SSS V Moonwalk Development and Housing Corp
the latter's act of cancelling the real estate mortgages
"On February 20, 1980, the Social Security System, SSS for
brevity, filed a complaint in the Court of First Instance of Rizal
against Moonwalk Development & Housing Corporation,
Moonwalk for short, alleging that the former had committed
an error in failing to compute the 12% interest due on
delayed payments on the loan of Moonwalk — resulting in a
chain of errors in the application of payments made by
Moonwalk and, in an unpaid balance on the principal loan
agreement in the amount of P7,053.77 and, also in not
reflecting in its statement or account an unpaid balance on
the said penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that
SSS had the opportunity to ascertain the truth but failed to do
so.
Stipulation of Facts:
Plaintiff approved the application of defendant
Moonwalk for an interim loan in the amount of THIRTY
MILLION PESOS (P30,000,000.00) for the purpose of
developing and constructing a housing project in the
provinces of Rizal and Cavite;
Out of the approved loan of THIRTY MILLION PESOS
(P30,000,000.00), the sum of P9,595,000.00 was
released to defendant Moonwalk as of November 28,
1973;
Third Amended Deed of First Mortgage was executed.
Defendants Rosita U. Alberto and Rosita U. Alberto,
mother and daughter respectively,substituted
Associated Construction and Surveys Corporation,
Philippine Model Homes Development Corporation,
Mariano Z. Velarde and Eusebio T. Ramos, as solidary
obligors;
After considering additional releases in the amount of
P2,659,700.00, made to defendant Moonwalk,
defendant Moonwalk delivered to the plaintiff a
promissory note for TWELVE MILLION TWO HUNDRED
FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS
(P12,254,700.00) Annex `E', signed by Eusebio T.
Ramos, and the said Rosita U. Alberto and Rosita U.
Alberto;
Moonwalk made a total payment of P23,657,901.84 to
SSS for the loan principal of P12,254,700.00 released
to it. The last payment made by Moonwalk in the
amount of P15,004,905.74 were based on the
Statement of Account;
Plaintiff issued to defendant Moonwalk the Release of
Mortgage for Moonwalk's mortgaged properties in
Cavite and Rizal;
In letters to defendant Moonwalk,plaintiff alleged that
it committed an honest mistake in releasing
defendant.
Ddefendant's counsel told plaintiff that it had
completely paid its obligations to SSS;
The trial court issued an order dismissing the complaint on
the ground that the obligation was already extinguished by
1
the payment by Moonwalk of its indebtedness to SSS and by
executed in its favor by defendant Moonwalk.
ISSUE: WON defendants are still liable to pay for penalty as
claimed by plaintiffs
Ruling:
NO. What is sought to be recovered in this case is not the 12%
interest on the loan but the 12% penalty for failure to pay on
time the amortization.
A penalty is demandable in case of non performance or late
performance of the main obligation. In other words in order
that the penalty may arise there must be a breach of the
obligation either by total or partial non fulfillment or there is
non fulfillment in point of time which is called mora or delay.
The debtor therefore violates the obligation in point of time if
there is mora or delay. Now, there is no mora or delay unless
there is a demand. It is noteworthy that in the present case
during all the period when the principal obligation was still
subsisting, although there were late amortizations there was no
demand made by the creditor, plaintiff-appellant for the
payment of the penalty. Therefore up to the time of the letter
of plaintiff-appellant there was no demand for the payment of
the penalty, hence the debtor was no in mora in the payment
of the penalty.
Plaintiff-appellant issued its statement of account (Exhibit F)
showing the total obligation of Moonwalk as P15,004,905.74,
and forthwith demanded payment from defendant-appellee.
Because of the demand for payment, Moonwalk made several
payments on September 29, October 9 and 19, 1979
respectively, all in all totalling P15,004,905.74 which was a
complete payment of its obligation. Because of this payment
the obligation of Moonwalk was considered extinguished, and
pursuant to said extinguishment, the real estate mortgages
given by Moonwalk were released.
Besides the Real Estate Mortgages, penal clause which is also
an accessory obligation must also be deemed extinguished
considering that the principal obligation was considered
extinguished, and the penal clause being an accessory
obligation.
At the time of the payment made of the full obligation on
October 10, 1979 together with the 12% interest by defendant-
appellee Moonwalk, its obligation was extinguished. It being
extinguished, there was no more need for the penal clause.
We advance the justification for the decision stating Article
169:
"Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation." There
are only three instances when demand is not necessary to
render the obligor in default. These are the following: "(1)
When the obligation or the law expressly so declares; (2) When
from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to
be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or (3) When the
demand would be useless, as when the obligor has rendered it
beyond his power to perform."
This case does not fall within any of the established exceptions.
Hence, despite the provision in the promissory note that "(a)ll
amortization payments shall be made every first five (5) days of
the calendar month until the principal and interest on the loan
or any portion thereof actually released has been fully paid," 10
petitioner is not excused from making a demand. It has been
established that at the time of payment of the full obligation,
private respondent Moonwalk has long been delinquent in
meeting its monthly arrears and in paying the full amount of
the loan itself as the obligation matured sometime in January,
1977. But mere delinquency in payment does not necessarily
mean delay in the legal concept. To be in default ". . . is
different from mere delay in the grammatical sense, because it
involves the beginning of a special condition or status which
has its own peculiar effects or results."
Nowhere in this case did it appear that SSS demanded from
Moonwalk the payment of its monthly amortizations.What the
complaint itself showed was that SSS tried to enforce the
obligation sometime in September, 1977 by foreclosing the real
estate mortgages executed by Moonwalk in favor of SSS. But
this foreclosure did not push through upon Moonwalk's
requests and promises to pay in full.What is clear, therefore, is
that Moonwalk was never in default because SSS never
compelled performance.
Hence, no delay occurred and there was, therefore, no
occasion when the penalty became demandable and
enforceable. Since there was no default in the performance of
the main obligation — payment of the loan — SSS was never
entitled to recover any penalty, not at the time it made the
Statement of Account and certainly, not after the
extinguishment of the principal obligation because then, all the
more that SSS had no reason to ask for the penalties. Thus,
there could never be any occasion for waiver or even mistake in
the application for payment because there was nothing for SSS
to waive as its right to enforce the penalty did not arise.
G.R. No. 133107 March 25, 1999
RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and FELIPE LUSTRE, respondents.
Facts:
On March 10, 1993, private respondent Atty. Felipe Lustre
purchased a Toyota Corolla from Toyota Shaw, Inc. for which
he made a down payment of P164,620.00, the balance of the
purchase price to be paid in 24 equal monthly installments.
Private respondent thus issued 24 postdated checks for the
amount of P14,976.00 each. The first was dated April 10,
1991; subsequent checks were dated every 10th day of each
succeeding month.
To secure the balance, private respondent executed a
promissory note 1 and a contract of chattel mortgage 2 over
the vehicle in favor of Toyota Shaw, Inc. The contract of
chattel mortgage, in paragraph 11 thereof, provided for an
acceleration clause stating that should the mortgagor default
in the payment of any installment, the whole amount
remaining unpaid shall become due. In addition, the
mortgagor shall be liable for 25% of the principal due as
liquidated damages.
2
Toyota Shaw, Inc. later on assigned all its rights and interests
in the chattel mortgage to petitioner Rizal Commercial
Banking Corporation (RCBC).
All the checks dated April 1991 to January 1993 were
thereafter encashed and debited by RCBC from private
respondent's account, except for the check representing the
payment for August 1991, which was unsigned. Previously,
the amount represented by such check was debited from
private respondent's account but was later recalled and re-
credited, to him. Because of the recall, the last two checks,
dated February 10, 1993 and March 10, 1993, were no longer
presented for payment. This was purportedly in conformity
with petitioner bank's procedure that once a client's account
was forwarded to its account representative, all remaining
checks outstanding as of the date the account was forwarded
were no longer presented for patent.
On the theory that respondent defaulted in his payments, the
check representing the payment for August 10, 1991 being
unsigned, petitioner demanded from private respondent the
payment of the balance of the debt, including liquidated
damages. The latter refused, prompting petitioner to file an
action for replevin and damages.
ISSUE: WON private respondent may be held liable for the
alleged unpaid amount.
RULING: NO.
It bears stressing that a contract of adhesion is just as binding
as ordinary contracts. Contracts of adhesion are not
invalid per se; 7 they are not entirely prohibited. 8 The one
who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent. 9
While ambiguities in a contract of adhesion are to be
construed against the party that prepared the same, 10 this
rule applies only if the stipulations in such contract are
obscure or ambiguous. If the terms thereof are clear and
leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall
control. 11 In the latter case, there would be no need for
construction.
paragraph 11 of the Chattel Mortgage Contract :
11. In case the MORTGAGOR fails to pay any
of the installments, or to pay the interest
that may be due as provided in the said
promissory note, the whole amount
remaining unpaid therein shall immediately
become due and payable and the mortgage
on the property (ies) herein-above described
may be foreclosed by the MORTGAGEE, or
the MORTGAGEE may take any other legal
action to enforce collection of the obligation
hereby secured, and in either case the
MORTGAGOR further agrees to pay the
MORTGAGEE an additional sum of 25% of
the principal due and unpaid, as liquidated
damages, which said sum shall become part
thereof. The MORTGAGOR hereby waives
reimbursement of the amount heretofore
paid by him/it to the MORTGAGEE.
The above terms leave no room for construction. All that is
required is the application thereof. By virtue of paragraph 11
above, petitioner submits that it "was justified in treating the
entire balance of the obligation as due and
demandable." 15 Despite demand by petitioner, however,
private respondent refused to pay the balance of the debt.
Petitioner, in sum imputes delay on the part of private
respondent.
We do not subscribe to petitioner's theory. (Hindi daw guilty
of delay si private respondent)
Art. 170 of the Civil Code states that those who in the
performance of their obligations are guilty of delay are liable
for damages. The delay in the performance of the obligation,
however, must be either malicious or negligent. 16Thus,
assuming that private respondent was guilty of delay in the
payment of the value of unsigned check, private respondent
cannot be held liable for damages. There is no imputation,
much less evidence, that private respondent acted with
malice or negligence in failing to sign the check. Indeed, we
agree with the Court of Appeals finding that such omission
was mere "in advertence" on the part of private respondent.
