Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 98695 January 27, 1993 JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and ANTHONY C. SYQUIA, petitioners, vs. THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC., respondents. Pacis & Reyes Law Offices for petitioners. Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents. CAMPOS, JR., J.: Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony Syquia, were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On March 5, 1979, they filed a complaint 1 in the then Court of First Instance against herein private respondent, Manila Memorial Park Cemetery, Inc. for recovery of damages arising from breach of contract and/or quasidelict. The trial court dismissed the complaint. The antecedent facts, as gathered by the respondent Court, are as follows:
On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiffappellants herein, filed a complaint for damages against defendant-appellee, Manila Memorial Park Cemetery, Inc. The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated August 27, 1969 and Interment Order No. 7106 dated July 21, 1978 executed between plaintiff-appellant Juan J. Syquia and defendant-appellee, the former, father of deceased Vicente Juan J. Syquia authorized and instructed defendant-appellee to inter the remains of deceased in the Manila Memorial Park Cemetery in the morning of July 25, 1978 conformably and in accordance with defendant-appellant's (sic) interment procedures; that on September 4, 1978, preparatory to transferring the said remains to a newly purchased family plot also at the Manila Memorial Park Cemetery, the concrete vault encasing the coffin of the deceased was removed from its niche underground with the assistance of certain employees of defendant-appellant (sic); that as the concrete vault was being raised to the surface, plaintiffs-appellants discovered that the concrete vault had a hole approximately three (3) inches in diameter near the bottom of one of the walls closing out the width of the vault on one end and that for a certain length of time (one hour, more or less), water drained out of the hole; that because of the aforesaid discovery, plaintiffs-appellants became agitated and upset with concern that the water which had collected inside the vault might have risen as it in fact did rise, to the level of the coffin and flooded the same as well as the remains of the deceased with ill effects thereto; that pursuant to an authority granted by the Municipal Court of Paraaque, Metro Manila on September 14, 1978, plaintiffs-appellants with the assistance of licensed morticians and certain personnel of defendant-appellant (sic) caused the opening of the concrete vault on September 15, 1978; that upon opening the vault, the following became apparent to the plaintiffs-appellants: (a) the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin was entirely damaged by water, filth and silt causing the wooden parts to warp and separate and to crack the viewing glass panel located directly above the head and torso of the deceased; (c) the entire lining of the coffin,

the clothing of the deceased, and the exposed parts of the deceased's remains were damaged and soiled by the action of the water and silt and were also coated with filth. Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver a defect-free concrete vault designed to protect the remains of the deceased and the coffin against the elements which resulted in the desecration of deceased's grave and in the alternative, because of defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code in failing to seal the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for moral damages, exemplary damages in the amount determined by the court, 20% of defendant-appellee's total liability as attorney's fees, and expenses of litigation and costs of suit. 2

In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the cement vault would be waterproof; that there could be no quasidelict because the defendant was not guilty of any fault or negligence, and because there was a pre-existing contractual relation between the Syquias and defendant Manila Memorial Park Cemetery, Inc.. The trial court also noted that the father himself, Juan Syquia, chose the gravesite despite knowing that said area had to be constantly sprinkled with water to keep the grass green and that water would eventually seep through the vault. The trial court also accepted the explanation given by defendant for boring a hole at the bottom side of the vault: "The hole had to be bored through the concrete vault because if it has no hole the vault will (sic) float and the grave would be filled with water and the digging would caved (sic) in the earth, the earth would caved (sic) in the (sic) fill up the grave." 3 From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract allowed the flooding of the vault; that there was no desecration; that the boring of the hole was justifiable; and in not awarding damages. The Court of Appeals in the Decision 4 dated December 7, 1990 however, affirmed the judgment of dismissal. Petitioner's motion for reconsideration was denied in a Resolution dated April 25, 1991. 5 Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that the Court of Appeals committed the following errors when it:
1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of the vault and the entrance thereto of filth and silt; 2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of desecration was committed; 3. overlooked and refused to consider relevant, undisputed facts, such as those which have been stipulated upon by the parties, testified to by private respondent's witnesses, and admitted in the answer, which could have justified a different conclusion; 4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence; and 5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and exemplary damages, and attorney's fees.

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

act was either a breach of private respondent's contractual obligation to provide a sealed vault, or, in the alternative, a negligent act which constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of negligence private respondent has committed, the latter is liable for desecrating the grave of petitioners' dead. In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc., breached its contract with petitioners; or, alternatively, whether private respondent was guilty of a tort. We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more inclined to answer the foregoing questions in the negative. There is not enough ground, both in fact and in law, to justify a reversal of the decision of the respondent Court and to uphold the pleas of the petitioners. With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of Appeals found no negligent act on the part of private respondent to justify an award of damages against it. Although a pre-existing contractual relation between the parties does not preclude the existence of a culpa aquiliana, We find no reason to disregard the respondent's Court finding that there was no negligence.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict . . . . (Emphasis supplied).

In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into a contract entitled "Deed of Sale and Certificate of Perpetual Care" 6 on August 27, 1969. That agreement governed the relations of the parties and defined their respective rights and obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park Cemetery, Inc., it would be held liable not for a quasi-delict or culpa aquiliana, but for culpa contractual as provided by Article 1170 of the Civil Code, to wit:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the interment. Rule 17 of the Rules and Regulations of private respondent provides that:
Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone, brick or concrete, the actual installment of which shall be made by the employees of the Association. 7

Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the interment, and was, on the same day, installed by private respondent's employees in the grave which was dug earlier. After the burial, the vault was covered by a cement lid. Petitioners however claim that private respondent breached its contract with them as the latter held out in the brochure it distributed that the . . . lot may hold single or double internment (sic) underground in sealed concrete vault." 8 Petitioners claim that the vault

provided by private respondent was not sealed, that is, not waterproof. Consequently, water seeped through the cement enclosure and damaged everything inside it. We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules and Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be waterproof. Private respondent's witness, Mr. Dexter Heuschkel, explained that the term "sealed" meant "closed." 9 On the other hand, the word "seal" is defined as . . . any of various closures or fastenings . . . that cannot be opened without rupture and that serve as a check against tampering or unauthorized opening." 10 The meaning that has been given by private respondent to the word conforms with the cited dictionary definition. Moreover, it is also quite clear that "sealed" cannot be equated with "waterproof". Well settled is the rule that when the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, then the literal meaning of the stipulation shall control. 11 Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. 12 As ruled by the respondent Court:
When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the attached Rules and Regulations (Exhibit "1"), it can be assumed that he has accepted defendant-appellee's undertaking to merely provide a concrete vault. He can not now claim that said concrete vault must in addition, also be waterproofed (sic). It is basic that the parties are bound by the terms of their contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of Appeals, et al. 178 SCRA 739). Where there is nothing in the contract which is contrary to law, morals, good customs, public order, or public policy, the validity of the contract must be sustained (Phil. American Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a contracting party cannot incur a liability more than what is expressly specified in his undertaking. It cannot be extended by implication, beyond the terms of the contract (Rizal Commercial Banking Corporation vs. Court of Appeals, supra). And as a rule of evidence, where the terms of an agreement are reduced to writing, the document itself, being constituted by the parties as the expositor of their intentions, is the only instrument of evidence in respect of that agreement which the law will recognize, so long as its (sic) exists for the purpose of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco, Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control (Santos vs. CA, et al., G. R. No. 83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. Community Builders Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530). 13

We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this may be so, can private respondent be liable for culpa aquiliana for boring the hole on the vault? It cannot be denied that the hole made possible the entry of more water and soil than was natural had there been no hole. The law defines negligence as the "omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place." 14 In the absence of stipulation or legal provision providing the contrary, the diligence to be observed in the performance of the obligation is that which is expected of a good father of a family. The circumstances surrounding the commission of the assailed act boring of the hole negate the allegation of negligence. The reason for the act was explained by Henry Flores, Interment Foreman, who said that:

Q It has been established in this particular case that a certain Vicente Juan Syquia was interred on July 25, 1978 at the Paraaque Cemetery of the Manila Memorial Park Cemetery, Inc., will you please tell the Hon. Court what or whether you have participation in connection with said internment (sic)? A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the next morning a vault was taken and placed in the grave and when the vault was placed on the grave a hole was placed on the vault so that water could come into the vault because it was raining heavily then because the vault has no hole the vault will float and the grave would be filled with water and the digging would caved (sic) in and the earth, the earth would (sic) caved in and fill up the grave. 15 (Emphasis ours)

Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the above-mentioned explanation, private respondent has exercised the diligence of a good father of a family in preventing the accumulation of water inside the vault which would have resulted in the caving in of earth around the grave filling the same with earth. Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages in favor of petitioners. In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We are constrained to AFFIRM in toto the decision of the respondent Court of Appeals dated December 7, 1990. No costs. SO ORDERED. Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.
#

Footnotes
1 Civil Case No. Q-27112, "Juan J. Syquia, et al. vs. Manila Memorial Park Cemetery, Inc.". 2 Rollo, pp. 59-60. 3 Ibid., p. 65. 4 Penned by Associate Justice Arturo B. Buena, concurred in by Associate Justices Minerva P. Gonzaga-Reyes and Jainal D. Rasul. 5 Rollo, p. 87-A. 6 Exhibit "D"; Records, p. 10. 7 Annex A of Answer; Records, p. 31. 8 Petition, p. 5; Rollo, p. 13. 9 TSN, November 4, 1981, p. 7. 10 Webster's Third International Dictionary 2046 (1970).

11 Mercantile Insurance Co., Inc. vs. Felipe Ysmael, Jr. and Co., Inc., 169 SCRA 66 (1989); Papa vs. Alonzo, 198 SCRA 564 (1991); Alim vs. CA, 200 SCRA 450 (1991); Republic vs. Sandiganbayan, 203 SCRA 310 (1991). 12 Mercantile Insurance Co., Inc., vs. Felipe Ysmael, Jr. and Co., Inc., 169 SCRA 66 (1989). 13 Rollo, pp. 64-65. 14 CIVIL CODE, Article 1173. 15 TSN, June 28, 1982, p. 2.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 108164 February 23, 1995 FAR EAST BANK AND TRUST COMPANY, petitioner, vs. THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents. VITUG, J.: Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a FAREASTCARD issued by petitioner Far East Bank and Trust Company ("FEBTC") at its Pasig Branch. Upon his request, the bank also issued a supplemental card to private respondent Clarita S. Luna. In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace the lost card, Clarita submitted an affidavit of loss. In cases of this nature, the bank's internal security procedures and policy would appear to be to meanwhile so record the lost card, along with the principal card, as a "Hot Card" or "Cancelled Card" in its master file. On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American, and another guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay for the lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had it verified

through a telephone call to the bank's Credit Card Department. Since the card was not honored, Luis was forced to pay in cash the bill amounting to P588.13. Naturally, Luis felt embarrassed by this incident. In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded from FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the bank, expressed the bank's apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part, said: In cases when a card is reported to our office as lost, FAREASTCARD undertakes the necessary action to avert its unauthorized use (such as tagging the card as hotlisted), as it is always our intention to protect our cardholders. An investigation of your case however, revealed that FAREASTCARD failed to inform you about its security policy. Furthermore, an overzealous employee of the Bank's Credit Card Department did not consider the possibility that it may have been you who was presenting the card at that time (for which reason, the unfortunate incident occurred). 1 Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter that private respondents were "very valued clients" of FEBTC. William Anthony King, Food and Beverage Manager of the Intercontinental Hotel, wrote back to say that the credibility of private respondent had never been "in question." A copy of this reply was sent to Luis by Festejo. Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint for damages with the Regional Trial Court ("RTC") of Pasig against FEBTC. On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b) P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees. On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court. Its motion for reconsideration having been denied by the appellate court, FEBTC has come to this Court with this petition for review. There is merit in this appeal. In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of the contract. 2 The Civil Code provides: Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied) Bad faith, in this context, includes gross, but not simple, negligence. 3 Exceptionally, in a contract of carriage, moral damages are also allowed in case of death of a passenger attributable to the fault (which is presumed 4) of the common carrier. 5 Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card's cancellation. Nothing in the findings of the trial court and the appellate court, however, can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private respondents. Neither could FEBTC's negligence in failing to give personal notice to Luis be considered so gross as to amount to malice or bad faith.

