CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees, This situation, the Manila Motor Co., Inc.
the Manila Motor Co., Inc. and its branch manager enjoying the
vs.
MANILA MOTOR CO., INC. and ARTURO COLMENARES, defendants-appellants.
REYES, J. B. L., J.:
Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against
the decision of the Court of First Instance of Negros Occidental, in its Civil
Case No. 648, ordering the defendant Manila Motor Co., Inc. to pay to the
plaintiffs Villaruel the sum of (a) P11,900 with legal rest from May 18, 1953, on
which date, the court below declared invalid the continued operation of the
Debt Moratorium, under the first cause of action; (b) P38,395 with legal interest
from the date of filing of the original complaint on April 26, 1947, on the
second cause of action; and against both the Manila Motor Co., Inc. and its
co-defendant, Arturo Colmenares, the sum of P30,000 to be paid, jointly and
severally, with respect to the third cause of action.
On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co.,
Inc. entered into a contract (Exhibit "A") whereby, the former agreed to
convey by way of lease to the latter the following described premises;
(a) Five hundred (500) square meters of floor space of a
building of strong materials for automobile showroom, offices,
and store room for automobile spare parts;
(b) Another building of strong materials for automobile repair
shop; and
(c) A 5-bedroom house of strong materials for residence of
the Bacolod Branch Manager of the defendant company.
The term of the lease was five (5) years, to commence from the time that the
building were delivered and placed at the disposal of the lessee company,
ready for immediate occupancy. The contract was renewable for an
additional period of five (5) years. The Manila Motor Company, in
consideration of the above covenants, agreed to pay to the lessors, or their
duly authorized representative, a monthly rental of Three Hundred (P300)
pesos payable in advance before the fifth day of each month, and for the
residential house of its branch manager, a monthly rental not to exceed Fifty
(P50) pesos "payable separately by the Manager".
The leased premises were placed in the possession of the lessee on the 31st
day of October, 1940, from which date, the period of the lease started to run
under their agreement.
premises, and the lessors receiving the corresponding rentals as stipulated,
continued until the invasion of 1941; and shortly after the Japanese military
occupation of the Provincial Capital of Bacolod the enemy forces held and
used the properties leased as part of their quarters from June 1, 1942 to March
29, 1945, ousting the lessee therefrom. No payment of rentals were made at
any time during the said period.
Immediately upon the liberation of the said city in 1945, the American Forces
occupied the same buildings that were vacated by the Japanese, including
those leased by the plaintiffs, until October 31, 1945. Monthly rentals were paid
by the said occupants to the owners during the time that they were in
possession, as the same rate that the defendant company used to pay.
Thereafter, when the United States Army finally gave up the occupancy the
premises, the Manila Motor Co., Inc., through their branch manager, Rafael B.
Grey, decided to exercise their option to renew the contract for the
additional period of five (5) years, and the parties, agreed that the seven
months occupancy by the U. S. Army would not be counted as part of the
new 5-year term. Simultaneously with such renewal, the company sublet the
same buildings, except that used for the residence of the branch manager, to
the other defendant, Arturo Colmenares.
However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who
was entrusted with the same, consulted Atty. Luis Hilado on whether they (the
lessors) had the right to collect, from the defendant company, rentals
corresponding to the time during which the Japanese military forces had
control over the leased premises. Upon being advised that they had such a
right, Dr. Villaruel demanded payment thereof, but the defendant company
refused to pay. As a result, Dr. Villaruel gave notice seeking the rescission of
the contract of lease and the payment of rentals from June 1, 1942 to March
31, 1945 totalling P11,900. This was also rejected by the defendant company in
its letter to Villaruel, dated July 27, 1946.
Sometime on that same month of July, Rafael B. Grey offered to pay to Dr.
Villaruel the sum of P350, for which, tenderer requested a receipt that would
state that it was in full payment for the said month. The latter expressed
willingness to accept the tendered amount provided, however, that his
acceptance should be understood to be without prejudice to their demand
for the rescission of the contract, and for increased rentals until their buildings
were returned to them. Later, Dr. Villaruel indicated his willingness to limit the
condition of his acceptance to be that "neither the lessee nor the lessors
admit the contention of the other by the mere fact of payment". As no
accord could still be reached between the parties as to the context of the
receipt, no payment was thereafter tendered until the end of November,
1946. On December 4, 1946 (the day after the defendant company notified
Dr. Villaruel by telegram, that it cancelled the power of attorney given to
Grey, and that it now authorized Arturo Colmenares, instead, to pay the rent
of P350 each month), the Manila Motor Co., Inc. remitted to Dr. Villaruel by
letter, the sum of P350.00. For this payment, the latter issued a receipt stating
that it was "without prejudice" to their demand for rents in arrears and for the
rescission of the contract of lease.
After it had become evident that the parties could not settle their case
amicably, the lessors commenced this action on April 26, 1947 with the Court
of First Instance of Negros Occidental against the appellants herein. During
the pendency of the case, a fire originating from the projection room of the
City Theatre, into which Arturo Colmenares, (the sublessee) had converted
the former repair shop of the Manila Motor Co. Inc., completely razed the
building, engulfing also the main building where Colmenares had opened a
soda fountain and refreshment parlor, and made partitions for store spaces
which he rented to other persons.
Because of the aforesaid occurrence, plaintiffs demanded reimbursement
from the defendants, but having been refused, they filed a supplemental
complaint to include as their third cause of action, the recovery of the value
of the burned buildings.
Defendants filed their amended answer and also moved for the dismissal of
the plaintiffs' first and second causes of action invoking the Debt Moratorium
that was then in force. The dismissal was granted by the trial court on February
5, 1951, but hearing was set as regards the third cause of action.
On August 11, 1952, the defendant company filed a motion for summary
judgment dismissing the plaintiffs, third cause of action, to which plaintiffs
registered objection coupled with a petition for reconsideration of the order of
the court dismissing the first and second causes of action. Pending the
resolution of this incident, plaintiffs, on October 2, 1953, called the court's
attention to the decision in the case of Rutter vs. Esteban (93 Phil., 68; 49 Off.
Gaz. [5] 1807) invalidating the continued effectivity of the Moratorium Law (R.
A. 342). On November 25, 1953, the trial court denied the defendant
company's motion for summary judgment and set aside its previous order
dismissing the first and second causes of action. The case was accordingly
heard and thereafter, judgment was rendered in plaintiffs' favor in the terms
set in the opening paragraph of this decision. Thereafter, the defendants
regularly appealed to this Court.
The defendants-appellants raise a number of procedural points. The first of
these relates to their contention that the supplemental complaint which
included a third cause of action, should not have been admitted, as it
brought about a change in the original theory of the case and that it raised
new issues not theretofore considered. This argument cannot be sustained
under the circumstances. This action was inceptionally instituted for the
rescission of the contract of lease and for the recovery of unpaid rentals
before and after liberation. When the leased buildings were destroyed, the
plaintiffs-lessors demanded from the defendants-lessees, instead, the value of
the burned premises, basing their right to do so on defendants' alleged
default in the payment of post-liberation rentals (which was also their basis in
formerly seeking for rescission). This cannot be considered as already altering
the theory of the case which is merely a change in the relief prayed for,
brought about by circumstances occurring during the pendency of the
action, and is not improper. (Southern Pacific Co. vs. Conway, 115 F. 2d 746;
Suburban Improvement Company vs. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d
711). The filing of the supplements complaint can well be justified also under
section 2, Rule 17 of the Rules of Court (on amendments) "to the end that the
real matter in dispute and all matters in the action in dispute between the
parties may, as far as possible be completely determined in a single
proceedings". It is to be noted furthermore, that the admission or rejection of
this kind of pleadings is within the sound discretion of the court that will not be
disturbed on appeal in the absence of abuse thereof (see Sec. 5, Rule 17,
Rules of Court), especially so, as in this case, where no substantial procedural
prejudice is caused to the adverse party.
It is urged that the dismissal of the first and second causes of action on
February 5, 1951 had the effect of a dismissal "with prejudice" as the court did
not make any qualification in its dismissal order. Appellants, apparently, lost
sight of the fact that the dismissal was premised on the existence of the "Debt
Moratorium" which suspended the enforcement of the obligation up to a
certain time. The reference thereto by the lower court amounted to a
dismissal "without prejudice", since in effect it ruled that the plaintiffs could
not, at the time they sought it, enforce their right of action against the
defendants, but plaintiffs must wait until the moratorium was lifted. In this way,
the court qualified its dismissal.
Taking up the case on its merits, it is readily seen that the key to the entire
dispute is the question whether the defendant-appellant Manila Motor Co.,
Inc. should be held liable for the rentals of the premises leased corresponding
to the lapse of time that they were occupied as quarters or barracks by the
invading Japanese army, and whether said appellant was placed in default
by its refusal to comply with the demand to pay such rents. For if the Motor
Company was not so liable, then it never was in default nor was it chargeable
for the accidental lose of the buildings, nor for any damages except the rental
at the contract rate from its reoccupation of the premises leased until the
same were accidentally destroyed by fire on March 2, 1948.
The appellees contended, and the court below has held, that the ouster of
the least company by the Japanese occupation forces from 1942 until
liberation, while operating to deprive the lessee of the enjoyment of the thing
leased, was, nevertheless, a mere act of trespass ("perturbacion de mero
hecho") that, under the Spanish Civil Code of 1889 (in force here until 1950),
did not exempt the lessee from the duty to pay rent. We find that contention
and ruling erroneous and untenable.
The pertinent articles of the Civil Code of Spain of 1889 provide:
ART. 1554. It shall be the duty of the lessor;
1. To deliver to the lessee the thing which is the subject matter
of the contract;
2. To make thereon, during the lease, all repairs necessary in
order to keep it in serviceable condition for the purpose for
which it was intended;
3. To maintain the lessee in the peaceful enjoyment of the
lease during the entire term of the contract.
ART. 1560. The lessor shall not be liable for any act of mere
disturbance of a third person of the use of the leased
property; but the lessee shall have a direct action against the
trespasser.
It the third person, be it the Government or a private
individual, has acted in reliance upon a right, such action
shall not be deemed a mere act of disturbance. (Emphasis
supplied)
Under the first paragraph of article 1560 the lessor does not answer for a mere
act of trespass ( perturbacion de mero hecho) as distinguished from trespass
under color of title ( perturbacion de derecho). As to what would constitute a
mere act of trespass, this Court in the case of Goldstein vs. Roces (34 Phil. 562),
made this pronouncement:
Si el hecho perturbador no va acompañado ni precedido de
nada que revele una intencion propiamente juridica en el
que lo realiza, de tal suerte que el arrendatario solo pueda
apreciar el hecho material desnudo de toda forma o
motivacion de derecho, entendemos que se trata de una
perturbacion de mero hecho.
