CASES TO BE DISCUSSED:

FIRST 6 CASES

G.R. No. 165662             May 3, 2006

1. EDGARDO and ZENAIDA ANGELES, Petitioners,

vs.
UNITED COCONUT PLANTERS BANK,* Respondent.

DECISION

PANGANIBAN, CJ:

A writ of preliminary injunction is issued to prevent an extrajudicial foreclosure, only upon a

clear showing of a violation of the mortgagor’s unmistakable right. Unsubstantiated allegations
of denial of due process and prematurity of a loan are not sufficient to defeat the mortgagee’s
unmistakable right to an extrajudicial foreclosure.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 4,
2004 Amended Decision2 and the October 12, 2004 Resolution3 of the Court of Appeals (CA) in
CA-GR SP No. 70966. The challenged Amended Decision disposed thus:

"WHEREFORE, the Motion for Reconsideration is GRANTED. The July 18, 2003 Decision is
hereby REVERSED and SET ASIDE and another one entered GRANTING the petition and
REVERSING and SETTING ASIDE the March 15, 2002 Order of the Regional Trial Court,
Branch 58, Makati City in Civil Case No. 99-1061."4

The assailed Resolution denied reconsideration.

The Facts

On September 19, 1995, Petitioners Selegna Management and Development Corporation and
Spouses Edgardo and Zenaida Angeles were granted a credit facility in the amount of P70
million by Respondent United Coconut Planters Bank (UCPB). As security for this credit
facility, petitioners executed real estate mortgages over several parcels of land located in the
cities of Muntinlupa, Las Piñas, Antipolo and Quezon; and over several condominium units in
Makati. Petitioners were likewise required to execute a promissory note in favor of respondent
every time they availed of the credit facility. As required in these notes, they paid the interest in
monthly amortizations.

The parties stipulated in their Credit Agreement dated September 19, 1995,5 that failure to pay
"any availment of the accommodation or interest, or any sum due" shall constitute an event of
default,6 which shall consequently allow respondent bank to "declare [as immediately due and
payable] all outstanding availments
of the accommodation together with accrued interest and any other sum payable." 7

In need of further business capital, petitioners obtained from UCPB an increase in their credit
facility.8 For this purpose, they executed a Promissory Note for P103,909,710.82, which was to
mature on March 26, 1999.9 In the same note, they agreed to an interest rate of 21.75 percent per
annum, payable by monthly amortizations.

On December 21, 1998, respondent sent petitioners a demand letter, worded as follows:

"Gentlemen:

"With reference to your loan with principal outstanding balance of [P103,909,710.82], it appears
from the records of United Coconut Planters Bank that you failed to pay interest amortizations
amounting to [P14,959,525.10] on the Promissory Note on its due date, 30 May 1998.

"x x x x x x x x x

"Accordingly, formal demand is hereby made upon you to pay your outstanding obligations in
the total amount of P14,959,525.10, which includes unpaid interest and penalties as of 21
December 1998 due on the promissory note, eight (8) days from date hereof."10

Respondent decided to invoke the acceleration provision in their Credit Agreement. Accordingly,
through counsel, it relayed its move to petitioners on January 25, 1999 in a letter, which we
quote:

"Gentlemen:

"x x x x x x x x x

"It appears from the record of [UCPB] that you failed to pay the monthly interest due on said
obligation since May 30, 1998 as well as the penalty charges due thereon. Despite repeated
demands, you refused and continue to refuse to pay the same. Under the Credit
Agreements/Letter Agreements you executed, failure to pay when due any installments of the
loan or interest or any sum due thereunder, is an event of default.

"Consequently, we hereby inform you that our client has declared your principal obligation in the
amount of [P103,909,710.82], interest and sums payable under the Credit Agreement/Letter
Agreement/Promissory Note to be immediately due and payable.

"Accordingly, formal demand is hereby made upon you to please pay within five (5) days from
date hereof or up to January 29, 1999 the principal amount of [P103,909,710.82], with the
interest, penalty and other charges due thereon, which as of January 25, 1999 amounts to
[P17,351,478.55]."11

Respondent sent another letter of demand on March 4, 1999. It contained a final demand on
petitioners "to settle in full [petitioners’] said past due obligation to [UCPB] within five (5) days
from [petitioners’] receipt of [the] letter."12
In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the
accrued interests.13 Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of
petitioners’ mortgaged properties.

When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they
requested UCPB to give them a period of sixty (60) days to update their accrued interest charges;
and to restructure or, in the alternative, to negotiate for a takeout of their account.14

On May 25, 1999, the Bank denied petitioners’ request in these words:

"This is to reply to your letter dated May 20, 1999, which confirms the request you made the
previous day when you paid us a visit.

"As earlier advised, your account has been referred to external counsel for appropriate legal
action. Demand has also been made for the full settlement of your account.

"We regret that the Bank is unable to grant your request unless a definite offer is made for
settlement."15

In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a
Complaint16 (docketed as Civil Case No. 99-1061) for "Damages, Annulment of Interest, Penalty
Increase and Accounting with Prayer for Temporary Restraining Order/Preliminary Injunction."
All subsequent proceedings in the trial court and in the CA involved only the propriety of issuing
a TRO and a writ of preliminary injunction.

Judge Josefina G. Salonga,17 then executive judge of the Regional Trial Court (RTC) of Makati
City, denied the Urgent Ex-parte Motion for Immediate Issuance of a Temporary Restraining
Order (TRO), filed by petitioners. Judge Salonga denied their motion on the ground that no great
or irreparable injury would be inflicted on them if the parties would first be heard.18 Unsatisfied,
petitioners filed an Ex-Parte Motion for Reconsideration, by reason of which the case was
eventually raffled to Branch 148, presided by Judge Oscar B. Pimentel.19

After due hearing, Judge Pimentel issued an Order dated May 31, 1999, granting a 20-day TRO
on the scheduled foreclosure of the Antipolo properties, on the ground that the Notice of
Foreclosure had indicated an inexistent auction venue.20 To resolve that issue, respondent filed a
Manifestation21 that it would withdraw all its notices relative to the foreclosure of the mortgaged
properties, and that it would re-post or re-publish a new set of notices. Accordingly, in an Order
dated September 6, 1999,22 Judge Pimentel denied petitioners’ application for a TRO for having
been rendered moot by respondent’s Manifestation.23

Subsequently, respondent filed new applications for foreclosure in the cities where the
mortgaged properties were located. Undaunted, petitioners filed another Motion for the Issuance
of a TRO/Injunction and a Supplementary Motion for the Issuance of TRO/Injunction with
Motion to Clarify Order of September 6, 1999.24
On October 27, 1999, Judge Pimentel issued an Order25 granting a 20-day TRO in favor of
petitioners. After several hearings, he issued his November 26, 1999 Order,26 granting their
prayer for a writ of preliminary injunction on the foreclosures, but only for a period of twenty
(20) days. The Order states:

"Admitted by defendant witness is the fact that in all the notices of foreclosure sale of the
properties of the plaintiffs x x x it is stated in each notice that the property will be sold at public
auction to satisfy the mortgage indebtedness of plaintiffs which as of August 31, 1999 amounts
to P131,854,773.98.

"x x x x x x x x x

"As the court sees it, this is the problem that should be addressed by the defendant in this case
and in the meantime, the notice of foreclosure sale should be held in abeyance until such time as
these matters are clarified and cleared by the defendants x x x Should the defendant be able to
remedy the situation this court will have no more alternative but to allow the defendant to
proceed to its intended action.

"x x x x x x x x x

"WHEREFORE, premises considered, and finding compelling reason at this point in time to
grant the application for preliminary injunction, the same is hereby granted upon posting of a
preliminary injunction bond in the amount of P3,500,000.00 duly approved by the court, let a
writ of preliminary injunction be issued."27

The corresponding Writ of Preliminary Injunction28 was issued on November 29, 1999.

Respondent moved for reconsideration. On the other hand, petitioners filed a Motion to Clarify
Order of November 26, 1999. Conceding that the November 26 Order had granted an injunction
during the pendency of the case, respondent contended that the injunctive writ merely restrained
it for a period of 20 (twenty) days.

On December 29, 2000, Judge Pimentel issued an Order29 granting respondent’s Motion for
Reconsideration and clarifying his November 26, 1999 Order in this manner:

"There may have been an error in the Writ of Preliminary Injunction issued dated November 29,
1999 as the same [appeared to be actually] an extension of the TRO issued by this Court dated 27
October 1999 for another 20 days period. Plaintiff’s seeks to enjoin defendants for an indefinite
period pending trial of the case.

"Be that as it may, the Court actually did not have any intention of restraining the defendants
from foreclosing plaintiff[s’] property for an indefinite period and during the entire proceeding
of the case x x x.

"x x x x x x x x x
"What the [c]ourt wanted the defendants to do was to merely modify the notice of [the] auction
sale in order that the amount of P131,854,773.98 x x x would not appear to be the value of each
property being sold on auction. x x x.30

"WHEREFORE, premises considered and after finding merit on the arguments raised by herein
defendants to be impressed with merit, and having stated in the Order dated 26 November 1999
that no other alternative recourse is available than to allow the defendants to proceed with their
intended action, the Court hereby rules:

"1.] To give due course to defendant[‘]s motion for reconsideration, as the same is hereby
GRANTED, however, with reservation that this Order shall take effect upon after its[]
finality[.]"31

Consequently, respondent proceeded with the foreclosure sale of some of the mortgaged
properties. On the other hand, petitioners filed an "[O]mnibus [M]otion [for Reconsideration]
and to [S]pecify the [A]pplication of the P92 [M]illion [R]ealized from the [F]oreclosure [S]ale x
x x."32 Before this Omnibus Motion could be resolved, Judge Pimentel inhibited himself from
hearing the case.33

The case was then re-raffled to Branch 58 of the RTC of Makati City, presided by Judge
Escolastico U. Cruz.34 The proceedings before him were, however, all nullified by the Supreme
Court in its En Banc Resolution dated September 18, 2001.35 He was eventually dismissed from
service.36

The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas. On March 15,
2002, Judge Dumayas granted petitioners’ Omnibus Motion for Reconsideration and
Specification of the Foreclosure Proceeds, as follows:

"WHEREFORE, premises considered, the Motion to Reconsider the Order dated December 29,
2000 is hereby granted and the Order of November 26, 1999 granting the preliminary injunction
is reinstated subject however to the condition that all properties of plaintiffs which were
extrajudicially foreclosed though public bidding are subject to an accounting. [A]nd for this
purpose defendant bank is hereby given fifteen (15) days from notice hereof to render an
accounting on the proceeds realized from the foreclosure of plaintiffs’ mortgaged properties
located in Antipolo, Makati, Muntinlupa and Las Piñas."37

The aggrieved respondent filed before the Court of Appeals a Petition for Certiorari, seeking the
nullification of the RTC Order dated March 15, 2002, on the ground that it was issued with grave
abuse of discretion.38

The Special Fifteenth Division, speaking through Justice Rebecca de Guia-Salvador, affirmed
the ruling of Judge Dumayas. It held that petitioners had a clear right to an injunction, based on
the fact that respondent had kept them in the dark as to how and why their principal obligation
had ballooned to almost P132 million. The CA held that respondent’s refusal to give them a
detailed accounting had prevented the determination of the maturity of the obligation and
precluded the possibility of a foreclosure of the mortgaged properties. Moreover, their payment
of P10 million had the effect of updating, and thereby averting the maturity of, the outstanding
obligation.39

Respondent filed a Motion for Reconsideration, which was granted by a Special Division of Five
of the Former Special Fifteenth Division.

Ruling of the Court of Appeals

Citing China Banking Corporation v. Court of Appeals,40 the appellate court held in its Amended
Decision41 that the foreclosure proceedings should not be enjoined in the light of the clear failure
of petitioners to meet their obligations upon maturity.42

Also citing Zulueta v. Reyes,43 the CA, through Justice Jose Catral Mendoza, went on to say that
a pending question on accounting did not warrant an injunction on the foreclosure.

Parenthetically, the CA added that petitioners were not without recourse or protection. Further, it
noted their pending action for annulment of interest, damages and accounting. It likewise said
that they could protect themselves by causing the annotation of lis pendens on the titles of the
mortgaged or foreclosed properties.

In his Separate Concurring Opinion,44 Justice Magdangal M. de Leon added that a prior
accounting was not essential to extrajudicial foreclosure. He cited Abaca Corporation v. Garcia,45
which had ruled that Act No. 3135 did not require mortgaged properties to be sold by lot or by
only as much as would cover just the obligation. Thus, he concluded that a request for
accounting -- for the purpose of determining whether the proceeds of the auction would suffice
to cover the indebtedness -- would not justify an injunction on the foreclosure.

Petitioners filed a Motion for Reconsideration dated May 31, 2004, which the appellate court
denied.46

Hence, this Petition.47

Issues

Petitioners raise the following issues for our consideration:

p align="center">"I

"Whether or not the Honorable Court of Appeals denied the petitioners of due process.

"II

"Whether or not the Honorable Court of Appeals supported its Amended Decision by invoking
jurisprudence not applicable and completely identical with the instant case.