Toyota salesperson Jorge Geronimo testified that he even
verified whether private respondent had signed all the checks
and in fact returned three or four unsigned checks to him for
signing. Even when the checks were delivered to petitioner, it
did not object to the unsigned check. In view of the lack of
malice or negligence on the part of private respondent,
petitioner's blind and mechanical invocation of paragraph
11 of the contract of chattel mortgage was unwarranted.
As pointed out by the trial court, this whole controversy could
have been avoided if only petitioner bothered to call up
private respondent and ask him to sign the check. Good faith
not only in compliance with its contractual obligations, 18 but
also in observance of the standard in human relations, for
every person "to act with justice, give everyone his due, and
observe honesty and good faith." 19 behooved the bank to do
so.
BARZAGA V CA
G.R. No. 115129
Facts:
On December 19, 1990, the wife of Ignacio Barzaga
succumb to her ailment after prolonged pain and suffering.
Before her death, she expressed her wish that she be laid to
rest before Christmas day, so her family will be spared from
keeping vigil on her remains during Christmas.
On Decemeber 21, 1990, as a fulfillment of his departed
wife’s wish, Petitioner Barzaga went to the hardware store of
Respondent Angelito Alviar to inquire the availability of
certain materials that will be used in the construction of the
niche. He also asked if said materials can be delivered
immediately. The storekeeper told him that she has to check
the pending deliveries for the following day.
In the morning of the next day, Barzaga returned to the
hardware store and bought the said materials. He requested
that the said materials be delivered at 8 o’clock in the
morning at the Memorial Cemetery of Dasmarinas, Cavite.
The storekeeper agreed to deliver the materials on the
requested time. Upon paying, Barzaga left and joined his
workers at the cemetery.
An hour have passed from the agreed time, no materials
was delivered. Barzaga returned to the hardware store and
inquired about the delay. The storekeeper, told him that the
delivery truck is not yet around but have already left the
garage. She also assured him that the materials will be
delivered that morning.
3
However, no delivery was done that morning. Barzaga,
already upset, decided to dismiss his workers. He went to the
police station and lodged a complaints against Alviar and was
entered in the police blotter. He then returned to the
hardware. He saw the delivery truck but the materials he
bought are not yet loaded. He cancelled his transaction with
the store and went to other stores for materials. He was able
to buy from other stores. But since it was already late, he
decided to start the construction on Dec. 23. Unfortunately,
the completion of the niche will not make it in time. The
niche was completed in the the afternoon of Dec. 26. Unable
to fulfill his wife’s dying wish, he filed a complaint for
damages against Alviar.
Alviar contended that no specific time of delivery was
agreed upon between them, pointing out that the sale
invoices did not contain any stipulation as to the exact time of
delivery. Moreover, he also averred that the delivery truck
suffered a flat tire.
RTC favored Barzaga. However upon appeal, the CA
favored Alviar.
Issue:
WON respondent is liable for damages as to the delayed
deliveries.
Held:
Yes. The Court finds negligence on the part of Alviar
which caused the delay in the performance of his contractual
obligation. Barzaga is entitled to be indemnified for damages
caused by the delay and breach of contract. 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.
There was a verbal agreement on the specific time of
delivery. The reason why Barzaga bought the materials
because of the assurance that the same will be delivered on
the specified time. Barzaga’s requested time and the
storekeeper’s assurance constituted a positive verbal
commitment.
As to the flat tire, the Court held that private respondent
had no right to manipulate petitioner’s timetable and
substitute it with his own. Petitioner had a deadline to meet.
The flat tire is inexcusable and unacceptable. In fact, it was
foreseeable and should have been reasonably guarded
against. The nature of respondent’s business requires that he
should be ready at all times to meet contingencies of this
kind.
Moreover, it was also found out that there was a
withholding of information. Petitioner was not told that the
delivery truck had previously delivered materials from a
distant location, which is also a reason of the delay. If
petitioner was informed of such, he would have not
committed in buying from their store. The deliberate
suppression of this information is a manifestation of a certain
degree of bad faith on the part of the respondent’s
storekeeper
This case is clearly one of non-performance of a
reciprocal obligation. In their contract, the petitioner had
complied fully by paying for the purchase. It was incumbent
upon the respondent to immediately fulfill his obligaiton to
deliver the goods..
POLO S. PANTALEON vs. AMERICAN EXPRESS
INTERNATIONAL, INC.
FACTS
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, CA rendered a decision reversing the award of damages in
daughter Anna Regina and son Adrian Roberto, joined an favor of Pantaleon, holding that respondent had not
escorted tour of Western Europe in October 1991. The last breached its obligations to petitioner. Hence, this petition.
day of the tour, the group arrived at the Coster Diamond
House in Amsterdambefore 9:00 a.m. The group had agreed ISSUE
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 WON respondenthad committed a breach of its obligations to
group was led to the store’s showroom to allow them to Pantaleon
purchase. Mrs.Pantaleonpurchased a diamond close enough
to the2.5 karat diamond brilliant cut she wanted, as well asa
HELD
pendant and a chain, all of which totaledU.S.
$13,826.00.Mr.Pantaleon presented his American Express
Yes. The RTC had concluded, based on the testimonial
credit card together with his passport to the Coster sales
representations of Pantaleon and respondent’s credit
clerk. This occurred 15 minutes before the tour group was
authorizer, Edgardo Jaurigue, thatthe normal approval time
slated to depart from the store. After the usual process, the
for purchases was "a matter of seconds." Based on that
charge purchase was referred electronically to respondent’s
standard, respondent had been in clear delay with respect to
Amsterdam office. 10mins later, the store clerk informed
the subject transactions. However, it made two critical
Pantaleon that his AmexCard had not yet been approved. It
conclusions in favor of respondent:First, the appellate court
was already 9:40 a.m., and he was already worried about
ruled that the delay was not attended by bad faith, malice, or
further inconveniencing the tour group that was already
gross negligence. Second, it ruled that respondent "had
waiting for them, Pantaleon asked the store clerk to cancel
the sale but the manager asked them to wait. After 15 exercised diligent efforts to effect the approval" of the
purchases, which were "not in accordance with the charge
minutes, the store manager informed Pantaleon that
pattern" petitioner had established for himself, as
respondent had demanded bank references. Pantaleon
exemplified by the fact that at Coster, he was "making his
supplied the names of his depositary banks.
very first single charge purchase of US$13,826," and "the
record of [petitioner]’s past spending with [respondent] at
30 minutes after the tour group was supposed to have left
the time does not favorably support his ability to pay for such
the store, Coster decided to release the items even without
purchase."17
respondent’s approval of the purchase. The spouses
Pantaleon returned to the bus. The tour group’s visible
On the premise that there was an obligation on the part of
irritation was aggravated when the tour guide announced
respondent "to approve or disapprove with dispatch the
that the city tour was to be cancelled due to lack of time, as
charge purchase," petitioner argues that the failure to timely
they had to catch a 3PMferry.Mrs.Pantaleon ended up
approve or disapprove the purchase constituted
weeping, while husband had to take a tranquilizer to calm his
morasolvendi on the part of respondent in the performance
nerves.It later emerged that the Approval Code for
of its obligation. For its part, respondent characterizes the
Pantaleon’s purchase was transmitted to respondent’s
depiction by petitioner of its obligation to him as "to approve
Amsterdam office 78 minutes from the time the purchases
purchases instantaneously or in a matter of seconds."
were electronically transmitted by the jewelry store to
respondent’s Amsterdam office.After the tour the Pantaleon
family proceeded to the United States before returning to Petitioner correctly cites that under morasolvendi, the three
Manila. While in the United States, Pantaleon continued to requisites for a finding of default are that:
use his AmEx card, several times without hassle or delay,
but with two other incidents similar to the Amsterdam A. The obligation is demandable and liquidated;
brouhaha;one was while purchasing golf equipment which he B. The debtor delays performance; and
cancelled [because 30mins na, and still no approval] and C. The creditor judicially or extrajudicially requires the
borrowed money from his friend instead, and another while debtor’s performance.
purchasing shoes for his children [20mins had transpired
before approval]. Petitioner asserts that the Court of Appeals had wrongly
applied the principle of moraaccipiendi, which relates to
After coming back to Manila, Pantaleon sent a letter through delay on the part of the obligee in accepting the performance
counsel to the respondent, demanding an apology for the of the obligation by the obligor.
"inconvenience, humiliation and embarrassment he and his
family thereby suffered" for respondent’s refusal to provide The requisites of moraaccipiendi are:
credit authorization for the aforementioned purchases.In
response, respondent sent a letter stating among others that A. An offer of performance by the debtor who has the
the delay in authorizing the purchase from Coster was required capacity;
attributable to the circumstance that the charged purchase B. The offer must be to comply with the prestationas it
of US $13,826.00 "was out of the usual charge purchase should be performed; and
pattern established.” Since respondent refused to accede to C. The creditor refuses the performance without just
Pantaleon’s demand for an apology, the aggrieved cardholder cause.
instituted an action for damages with the RTC of Makati City.
RTC rendered a decision in favor of Pantaleon, awarding him The error of the appellate court, argues petitioner, is in
P500,000.00 as moral damages, P300,000.00 as exemplary relying on the invocation by respondent of "just cause" for
damages, P100,000.00 as attorney’s fees, and P85,233.01 as the delay, since while just cause is determinative of
expenses of litigation. Respondent filed a Notice of Appeal, moraaccipiendi, it is not so with the case of morasolvendi.
while Pantaleon moved for partial reconsideration, praying
that the trial court award the increased amount of moral
Generally, the relationship between a credit card provider
and exemplary damages he had prayed for. RTC denied, and
and its card holders is that of creditor-debtor, with the card
thereafter gave due course to respondent’s Notice of Appeal.