Upon the basis of the distinction thus established between the perturbacion
de hecho and the perturbacion de derecho, it is demonstrable that the ouster
of the appellant by the Japanese occupying forces belongs to the second
class of disturbances, de derecho. For under the generally accepted
principles of international law (and it must be remembered that those
principles are made by our Constitution a part of the law of our nation 1) a
belligerent occupant (like the Japanese in 1942-1945) may legitimately billet
or quarter its troops in privately owned land and buildings for the duration of its
military operations, or as military necessity should demand. The well known
writer Oppenheim, discoursing on the laws of war on land, says upon this
topic;
Immovable private enemy property may under no
circumstances or conditions be appropriated by an invading
belligerent. Should he confiscate and sell private land or
buildings, the buyer would acquire no right whatever to the
property. Article 46 of the Hague Regulations expressly enacts
that "private property may not be confiscated." But
confiscation differs from the temporary use of private land
and building for all kinds of purposes demanded by the
necessities of war. What has been said above with regard to
utilization of public buildings applied equally to private
buildings. If necessary, they maybe converted into hospital
barracks, and stables without compensation for the
proprietors, and they may also be converted into
fortifications. A humane belligerent will not drive the
wretched inhabitants into the street if he can help it. But
under the pressure of necessity he may be obliged to do this,
and he is certainly not prohibited from doing it. (Emphasis
supplied) (Oppenheim & Lauterpach, International Law, Vol.
II, p. 312, 1944 Ed.)
The view thus expressed is concurred in by other writers. Hyde (International
Law, Vol. 3, p. 1893, 2nd Rev. Ed.) quotes the U. S. War Department 1940 Rules
of Land Warfare (Rule No. 324) to the effect that —
The measure of permissible devastation is found in the strict
necessities of war. As an end in itself, as a separate measure
of war, devastation is not sanctioned by the law of war. There
must be some reasonably close connection between the
destruction of property and the overcoming of the enemy's
army. Thus the rule requiring respect for private property is not
violated through damage resulting from operations,
movements, or combats of the army; that is, real estate may
be utilized for marches, camp sites, construction of trenches,
etc. Buildings may be used for shelter for troops, the sick and
wounded, for animals, for reconnaissance, cover defense,
etc. Fence, woods, crops, buildings, etc., may be
demolished, cut down, and removed to clear a field of fire, to
construct bridges, to furnish fuel if imperatively needed for the
army. (Emphasis supplied)
Reference may also be made to Rule 336:
What may be requisitioned. — Practically everything may be
requisitioned under this article (art. LII of the regulations
 above quoted) that is necessary for the maintenance of the
army and not of direct military use, such as fuel, food, forage,
clothing, tobacco, printing presses, type, leather, cloth,
etc. Billeting of troops for quarters and subsistence is also
authorized. (Emphasis supplied)
And Forest and Tucker state:
The billegerent occupant may destroy or appropriate public
property which may have a hostile purpose, as forts, arms,
armories, etc. The occupying force may enjoy the income
from the public sources. Strictly private property should be
inviolable, except so far as the necessity of war requires
contrary action. (Forest and Tucker, International Law, 9th Ed.,
p. 277) (Emphasis supplied)
The distinction between confiscation and temporary sequestration of private
property by a belligerent occupant was also passed upon by this Court in
Haw Pia vs. China Banking Corporation, 80 Phil. 604, wherein the right of
Japan to sequester or take temporary control over enemy private property in
the interest of its military effort was expressly recognized.
We are thus forced to conclude that in evicting the lessee, Manila Motor Co.,
Inc. from the leased buildings and occupying the same as quarters for troops,
the Japanese authorities acted pursuant to a right recognized by international
and domestic law. Its act of dispossession, therefore, did not
constitute perturbacion de hecho but a perturbacion de derecho for which
the lessors Villaruel (and not the appellants lessees) were liable (Art.
1560, supra) and for the consequences of which said lessors must respond,
since the result of the disturbance was the deprivation of the lessee of the
peaceful use and enjoyment of the property leased. Wherefore, the latter's
corresponding obligation to pay rentals ceased during such deprivation.
The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely
declared the resolutory effect of the military sequestration of properties under
lease upon the lessee's obligation to pay rent (Jurisprudencia Civil, Segunda
Serie, Tomo 8, pp. 583, 608):.
Considerando que para resolver acerca de la procedencia
del presente recurso es preciso partir de las bases de hecho
sentadas en la sentencia recurrida, y no impugnadas al
amparo del numero 7. del articulo 1.692 de la Ley de
Enjuiciamiento civil, es decir, de que hallandose vigente el
contrato de arrendamiento celebrado entre actor y
demandada, en fecha que no se precisa, entre los dias del
18 al 31 de julio de 1936, los locales objeto de dicho contrato
de arrendamiento, y en los que no funcionaba de tiempo
anterior la industria para cuyo ejercicio se arrendaron, fueron
requisados por el Ejercito Nacional, con motivo de la guerra
civil, para que se instalara en los mismos la Junta de
Donativos al Ejercito del Sur, aun cundo en dicha
incautacion, que se hizo a la propiedad de la finca, no se
observaron las formalidades legales, a causa de las
circunstancias extraordinarias por que a la sazon atravesaba
Sevilla, hecho que no consta se hiciera saber por los
arrendatarios demandados al actor, pero que fue notorio en
aquella capital, donde residia el actor, que de el debio tener
conocimiento. Se estima igualmente por la Sala que el
hecho de que la industria no funcionara en el local no tuvo
influencia alguna sobre su incautacion por el Ejercito.
Considerando que sobre tales bases de hecho es de
desestimar el primer motivo del recurso: violacion de los
articulos 1.254, 1.278 y 1.091 del Codigo civil, que sancionan,
en terminos generales, la eficacia de los contratos, puesto
que en el presente caso de los que se trata en definitiva es
de determinar si por virtud de fuerza mayor, la requisa a que
se hace referencia, ajena, por lo tanto, a culpa, asi del
arrendatario como del arrendador, se vio aquel privado del
posible disfrute de la finca arrendada, y de si por virtud de
esta circunstancia esta o no exento de la obligacion de
abonar la renta pactada durante el tiempo que subsistio la
incautacion; y es indudable la afirmativa en cuanto al primer
extremo, puesto que la sentencia recurrida establece que el
hecho de que no funcionase la industria y estuvieran los
locales cerrados no actuo como causa de la requisa de
estos por el Ejercito.
Considerando que la sentencia recurrida, en cuanto no da
lugar al pago de las rentas correspondientes al tiempo que
duro la incautacion, lejos de infringir, por aplicacion
indebida, el art. 1.568 del Codigo civil, se ajusta la
orientacion marcada en el mismo, puesto que este precepto
legal dispone que el arrendatario tiene accion contra el
tercero perturbador de mero hecho en la posesion de la
finca arrendada, pero no contra la Administracion o contra
los que obran en virtud de un derecho que les corresponde;
y aqui la perturbacion que experimento el arrendador en su
posesion, como consecuencia de la requisa, no puede
calificarse como de mero hecho, conforme al citado
articulo, puesto que la finca fue requisada por la autoridad
militar para fines de guerra, de donde se sigue que el
arrendatario tenia que soportar la privacion de su tenencia
material a traves del arrendador, con quien ha de
entenderse la requisa de la cosa arrendada.
In addition, the text of Art. 1560, in its first paragraph ( jam quot.) assumes that
in case of mere disturbance ( perturbacion de mero hecho) "the lessee shall
have a direct action against the trespasser." This assumption evidently does
not contemplate the case of dispossession of the lessee by a military
occupant, as pointed out by Mr. Chief Justice Paras in his dissenting opinion
in Reyes vs. Caltex (Phil.) Inc., 84 Phil. 669; for the reason that the lessee could
not have a direct action against the military occupant. It would be most
unrealistic to expect that the occupation courts, place under the authority of
the occupying belligerent, should entertain at the time a suit for forcible entry
against the Japanese army. The plaintiffs, their lawyers, and in all probability,
the Judge and court personnel, would face "severest penalties" for such
defiance of the invader.
The present case is distinguishable from Lo Ching vs. Archbishop of Manila (81
Phil., 601) in that the act of the Japanese military involved in the latter case
clearly went beyond the limits set by the Hague Conventions, in seizing the
property and delivering it to another private party; and from Reyes vs.
Caltex (Phil.) Inc., 84 Phil. 654, in that the rights of the military occupant under
international law were not raised or put in issue in said case; and moreover,
the lessee there, by failing to rescind the lease upon seizure of the premises by
the Japanese military, despite the stipulated power to do so, resumed
business and decided to hold unto the long term lease for the balance of its
20-year period, starting from December 23, 1940. In the case before us, the
occupation of the leased property by the Japanese army covered the major
portion of the five-year contractual period, without any option to rescind by
the lessee.
The lessor's position is not improved by regarding the military seizure of the
property under lease as a case of force majeure or fortuitous event. Ordinarily,
a party may not be held responsible therefor, despite the fact that it
prevented compliance of its obligations. But lease being a contract that calls
for prestations that are both reciprocal and repetitive (tractum successivum),
the obligations of either party are not discharged at any given moment, but
must be fulfilled all throughout the term of the contract. As a result, any
substantial failure by one party to fulfill its commitments at any time during the
contract period gives rise to a failure of consideration (causa) for the
obligations of the other party and excuses the latter from the correlative
performance, because the causa in lease must exist not only at the perfection
but throughout the term of the contract. No lessee would agree to pay rent
for premises he could not enjoy. As expressed by Marcel Planiol (quoted in 4
Castan, Derecho Civil, 7th Edition, p. 264) —
Como la obligacion del arrendador es sucesiva y se renueva
todos los dias, la subsistencia del arrendamiento se hace
imposible cuando, por cualquier razon, el arrendador no
puede ya procurar al arrendatario el disfrute de la cosa.
This effect of the failure of reciprocity appears whether the failure is due to
fault or to fortuitous event; the only difference being that in case of fault, the
other party is entitled to rescind the contract in toto, and collect damages,
while in casual non-performance it becomes entitled only to a suspension pro
tanto of its own commitments. This rule is recognized in par. 2 of Art. 1558,
authorizing the lessee to demand reduction of the rent in case of repairs
depriving him of the possession of part of the property; and in Art. 1575,
enabling the lessee of rural property to demand reduction of the rent if more
than one-half of the fruits are lost by extraordinary fortuitous event. Of course,
where it becomes immediately apparent that the loss of possession or
enjoyment will be permanent, as in the case of accidental destruction of a
leased building, the lease contract terminates.
Applying these principles, the Sentencia of December 1944, already adverted
to, ruled as follows:
Considerando que privado el arrendador, por tal hecho, del
disfrute de esta, es manifiesta la imposibilidad en que se vio
de cumplir la tercera de las obligaciones que el impone el
articulo 1.554 del Codigo Civil, obligacion (la de mantener al
arrendatario en el disfrute de la cosa arrendada) que ha de
entenderse reciproca de la de pago de renta pactada, que
impone al arrendatario el numero primero del art. 1.555 de
dicho Cuerpo legal, y por ello no puede ser exigida.