"III
"Whether or not the Honorable Court of Appeals failed to establish its finding that RTC Judge
Winlove Dumayas has acted with grave abuse of discretion."48

The resolution of this case hinges on two issues: 1) whether petitioners are in default; and 2)
whether there is basis for preliminarily enjoining the extrajudicial foreclosure. The other issues
raised will be dealt with in the resolution of these two main questions.

The Court’s Ruling

The Petition has no merit.

First Issue:

Default

The resolution of the present controversy necessarily begins with a determination of respondent’s
right to foreclose the mortgaged properties extrajudicially.

It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment
of their obligation. In fact, the parties stipulated in their credit agreements, mortgage contracts
and promissory notes that respondent was authorized to foreclose on the mortgages, in case of a
default by petitioners. That this authority was granted is not disputed.

Mora solvendi, or debtor’s default, is defined as a delay49 in the fulfillment of an obligation, by

reason of a cause imputable to the debtor.50 There are three requisites necessary for a finding of
default. First, the obligation is demandable and liquidated; second, the debtor delays
performance; third, the creditor judicially or extrajudicially requires the debtor’s performance.51

Mortgagors’ Default of Monthly Interest Amortizations

In the present case, the Promissory Note executed on March 29, 1998, expressly states that
petitioners had an obligation to pay monthly interest on the principal obligation. From
respondent’s demand letter,52 it is clear and undisputed by petitioners that they failed to meet
those monthly payments since May 30, 1998. Their nonpayment is defined as an "event of
default" in the parties’ Credit Agreement, which we quote:

"Section 8.01. Events of Default. Each of the following events and occurrences shall constitute
an Event of Default of this AGREEMENT:

"1. The CLIENT shall fail to pay, when due, any availment of the Accommodation or interest, or
any other sum due thereunder in accordance with the terms thereof;1avvphil.net

"x x x x x x x x x"

"Section 8.02. Consequences of Default. (a) If an Event of Default shall occur and be continuing,
the Bank may:
"1. By written notice to the CLIENT, declare all outstanding availments of the Accommodation
together with accrued interest and any other sum payable hereunder to be immediately due and
payable without presentment, demand or notice of any kind, other than the notice specifically
required by this Section, all of which are expressly waived by the CLIENT[.]"53

Considering that the contract is the law between the parties,54 respondent is justified in invoking
the acceleration clause declaring the entire obligation immediately due and payable.55 That clause
obliged petitioners to pay the entire loan on January 29, 1999, the date fixed by respondent.56

Petitioners’ failure to pay on that date set into effect Article IX of the Real Estate Mortgage,57
worded thus:

"If, at any time, an event of default as defined in the credit agreements, promissory notes and
other related loan documents referred to in paragraph 5 of ARTICLE I hereof (sic), or the
MORTGAGOR and/or DEBTOR shall fail or refuse to pay the SECURED OBLIGATIONS, or
any of the amortization of such indebtedness when due, or to comply any (sic) of the conditions
and stipulations herein agreed, x x x then all the obligations of the MORTGAGOR secured by
this MORTGAGE and all the amortizations thereof shall immediately become due, payable and
defaulted and the MORTGAGEE may immediately foreclose this MORTGAGE judicially in
accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as
amended, and Presidential Decree No. 385. For the purpose of extrajudicial foreclosure, the
MORTGAGOR hereby appoints the MORTGAGEE his/her/its attorney-in-fact to sell the
property mortgaged under Act No. 3135, as amended, to sign all documents and perform any act
requisite and necessary to accomplish said purpose and to appoint its substitutes as such
attorney-in-fact with the same powers as above specified. x x x[.]"58

The foregoing discussion satisfactorily shows that UCPB had every right to apply for
extrajudicial foreclosure on the basis of petitioners’ undisputed and continuing default.

Petitioners’ Debt Considered Liquidated Despite the Alleged

Lack of Accounting

Petitioners do not even attempt to deny the aforementioned matters. They assert, though, that
they have a right to a detailed accounting before they can be declared in default. As regards the
three requisites of default, they say that the first requisite -- liquidated debt -- is absent.
Continuing with foreclosure on the basis of an unliquidated obligation allegedly violates their
right to due process. They also maintain that their partial payment of P10 million averted the
maturity of their obligation.59

On the other hand, respondent asserts that questions regarding the running balance of the
obligation of petitioners are not valid reasons for restraining the foreclosure. Nevertheless, it
maintains that it has furnished them a detailed monthly statement of account.
A debt is liquidated when the amount is known or is determinable by inspection of the terms and
conditions of the relevant promissory notes and related documentation.60 Failure to furnish a
debtor a detailed statement of account does not ipso facto result in an unliquidated obligation.

Petitioners executed a Promissory Note, in which they stated that their principal obligation was
in the amount of P103,909,710.82, subject to an interest rate of 21.75 percent per annum.61
Pursuant to the parties’ Credit Agreement, petitioners likewise know that any delay in the
payment of the principal obligation will subject them to a penalty charge of one percent per
month, computed from the due date until the obligation is paid in full.62

It is in fact clear from the agreement of the parties that when the payment is accelerated due to an
event of default, the penalty charge shall be based on the total principal amount outstanding, to
be computed from the date of acceleration until the obligation is paid in full.63 Their Credit
Agreement even provides for the application of payments.64 It appears from the agreements that
the amount of total obligation is known or, at the very least, determinable.

Moreover, when they made their partial payment, petitioners did not question the principal,
interest or penalties demanded from them. They only sought additional time to update their
interest payments or to negotiate a possible restructuring of their account.65 Hence, there is no
basis for their allegation that a statement of account was necessary for them to know their
obligation. We cannot impair respondent’s right to foreclose the properties on the basis of their
unsubstantiated allegation of a violation of due process.

In Spouses Estares v. CA,66 we did not find any justification to grant a preliminary injunction,
even when the mortgagors were disputing the amount being sought from them. We held in that
case that "[u]pon the nonpayment of the loan, which was secured by the mortgage, the
mortgaged property is properly subject to a foreclosure sale."67

Compared with Estares, the denial of injunctive relief in this case is even more imperative,
because the present petitioners do not even assail the amounts due from them. Neither do they
contend that a detailed accounting would show that they are not in default. A pending question
regarding the due amount was not a sufficient reason to enjoin the foreclosure in Estares. Hence,
with more reason should injunction be denied in the instant case, in which there is no dispute as
to the outstanding obligation of petitioners.

At any rate, whether respondent furnished them a detailed statement of account is a question of
fact that this Court need not and will not resolve in this instance. As held in Zulueta v. Reyes,68
in which there was no genuine controversy as to the amounts due and demandable, the
foreclosure should not be restrained by the unnecessary question of accounting.

Maturity of the Loan Not Averted by Partial Compliance with Respondent’s Demand

Petitioners allege that their partial payment of P10 million on March 25, 1999, had the effect of
forestalling the maturity of the loan;69 hence the foreclosure proceedings are premature. 70 We
disagree.
To be sure, their partial payment did not extinguish the obligation. The Civil Code states that a
debt is not paid "unless the thing x x x in which the obligation consists has been completely
delivered x x x."71 Besides, a late partial payment could not have possibly forestalled a long-
expired maturity date.

The only possible legal relevance of the partial payment was to evidence the mortgagee’s
amenability to granting the mortgagor a grace period. Because the partial payment would
constitute a waiver of the mortgagee’s vested right to foreclose, the grant of a grace period
cannot be casually assumed;72 the bank’s agreement must be clearly shown. Without a doubt, no
express agreement was entered into by the parties. Petitioners only assumed that their partial
payment had satisfied respondent’s demand and obtained for them more time to update their
account.73

Petitioners are mistaken. When creditors receive partial payment, they are not ipso facto deemed
to have abandoned their prior demand for full payment. Article 1235 of the Civil Code provides:

"When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with."

Thus, to imply that creditors accept partial payment as complete performance of their obligation,
their acceptance must be made under circumstances that indicate their intention to consider the
performance complete and to renounce their claim arising from the defect.74

There are no circumstances that would indicate a renunciation of the right of respondent to
foreclose the mortgaged properties extrajudicially, on the basis of petitioners’ continuing default.
On the contrary, it asserted its right by filing an application for extrajudicial foreclosure after
receiving the partial payment. Clearly, it did not intend to give petitioners more time to meet
their obligation.

Parenthetically, respondent cannot be reproved for accepting their partial payment. While Article
1248 of the Civil Code states that creditors cannot be compelled to accept partial payments, it
does not prohibit them from accepting such payments.

Second Issue:

Enjoining the Extrajudicial Foreclosure

A writ of preliminary injunction is a provisional remedy that may be resorted to by litigants, only
to protect or preserve their rights or interests during the pendency of the principal action. To
authorize a temporary injunction, the plaintiff must show, at least prima facie, a right to the final
relief.75 Moreover, it must show that the invasion of the right sought to be protected is material
and substantial, and that there is an urgent and paramount necessity for the writ to prevent
serious damage.76
In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of
discretion. Injunction is not designed to protect contingent or future rights. It is not proper when
the complainant’s right is doubtful or disputed.77

As a general rule, courts should avoid issuing this writ, which in effect disposes of the main case
without trial.78 In Manila International Airport Authority v. CA,79 we urged courts to exercise
caution in issuing the writ, as follows:

"x x x. We remind trial courts that while generally the grant of a writ of preliminary injunction
rests on the sound discretion of the court taking cognizance of the case, extreme caution must be
observed in the exercise of such discretion. The discretion of the court a quo to grant an
injunctive writ must be exercised based on the grounds and in the manner provided by law. Thus,
the Court declared in Garcia v. Burgos:

‘It has been consistently held that there is no power the exercise of which is more delicate, which
requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case,
than the issuance of an injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an adequate or commensurate
remedy in damages.

‘Every court should remember that an injunction is a limitation upon the freedom of action of the
defendant and should not be granted lightly or precipitately. It should be granted only when the
court is fully satisfied that the law permits it and the emergency demands it.’"80 (Citations
omitted)

Petitioners do not have any clear right to be protected. As shown in our earlier findings, they
failed to substantiate their allegations that their right to due process had been violated and the
maturity of their obligation forestalled. Since they indisputably failed to meet their obligations in
spite of repeated demands, we hold that there is no legal justification to enjoin respondent from
enforcing its undeniable right to foreclose the mortgaged properties.

In any case, petitioners will not be deprived outrightly of their property. Pursuant to Section 47
of the General Banking Law of 2000,81 mortgagors who have judicially or extrajudicially sold
their real property for the full or partial payment of their obligation have the right to redeem the
property within one year after the sale. They can redeem their real estate by paying the amount
due, with interest rate specified, under the mortgage deed; as well as all the costs and expenses
incurred by the bank.82

Moreover, in extrajudicial foreclosures, petitioners have the right to receive any surplus in the
selling price. This right was recognized in Sulit v. CA,83 in which the Court held that "if the
mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will
not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such
surplus."84
Petitioners failed to demonstrate the prejudice they would probably suffer by reason of the
foreclosure. Also, it is clear that they would be adequately protected by law. Hence, we find no
legal basis to reverse the assailed Amended Decision of the CA dated May 4, 2004.

WHEREFORE, the Petition is DENIED and the assailed Amended Decision and Resolution
AFFIRMED. Costs against petitioners.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Chief Justice
Chairman, First Division

WE CONCUR:

CONSUELO YNARES- MA. ALICIA AUSTRIA-

SANTIAGO MARTINEZ
Associate Justice Asscociate Justice

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Asscociate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