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. 6 We are not unaware of the previous rulings of this Court, such as in American Express International, Inc., vs. Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine Islands vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the application of Article 21, in relation to Article 2217 and Article 2219 7 of the Civil Code to a contractual breach similar to the case at bench. Article 21 states: Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus, even if we are to assume that the provision could properly relate to a breach of contract, its application can be warranted only when the defendant's disregard of his contractual obligation is so deliberate as to approximate a degree of misconduct certainly no less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a general principle in human relations that clearly must, in any case, give way to the specific provision of Article 2220 of the Civil Code authorizing the grant of moral damages in culpa contractual solely when the breach is due to fraud or bad faith. Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda 8 explained with great clarity the predominance that we should give to Article 2220 in contractual relations; we quote: Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599; Necesito, et al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023), that moral damages are not recoverable in damage actions predicated on a breach of the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code, which provide as follows: Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; xxx xxx xxx Art. 2220. Wilful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. By contrasting the provisions of these two articles it immediately becomes apparent that: (a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and (b) That a breach of contract can not be considered included in the descriptive term "analogous cases" used in Art. 2219; not only because Art. 2220 specifically provides for

the damages that are caused contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where there is a "preexisitng contractual relations between the parties." Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the deceased passenger to "demand moral damages for mental anguish by reason of the death of the deceased" (Necesito vs. Paras, 104 Phil. 84, Resolution on motion to reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does not die, moral damages are not recoverable unless it is proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith on the part of the carrier; and in the case at bar there is no other evidence of such malice to support the award of moral damages by the Court of Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art. 2220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation. xxx xxx xxx The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code. 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 nonperformance of the obligation. It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract in bad faith. It is true that negligence may be occasionally so gross as to amount to malice; but the fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was breached through negligence of the carrier's employees. The Court has not in the process overlooked another rule that a quasi-delict can be the cause for breaching a contract that might thereby permit the application of applicable principles on tort 9 even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117; and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private respondents' case for it can aptly govern only where the act or omission complained of would

constitute an actionable tort independently of the contract. The test (whether a quasi-delict can be deemed to underlie the breach of a contract) can be stated thusly: Where, without a preexisting contract between two parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the parties are contractually bound is no bar to the application of quasi-delict provisions to the case. Here, private respondents' damage claim is predicated solely on their contractual relationship; without such agreement, the act or omission complained of cannot by itself be held to stand as a separate cause of action or as an independent actionable tort. The Court finds, therefore, the award of moral damages made by the court a quo, affirmed by the appellate court, to be inordinate and substantially devoid of legal basis. Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for the public good in addition to moral, temperate, liquidated or compensatory damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance Transport System, 148 SCRA 440; Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposed when the crime is committed with one or more aggravating circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross negligence as to approximate malice ( See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778). In contracts and quasi-contracts, the court may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449). Given the above premises and the factual circumstances here obtaining, it would also be just as arduous to sustain the exemplary damages granted by the courts below ( see De Leon vs. Court of Appeals, 165 SCRA 166). Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to private respondent Luis should entitle him to recover a measure of damages sanctioned under Article 2221 of the Civil Code providing thusly: Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Reasonable attorney's fees may be recovered where the court deems such recovery to be just and equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part of the appellate court in allowing the award thereof by the trial court. WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by deleting the award of moral and exemplary damages to private respondents; in its stead, petitioner is ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way of nominal damages. In all other respects, the appealed decision is AFFIRMED. No costs. SO ORDERED. Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan, Mendoza and Francisco, JJ., concur.
Footnotes 1 Rollo, p. 52.

2 Necesito vs. Paras, 104 Phil. 75; Panay Electric Co. vs. CA, 119 SCRA 456; Sweet Lines, Inc. vs. CA, 121 SCRA 769; Rex Taxicab Co., Inc. vs. Bautista, 109 Phil. 712. 3 Philippine Airlines vs. Court of Appeals, 106 SCRA 143. 4 Art. 1756, Civil Code. 5 Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with the Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. 6 See Luzon Brokerage, Co., Inc. vs. Maritime Building, Co., Inc., 43 SCRA 93; also Black's Law Dictionary. 7 Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, 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 for omission. Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in article 309; (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants, and brother and sisters may bring action mentioned in No. 9 of this article, in the order named. 8 105 Phil. 266, 273-276. 9 In culpa aquiliana, moral damages may be recovered when the act or omission complained of causes physical injuries or where the defendant is guilty of intentional tort (Article 2219 [2][10], Civil Code).

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

G.R. No. 102970 May 13, 1993 LUZAN SIA, petitioner, vs. COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents. Asuncion Law Offices for petitioner. Cauton, Banares, Carpio & Associates for private respondent. DAVIDE, JR., J.: The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August 1991, 1 reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is challenged in this petition for review on certiorari under Rule 45 of the Rules Court. Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant pursuant to a contract denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages; b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses. The counterclaim set up by the defendant are hereby dismissed for lack of merit. No costs. SO ORDERED.
4

The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch. During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant bank. The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads (sic): "9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any person other than the Renter, his authorized agent or legal representative; xxx xxx xxx

"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith." The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable law; that the destruction of the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff. The trial court then directed that an ocular inspection on ( sic) the contents of the safety deposit box be conducted, which was done on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon was then submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing on the same date (Ibid., p. 102) stating: "That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the presence of the undersigned, plaintiff's and defendant's counsel. Said Safety Box when opened contains two albums of different sizes and thickness, length and width and a tin box with printed word 'Tai Ping Shiang Roast Pork in pieces with Chinese designs and character."

Condition of the above-stated Items

"Both albums are wet, moldy and badly damaged. 1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the album are attached to every page and cannot be lifted without destroying it, hence the stamps contained therein are no longer visible. 2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages can still be lifted. The stamps therein can still be distinguished but beyond restoration. Others have lost its original form. 3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of the box. The 5 condition of the album is the second abovementioned album."

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737. In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the required diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing the counterclaim. On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's complaint is hereby DISMISSED. 6 The appellant bank's counterclaim is likewise DISMISSED. No costs.

In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that: a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract of lease which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC; b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on deposits do not apply; c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:

9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any person other than the Renter, his authorized agent or legal representative. xxx xxx xxx 13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith.

are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must then bear the lose under the principle of "res perit domino." Unsuccessful in his bid to have the above decision reconsidered by the public respondent, the instant petition wherein he contends that:
I IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY. II THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND "A-1"). III THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR ACTUAL AND 8 MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE PETITIONER.
7

petitioner filed

We subsequently gave due course the petition and required both parties to submit their respective memoranda, which they complied with. 9 Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a bank maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety deposit box after the floods of 1985 and 1986." He argues that such a conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the exact location of the safety deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was also aware of the inundation of the premises where the safety deposit box was located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate measures to insure the safety and good maintenance of the safety deposit box in question. SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals, when supported by substantial exidence, are not reviewable on appeal by certiorari. 10 The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present case. As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease and not a

contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any person other than the Renter, his autliorized agent or legal representative; xxx xxx xxx 13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever said contents, except as herein provided, and it assumes absolutely no liability in 12 connection therewith.

are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even without such a limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous event and that the respondent bank was free from any participation in the aggravation of the injury. We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit. In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides: "Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safequarding of such effects. xxx xxx xxx The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . ."(emphasis supplied) Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the safety deposit box, which read: "13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same. "14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely no liability in connection therewith." are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:

"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it." Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said: "With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agrolndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions. Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides: "Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or 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.' In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola
18 17

says: "In a legal sense and,

consequently, also in relation to contracts, a "caso fortuito" prevents (sic) the following essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the aggravation of the 19 injury resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra). Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter was not shown to have participated in aggravating damage ( sic) to the stamps collection of the appellee. In fact, the appellant bank offered its services to secure the assistance of an expert to save most of the then good stamps but the appelle 20 refused and let (sic) these recoverable stamps inside the safety deposit box until they were ruined.

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

expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must be compensated therefor. We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof only if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on the part of SBTC. WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is hereby set aside. Costs against the private respondent. SO ORDERED. Feliciano, Bidin, Romero and Melo, JJ., concur.
#

Footnotes
1 Rollo, 34-41. Per Associate Justice Lucio L. Victor, concurred in by Associate Justices Santiago M. Kapunan and Segundino G. Chua. 2 Id., 52-55. 3 Exhibit "A" and "1", Original Records of Civil Case No. 87-42601, 87. 4 Rollo, 55. 5 Rollo, 34-36. 6 Rollo, 41. 7 Rollo, 43-49. 8 Id., 17. 9 Id., 63. 10 Rollo, 61, citing Gonzales vs. Court of Appeals, 90 SCRA 183 [1979]. 11 Sacay vs. Sandiganbayan, 142 SCRA 593 [1986]; Remalante vs. Tibe, 158 SCRA 138 [1988]; Medina vs. Asisitio, 191 SCRA 218 [1990]. 12 Exhibit "A-1", Original Records, dorsal side of page 87. 13 G.R. No. 90027, 3 March 1993. 14 Title XII, Book IV, Civil Code. 15 10 Am Jur 2d, 440-441.

16 Entries in brackets appear as footnotes in the decision. 17 5 Enciclopedia Juridicada Espaola. 18 Should be presents. 19 117 SCRA 832 [1982]. 20 Rollo, 40. 21 Rollo, 54. 22 Article 2220, Civil Code.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 170479 February 18, 2008

ANDRE T. ALMOCERA, petitioner, vs. JOHNNY ONG, respondent. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to set aside the Decision1 of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 affirming in toto the Decision2 of Branch 11 of the Regional Trial Court (RTC) of Cebu City in Civil Case No. CEB-23687 and its Resolution 3 dated 16 November 2005 denying petitioners motion for reconsideration. The RTC decision found petitioner Andre T. Almocera, Chairman and Chief Executive Officer of First Builder Multi-Purpose Cooperative (FBMC), solidarily liable with FMBC for damages.