Considerando que, aunque no sean estrictamente aplicables
al caso los articulos 1.124, 1.556 y 1.568, que se citan como
infringidos por el recurrente, suponiendo que a ellos ha
entendido referirse la Audiencia (lo que impediria, en todo
caso, la estimacion del recurso por este motivo, ya que
dichos articulos no se citan en la sentencia de instancia), es
evidente que ellos proclaman la reciprocidad de las
obligaciones entre arrendatario y arrendador, y en este
sentido, tratandose de un incumplimiento inculpable
decontrato, pueden servir, como tambien el 1.558, en
cuanto preven la reduccion de rentas o posible restriccion
del contrato cuando el arrendatario se ve privado, por obras
realizadas en la finca arrendada, del disfrute de este, de
fundamento, con los demas preceptos invocados, a una
extencion de renta mientras subsiste la imposibilidad de
utilizar la cosa arrendada, sobre todo cuando los articulos
157 y 158 del Reglamento de Requisas de 13 de enero de
1921 estatuyen claramente que las requisas de edificio se
hacen a la propiedad, y es el propietario el que puede pedir
indemnization, uno de cuyos elementos es el precio del
alquiler que le sea satisfecho por el inmueble incautado.
We are aware that the rule in the common law is otherwise, due to its
regarding a lease as a conveyance to the lessee of a temporary estate or title
to the leased property so that loss of possession due to war or other fortuitous
event leaves the tenant liable for the rent in the absence of stipulation. The
fundamental difference between the common law and the civil law concepts
has been outlined by the United States in Viterbo vs. Friedlander, 30 L. Ed.
(U.S.) pp. 776, 778, in this wise:
But as to the nature and effect of a lease for years, at a
certain rent which the lessee agrees to pay, and containing
no express covenant on the part of the lessor, the two systems
differ materially. The common law regards such a lease as the
grant of an estate for years, which the lessee takes a title in,
and is bound to pay the stipulated rent for, notwithstanding
any injury by flood, fire or external violence, at least unless the
injury is such a destruction of the land as to amount to an
eviction; and by that law the lessor is under no implied
covenant to repair, or even that the premises shall be fit for
the purpose for which they are leased. Fowler vs. Bott, 6 Mass.
63; 3 Kent, Com. 465, 466; Broom, Legal Maxims, 3d ed. 213,
214; Doupe vs. Genin, 45 N. Y. 119; Kingbury vs. Westfall, 61 N.
Y. 356. Naumberg vs. Young, 15 Vroom, 331; Bowe vs.
Hunking, 135 Mass. 380; Manchester Warehouse Co. vs. Carr,
L.R. 5 C.P.D. 507.
The civil law, on the other hand, regards a lease for years as a
mere transfer of the use and enjoyment of the property; and
holds the landlord bound, without any express covenant, to
keep it in repair and otherwise fit for use and enjoyment for
the purpose for which it is leased, even when the need of
repair or the unfitness is caused by an inevitable accident,
and if he does not do so, the tenant may have the lease
annulled, or the rent abated. Dig. 19, 2, 9, 2; 19, 2, 15, 1, 2; 19,
2, 25, 2; 19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3,
18, 19: Gregorio Lopez in 5 Partidas, tit. 8, 11. 8, 22; Domat,
Droit Civil, pt. 1, lib. 1, tit. 4, sec. 1, no. 1; sec. 3 nos. 1, 3, 6,
Pothier, Contract de Louage, nos. 3, 6, 11, 22, 53, 103, 106,
139-155.
It is accordingly laid down in the Pandects, on the authority of
Julian, "If anyone has let an estate, that, even if anything
happens by vis major, he must make it good, he must stand
by his contract," si quis fundum locaverit, ut, etiamsi quid vi
majore accidisset, hoc ei praestaretur, pacto standum esse;
Dig. 19, 2, 9, 2; and on the authority of Ulpian, that "A lease
does not change the ownership," non solet locatio dominiun
mutare; Dig. 19, 2, 39; and that the lessee has a right of
action, if he cannot enjoy the thing which he has hired, si re
quam conduxit frui non liceat, whether because his
possession, either of the whole or of part of the field, is not
made good, or a house, or stable or sheepfold, is not
repaired; and the landlord ought to warrant the tenant,
dominum colono praestare debere, against every irresistible
force, omnim vim cui resisti non potest, such as floods, flocks
of birds, or any like cause, or invasion of enemies; and if the
whole crop should be destroyed by a heavy rainfall, or the
olives should be spoiled by blight, or by extraordinary heat of
the sun, solis fervore non assueto, it would be the loss of the
landlord, damnum domini futurum; and so if the field falls in
by an earthquake, for there must be made good to the
tenant a field that he can enjoy, oportere enim agrum
praestari conductori, ut frui possit; but if any loss arises from
defects in the thing itself, si qua tamen vitia ex ipsa re oriantur,
as if wine turns sour, or standing corn is spoiled by worms or
weeds, or if nothing extraordinary happens, si vero nihil extra
consuetudinem acciderit, it is the loss of the tenant, damnum
coloni esse. Dig. 19, 2; 15, 1, 2. (Emphasis supplied)
In short, the law applies to leases the rule enunciated by the Canonists and
the Bartolist School of Post glossatorse, that "contractus qui tractum
successivum habent et dependentiam de futuro, sub conditione rebus sic
stantibus intelliguntur," they are understood entered subject to the condition
that things will remain as they are, without material change.
It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed
after liberation to a renewal of the contract of lease for another five years
(from June 1, 1946 to May 31 of 1951) without making any reservation
regarding the alleged liability of the lessee company for the rentals
corresponding to the period of occupancy of the premises by the Japanese
army, and without insisting that the non-payment of such rental was a breach
of the contract of lease. This passivity of the lessors strongly supports the claim
of the lessees that the rentals in question were verbally waived. The proffered
explanation is that the lessors could not refuse to renew the lease, because
the privilege of renewal had been granted to the lessees in the original
contract. Such excuse is untenable: if the lessors deemed that the contract
had been breached by the lessee's non-payment of the occupation rents
how could they admit the lessee's right to renew a contract that the lessee
itself had violated?
But this is not all. The lessors accepted payment of current rentals from
October 1945 to June 1946. It was only in July 1946 that they insisted upon
collecting also the 1942-1945 rents, and refused to accept further payments
tendered by the lessee unless their right to collect the occupation rental was
recognized or reserved. After refusing the rents from July to November 1946,
unless the lessee recognized their right to occupation rentals, the appellees
(lessors) demanded rescission of the contract and a rental of P1,740 monthly
in lieu of the stipulated P350 per month. (Exhibit "C").
This attitude of the lessors was doubly wrongful: first, because as already
shown, the dispossession by the Japanese army exempted the lessee from his
obligation to pay rent for the period of its ouster; and second, because even if
the lessee had been liable for that rent, its collection in 1946 was barred by
the moratorium order, Executive Order No. 32, that remained in force until
replaced by Rep. Act 342 in 1948. To apply the current rentals to the
occupation obligations would amount to enforcing them contrary to the
moratorium decreed by the government.
Clearly, then, the lessor' insistence upon collecting the occupation rentals for
1942-1945 was unwarranted in law. Hence, their refusal to accept the current
rentals without qualification placed them in default (mora creditoris or
accipiendi) with the result that thereafter, they had to bear all supervening
risks of accidental injury or destruction of the leased premises. While not
expressly declared by the Code of 1889, this result is clearly inferable from the
nature and effects of mora, and from Articles 1185, 1452 [par. 3] and 1589).
ART. 1185. When the obligation to deliver a certain and
determinate thing arises from the commission of a crime or
misdemeanor the obligor shall not be exempted from the
payment of its value, whatever the cause of its loss may have
been, unless, having offered the thing to the person entitled
to receive it, the latter should have refused without reason to
accept it.
Art. 1452. . . . .
If fungible things should be sold for a price fixed with relation
to weight, number, or measure, they shall not be at the
purchaser's risk until they have been weighed, counted, or
measured, unless the purchaser should be in default.
ART. 1589. If the person who contracted to do the work
bound himself to furnish the materials, he shall bear the loss in
case of the destruction of the work before it is delivered,
unless its acceptance has been delayed by the default of
the other party.
While there is a presumption that the loss of the thing leased is due to the fault
of the lessee (Civil Code of 1889, Art. 1563), it is noteworthy that the lessor
have not invoked that presumption either here or in the court below. On the
contrary, the parties and the trial court have all proceeded and discussed the
issues taking for granted that the destruction of the leased buildings was
purely fortuitous. We see no reason for departing from that assumption and
further prolonging this litigation..
That the lessee and sublessee did not consign or deposit in court the rentals
tendered to and improperly rejected by the lessors, did not render the debtor
liable for default (mora solvendi) nor answerable for fortuitous events
because, as explained by the Supreme Court of Spain in its Sentencia of 5
June 1944 —
Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al deudor no
quiere decir que necesariamente haya de practicarse, y no baste el
ofrecimiento de pago que de aquella no fuere seguido, a efectos de
exclusion de las consecuencias de la mora solvendi. (8 Manresa,
Comentarios, 5th Ed., Vol. 1, p. 136).
In other words, the only effect of the failure to consign the rentals in court was
that the obligation to pay them subsisted (P.N.B. vs. Relativo, 92 Phil., 203) and
the lessee remained liable for the amount of the unpaid contract rent,
corresponding to the period from July to November, 1946; it being undisputed
that, from December 1946 up to March 2, 1948, when the commercial
buildings were burned, the defendants-appellants have paid the contract
rentals at the rate of P350 per month. But the failure to consign did not
eradicate the default (mora) of the lessors nor the risk of loss that lay upon
them. (3 Castan, Der. Civ., 8th Ed., p. 145; 4 Puig Peña, Der. Civ., part. 1, p.
234; Diaz Pairo, Teoria Gen. de las Obligaciones [3rd Ed.], Vol. 1, pp. 192-193).
In view of the foregoing, we hold:lawphil.net
(a) That the dispossession of the lessee from the premises by the Japanese
army of occupation was not an act of mere trespass ( perturbacion de mero
hecho) but one de derecho chargeable to the lessors;
(b) That such dispossession, though not due to fault of lessors or lessee,
nevertheless resulted in the exemption of the lessee from its obligation to pay
rent during the period that it was deprived of the possession and enjoyment of
the premises leased;
(c) That the insistence of the lessors to collect such rentals was unwarranted;
(d) That the lessors were not justified in refusing to accept the tender of
current rentals unless the lessee should recognize their right to the rents
corresponding to the period that the lessee was not in possession;
(e) That by their improper refusal to accept the current rents tendered by the
lessee, the lessors incurred in default (mora) and they must shoulder the
subsequent accidental loss of the premises leased;
(f) That the mora of the lessors was not cured by the failure of the lessee to
make the consignation of the rejected payments, but the lessee remained
obligated to pay the amounts tendered and not consigned by it in court.
Consequently, it was reversible error to sentence the appellants to pay P2,165
a month as reasonable value of the occupation of the premises from July
1946, and the value of the destroyed buildings amounting to P30,000.
Wherefore, the decision appealed from is modified in the sense that the
appellant Manila Motor Company should pay to the appellees Villaruel only
the rents for the leased premises corresponding to the period from July up to
November 1946, at the rate of P350 a month, or a total of P1,750. Costs
against appellees in both instances. So ordered.