4
company as the creditor extending loans and credit to the
card holder, who as debtor is obliged to repay the creditor.
In order for us to appreciate that respondent was in
morasolvendi, we will have to first recognize that there was
indeed an obligation on the part of respondent to act on
petitioner’s purchases with "timely dispatch," or for the
purposes of this case, within a period significantly less than
the one hour it apparently took before the purchase at Coster
was finally approved.The findings of the trial court, to our
mind, amply established that the tardiness on the part of
respondent in acting on petitioner’s purchase at Coster did
constitute culpable delay on its part in complying with its
obligation to act promptly on its customer’s purchase
request, whether such action be favorable or
unfavorable.The Court is convinced that defendant’s delay
constitutes breach of its contractual obligation to act on his
use of the card abroad "with special handling” meaning with
priority.
Notwithstanding the popular notion that credit card
purchases are approved "within seconds," there really is no
strict, legally determinative point of demarcation on how long
must it take for a credit card company to approve or
disapprove a customer’s purchase, much less one specifically
contracted upon by the parties. Yet this is one of those
instances when it would be a long enough time for the
customer to walk to a bank a kilometer away, withdraw
money over the counter, and return to the store. The
culpable failure of respondent herein is not the failure to
timely approve petitioner’s purchase, but the more
elemental failure to timely act on the same, whether
favorably or unfavorably. Even assuming that respondent’s
credit authorizers did not have sufficient basis on hand to
make a judgment, we see no reason why respondent could
not have promptly informed petitioner the reason for the
delay, and duly advised him that resolving the same could
take some time. In that way, petitioner would have had
informed basis on whether or not to pursue the transaction
at Coster, given the attending circumstances.
x xx
Otherwise[kung hindimabilisang approval ng credit card
purchases], the object of credit or charge cards would be lost;
it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency
or traveller’s checks, which can be delivered and accepted
quickly. Such right was not accorded to plaintiff in the
instances complained off for reasons known only to
defendant at that time. This, to the Court’s mind, amounts to
a wanton and deliberate refusal to comply with its
contractual obligations, or at least abuse of its rights, under
the contract.
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. 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
5
RTC.Those circumstances are fairly unusual, and should not
give rise to a general entitlement for damages under a more
mundane set of facts.
We sustain the amount of moral damages awarded to
petitioner by the RTC. There is no hard-and-fast rule in
determining what would be a fair and reasonable amount of
moral damages, since each case must be governed by its own
peculiar facts, however, it must be commensurate to the loss
or injury suffered.28 Petitioner’s original prayer for
P5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of
P500,000.00 in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the
circumstances, and the amount of P300,000.00 appropriate.
There is similarly no cause though to disturb the determined
award of P100,000.00 as attorney’s fees, and P85,233.01 as
expenses of litigation.
LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL
INTERNATIONAL, INC., respondent.
FACTS:
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.
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:
M
ay 31, 1989
M
INQ-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 Total Price
Nozzle Tip 6 pcs. P 5,520.00
33,120.00
 Plunger & Barrel 6 pcs. 27,630.00
165,780.00 M
Cylinder Head 2 pcs. 1,035,000.00 a
2,070,000.00 n
Cylinder Liner 1 set a
477,000.00 g
e
TOTAL PRICE r
FOB
P2,745,900.00 Petitioner thereafter issued to respondent Purchase
MANILA 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
DELIVERY: Within 2 months after receipt of firm
Henry Pajarillo. Quoted hereunder is the pertinent portion of
order. the purchase order:
TERMS: 25% upon delivery, balance payable in 5 bi-
monthly equal
Name of Description Qty. Amount
Installment[s] not to exceed 90
days.
CYL. LINER M/E 1 SET P477,000.00
We trust you find our above offer acceptable and look
forward to your most valued order. NOTHING FOLLOW
INV. #
V
e TERM OF PAYMENT: 25% DOWN PAYMENT
r 5 BI-MONTHLY
y INSTALLMENT[S]
Instead of paying the 25% down payment for the first
t cylinder liner, petitioner issued in favor of respondent ten
r postdated checks[4] to be drawn against the formers account
u with Allied Banking Corporation. The checks were supposed
l to represent the full payment of the aforementioned cylinder
y liner.

y Subsequently, petitioner issued Purchase Order No.

o 14011,[5] dated 15 January 1990, for yet another unit of
u cylinder liner. This purchase order stated the term of
r payment to be 25% upon delivery, balance payable in 5 bi-
s 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
S check that was postdated 18 January 1990, however, the
G same was dishonored by the drawee bank due to
D insufficiency of funds. The remaining nine postdated checks
) were eventually returned by respondent to petitioner.

H The parties presented disparate accounts of what

E happened to the check which was previously dishonored.
N Petitioner claimed that it replaced said check with a good
R one, the proceeds of which were applied to its other
Y obligation to respondent. For its part, respondent insisted
that it returned said postdated check to petitioner.
P
Respondent thereafter placed the order for the two
A
cylinder liners with its principal in Japan, Daiei Sangyo Co.
J
Ltd., by opening a letter of credit on 23 February 1990 under
A
its own name with the First Interstate Bank of Tokyo.
R
I On 20 April 1990, Pajarillo delivered the two cylinder
L liners at petitioners warehouse in North Harbor, Manila. The
L sales invoices[7] evidencing the delivery of the cylinder liners
O both contain the notation subject to verification under which
the signature of Eric Go, petitioners warehouseman,
S appeared.
a
l Respondent thereafter sent a Statement of Account
e dated 15 November 1990[8] to petitioner. While the other
s items listed in said statement of account were fully paid by
petitioner, the two cylinder liners delivered to petitioner on
6
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]
7
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.
ISSUES: 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]
HELD: 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
8
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: (I DON'T KNOW IF THIS PORTION
OF THE CASE IS IMPORTANT OR NOT BUT I'M LEAVING IT
HERE IN CASE YOU WANT TO READ IT)
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
9
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:
......................
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.
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.
[G.R. No. 176868. July 26, 2010.]
SOLAR HARVEST, INC., petitioner, vs.
DAVAO CORRUGATED CARTON
CORPORATION, respondent.
FACTS:
10
In the first quarter of 1998, petitioner, Solar
Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for
the purchase of corrugated carton boxes, specifically
designed for petitioner's business of exporting fresh
bananas, at US$1.10 each. The agreement was not
reduced into writing. To get the production underway,
petitioner deposited, on March 31, 1998, US$40,150.00
in respondent's US Dollar Savings Account with
Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not
receive any boxes from respondent. On January 3, 2001,
petitioner wrote a demand letter for reimbursement of
the amount paid. 3 On February 19, 2001, respondent
replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up
from the former's warehouse 30 days from completion,
as agreed upon. Respondent mentioned that petitioner
even placed an additional order of 24,000 boxes, out of
which, 14,000 had been manufactured without any
advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the
factory and to pay the balance of US$15,400.00 for the
additional boxes and P132,000.00 as storage fee.
In reply, petitioner denied that it made a second
order of 24,000 boxes and that respondent already
completed the initial order of 36,500 boxes and 14,000
boxes out of the second order. It maintained that
respondent only manufactured a sample of the ordered
boxes and that respondent could not have produced
14,000 boxes without the required pre-payments. 6
During trial, petitioner presented Que as its sole
witness. Que testified that he ordered the boxes from
respondent and deposited the money in respondent's
account. 7 He specifically stated that, when he visited
respondent's factory, he saw that the boxes had no print
of petitioner's logo. 8 A few months later, he followed-up
the order and was told that the company had full
production, and thus, was promised that production of
the order would be rushed. He told respondent that it
should indeed rush production because the need for the
boxes was urgent. Thereafter, he asked his partner,
Alfred Ong, to cancel the order because it was already
late for them to meet their commitment to ship the
bananas to China. 9 On cross-examination, Que further
testified that China Zero Food, the Chinese company that
ordered the bananas, was sending a ship to Davao to get
the bananas, but since there were no cartons, the ship
could not proceed. He said that, at that time, bananas
from Tagum Agricultural Development Corporation
(TADECO) were already there. He denied that petitioner
made an additional order of 24,000 boxes. He explained
that it took three years to refer the matter to counsel
because respondent promised to pay. 10
For respondent, BienvenidoEstanislao
(Estanislao) testified that he met Que in Davao in
October 1998 to inspect the boxes and that the latter got
samples of them. In February 2000, they inspected the
boxes again and Que got more samples. Estanislao said
that petitioner did not pick up the boxes because the
ship did not arrive. 11 Jaime Tan (Tan), president of
respondent, also testified that his company finished
production of the 36,500 boxes on April 3, 1998 and that
petitioner made a second order of 24,000 boxes. He said
that the agreement was for respondent to produce the
boxes and for petitioner to pick them up from the
warehouse. 12 He also said that the reason why
 petitioner did not pick up the boxes was that the ship
that was to carry the bananas did not
arrive. 13 According to him, during the last visit of Que
and Estanislao, he asked them to withdraw the boxes
immediately because they were occupying a big space in
his plant, but they, instead, told him to sell the cartons as
rejects. He was able to sell 5,000 boxes at P20.00 each
for a total of P100,000.00. They then told him to apply
the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial
Court (RTC) ruled that respondent did not commit any
breach of faith that would justify rescission of the
contract and the consequent reimbursement of the
amount paid by petitioner. The RTC said that respondent
was able to produce the ordered boxes but petitioner
failed to obtain possession thereof because its ship did
not arrive. It thus dismissed the complaint and
respondent's counterclaims, disposing as follows:
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CAdenied the
appeal for lack of merit. 15 The appellate court held that
petitioner failed to discharge its burden of proving what
it claimed to be the parties' agreement with respect to
the delivery of the boxes. According to the CA, it was
unthinkable that, over a period of more than two years,
petitioner did not even demand for the delivery of the
boxes. The CA added that even assuming that the
agreement was for respondent to deliver the boxes,
respondent would not be liable for breach of contract as
petitioner had not yet demanded from it the delivery of
the boxes. 16
ISSUE:WON Solar Harvest, Inc. may rescind the contract.