Stripped of non-essentials, the respective versions of the parties have been summarized by the Court of Appeals as follows: Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" described as Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell, the selling price of the unit was P3,400,000.00 pesos, for a lot area of eighty-eight (88) square meters with a three-storey building. Out of the purchase price, plaintiff was able to pay the amount of P1,060,000.00. Prior to the full payment of this amount, plaintiff claims that defendants Andre Almocera and First Builders fraudulently concealed the fact that before and at the time of the perfection of the aforesaid contract to sell, the property was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). In addition, the construction of the house has long been delayed and remains unfinished. On March 13, 1999, Lot 4-a covered by TCT No. 148818, covering the unit was advertised in a local tabloid for public auction for foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulent concealment of the mortgage and encumbrance by defendants, he would have not entered into the contract to sell. On the other hand, defendants assert that on March 20, 1995, First Builders Multipurpose Coop. Inc., borrowed money in the amount of P500,000.00 from Tommy Ong, plaintiffs brother. This amount was used to finance the documentation requirements of the LBP for the funding of the Atrium Town Homes. This loan will be applied in payment of one (1) town house unit which Tommy Ong may eventually purchase from the project. When the project was under way, Tommy Ong wanted to buy another townhouse for his brother, Johnny Ong, plaintiff herein, which then, the amount of P150,000.00 was given as additional partial payment. However, the particular unit was not yet identified. It was only on January 10, 1997 that Tommy Ong identified Unit No. 4 plaintiffs chosen unit and again tendered P350,000.00 as his third partial payment. When the contract to sell for Unit 4 was being drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made so as to give Johnny Ong another option to choose whichever unit he might decide to have. When the construction was already in full blast, defendants were informed by Tommy Ong that their final choice was Unit 5. It was only upon knowing that the defendants will be selling Unit 4 to some other persons for P4million that plaintiff changed his choice from Unit 5 to Unit 4.4 In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong filed a complaint for Damages before the RTC of Cebu City, docketed as Civil Case No. CEB-23687, against defendants Andre T. Almocera and FBMC alleging that defendants were guilty of fraudulent concealment and breach of contract when they sold to him a townhouse unit without divulging that the same, at the time of the perfection of their contract, was already mortgaged with the Land Bank of the Philippines (LBP), with the latter causing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person. In their Answer, defendants denied liability claiming that the foreclosure of the mortgage on the townhouse unit was caused by the failure of complainant Johnny Ong to pay the balance of the price of said townhouse unit.

After the pre-trial conference was terminated, trial on the merits ensued. Respondent and his brother, Thomas Y. Ong, took the witness stand. For defendants, petitioner testified. In a Decision dated 20 May 2002, the RTC disposed of the case in this manner: WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in this case in favor of the plaintiff and against the defendants: (a) Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000.00, together with a legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time when the judgment becomes final and executory until fully satisfied; (b) Ordering the defendants to solidarily pay to the plaintiff the sum of P100,000.00 as moral damages, the sum of P50,000.00 as attorneys fee and the sum of P15,619.80 as expenses of litigation; and (c) Ordering the defendants to pay the cost of this suit.5 The trial court ruled against defendants for not acting in good faith and for not complying with their obligations under their contract with respondent. In the Contract to Sell6 involving Unit 4 of the Atrium Townhomes, defendants agreed to sell said townhouse to respondent for P3,400,000.00. The down payment was P1,000,000.00, while the balance of P2,400,000.00 was to be paid in full upon completion, delivery and acceptance of the townhouse. Under the contract which was signed on 10 January 1997, defendants agreed to complete and convey to respondent the unit within six months from the signing thereof. The trial court found that respondent was able to make a down payment or partial payment of P1,060,000.00 and that the defendants failed to complete the construction of, as well as deliver to respondent, the townhouse within six months from the signing of the contract. Moreover, respondent was not informed by the defendants at the time of the perfection of their contract that the subject townhouse was already mortgaged to LBP. The mortgage was foreclosed by the LBP and the townhouse was eventually sold at public auction. It said that defendants were guilty of fraud in their dealing with respondent because the mortgage was not disclosed to respondent when the contract was perfected. There was also non-compliance with their obligations under the contract when they failed to complete and deliver the townhouse unit at the agreed time. On the part of respondent, the trial court declared he was justified in suspending further payments to the defendants and was entitled to the return of the down payment. Aggrieved, defendants appealed the decision to the Court of Appeals assigning the following as errors: 1. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF HAS A VALID CAUSE OF ACTION FOR DAMAGES AGAINST DEFENDANT(S).

2. THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE COOPERATIVE FOR THE DAMAGES TO THE PLAINTIFF.7 The Court of Appeals ruled that the defendants incurred delay when they failed to deliver the townhouse unit to the respondent within six months from the signing of the contract to sell. It agreed with the finding of the trial court that the nonpayment of the balance of P2.4M by respondent to defendants was proper in light of such delay and the fact that the property subject of the case was foreclosed and auctioned. It added that the trial court did not err in giving credence to respondents assertion that had he known beforehand that the unit was used as collateral with the LBP, he would not have proceeded in buying the townhouse. Like the trial court, the Court of Appeals gave no weight to defendants argument that had respondent paid the balance of the purchase price of the townhouse, the mortgage could have been released. It explained: We cannot find fault with the choice of plaintiff not to further dole out money for a property that in all events, would never be his. Moreover, defendants could, if they were really desirous of satisfying their obligation, demanded that plaintiff pay the outstanding balance based on their contract. This they had not done. We can fairly surmise that defendants could not comply with their obligation themselves, because as testified to by Mr. Almocera, they already signified to LBP that they cannot pay their outstanding loan obligations resulting to the foreclosure of the townhouse.8 Moreover, as to the issue of petitioners solidary liability, it said that this issue was belatedly raised and cannot be treated for the first time on appeal. On 18 July 2005, the Court of Appeals denied the appeal and affirmed in toto the decision of the trial court. The dispositive portion of the decision reads: IN LIGHT OF ALL THE FOREGOING, this appeal is DENIED. The assailed decision of the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB23687 is AFFIRMED in toto.9 In a Resolution dated 16 November 2005, the Court of Appeals denied defendants motion for reconsideration. Petitioner is now before us pleading his case via a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure. The petition raises the following issues: I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT HAS INCURRED DELAY. II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE PURCHASE PRICE. III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE DEFENDANT COOPERATIVE FOR DAMAGES TO PLAINTIFF.10

It cannot be disputed that the contract entered into by the parties was a contract to sell. The contract was denominated as such and it contained the provision that the unit shall be conveyed by way of an Absolute Deed of Sale, together with the attendant documents of Ownership the Transfer Certificate of Title and Certificate of Occupancy and that the balance of the contract price shall be paid upon the completion and delivery of the unit, as well as the acceptance thereof by respondent. All these clearly indicate that ownership of the townhouse has not passed to respondent. In Serrano v. Caguiat,
11

we explained:

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendors obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price. The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos [47 O.G. 6372 (1951)], we held that: "x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract." In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price. The Contract to Sell entered into by the parties contains the following pertinent provisions: 4. TERMS OF PAYMENT: 4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as Downpayment for the above-mentioned Contract Price. 4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED PESOS (P2,400,000.00) shall be paid thru financing Institution facilitated by the SELLER, preferably Landbank of the Philippines (LBP). Upon completion, delivery and acceptance of the BUYER of the Townhouse Unit, the BUYER shall have paid the Contract Price in full to the SELLER. xxxx

6. COMPLETION DATES OF THE TOWNHOUSE UNIT: The unit shall be completed and conveyed by way of an Absolute Deed of Sale together with the attendant documents of Ownership in the name of the BUYER the Transfer Certificate of Title and Certificate of Occupancy within a period of six (6) months from the signing of Contract to Sell.12 From the foregoing provisions, it is clear that petitioner and FBMC had the obligation to complete the townhouse unit within six months from the signing of the contract. Upon compliance therewith, the obligation of respondent to pay the balance of P2,400,000.00 arises. Upon payment thereof, the townhouse shall be delivered and conveyed to respondent upon the execution of the Absolute Deed of Sale and other relevant documents. The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -to complete and deliver the townhouse within the six-month period. With petitioner and FBMCs non-fulfillment of their obligation, respondent refused to pay the balance of the contract price. Respondent does not ask that ownership of the townhouse be transferred to him, but merely asks that the amount or down payment he had made be returned to him. Article 1169 of the Civil Code reads: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. The contract subject of this case contains reciprocal obligations which were to be fulfilled by the parties, i.e., to complete and deliver the townhouse within six months from the execution of the contract to sell on the part of petitioner and FBMC, and to pay the balance of the contract price upon completion and delivery of the townhouse on the part of the respondent.

In the case at bar, the obligation of petitioner and FBMC which is to complete and deliver the townhouse unit within the prescribed period, is determinative of the respondents obligation to pay the balance of the contract price. With their failure to fulfill their obligation as stipulated in the contract, they incurred delay and are liable for damages.13 They cannot insist that respondent comply with his obligation. Where one of the parties to a contract did not perform the undertaking to which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the other party.14 On the first assigned error, petitioner insists there was no delay when the townhouse unit was not completed within six months from the signing of the contract inasmuch as the mere lapse of the stipulated six (6) month period is not by itself enough to constitute delay on his part and that of FBMC, since the law requires that there must either be judicial or extrajudicial demand to fulfill an obligation so that the obligor may be declared in default. He argues there was no evidence introduced showing that a prior demand was made by respondent before the original action was instituted in the trial court. We do not agree. Demand is not necessary in the instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed and thereafter sold to a third person. Anent the second assigned error, petitioner argues that if there was any delay, the same was incurred by respondent because he refused to pay the balance of the contract price. We find his argument specious. As above-discussed, the obligation of respondent to pay the balance of the contract price was conditioned on petitioner and FBMCs performance of their obligation. Considering that the latter did not comply with their obligation to complete and deliver the townhouse unit within the period agreed upon, respondent could not have incurred delay. For failure of one party to assume and perform the obligation imposed on him, the other party does not incur delay.15 Under the circumstances obtaining in this case, we find that respondent is justified in refusing to pay the balance of the contract price. He was never in possession of the townhouse unit and he can no longer be its owner since ownership thereof has been transferred to a third person who was not a party to the proceedings below. It would simply be the height of inequity if we are to require respondent to pay the balance of the contract price. To allow this would result in the unjust enrichment of petitioner and FBMC. The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine which are present in this case are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another. It is commonly accepted that this doctrine simply means a person shall not be allowed to profit or enrich himself inequitably at another's expense.16 Hence, to allow petitioner and FBMC keep the down payment made by respondent amounting to