Footnotes
1 "Art. 2. Sec. 3. — The Philippines renounces war as an
instrument of national policy, and adopts the generally
accepted principles of international law as part of the law of
the nation." (Constitution of the Philippines)--Applied in Go
Kim Chan vs. Valdez, 75 Phil. 113; Tubb vs. Griess, 78 Phil. 249;
Dizon vs. Commanding General, 81 Phil. 286.
FACTS:
On November 16, 1959, the NAMARCO and the FEDERATION entered into a
Contract of Sale stipulating
among others that Two Hundred Thousand Pesos (P200,000.00) be paid as part
payment, and
FEDERATION deposits with the NAMARCO upon signing of the items and/or
merchandise a cash basis payment
upon delivery of the duly indorsed negotiable shipping document covering
the same. To insure payment of the
goods by the FEDERATION, the NAMARCO accepted three domestic letters of
credit which is an accepted draft
and duly executed trust receipt approved by the Philippine National Bank.
FEDERATION on January 29, 1960. However, on March 2, 1960 FEDERATION
filed a complaint against Namarco for undelivery of some items contained in
the contract of sale. FEDERATION refuses to pay acknowledge the domestic
letters of credit until full
delivery is done by NAMARCO.
ISSUE:
Should FEDERATION be obliged to pay the amount of the merchandise even if
there was still
incomplete delivery of items by NAMARCO?
RULING:
Yes. The right of the NAMARCO to the cost of the goods existed upon delivery
of the said goods to the
FEDERATION which, under the Contract of Sale, had to pay for them.
Therefore, the claim of the NAMARCO for
the cost of the goods delivered arose out of the failure of the FEDERATION to
pay for the said goods, and not out of
the refusal of the NAMARCO to deliver the other goods to the FEDERATION.
Furthermore, FEDERATION’s nonpayment would result to it being unjustly
enriched. However, the lower court erred in imposing interest at the
legal rate on the amount due, "from date of delivery of the merchandise",
and not from extra-judicial demand. In the
absence of any stipulations on the matter, the rule is that the obligor is
considered in default only from the time the
obligee judicially or extra-judicially demands fulfillment of the obligation and
interest is recoverable only from the
time such demand is made. There being no stipulation as to when the
aforesaid payments were to be made, the
FEDERATION is therefore liable to pay interest at the legal rate only from June
7, 1960, the date when NAMARCO
made the extra-judicial demand upon said party.

Upon arrival of the goods in Manila in January, 1960, the NAMARCO billed
FEDERATION Statement of
Account for P277,357.91, covering shipment of the 2,000 cartons of PK
Chewing Gums, 1,000 cartons of Juicy Fruit
Chewing Gums, and 500 cartons of Adams Chicklets; Statement of Account
of P135,891.32, covering shipment of
the 168 cartons of Blue Denims; and Statement of Account of P197,824.12,
covering shipment of the 183 bales of
Khaki Twill, or a total of P611,053.35. Subsequently, it was received by
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs. NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of the
trial court dated February 20, 1958, awarding to the plaintiffs-appellees the
amount of $286,000.00 as damages for breach of contract and dismissing the
counterclaim and third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice
and Corn Administration (NARIC) is hereby abolished and all its assets,
liabilities, functions, powers which are not inconsistent with the provisions of this
Act, and all personnel are transferred "to the Rice and Corn Administration
(RCA).
All references, therefore, to the NARIC in this decision must accordingly be
adjusted and read as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called
by the NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of
$203.00 per metric ton was the lowest, she was awarded the contract for the
same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the
appellant corporation entered into a Contract of Sale of Rice, under the terms
of which the former obligated herself to deliver to the latter 20,000 metric tons
of Burmess Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant
corporation committed itself to pay for the imported rice "by means of an
irrevocable, confirmed and assignable letter of credit in U.S. currency in favor
of the plaintiff-appellee and/or supplier in Burma, immediately." Despite the
commitment to pay immediately "by means of an irrevocable, confirmed and
assignable Letter of Credit," however, it was only on July 30, 1952, or a full
month from the execution of the contract, that the defendant corporation,
thru its general manager, took the first to open a letter of credit by forwarding
to the Philippine National Bank its Application for Commercial Letter Credit.
The application was accompanied by a transmittal letter, the relevant
paragraphs of which read:
In view of the fact that we do not have sufficient deposit with
your institution with which to cover the amount required to be
deposited as a condition for the opening of letters of credit,
we will appreciate it if this application could be considered
special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a
deadline to meet which is August 4, 1952, and in order to
comply therewith, it is imperative that the L/C be opened
prior to that date. We would therefore request your full
cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the
appellant corporation of the extreme necessity for the immediate opening of
the letter credit since she had by then made a tender to her supplier in
Rangoon, Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70
and in compliance with the regulations in Rangoon this 5% will be confiscated
if the required letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant
corporation that its application, "for a letter of credit for $3,614,000.00 in favor
of Thiri Setkya has been approved by the Board of Directors with the condition
that marginal cash deposit be paid and that drafts are to be paid upon
presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the
Bank represented that it "will hold your application in abeyance pending
compliance with the above stated requirement."
As it turned out, however, the appellant corporation not in any financial
position to meet the condition. As matter of fact, in a letter dated August 2,
1952, the NARIC bluntly confessed to the appellee its dilemma: "In this
connection, please be advised that our application for opening of the letter
of credit has been presented to the bank since July 30th but the latter requires
that we first deposit 50% of the value of the letter amounting to aproximately
$3,614,000.00 which we are not in a position to meet." (Emphasis supplied. Exh.
9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee
for $3,614,000.00," (which is more than two months from the execution of the
contract) the party named by the appellee as beneficiary of the letter of
credit.1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in Rangoon was
cancelled and the 5% deposit, amounting to 524,000 kyats or approximately
P200,000.00 was forfeited. In this connection, it must be made of record that
although the Burmese authorities had set August 4, 1952, as the deadline for
the remittance of the required letter of credit, the cancellation of the
allocation and the confiscation of the 5% deposit were not effected until
August 20, 1952, or, a full half month after the expiration of the deadline. And
yet, even with the 15-day grace, appellant corporation was unable to make
good its commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice
allocation. When the futility of reinstating the same became apparent, she
offered to substitute Thailand rice instead to the defendant NARIC,
communicating at the same time that the offer was "a solution which should
be beneficial to the NARIC and to us at the same time." (Exh. X-Pe., Exh. 25—
Def., p. 38, Folder of Exhibits). This offer for substitution, however, was rejected
by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding
compensation for the damages caused her in the sum of $286,000.00, U.S.
currency, representing unrealized profit. The demand having been rejected
she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila
Underwriters Insurance Company was brought to the suit as a third party
defendant to hold it liable on the performance bond it executed in favor of
the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by the appellee herein in Rangoon,
Burma, was the failure of the letter of credit to be opened with the
contemplated period. This failure must, therefore, be taken as the immediate
cause for the consequent damage which resulted. As it is then, the disposition
of this case depends on a determination of who was responsible for such
failure. Stated differently, the issue is whether appellant's failure to open
immediately the letter of credit in dispute amounted to a breach of the
contract of July 1, 1952 for which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of
the letter of credit. On the contrary, it insists that the fault lies with the
appellee. Appellant contends that the disputed negotiable instrument was
not promptly secured because the appellee , failed to seasonably furnish
data necessary and required for opening the same, namely, "(1) the amount
of the letter of credit, (2) the person, company or corporation in whose favor it
is to be opened, and (3) the place and bank where it may be negotiated."
Appellant would have this Court believe, therefore, that had these
informations been forthwith furnished it, there would have been no delay in
securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the
explanation reaches into an area of the proceedings into which We are not
at liberty to encroach. The explanation refers to a question of fact. Nothing in
the record suggests any arbitrary or abusive conduct on the part of the trial
judge in the formulation of the ruling. His conclusion on the matter is sufficiently
borne out by the evidence presented. We are denied, therefore, the
prerogative to disturb that finding, consonant to the time-honored tradition of
this Tribunal to hold trial judges better situated to make conclusions on
questions of fact. For the record, We quote hereunder the lower court's ruling
on the point:
The defense that the delay, if any in opening the letter of
credit was due to the failure of plaintiff to name the supplier,
the amount and the bank is not tenable. Plaintiff stated in
Court that these facts were known to defendant even before
the contract was executed because these facts were
necessarily revealed to the defendant before she could
qualify as a bidder. She stated too that she had given the
necessary data immediately after the execution of Exh. "A"
(the contract of July 1, 1952) to Mr. GABRIEL BELMONTE,
General Manager of the NARIC, both orally and in writing
and that she also pressed for the opening of the letter of
credit on these occasions. These statements have not been
controverted and defendant NARIC, notwithstanding its
previous intention to do so, failed to present Mr. Belmonte to
testify or refute this. ...
Secondly, from the correspondence and communications which form part of
the record of this case, it is clear that what singularly delayed the opening of
the stipulated letter of credit and which, in turn, caused the cancellation of
the allocation in Burma, was the inability of the appellant corporation to meet
the condition importation by the Bank for granting the same. We do not think
the appellant corporation can refute the fact that had it been able to put up
the 50% marginal cash deposit demanded by the bank, then the letter of
credit would have been approved, opened and released as early as August
4, 1952. The letter of the Philippine National Bank to the NARIC was plain and
explicit that as of the said date, appellant's "application for a letter of credit
... has been approved by the Board of Directors with the condition that 50%
marginal cash deposit be paid and that drafts are to be paid upon
presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or
inability to satisfy the requirements of the bank. Its culpability arises from its
willful and deliberate assumption of contractual obligations even as it was well
aware of its financial incapacity to undertake the prestation. We base this
judgment upon the letter which accompanied the application filed by the
appellant with the bank, a part of which letter was quoted earlier in this
decision. In the said accompanying correspondence, appellant admitted
and owned that it did "not have sufficient deposit with your institution (the
PNB) with which to cover the amount required to be deposited as a condition
for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned
admission. First, that the appellant knew the bank requirements for opening
letters of credit; second, that appellant also knew it could not meet those
requirement. When, therefore, despite this awareness that was financially
incompetent to open a letter of credit immediately, appellant agreed in
paragraph 8 of the contract to pay immediately "by means of an irrevocable,
confirm and assignable letter of credit," it must be similarly held to have bound
itself to answer for all and every consequences that would result from the
representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving
millions, $4,260,000.00 to be exact, it should have a certained
its ability and capacity to comply with the inevitably
requirements in cash to pay for such importation. Having
announced the bid, it must be deemed to have impliedly
assured suppliers of its capacity and facility to finance the
importation within the required period, especially since it had
imposed the supplier the 90-day period within which the
shipment of the rice must be brought into the Philippines.
Having entered in the contract, it should have taken steps
immediately to arrange for the letter of credit for the large
amount involved and inquired into the possibility of its
issuance.
In relation to the aforequoted observation of the trial court, We would like to
make reference also to Article 11 of the Civil Code which provides:
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 in damages.