HELD:NO.
Petitioner's claim for reimbursement is actually
one for rescission (or resolution) of contract under Article
1191 of the Civil Code, which reads:
Art. 1191. The power to rescind
obligations is implied in reciprocal ones,
in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of damages
in either case. He may also seek
rescission, even after he has chosen
fulfillment, if the latter should become
impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and 1388
and the Mortgage Law.
The right to rescind a contract arises once the
other party defaults in the performance of his obligation.
In determining when default occurs, Art. 1191 should be
taken in conjunction with Art. 1169 of the same law,
which provides:
Art. 1169. Those obliged to deliver or to
do something incur in delay from the time
the obligee judicially or extrajudicially
11
demands from them the fulfillment of
their obligation.
Evident from the records and even from the
allegations in the complaint was the lack of demand by
petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint only
alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation. Petitioner's
witness also testified that they made a follow-up of the
boxes, but not a demand. Note is taken of the fact that,
with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a
demand letter was sent to respondent. Without a
previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for
rescission against respondent as the latter would not
yet be considered in breach of its contractual obligation.
As correctly observed by the CA, aside from the
pictures of the finished boxes and the production report
thereof, there is ample showing that the boxes had
already been manufactured by respondent. There is the
testimony of Estanislao who accompanied Que to the
factory, attesting that, during their first visit to the
company, they saw the pile of petitioner's boxes and Que
took samples thereof. Que, petitioner's witness, himself
confirmed this incident. He testified that Tan pointed the
boxes to him and that he got a sample and saw that it
was blank. Que's absolute assertion that the boxes were
not manufactured is, therefore, implausible and
suspicious.
In sum, the Court finds that petitioner failed to establish a
cause of action for rescission, the evidence having shown that
respondent did not commit any breach of its contractual
obligation. As previously stated, the subject boxes are still
within respondent's premises. To put a rest to this dispute,
we therefore relieve respondent from the burden of having
to keep the boxes within its premises and, consequently, give
it the right to dispose of them, after petitioner is given a
period of time within which to remove them from the
premises.
NOTE: Yung case involves breach of contract, contract
talagasiyabeshybakai-judge niyoakonamaliyung digest ko.
Walakasing topic nanakalagay kung saang topic siyamagfa-fall
so i-assume nasa Art. 1170 itong case naito – Fraud and
damages.
[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.:
FACTS: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
12
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.
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 damnumabsqueinjuria, 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.
ISSUE: 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 [Ito langyungoblicon issue dito which
should answer 1170,pero after
neto,samakoyungsagotsadalawabakakasiitanong kayo
nabahala if babasahinniyo]; and (3) the Vazquezes are
entitled to damages.
HELD:
(2)No.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
13
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 Vazquezeseffected 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.
(1)Yes. The upgrading Cathay breached its contract of
carriage with Vazquezes, who declined said upgrade, since
Cathay insisted to the upgrade.
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.
(3)Now we come to the third issue on damages.
14
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.
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]
MERALCO V Ramoy
MANILA ELECTRIC COMPANY, Petitioner, vs.
MATILDEMACABAGDAL RAMOY, BIENVENIDO RAMOY,
ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA
DURIAN and CYRENE PANADO, Respondents.
Facts:
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.
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."
NPC wrote Meralco requesting for the "immediate
disconnection of electric power supply to all residential and
15
commercial establishments beneath the NPC transmission
lines along Baesa, Quezon City. After deliberating on NPC's
letter, Meralco decided to comply with NPC's requestand
thereupon issued notices of disconnection to all
establishments affected including plaintiffs Leoncio Ramoy,
Matilde Ramoy/Matild, Rosemarie Ramoy, Ofelia Durian, Jose
Valiza, and Cyrene S. Panado.
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, plaintiffLeoncio
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.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.
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 on
grounds that it erred in finding MERALCO not negligent when
it disconnected power supply and in not awarding damages
to defendants.
ISSUE: WON MERALCO is liable for damages
Ruling:
YES. 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 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 asgood 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.
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.
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. 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.
This being so, MERALCO is liable for damages under Article
1170 of the Civil Code.
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.
FACTS:
Petitioner-insured, Santos Areola, a lawyer from Dagupan
City, bought from 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. 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.
16
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
manager, Teofilo M. Malapit, sent petitioner-insured
Endorsement No. BG-002/85 which "cancelled flat" Policy No.
PA BG-20015 "for non-payment of premium effective as of
inception dated." 5 The same endorsement also credited "a
return premium of P1,609.65 plus documentary stamps and
premium tax" to the account of the insured. Shocked by the
cancellation of the policy, petitioner-insured confronted
Carlito Ang, agent of respondent insurance company, and
demanded the issuance of an official receipt. Ang told
petitioner-insured that the cancellation of the policy was a
mistake but he would personally see to its rectification.
However, petitioner-insured failed to receive any official
receipt from Prudential.
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".
Malapit warned Areola that should be fail to pay the balance,
the company's liability would cease to operate. 7
Assistant Vice President 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 was in fact received
by Prudential on December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending the
insurance coverage 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.
However, it argued that, by acknowledging the inconvenience
caused on petitioner-insured and after 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,
therefore cannot be held liable for damages arising from
breach of contract, having demonstrated fully well its
fulfillment of its obligation.
ISSUE: WON Areola may sue Prudential for damages.
RULING: YES.
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.
Consequently, respondent insurance company is liable by way
of damages for the fraudulent acts committed by Malapit. 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.
Under the law governing reciprocal obligations, particularly
the second paragraph of Article 1191, 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.
The nature of damages to be awarded, however, would be in
the form of nominal damages. 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.
TANGUILIG v CA
G.R. No. 117190
Facts:
Petitioner Jacinto Tanguilig proposed to respondent
Vicente Herce, Jr. To construct a windmill system for the
17
latter. The construction will cost P60,000 which Herce agreed
upon. Pursuant to the agreement, Herce paid the down
payment of P30,000 and an installment payment of P15,000,
leaving a balance of P15,000.
Due to the refusal and failure of respondent to pay for
the balance, petitioner filed a complaint to collect the
amount.
Respondent denied the claim saying that he had already
paid the 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 him, since
the deep well is part of the system, the payment should be
credited to his account by the petitioner. Moreover, the
balance should also be offset by the defects in the windmill
system which caused the structure to collapse after their
place was hit by a strong wind.
Petitioner denied that the deep well was included in the
contract, that the P60,000 covered only the windmill
assembly. He also disowned any obligation to repair or
reconstruct the system since it was delivered in good
condition, and the collapse was due to a typhoon, a force
majeure, thus cannot be held liable.
The trial court found that the deep well was not
included in the contract. And that the petitioner has no
obligation to reconstruct the windmill since there was no
convincing proof that the same collapsed due to a defect.
The CA, on the other hand, ruled that the contract
mentioned of the term deep well and thus part of the
agreement. And it rejected the claim of force majeure,
commanding petitioner to reconstruct the windmill.
Issue: (pertinent to the topic)
WON petitioner is obliged to rebuild or reconstruct the
windmill system
Held:
Yes. Art 1174 of the Civil Code states that the event
should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. CA,
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. The evidence
does not even disclose that there was a typhoon on the day
the windmill collapsed. Petitioner merely stated the presence
of a “strong wind.” But the strong wind cannot be considered
in this case as fortuitous nor unforeseeable nor unavoidable.
On the contrary windmills are build in areas where there is a
presence of strong winds, otherwise windmills will not work.
Moreover, the windmill system is newly constructed, it is less
likely to collapse unless it has an inherent defect.
NAKPIL & SONS V. COURT OF APPEALS
FACTS
Plaintiff, Philippine Bar Association, a civic-non-profit
association, incorporated under the Corporation Law, decided
to construct an office building on its 840 square meters lot
located at the comer of Aduana and Arzobispo Streets,
Intramuros, Manila. The construction was undertaken by the
United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general
manager of said corporation. The proposal was approved by
plaintiff's board of directors and signed by its president
Roman Ozaeta, a third-party defendant in this case. The plans
and specifications for the building were prepared by the
other third-party defendants Juan F. Nakpil& Sons. The
building was completed in June, 1966. In the early morning of
August 2, 1968 an unusually strong earthquake [7.3
magnitude] hit Manila and the building in question
sustained major damage.[etoung main reason for the
damages sustained, not the following earthquakes]The front
columns of the building buckled, causing the building to tilt
forward dangerously. The tenants vacated the building. As a
temporary remedial measure, the building was shored up by
United Construction, Inc. at the cost of P13,661.28.Plaintiff
[in his action for recovery of damages] alleges that the
collapse of the building was accused by defects in the
construction, the failure of the contractors to follow plans
and specifications and violations by the defendants of the
terms of the contract. Defendants in turn filed a third-party
complaint against the architects who prepared the plans and
specifications, alleging in essence that the collapse of the
building was due to the defects in the said plans and
specifications.
Meanwhile, plaintiff moved twice for the demolition of the
building on the ground that it may topple down in case of a
strong earthquake. Finally, on April 30, 1979 the building was
authorized to be demolished, but 3 more earthquakes of
high intensity before the demolition date caused further
damage to the property. The actual demolition was
undertaken by the buyer of the damaged building. It was held
that aside from the 7.3 magnitude earthquake on Aug. 2,
1968, the damages were caused by the defects in the plans
and specifications prepared by the third-party defendants'
architects, deviations from said plans and specifications by
the defendant contractors and failure of the latter to observe
the requisite workmanship in the construction of the building
and of the contractors, architects and even the owners to
exercise the requisite degree of supervision in the
construction of subject building. Lower court agreed with the
decision/findings of the Commissioner. Intermediate
Appellate Court modified. All parties appealed. Hence, these
petitions.
ISSUE
WON petitioners are liable for damages
HELD
Yes. The Commissioner said that even if it can be proved that
the defects in the construction alone (and not in the plans
and design) caused the damage to the building, still the
deficiency in the original design and jack of specific provisions
against torsion in the original plans and the overload on the
ground floor columns (found by an the experts including the
original designer) certainly contributed to the damage which
occurred.