P1,060,000.00 would result in their unjust enrichment at the expense of the respondent. Thus, said amount should be returned. What is worse is the fact that petitioner and FBMC intentionally failed to inform respondent that the subject townhouse which he was going to purchase was already mortgaged to LBP at the time of the perfection of their contract. This deliberate withholding by petitioner and FBMC of the mortgage constitutes fraud and bad faith. The trial court had this say: In the light of the foregoing environmental circumstances and milieu, therefore, it appears that the defendants are guilty of fraud in dealing with the plaintiff. They performed voluntary and willful acts which prevent the normal realization of the prestation, knowing the effects which naturally and necessarily arise from such acts. Their acts import a dishonest purpose or some moral obliquity and conscious doing of a wrong. The said acts certainly gtive rise to liability for damages (8 Manresa 72; Borrell-Macia 26-27; 3 Camus 34; OLeary v. Macondray & Company, 454 Phil. 812; Heredia v. Salinas, 10 Phil. 157). Article 1170 of the New Civil Code of the Philippines provides expressly that "those who in the performance of their obligations are guilty of fraud and those who in any manner contravene the tenor thereof are liable for damages.17 On the last assigned error, petitioner contends that he should not be held solidarily liable with defendant FBMC, because the latter is a separate and distinct entity which is the seller of the subject townhouse. He claims that he, as Chairman and Chief Executive Officer of FBMC, cannot be held liable because his representing FBMC in its dealings is a corporate act for which only FBMC should be held liable. This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. The Court of Appeals declared: In the case below, the pleadings and the evidence of the defendants are one and the same and never had it made to appear that Almocera is a person distinct and separate from the other defendant. In fine, we cannot treat this error for the first time on appeal. We cannot in good conscience, let the defendant Almocera raise the issue of piercing the veil of corporate fiction just because of the adverse decision against him. x x x.18 To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory not ventilated before the trial court.19 As to the award of damages granted by the trial court, and affirmed by the Court of Appeals, we find the same to be proper and reasonable under the circumstances. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 is AFFIRMED. Costs against the petitioner.

SO ORDERED.
MINITA V. CHICO-NAZARIO Associate Justice

WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson MA. ALICIA AUSTRIA-MARTINEZ Associate Justice ANTONIO EDUARDO B. NACHURA Associate Justice

RUBEN T. REYES Associate Justice

ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice
Footnotes
1

Associate Justice Pampio A. Abarintos with Associate Justices Mercedes Gozo-Dadole and Ramon M. Bato, Jr., concurring; rollo, pp. 25-32; Penned by Hon. Isaias P. Dicdican. Id. at 33-34. Rollo, pp. 26-27. Id. at 47. Exhibit A. Rollo, pp. 15-16. Id. at 30.

Id. at 32. Id. at 16. G.R. No. 139173, 28 February 2007, 517 SCRA 57, 64-65. Rollo, p. 28-29. Leao v. Court of Appeals , 420 Phil. 836, 848 (2001). Agustin v. Court of Appeals , G.R. No. 84751, 6 June 1990, 186 SCRA 375, 383. Agustin v. Court of Appeals , id., citing Abaya v. Standard-Vacuum Oil Co., 101 Phil. 1262 (1957). P.C. Javier & Sons, Inc. v. Court of Appeals , G.R. No. 129552, 29 June 2005, 462 SCRA 36, 47. Rollo, p. 44. Id. at 31. Valdez v. China Banking Corporation, G.R. No. 155009, 12 April 2005, 455 SCRA 687, 696.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-57552 October 10, 1986 LUISA F. MCLAUGHLIN, petitioner, vs. THE COURT OF APPEALS AND RAMON FLORES, respondents. R.C. Domingo Jr. & Associates for private respondent.

FERIA, Actg. C.J. This is an appeal by certiorari from the decision of the Court of Appeals, the dispositive part of which reads as follows: IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and mandamus is hereby GRANTED and the Orders of respondent court dated November 21 and 27 both 1980 are hereby nullified and set aside and respondent Judge is ordered to order private respondent to accept petitioner's Pacific Banking Corporation certified manager's Check No. MC-A-000311 dated November 17, 1980 in the amount of P76,059.71 in full settlement of petitioner's obligation, or another check of equivalent kind and value, the earlier check having become stale. On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores entered into a contract of conditional sale of real property. Paragraph one of the deed of conditional sale fixed the total purchase price of P140,000.00 payable as follows: a) P26,550.00

upon the execution of the deed; and b) the balance of P113,450.00 to be paid not later than May 31, 1977. The parties also agreed that the balance shall bear interest at the rate of 1% per month to commence from December 1, 1976, until the full purchase price was paid. On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil Case No. 33573) for the rescission of the deed of conditional sale due to the failure of private respondent to pay the balance due on May 31, 1977. On December 27, 1979, the parties submitted a Compromise Agreement on the basis of which the court rendered a decision on January 22, 1980. In said compromise agreement, private respondent acknowledged his indebtedness to petitioner under the deed of conditional sale in the amount of P119,050.71, and the parties agreed that said amount would be payable as follows: a) P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71 in two equal installments on June 30, 1980 and December 31, 1980. As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and in addition he also paid an "escalation cost" of P25,000.00. Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay one thousand (P l,000.00) pesos monthly rental beginning December 5, 1979 until the obligation is duly paid, for the use of the property subject matter of the deed of conditional sale. Paragraphs 6 and 7 of the Compromise Agreement further state: That the parties are agreed that in the event the defendant (private respondent) fails to comply with his obligations herein provided, the plaintiff (petitioner) will be entitled to the issuance of a writ of execution rescinding the Deed of Conditional Sale of Real Property. In such eventuality, defendant (private respondent) hereby waives his right to appeal to (from) the Order of Rescission and the Writ of Execution which the Court shall render in accordance with the stipulations herein provided for. That in the event of execution all payments made by defendant (private respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated damages. On October 15, 1980, petitioner wrote to private respondent demanding that the latter pay the balance of P69,059.71 on or before October 31, 1980. This demand included not only the installment due on June 30, 1980 but also the installment due on December 31, 1980. On October 30, 1980, private respondent sent a letter to petitioner signifying his willingness and intention to pay the full balance of P69,059.71, and at the same time demanding to see the certificate of title of the property and the tax payment receipts. Private respondent states on page 14 of his brief that on November 3, 1980, the first working day of said month, he tendered payment to petitioner but this was refused acceptance by petitioner. However, this does not appear in the decision of the Court of Appeals. On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private respondent failed to pay the installment due on June 1980 and that since June 1980 he had failed to pay the monthly rental of P l,000.00. Petitioner prayed that a) the deed of conditional sale of real property be declared rescinded with forfeiture of all payments as liquidated damages; and b) the court order the payment of Pl,000.00 back rentals since June 1980 and the eviction of private respondent.

On November 14, 1980, the trial court granted the motion for writ of execution. On November 17, 1980, private respondent filed a motion for reconsideration tendering at the same time a Pacific Banking Corporation certified manager's check in the amount of P76,059.71, payable to the order of petitioner and covering the entire obligation including the installment due on December 31, 1980. However, the trial court denied the motion for reconsideration in an order dated November 21, 1980 and issued the writ of execution on November 25, 1980. In an order dated November 27, 1980, the trial court granted petitioner's ex-parte motion for clarification of the order of execution rescinding the deed of conditional sale of real property. On November 28, 1980, private respondent filed with the Court of Appeals a petition for certiorari and prohibition assailing the orders dated November 21 and 27, 1980. As initially stated above, the appellate court nullified and set aside the disputed orders of the lower court. In its decision, the appellate court ruled in part as follows: The issue here is whether respondent court committed a grave abuse of discretion in issuing the orders dated November 21, 1980 and November 27,1980. The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are substantial and fundamental as to defeat the object of the parties in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821) In aforesaid case, it was held that a delay in payment for a small quantity of molasses, for some twenty days is not such a violation of an essential condition of the contract as warrants rescission for non-performance. In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling was reaffirmed. In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that Flores pay the balance of P69,059.71 on or before October 31, 1980. Thus it is undeniable that despite Flores' failure to make the payment which was due on June 1980, McLaughlin waived whatever right she had under the compromise agreement as incorporated in the decision of respondent court, to demand rescission. xxx xxx xxx It is significant to note that on November 17, 1980, or just seventeen (17) days after October 31, 1980, the deadline set by McLaughlin, Flores tendered the certified manager's check. We hold that the Song Fo ruling is applicable herein considering that in the latter case, there was a 20-day delay in the payment of the obligation as compared to a 17-day delay in the instant case. Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc. vs. Hon. Alberto Seneris, L-41764, December 19, 1980, it is the accepted practice in business to consider a cashier's or manager's check as cash and that upon certification of a check, it is equivalent to its acceptance (Section 187, Negotiable Instrument Law) and the funds are thereby transferred to the credit of the creditor (Araneta v. Tuason, 49 O.G. p. 59).

In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further held that the object of certifying a check is to enable the holder thereof to use it as money, citing the ruling in PNB vs. National City Bank of New York, 63 Phil. 711. In the New Pacific Timber case, it was also ruled that the exception in Section 63 of the Central Bank Act that the clearing of a check and the subsequent crediting of the amount thereof to the account of the creditor is equivalent to delivery of cash, is applicable to a payment through a certified check. Considering that Flores had already paid P101,550.00 under the contract to sell, excluding the monthly rentals paid, certainly it would be the height of inequity to have this amount forfeited in favor McLaughlin. Under the questioned orders, McLaughlin would get back the property and still keep P101,550.00. Petitioner contends that the appellate court erred in not observing the provisions of Article No. 1306 of the Civil Code of the Philippines and in having arbitrarily abused its judicial discretion by disregarding the penal clause stipulated by the parties in the compromise agreement which was the basis of the decision of the lower court. We agree with the appellate court that it would be inequitable to cancel the contract of conditional sale and to have the amount of P101,550.00 (P l48,126.97 according to private respondent in his brief) already paid by him under said contract, excluding the monthly rentals paid, forfeited in favor of petitioner, particularly after private respondent had tendered the amount of P76,059.71 in full payment of his obligation. In the analogous case of De Guzman vs. Court of Appeals, this Court sustained the order of the respondent judge denying the petitioners' motion for execution on the ground that the private respondent had substantially complied with the terms and conditions of the compromise agreement, and directing the petitioners to immediately execute the necessary documents transferring to the private respondent the title to the properties (July 23, 1985, 137 SCRA 730). In the case at bar, there was also substantial compliance with the compromise agreement. Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. , to the effect that Republic Act 6552 (the Maceda Law) "recognizes and reaffirms the vendor's right to cancel the contract to sell upon breach and non-payment of the stipulated installments but requires a grace period after at least two years of regular installment payments ... . " (86 SCRA 305, 329) On the other hand, private respondent also invokes said law as an expression of public policy to protect buyers of real estate on installments against onerous and oppressive conditions (Section 2 of Republic Act No. 6552). Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as follows: In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of the cancellation or the demand for rescission of the contract by a notarial act. Section 7 of said law provides as follows: Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void.