* The Court of Appeals is impleaded as respondent in the Petition for Review, but is
presently excluded pursuant to Sec. 4(a) of Rule 45 of the Rules of Court.
1
Rollo, pp. 8-33.
2
Id. at 35-51. Former Special Fifteenth Division (Special Division of Five). Penned by
Justice Jose Catral Mendoza, with the concurrence of Justices Marina L. Buzon (Division
chairperson) and Fernanda L. Peralta (member). Justice Magdangal M. de Leon
(member) concurred in a Separate Opinion, while Justice Rebecca de Guia-Salvador
(member) dissented.
3
Id. at 53-54.
4
Assailed Amended CA Decision, p. 7; rollo, p. 41.
5
Rollo, pp. 263-268.
6
Id. at 266.
7
Id. at 267.
8
Amendment of Mortgage dated December 19, 1996; id. at 285.
9
Promissory Note executed on March 29, 1998; id. at 290.
10
Letter dated December 21, 1998; id. at 292.
11
Letter dated January 25, 1999; id. at 293-294.
12
Letter dated March 4, 1999; id. at 295.
13
See letter dated May 20, 1999; id. at 296.
14
Id.
15
Letter dated May 25, 1999; id. at 297.
16
Rollo, pp. 82-90.
17
Now CA associate justice.
18
CA Decision dated July 18, 2003, pp. 2-3; rollo, pp. 57-58.
19
Id. at 3; id. at 58.
20
Id.
21
Rollo, pp. 246-248.
22
Id. at 91-95.
23
Id.
24
CA Decision dated July 18, 2003, p. 5; rollo, p. 60.
25
Rollo, pp. 96-100.
26
Id. at 101-104.
27
Id. at 103-104.
28
Id. at 253.
29
Id. at 105-117.
30
Order dated December 29, 2000, p. 8; rollo, p. 112.
31
Id. at 13; id. at 117.
32
CA Decision dated July 18, 2003, p. 11; rollo, p. 66.
33
Id. at 12; id. at 67.
34
Id.
35
Dr. Alday v. Judge Cruz, Jr., 426 Phil. 385, February 4, 2002.
36
Id.
37
CA Decision dated July 18, 2003, p. 13; rollo, p. 68.
38
Id. at 14; id. at 69.
39
Id. at 17; id. at 72.
40
333 Phil. 158, December 5, 1996.
41
Justice de Guia-Salvador dissented and stood by her original ruling.
42
Assailed Amended CA Decision, p. 5; rollo, p. 39.
43
126 Phil. 625, May 29, 1967.
44
Rollo, pp. 43-47.
45
272 SCRA 475, May 14, 1997.
46
Rollo, pp. 48-51.
47
This case was deemed submitted for decision on October 24, 2005, upon the Court’s
receipt of respondent’s Memorandum, signed by Attys. Hector L. Hofileña and Miguelito
V. Ocampo of Ocampo & Ocampo. Petitioners’ Memorandum, signed by Atty. Alex M.
Ganitano of Lopez & Rempillo, was received by this Court on October 17, 2005.
48
Petitioners’ Memorandum, p. 16; rollo, p. 204. Original in uppercase.
49
Civil Code, Art. 1169. Those obliged to deliver or to do something incur delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
50
A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines,
Vol. IV, 101 (1987).
51
Id. at 102.
52
Rollo, p. 292.
53
Credit Agreement dated September 19, 1995, Art. VIII; id. at 266-267.
54
Civil Code, Art. 1159.
55
Rollo, pp. 293-294.
56
Id. at 294.
57
Id. at 270.
58
Id. Italics supplied.
59
Petitioners’ Memorandum, pp. 16-19; rollo, pp. 204-207.
60
Pacific Mills, Inc., v. CA, 206 SCRA 317, February 17, 1992 (citing Bareng v. CA, 107
Phil. 641, April 25, 1960; Insurance Company of North America v. Republic, 127 Phil.
635, August 30, 1967).
61
Rollo, p. 290.
62
Credit Agreement dated September 19, 1995, Art. II, Sec. 2.04; id. at 263.
63
Id.
64
Id. at 264.
65
Id. at 296.
66
459 SCRA 604, June 8, 2005.
 67
Id. at 619, per Austria-Martinez, J.
68
Supra note 43.
69
Petitioners’ Memorandum, pp. 16-17; rollo, pp. 204-205.
70
Id. at 19; id. at 207.
71
Civil Code, Art. 1233.
72
Pacific Mills, Inc., v. CA, supra note 60; Andres v. Crown Life Insurance Company,
102 Phil. 919, January 28, 1958.
73
Petitioner Selegna’s May 20, 1999 letter to UCPB expresses its assumption: "Since we
did not receive any other advice from you, we have assumed thereafter, that you will give
us time to update our accounts." Rollo, p. 296.
74
A. Tolentino, supra note 50 at 278.
75
Ortigas & Company, Limited Partnership v. Ruiz, 148 SCRA 326, March 9, 1987.
76
Sps. Arcega v. CA, 341 Phil. 166, July 7, 1997.
77
Id.
78
F. Regalado, Remedial Law Compendium, vol. I, 639 (7th revised ed., 1999).
79
445 Phil. 369, February 14, 2003.
80
Id. at 383-384, per Carpio, J.
81
Republic Act No. 8791, approved on May 23, 2000.
82
J. Feria and M.C. Noche, Civil Procedure Annotated, Vol. II, 577 (2001).
83
335 Phil. 914, February 17, 1997.
84
Id. at 931, per Regalado, J.

The Lawphil Project - Arellano Law Foundation

 G.R. No. 174269               May 8, 2009

2.POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.

DECISION

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had arrived late in the city, they failed to engage in any
sight-seeing. Instead, it was agreed upon that they would start early the next day to see the entire city
before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster should
end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group was
ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond polishing
that lasted for around ten minutes.1 Afterwards, the group was led to the store’s showroom to allow
them to select items for purchase. Mrs. Pantaleon had already planned to purchase even before the tour
began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation that
she decided to buy.2 Mrs. Pantaleon also selected for purchase a pendant and a chain,3 all of which
totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour
group was slated to depart from the store. The sales clerk took the card’s imprint, and asked Pantaleon
to sign the charge slip. The charge purchase was then referred electronically to respondent’s
Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
His son, who had already boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was waiting for them. As it was already
9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon asked
the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more minutes.
After 15 minutes, the store manager informed Pantaleon that respondent had demanded bank
references. Pantaleon supplied the names of his depositary banks, then instructed his daughter to return
to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the items
even without respondent’s approval of the purchase. The spouses Pantaleon returned to the bus. It is
alleged that their offers of apology were met by their tourmates with stony silence.4 The tour group’s
visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to
be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to
London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his
nerves.

It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent’s Manila office at 9:33
a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was transmitted to
respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner had already left Coster,
and 78 minutes from the time the purchases were electronically transmitted by the jewelry store to
respondent’s Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use his
AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money instead
from a friend, after more than 30 minutes had transpired without the purchase having been approved.
On 3 November 1991, Pantaleon used the card to purchase children’s shoes worth $87.00 at a store in
Boston, and it took 20 minutes before this transaction was approved by respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and his
family thereby suffered" for respondent’s refusal to provide credit authorization for the aforementioned
purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating among others that the
delay in authorizing the purchase from Coster was attributable to the circumstance that the charged
purchase of US $13,826.00 "was out of the usual charge purchase pattern established."10 Since
respondent refused to accede to Pantaleon’s demand for an apology, the aggrieved cardholder
instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch 145.11
Pantaleon prayed that he be awarded ₱2,000,000.00, as moral damages; ₱500,000.00, as exemplary
damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation expenses.12

On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding him
₱500,000.00 as moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s fees,
and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon moved
for partial reconsideration, praying that the trial court award the increased amount of moral and
exemplary damages he had prayed for.14 The RTC denied Pantaleon’s motion for partial
reconsideration, and thereafter gave due course to respondent’s Notice of Appeal.15

On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages in
favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this
petition.

The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming
that respondent had not been in breach of its obligations, it still remained liable for damages under
Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondent’s credit
authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of seconds."
Based on that standard, respondent had been in clear delay with respect to the three subject
transactions. As it appears, the Court of Appeals conceded that there had been delay on the part of
respondent in approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had
established for himself, as exemplified by the fact that at Coster, he was "making his very first single
charge purchase of US$13,826," and "the record of [petitioner]’s past spending with [respondent] at
the time does not favorably support his ability to pay for such purchase."17

On the premise that there was an obligation on the part of respondent "to approve or disapprove with
dispatch the charge purchase," petitioner argues that the failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of respondent in the performance of its obligation. For
its part, respondent characterizes the depiction by petitioner of its obligation to him as "to approve
purchases instantaneously or in a matter of seconds."

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that
the obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially
or extrajudicially requires the debtor’s performance.18 Petitioner asserts that the Court of Appeals had
wrongly applied the principle of mora accipiendi, which relates to delay on the part of the obligee in
accepting the performance of the obligation by the obligor. The requisites of mora accipiendi are: an
offer of performance by the debtor who has the required capacity; the offer must be to comply with the
prestation as it should be performed; and the creditor refuses the performance without just cause.19 The
error of the appellate court, argues petitioner, is in relying on the invocation by respondent of "just
cause" for the delay, since while just cause is determinative of mora accipiendi, it is not so with the
case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor,20 with the
card company as the creditor extending loans and credit to the card holder, who as debtor is obliged to
repay the creditor. This relationship already takes exception to the general rule that as between a bank
and its depositors, the bank is deemed as the debtor while the depositor is considered as the creditor.21
Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit card company
as the debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to act promptly
on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we were to still regard respondent as
the creditor in the context of this cause of action. If there was delay on the part of respondent in its
normal role as creditor to the cardholder, such delay would not have been in the acceptance of the
performance of the debtor’s obligation (i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had not yet
been perfected, as it remained pending the approval or consent of the respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize
that there was indeed an obligation on the part of respondent to act on petitioner’s purchases with
"timely dispatch," or for the purposes of this case, within a period significantly less than the one hour it
apparently took before the purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customer’s purchase request, whether such action
be favorable or unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a matter of
seconds.

Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in a
matter of seconds.

Defendant’s credit authorizer Edgardo Jaurique likewise testified:

Q. – You also testified that on normal occasions, the normal approval time for charges
would be 3 to 4 seconds?

A. – Yes, Ma’am.

Both parties likewise presented evidence that the processing and approval of plaintiff’s charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of
seconds".

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the
time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex shows that defendant’s Amsterdam
office received the request to approve plaintiff’s charge purchase at 9:20 a.m., Amsterdam time or
01:20, Phoenix time, and that the defendant relayed its approval to Coster at 10:38 a.m., Amsterdam
time, or 2:38, Phoenix time, or a total time lapse of one hour and [18] minutes. And even then, the
approval was conditional as it directed in computerese [sic] "Positive Identification of Card holder
necessary further charges require bank information due to high exposure. By Jack Manila."

The delay in the processing is apparent to be undue as shown from the frantic successive queries of
Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long
will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix.
Manila Amexco could be unaware of the need for speed in resolving the charge purchase referred to it,
yet it sat on its hand, unconcerned.

xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix time
from 01:20 when the charge purchased was referred for authorization, defendants own record shows:

01:22 – the authorization is referred to Manila Amexco

01:32 – Netherlands gives information that the identification of the cardmember has
been presented and he is buying jewelries worth US $13,826.

01:33 – Netherlands asks "How long will this take?"

02:08 – Netherlands is still asking "How long will this take?"

The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on
his use of the card abroad "with special handling."22 (Citations omitted)

xxx

Notwithstanding the popular notion that credit card purchases are approved "within seconds," there
really is no strict, legally determinative point of demarcation on how long must it take for a credit card
company to approve or disapprove a customer’s purchase, much less one specifically contracted upon
by the parties. Yet this is one of those instances when "you’d know it when you’d see it," and one hour
appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit
card purchase. It is long enough time for the customer to walk to a bank a kilometer away, withdraw
money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in
timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly, had
respondent disapproved petitioner’s purchase "within seconds" or within a timely manner, this
particular action would have never seen the light of day. Petitioner and his family would have returned
to the bus without delay – internally humiliated perhaps over the rejection of his card – yet spared the
shame of being held accountable by newly-made friends for making them miss the chance to tour the
city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and that
the cardholder is within his means to make such transaction. The culpable failure of respondent herein
is not the failure to timely approve petitioner’s purchase, but the more elemental failure to timely act
on the same, whether favorably or unfavorably. Even assuming that respondent’s credit authorizers did
not have sufficient basis on hand to make a judgment, we see no reason why respondent could not
have promptly informed petitioner the reason for the delay, and duly advised him that resolving the
same could take some time. In that way, petitioner would have had informed basis on whether or not to
pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the
wrath of foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad
faith, and the court should find that under the circumstances, such damages are due. The findings of
the trial court are ample in establishing the bad faith and unjustified neglect of respondent, attributable
in particular to the "dilly-dallying" of respondent’s Manila credit authorizer, Edgardo Jaurique.23 Wrote
the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the
amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with priority. Otherwise, the object
of credit or charge cards would be lost; it would be so inconvenient to use that buyers and consumers
would be better off carrying bundles of currency or traveller’s checks, which can be delivered and
accepted quickly. Such right was not accorded to plaintiff in the instances complained off for reasons
known only to defendant at that time. This, to the Court’s mind, amounts to a wanton and deliberate
refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract.24

xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it
alleges to have consumed more than one hour to simply go over plaintiff’s past credit history with
defendant, his payment record and his credit and bank references, when all such data are already stored
and readily available from its computer. This Court also takes note of the fact that there is nothing in
plaintiff’s billing history that would warrant the imprudent suspension of action by defendant in
processing the purchase. Defendant’s witness Jaurique admits:

Q. – But did you discover that he did not have any outstanding account?

A. – Nothing in arrears at that time.

Q. – You were well aware of this fact on this very date?

A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account.25

It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster – that there
was a deadline for the completion of that purchase by petitioner before any delay would redound to the
injury of his several traveling companions – gave rise to the moral shock, mental anguish, serious
anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by the
RTC.27 Those circumstances are fairly unusual, and should not give rise to a general entitlement for
damages under a more mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast
rule in determining what would be a fair and reasonable amount of moral damages, since each case
must be governed by its own peculiar facts, however, it must be commensurate to the loss or injury
suffered.28 Petitioner’s original prayer for ₱5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of ₱500,000.00 in moral damages more
seemly.1avvphi1

Likewise, we deem exemplary damages available under the circumstances, and the amount of
₱300,000.00 appropriate. There is similarly no cause though to disturb the determined award of
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in
Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent.

SO ORDERED.