The applicable law governing the rights and liabilities of the
parties herein is Article 1723 of the New Civil Code. On the
other hand, the general rule is that no person shall be
responsible for events which could not be foreseen or which
though foreseen, were inevitable (Article 1174, New Civil
Code). There is no dispute that the earthquake of August 2,
1968 is a fortuitous event or an act of God. To exempt the
obligor from liability under Article 1174 of the Civil Code, for
18
a breach of an obligation due to an "act of God," the
following must concur:
a) the cause of the breach of the obligation must be
independent of the will of the debtor;
b) the event must be either unforseeable or
unavoidable;
c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal
manner; and
d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively by
the violence of nature and all human agencies are to be
excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the
participation of man, whether it be from active intervention
or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable
to the acts of God. To be exempt from liability for loss
because of an act of God, he must be free from any previous
negligence or misconduct by which that loss or damage may
have been occasioned.
The negligence of the defendant and the third-party
defendants was established beyond dispute both in the lower
court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made
substantial deviations from the plans and specifications, and
to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of
supervision; while the third-party defendants were found to
have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the
defects in the construction and in the plans and
specifications were the proximate causes that rendered the
PBA building unable to withstand the earthquake of August 2,
1968. For this reason the defendant and third-party
defendants cannot claim exemption from liability.
-
There should be no question that the NAKPILS and UNITED
are liable for the damage resulting from the partial and
eventual collapse of the PBA building as a result of the
earthquakes.
According to Justice Hugo E. Gutierrez, [gandangsinabinya as
a whole huhu, sayangkinailangankoicutkasi di
namanimportantelahat, magandalanghahaha]“x xxThe
evidence reveals defects and deficiencies in design and
construction. There is no mystery about these acts of
negligence. The collapse of the PBA building was no wonder
performed by God. It was a result of the imperfections in the
work of the architects and the people in the construction
company. The findings of the lower Court on the cause of the
collapse are more rational and accurate. Instead of laying the
blame solely on the motions and forces generated by the
earthquake, it also examined the ability of the PBA building,
as designed and constructed, to withstand and successfully
weather those forces.
As already discussed, the destruction was not purely an act of
God. Truth to tell hundreds of ancient buildings in the vicinity
were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad
faith in the performance of their respective tasks, without
which the damage would not have occurred.
Defendant and third-party defedants are hereby solidarily
liable under Art. 1723.
G.R. No. L-21749 September 29, 1967
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
FACTS: 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:
..........................5 ISSUES.....................
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
19
decision to either court in expectation of favorable judgment,
but with intent of attacking its jurisdiction should the decision
be unfavorable (Tyson Tan, et al. vs. Filipinas Compañia de
Seguros) et al., L-10096, Res. on Motion to Reconsider, March
23, 1966). Consequently, we are limited in this appeal to the
issues of law raised in the appellant's brief.
Taking the aforesaid rules into account, it can be seen that
the only reviewable issues in this appeal are reduced to two:
ISSUE: 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.
HELD: As to the first question, considering that the Nagtahan
bridge was an immovable and stationary object and
uncontrovertedly provided with adequate openings for the
passage of water craft, including barges like of appellant's, it
is undeniable that the unusual event that the barge,
exclusively controlled by appellant, rammed the bridge
supports raises a presumption of negligence on the part of
appellant or its employees manning the barge or the tugs
that towed it. For in the ordinary course of events, such a
thing does not happen if proper care is used. In Anglo
American Jurisprudence, the inference arises by what is
known as the "res ipsa loquitur" rule (Scott vs. London Docks
Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena,
224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529,
149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269
Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).
The appellant strongly stresses the precautions taken by it
on the day in question: that it assigned two of its most
powerful tugboats to tow down river its barge L-1892; that it
assigned to the task the more competent and experienced
among its patrons, had the towlines, engines and equipment
double-checked and inspected; that it instructed
its patrons to take extra precautions; and concludes that it
had done all it was called to do, and that the accident,
therefore, should be held due to force majeure or fortuitous
event.
These very precautions, however, completely destroy the
appellant's defense. For caso fortuito or force majeure (which
in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not
foreseeable or avoidable, "events that could not be foreseen,
or which, though foreseen, were inevitable" (Art. 1174, Civ.
Code of the Philippines). It is, therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed, but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is
not impossibility to foresee the same: "un hecho no
constituye caso fortuito por la sola circunstancia de que su
existencia haga mas dificil o mas onerosa la accion diligente
del presento ofensor" (Peirano Facio, Responsibilidad Extra-
contractual, p. 465; Mazeaud Trait de la Responsibilite Civil,
Vol. 2, sec. 1569). The very measures adopted by appellant
prove that the possibility of danger was not only foreseeable,
but actually foreseen, and was not caso fortuito.
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.
[G.R. No. 108164. February 23, 1995.]
FAR EAST BANK AND TRUST
COMPANY, petitioner, vs. THE
HONORABLE COURT OF APPEALS, LUIS A.
LUNA and CLARITA S. LUNA, respondents.
FACTS:
Some time in October 1986, private respondent
Luis A. Lunaapplied for, and was accorded, a
FAREASTCARD issued by petitioner Far East Bank and
Trust Company ("FEBTC") at its Pasig Branch. Upon his
request, the bank also issued a supplemental card to
private respondent Clarita S. Luna.
In August 1988, Clarita lost her credit card.
FEBTC was forthwith informed. In order to replace the
lost card, Clarita submitted an affidavit of loss. In cases of
this nature, the bank’s internal security procedures and
policy would appear to be to meanwhile so record the
20
lost card, along with the principal card, as a "Hot Card" or
"Cancelled Card" in its master file.
On 06 October 1988, Luis tendered
a despedida lunch for a close friend, a Filipino-American,
and another guest at the Bahia Rooftop Restaurant of the
Hotel Intercontinental Manila. To pay for the lunch, Luis
presented his FAREASTCARD to the attending waiter who
promptly had it verified through a telephone call to the
bank's Credit Card Department. Since the card was not
honored, Luis was forced to pay in cash the bill
amounting to P588.13. Naturally, Luis felt embarrassed
by this incident.
In a letter, dated 11 October 1988, private
respondent Luis Luna, through counsel, demanded from
FEBTC the payment of damages. Adrian V. Festejo, a vice-
president of the bank, expressed the bank's apologies to
Luis. In his letter, dated 03 November 1988, Festejo, in
part, said:
xxxxxxxxx
"An investigation of your case however,
revealed that FAREASTCARD failed to
inform you about its security policy.
Furthermore, an overzealous employee of
the Bank's Credit Card Department did
not consider the possibility that it may
have been you who was presenting the
card at that time (for which reason, the
unfortunate incident occurred)." 1
On 30 March 1990, the RTC of Pasig, given the
foregoing factual settings, rendered a decision ordering
FEBTC to pay private respondents (a) P300,000.00 moral
damages; (b) P50,000.00 exemplary damages; and (c)
P20,000.00 attorney's fees.
On appeal to the Court of Appeals, the appellate
court affirmed the decision of the trial court.
ISSUE:WON private respondents are entitled of moral
damages.
HELD:NO.
Concededly, the bank was remiss in indeed
neglecting to personally inform Luis of his own card’s
cancellation. Nothing in the findings of the trial court and
the appellate court, however, can sufficiently indicate
any deliberate intent on the part of FEBTC to cause harm
to private respondents. Neither could FEBTC's negligence
in failing to give personal notice to Luis be considered so
gross as to amount to malice or bad faith.
"xxxxxxxxx.
"The distinction between fraud, bad faith
or malice in the sense of deliberate or
wanton wrong doing and negligence (as
mere carelessness) is too fundamental in
our law to be ignored (Arts. 1170-1172);
their consequences being clearly
differentiated by the Code.
"'ART. 2201. In contracts and
quasi-contracts, the damages for
which the obligor who acted in
good faith is liable shall be those
that are the natural and
probable consequences of the
breach of the obligation, and
which the parties have foreseen
or could have reasonably
 foreseen at the time the
obligation was constituted.
'In case of fraud, bad faith,
malice or wanton attitude, the
obligor shall be responsible for
all damages which may be
reasonably attributed to the
non-performance of the
obligation."
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.
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.
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.:
FACTS:Petitioner Joseph Saludaga was a sophomore law
student of respondent Far Eastern University (FEU) when he
was shot by Alejandro Rosete (Rosete), one of the security
guards on duty at the school premises on August 18, 1996.
Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical
Foundation (FEU-NRMF) due to the wound he
sustained.6Meanwhile, Rosete was brought to the police
station where he explained that the shooting was accidental.
He was eventually released considering that no formal
complaint was filed against him.
Petitioner thereafter filed a complaint for damages against
respondents on the ground that they breached their
obligation to provide students with a safe and secure
environment and an atmosphere conducive to learning.
Respondents, in turn, filed a Third-Party Complaint7 against
Galaxy Development and Management Corporation (Galaxy),
the agency contracted by respondent FEU to provide security
services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner, if any;
and to pay attorney's fees and cost of the suit. On the other
hand, Galaxy and Imperial filed a Fourth-Party Complaint
against AFP General Insurance.8
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
21
continued even after plaintiff was discharged from
the hospital when not even a word of consolation
was heard from them. Plaintiff waited for more
than one (1) year for the defendants to perform
their moral obligation but the wait was fruitless.