The spirit of these provisions further supports the decision of the appellate court. The record does not contain the complete text of the compromise agreement dated December 20, 1979 and the decision approving it. However, assuming that under the terms of said agreement the December 31, 1980 installment was due and payable when on October 15, 1980, petitioner demanded payment of the balance of P69,059.71 on or before October 31, 1980, petitioner could cancel the contract after thirty days from receipt by private respondent of the notice of cancellation. Considering petitioner's motion for execution filed on November 7, 1980 as a notice of cancellation, petitioner could cancel the contract of conditional sale after thirty days from receipt by private respondent of said motion. Private respondent's tender of payment of the amount of P76,059.71 together with his motion for reconsideration on November 17, 1980 was, therefore, well within the thirty-day period grants by law.. The tender made by private respondent of a certified bank manager's check payable to petitioner was a valid tender of payment. The certified check covered not only the balance of the purchase price in the amount of P69,059.71, but also the arrears in the rental payments from June to December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On this point the appellate court correctly applied the ruling in the case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to the case at bar. Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that: An offer in writing to pay a particular sum of money or to deliver a written instrument or specific property is, if rejected, equivalent to the actual production and tender of the money, instrument, or property. However, although private respondent had made a valid tender of payment which preserved his rights as a vendee in the contract of conditional sale of real property, he did not follow it with a consignation or deposit of the sum due with the court. As this Court has held: The rule regarding payment of redemption prices is invoked. True that consignation of the redemption price is not necessary in order that the vendor may compel the vendee to allow the repurchase within the time provided by law or by contract. (Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have held that in such cases a mere tender of payment is enough, if made on time, as a basis for action against the vendee to compel him to resell. But that tender does not in itself relieve the vendor from his obligation to pay the price when redemption is allowed by the court. In other words, tender of payment is sufficient to compel redemption but is not in itself a payment that relieves the vendor from his liability to pay the redemption price. " (Paez vs. Magno, 83 Phil. 403, 405) On September 1, 1986, the Court issued the following resolution Considering the allegation in petitioner's reply brief that the Manager's Check tendered by private respondent on November 17, 1980 was subsequently cancelled and converted into cash, the Court RESOLVED to REQUIRE the parties within ten (10) days from notice to inform the Court whether or not the amount thereof was deposited in court and whether or not private respondent continued paying the monthly rental of P1,000.00 stipulated in the Compromise Agreement. In compliance with this resolution, both parties submitted their respective manifestations which confirm that the Manager's Check in question was subsequently withdrawn and replaced by cash, but the cash was not deposited with the court. According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released

from responsibility by the consignation of the thing or sum due, and that consignation alone shall produce the same effect in the five cases enumerated therein; Article 1257 provides that in order that the consignation of the thing (or sum) due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation; and Article 1258 provides that consignation shall be made by depositing the thing (or sum) due at the disposal of the judicial authority and that the interested parties shall also be notified thereof. As the Court held in the case of Soco vs. Militante, promulgated on June 28, 1983, after examining the above-cited provisions of the law and the jurisprudence on the matter: Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. (8 Manresa 325). (123 SCRA 160,173) In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730), the vendee was released from responsibility because he had deposited with the court the balance of the purchase price. Similarly, in the above-cited case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686), the judgment debtor was released from responsibility by depositing with the court the amount of the judgment obligation. In the case at bar, although as above stated private respondent had preserved his rights as a vendee in the contract of conditional sale of real property by a timely valid tender of payment of the balance of his obligation which was not accepted by petitioner, he remains liable for the payment of his obligation because of his failure to deposit the amount due with the court. In his manifestation dated September 19, 1986, private respondent states that on September 16, 1980, he purchased a Metrobank Cashier's Check No. CC 004233 in favor of petitioner Luisa F. McLaughlin in the amount of P76,059.71, a photocopy of which was enclosed and marked as Annex "A- 1;" but that he did not continue paying the monthly rental of Pl,000.00 because, pursuant to the decision of the appellate court, petitioner herein was ordered to accept the aforesaid amount in full payment of herein respondent's obligation under the contract subject matter thereof. However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private respondent to deposit the same with the court in order to be released from responsibility. Since private respondent did not deposit said amount with the court, his obligation was not paid and he is liable in addition for the payment of the monthly rental of Pl,000.00 from January 1, 1981 until said obligation is duly paid, in accordance with paragraph 3 of the Compromise Agreement. Upon full payment of the amount of P76,059.71 and the rentals in arrears, private respondent shall be entitled to a deed of absolute sale in his favor of the real property in question. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following modifications: (a) Petitioner is ordered to accept from private respondent the Metrobank Cashier's Check No. CC 004233 in her favor in the amount of P76,059.71 or another certified check of a reputable bank drawn in her favor in the same amount; (b) Private respondent is ordered to pay petitioner, within sixty (60) days from the finality of this decision, the rentals in arrears of P l,000.00 a month from January 1, 1981 until full payment thereof; and

(c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent over the real property in question upon full payment of the amounts as provided in paragraphs (a) and (b) above. No costs. SO ORDERED. Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.

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

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT OF APPEALS and VICENTE HERCE JR., respondents. DECISION BELLOSILLO, J.: This case involves the proper interpretation of the contract entered into between the parties.

Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J. M. T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. i[1] Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent.ii[2] It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff." iii[3] With respect to the repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction." iv[4] The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty. His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed. We reverse the appellate court on the first issue but sustain it on the second. The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but

proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letterproposal (Exh. "1") are reproduced hereunder In connection with your Windmill System and Installation, we would like to quote to you as follows: One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate during extraintensity wind. Excluding cylinder pump. UNIT CONTRACT PRICE P87,000.00 The second letter-proposal (Exh. "A") provides as follows: In connection with your Windmill system Supply of Labor Materials and Installation, operated water pump, we would like to quote to you as follows One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal. One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling. One (1) lot - Float valve. One (1) lot - Concreting materials foundation. F. O. B. Laguna Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration v[5] and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. vi[6] An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him. Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI

who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig."vii[7] We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this written communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60,000.00. We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his possession." viii[8] Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it,".ix[9] It does not appear from the record that Pili and/or SPGMI was so authorized. Respondent cannot claim the benefit of the law concerning "payments made by a third person."x[10] The Civil Code provisions do not apply in the instant case because no creditordebtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have been entered into. The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify. The second issue is not a novel one. In a long line of cases xi[11] this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals,xii[12] four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous - unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee."xiii[13] It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life."xiv[14] This presumption has not been rebutted by petitioner. Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. xv[15] When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty"xvi[16]and to complete the same within three (3) months from the finality of this decision. SO ORDERED. Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, JJ., concur .

i[1] TSN, 20 December 1988, pp. 10-12. ii[2] Exh. "A" and iii[3] Rollo, p. 36. iv[4] Id., p. 37. v[5] Kasilag v. Rodriguez, 69 Phil. 217 (1939). vi[6] Art. 1371, New Civil Code; GSIS v. Court of Appeals, G.R. No. 52478, 30 October 1986, 145 SCRA 311; Serrano v. Court of Appeals, No.
L-46357, 9 October 1985, 139 SCRA 179. Exh. "1."

vii[7] TSN, 13 April 1989, pp. 18-19. viii[8] TSN, 13 April 1989, p. 22. ix[9] Art. 1240, New Civil Code. x[10] Arts. 1236 and 1237, New Civil Code . xi[11] Nakpil v. Court of Appeals,
Nos. L-47851, L-47863, L-47896, 3 October 1986, 144 SCRA 596; National Power Corporation v. Court of Appeals, G.R. Nos. L-47379 and 47481, 16 May 1988, 161 SCRA 334; National Power Corporation v. Court of Appeals, G.R. Nos. 103442-45, 21 May 1993, 222 SCRA 415.

xii[12] See Note 11. xiii[13] Rollo, p. 44. xiv[14] Sec. 3, par.
(y), Rule 131, Revised Rules on Evidence.

xv[15] Art. 1169, last par., New Civil Code. xvi[16] See CA Decision,
p. 7; Rollo, p. 27.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 164349

January 31, 2006

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner, vs. ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND FORTUNATO CATIBOG, Respondents. DECISION CARPIO MORALES, J.:

On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the Radio Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon City 1 reading: "Send check money Mommy hospital." For RCPIs services, Grace paid P10.502 for which she was issued a receipt.3 As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid. Immediately after she received Graces letter, Zenaida, along with her husband Fortunato Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram. In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon City where she was confined from January 30, 1991 to March 21, 1991. The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. 4 On inquiry from RCPI why it took that long to deliver it, a messenger of RCPI replied that he had nothing to do with the delivery thereof as it was another messenger who previously was assigned to deliver the same but the address could not be located, hence, the telegram was resent on February 2, 1991, and the second messenger finally found the address on February 15, 1991. Edithas husband Alfonso Verchez (Verchez), by letter of March 5, 1991, 5 demanded an explanation from the manager of the Service Quality Control Department of the RCPI, Mrs. Lorna D. Fabian, who replied, by letter of March 13, 1991,6 as follows: Our investigation on this matter disclosed that subject telegram was duly processed in accordance with our standard operating procedure. However, delivery was not immediately effected due to the occurrence of circumstances which were beyond the control and foresight of RCPI. Among others, during the transmission process, the radio link connecting the points of communication involved encountered radio noise and interferences such that subject telegram did not initially registered (sic) in the receiving teleprinter machine. Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission was made and subsequent delivery was effected. (Underscoring supplied) Verchezs lawyer thereupon wrote RCPIs manager Fabian, by letter of July 23, 1991, 7 requesting for a conference on a specified date and time, but no representative of RCPI showed up at said date and time. On April 17, 1992, Editha died. On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective spouses, filed a complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for damages. In their complaint, the plaintiffs alleged that, inter alia, the delay in delivering the telegram contributed to the early demise of the late Editha to their damage and prejudice, 8 for which they prayed for the award of moral and exemplary damages 9 and attorneys fees.10 After its motion to dismiss the complaint for improper venue11 was denied12 by Branch 5 of the RTC of Sorsogon, RCPI filed its answer, alleging that except with respect to Grace, 13 the other plaintiffs

had no privity of contract with it; any delay in the sending of the telegram was due to force majeure, "specifically, but not limited to, radio noise and interferences which adversely affected the transmission and/or reception of the telegraphic message";14 the clause in the Telegram Transmission Form signed by Grace absolved it from liability for any damage arising from the transmission other than the refund of telegram tolls;15 it observed due diligence in the selection and supervision of its employees; and at all events, any cause of action had been barred by laches.16 The trial court, observing that "although the delayed delivery of the questioned telegram was not apparently the proximate cause of the death of Editha," ruled out the presence of force majeure. Respecting the clause in the telegram relied upon by RCPI, the trial court held that it partakes of the nature of a contract of adhesion. Finding that the nature of RCPIs business obligated it to dispatch the telegram to the addressee at the earliest possible time but that it did not in view of the negligence of its employees to repair its radio transmitter and the concomitant delay in delivering the telegram on time, the trial court, upon the following provisions of the Civil Code, to wit: Article 2176 Whoever by act or omission causes damage to another, there being at fault or negligence, is obliged to pay for the damage done. Such fault or negligence if there is no preexisting contractual relation between the parties, is called quasi-delict and is governed by the provisions of this Chapter. Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time, or the place." In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of an urgent nature. Its essence is the early delivery of the telegram to the concerned person. Yet, due to the negligence of its employees, the defendant failed to discharge of its obligation on time making it liable for damages under Article 2176. The negligence on the part of the employees gives rise to the presumption of negligence on the part of the employer.17 (Underscoring supplied), rendered judgment against RCPI. Accordingly, it disposed: WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the plaintiffs and against the defendant, to wit: Ordering the defendant to pay the plaintiffs the following amount: 1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages; 2. The amount of Twenty Thousand (P20,000.00) Pesos as attorneys fees; and 3. To pay the costs. SO ORDERED.18 On appeal, the Court of Appeals, by Decision of February 27, 2004, 19 affirmed the trial courts decision.