DANTE O. TINGA
Associate Justice

<p

WE CONCUR:

CONCHITA CARPIO MORALES*

Associate Justice
Acting Chairperson

PRESBITERO J. VELASCO, JR. TERESITA LEONARDO DE CASTRO**

Associate Justice Associate Justice
ARTURO D. BRION
 Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

* Acting Chairperson.

** Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby
designated as additional member of the Second Division in lieu of Justice Leonardo A.
Quisumbing, who is on official leave
1
Id. at 747.
2
Id. at 748-749.
3
Id. at 750.
4
Id. at 20.
5
Id. at 20-21.
6
Id. at 21-22; citing defendant’s Exhibit "9-G," "9-H" and "9-I."
7
Id. at 330-331.
8
Id. at 331.
9
Id. at 332-333.
10
Id. at 332.
11
Docketed as Civil Case No. 92-1665. Id. at 335-340.
12
Id. at 339.
13
Penned by Judge Francisco Donato Villanueva; id. at 92-110.
14
Id. at 348-351.
15
Id. at 360-362.
16
Decision penned by Court of Appeals Associate Justice E.J. Asuncion, , concurred by
Associate Justices J. Mendoza and A. Tayag.
17
Rollo, p. 80.
18
See, e.g., Selegna Management v. UCPB, G.R. No. 165662, 3 May 2006.
19
A. Tolentino, IV Civil Code of the Philippines (1991 ed.), at 108.
20
See, e.g., Pacific Banking Corp. v. IAC, G.R. No. 72275, 13 November 1991, 203
SCRA 496; Molino v. Security Diners International Corp., G.R. No. 136780, 16 August
2001, 358 SCRA 363.
21
See, e.g., Citibank, N.A. v. Cabamongan, G.R. No. 146918, 2 May 2006, 488 SCRA
517.
22
Rollo, pp. 97-99.
23
Id. at 101.
24
Id. at 105-106.
25
Id. at 104.
26
"Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shocks, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered
if they are the proximate result of the defendant's wrongful act or omission."
27
See rollo, p. 107.
 28
Mercury Drug v. Baking, G.R. No. 156037, May 25, 2007, 523 SCRA 184, 191.

The Lawphil Project - Arellano Law Foundation

</p

G.R. No. 126083             July 12, 2006

3.ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S.

Cortes), petitioner,
vs.
HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT
CORPORATION, respondents.

DECISION

YNARES-SANTIAGO, J.:

The instant petition for review seeks the reversal of the June 13, 1996 Decision1 of the Court of
Appeals in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision2 of the Regional
Trial Court of Makati, Branch 138, which rescinded the contract of sale entered into by petitioner
Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation
(Corporation).

The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer,
and Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate
of Title (TCT) No. 31113-A, TCT No. 31913-A and TCT No. 32013-A, located at Baclaran,
Parañaque, Metro Manila. On various dates in 1983, the Corporation advanced to Cortes the total
sum of P1,213,000.00. Sometime in September 1983, the parties executed a deed of absolute sale
containing the following terms:3

1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO
MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine
Currency, less all advances paid by the Vendee to the Vendor in connection with the sale;

2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND

[P1,500,000.00] PESOS, Phil. Currency shall be payable within ONE (1) YEAR from
 date of execution of this instrument, payment of which shall be secured by an irrevocable
standby letter of credit to be issued by any reputable local banking institution acceptable
to the Vendor.

xxxx

4. All expense for the registration of this document with the Register of Deeds concerned,
including the transfer tax, shall be divided equally between the Vendor and the Vendee.
Payment of the capital gains shall be exclusively for the account of the Vendor; 5%
commission of Marcosa Sanchez to be deducted upon signing of sale.4

Said Deed was retained by Cortes for notarization.

On January 14, 1985, the Corporation filed the instant case5 for specific performance seeking to
compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale.
According to the Corporation, despite its readiness and ability to pay the purchase price, Cortes
refused delivery of the sought documents. It thus prayed for the award of damages, attorney's
fees and litigation expenses arising from Cortes' refusal to deliver the same documents.

In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate copy of the three
TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the
agreed down payment. He added that portion of the subject property is occupied by his lessee
who agreed to vacate the premises upon payment of disturbance fee. However, due to the
Corporation's failure to pay in full the sum of P2,200,000.00, he in turn failed to fully pay the
disturbance fee of the lessee who now refused to pay monthly rentals. He thus prayed that the
Corporation be ordered to pay the outstanding balance plus interest and in the alternative, to
cancel the sale and forfeit the P1,213,000.00 partial down payment, with damages in either case.

On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to
return to the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the
contract of the parties, the Corporation should have fully paid the amount of P2,200,000.00 upon
the execution of the contract. It stressed that such is the law between the parties because the
Corporation failed to present evidence that there was another agreement that modified the terms
of payment as stated in the contract. And, having failed to pay in full the amount of
P2,200,000.00 despite Cortes' delivery of the Deed of Absolute Sale and the TCTs, rescission of
the contract is proper.

In its motion for reconsideration, the Corporation contended that the trial court failed to consider
their agreement that it would pay the balance of the down payment when Cortes delivers the
TCTs. The motion was, however, denied by the trial court holding that the rescission should
stand because the Corporation did not act on the offer of Cortes' counsel to deliver the TCTs
upon payment of the balance of the down payment. Thus:

The Court finds no merit in the [Corporation's] Motion for Reconsideration. As stated in
the decision sought to be reconsidered, [Cortes'] counsel at the pre-trial of this case,
proposed that if [the Corporation] completes the down payment agreed upon and make
 arrangement for the payment of the balances of the purchase price, [Cortes] would sign
the Deed of Sale and turn over the certificate of title to the [Corporation]. [The
Corporation] did nothing to comply with its undertaking under the agreement between the
parties.

WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration

is hereby DENIED.

SO ORDERED.7

On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to
execute a Deed of Absolute Sale conveying the properties and to deliver the same to the
Corporation together with the TCTs, simultaneous with the Corporation's payment of the balance
of the purchase price of P2,487,000.00. It found that the parties agreed that the Corporation will
fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the
Corporation. The records show that no such delivery was made, hence, the Corporation was not
remiss in the performance of its obligation and therefore justified in not paying the balance. The
decretal portion thereof, provides:

WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED. The

decision appealed from is hereby REVERSED and SET ASIDE and a new judgment
rendered ordering [Cortes] to execute a deed of absolute sale conveying to [the
Corporation] the parcels of land subject of and described in the deed of absolute sale,
Exhibit D. Simultaneously with the execution of the deed of absolute sale and the
delivery of the corresponding owner's duplicate copies of TCT Nos. 31113-A, 31931-A
and 32013-A of the Registry of Deeds for the Province of Rizal, Metro Manila, District
IV, [the Corporation] shall pay [Cortes] the balance of the purchase price of
P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D,
under terms and conditions, "All expenses for the registration of this document (the deed
of sale) with the Register of Deeds concerned, including the transfer tax, shall be divided
equally between [Cortes and the Corporation]. Payment of the capital gains shall be
exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be
deducted upon signing of sale." There is no pronouncement as to costs.

SO ORDERED.8

Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be
reinstated.

There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the
parties. Reciprocal obligations are those which arise from the same cause, and which each party
is a debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed simultaneously, so that the performance of one
is conditioned upon the simultaneous fulfillment of the other.9

Article 1191 of the Civil Code, states:

 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.

xxxx

As to when said failure or delay in performance arise, Article 1169 of the same Code provides
that –

ART. 1169

xxxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis
supplied)

The issue therefore is whether there is delay in the performance of the parties' obligation that
would justify the rescission of the contract of sale. To resolve this issue, we must first determine
the true agreement of the parties.

The settled rule is that the decisive factor in evaluating an agreement is the intention of the
parties, as shown not necessarily by the terminology used in the contract but by their conduct,
words, actions and deeds prior to, during and immediately after executing the agreement. As
such, therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.10

In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay
in full the P2,200,000.00 down payment upon execution of the contract. However, as correctly
noted by the Court of Appeals, the transcript of stenographic notes reveal Cortes' admission that
he agreed that the Corporation's full payment of the sum of P2,200,000.00 would depend upon
his delivery of the TCTs of the three lots. In fact, his main defense in the Answer is that, he
performed what is incumbent upon him by delivering to the Corporation the TCTs and the
carbon duplicate of the Deed of Absolute Sale, but the latter refused to pay in full the down
payment.11 Pertinent portion of the transcript, reads:

[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has
not been paid in full the agreed down payment?

A Well, the broker told me that the down payment will be given if I surrender the titles.

Q Do you mean to say that the plaintiff agreed to pay in full the down payment of
P2,200,000.00 provided you surrender or entrust to the plaintiff the titles?

A Yes, sir.12
What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title
of the lots will be transferred in the name of the Corporation upon full payment of the
P2,200,000.00 down payment. Thus –

ATTY. ANTARAN

Q Of course, you have it transferred in the name of the plaintiff, the title?

A Upon full payment.

xxxx

ATTY. SARTE

Q When you said upon full payment, are you referring to the agreed down payment of
P2,200,000.00?

A Yes, sir.13

By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to
deliver the TCTs to the Corporation in order to effect said transfer. Hence, the phrase "execution
of this instrument" 14 as appearing in the Deed of Absolute Sale, and which event would give rise
to the Corporation's obligation to pay in full the amount of P2,200,000.00, can not be construed
as referring solely to the signing of the deed. The meaning of "execution" in the instant case is
not limited to the signing of a contract but includes as well the performance or implementation or
accomplishment of the parties' agreement.15 With the transfer of titles as the corresponding
reciprocal obligation of payment, Cortes' obligation is not only to affix his signature in the Deed,
but to set into motion the process that would facilitate the transfer of title of the lots, i.e., to have
the Deed notarized and to surrender the original copy thereof to the Corporation together with
the TCTs.

Having established the true agreement of the parties, the Court must now determine whether
Cortes delivered the TCTs and the original Deed to the Corporation. The Court of Appeals found
that Cortes never surrendered said documents to the Corporation. Cortes testified that he
delivered the same to Manny Sanchez, the son of the broker, and that Manny told him that her
mother, Marcosa Sanchez, delivered the same to the Corporation.

Q Do you have any proof to show that you have indeed surrendered these titles to the
plaintiff?

A Yes, sir.

Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt
with that receipt that you have mentioned?

A That is the receipt of the real estate broker when she received the titles.
Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is
that Manny Sanchez?

A That is the son of the broker.

xxxx

Q May we know the full name of the real estate broker?

A Marcosa Sanchez

xxxx

Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the
plaintiff?

A That is what [s]he told me. She gave them to the plaintiff.

x x x x.16

ATTY. ANTARAN

Q Are you really sure that the title is in the hands of the plaintiff?

xxxx

Q It is in the hands of the broker but there is no showing that it is in the hands of the
plaintiff?

A Yes, sir.

COURT

Q How do you know that it was delivered to the plaintiff by the son of the broker?

A The broker told me that she delivered the title to the plaintiff.

ATTY. ANTARAN

Q Did she not show you any receipt that she delivered to [Mr.] Dragon17 the title without
any receipt?

A I have not seen any receipt.

Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or
not. It is only upon the allegation of the broker?
 A Yes, sir.18

However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the TCTs. She
also denied knowledge of delivery thereof to her son, Manny, thus:

Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he
allegedly gave you the title to the property in question, is it true?

A I did not receive the title.

Q He likewise said that the title was delivered to your son, do you know about that?

A I do not know anything about that.19

What further strengthened the findings of the Court of Appeals that Cortes did not surrender the
subject documents was the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the
Deed of Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if
the said documents were already in the hands of the Corporation, there was no need for Cortes'
counsel to make such offer.

Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same
together with the TCTs, the trial court erred in concluding that he performed his part in the
contract of sale and that it is the Corporation alone that was remiss in the performance of its
obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation
therefore gave rise to a compensation morae or default on the part of both parties because neither
has completed their part in their reciprocal obligation.20 Cortes is yet to deliver the original copy
of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down
payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default,21
such that it is as if no one is guilty of delay.22

We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed
settlement at the pre-trial must be construed against the latter. Cortes argued that with his
counsel's offer to surrender the original Deed and the TCTs, the Corporation should have
consigned the balance of the down payment. This argument would have been correct if Cortes
actually surrendered the Deed and the TCTs to the Corporation. With such delivery, the
Corporation would have been placed in default if it chose not to pay in full the required down
payment. Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his
obligation, delay by the other begins. Since Cortes did not perform his part, the provision of the
contract requiring the Corporation to pay in full the down payment never acquired obligatory
force. Moreover, the Corporation could not be faulted for not automatically heeding to the offer
of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by
agreeing to the offer of Cortes' counsel. For another, the previous representation of Cortes that
the TCTs were already delivered to the Corporation when no such delivery was in fact made, is
enough reason for the Corporation to be more cautious in dealing with him.
The Court of Appeals therefore correctly ordered the parties to perform their respective
obligation in the contract of sale, i.e., for Cortes to, among others, deliver the necessary
documents to the Corporation and for the latter to pay in full, not only the down payment, but the
entire purchase price. And since the Corporation did not question the Court of Appeal's decision
and even prayed for its affirmance, its payment should rightfully consist not only of the amount
of P987,000.00, representing the balance of the P2,200,000.00 down payment, but the total
amount of P2,487,000.00, the remaining balance in the P3,700,000.00 purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of
Appeals in CA-G.R. CV No. 47856, is AFFIRMED.