This indifference and total lack of concern of
defendants served to exacerbate plaintiff's miserable
condition.
xxxx
11.0. Defendants are responsible for ensuring the
safety of its students while the latter are within the
University premises. And that should anything
untoward happens to any of its students while they
are within the University's premises shall be the
responsibility of the defendants. In this case,
defendants, despite being legally and morally bound,
miserably failed to protect plaintiff from injury and
thereafter, to mitigate and compensate plaintiff for
said injury;
12.0. When plaintiff enrolled with defendant FEU, a
contract was entered into between them. Under
this contract, defendants are supposed to ensure
that adequate steps are taken to provide an
atmosphere conducive to study and ensure the
safety of the plaintiff while inside defendant FEU's
premises. In the instant case, the latter breached
this contract when defendant allowed harm to befall
upon the plaintiff when he was shot at by, of all
people, their security guard who was tasked to
maintain peace inside the campus.12
In Philippine School of Business Administration v. Court of
Appeals,13 we held that:
When an academic institution accepts students for
enrollment, there is established a contract between
them, resulting in bilateral obligations which both
parties are bound to comply with. For its part, the
school undertakes to provide the student with an
education that would presumably suffice to equip
him with the necessary tools and skills to pursue
higher education or a profession. On the other hand,
the student covenants to abide by the school's
academic requirements and observe its rules and
regulations.
Institutions of learning must also meet the implicit or
"built-in" obligation of providing their students with
an atmosphere that promotes or assists in attaining
its primary undertaking of imparting knowledge.
Certainly, no student can absorb the intricacies of
physics or higher mathematics or explore the realm
of the arts and other sciences when bullets are flying
or grenades exploding in the air or where there
looms around the school premises a constant threat
to life and limb. Necessarily, the school must ensure
that adequate steps are taken to maintain peace and
order within the campus premises and to prevent
the breakdown thereof.14
It is undisputed that petitioner was enrolled as a sophomore
law student in respondent FEU. As such, there was created a
contractual obligation between the two parties. On
petitioner's part, he was obliged to comply with the rules and
regulations of the school. On the other hand, respondent
FEU, as a learning institution is mandated to impart
knowledge and equip its students with the necessary skills to
pursue higher education or a profession. At the same time, it
is obliged to ensure and take adequate steps to maintain
peace and order within the campus.
It is settled that in culpa contractual, the mere proof of the
existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. 15 In the
instant case, we find that, when petitioner was shot inside
the campus by no less the security guard who was hired to
maintain peace and secure the premises, there is a prima
facie showing that respondents failed to comply with its
obligation to provide a safe and secure environment to its
students.
In order to avoid liability, however, respondents aver that the
shooting incident was a fortuitous event because they could
not have reasonably foreseen nor avoided the accident
caused by Rosete as he was not their employee; 16and that
they complied with their obligation to ensure a safe learning
environment for their students by having exercised due
diligence in selecting the security services of Galaxy.
ISSUE: WON FEU is liable for damages for breach of its
obligation to provide students with a safe and secure learning
atmosphere.
HELD: YES. 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
22
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.
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.
The fact that a client company may give instructions
or directions to the security guards assigned to it,
23
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
Respondents and Galaxy were able to litigate their respective
claims and defenses in the course of the trial of petitioner's
complaint. Evidence duly supports the findings of the trial
court that Galaxy is negligent not only in the selection of its
employees but also in their supervision. Indeed, no
administrative sanction was imposed against Rosete despite
the shooting incident; moreover, he was even allowed to go
on leave of absence which led eventually to his
disappearance.34 Galaxy also failed to monitor petitioner's
condition or extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and Imperial
failed to make good their pledge to reimburse petitioner's
medical expenses.
For these acts of negligence and for having supplied
respondent FEU with an unqualified security guard, which
resulted to the latter's breach of obligation to petitioner, it is
proper to hold Galaxy liable to respondent FEU for such
damages equivalent to the above-mentioned amounts
awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily
liable with Galaxy for being grossly negligent in directing the
affairs of the security agency. It was Imperial who assured
petitioner that his medical expenses will be shouldered by
Galaxy but said representations were not fulfilled because
they presumed that petitioner and his family were no longer
interested in filing a formal complaint against them. 35
WHEREFORE, the petition is GRANTED. The June 29, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 87050
nullifying the Decision of the trial court and dismissing the
complaint as well as the August 23, 2007 Resolution denying
the Motion for Reconsideration are REVERSED and SET
ASIDE. The Decision of the Regional Trial Court of Manila,
Branch 2, in Civil Case No. 98-89483 finding respondent FEU
liable for damages for breach of its obligation to provide
students with a safe and secure learning atmosphere,
is AFFIRMED with the following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is ORDERED to pay
petitioner actual damages in the amount of P35,298.25, plus
6% interest per annum from the filing of the complaint until
the finality of this Decision. After this decision becomes final
and executory, the applicable rate shall be twelve percent
(12%) per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner
temperate damages in the amount of P20,000.00; moral
damages in the amount of P100,000.00; and attorney's fees
and litigation expenses in the amount of P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus
is DISMISSED. The counterclaims of respondents are
likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy)
and its president, Mariano D. Imperial are ORDERED to jointly
and severally pay respondent FEU damages equivalent to the
above-mentioned amounts awarded to petitioner.
SO ORDERED.
G.R. No. 185798 January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK
INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA
RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on certiorari under
Rule 45 of the 1997 Rules .of Civil Procedure assailing the
Decision1 of the Court of Appeals in CA-G.R. SP No. 100450
which affirmed the Decision of the Office of the President in
O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and
developer of the Central Park Place Tower while co-petitioner
Fil-Estate Network, Inc. is its authorized marketing agent.
Respondent Spouses Conrado and Maria Victoria Ronquillo
purchased from petitioners an 82-square meter condominium
unit at Central Park Place Tower in Mandaluyong City for a
pre-selling contract price of FIVE MILLION ONE HUNDRED
SEVENTY-FOUR THOUSAND ONLY (P5,174,000.00). On 29
August 1997, respondents executed and signed a Reservation
Application Agreement wherein they deposited P200,000.00
as reservation fee. As agreed upon, respondents paid the full
downpayment of P1,552,200.00 and had been paying
the P63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly
amortization. Claiming to have paid a total of P2,198,949.96
to petitioners, respondents through two (2) successive
letters, demanded a full refund of their payment with
interest. When their demands went unheeded, respondents
were constrained to file a Complaint for Refund and Damages
before the Housing and Land Use Regulatory Board (HLURB).
Respondents prayed for reimbursement/refund
of P2,198,949.96 representing the total amortization
payments, P200,000.00 as and by way of moral damages,
attorney’s fees and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default
against petitioners for failing to file their Answer within the
reglementary period despite service of summons.2
Petitioners filed a motion to lift order of default and attached
their position paper attributing the delay in construction to
the 1997 Asian financial crisis. Petitioners denied committing
fraud or misrepresentation which could entitle respondents
to an award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F.
Melchor, rendered judgment ordering petitioners to jointly
and severally pay respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED
NINETY-EIGHT THOUSAND NINE HUNDRED FORTY
NINE PESOS & 96/100 (P2,198,949.96) with interest
thereon at twelve percent (12%) per annum to be
computed from the time of the complainants’
24
demand for refund on October 08, 1998 until fully
paid,
b) ONE HUNDRED THOUSAND PESOS (P100,000.00)
as moral damages,
c) FIFTY THOUSAND PESOS (P50,000.00) as
attorney’s fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS
(P10,000.00) payable to this Office fifteen (15) days
upon receipt of this decision, for violation of Section
20 in relation to Section 38 of PD 957.3
The Arbiter considered petitioners’ failure to develop the
condominium project as a substantial breach of their
obligation which entitles respondents to seek for rescission
with payment of damages. The Arbiter also stated that mere
economic hardship is not an excuse for contractual and legal
delay.
Petitioners appealed the Arbiter’s Decision through a petition
for review pursuant to Rule XII of the 1996 Rules of Procedure
of HLURB. On 17 February 2005, the Board of Commissioners
of the HLURB denied4 the petition and affirmed the Arbiter’s
Decision. The HLURB reiterated that the depreciation of the
peso as a result of the Asian financial crisis is not a fortuitous
event which will exempt petitioners from the performance of
their contractual obligation.
Petitioners filed a motion for reconsideration but it was
denied5 on 8 May 2006. Thereafter, petitioners filed a Notice
of Appeal with the Office of the President. On 18 April 2007,
petitioners’ appeal was dismissed6 by the Office of the
President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied 7 on 26 July
2007.
Petitioners sought relief from the Court of Appeals through a
petition for review under Rule 43 containing the same
arguments they raised before the HLURB and the Office of
the President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HONORABLE HOUSING
AND LAND USE REGULATORY BOARD AND ORDERING
PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-
APPELLEES THE SUM OF P2,198,949.96 WITH 12% INTEREST
FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING
THAT THE COMPLAINT STATES NO CAUSE OF ACTION
AGAINST PETITIONERS-APPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE OFFICE BELOW ORDERING
PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES
THE SUM OF P100,000.00 AS MORAL DAMAGES
AND P50,000.00 AS ATTORNEY’S FEES CONSIDERING THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HOUSING AND LAND USE
REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS
TO PAY P10,000.00 AS ADMINISTRATIVE FINE IN THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT
SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for
review for lack of merit. The appellate court echoed the
HLURB Arbiter’s ruling that "a buyer for a
condominium/subdivision unit/lot unit which has not been
developed in accordance with the approved
condominium/subdivision plan within the time limit for
complying with said developmental requirement may opt for
reimbursement under Section 20 in relation to Section 23 of
Presidential Decree (P.D.) 957 x x x."9 The appellate court
supported the HLURB Arbiter’s conclusion, which was
affirmed by the HLURB Board of Commission and the Office of
the President, that petitioners’ failure to develop the
condominium project is tantamount to a substantial breach
which warrants a refund of the total amount paid, including
interest. The appellate court pointed out that petitioners
failed to prove that the Asian financial crisis constitutes a
fortuitous event which could excuse them from the
performance of their contractual and statutory obligations.
The appellate court also affirmed the award of moral
damages in light of petitioners’ unjustified refusal to satisfy
respondents’ claim and the legality of the administrative fine,
as provided in Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a
Resolution10 dated 11 December 2008 by the Court of
Appeals.