Hence, RCPIs present petition for review on certiorari, it raising the following questions: (1) "Is the award of moral damages proper even if the trial court found that there was no direct connection between the injury and the alleged negligent acts?" 20 and (2) "Are the stipulations in the Telegram Transmission Form, in the nature "contracts of adhesion" (sic)?21 RCPI insists that respondents failed to prove any causal connection between its delay in transmitting the telegram and Edithas death.22 RCPIs stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents. Article 1170 of the Civil Code provides: 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. (Underscoring supplied) Passing on this codal provision, this Court explained: In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability.23 (Emphasis and underscoring supplied) In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however, for RCPI to deliver it. RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not locate the address of Zenaida and it was only on the third attempt that he was able to deliver the telegram. For the defense of force majeure to prosper, x x x it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. Ones 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 persons 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 .

xxxx Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that could not be foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion of human intervention from the cause of injury or loss .24 (Emphasis and underscoring supplied) Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible time, it should have at least informed Grace of the non-transmission and the non-delivery so that she could have taken steps to remedy the situation. But it did not. There lies the fault or negligence. In an earlier case also involving RCPI, this Court held: Considering the public utility of RCPIs business and its contractual obligation to transmit messages, it should exercise due diligence to ascertain that messages are delivered to the persons at the given address and should provide a system whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent by cable or wireless means are usually more important and urgent than those which can wait for the mail.25 xxxx People depend on telecommunications companies in times of deep emotional stress or pressing financial needs. Knowing that messages about the illnesses or deaths of loved ones, births or marriages in a family, important business transactions, and notices of conferences or meetings as in this case, are coursed through the petitioner and similar corporations, it is incumbent upon them to exercise a greater amount of care and concern than that shown in this case. Every reasonable effort to inform senders of the non-delivery of messages should be undertaken.26 (Emphasis and underscoring supplied) RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award of moral damages, thus:27 The request to send check as written in the telegraphic text negates the existence of urgency that private respondents allegations that time was of the essence imports. A check drawn against a Manila Bank and transmitted to Sorsogon, Sorsogon will have to be deposited in a bank in Sorsogon and pass thru a minimum clearing period of 5 days before it may be encashed or withdrawn. If the transmittal of the requested check to Sorsogon took 1 day private respondents could therefore still wait for 6 days before the same may be withdrawn. Requesting a check that would take 6 days before it could be withdrawn therefore contradicts plaintiffs claim of urgency or need.28 At any rate, any sense of urgency of the situation was met when Grace Verchez was able to communicate to Manila via a letter that she sent to the same addressee in Manila thru JRS.29 xxxx As far as the respondent courts award for moral damages is concerned, the same has no basis whatsoever since private respondent Alfonso Verchez did not accompany his late wife when the latter went to Manila by bus. He stayed behind in Sorsogon for almost 1 week before he proceeded to Manila. 30

When pressed on cross-examination, private respondent Alfonso Verchez could not give any plausible reason as to the reason why he did not accompany his ailing wife to Manila. 31 xxxx It is also important to consider in resolving private respondents claim for moral damages that private respondent Grace Verchez did not accompany her ailing mother to Manila.32 xxxx It is the common reaction of a husband to be at his ailing wifes side as much as possible. The fact that private respondent Alfonso Verchez stayed behind in Sorsogon for almost 1 week convincingly demonstrates that he himself knew that his wife was not in critical condition.33 (Emphasis and underscoring supplied) RCPIs arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption. For breach of contract then, RCPI is liable to Grace for damages. And for quasi-delict, RCPI is liable to Graces co-respondents following Article 2176 of the Civil Code which provides: Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (Underscoring supplied) RCPIs liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code so provides: The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. xxxx The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. (Underscoring supplied)

RCPI failed, however, to prove that it observed all the diligence of a good father of a family to prevent damage. Respecting the assailed award of moral damages, a determination of the presence of the following requisites to justify the award is in order: x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. 34 Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was correctly appreciated by the CA in this wise: The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed their filial tranquillity. Family members blamed each other for failing to respond swiftly to an emergency that involved the life of the late Mrs. Verchez, who suffered from diabetes. 35 As reflected in the foregoing discussions, the second and third requisites are present. On the fourth requisite, Article 2220 of the Civil Code provides: Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis and underscoring supplied) After RCPIs first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited for 12 days before trying to deliver it again, knowing as it should know that time is of the essence in the delivery of telegrams. When its second long-delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days before making a third attempt. Such nonchalance in performing its urgent obligation indicates gross negligence amounting to bad faith. The fourth requisite is thus also present. In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of breach of contract where the defendant was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. 36 As for RCPIs tort-based liability, Article 2219 of the Civil Code provides: Moral damages may be recovered in the following and analogous cases: xxxx (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis supplied) Article 26 of the Civil Code, in turn, provides: Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention, and other relief:

xxxx (2) Meddling with or disturbing the private life or family relations of another. (Emphasis supplied) RCPIs negligence in not promptly performing its obligation undoubtedly disturbed the peace of mind not only of Grace but also her co-respondents. As observed by the appellate court, it disrupted the "filial tranquillity" among them as they blamed each other "for failing to respond swiftly to an emergency." The tortious acts and/or omissions complained of in this case are, therefore, analogous to acts mentioned under Article 26 of the Civil Code, which are among the instances of quasi-delict when courts may award moral damages under Article 2219 of the Civil Code. In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the award of attorneys fees, respondents having been compelled to litigate to protect their rights. Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission Form" is not a contract of adhesion. Thus it argues: Neither can the Telegram Transmission Form be considered a contract of adhesion as held by the respondent court. The said stipulations were all written in bold letters right in front of the Telegram Transmission Form. As a matter of fact they were beside the space where the telegram senders write their telegraphic messages. It would have been different if the stipulations were written at the back for surely there is no way the sender will easily notice them. The fact that the stipulations were located in a particular space where they can easily be seen, is sufficient notice to any sender (like Grace Verchez-Infante) where she could manifest her disapproval, leave the RCPI station and avail of the services of the other telegram operators.37 (Underscoring supplied) RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the stipulations nor their physical location in the contract determines whether it is one of adhesion. A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.38 (Emphasis and underscoring supplied) While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly against the party who drafted it or gave rise to any ambiguity therein, it is stricken down as void and unenforceable or subversive of public policy when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 39 This Court holds that the Court of Appeals finding that the parties contract is one of adhesion which is void is, given the facts and circumstances of the case, thus well-taken. WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.

CONCHITA CARPIO MORALES Associate Justice

WE CONCUR: LEONARDO A. QUISUMBING Associate Justice Chairperson ANTONIO T. CARPIO Associate Justice DANTE O. TINGA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. LEONARDO A. QUISUMBING Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans Attestation, it is hereby certified 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. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

RTC records, p. 2. Exhibit "A," RTC records, p. 7; Exhibit "C," records, p. 9. Exhibit "A," supra note 2. Supra note 1. Exhibit "D," RTC records, pp. 10-11. Exhibit "E," RTC records p. 12. Exhibit "F," RTC records, p. 13. RTC records, p. 4. Id. Id. at 4-5. Id. at 19-30. Id. at 42. Id. at 60-61.

10

11

12

13

14

Id. at 61. Id. at 61-62. See also p. 30. Id. at p. 62. Id. at 393 (citations omitted). Id. at 394. Penned by Justice Mariano C. Del Castillo, with the concurrence of Justices Rodrigo V. Cosico and Vicente Q. Roxas. Rollo, p. 9. Ibid. Id. at 12. FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation , 435 Phil. 333, 341-342 (2002) (citations omitted). Mindex Resources Development v. Morillo , 428 Phil. 934, 944-945 (2002) (citations omitted).

15

16

17

18

19

20

21

22

23

24

25

Radio Communications of the Philippines, Inc. v. Rodriguez , G.R. No. 83768, February 28, 1990, 182 SCRA 899, 905 (citations omitted).
26

Id. at 908 (citations omitted). Rollo, pp. 12-15. Id. at 13. Id. Id. at 14 (citations omitted). Id. (citations omitted). Id. Id. at 15.

27

28

29

30

31

32

33

34

Philippine Telegraph & Telephone Corporation v. Court of Appeals , 437 Phil. 76, 84 (2002); see also Gamboa, Rodriguez, Rivera & Co., Inc. v. Court of Appeals, G.R. No. 117456, May 6, 2005, 458 SCRA 68 (citations omitted).
35

CA rollo, p. 97 (citations omitted). See Sarmiento v. Sun-Cabrido, 449 Phil. 108, 116-117 (2003). Rollo, p. 55. Philippine Commercial International Bank v. Court of Appeals , 325 Phil. 588, 597 (1996).

36

37

38

39

Saludo, Jr. v. Court of Appeals , G.R. No. 95536, March 23, 1992, 207 SCRA 498, 528; Philippine Commercial International Bank v. Court of Appeals, supra; Sweet Lines, Inc. v. Teves, G.R. No. L-37750, May 19, 1978, 83 SCRA 361 (citations omitted).