SO ORDERED.

Panganiban, C.J., Austria-Martinez, Callejo, Sr., Chico-Nazario, J.J., concur.

Footnotes
1
Penned by Associate Justice Eduardo G. Montenegro and concurred in by Associate
Justices Emeterio C. Cui and Jose C. De La Rama; rollo, pp. 33-51.
2
Penned by Judge Fernando P. Agdamag; rollo, pp. 66-68.
3
Complaint, records, pp. 1-2.
4
Exhibit "D," records, p. 10.
5
Records, pp. 1-4.
6
Id. at 35-39.
7
Id. at 102.
8
Id. at 50-51. Petitioner filed a motion for reconsideration but was denied on August 30,
1996; rollo, p. 53.
9
Asuncion v. Evangelista, 375 Phil. 328, 356 (1999), citing Tolentino, Arturo,
Commentaries and Jurisprudence on the Civil Code of the Phil., Vol. IV, 1985 edition, p.
175.
10
Agas v. Sabico, G.R. No. 156447, April 26, 2005, 457 SCRA 263, 275.
11
Rollo, p. 62.
12
TSN, March 11, 1986, records, p. 324.
 13
Id. at 373.
14
"1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of
TWO MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS,
Philippine Currency, less all advances paid by the Vendee to the Vendor in connection
with the sale; (Emphasis supplied)
15
Eastern Assurance & Surety Corporation v. Intermediate Appellate Court, G.R. No.
69450, November 22, 1988, 179 SCRA 561, 567.
16
TSN, March 11, 1988, records, 321-324.
17
Mr. Renato Dragon is the President of respondent Corporation and the signatory to the
Deed of Sale. See records, p. 11.
18
TSN, March 11, 1988, records, pp. 367-369.
19
TSN, October 27, 1989, records, pp. 389-390.
20
Paras, Civil Code, Book IV, Fourteenth edition, p. 123.
21
Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p. 482.
22
Paras, supra.

The Lawphil Project - Arellano Law Foundation

 G.R. No. 108253 February 23, 1994

4.LYDIA L. GERALDEZ, petitioner,

vs.
HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.

Natividad T. Perez for petitioner.

Bito, Lozada, Ortega & Castillo for private respondent.

REGALADO, J.:

Our tourism industry is not only big business; it is a revenue support of the nation's economy. It has
become a matter of public interest as to call for its promotion and regulation on a cabinet level. We
have special laws and policies for visiting tourists, but such protective concern has not been equally
extended to Filipino tourists going abroad. Thus, with the limited judicial relief available within the
ambit of present laws, our tourists often prefer who fail to deliver on their undertakings. This case
illustrates the recourse of one such tourist who refused to forget.

An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez
against private respondent Kenstar Travel Corporation, docketed as Civil Case No. Q-90-4649 of the
Regional Trial Court of Quezon City, Branch 80.1 After the parties failed to arrive at an amicable
settlement, trial on the merits ensued.

Culling from the records thereof, we find that sometime in October, 1989, Petitioner came to know
about private respondent from numerous advertisements in newspapers of general circulation
regarding tours in Europe. She then contacted private respondent by phone and the latter sent its
representative, Alberto Vito Cruz, who gave her the brochure for the tour and later discussed its
highlights. The European tours offered were classified into four, and petitioner chose the
classification denominated as "VOLARE 3" covering a 22-day tour of Europe for $2,990.00. She
paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister,
Dolores.

Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out
that, contrary to what was stated in the brochure, there was no European tour manager for their group
of tourists, the hotels in which she and the group were bullited were not first-class, the UGC Leather
Factory which was specifically added as a highlight of the tour was not visited, and the Filipino lady
tour guide by private respondent was a first timer, that is, she was performing her duties and
responsibilities as such for the first time.2

In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the
issuance of a writ of preliminary attachment against private respondent on the ground that it
committed fraud in contracting an obligation, as contemplated in Section 1(d), Rule 57 of the Rules
of Court, to which no opposition by the latter appears on the record. This was granted by the court a
quo3 but the preliminary attachment was subsequently lifted upon the filing by private respondent of
a counterbond amounting to P990,000.00.4

During the pendency of said civil case for damages, petitioner also filed other complaints before the
Department of Tourism in DOT Case No. 90-121 and the Securities and Exchange Commission in
PED Case No. 90-3738,5 wherein, according to petitioner, herein private respondent was meted out a
fine of P10,000.00 by the Commission and P5,000.00 by the Department,6 which facts are not
disputed by private respondent in its comment on the present petition.

On July 9, 1991, the court a quo rendered its decision7 ordering private respondent to pay petitioner
P500.000.00 as moral damages, P200,000.00 as nominal damages, P300,000.00 as exemplary
damages, P50,000.00 as and for attorney's fees, and the costs of the suit.8 On appeal, respondent
court9 deleted the award for moral and exemplary damages, and reduced the awards for nominal
damages and attorney's fees to P30,000.00 and P10,000.00, respectively. 10

Hence, the instant petition from which, after sifting through the blades of contentions alternately
thrust and parried in the exchanges of the parties, the pivotal issue that emerges is whether or not
private respondent acted in bad faith or with gross negligence in discharging its obligations under the
contract.

Both the respondent court and the court a quo agree that private respondent failed to comply
faithfully with its commitments under the Volare 3 tour program, more particularly in not providing
the members of the tour group with a European tour manger whose duty, inter alia, was to explain
the points of interest of and familiarize the tour group with the places they would visit in Europe, and
in assigning instead a first timer Filipino tour guide, in the person of Rowena Zapanta, 11 to perform
that role which definitely requires experience and knowledge of such places. It is likewise undisputed
that while the group was able to pay a visit to the site of the UGC Leather Factory, they were brought
there at a very late hour such that the factory was already closed and they were unable to make
purchases at supposedly discounted prices. 12 As to the first-class hotels, however, while the court a
quo found that the hotels were not fist-class, respondent court believed otherwise, or that, at least,
there was substantial compliance with such a representation.
While clearly there was therefore a violation of the rights of petitioner under the aforementioned
circumstances, respondent court, contrary to the findings of the trial court, ruled that no malice or bad
faith could be imputed to private respondent, hence there is no justification for the award of moral
and exemplary damages. Furthermore, it held that while petitioner is entitled to nominal damages, the
amount awarded by the trial court was unconscionable since petitioner did not suffer actual or
substantial damage from the breach of contract, 13 hence its reduction of such award as hereinbefore
stated.

After thorough and painstaking scrutiny of the case records of both the trial and appellate courts, we
are satisfactorily convinced, and so hold, that private respondent did commit fraudulent
misrepresentations amounting to bad faith, to the prejudice of petitioner and the members of the tour
group.

By providing the Volare 3 tourist group, of which petitioner was a member, with an inexperienced
and a first timer tour escort, private respondent manifested its indifference to the convenience,
satisfaction and peace of mind of its clients during the trip, despite its express commitment to provide
such facilities under the Volare 3 Tour Program which had the grandiose slogan "Let your heart sing.
14

Evidently, an inexperienced tour escort, who admittedly had not even theretofore been to Europe, 15
cannot effectively acquaint the tourists with the interesting areas in the cities and places included in
the program, or to promptly render necessary assistance, especially where the latter are complete
strangers thereto, like witnesses Luz Sui Haw and her husband who went to Europe for their
honeymoon. 16

We agree with petitioner that the selection of Zapanta as the group's tour guide was deliberate and
conscious choice on the part of private respondent in order to afford her an on-the-job training and
equip her with the proper opportunities so as to later qualify her as an "experienced" tour guide and
eventually be an asset of respondent corporation. 17 Unfortunately, this resulted in a virtual project
experimentation with petitioner and the members of the tour as the unwitting participants.

We are, therefore, one with respondent court in faulting private respondent's choice of Zapanta as a
qualified tour guide for the Volare 3 tour package. It brooks no argument that to be true to its
undertakings, private respondent should have selected an experienced European tour guide, or it
could have allowed Zapanta to go merely as an understudy under the guidance, control and
supervision of an experienced and competent European or Filipino tour guide, 18 who could give her
the desired training.

Moreover, a tour guide is supposed to attend to the routinary needs of the tourists, not only when the
latter ask for assistance but at the moment such need becomes apparent. In other words, the tour
guide, especially by reason of her experience in previous tours, must be able to anticipate the possible
needs and problems of the tourists instead of waiting for them to bring it to her attention. While this
is stating the obvious, it is her duty to see to it that basic personal necessities such as soap, towels and
other daily amenities are provided by the hotels. It is also expected of her to see to it that the tourists
are provided with sanitary surroundings and to actively arrange for medical attention in case of
accidents, as what befell petitioner's sister and wherein the siblings had to practically fend for
themselves since, after merely calling for an ambulance, Zapanta left with the other tour participants.
19

Zapanta fell far short of the performance expected by the tour group, her testimony in open court
being revelatory of her inexperience even on the basic function of a tour guide, to wit:

Q Now, are you aware that there were times that the tourists
under the "Volare 3" were not provided with soap and towels?

A They did not tell me that but I was able to ask them later on
but then nobody is complaining. 20 . . . .

The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness
of Zapanta in attentively following the itinerary of the day. This incompetence must necessarily be
traced to the lack of due diligence on the part of private respondent in the selection of its employees.
It is true that among the thirty-two destinations, which included twenty-three cities and special visits
to nine tourist spots, this was the only place that was not visited. 21 It must be noted, however, that
the visit to the UGC Leather Factory was one of the highlights 22 of the Volare 3 program which
even had to be specifically inserted in the itinerary, hence it was incumbent upon the organizers of
the tour to take special efforts to ensure the same. Besides, petitioner did expect much from the visit
to that factory since it was represented by private respondent that quality leather goods could be
bought there at lower prices. 23

Private respondent represents Zapanta's act of making daily overseas calls to Manila as an exercise of
prudence and diligence on the latter's part as a tour guide. 24 It further claims that these calls were
needed so that it could monitor the progress of the tour and respond to any problem immediately. 25
We are not persuaded. The truth of the matter is that Zapanta, as an inexperienced trainee-on-the-job,
was required to make these calls to private respondent for the latter to gauge her ability in coping
with her first assignment and to provide instructions to her. 26

Clearly, therefore, private respondent's choice of Zapanta as the tour guide is a manifest disregard of
its specific assurances to the tour group, resulting in agitation and anxiety on their part, and which
deliberate omission is contrary to the elementary rules of good faith and fair play. It is extremely
doubtful if any group of Filipino tourists would knowingly agree to be used in effect as guinea pigs in
an employees' training program of a travel agency, to be conducted in unfamiliar European countries
with their diverse cultures, lifestyles and languages.

On the matter of the European tour manager, private respondent's advertisement in its tour contract
declares and represents as follows:

FILIPINO TOUR ESCORT!

He will accompany you throughout Europe. He speaks your language, shares

 your culture and feels your excitement.

He won't be alone because you will also be accompanied by a . . .

EUROPEAN TOUR MANAGER!

You get the best of both worlds. Having done so may tours in the past with
people like you, he knows your sentiments, too. So knowledgeable about
Europe, there is hardly a question he can't answer. 27

Private respondent contends that the term "European Tour Manager" does not refer to an individual
but to an organization, allegedly the Kuoni Travel of Switzerland which supposedly prepared the
itinerary for its "Volare Europe Tour," negotiated with all the hotels in Europe, selected tourist spots
and historical places to visit, and appointed experienced local tour guides for the tour group. 28

We regret this unseemly quibbling which perforce cannot be allowed to pass judicial muster.

A cursory reading of said advertisement will readily reveal the express representation that the
contemplated European tour manager is a natural person, and not a juridical one as private
respondent asserts. A corporate entity could not possibly accompany the members of the tour group
to places in Europe; neither can it answer questions from the tourists during the tour. Of course, it is
absurd that if a tourist would want to know how he could possibly go to the nearest store or
supermarket, he would still have to call Kuoni Travel of Switzerland.

Furthermore, both lower courts observed, and we uphold their observations, that indeed private
respondent had the obligation to provide the tour group not only with a European tour manger, but
also with local European tour guides. The latter, parenthetically, were likewise never made available.
29 Zapanta claims that she was accompanied by a European local tour guide in most of the major
cities in Europe. We entertain serious doubts on, and accordingly reject, this pretension for she could
not even remember the name of said European tour guide. 30 If such a guide really existed, it is
incredible why she could not even identify the former when she testified a year later, despite the
length of their sojourn and the duration of their association.