Under this provision, not only debtors guilty of fraud, negligence or default in
the performance of obligations a decreed liable; in general, every debtor
who fails in performance of his obligations is bound to indemnify for the losses
and damages caused thereby (De la Cruz Seminary of Manila, 18 Phil. 330;
Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37
Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil.
1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil.
657). The phrase "any manner contravene the tenor" of the obligation includes
any illicit act which impairs the strict and faithful fulfillment of the obligation or
every kind or defective performance. (IV Tolentino, Civil Code of the
Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to
substitute Thailand rice for the originally contracted Burmese rice amounted to
a waiver by the appellee of whatever rights she might have derived from the
breach of the contract. We disagree. Waivers are not presumed, but must be
clearly and convincingly shown, either by express stipulation or acts admitting
no other reasonable explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.)
In the case at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court based its
award. Under the contract, the NARIC bound itself to buy 20,000 metric tons
of Burmese rice at "$203.00 U.S. Dollars per metric ton, all net shipped weight,
and all in U.S. currency, C.I.F. Manila ..." On the other hand, documentary and
other evidence establish with equal certainty that the plaintiff-appellee was
able to secure the contracted commodity at the cost price of $180.70 per
metric ton from her supplier in Burma. Considering freights, insurance and
charges incident to its shipment here and the forfeiture of the 5% deposit, the
award granted by the lower court is fair and equitable. For a clearer view of
the equity of the damages awarded, We reproduce below the testimony of
the appellee, adequately supported by the evidence and record:
Q. Will you please tell the court, how much is the damage
you suffered?
A. Because the selling price of my rice is $203.00 per metric
ton, and the cost price of my rice is $180.00 We had to pay
also $6.25 for shipping and about $164 for insurance. So
adding the cost of the rice, the freight, the insurance, the
total would be about $187.99 that would be $15.01 gross
profit per metric ton, multiply by 20,000 equals $300,200, that
is my supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of the
actual figures involved in the transaction. A precise and more exact
demonstration of the equity of the award herein is provided by Exhibit HH of
the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as
germane.
It is equally of record now that as shown in her request dated
July 29, 1959, and other communications subsequent thereto
for the opening by your corporation of the required letter of
credit, Mrs. Arrieta was supposed to pay her supplier in Burma
at the rate of One Hundred Eighty Dollars and Seventy Cents
($180.70) in U.S. Currency, per ton plus Eight Dollars ($8.00) in
the same currency per ton for shipping and other handling
expenses, so that she is already assured of a net profit of
Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency, per
ton or a total of Two Hundred and Eighty Six Thousand Dollars
($286,000.00), U.S. Currency, in the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered,
likewise by way of unrealized profit damages in the total sum of $406,000.00
from the failure of the projected contract to materialize. This counterclaim was
supported by a cost study made and submitted by the appellant itself and
wherein it was illustrated how indeed had the importation pushed thru, NARIC
would have realized in profit the amount asserted in the counterclaim. And
yet, the said amount of P406,000.00 was realizable by appellant despite a
number of expenses which the appellee under the contract, did not have to
incur. Thus, under the cost study submitted by the appellant, banking and
unloading charges were to be shouldered by it, including an Import License
Fee of 2% and superintendence fee of $0.25 per metric ton. If the NARIC stood
to profit over P400 000.00 from the disputed transaction inspite of the extra
expenditures from which the herein appellee was exempt, we are convicted
of the fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in the
dispositive portion of the decision appeal from insofar as it expresses the
amount of damages in U.S. currency and not in Philippine Peso. Republic Act
529 specifically requires the discharge of obligations only "in any coin or
currency which at the time of payment is legal tender for public and private
debts." In view of that law, therefore, the award should be converted into and
expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in the
conversion here decreed. Should it be at the time of the breach, at the time
the obligation was incurred or at the rate of exchange prevailing on the
promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action
for recovery of damages for breach of contract, even if the obligation
assumed by the defendant was to pay the plaintiff a sum of money expressed
in American currency, the indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the time of the judgment rather
than at the rate of exchange prevailing on the date of defendant's breach.
This ruling, however, can neither be applied nor extended to the case at bar
for the same was laid down when there was no law against stipulating foreign
currencies in Philippine contracts. But now we have Republic Act No. 529
which expressly declares such stipulations as contrary to public policy, void
and of no effect. And, as We already pronounced in the case of Eastboard
Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10,
1957, if there is any agreement to pay an obligation in a currency other than
Philippine legal tender, the same is null and void as contrary to public policy
(Republic Act 529), and the most that could be demanded is to pay said
obligation in Philippine currency "to be measured in the prevailing rate of
exchange at the time the obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed,
with the sole modification that the award should be converted into the
Philippine peso at the rate of exchange prevailing at the time the obligation
was incurred or on July 1, 1952 when the contract was executed. The
appellee insurance company, in the light of this judgment, is relieved of any
liability under this suit. No pronouncement as to costs.
FACTS:
Paz Arrieta is a rice dealer/importer. In May 1952, she participated in a public
bidding held by the National Rice and Corn Corporation (NARIC). NARIC was
looking for someone to supply 20,000 metric tons of Burmese Rice. Arrieta was
the lowest bidder at $203.00 per metric ton hence she won the bidding. So a
contract was made whereby Arrieta is to deliver the rice supply and NARIC is
to pay for the imported rice “by means of an irrevocable, confirmed and
assignable letter of credit in U.S. currency in favor of the Arrieta and/or
supplier in Burma, immediately.” Arrieta then proceeded to contact her
supplier in Burma (Thiri Setkya) and arranged the sale of the 20k metric ton of
Burmese Rice, Arrieta promised Setkya that he will be paid by NARIC on
August 4, 1952. Arrieta also made a 5% deposit (P200k) as advance payment
to Setkya.
Meanwhile, NARIC tried to open a letter of credit ion the amount of
$3,614,000.00 with the Philippine National Bank. PNB agreed to open the letter
of credit but only on the condition that NARIC deposits 50% of the said
amount. NARIC failed to do this and the letter of credit was not opened when
the obligation to pay Setkya became due. Because of this, Arrieta lost the
opportunity to profit from the sale as the agreement was eventually forfeited.
Her 5% depoit was likewise forfeited pursuant to Burma laws.
ISSUE: Whether or not Arrieta is entitled to damages.
HELD: Yes. It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by Arrieta in Rangoon, Burma, was
the failure of the letter of credit to be opened with the contemplated period.
The letter of credit is in US currency. Normally, parties can stipulate as to which
currency shall be used in paying off an obligation provided that the
exchange rate prevailing at the time of judgment shall prevail over the rate of
exchange at the time of the breach. This rule however is of no application in
the case at bar due to the passage of Republic Act 529 which expressly
declares such stipulations as contrary to public policy, void and of no effect. If
there is any agreement to pay an obligation in a currency other than
Philippine legal tender, the same is null and void as contrary to public policy
(Republic Act 529), and the most that could be demanded is to pay said
obligation in Philippine currency “to be measured in the prevailing rate of
exchange at the time the obligation was incurred.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. COURT OF
APPEALS and RORY W. LIM, respondents.
DECISION
FRANCISCO, J.:
This is a petition for review on certiorari seeking the reversal of the
Decision of the Court of Appeals in CA-G.R. No. 18843 promulgated on July
30, 1990, and the Resolution dated March 11, 1991, affirming with modification
the judgment of the Regional Trial Court of Gingoog City which held petitioner
Philippine Commercial International Bank (PCIB) liable for damages resulting
from its breach of contract with private respondent Rory W. Lim.
Disputed herein is the validity of the stipulation embodied in the standard
application form/receipt furnished by petitioner for the purchase of a
telegraphic transfer which relieves it of any liability resulting from loss caused
by errors or delays in the course of the discharge of its services.
The antecedent facts are as follows:
On March 13, 1986, private respondent Rory Lim delivered to his cousin
Lim Ong Tian PCIB Check No. JJJ 24212467 in the amount of P200,000.00 for
the purpose of obtaining a telegraphic transfer from petitioner PCIB in the
same amount. The money was to be transferred to Equitable Banking
Corporation, Cagayan de Oro Branch, and credited to private respondents
account at the said bank. Upon purchase of the telegraphic transfer,
petitioner issued the corresponding receipt dated March 13, 1986 [T/T No.
284][1] which contained the assailed provision, to wit:
AGREEMENT
xxx xxx xxx
In case of fund transfer, the undersigned hereby agrees that such transfer will
be made without any responsibility on the part of the BANK, or its
correspondents, for any loss occasioned by errors, or delays in the transmission
of message by telegraph or cable companies or by the correspondents or
agencies, necessarily employed by this BANK in the transfer of this money, all
risks for which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn
issued and delivered eight (8) Equitable Bank checks [2] to his suppliers in
different amounts as payment for the merchandise that he obtained from
them. When the checks were presented for payment, five of them bounced
for insufficiency of funds,[3] while the remaining three were held overnight for
lack of funds upon presentment.[4] Consequent to the dishonor of these
checks, Equitable Bank charged and collected the total amount of P1, 100.00
from private respondent. The dishonor of the checks came to private
respondents attention only on April 2, 1986, when Equitable Bank notified him
of the penalty charges and after receiving letters from his suppliers that his
credit was being cut-off due to the dishonor of the checks he issued.
Upon verification by private respondent with the Gingoog Branch Office
of petitioner PCIB, it was confirmed that his telegraphic transfer (T/T No. 284)
for the sum of P200,000.00 had not yet been remitted to Equitable Bank,
Cagayan de Oro branch. In fact, petitioner PCIB made the corresponding
transfer of funds only on April 3, 1986, twenty one (21) days after the purchase
of the telegraphic transfer on March 13,1986.
Aggrieved, private respondent demanded from petitioner PCIB that he
be compensated for the resulting damage that he suffered due to petitioners
failure to make the timely transfer of funds which led to the dishonor of his
checks. In a letter dated April 23, 1986, PCIBs Branch Manager Rodolfo
Villarmia acknowledged their failure to transmit the telegraphic transfer on
time as a result of their mistake in using the control number twice and the
petitioner banks failure to request confirmation and act positively on the
disposition of the said telegraphic transfer.[5]
Nevertheless, petitioner refused to heed private respondents demand
prompting the latter to file a complaint for damages with
the Regional Trial Court of Gingoog City[6] on January 16, 1987. In his
complaint, private respondent alleged that as a result of petitioners total
disregard and gross violation of its contractual obligation to remit and deliver
the sum of Two Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284
to Equitable Banking Corporation, Cagayan de Oro Branch, private
respondents checks were dishonored for insufficient funds thereby causing his
business and credit standing to suffer considerably for which petitioner should
be ordered to pay damages.[7]
Answering the complaint, petitioner denied any liability to private
respondent and interposed as special and affirmative defense the lack of
privity between it and private respondent as it was not private respondent
himself who purchased the telegraphic transfer from petitioner. Additionally,
petitioner pointed out that private respondent is nevertheless bound by the
stipulation in the telegraphic transfer application/form receipt [8] which
provides:
x x x. In case of fund transfer, the undersigned hereby agrees that such
transfer will be made without any responsibility on the part of the BANK, or its
correspondents, for any loss occasioned by errors or delays in the transmission
of message by telegraph or cable companies or by correspondents or
agencies, necessarily employed by this BANK in the transfer of this money, all
risks for which are assumed by the undersigned.
