on the day in question, and such negligence did not
free her from liability for damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a
reversal of the judgment. The appellate court overruling the finding of the trial court on the lack of
credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding that
the facts of robbery and defendant Maria Abad's possesion of the pendant on that unfortunate day have
been duly published, declared respondents not responsible for the loss of the jewelry on account of a
fortuitous event, and relieved them from liability for damages to the owner. Plaintiff thereupon
instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in finding that there was
robbery in the case, although nobody has been found guilty of the supposed crime. It is petitioner's
theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from his
obligation under a contract, pursuant to Article 1174 of the new Civil Code, there ought to be prior
finding on the guilt of the persons responsible therefor. In short, that the occurrence of the robbery
should be proved by a final judgment of conviction in the criminal case. To adopt a different view,
petitioner argues, would be to encourage persons accountable for goods or properties received in trust
or consignment to connive with others, who would be willing to be accused in court for the robbery, in
order to be absolved from civil liability for the loss or disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from
responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of the
debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation
in a normal manner; and that (3) the obligor must be free of participation in or aggravation of the injury
to the creditor. 1 A fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms,
floods, etc., or by the act of man, such as war, attack by bandits, robbery, 2 etc., provided that the event
has all the characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were
really true that the pendant, which she was obliged either to sell on commission or to return to
petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have
extinguished her liability. The point at issue in this proceeding is how the fact of robbery is to be
established in order that a person may avail of the exempting provision of Article 1174 of the new Civil
Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
It may be noted the reform that the emphasis of the provision is on the events, not on the agents or

factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the
persons responsible for the occurrence should be found or punished; it would only be sufficient to
established that the enforceable event, the robbery in this case did take place without any concurrent
fault on the debtor's part, and this can be done by preponderant evidence. To require in the present
action for recovery the prior conviction of the culprits in the criminal case, in order to establish the
robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event, such
debtor must, in addition to the cams itself, be free of any concurrent or contributory fault or negligence.
3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with
their high incidence of crimes against persons and property that renders travel after nightfall a matter to
be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G.
Abad, in returning alone to her house in the evening, carrying jewelry of considerable value would be
negligent per se and would not exempt her from responsibility in the case of a robbery. We are not
persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in
question did take place, for at that time criminality had not by far reached the levels attained in the
present day.
There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in
the civil case before conviction is secured in the criminal action, would prejudice the latter case, or
would result in inconsistency should the accused obtain an acquittal or should the criminal case be
dismissed. It must be realized that a court finding that a robbery has happened would not necessarily
mean that those accused in the criminal action should be found guilty of the crime; nor would a ruling
that those actually accused did not commit the robbery be inconsistent with a finding that a robbery did
take place. The evidence to establish these facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in
this case is hereby dismissed with costs against the petitioner.