As to why the word "he" was used in the aforequoted advertisement, private respondent maintains
that the pronoun "he" also includes the word "it," as where it is used as a "nominative case form in
general statements (as in statutes) to include females, fictitious persons (as corporations)." 31 We are
constrained to reject this submission as patently strained and untenable. As already demonstrated, it
is incredible that the word "he" was used by private respondent to denote an artificial or corporate
being. From its advertisement, it is beyond cavil that the import of the word "he" is a natural and not
a juridical person. There is no need for further interpretation when the wordings are clear. The
meaning that will determine the legal effect of a contract is that which is arrived at by objective
standards; one is bound, not by what he subjectively intends, but by what he leads others reasonably
to think he intends. 32

In an obvious but hopeless attempt to arrive at a possible justification, private respondent further
contends that it explained the concept of a European tour manager to its clients at the pre-departure
briefing, which petitioner did not attend. 33 Significantly, however, private respondent failed to
present even one member of the tour group to substantiate its claim. It is a basic rule of evidence that
a party must prove his own affirmative allegations. 34 Besides, if it was really its intention to provide
a juridical European tour manager, it could not have kept on promising its tourists during the tour that
a European tour manager would come, 35 supposedly to join and assist them.

Veering to another line of defense, private respondent seeks sanctuary in the delimitation of its
responsibility as printed on the face of its brochure on the Volare 3 program, to wit:

RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR

TRAVEL AGENT, THEIR EMPLOYEES OR SUB-AGENTS SHALL BE
RESPONSIBLE ONLY FOR BOOKING AND MAKING ARRANGEMENTS
AS YOUR AGENTS. Kenstar Travel Corporation, your travel Agent, their
employees or sub-agents assume no responsibility or liability arising out of or
in connection with the services or lack of services, of any train, vessel, other
conveyance or station whatsoever in the performance of their duty to the
passengers or guests, neither will they be responsible for any act, error or
omission, or of any damages, injury, loss, accident, delay or irregularity
which may be occasioned by reason (of) or any defect in . . . lodging place or
any facilities . . . . (Emphasis by private respondent.) 36

While, generally, the terms of a contract result from the mutual formulation thereof by the parties
thereto, it is of common knowledge that there are certain contracts almost all the provisions of which
have been drafted by only one party, usually a corporation. Such contracts are called contracts of
adhesion, because the only participation of the party is the affixing of his signature or his "adhesion"
thereto. 37 In situations like these, when a party imposes upon another a ready-made form of
contract, 38 and the other is reduced to the alternative of taking it or leaving it, giving no room for
negotiation and depriving the latter of the opportunity to bargain on equal footing, a contract of
adhesion results. While it is true that an adhesion contract is not necessarily void, it must nevertheless
be construed strictly against the one who drafted the same. 39 This is especially true where the
stipulations are printed in fine letters and are hardly legible as is the case of the tour contract 40
involved in the present controversy.

Yet, even assuming arguendo that the contractual limitation aforequoted is enforceable, private
respondent still cannot be exculpated for the reason that responsibility arising from fraudulent acts, as
in the instant case, cannot be stipulated against by reason of public policy. Consequently, for the
foregoing reasons, private respondent cannot rely on its defense of "substantial compliance" with the
contract.

Private respondent submits likewise that the tour was satisfactory, considering that only petitioner,
out of eighteen participants in the Volare 3 Tour Program, actually complained. 41 We cannot accept
this argument. Section 28, Rule 130 of the Rules of Court declares that the rights of a party cannot be
prejudiced by an act, declaration, or omission of another, a statutory adaptation of the first branch of
the hornbook rule of res inter alios acta 42 which we do not have to belabor here.

Besides, it is a commonly known fact that there are tourists who, although the tour was far from what
the tour operator undertook under the contract, choose to remain silent and forego recourse to a suit
just to avoid the expenses, hassle and rancor of litigation, and not because the tour was in accord with
was promised. One does not relish adding to the bitter memory of a misadventure the unpleasantness
of another extended confrontation. Furthermore, contrary to private respondent's assertion, not only
petitioner but two other members of the tour group, Luz Sui Haw and Ercilla Ampil, confirmed
petitioner's complaints when they testified as witnesses for her as plaintiff in the court below. 43

Private respondent likewise committed a grave misrepresentation when it assured in its Volare 3 tour
package that the hotels it had chosen would provide the tourists complete amenities and were
conveniently located along the way for the daily itineraries. 44 It turned out that some of the hotels
were not sufficiently equipped with even the basic facilities and were at a distance from the cities
covered by the projected tour. Petitioner testified on her disgust with the conditions and locations of
the hotels, thus:

Q And that these bathrooms ha(ve) bath tub(s) and hot and cold
shower(s)?

A Not all, sir.

Q Did they also provide soap and towels?

A Not all, sir, some (had) no toilet paper. 45

Q Which one?

A The 2 stars, the 3 stars and some 4 stars (sic) hotels.

Q What I am saying . . .

A You are asking a question? I am answering you. 2 stars, 3

stars and some 4 stars (sic) hotels, no soap, toilet paper and
(the) bowl
stinks. . . .

xxx xxx xxx

Q And that except for the fact that some of these four star hotels
were outside the city they provided you with the comfort?

A Not all, sir.

Q Can you mention some which did not provide you that
 comfort?

A For example, if Ramada Hotel Venezia is in Quezon City, our

hotel is in Meycauayan. And if Florence or Ferenze is in
manila, our hotel is in Muntinlupa. 46

xxx xxx xxx

A One more hotel, sir, in Barcelona, Hotel Saint Jacques is also

outside the city. Suppose Barcelona is in Quezon City, our hotel
is in Marilao. We looked for this hotel inside the city of
Barcelona for three (3) hours. We wasted our time looking for
almost all the hotels and places where to eat. That is the kind of
tour that you have. 47

Luz Sui Haw, who availed of the Volare 3 tour package with her husband for their honeymoon,
shared the sentiments of petitioner and testified as follows:

Q . . . Will you kindly tell us why the hotels where you stayed
are not considered first class hotels?

A Because the hotels where we went, sir, (are) far from the City
and the materials used are not first class and at times there were
no towels and soap. And the two (2) hotels in Nevers and
Florence the conditions (are) very worse (sic). 48

Q Considering that you are honeymooners together with your

husband, what (were) your feelings when you found out that the
condition were not fulfilled by the defendant?

A I would like to be very honest. I got sick when I reached

Florence and half of my body got itch (sic). I think for a
honeymooner I would like to emphasize that we should enjoy
that day of our life and it seems my feet kept on itching because
of the condition of the hotel. And I was so dissatisfied because
the European Tour Manager was not around there (were)
beautiful promises. They kept on telling us that a European
Tour Manager will come over; until our Paris tour was ended
there was no European tour manager. 49

xxx xxx xxx

Q You will file an action against the defendant because there

was a disruption of your happiness, in your honeymoon, is that
correct?

A That is one of my causes of (sic) coming up here. Secondly, i

was very dissatisfied (with) the condition. Thirdly, that Volare
89 it says it will let your heart sing. That is not true. There was
no European tour (manager) and the highlights of the tour
(were) very poor. The hotels were worse (sic) hotels. 50

Q All the conditions of the hotels as you . . .

A Not all but as stated in the brochure that it is first class hotel.
The first class hotels state that all things are beautiful and it is
neat and clean with complete amenities and I encountered the
Luxembourg hotel which is quite very dilapidated because of
the flooring when you step on the side "kumikiring" and the
cabinets (are) antiques and as honeymooners we don't want to
be disturbed or seen. 51

xxx xxx xxx

Q None of these are first class hotels?

A Yes, sir.

Q So, for example Ramada Hotel Venezia which according to

Miss Geraldez is first class hotel is not first class hotel?

A Yes, sir.

Q You share the opinion of Miss Geraldez?

A Yes, sir.

Q The same is true with Grand Hotel Palatino which is not a

first class hotel?

A Yes, sir.

Q And Hotel Delta Florence is not first class hotel?

A That is how I got my itch, sir. Seven (7) days of itch.

Q How about Hotel Saint-Jacquez, Paris?

 A It is far from the city. It is not first class hotel.

Q So with Hotel Le Prieure Du Coeur de Jesus neither a first

class hotel?

A Yes, sir.

Q Hotel De Nevers is not a first class hotel?

A Yes, sir.

Q Hotel Roc Blanc Andorra is not a first class hotel?

A Yes, sir.

Q Saint Just Hotel, Barcelona is not a first class hotel?

A Yes, sir.

Q Hotel Pullman Nice neither is not a first class hotel?

A Yes, sir.

Q Hotel Prinz Eugen and Austrotel are not first class hotels?

A Yes, sir. 52

Private respondent cannot escape responsibility by seeking refuge under the listing of first-class
hotels in publications like the "Official Hotel and Resort Guide" and Worldwide Hotel Guide." 53
Kuoni Travel, its tour operator, 54 which prepared the hotel listings, is a European-based travel
agency 55 and, as such, could have easily verified the matter of first-class accommodations. Nor can
it logically claim that the first-class hotels in Europe may not necessarily be the first-class hotels here
in the Philippines. 56 It is reasonable for petitioner to assume that the promised first-class hotels are
equivalent to what are considered first-class hotels in Manila. Even assuming arguendo that there is
indeed a difference in classifications, it cannot be gainsaid that a first-class hotel could at the very
least provide basic necessities and sanitary accommodations. We are accordingly not at all impressed
by private respondent's attempts to trivialize the complaints thereon by petitioner and her
companions.

In a last ditch effort to justify its choice of the hotels, private respondent contends that it merely
provided such "first class" hotels which are commensurate to the tourists budget, or which were,
under the given circumstances, the "best for their money." It postulated that it could not have offered
better hostelry when the consideration paid for hotel accommodations by the tour participants was
only so much,57 and the tour price of $2,990.00 covers a European tour for 22 days inclusive of
lower room rates and meals. 58 this is implausible, self-serving and borders on sophistry.

The fact that the tourists were to pay a supposedly lower amount, such that private respondent
allegedly retained hardly enough as reasonable profit, 59 does not justify a substandard form of
service in return. It was private respondent, in the first place, which fixed the charges for the package
tour and determined the services that could be availed of corresponding to such price. Hence, it
cannot now be heard to complain that it only made a putative marginal profit out of the transaction. if
it could not provide the tour participants with first-class lodgings on the basis of the amount that they
paid, it could and should have instead increased the price to enable it to arrange for the promised
first-class accommodations.

On the foregoing considerations, respondent court erred in deleting the award for moral and
exemplary damages. Moral damages may be awarded in breaches of contract where the obligor acted
fraudulently or in bad faith. 60 From the facts earlier narrated, private respondent can be faulted with
fraud in the inducement, which is employed by a party to a contract in securing the consent of the
other.

This fraud or dolo which is present or employed at the time of birth or perfection of a contract may
either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are
those deceptions or misrepresentations of a serious character employed by one party and without
which the other party would not have entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those which are not serious in character and without which
the other party would still have entered into the contract. 61 Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to some particular or accident of the
obligations. 62 The effects of dolo causante are the nullity of the contract and the indemnification of
damages, 63 and dolo incidente also obliges the person employing it to pay damages. 64

In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which
deceptions became patent in the light of after-events when, contrary to its representations, it
employed an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged
on its promise of a European tour manager and the visit to the leather factory, it is indubitably liable
for damages to petitioner.

In the belief that an experienced tour escort and a European tour manager would accompany them,
with the concomitant reassuring and comforting thought of having security and assistance readily at
hand, petitioner was induced to join the Volare 3 tourists, instead of travelling alone 65 She likewise
suffered serious anxiety and distress when the group was unable to visit the leather factory and when
she did not receive first-class accommodations in their lodgings which were misrepresented as first-
class hotels. These, to our mind, justify the award for moral damages, which are in the category of an
award designed to compensate the claimant for that injury which she had suffered, and not as a
penalty on the wrongdoer, 66 we believe that an award of P100,000.00 is sufficient and reasonable.

When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also
be decreed. Exemplary damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated or compensatory damages. According to the code
Commission, exemplary damages are required by public policy, for wanton acts must be suppressed.
67 An award, therefore, of P50,000.00 is called for to deter travel agencies from resorting to
advertisements and enticements with the intention of realizing considerable profit at the expense of
the public, without ensuring compliance with their express commitments. While, under the present
state of the law, extraordinary diligence is not required in travel or tour contracts, such as that in the
case at bar, the travel agency acting as tour operator must nevertheless be held to strict accounting for
contracted services, considering the public interest in tourism, whether in the local or in the
international scene. Consequently, we have to likewise reject the theory of private respondent that the
promise it made in the tour brochure may be regarded only as "commendatory trade talk." 68

With regard to the honorarium for counsel as an item of damages, since we are awarding moral and
exemplary damages, 69 and considering the legal importance of the instant litigation and the efforts
of counsel evident from the records of three levels of the judicial hierarchy, we favorably consider
the amount of P20,000.00 therefor.

WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET
ASIDE, and another one rendered, ordering private respondent Kenstar Travel Corporation to pay
petitioner Lydia L. Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as
exemplary damages, and P20,000.00 as and for attorney's fees, with costs against private respondent.
The award for nominal damages is hereby deleted.

Padilla, Nocon and Puno, JJ., concur.

Narvasa, C.J., took no part.

#Footnotes

1 Original Record, 1.

2 Ibid., 90.

3 Ibid., 124.

4 Ibid., 152.

5 Exhibits 6-CC-1, 6-DD-1, Folder of Exhibits for Defendant Kenstar Travel

Corporation.

6 Rollo, 27.

7 Original record, 256; per Judge Benigno T. Dayaw.

8 Ibid., 271.

9 Justice Regina G. Ordoñez-Benitez as ponente, with Justices Gloria C. Paras

and Eduardo G. Montenegro concurring.