According to petitioner, they utilized the services of RCPI-Gingoog City to
transmit the message regarding private respondents telegraphic transfer
because their telex machine was out of order at that time. But as it turned out,
it was only on April 3, 1986 that petitioners Cagayan de Oro Branch had
received information about the said telegraphic transfer.[9]
In its decision dated July 27,
1988[10] the Regional Trial Court of Gingoog City held petitioner liable for
breach of contract and struck down the aforecited provision found in
petitioners telegraphic transfer application form/receipt exempting it from any
liability and declared the same to be invalid and unenforceable. As found by
the trial court, the provision amounted to a contract of adhesion wherein the
objectionable portion was unilaterally inserted by petitioner in all its
application forms without giving any opportunity to the applicants to question
the same and express their conformity thereto.[11]Thus, the trial court adjudged
petitioner liable to private respondent for the following amounts:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
defendant, ordering the latter to pay the former as follows:
P960,000.00 as moral damages;
P50,000.00 as exemplary damages;
P40,000.00 as attorneys fees; and
P1,100.00 as reimbursement for the surcharges paid by plaintiff to
the Equitable Banking Corporation, plus costs, all with legal interest
of 6% per annum from the date of this judgment until the same shall
have been paid in full.[12]
Upon appeal by petitioner to the Court of Appeals, respondent court
affirmed with modifications the judgment of the trial court and ordered as
follows:
WHEREFORE, premises considered, judgment is hereby rendered affirming the
appealed decision with modification, as follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the
following:
1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for
moral damages;
2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary
damage to serve as an example for the public good;
3. The sum of Thirty Thousand (P30,000.00) Pesos representing
attorneys fees;
4. The sum of One Thousand One Hundred (P1,100.00) Pesos as
actual damage, and
5. To pay the costs.
SO ORDERED.[13]
A motion for reconsideration was filed by petitioner but respondent Court
of Appeals denied the same.[14]
Still unconvinced, petitioner elevated the case to this Court through the
instant petition for review on certiorari invoking the validity of the assailed
provision found in the application form/receipt exempting it from any liability
in case of loss resulting from errors or delays in the transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is
a contract of adhesion, such fact alone does not make it invalid because this
type of contract is not absolutely prohibited. Moreover, the terms thereof are
expressed clearly, leaving no room for doubt, and both contracting parties
understood and had full knowledge of the same.
Private respondent however contends that the agreement providing
non-liability on petitioners part in case of loss caused by errors or delays
despite its recklessness and negligence is void for being contrary to public
policy and interest.[15]
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.[16] One party prepares the
stipulation in the contract, while the other party merely affixes his signature or
his adhesion thereto,[17] giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing.[18] Nevertheless, these
types of contracts have been declared as binding as ordinary contracts, the
reason being that the party who adheres to the contract is free to reject it
entirely.[19] It is equally important to stress, though, that the Court is not
precluded from ruling out blind adherence to their terms if the attendant facts
and circumstances show that they should be ignored for being obviously too
one-sided.[20]
On previous occasions, it has been declared that a contract of adhesion
may be struck down as void and unenforceable, for being subversive to
public policy, only 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.[21] And when it has been shown that the complainant is
knowledgeable enough to have understood the terms and conditions of the
contract, or one whose stature is such that he is expected to be more prudent
and cautious with respect to his transactions, such party cannot later on be
heard to complain for being ignorant or having been forced into merely
consenting to the contract.[22]
The factual backdrop of the instant case, however, militates against
applying the aforestated pronouncements. That petitioner failed to discharge
its obligation to transmit private respondents telegraphic transfer on time in
accordance with their agreement is already a settled matter as the same is
no longer disputed in this petition. Neither is the finding of respondent Court of
Appeals that petitioner acted fraudulently and in bad faith in the
performance of its obligation, being contested by petitioner. Perforce, we are
bound by these factual considerations.
Having established that petitioner acted fraudulently and in bad faith,
we find it implausible to absolve petitioner from its wrongful acts on account
of the assailed provision exempting it from any liability. In Geraldez vs. Court of
Appeals,[23] it was unequivocally declared that notwithstanding the
enforceability of a contractual limitation, responsibility arising from a
fraudulent act cannot be exculpated because the same is contrary to public
policy. Indeed, Article 21 of the Civil Code is quite explicit in providing that
[a]ny person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter
for the damage. Freedom of contract is subject to the limitation that the
agreement must not be against public policy and any agreement or contract
made in violation of this rule is not binding and will not be enforced.[24]
The prohibition against this type of contractual stipulation is moreover
treated by law as void which may not be ratified or waived by a contracting
party. Article 1409 of the Civil Code states:
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived.
Undoubtedly, the services being offered by a banking institution like petitioner
are imbued with public interest.[25] The use of telegraphic transfers have now
become commonplace among businessmen because it facilitates
commercial transactions. Any attempt to completely exempt one of the
contracting parties from any liability in case of loss notwithstanding its bad
faith, fault or negligence, as in the instant case, cannot be sanctioned for
being inimical to public interest and therefore contrary to public policy.
Resultingly, there being no dispute that petitioner acted fraudulently and in
bad faith, the award of moral[26] and exemplary damages were proper.
But notwithstanding petitioners liability for the resulting loss and damage
to private respondent, we find the amount of moral damages adjudged by
respondent court in the sum of P400,000.00 exorbitant. Bearing in mind that
moral damages are awarded, not to penalize the wrongdoer, but rather to
compensate the claimant for the injuries that he may have suffered, [27] we
believe that an award of Two Hundred Thousand Pesos (P200,000.00) is
reasonable under the circumstances.
WHEREFORE, subject to the foregoing modification reducing the amount
awarded as moral damages to the sum of Two Hundred Thousand Pesos
(P200,000.00), the appealed decision is hereby AFFIRMED.
SO ORDERED.
CHARLES F. WOODHOUSE, plaintiff-appellant, vs.FORTUNATO F.
HALILI, defendant-appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A,
with the defendant, the most important provisions of which are (1) that they
shall organize a partnership for the bottling and distribution of Mision soft
drinks, plaintiff to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the defendant was
to decide matters of general policy regarding the business, while the plaintiff
was to attend to the operation and development of the bottling plant; (3)
that the plaintiff was to secure the Mission Soft Drinks franchise for and in
behalf of the proposed partnership; and (4) that the plaintiff was to receive 30
per cent of the net profits of the business. The above agreement was arrived
at after various conferences and consultations by and between them, with
the assistance of their respective attorneys. Prior to entering into this
agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles,
California, U.S.A., manufacturers of the bases and ingridients of the beverages
bearing its name, that he had interested a prominent financier (defendant
herein) in the business, who was willing to invest half a million dollars in the
bottling and distribution of the said beverages, and requested, in order that
he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was
given "a thirty-days" option on exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant
began at a meeting on November 27, 1947, at the Manila Hotel, with their
lawyers attending. Before this meeting plaintiff's lawyer had prepared the
draft of the agreement, Exhibit II or OO, but this was not satisfactory because
a partnership, instead of a corporation, was desired. Defendant's lawyer
prepared after the meeting his own draft, Exhibit HH. This last draft appears to
be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did
not like to go to the United States without the agreement being not first
signed. On that day plaintiff and defendant went to the United States, and on
December 10, 1947, a franchise agreement (Exhibit V) was entered into the
Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse,
granted defendant the exclusive right, license, and authority to produce,
bottle, distribute, and sell Mision beverages in the Philippines. The plaintiff and
the defendant thereafter returned to the Philippines. Plaintiff reported for duty
in January, 1948, but operations were not begun until the first week of
February, 1948. In January plaintiff was given as advance, on account of
profits, the sum of P2,000, besides the use of a car; in February, 1948, also
P2,000, and in March only P1,000. The car was withdrawn from plaintiff on
March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of
defendant that the partnership papers be executed. At first defendant
executed himself, saying there was no hurry. Then he promised to do so after
the sales of the product had been increased to P50,000. As nothing definite
was forthcoming, after this condition was attained, and as defendant refused
to give further allowances to plaintiff, the latter caused his attorneys to take
up the matter with the defendant with a view to a possible settlement. as
none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership,
an accounting of the profits, and a share thereof of 30 per cent, as well as
damages in the amount of P200,000. In his answer defendant alleges by way
of defense (1) that defendant's consent to the agreement, Exhibit A, was
secured by the representation of plaintiff that he was the owner, or was about
to become owner of an exclusive bottling franchise, which representation was
false, and plaintiff did not secure the franchise, but was given to defendant
himself; (2) that defendant did not fail to carry out his undertakings, but that it
was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so. He also presented a
counter-claim for P200,000 as damages. On these issues the parties went to
trial, and thereafter the Court of First Instance rendered judgment ordering
defendant to render an accounting of the profits of the bottling and
distribution business, subject of the action, and to pay plaintiff 15 percent
thereof. it held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not
proved. Against this judgment both parties have appealed.
The most important question of fact to be determined is whether defendant
had falsely represented that he had an exclusive franchise to bottle Mission
beverages, and whether this false representation or fraud, if it existed, annuls
the agreement to form the partnership. The trial court found that it is
improbable that defendant was never shown the letter, Exhibit J, granting
plaintiff had; that the drafts of the contract prior to the final one can not be
considered for the purpose of determining the issue, as they are presumed to
have been already integrated into the final agreement; that fraud is never
presumed and must be proved; that the parties were represented by
attorneys, and that if any party thereto got the worse part of the bargain, this
fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant
that he had an exclusive franchise, when as a matter of fact, at the time of its
execution, he no longer had it as the same had expired, and that, therefore,
the consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
Our study of the record and a consideration of all the surrounding
circumstances lead us to believe that defendant's contention is not without
merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented
himself as being the exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me
the file of the office with regards to this matter. I notice from the first
draft of the document which I prepared which calls for the
organization of a corporation, that the manager, that is, Mr.
Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made
before the Manila Hotel conference on November 27th, expressly states that
plaintiff had the exclusive franchise. Thus, the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from
the Mission Dry Corporation San Francisco, California, for the bottling
of Mission products and their sale to the public throughout the
Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle
Mission products and to sell them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural
acts. We find that the principle invoked is inapplicable, since the purpose of
considering the prior draft is not to vary, alter, or modify the agreement, but to
discover the intent of the parties thereto and the circumstances surrounding
the execution of the contract. The issue of fact is: Did plaintiff represent to
defendant that he had an exclusive franchise? Certainly, his acts or
statements prior to the agreement are essential and relevant to the
determination of said issue. The act or statement of the plaintiff was not
sought to be introduced to change or alter the terms of the agreement, but
to prove how he induced the defendant to enter into it — to prove the
representations or inducements, or fraud, with which or by which he secured
the other party's consent thereto. These are expressly excluded from the parol
evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209;
port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran
221,1952 rev. ed.) Fraud and false representation are an incident to the
creation of a jural act, not to its integration, and are not governed by the rules
on integration. Were parties prohibited from proving said representations or
inducements, on the ground that the agreement had already been entered
into, it would be impossible to prove misrepresentation or fraud. Furthermore,
the parol evidence rule expressly allows the evidence to be introduced when
the validity of an instrument is put in issue by the pleadings (section 22, par.