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 159617

August 8, 2007

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners, vs. LULU V. JORGE and CESAR JORGE, respondents. 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 Resolution 2 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 Paraaque, 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, Paraaque 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 Decision 6 dated January 12, 1993, dismissing respondents complaint as well as petitioners counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder. The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen. Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8 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 CAs 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 contradictory 13 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 letter 16 dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis. Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying that he made such an admission. 17 The Committee on the Revision of the Rules of Court explained the second exception in this wise: 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 Sicams 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 Paraaque 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 Paraaque 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 Paraaque 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 debtors 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 coemployees to collect their wages and salaries the following day, a Saturday, a nonworking, 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 Cruzs 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. Pestao 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 29 30 31 32 33 34 35 36 37 38

Id. at 312-313. Civil Code, Art. 1170. 443 Phil. 856, 863 (2003) citing McKee v. Intermediate Appellate Court, 211 SCRA 517 (1992). Cruz v. Gangan, supra note 30, at 863. TSN, January 21, 1992, pp.17-18. Exhibit "1," Excerpt from the Police Blotter dated October 17, 1987 of the Paraaque Police Station, p. 121. Cruz v. Gangan, supra note 30, at 863 citing Sangco, Torts and Damages, Vol. 1, 1993 rev. ed. p. 5. Supra note 7. G.R. No. 71871, November 6, 1989, 179 SCRA 39. Supra note 30. Austria v. Court of Appeals, supra note 7, at 466-467.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-21749

September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. LUZON STEVEDORING CORPORATION, defendant-appellant. Office of the Solicitor General for plaintiff-appellee. H. San Luis and L.V. Simbulan for defendant-appellant. REYES, J.B.L., J.:

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

Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of Appeals, and submits his case for decision there, is barred from contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage the undesirable practice of appellants' submitting their cases for decision to either court in expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23, 1966). Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief. Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal are reduced to two: 1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan bridge was in law caused by fortuitous event or force majeure, and 2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to introduce additional evidence of damages after said party had rested its case. As to the first question, considering that the Nagtahan bridge was an immovable and stationary object and uncontrovertedly provided with adequate openings for the passage of water craft, including barges like of appellant's, it is undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence on the part of appellant or its employees manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo American Jurisprudence, the inference arises by what is known as the " res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719). The appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent and experienced among its patrons, had the towlines, engines and equipment double-checked and inspected; that it instructed its patrons to take extra precautions; and concludes that it had done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event. These very precautions, however, completely destroy the appellant's defense. For caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually

foreseen, and was not caso fortuito. Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it therefore assured the risk, and can not shed responsibility merely because the precautions it adopted turned out to be insufficient. Hence, the lower Court committed no error in holding it negligent in not suspending operations and in holding it liable for the damages caused. It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if true, these circumstances would merely emphasize the need of even higher degree of care on appellant's part in the situation involved in the present case. The appellant, whose barges and tugs travel up and down the river everyday, could not safely ignore the danger posed by these allegedly improper constructions that had been erected, and in place, for years. On the second point: appellant charges the lower court with having abused its discretion in the admission of plaintiff's additional evidence after the latter had rested its case. There is an insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice defendant-appellant. We find no merit in the contention. Whether or not further evidence will be allowed after a party offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this discretion will not be reviewed except in clear case of abuse. 3 In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after plaintiff had rested its evidence in chief, were vouchers and papers to support an item of P1,558.00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which item already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of being unfair, because it was also able to secure, upon written motion, a similar order dated November 24, 1962, allowing reception of additional evidence for the said defendant-appellant. 4 WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed. Costs against the defendant-appellant. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Bengzon, J.P. J., on leave, took no part. Footnotes
1

The lead-tugboat "Bangus" was pulling the barge, while the tugboat "Barbero" was holding or restraining it at the back.
2

Lasam vs. Smith, 45 Phil. 661. Lopez vs. Liboro, 81 Phil. 429. p. 89, Record on Appeal.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 119729 January 21, 1997 ACE-AGRO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS and COSMOS BOTTLING CORPORATION, respondents. MENDOZA, J.:

This case originated in a complaint for damages for breach of contract which petitioner filed against private respondent. From the decision of the Regional Trial Court, Branch 72, Malabon, Metro Manila, finding private respondent guilty of breach of contract and ordering it to pay damages, private respondent appealed to the Court of Appeals which reversed the trial court's decision and dismissed the complaint for lack of merit. Petitioner in turn moved for a reconsideration, but its motion was denied. Hence, this petition for review on certiorari. The facts are as follows: Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation are corporations duly organized and existing under Philippine laws. Private respondent Cosmos Bottling Corp. is engaged in the manufacture of soft drinks. Since 1979 petitioner Ace-Agro Development Corp. (Ace-Agro) had been cleaning soft drink bottles and repairing wooden shells for Cosmos, rendering its services within the company premises in San Fernando, Pampanga. The parties entered into service contracts which they renewed every year. On January 18, 1990, they signed a contract covering the period January 1, 1990 to December 31, 1990. Private respondent had earlier contracted the services of Aren Enterprises in view of the fact that petitioner could handle only from 2,000 to 2,500 cases a day and could not cope with private respondent's daily production of 8,000 cases. Unlike petitioner, Aren Enterprises rendered service outside private respondent's plant. On April 25, 1990, fire broke out in private respondent's plant, destroying, among other places, the area where petitioner did its work. As a result, petitioner's work was stopped.

On May 15, 1990, petitioner asked private respondent to allow it to resume its service, but petitioner was advised that on account of the fire, which had "practically burned all . . . old soft drink bottles and wooden shells," private respondent was terminating their contract. Petitioner expressed surprise at the termination of the contract and requested private respondent, on June 13, 1990, to reconsider its decision and allow petitioner to resume its work in order to "cushion the sudden impact of the unemployment of many of [its] workers." As it received no reply from private respondent, petitioner, on June 20, 1990, informed its employees of the termination of their employment. Petitioner's memorandum 1 read:
MEMORANDUM TO : All Workers/Union Members THRU : Mr. Angelito B. Catalan Local Chapter President Bisig Manggagawa sa Ace Agro-NAFLU This is to inform you that the Cosmos Bottling Corp. has sent a letter to Ace AgroDevelopment Corp. terminating our contract with them. However, we are still doing what we can to save our contract and resume our operations, though this might take some time. We will notify you whatever would be the outcome of our negotiation with them in due time. Truly yours, ACE AGRODEVELOPMENT CORP. (Sgd.) ANTONIO L. ARQUIZA Manager

This led the employees to file a complaint for illegal dismissal before the Labor Arbiter against petitioner and private respondent. On July 17, 1990, petitioner sent another letter to private respondent, reiterating its request for reconsideration. Its letter 2 read:
COSMOS BOTTLING CORPORATION San Isidro MacArthur Highway San Fernando, Pampanga Attention: Mr. Norman P. Uy General Services Manager Gentlemen:

In our letter to you dated June 13, 1990 seeking your kind reconsideration of your sudden drastic decision to terminate our mutually beneficial contract of long standing, it is more than a month now but our office has not received a reply from you. Our workers, who have been anxiously waiting for the resumption of the operations and who are the ones most affected by your sudden decision, are now becoming restless due to the financial difficulties they are now suffering. We are, therefore, again seeking for the reconsideration of your decision to help alleviate the sufferings of the displaced workers, which we also have to consider for humanitarian reason. Yours very truly, ACE AGRODEVELOPMENT CORP. (Sgd.) ANTONIO I. ARQUIZA Manager

In response, private respondent advised petitioner on August 28, 1990 that the latter could resume the repair of wooden shells under terms similar to those contained in its contract but work had to be done outside the company premises. Private respondent's letter 3 read:
MR. ANTONIO I. ARQUIZA Manager ACE-AGRO DEVELOPMENT CORPORATION 165 J.P. Bautista Street Malabon, Metro Manila Dear Mr. Arquiza: We are pleased to inform you that COSMOS BOTTLING CORPORATION, San Fernando Plant is again accepting job-out contract for the repair of our wooden shells. Work shall be done outside the premises of the plant and under similar terms you previously had with the company. We intend to give you priority so please see or contact me at my office soonest for the particulars regarding the job. Here is looking forward to doing business with you at the earliest possible time. (Sgd.) DANILO M. DE CASTRO Plant General Manager

Petitioner refused the offer, claiming that to do its work outside the company's premises would make it (petitioner) incur additional costs for transportation which "will eat up the meager profits that [it] realizes from its original contract with Cosmos." In subsequent meetings with Danilo M. de Castro, Butch Cea and Norman Uy of Cosmos, petitioner's manager, Antonio I. Arquiza, asked for an extension of the term of the contract in view of the suspension of work. But its request was apparently turned down. On November 7, 1990, private respondent advised petitioner that the latter could then resume its work inside the plant in accordance with its original contract with Cosmos. Private respondent's letter 4 stated:
MR. ANTONIO I. ARQUIZA General Manager Ace-Agro Development Corporation 165 J. P. Bautista St., Malabon Metro Manila Dear Mr. Arquiza: This is to officially inform you that you can now resume the repair of wooden shells inside the plant according to your existing contract with the Company. Please see Mr. Ener G. Ocampo, OIC-PDGS, on your new job site in the Plant. Very truly yours, COSMOS BOTTLING CORPORATION (Sgd.) MICHAEL M. ALBINO VP-Luzon/Plant General Manager

On November 17, 1990, petitioner rejected private respondent's offer, this time, citing the fact that there was a pending labor case. Its letter 5 to private respondent stated:
Mr. Michael M. Albino VP-Luzon/Plant General Manager Cosmos Bottling Corporation San Fernando, Pampanga Dear Mr. Albino, This is in connection with your letter dated November 7, 1990 regarding the resumption of the repair of your wooden shells inside San Fernando, Pampanga Plant according to the existing contract with your company. At present, there is a pending case before the Department of Labor and Employment in San Fernando, Pampanga which was a result of the premature termination of the said existing contract with your company. In view of that, we find it proper for us to work for the resolution of the said pending case and include in the Compromise Agreement the matter of the resumption of the repair of wooden shells

in your San Fernando, Pampanga Plant. Thank you very much. Very truly yours, ACE AGRODEVELOPMENT CORP. (Sgd.) ANTONIO I. ARQUIZA Manager

On January 3, 1991, petitioner brought this case against private respondent for breach of contract and damages in the Regional Trial Court of Malabon. It complained that the termination of its service contract was illegal and arbitrary and that, as a result, it stood to lose profits and to be held liable to its employees for backwages, damages and/or separation pay. On January 16, 1991, a decision was rendered in the labor case, finding petitioner liable for the claims of its employees. Petitioner was ordered to reinstate the employees and pay them backwages. However, private respondent Cosmos was absolved from the employees' claims on the ground that there was no privity of contract between them and private respondent. On the other hand, in its decision rendered on November 21, 1991, the RTC found private respondent guilty of breach of contract and ordered it to pay damages to petitioner. Petitioner's claim for reimbursement for what it had paid to its employees in the labor case was denied. The dispositive portion of the trial court's decision read: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff Ace-Agro Development Corporation and against defendant Cosmos Bottling Corporation, ordering the latter to pay to the former the following: a) The amount of P1,008,418.01 as actual damages; b) P100,000.00 as corrective or exemplary damages; c) The amount of P50,000.00 as and for attorney's fees; and d) Costs and expenses of litigation. Defendant's counterclaims are dismissed. SO ORDERED. Private respondent appealed to the Court of Appeals, which on December 29, 1994, reversed the trial court's decision and dismissed petitioner's complaint. The appellate court found that it was petitioner which had refused to resume work, after failing to secure an extension of its contract. Petitioner now seeks a review of the Court of Appeals'

decision. First. Petitioner claims that the appellate court erred "in ruling that respondent was justified in unilaterally terminating the contract on account of a force majeure." Quite possibly it did not understand the appellate court's decision, or it would not be contending that there was no valid cause for the termination of the contract but only for its suspension. The following is what the appellate court said: 6 Article 1231 of the New Civil Code on extinguishment of obligations does not specifically mention unilateral termination as a mode of extinguishment of obligation but, according to Tolentino, "there are other causes of extinguishment of obligations which are not expressly provided for in this chapter" (Tolentino, Civil Code of the Phils., Vol. IV, 1986 ed., p. 273). He further said: But in some contracts, either because of its indeterminate duration or because of the nature of the prestation which is its object, one of the parties may free himself from the contractual tie by his own will (unilateral extinguishment); . . . (p. 274-275, Ibid) And that was just what defendant-appellant did when it unilaterally terminated the agreement it had with plaintiff-appellee by sending the May 23, 1990 letter. As per its letter, the reason given by defendant-appellant for unilaterally terminating the agreement was because the April 25, 1990 fire practically burned all of the softdrink bottles and wooden shells which plaintiff-appellee was working on under the agreement. What defendantappellant was trying to say was that the prestation or the object of their agreement had been lost and destroyed in the above-described fire . Apparently, the defendant-appellant would like this situation to fall within what according to Tolentino would be : . . . (O)bligations may be extinguished by the happening of unforeseen events, under whose influence the obligation would never have been contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting. Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event and that the same even burned practically all the softdrink bottles and wooden shells which are the objects of the agreement. But the story did not end there. It is true that defendant-appellant still had other bottles that needed cleaning and wooden shells that needed repairing (pp . 110-111, orig. rec.); therefore, the suspension of the work of the plaintiff-appellee brought about by the fire is, at best, temporary as found by the trial court . Hence, plaintiffappellee's letters of reconsideration of the termination of the agreement addressed to defendant-appellant dated June 13, 1990 and July 17, 1990.