10 Rollo, CA-G.R. CV No, 34961, Decision, 10.

11 Ibid., 5; Original Record, 264.

12 Ibid., 6.

13 Ibid., 8-10.

14 Original Record, 183, Exhibit 8.

15 TSN, December 14, 1990, 27.

16 TSN, November 15, 1990, 15.

17 Petition, 10; Rollo, 20.

18 Rollo, CA-G.R. CV No. 34961, Decision, 7.

19 TSN, December 14, 1990, 31.

20 Ibid., id., 29.

21 Memorandum for Private Respondent, 31; Rollo, 132.

22 Original record, 183, Exhibit 8.

23 Ibid., 25.

24 Memorandum for Private Respondent, 20; Rollo, 121.

25 Id., 19; ibid., 120.

26 TSN, December 14, 1990, 31.

27 Supra., Fn. 22.

28 Memorandum for Private Respondent, 21-24; Rollo, 122-125.

29 Rollo, CA-G.R. CV No. 34961, Decision, 5.

30 TSN, December 14, 1990, 28.

31 Memorandum for Private Respondent, 25; Rollo, 126.

32 U.S.-Bach vs. Friden Calculating Mach. Co., C.C.A. Ohio 155 F. 2d 361,
365.

33 Memorandum for Private Respondent, 23; Rollo, 124.

34 Section 1, Rule 131, Rules of Court.

35 TSN, November 15, 1990, 16.

36 Original Record, 183, Exhibit 8-A; Memorandum for Private Respondent,

11; Rollo, 112.

37 BPI Credit Corp. vs. Court of Appeals, et al., G.R. No. 96755, December 4,
1991, 204 SCRA 601.

38 Ong Yiu vs. Court of Appeals, et al., L-40597, June 29, 1979, 91 SCRA
223.

39 Saludo, Jr. vs. Court of Appeals, et al., G.R. No. 95536, March 23, 1992,
207 SCRA 498; see also Art. 1377, Civil Code.

40 Original Record, 183, Exhibit 8-A.

41 Memorandum for Private Respondent, 18; Rollo, 119.

42 This specific facet of the rule more fully states: Res inter alios acta aliis
neque nole potest.

43 TSN, November 15, 1990, 10-27; 37-52.

44 Original Record, 183, Exhibit A.

45 TSN, October 12, 1990, 20.

46 Ibid., id., 21-22.

47 Ibid., id., 22-23.

48 Ibid., November 15, 1990, 10.

49 Ibid., id., 16-17.

50 Ibid., id., 19-20

51 Ibid., id., 25-26.

52 Ibid., id., 26-27.

53 Memorandum for Private Respondents, 27; Rollo, 128.

54 TSN, March 22, 1991, 22.

55 Supra., Fn. 53.

56 See TSN, December 14, 1990, 22.

57 Memorandum for Private Respondent, 17; Rollo, 118.

58 Id., 28-31; ibid., 129-132.

59 Ibid., 29; id., 130.

60 Articled 2220, Civil Code.

61 Jurado, Comments and Jurisprudence on Obligations and Contracts, 1987

ed., 438.

62 Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, Vol. IV, 1986 ed., 509.

63 Op. cit., 510.

64 Article 1344, Civil Code.

65 TSN, October 12, 1990, 14.

66 Simex International (Manila), Inc. vs. Court of Appeals, et al., G.R. No.
88013, March 19, 1990, 183 SCRA 360.

67 De Guzman vs. National Labor Relations Commission, et al., G.R. No.

90856, July 23, 1992, 211 SCRA 723.

68 Memorandum for Private Respondent, 33; Rollo, 134.

 69 Article 2208(1), Civil Code.

The Lawphil Project - Arellano Law Foundation

G.R. No. 164601             September 27, 2006

5.SPOUSES ERLINDA BATAL AND FRANK BATAL, petitioners,

vs.
SPOUSES LUZ SAN PEDRO AND KENICHIRO TOMINAGA, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1 dated September 29, 2003 promulgated by the Court of Appeals (CA)
in CA-G.R. CV No. 71758, which affirmed the Decision dated May 31, 2004 of the Regional
Trial Court, Branch 7, Malolos, Bulacan (RTC); and the CA Resolution2 dated July 19, 2004.

This case originated from an action for damages filed with the RTC by Spouses Luz San Pedro
and Kenichiro Tominaga (respondents) against Spouses Erlinda Batal and Frank Batal
(petitioners) for failure to exercise due care and diligence by the latter in the preparation of a
survey which formed the basis for the construction of a perimeter fence that was later discovered
to have encroached on a right of way.

The facts of the case, as found by the RTC and summarized by the CA, are as follows:

The spouses Luz San Pedro (Luz) and Kenichiro Tominaga (Kenichiro) are the owners of
a parcel of land, on which their house was erected, described as Lot 1509-C-3 with an
area of 700 square meters situated in Barangay Malis, Guiguinto, Bulacan. Said property
was acquired by them from one Guillermo Narciso as evidenced by a "Bilihan ng Bahagi
ng Lupa" dated March 18, 1992.

The spouses Luz and Kenichiro then contracted the services of Frank Batal (Frank) who
represented himself as a surveyor to conduct a survey of their lot for the sum of
P6,500.00. As Luz and Kenichiro wanted to enclose their property, they again procured
the services of Frank for an additional fee of P1,500.00 in order to determine the exact
boundaries of the same by which they will base the construction of their perimeter fence.

Consequently, Frank placed concrete monuments marked P.S. on all corners of the lot
which were used as guides by Luz and Kenichiro in erecting a concrete fence measuring
about eight (8) feet in height and cost them P250,000.00 to build.

Sometime in 1996, a complaint was lodged against Luz and Kenichiro before the
barangay on the ground that the northern portion of their fence allegedly encroached
upon a designated right-of-way known as Lot 1509-D. Upon verification with another
surveyor, Luz and Kenichiro found that their wall indeed overlapped the adjoining lot.
They also discovered that it was not Frank but his wife Erlinda Batal (Erlinda), who is a
licensed geodetic engineer.

During their confrontations before the barangay, Frank admitted that he made a mistake
and offered to share in the expenses for the demolition and reconstruction of the
questioned portion of Luz and Kenichiro's fence. He however failed to deliver on his
word, thus the filing of the instant suit.

In their defense, the defendants-spouses Frank and Erlinda Batal submitted that Frank
never represented himself to be a licensed geodetic engineer. It was Erlinda who
supervised her husband's work [and t]hat the house and lot of plaintiffs, Luz and
Kenichiro, were already fenced even before they were contracted to do a resurvey of the
same and the laying out of the concrete monuments. The spouses Frank and Erlinda also
 refuted the spouses Luz's and Kenichiro's allegation of negligence and averred that the
subject complaint was instituted to harass them.3

On May 31, 2001, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendants,

as follows:

1. Ordering the defendants [petitioners] to pay to plaintiffs [respondents] the sum of

P6,500.00 as refund for their professional fees by reason of the erroneous relocation
survey of the property in question;

2. Ordering the defendants to pay to plaintiffs the sum of Three Hundred Thousand Pesos
(P300,000.00) as actual damages;

3. Ordering the defendants to pay to plaintiffs the sum of P50,000.00 as attorney's fees;
and

4. Ordering the defendants to pay to plaintiffs the costs of this suit.

SO ORDERED.4

Regarding the issue whether the petitioners failed to exercise due care and diligence in the
conduct of the resurvey which eventually caused damage to the respondents, the RTC held:

As against the bare and self-serving denials of the [petitioners], the testimony of
[respondent] Luz San Pedro that she constructed the encroaching perimeter fence in
question using as guide the cyclone concrete monuments marked P.S. that were installed
by [petitioner] Frank Batal and his survey team, is more credible. As testified to by
[respondent] Luz San Pedro, she proceeded with the construction of the perimeter fence
in question upon assurance given by [petitioner] Frank Batal that she could already do so
as there were already concrete monuments placed on the boundaries of her property x x x.

xxxx

It does not matter that the location plan dated May 3, 1992 (Exhibit "B") was later
approved by the DENR, as it is quite apparent that the mistake committed by [petitioner]
Frank Batal pertains to the wrong locations of the concrete monuments that he placed on
the subject property and which were used or relied upon by the [respondents] in putting
up the fence in question. Such mistake or negligence happened because quite obviously
the installation of said concrete monuments was without the needed supervision of
[respondent] Erlinda Batal, the one truly qualified to supervise the same. x x x x

x x x x5
The RTC found that indeed the perimeter fence constructed by the respondents encroached on
the right-of-way in question; that the preponderance of evidence supports the finding that the
encroachment was caused by the negligence of the petitioners; that, in particular, respondents
constructed the fence based on the concrete cyclone monuments that were installed by petitioner
Frank Batal and after he gave his assurance that they can proceed accordingly; that the
negligence in the installation of the monuments was due to the fact that petitioner Erlinda Batal,
the one truly qualified, did not provide the needed supervision over the work; and, lastly, that the
testimonies of the petitioners on the whole were not credible.

The petitioners appealed to the CA. On September 29, 2003, the CA rendered its Decision
affirming the RTC decision in its entirety.6

In concurring with the findings of the RTC, the CA in addition held that the petitioners cannot
claim that the error of the construction of the fence was due to the unilateral act of respondents in
building the same without their consent, since the former gave their word that the arrangement of
the monuments of title accurately reflected the boundaries of the lot; and that, as a result, the
northern portion of the fence had to be demolished and rebuilt in order to correct the error.

Hence, the instant Petition assigning the following errors:

I.

The Court of Appeals erred in ruling for the Respondents and basing its decision [o]n the
following jurisprudence:

(a) "[A] party, having performed affirmative acts upon which another person based his
subsequent actions, cannot thereafter refute his acts or renege on the effects of the same,
to the prejudice of the latter. (Pureza vs. Court of Appeals, 290 SCRA 110)"; and

(b) "Findings of fact made by the trial court [are] entitled to great weight and respect.
(Lopez vs. Court of Appeals, 322 SCRA 686).

II.

The Court of Appeals erred in ruling in favor of Respondents by premising its Decision
on [a] misapprehension of facts amounting to grave abuse of discretion . . . which is also
a ground for a Petition for Review.7

The petition must fail.

The petitioners insist that there had been no error in their resurvey, but rather, the error occurred
in respondents' fencing; that the proximate cause of the damage had been respondents' own
negligence such that the fencing was done unilaterally and solely by them without the prior
approval and supervision of the petitioners. And to justify their case, the petitioners argue that
the courts a quo misapprehended the facts. Accordingly, they ask this Court to review findings of
fact.
A review of the factual findings of the CA and the RTC are matters not ordinarily reviewable in
a petition for review on certiorari.8 Well-established is the rule that factual findings of the trial
court and the CA are entitled to great weight and respect9 and will not be disturbed on appeal
save in exceptional circumstances,10 none of which obtains in the present case. This Court must
stress that the findings of fact of the CA are conclusive on the parties and carry even more
weight when these coincide with the factual findings of the trial court,11 as in this case.

The Court will not weigh the evidence all over again unless there is a showing that the findings
of the lower court are totally devoid of support or are clearly erroneous so as to constitute serious
abuse of discretion.12 The petitioners failed to demonstrate this point. On the contrary, the finding
of the courts a quo that the damage caused to the respondents was due to petitioners' negligence
is sufficiently supported by the evidence on record. For these reasons, the petitioner's contentions
bear no import.

Culpa, or negligence, may be understood in two different senses: either as culpa aquiliana,
which is the wrongful or negligent act or omission which creates a vinculum juris and gives rise
to an obligation between two persons not formally bound by any other obligation, or as culpa
contractual, which is the fault or negligence incident in the performance of an obligation which
already existed, and which increases the liability from such already existing obligation.13 Culpa
aquiliana is governed by Article 2176 of the Civil Code and the immediately following Articles;
while culpa contractual is governed by Articles 1170 to 1174 of the same Code.14

Articles 1170 and 1173 provide:

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

ART. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2202, paragraph 2, shall apply.

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

In the present case, it is clear that the petitioners, in carrying out their contractual obligations,
failed to exercise the requisite diligence in the placement of the markings for the concrete
perimeter fence that was later constructed. The placement of the markings had been done solely
by petitioner Frank Batal who is not a geodetic engineer. It was later discovered that it was not
he but his wife, petitioner Erlinda Batal, who is the licensed geodetic engineer and who is,
therefore, the one qualified to do the work. Petitioner Frank Batal's installation of the concrete
cyclone monuments had been done without the adequate supervision of his wife, Erlinda. As a
result, the placement of the monuments did not accurately reflect the dimensions of the lot. The
respondents, upon assurance given by petitioner Frank Batal that they could proceed with the
construction of the perimeter fence by relying on the purported accuracy of the placement of the
monuments, erected their fence which turned out to encroach on an adjacent easement. Because
of the encroachment, the respondents had to demolish and reconstruct the fence and, thus,
suffered damages.