(a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his
own letters and his own testimony. In his letter to Mission Dry Corporation,
Exhibit H, he said:.
. . . He told me to come back to him when I was able to speak with
authority so that we could come to terms as far as he and I were
concerned. That is the reason why the cable was sent. Without this
authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and
distributing rights for a limited period of time, during which I may
consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff
on October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to bargain with defendant
and close the deal with him, he must have used his said option for the above-
indicated purpose, especially as it appears that he was able to secure,
through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is
to the effect that when plaintiff called on the latter, the latter answered, "Well,
come back to me when you have the authority to operate. I am definitely
interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections
of 1949 plaintiff went to see the defendant (and at that time he had already
the option), he must have exultantly told defendant that he had the authority
already. It is improbable and incredible for him to have disclosed the fact that
he had only an option to the exclusive franchise, which was to last thirty days
only, and still more improbable for him to have disclosed that, at the time of
the signing of the formal agreement, his option had already expired. Had he
done so, he would have destroyed all his bargaining power and authority,
and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff
only undertook in the agreement "to secure the Mission Dry franchise for and
in behalf of the proposed partnership." The existence of this provision in the
final agreement does not militate against plaintiff having represented that he
had the exclusive franchise; it rather strengthens belief that he did actually
make the representation. How could plaintiff assure defendant that he would
get the franchise for the latter if he had not actually obtained it for himself?
Defendant would not have gone into the business unless the franchise was
raised in his name, or at least in the name of the partnership. Plaintiff assured
defendant he could get the franchise. Thus, in the draft prepared by
defendant's attorney, Exhibit HH, the above provision is inserted, with the
difference that instead of securing the franchise for the defendant, plaintiff
was to secure it for the partnership. To show that the insertion of the above
provision does not eliminate the probability of plaintiff representing himself as
the exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use
the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . .
the franchise from Mission Dry Corporation shall be reassigned to
the manager.
These statements confirm the conclusion that defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus
it is that it was also agreed upon that the franchise was to be transferred to
the name of the partnership, and that, upon its dissolution or termination, the
same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned
that plaintiff did not have the exclusive franchise, was to reduce, as he himself
testified, plaintiff's participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually made
him believe that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in
the making of the contract made fraud improbable. Not necessarily, because
the alleged representation took place before the conferences were had, in
other words, plaintiff had already represented to defendant, and the latter
had already believed in, the existence of plaintiff's exclusive franchise before
the formal negotiations, and they were assisted by their lawyers only when
said formal negotiations actually took place. Furthermore, plaintiff's attorney
testified that plaintiff had said that he had the exclusive franchise; and
defendant's lawyer testified that plaintiff explained to him, upon being asked
for the franchise, that he had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to
defendant that he was the holder of the exclusive franchise. The defendant
was made to believe, and he actually believed, that plaintiff had the
exclusive franchise. Defendant would not perhaps have gone to California
and incurred expenses for the trip, unless he believed that plaintiff did have
that exclusive privilege, and that the latter would be able to get the same
from the Mission Dry Corporation itself. Plaintiff knew what defendant believed
about his (plaintiff's) exclusive franchise, as he induced him to that belief, and
he may not be allowed to deny that defendant was induced by that belief.
(IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount
to a fraud that would vitiate the contract? It must be noted that fraud is
manifested in illimitable number of degrees or gradations, from the innocent
praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud, which may be a ground for the annulment of a
contract, and the incidental deceit, which only renders the party who
employs it liable for damages. This Court had held that in order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo causante), inducement to the making of the contract.
(Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record
abounds with circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant's counsel was to the
effect that plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is made not as
to the said obligation but as to the grantee. In the corrected draft the word
"capitalist"(grantee) is changed to "partnership." The contract in its final form
retains the substituted term "partnership." The defendant was, therefore, led to
the belief that plaintiff had the exclusive franchise, but that the same was to
be secured for or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract was
perfected. But while he had already lost his option thereto (when the contract
was entered into), the principal obligation that he assumed or undertook was
to secure said franchise for the partnership, as the bottler and distributor for
the Mission Dry Corporation. We declare, therefore, that if he was guilty of a
false representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of
30 percent granted him in the net profits of the partnership business.
Defendant agreed to give plaintiff 30 per cent share in the net profits because
he was transferring his exclusive franchise to the partnership. Thus, in the draft
prepared by plaintiff's lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said corporation,
shall forthwith transfer to the said corporation his exclusive right to
bottle Mission products and to sell them throughout the Philippines. As
a consideration for such transfer, the CAPITALIST shall transfer to the
Manager fully paid non assessable shares of the said corporation . . .
twenty-five per centum of the capital stock of the said corporation.
(Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in
the production or distribution of beverages. As a matter of fact, when the
bottling plant being built, all that he suggested was about the toilet facilities
for the laborers.
We conclude from the above that while the representation that plaintiff had
the exclusive franchise did not vitiate defendant's consent to the contract, it
was used by plaintiff to get from defendant a share of 30 per cent of the net
profits; in other words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent of the latter to
give him (plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code, because it was
used to get the other party's consent to a big share in the profits, an incidental
matter in the agreement.
El dolo incidental no es el que puede producirse en el cumplimiento
del contrato sino que significa aqui, el que concurriendoen el
consentimiento, o precediendolo, no influyo para arrancar porsi solo
el consentimiento ni en la totalidad de la obligacion, sinoen algun
extremo o accidente de esta, dando lugar tan solo a una accion
para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared
null and void, the question that next comes before us is, May the agreement
be carried out or executed? We find no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the
plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership
was to be carried out at a later date. They expressly agreed that they shall
form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time
that the franchise from the Mission Dry Corporation was obtained in California,
plaintiff himself had been demanding that defendant comply with the
agreement. And plaintiff's present action seeks the enforcement of this
agreement. Plaintiff's claim, therefore, is both inconsistent with their intention
and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled
against his will to carry out the agreement nor execute the partnership papers.
Under the Spanish Civil Code, the defendant has an obligation to do, not to
give. The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish
commentators call a very personal act (acto personalismo), of which courts
may not compel compliance, as it is considered an act of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.—
Tratamos de la ejecucion de las obligaciones de hacer en el
solocaso de su incumplimiento por parte del deudor, ya sean los
hechos personalisimos, ya se hallen en la facultad de un tercero;
porque el complimiento espontaneo de las mismas esta regido por
los preceptos relativos al pago, y en nada les afectan las
disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el
deudor puede ser precisado a realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente
sin observacion el principio romano nemo potest precise cogi ad
factum. Nadie puede ser obligado violentamente a haceruna cosa.
Los que perciben la posibilidad de la destruccion deeste principio,
añaden que, aun cuando se pudiera obligar al deudor, no deberia
hacerse, porque esto constituiria una violencia, y noes la
violenciamodo propio de cumplir las obligaciones (Bigot, Rolland,
etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que
obligar por la violencia seria infrigir la libertad eimponer una especie
de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon
el empleo de la fuerza fisica, no ya precisamente porque
seconstituya de este modo una especie de esclavitud, segun el
dichode Antonio Gomez, sino porque se supone que el acreedor
tuvo encuenta el caracter personalisimo del hecho ofrecido, y
calculo sobre laposibilidad de que por alguna razon no se realizase.
Repugna,ademas, a la conciencia social el empleo de la fuerza
publica, mediante coaccion sobre las personas, en las relaciones
puramente particulares; porque la evolucion de las ideas ha ido
poniendo masde relieve cada dia el respeto a la personalidad
humana, y nose admite bien la violencia sobre el individuo la cual
tiene caracter visiblemente penal, sino por motivos que interesen a la
colectividad de ciudadanos. Es, pues, posible y licita esta violencia
cuando setrata de las obligaciones que hemos llamado ex lege, que
afectanal orden social y a la entidad de Estado, y aparecen
impuestas sinconsideracion a las conveniencias particulares, y sin que
por estemotivo puedan tampoco ser modificadas; pero no debe
serlo cuandola obligacion reviste un interes puramente particular,
como sucedeen las contractuales, y cuando, por consecuencia,
paraceria salirseel Estado de su esfera propia, entrado a dirimir, con
apoyo dela fuerza colectiva, las diferencias producidas entre los
ciudadanos. (19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is
entitled to receive because of defendant's refusal to form the partnership,
and damages that defendant is also entitled to collect because of the falsity
of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article
1106 of the Spanish Civil Code the measure of damages is the actual loss
suffered and the profits reasonably expected to be received, embraced in
the terms daño emergente and lucro cesante. Plaintiff is entitled under the
terms of the agreement to 30 per cent of the net profits of the business.
Against this amount of damages, we must set off the damage defendant
suffered by plaintiff's misrepresentation that he had obtained a very high
percentage of share in the profits. We can do no better than follow the
appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the
exclusive franchise which he pretended he had and which he had agreed to
transfer to the partnership, his spontaneous reaction was to reduce plaintiff's
share form 30 per cent to 15 per cent only, to which reduction defendant
appears to have readily given his assent. It was under this understanding,
which amounts to a virtual modification of the contract, that the bottling plant
was established and plaintiff worked as Manager for the first three months. If
the contract may not be considered modified as to plaintiff's share in the
profits, by the decision of defendant to reduce the same to one-half and the
assent thereto of plaintiff, then we may consider the said amount as a fair
estimate of the damages plaintiff is entitled to under the principle enunciated
in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176.
Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto
amount to an admission on the part of each of the reasonableness of this
amount as plaintiff's share. This same amount was fixed by the trial court. The
agreement contains the stipulation that upon the termination of the
partnership, defendant was to convey the franchise back to plaintiff (Par. 11,
Exhibit A). The judgment of the trial court does not fix the period within which
these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A,
we declare that plaintiff's share of 15 per cent of the net profits shall continue
to be paid while defendant uses the franchise from the Mission Dry
Corporation.
With the modification above indicated, the judgment appealed from is
hereby affirmed. Without costs.
Facts:
On November 29, 1947, plaintiff Woodhouse entered into a written agreement
with defendant Halili stating among others that: 1) that they shall organize a
partnership for the bottling and distribution of Missionsoft drinks, plaintiff to act
as industrial partner or manager, and the defendant as a capitalist, furnishing
the capital necessary therefore; 2) that plaintiff was to secure the Mission Soft
Drinks franchise for and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a
milliondollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the condition
that it will finally be transferred to the corporation. Pursuant to this request,
plaintiff was given “a thirty days’ option on exclusive bottling and distribution
rights for the Philippines”. The contract was finally signed by plaintiff on
December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. Defendant Halili gave
excuses and would not execute said agreement, thus the complaint by the
plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2)
accounting of profits and 3)share thereof of 30 percent with 4) damages in
the amount of P200,000. The Defendant on the other hand claims that: 1) the
defendant’s consent to the agreement, was secured by the representation of
plaintiff that he was the owner, or was about to become owner of an
exclusive bottling franchise, which representation was false, and that plaintiff
did not secure the franchise but was given to defendant himself 2) that
defendant did not fail to carry out his undertakings, but that it was plaintiff
who failed and 3)that plaintiff agreed to contribute to the exclusive franchise
to the partnership, but plaintiff failed to do so with a 4) counterclaim for
P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits
and that the 2) execution of contract cannot be enforced upon parties.