It is obvious that what petitioner thought was the appellate court's ruling is merely its summary of private respondent's allegations. Precisely the appellate court, does not agree with private respondent, that is why, in the last paragraph of the above excerpt, the court says that there was no cause for terminating the contract but at most a "temporary suspension of work." The court thus rejects private respondent's claim that, as a result of the fire, the obligation of contract must be deemed to have been extinguished. Nonetheless, the Court of Appeals found that private respondent had reconsidered its decision to terminate the contract and tried to accommodate the request of petitioner, first, by notifying petitioner on August 28, 1990 that it could resume work provided that this was done outside the premises and, later, on November 7, 1990, by notifying petitioner that it could then work in its premises, under the terms of their contract. However, petitioner unjustifiably refused the offer because it wanted an extension of the contract to make up for the period of inactivity. As the Court of Appeals said in its decision: 7 It took defendant-appellant time to make a reply to plaintiff-appellee's letters. But when it did on August 28, 1990, it granted plaintiff-appellee priority to resume its work under the terms of their agreement (but outside its premises), and the plaintiff-appellee refused the same on the ground that working outside the defendant-appellant's San Fernando Plant would mean added transportation costs that would offset any profit it would earn. The appellee was without legal ground to refuse resumption of work as offered by the appellant, under the terms of their above agreement. It could not legally insist on staying inside property it did not own, nor was under lease to it . . . . In its refusal to resume its work because of the additional transportation costs to be brought about by working outside the appellant's San Fernando plant, the appellee could be held liable for damages for breach of contract. xxx xxx xxx Thereafter, appellant sent its November 7, 1990 letter to appellee, this time specifically stating that plaintiff-appellee can now resume work in accordance with their existing agreement. This time, it could not be denied that by the tenor of the letter, appellant was willing to honor its agreement with appellee, that it had finally made a reconsideration of appellee's plea to resume work under the contract. But again, plaintiff-appellee refused this offer to resume work. Why did the appellee refuse to resume work? Its November 17, 1990 letter stated that it had something to do with the settlement of the NLRC case filed against it by its employees. But that was not the real reason. In his crossexamination, the witness for appellee stated that its real reason for refusing to resume work with the appellant was as in its previous refusal because it wanted an extension of the period or duration of the contract beyond December 31, 1991, to cover the period within which it was unable to work.

The agreement between the appellee and the appellant is with a resolutory period, beginning from January 1, 1990 and ending on December 31, 1990. When the fire broke out on April 25, 1990, there resulted a suspension of the appellee's work as per agreement. But this suspension of work due to force majeure did not merit an automatic extension of the period of the agreement between them. According to Tolentino: The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the said period does not mean that the happening of any of those events stops the running of the period the contract has been agreed upon to run. It only relieves the parties from the fulfillment of their respective obligations during that time. If during six of the thirty years fixed as the duration of a contract, one of the parties is prevented by force majeure to perform his obligation during those years, he cannot after the expiration of the thirty-year period, be compelled to perform his obligation for six more years to make up for what he failed to perform during the said six years, because it would in effect be an extension of the term of the contract. The contract is stipulated to run for thirty years, and the period expires on the thirtieth year; the period of six years during which performance by one of the parties is prevented by force majeure cannot be deducted from the period stipulated. In fine, the appellant withdrew its unilateral termination of its agreement with appellee in its letter dated November 7, 1990. But the appellee's refusal to resume work was, in effect, a unilateral termination of the parties' agreement an act that was without basis. When the appellee asked for an extension of the period of the contract beyond December 31, 1990 it was, in effect, asking for a new contract which needed the consent of defendantappellant. The appellee might be forgiven for its first refusal (pertaining to defendant-appellant's August 28, 1990 letter), but the second refusal must be construed as a breach of contract by plaintiff-appellee. . . . The Court of Appeals was right that petitioner had no basis for refusing private respondent's offer unless petitioner was allowed to carry out its work in the company premises. That petitioner would incur additional cost for transportation was not a good reason for its refusal. Petitioner has not shown that on August 28, 1990, when it was notified of the private respondent's offer, the latter's premises had so far been restored so as to permit petitioner to resume work there. In fact, even when petitioner was finally allowed to resume work within the plant, it was not in the former work place but in a new one, which shows that private respondent's reason for not granting petitioner's request was not just a pretext. Nor was petitioner justified in refusing to resume work on November 7 when it was again notified by petitioner to work. Although it cited the pending labor case as reason for turning down private respondent's offer, it would appear that the real reason for petitioner's refusal was the fact that the term of the contract was expiring in two months and its request for an extension was not granted. But, as the appellate court correctly ruled, the suspension of work under the contract was brought about by force majeure.

Therefore, the period during which work was suspended did not justify an extension of the term of the contract. 8 For the fact is that the contract was subject to a resolutory period which relieved the parties of their respective obligations but did not stop the running of the period of their contract. The truth of the matter is that while private respondent had made efforts towards accommodation, petitioner was unwilling to make adjustments as it insisted that it "cannot profitably resume operation under the same terms and conditions [of] the terminated contract but with an outside work venue [as] transportation costs alone will eat up the meager profit that Ace-Agro realizes from its original contract." 9 While this socalled "job-out" offer of private respondent had the effect of varying the terms of the contract in the sense that it could increase its cost, what petitioner did not seem to realize was that the change was brought about by circumstances not of private respondent's making. Again when private respondent finally advised petitioner on November 7, 1990 to work under the strict terms of its contract and inside the plant, petitioner thought only of its interest by insisting that the contract be extended. Petitioner's manager, Antonio I. Arquiza, testified that he tried to secure a term extension for his company but his request was turned down because the management of private respondent wanted a new contract after the expiration of the contract on December 31, 1990. Arquiza testified. 10 A [Butch Cea] told me that Cosmos is agreeable to allow us to resume our operation and when I inquired about the extension of the contract he told me that I better refer the matter to Mr. Norman Uy. xxx xxx xxx Q Did you see Mr. Norman Uy? A Yes, sir, when I went to see Mr. Norman Uy he asked me why I was there and he told me why I did not start operation I told him that what we are expecting that Mr. Cea would give me the formal letter regarding the resumption of the operation and honoring of contract and he said that our price was so high and if we are willing to use said contract and when I said yes he told me that we will just send you a letter considering that another contractor repairing our damaged shells and cleaning of dirty bottles. When I asked him that does that mean that the meeting I had with Mr. Cea, he told me that was null and void and he told me that Mr. Cea want a new contract. As already stated, because the suspension of work was due to force majeure, there was no justification for petitioner's demand for an extension of the terms of the contract. Private respondent was justified in insisting that after the expiration of the contract, the parties must negotiate a new one as they had done every year since the start of their business relations in 1979. Second. Petitioner slams the Court of Appeals for ruling that "it was [petitioner's] unjustified refusal which finally terminated the contract between the parties." This

contention is likewise without merit. Petitioner may not be responsible for the termination of the contract, but neither is private respondent, since the question in this case is whether private respondent is guilty of breach of contract. The trial court held that private respondent committed a breach of contract because, even as its August 28, 1990 letter allowed petitioner to resume work, private respondent's offer was limited to the repairs of wooden shells and this had to be done outside the company's premises. On the other hand, the final offer made on November 7, 1990, while allowing the "repair of wooden shells [to be done] inside the plant according to your contract with the company," was still limited to the repair of the wooden shells, when the fact was that the parties' contract was both for the repair of wooden crates and for the cleaning of soft drink bottles. But this was not the petitioner's complaint. There was never an issue whether the company's offer included the cleaning of bottles. Both parties understood private respondent's offer as including the cleaning of empty soft drink bottles and the repair of the wooden crates. Rather, the discussions between petitioner and private respondent's representatives focused first, on the insistence of petitioner that it be allowed to work inside the company plant and, later, on its request for the extension of the life of the contract. Petitioner claims that private respondent had a reason to want to terminate the contract and that was to give the business to Aren Enterprises, as the latter offered its services at a much lower rate than petitioner. Aren Enterprises' rate was P2.50 per shell while petitioner's rates were P4.00 and P6.00 per shell for ordinary and super sized bottles, respectively. 11 The contention has no basis in fact. The contract between private respondent and Aren Enterprises had been made on March 29, 1990 before the fire broke out. The contract between petitioner and private respondent did not prohibit the hiring by private respondent of another service contractor. With private respondent hitting production at 8,000 bottles of soft drinks per day, petitioner could clearly not handle the business, since it could clean only 2,500 bottles a day. 12 These facts show that although Aren Enterprises' rate was lower than petitioner's, they did not affect private respondent's business relation with petitioner. Despite private respondent's contract with Aren Enterprises, private respondent continued doing business with petitioner and would probably have done so were it not for the fire. On the other hand, Aren Enterprises could not be begrudged for being allowed to continue rendering service even after the fire because it was doing its work outside private respondent's plant. For that matter, after the fire, private respondent on August 28, 1990 offered to let petitioner resume its service provided this was done outside the plant. Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the question is whether private respondent is guilty of breach of contract, the fact that private respondent is blameless can only lead to the conclusion that the appealed decision is correct. WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

Regalado, Romero, Puno and Torres, Jr., JJ., concur.

Footnotes 1 Records, p. 63. 2 Id., p. 62. 3 Id., p. 82. 4 Id., p. 83. 5 Id., p. 84. 6 At pp. 11-13 (Emphasis added). 7 At pp. 13-15. 8 Victorias Milling Corp. v. Victorias Milling Planters Cooperative, 97 Phil. 318 (1955); See American Far Eastern School v. Ayala y Cia, 89 Phil. 292 (1951). 9 Record, p. 88. 10 TSN, June 27, 1991, pp. 20-21. 11 Record, p. 59 and p. 95. 12 TSN, July 11, 1991, pp. 43-45.