The Court affirms and adopts the findings of the CA, to wit:

Records show that the services of the [petitioners] Frank and Erlinda were initially
contracted to segregate Luz and Kenichiro's property from its adjoining lots. When the
[respondent] spouses Luz and Kenichiro planned to fence the segregated lot, they again
commissioned [petitioners] Frank and Erlinda to conduct a resurvey in order to determine
the precise boundaries of their property upon which they will base the construction of
their fence. It was also shown that in the course of the resurvey, Frank caused the
installation of monuments of title on the four (4) corners of Luz and Kenichiro's property
and that he instructed them to just follow the same in building their fence.

[Petitioners] Frank and Erlinda cannot thus validly claim that the error in the construction
of the northern portion of the fence was due to the spouses Luz and Kenichiro's act of
building the same without their consent. This is considering that the former led the latter
to believe the purported accuracy of the resurvey and exactness of the lot's boundaries
based on the monuments of title which they installed.

It has been ruled that "[A] party, having performed affirmative acts upon which another
person based his subsequent actions, cannot thereafter refute his acts or renege on the
effects of the same, to the prejudice of the latter." (Pureza v. Court of Appeals, 290 SCRA
110)

The foregoing clearly supports the findings of the RTC that the spouses Batal committed
a mistake in the conduct of their business that led to the encroachment of plaintiffs-
appellees' fence on the adjoining alley-lot. As a result, the northern portion ha[d] to be
torn down and rebuilt in order to correct the error in its original construction. The
defendants-appellants cannot be excused from the effects of their actions in the survey of
plaintiffs-appellees' lot.

We therefore concur with the findings of the RTC holding defendants-appellants liable
for damages in the case at bar. "Findings of fact made by the trial court is entitled to great
weight and respect." (Lopez v. Court of Appeals, 322 SCRA 686)15

Being guilty of a breach of their contract, petitioners are liable for damages suffered by the
respondents in accordance with Articles 1170 and 2201 of the Civil Code,16 which state:

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

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.

Thus, the Court agrees with the CA's affirmance of the findings of the RTC on the matter of
damages, to wit:

Going now to the claims for damages, Engr. Arnold Martin testified on his computation
and estimate (Exhibits "G" and "G-1) that the total cost for the demolition and
reconstruction of the perimeter fence in question would be in the total amount of
P428,163.90, and this was not at all disputed by the defendants, whose counsel waived
cross-examination. This estimate is practically double the amount of the cost of
constructing said fence as testified to by plaintiff Luz San Pedro as she was told that it is
much costlier to demolish and reconstruct a fence than to simply erect one because of the
added expense involved in tearing it down and hauling its debris. On the other hand, said
plaintiff stated that the iron decorative grills of the fence, which is re-usable, cost her
P50,000.00, and it is only proper to deduct said amount from the total cost of
reconstructing the fence in question. At the same time, some figures in the said estimate
appear to be quite excessive, such as the estimated cost for demolition which was quoted
at P25,000.00 in addition to the amount of excavation priced at P30,000.00 and the cost
of hauling of scrap materials at P10,000.00. The court believes that the sum of
P300,000.00 for the demolition and reconstruction of the fence in question would be
reasonable considering that the original cost for its construction was only about
P200,000.00, and considering further that its iron grills are re-usable.

The plaintiffs are likewise entitled to recover attorney's fees considering that they were
compelled by the defendants to resort to court action in order to protect their rights and
interest, as defendants, particularly defendant Frank Batal, failed and refused repeatedly
to even attend the confrontation of conciliation meetings arranged between him and the
plaintiffs by the barangay authorities concerned, and to honor his promise to help in
shouldering the cost of reconstructing the fence in question.

On the other hand, there is no legal or factual bases for the claim of the plaintiffs for
moral or exemplary damages as there was no showing at all that defendants acted with
malice or in bad faith.

In a long line of cases, we have consistently ruled that in the absence of a

wrongful act or omission or of fraud or bad faith, moral damages cannot be
awarded. (R & B Surety Insurance Co. v. Intermediate Court of Appeals, 129
SCRA 736; Guita v. Court of Appeals, 139 SCRA 576).17

WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
Costs against petitioners.

SO ORDERED.

Panganiban, C.J., Chairperson, Ynares-Santiago, Callejo, Sr., Chico-Nazario, J.J., concur.

Footnotes
1
Penned by Associate Justice Elvi John S. Asuncion, with Associate Justices Mercedes
Gozo-Dadole (now retired) and Lucas P. Bersamin, concurring.
2
Id.
3
Rollo, pp. 23-24.
4
CA rollo, pp. 37-38.
5
Id. at 35-36.
6
Rollo, p. 26.
7
Id. at 12-13.
8
Food Terminal, Inc. v. Court of Appeals, 330 Phil. 903, 906 (1996).
9
Food Terminal, Inc. v. Court of Appeals, id. at 906; Nazareno v. Court of Appeals, 397
Phil. 707, 724-725 (2000); Liberty Construction & Development Co. v. Court of Appeals,
327 Phil. 490, 495 (1996); Philippine Airlines, Inc. v. Court of Appeals, 326 Phil. 823,
835 (1996); Tay Chun Suy v. Court of Appeals, G.R. No. 93640, January 7, 1994, 229
SCRA 151, 156.
10
See Heirs of Dicman v. Cariño, G.R. No. 146459, June 8, 2006.
11
Liberty Construction & Development Co. v. Court of Appeals, supra note 9, at 495;
Philippine Airlines, Inc. v. Court of Appeals, id. at 835.
12
Nazareno v. Court of Appeals, supra at 725.
13
5 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines 592 (1992).
14
Id. citing Rakes v. Atlantic Gulf & Pacific Co., 7 Phil. 359 (1907).
15
Id. at 24-25.
 16
See Savellano v. Northwest Airlines, 453 Phil. 342, 355 (2003).
17
CA rollo, p. 37.

The Lawphil Project - Arellano Law Foundation

G.R. No. 159617             August 8, 2007

6.ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,

vs.
LULU V. JORGE and CESAR JORGE, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and
Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision1 of the Court of
Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.

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

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

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

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

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her
jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then
wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice
that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw
the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned
jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

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

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

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is
not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order
dated November 8, 1989.5

After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing
respondents’ complaint as well as petitioners’ counterclaim. The RTC held that petitioner Sicam
could not be made personally liable for a claim arising out of a corporate transaction; that in the
Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in
defendants' pawnshop"; and that as a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of a stockholder.

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

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

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the

Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is
hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the
actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of
P27,200.00.8

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

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

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

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

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

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF

TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
 BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF

TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS
OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING
MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9

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

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

(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint

that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of
respondents;

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

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

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

(1) There were unrebutted evidence on record that petitioners had observed the
diligence required of them, i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was discouraged by the Central Bank
(CB) since CB rules provide that they can only store the pawned articles in a vault
inside the pawnshop premises and no other place;

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

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

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

We find no merit in the petition.

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

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

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

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable
together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when
made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity
was not meant to promote unfair objectives or otherwise to shield them.15

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

Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987 addressed to
the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop
notwithstanding the alleged incorporation in April 1987.

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

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

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

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

x x x if a party invokes an "admission" by an adverse party, but cites the admission

"out of context," then the one making the "admission" may show that he made no
"such" admission, or that his admission was taken out of context.

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

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

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

Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss Amended Complaint,

insofar as petitioner Sicam is concerned, averred as follows:

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

It was defendant Sicam's omission to correct the pawnshop tickets used in the subject
 transactions in this case which was the cause of the instant action. He cannot now ask
for the dismissal of the complaint against him simply on the mere allegation that his
pawnshop business is now incorporated. It is a matter of defense, the merit of which
can only be reached after consideration of the evidence to be presented in due
course.19

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

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

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

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is

concerned for the reason that he cannot be made personally liable for a claim arising
from a corporate transaction.

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

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam
is personally liable is inextricably connected with the determination of the question whether the
doctrine of piercing the corporate veil should or should not apply to the case.

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

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

We are not persuaded.

Article 1174 of the Civil Code provides:

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

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

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

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

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps
to forestall the possible adverse consequences of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one
from liability. When the effect is found to be partly the result of a person's participation -- whether by
active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from
the rules applicable to acts of God. 26

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

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

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held:
 It is not a defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact
that a thing was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically give rise to a
fortuitous event. To be considered as such, carnapping entails more than the
mere forceful taking of another's property. It must be proved and established
that the event was an act of God or was done solely by third parties and that
neither the claimant nor the person alleged to be negligent has any participation.
In accordance with the Rules of Evidence, the burden of proving that the loss was
due to a fortuitous event rests on him who invokes it — which in this case is the
private respondent. However, other than the police report of the alleged carnapping
incident, no other evidence was presented by private respondent to the effect that the
incident was not due to its fault. A police report of an alleged crime, to which only
private respondent is privy, does not suffice to establish the carnapping. Neither does
it prove that there was no fault on the part of private respondent notwithstanding the
parties' agreement at the pre-trial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the part of private respondent.28

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

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

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

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

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

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

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.
 If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.

We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a

reasonable man, guided by those considerations which ordinarily regulate the conduct of human
affairs, would do; or the doing of something which a prudent and reasonable man would not do.31 It is
want of care required by the circumstances.

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

Court:

Q. Do you have security guards in your pawnshop?

A. Yes, your honor.

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

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

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

A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the
afternoon and it happened on a Saturday and everything was quiet in the area BF
Homes Parañaque they pretended to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only when it was announced that it was
a hold up.

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

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

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

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

Q. It is clear now that at the time of the robbery the vault was open the reason why the
robbers were able to get all the items pawned to you inside the vault.
 A. Yes sir.32

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

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

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

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

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

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

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

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

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there
is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error
for the CA to consider it as a factor in concluding that petitioners were negligent.

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

The diligence with which the law requires the individual at all times to govern his conduct varies
with the nature of the situation in which he is placed and the importance of the act which he is to
perform.34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman, Commission on
Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery
were exonerated from liability, find no application to the present case.

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

We found in Austria that under the circumstances prevailing at the time the Decision was
promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against
persons and property that rendered travel after nightfall a matter to be sedulously avoided without
suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in
the evening carrying jewelry of considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did not hold Abad liable for
negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not
reached the level of incidence obtaining in 1971.

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

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

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

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

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

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

Costs against petitioners.

SO ORDERED.

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

Footnotes
1
CA rollo, pp. 63-73; Penned by Justice Bernardo P. Abesamis (ret.) and concurred in
by Justices Sergio L. Pestaño and Noel G. Tijam.
2
Id. at p. 114.
3
Id. at 121; Exhibit "1."
4
Id. at 107-108; Exhibit "I."
5
Id. at 63-65; Per Judge Salvador P. de Guzman, Jr.
6
Id. at 146-147; Penned by Judge Roberto C. Diokno of Branch 62 as the case was
unloaded to him.
7
148-A Phil. 462 (1971).
8
CA rollo, p. 72.
9
Rollo, pp. 5-6.
10
Rollo, p. 7.
11
Nuez v. National Labor Relations Commission, G.R. No. 107574, December 28,
1994, 239 SCRA 518, 526.
12
Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489 citing
Roble v. Arbasa, 414 Phil. 343 (2001).
13
Fuentes v. Court of Appeals, 335 Phil. 1163, 1168 (1997).
14
See Jacinto v. Court of Appeals, G.R. No. 80043, June 6, 1991, 198 SCRA 211,
216.
15
See Sibagat Timber Corporation v. Garcia, G.R. No. 98185, December 11, 1992,
216 SCRA 470, 474.
16
Id. at 124-125; Exhibit "4".
17
Atillo III v. Court of Appeals, 334 Phil. 546, 552 (1997).
18
Minutes of the meeting held on October 22, 1986, p. 9.
19
Records, p. 67.
20
Id. at 38.
21
Id. at 147.
22
Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 (1967).
23
Mindex Resources Development Corporation v. Morillo, 428 Phil. 934, 944 (2002).
24
Co v. Court of Appeals, 353 Phil. 305, 313 (1998).
25
Mindex Resources Development Corporation v. Morillo, supra citing Tolentino,
Civil Code of the Philippines, Vol. IV, 1991 ed., p. 126, citing Sian v. Inchausti &
Co., 22 Phil. 152 (1912); Juan F. Nakpil & Sons v. Court of Appeals, 228 Phil. 564,
578 (1986). Cf. Metal Forming Corporation v. Office of the President, 317 Phil. 853,
859 (1995).
26
Id. citing Nakpil and Sons v. Court of Appeals, supra note 25, at 578.
27
Supra note 24.
28
Id. at 312-313.
29
Civil Code, Art. 1170.
 30
443 Phil. 856, 863 (2003) citing McKee v. Intermediate Appellate Court, 211 SCRA
517 (1992).
31
Cruz v. Gangan, supra note 30, at 863.
32
TSN, January 21, 1992, pp.17-18.
33
Exhibit "1," Excerpt from the Police Blotter dated October 17, 1987 of the
Parañaque Police Station, p. 121.
34
Cruz v. Gangan, supra note 30, at 863 citing Sangco, Torts and Damages, Vol. 1,
1993 rev. ed. p. 5.
35
Supra note 7.
36
G.R. No. 71871, November 6, 1989, 179 SCRA 39.
37
Supra note 30.
38
Austria v. Court of Appeals, supra note 7, at 466-467.

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