Aggrieved, petitioners filed the instant petition advancing
substantially the same grounds for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN
FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF
ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE
PETITIONERS ARE LIABLE UNDER THE PREMISES, THE
HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED
THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT
(12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN
IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT INCLUDING THE PAYMENT OF P100,000.00 AS
MORAL DAMAGES, P50,000.00 AS ATTORNEY’S FEES
AND P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE
OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH
CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action
because they allegedly have not committed any act of
misrepresentation amounting to bad faith which could entitle
respondents to a refund. Petitioners claim that there was a
mere delay in the completion of the project and that they
25
only resorted to "suspension and reformatting as a testament
to their commitment to their buyers." Petitioners attribute
the delay to the 1997 Asian financial crisis that befell the real
estate industry. Invoking Article 1174 of the New Civil Code,
petitioners maintain that they cannot be held liable for a
fortuitous event.
Petitioners contest the payment of a huge amount of interest
on account of suspension of development on a project. They
liken their situation to a bank which this Court, in Overseas
Bank v. Court of Appeals,12 adjudged as not liable to pay
interest on deposits during the period that its operations are
ordered suspended by the Monetary Board of the Central
Bank.
Lastly, petitioners aver that they should not be ordered to
pay moral damages because they never intended to cause
delay, and again blamed the Asian economic crisis as the
direct, proximate and only cause of their failure to complete
the project. Petitioners submit that moral damages should
not be awarded unless so stipulated except under the
instances enumerated in Article 2208 of the New Civil Code.
Lastly, petitioners refuse to pay the administrative fine
because the delay in the project was caused not by their own
deceptive intent to defraud their buyers, but due to
unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or
not the Asian financial crisis constitute a fortuitous event
which would justify delay by petitioners in the performance
of their contractual obligation; 2) assuming that petitioners
are liable, whether or not 12% interest was correctly imposed
on the judgment award, and 3) whether the award of moral
damages, attorney’s fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by
petitioners in all the legal fora. The rulings were consistent
that first, the Asian financial crisis is not a fortuitous event
that would excuse petitioners from performing their
contractual obligation; second, as a result of the breach
committed by petitioners, respondents are entitled to rescind
the contract and to be refunded the amount of amortizations
paid including interest and damages; and third, petitioners
are likewise obligated to pay attorney’s fees and the
administrative fine.
This petition did not present any justification for us to deviate
from the rulings of the HLURB, the Office of the President and
the Court of Appeals.
Indeed, the non-performance of petitioners’ obligation
entitles respondents to rescission under Article 1191 of the
New Civil Code which states:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957,
the rule governing the sale of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1âwphi1 No
installment payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to buy
shall be forfeited in favor of the owner or developer when the
buyer, after due notice to the owner or developer, desists
from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest
thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are
entitled to rescind the contract and demand reimbursement
for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in
the case of Fil-Estate Properties, Inc. v. Spouses
Go13 promulgated on 17 August 2007, where the Court stated
that the Asian financial crisis is not an instance of caso
fortuito. Bearing the same factual milieu as the instant case,
G.R. No. 165164 involves the same company, Fil-Estate, albeit
about a different condominium property. The company
likewise reneged on its obligation to respondents therein by
failing to develop the condominium project despite
substantial payment of the contract price. Fil-Estate advanced
the same argument that the 1997 Asian financial crisis is a
fortuitous event which justifies the delay of the construction
project. First off, the Court classified the issue as a question
of fact which may not be raised in a petition for review
considering that there was no variance in the factual findings
of the HLURB, the Office of the President and the Court of
Appeals. Second, the Court cited the previous rulings of Asian
Construction and Development Corporation v. Philippine
Commercial International Bank14 and Mondragon Leisure and
Resorts Corporation v. Court of Appeals15 holding that the
1997 Asian financial crisis did not constitute a valid
justification to renege on obligations. The Court expounded:
Also, we cannot generalize that the Asian financial crisis in
1997 was unforeseeable and beyond the control of a business
corporation. It is unfortunate that petitioner apparently met
with considerable difficulty e.g. increase cost of materials and
labor, even before the scheduled commencement of its real
estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and
currency movements and business risks. The fluctuating
movement of the Philippine peso in the foreign exchange
market is an everyday occurrence, and fluctuations in
currency exchange rates happen everyday, thus, not an
instance of caso fortuito.16
The aforementioned decision becomes a precedent to future
cases in which the facts are substantially the same, as in this
case. The principle of stare decisis, which means adherence
to judicial precedents, applies.
In said case, the Court ordered the refund of the total
amortizations paid by respondents plus 6% legal interest
computed from the date of demand. The Court also awarded
attorney’s fees. We follow that ruling in the case before us.
The resulting modification of the award of legal interest is,
also, in line with our recent ruling in Nacar v. Gallery
Frames,17 embodying the amendment introduced by the
Bangko Sentral ng Pilipinas Monetary Board in BSP-MB
Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.
26
We likewise affirm the award of attorney’s fees because
respondents were forced to litigate for 14 years and incur
expenses to protect their rights and interest by reason of the
unjustified act on the part of petitioners. 18 The imposition
of P10,000.00 administrative fine is correct pursuant to
Section 38 of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe
and impose fines not exceeding ten thousand pesos for
violations of the provisions of this Decree or of any rule or
regulation thereunder. Fines shall be payable to the Authority
and enforceable through writs of execution in accordance
with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that
moral damages may be awarded in breach of contract cases,
the defendant must have acted in bad faith, must be found
guilty of gross negligence amounting to bad faith, or must
have acted in wanton disregard of contractual
obligations.19 The Arbiter found petitioners to have acted in
bad faith when they breached their contract, when they
failed to address respondents’ grievances and when they
adamantly refused to refund respondents' payment.
In fine, we find no reversible error on the merits in the
impugned Court of Appeals' Decision and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed
Decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due
computed from the time of respondents' demand for refund
on 8 October 1998.
SO ORDERED.
G.R. No. 177921 December 4, 2013
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S.
DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND
MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.
The Facts
On various dates and for different amounts, Metro Concast, a
corporation duly organized and existing under and by virtue
of Philippine laws and engaged in the business of
manufacturing steel,5 through its officers, herein individual
petitioners, obtained several loans from Allied Bank. These
loan transactions were covered by a promissory note and
separate letters of credit/trust receipts.
By way of security, the individual petitioners executed several
Continuing Guaranty/Comprehensive Surety Agreements19 in
favor of Allied Bank. Petitioners failed to settle their
obligations under the aforementioned promissory note and
trust receipts, hence, Allied Bank, through counsel, sent them
demand letters, seeking payment of the total amount
of P51,064,093.62, but to no avail. Thus, Allied Bank was
prompted to file a complaint for collection of sum of
money21 (subject complaint) against Metro Concast.
Petitioners admitted their indebtedness to Allied Bank but
denied liability for the interests and penalties charged,
claiming to have paid the total sum of P65,073,055.73 by way
of interest charges for the period covering 1992 to 1997.24
They also alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the
peso against the US dollar contributed greatly to the downfall
of the steel industry, directly affecting the business of Metro
Concast and eventually leading to its cessation. Hence, in
order to settle their debts with Allied Bank, petitioners
offered the sale of Metro Concast’s remaining assets,
consisting of machineries and equipment, to Allied Bank,
which the latter, however, refused. Instead, Allied Bank
advised them to sell the equipment and apply the proceeds of
the sale to their outstanding obligations. Accordingly,
petitioners offered the equipment for sale, but since there
were no takers, the equipment was reduced into ferro scrap
or scrap metal over the years. In 2002, Peakstar Oil
Corporation (Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap metal.
During the negotiations with Peakstar, petitioners claimed
that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s
legal department, acted as the latter’s agent. Eventually, with
the alleged conformity of Allied Bank, through Atty. Saw, a
Memorandum of Agreement25 was drawn between Metro
Concast, represented by petitioner Jose Dychiao, and
Peakstar, through Camiling, under which Peakstar obligated
itself to purchase the scrap metal for a total consideration
of P34,000,000.00.
Unfortunately, Peakstar reneged on all its obligations under
the MoA. In this regard, petitioners asseverated that:
(a) their failure to pay their outstanding loan obligations to
Allied Bank must be considered as force majeure ; and
(b) since Allied Bank was the party that accepted the terms
and conditions of payment proposed by Peakstar, petitioners
must therefore be deemed to have settled their obligations to
Allied Bank.
Claiming that the subject complaint was falsely and
maliciously filed, petitioners prayed for the award of moral
damages and exemplary damages, attorney’s fees, and
payment for other litigation expenses, including costs of suit.
The Issue
whether or not the loan obligations incurred by the
petitioners under the subject promissory note and various
trust receipts have already been extinguished..
The Court’s Ruling: NO.
Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of
the thing due, the condonation or remission of the debt, the
confusion or merger of the rights of creditor and debtor,
compensation or novation.
Petitioners classify Peakstar’s default as a form of force
majeure in the sense that they have, beyond their control,
lost the funds they expected to have received from the
Peakstar (due to the MoA) which they would, in turn, use to
pay their own loan obligations to Allied Bank. They further
state that Allied Bank was equally bound by Metro Concast’s
MoA with Peakstar since its agent, Atty. Saw, actively
represented it during the negotiations and execution of the
said agreement. Petitioners’ arguments are untenable. At
27
the outset, the Court must dispel the notion that the MoA
would have any relevance to the performance of petitioners’
obligations to Allied Bank. The MoA is a sale of assets
contract, while petitioners’ obligations to Allied Bank arose
from various loan transactions. Absent any showing that the
terms and conditions of the latter transactions have been, in
any way, modified or novated by the terms and conditions in
the MoA, said contracts should be treated separately and
distinctly from each other, such that the existence,
performance or breach of one would not depend on the
existence, performance or breach of the other.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is
not impossibility to foresee the same. To constitute a
fortuitous event, the following elements must concur: (a) the
cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be
independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it
can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the
debtor to fulfill obligations in a normal manner; and (d) the
obligor must be free from any participation in the aggravation
of the injury or loss.40 (Emphases supplied)
While it may be argued that Peakstar’s breach of the MoA
was unforseen by petitioners, the same us clearly not
"impossible"to foresee or even an event which is
independent of human will." Neither has it been shown that
said occurrence rendered it impossible for petitioners to pay
their loan obligations to Allied Bank and thus, negates the
former’s force majeure theory altogether. In this regard,
petitioners’ liability must perforce stand. Considering,
however, that Allied Bank’s extra-judicial demand on
petitioners appears to have been made only on December 10,
1998, the computation of the applicable interests and penalty
charges should be reckoned only from such date.
G.R. No. L-7859 February 12, 1913
VICTORIA SEOANE, administratrix of The Intestate Estate of
Eduardo Fargas,Plaintiff-Appellee, vs. CATALINA FRANCO,
administratrix of The Intestate Estate of Manuel
Franco, Defendant-Appellant.
Ramon Salinas, for appellant.
Gibbs, McDonough and Blanco, for appellee.
MORELAND, J. :chanrobles virtual law library
This is an appeal from a judgment of the Court of First
Instance of Zamboanga in favor of the plaintiff, holding that
the right of action upon the mortgage debt which was the
basis of the claim presented against the plaintiff's estate had
prescribed.chanroblesvirtualawlibrary chanrobles virtual law
library
The mortgage in question was executed on the 13th of
October, 1884, to secure the payment of the sum of
P4,876.01, the mortgagor agreeing to pay the sum "little by
little." The claim appears to have been presented to the
plaintiff's intestate on the 8th of August, 1911. Nothing has
been paid either of principal or of
interest.chanroblesvirtualawlibrary chanrobles virtual law
library
We are of the opinion that this case falls within the provisions
of article 1128 of the Civil Code, which reads as follows:
1128. When the obligation does not fix a term, but it can be
inferred from its nature and circumstance that there was an
intention of granting it to the debtor, the courts shall fix the
duration of such a
term.chanroblesvirtualawlibrary chanrobles virtual law library
The courts shall also fix the duration of a term when it may
have been left at the will of the debtor.
The obligation in question seems to leave the duration of the
period for the payment thereof to the will of the debtor. It
appears also that it was the intention of the instrument to
give the debtor time within which to pay the obligation. In
such cases this court has held, on several occasions, that the
obligation is not due and payable until an action has been
commenced by the mortgagee against the mortgagor for the
purpose of having the court fix the date on and after which
the instrument shall be payable and the date of maturity is
fixed in pursuance thereof. The case of Eleizegui vs. The
Manila Lawn Tennis Club (2 Phil. Rep., 309), in which the
opinion was written by the Chief Justice of the court, is the
leading case upon the subject. In that case the question was
over the duration of a lease concerning "a piece of land for a
fixed consideration and to endure at the will of the lessee." In
discussing the question the court said (p. 310):
With respect to the term of the lease the present question
has arisen. In its discussion three theories have been
presented: One which makes the duration depend upon the
will of the lessor, who, upon one month's notice given to the
lessee, may terminate the lease so stipulated; another which,
on the contrary, makes it dependent upon the will of the
lessee, as stipulated; and the third, in accordance with which
the right is reserved to the court to fix the duration of the
term.
The clause on which the case turns is as follows (p. 312):
Mr. Williamson, or whoever may succeed him as secretary of
the club, may terminate this lease whenever desired without
other formality than that of giving a month's notice. The
owners of the land undertake to maintain the club as tenant
as long as the latter shall see fit.
Considering the case the court said (314):
The Civil Code has made provision for such a case in all kinds
of obligations. In speaking in general of obligations with a
term it has supplied the deficiency of the former law with
respect to the "duration of the term when it has been left to
the will of the debtor," and provides that in this case the term
shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a
creditor who is entitled to demand the performance, and a
debtor upon whom rests the obligation to perform the
undertaking. In bilateral contracts the contracting parties are
mutually creditors and debtors. Thus, in this contract of lease,
the lessee is the creditor with respect to the rights
enumerated in article 1554, and is the debtor with respect to
the obligations imposed by articles 1555 and 1561. The term
within which performance of the latter obligation is due is
what has been left to the will of the debtor. This term it is
28
which must be fixed by the
courts.chanroblesvirtualawlibrary chanrobles virtual law
library
The only action which can be maintained under the terms of
the contract is that bywhich it is sought to be obtain from the
judge the determination of this period, and not the unlawful
detainer action which has been brought - an action which
presupposes the expiration of the term and makes it the duty
of the judge to simply the decree the eviction. To maintain
the latter action it is sufficient to show the expiration of the
term of the contract, whether conventional or legal; in order
to decree the relief to be granted in the former action it is
necessary for the judge to look into the character and
conditions of the mutual undertakings with a view to
supplying the lacking element of a time at which the lease is
to expire.
The case of Barreto vs. The City of Manila (7 Phil. Rep., 416)
dealt with a case where the terms of a donation did not fix
the time of the performance of the condition placed upon the
donation, and the court held that the period must be
determined by the court in a proper action in accordance
with article 1128 of the Civil Code, saying (p. 420):
The contract having fixed no period in which the condition
should be fulfilled, the provisions of article 1128 of the Civil
Code are applicable and it is the duty of the court to fix a
suitable time for its fulfillment. Eleizegui vs. The Manila Lawn
Tennis Club, 2 Phil. Rep., 309. (11 Phil. Rep., 624. 1 )
In the case of Levy Hermanos vs. Paterno (18 Phil. Rep., 353)
the court said (p. 355):
The defendant having bound himself to pay his debt to the
plaintiffs in partial payments, as set forth in the note in
question, it is seen that the obligation is one of payment by
installments, since its fulfillment cannot be required
immediately nor does its existence depend upon the
happening of any particular event. But, thought the obligation
is one of payment by installments, nevertheless no fixed day
was specified for its fulfillment, so that the period for
payment is undetermined or was not fixed by the parties
when they executed the contract. Besides, it is evident that
the term for payment was granted for the exclusive benefit of
the defendant and for his own convenience, as by the
language of the document, the plaintiffs gained nothing by
the fact that the debt was not immediately demandable. Nor
was any interest stipulated on the debt during the time that it
should remain unpaid by the defendant. For the foregoing
reasons, and in whatever manner this case be considered, it is
unquestionable that it falls within the provisions of article
1128 of the Civil Code. . .
.chanroblesvirtualawlibrary chanrobles virtual law library
The obligation being manifestly defective with regard to the
duration of the period granted to the debtor, that is, to the
defendant, that defect must be cured by the courts through
judicial decision which shall determine the said duration,
under the power expressly granted them for such purpose by
the legal provisions just above
transcribed.chanroblesvirtualawlibrary chanrobles virtual law
library
The trial court, therefore, acted in accordance with the law in
exercising the said power in the present case, by fixing the
duration of the period on the basis that the payment of the
debt should be made at the rate of P200 a month; and we see
no abuse of judicial discretion of fixing such a rate,
considering the importance of the obligation and the absence
of any stipulation of interest in favor of the creditors.
From these decisions it is clear that the instrument sued upon
in the case at bar is one which leaves the period of payment
at the will of the mortgagor. Such being the case, an action
should have been brought for the purpose of having the court
set a date on which the instrument should become due and
payable. Until such action was prosecuted no suit could be
brought for the recovery of the amount named in the
instrument. It is, therefore, clear that this action is
premature. The instrument has been sued upon before it is
due. The action must accordingly be
dismissed.chanroblesvirtualawlibrary chanrobles virtual law
library
Ordinarily when an action of this sort is dismissed the plaintiff
may at once begin his action for the purpose of fixing a date
upon which the instrument shall become due. From the
undisputed facts in this case and from the facts and
conditions that very probably cannot be charged hereafter, it
is our present opinion that such action is itself prescribed.
Section 38 of the Code of Civil Procedure reads as follows:
as they appeared and expressed our opinion of what the
result of the case would be upon the merits if it subsequently
came before us upon the same facts. In that case we said (p.
17):
We believe, however, that, for the information of the parties
interested in the subject matter of this action and to the end
that unnecessary litigation may be avoided, the opinion of
the court should be given upon the facts presented in this
case. Knowing what our opinion is upon these facts it is
probable that the heirs will not care to pursue the litigation
further unless, which is somewhat unlikely, they are able to
present new facts. We, therefore, proceed to a consideration
of the case upon the merits as presented by the record.
The judgment is affirmed, with the costs against the
appellant. So ordered.chanroblesvirtualawlibrary

SEC. 38. To what this chapter does not apply. - This chapter
shall not apply to actions already commenced, or to cases
wherein the right of action has already accrued; but the
statutes in force when the action or right of action accrued
shall be applicable to such cases according to the subject of
the action and without regard to the form; nor shall this
chapter apply in the case of a continuing and subsisting trust,
nor to an action by the vendee of real property in possession
thereof to obtain the conveyance of it: Provided,
nevertheless, That all rights of action which have already
accrued, except those named in the last preceding paragraph,
must be vindicated by the commencement of an action or
proceeding to enforce the same within ten years after this Act
comes into effect.

This section evidently covers all rights of action of whatever

kind or nature, except those which have special limitations
and are referred to in subsequent sections. A right of action
to fix a day for the determination of the time of payment is
included within the terms of this section. The mortgage in
question having left the period of payment to the will of the
mortgagor, an action could have been maintained by the
mortgagee at any time after its execution for the naming of a
date on which the instrument must be paid in full. The right
of action accrued as soon as the instrument was executed.
Such action, therefore, falls within the provisions of section
38, and not having been commenced within the ten years
next following the 1st day of October, 1901, such action
cannot, under the facts as they now appear, be
maintained.chanroblesvirtualawlibrary chanrobles virtual law
library

While the expression of an opinion as to the prescription of

the action to fix a date for the maturity of the obligation in
question is unnecessary for a complete resolution of the case
before us, still we do not hesitate to express that opinion for
the reasons which we have heretofore given in one or two
cases, particularly that of Lichauco vs. Limjuco (19 Phil. Rep.,
12). That case went off upon the finding of the court that the
action could not be maintained by the plaintiff, Lichauco, on
behalf of his brothers and sisters and upon that finding the
complaint was dismissed. While the merits in that case were
not necessarily before us, we nevertheless took up the facts

29