Lastly, the 3) fraud wasn’t proved
ISSUES
1. WON plaintiff falsely represented that he had an exclusive franchise to
bottle Mission beverages
2. WON false representation, if it existed, annuls the agreement to form the
partnership
HELD
1. Yes. Plaintiff did make false representations and this can be seen through his
letters to Mission Dry Corporation asking for the latter to grant him temporary
franchise so that he could settle the agreement with defendant. The trial court
reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook
in the agreement “to secure the Mission Dry franchise for and in behalf of the
proposed partnership.” The existence of this provision in the final agreement
does not militate against plaintiff having represented that he had the
exclusive franchise; it rather strengthens belief that he did actually make the
representation. The defendant believed, or was made to believe, that plaintiff
was the grantee of an exclusive franchise. Thus it is that it was also agreed
upon that the franchise was to be transferred to the name of the partnership,
and that, upon its dissolution or termination, the same shall be reassigned to
the plaintiff.
Again, the immediate reaction of defendant, when in California he learned
that plaintiff did not have the exclusive franchise, was to reduce, as he himself
testified, plaintiff’s participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually made
him believe that he(plaintiff) was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two
kinds of (civil) fraud, the causal fraud, which may be ground for the
annulment of a contract, and the incidental deceit, which only renders the
party who employs it liable for damages only. The Supreme Court has held
that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente) inducement to the
making of the contract.
The record abounds with circumstances indicative of the fact that the
principal consideration, the main cause that induced defendant to enter into
the partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant’s counsel was to the
effect that plaintiff obligated himself to secure a franchise for the defendant.
But if plaintiff was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led plaintiff to enter into the
partnership agreement. On the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 per cent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent share in
the net profits because he was transferring his exclusive franchise to the
partnership.
Having arrived at the conclusion that the contract cannot be declared null
and void, may the agreement be carried out or executed? The SC finds no
merit in the claim of plaintiff that the partnership was already a fait accompli
from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the execution of
the agreement to form a partnership was to be carried out at a later date. ,
The defendant may not be compelled against his will to carry out the
agreement nor execute the partnership papers. The law recognizes the
individual’s freedom or liberty to do an act he has promised to do, or not to
do it, as he pleases.
Dispostive Postion: With modification above indicated, the judgment
appealed from is hereby affirmed.
LYDIA L. GERALDEZ, petitioner, vs. HON. COURT OF APPEALS and KENSTAR
TRAVEL CORPORATION, respondents.
REGALADO, J.:
Our tourism industry is not only big business; it is a revenue support of the
nation's economy. It has become a matter of public interest as to call for its
promotion and regulation on a cabinet level. We have special laws and
policies for visiting tourists, but such protective concern has not been equally
extended to Filipino tourists going abroad. Thus, with the limited judicial relief
available within the ambit of present laws, our tourists often prefer who fail to
deliver on their undertakings. This case illustrates the recourse of one such
tourist who refused to forget.
An action for damages by reason of contractual breach was filed by
petitioner Lydia L. Geraldez against private respondent Kenstar Travel
Corporation, docketed as Civil Case No. Q-90-4649 of the Regional Trial Court
of Quezon City, Branch 80. 1 After the parties failed to arrive at an amicable
settlement, trial on the merits ensued.
Culling from the records thereof, we find that sometime in October, 1989,
Petitioner came to know about private respondent from numerous
advertisements in newspapers of general circulation regarding tours in Europe.
She then contacted private respondent by phone and the latter sent its
representative, Alberto Vito Cruz, who gave her the brochure for the tour and
later discussed its highlights. The European tours offered were classified into
four, and petitioner chose the classification denominated as "VOLARE 3"
covering a 22-day tour of Europe for $2,990.00. She paid the total equivalent
amount of P190,000.00 charged by private respondent for her and her sister,
Dolores.
Petitioner claimed that, during the tour, she was very uneasy and
disappointed when it turned out that, contrary to what was stated in the
brochure, there was no European tour manager for their group of tourists, the
hotels in which she and the group were bullited were not first-class, the UGC
Leather Factory which was specifically added as a highlight of the tour was
not visited, and the Filipino lady tour guide by private respondent was a first
timer, that is, she was performing her duties and responsibilities as such for the
first time. 2
In said action before the Regional Trial Court of Quezon City, petitioner
likewise moved for the issuance of a writ of preliminary attachment against
private respondent on the ground that it committed fraud in contracting an
obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court, to
which no opposition by the latter appears on the record. This was granted by
the court a quo 3 but the preliminary attachment was subsequently lifted upon
the filing by private respondent of a counterbond amounting to P990,000.00. 4
During the pendency of said civil case for damages, petitioner also filed other
complaints before the Department of Tourism in DOT Case No. 90-121 and the
Securities and Exchange Commission in PED Case No. 90-3738, 5wherein,
according to petitioner, herein private respondent was meted out a fine of
P10,000.00 by the Commission and P5,000.00 by the Department, 6 which facts
are not disputed by private respondent in its comment on the present petition.
On July 9, 1991, the court a quo rendered its decision 7 ordering private
respondent to pay petitioner P500.000.00 as moral damages, P200,000.00 as
nominal damages, P300,000.00 as exemplary damages, P50,000.00 as and for
attorney's fees, and the costs of the suit. 8 On appeal, respondent
court 9 deleted the award for moral and exemplary damages, and reduced
the awards for nominal damages and attorney's fees to P30,000.00 and
P10,000.00, respectively. 10
Hence, the instant petition from which, after sifting through the blades of
contentions alternately thrust and parried in the exchanges of the parties, the
pivotal issue that emerges is whether or not private respondent acted in bad
faith or with gross negligence in discharging its obligations under the contract.
Both the respondent court and the court a quo agree that private respondent
failed to comply faithfully with its commitments under the Volare 3 tour
program, more particularly in not providing the members of the tour group
with a European tour manger whose duty, inter alia, was to explain the points
of interest of and familiarize the tour group with the places they would visit in
Europe, and in assigning instead a first timer Filipino tour guide, in the person of
Rowena Zapanta, 11 to perform that role which definitely requires experience
and knowledge of such places. It is likewise undisputed that while the group
was able to pay a visit to the site of the UGC Leather Factory, they were
brought there at a very late hour such that the factory was already closed
and they were unable to make purchases at supposedly discounted
prices. 12 As to the first-class hotels, however, while the court a quo found that
the hotels were not fist-class, respondent court believed otherwise, or that, at
least, there was substantial compliance with such a representation.
While clearly there was therefore a violation of the rights of petitioner under
the aforementioned circumstances, respondent court, contrary to the findings
of the trial court, ruled that no malice or bad faith could be imputed to
private respondent, hence there is no justification for the award of moral and
exemplary damages. Furthermore, it held that while petitioner is entitled to
nominal damages, the amount awarded by the trial court was
unconscionable since petitioner did not suffer actual or substantial damage
from the breach of contract, 13 hence its reduction of such award as
hereinbefore stated.
After thorough and painstaking scrutiny of the case records of both the trial
and appellate courts, we are satisfactorily convinced, and so hold, that
private respondent did commit fraudulent misrepresentations amounting to
bad faith, to the prejudice of petitioner and the members of the tour group.
By providing the Volare 3 tourist group, of which petitioner was a member,
with an inexperienced and a first timer tour escort, private respondent
manifested its indifference to the convenience, satisfaction and peace of
mind of its clients during the trip, despite its express commitment to provide
such facilities under the Volare 3 Tour Program which had the grandiose
slogan "Let your heart sing. 14
Evidently, an inexperienced tour escort, who admittedly had not even
theretofore been to Europe, 15 cannot effectively acquaint the tourists with the
interesting areas in the cities and places included in the program, or to
promptly render necessary assistance, especially where the latter are
complete strangers thereto, like witnesses Luz Sui Haw and her husband who
went to Europe for their honeymoon. 16
We agree with petitioner that the selection of Zapanta as the group's tour
guide was deliberate and conscious choice on the part of private respondent
in order to afford her an on-the-job training and equip her with the proper
opportunities so as to later qualify her as an "experienced" tour guide and
eventually be an asset of respondent corporation. 17 Unfortunately, this
resulted in a virtual project experimentation with petitioner and the members
of the tour as the unwitting participants.
We are, therefore, one with respondent court in faulting private respondent's
choice of Zapanta as a qualified tour guide for the Volare 3 tour package. It
brooks no argument that to be true to its undertakings, private respondent
should have selected an experienced European tour guide, or it could have
allowed Zapanta to go merely as an understudy under the guidance, control
and supervision of an experienced and competent European or Filipino tour
guide, 18 who could give her the desired training.
Moreover, a tour guide is supposed to attend to the routinary needs of the
tourists, not only when the latter ask for assistance but at the moment such
need becomes apparent. In other words, the tour guide, especially by reason
of her experience in previous tours, must be able to anticipate the possible
needs and problems of the tourists instead of waiting for them to bring it to her
attention. While this is stating the obvious, it is her duty to see to it that basic
personal necessities such as soap, towels and other daily amenities are
provided by the hotels. It is also expected of her to see to it that the tourists
are provided with sanitary surroundings and to actively arrange for medical
attention in case of accidents, as what befell petitioner's sister and wherein
the siblings had to practically fend for themselves since, after merely calling
for an ambulance, Zapanta left with the other tour participants. 19
Zapanta fell far short of the performance expected by the tour group, her
testimony in open court being revelatory of her inexperience even on the
basic function of a tour guide, to wit:
Q Now, are you aware that there were times
that the tourists under the "Volare 3" were not
provided with soap and towels?
A They did not tell me that but I was able to
ask them later on but then nobody is
complaining. 20 . . . .
The inability of the group to visit the leather factory is likewise reflective of the
neglect and ineptness of Zapanta in attentively following the itinerary of the
day. This incompetence must necessarily be traced to the lack of due
diligence on the part of private respondent in the selection of its employees. It
is true that among the thirty-two destinations, which included twenty-three
cities and special visits to nine tourist spots, this was the only place that was
not visited. 21 It must be noted, however, that the visit to the UGC Leather
Factory was one of the highlights 22 of the Volare 3 program which even had
to be specifically inserted in the itinerary, hence it was incumbent upon the
organizers of the tour to take special efforts to ensure the same. Besides,
petitioner did expect much from the visit to that factory since it was
represented by private respondent that quality leather goods could be
bought there at lower prices. 23
Private respondent represents Zapanta's act of making daily overseas calls to
Manila as an exercise of prudence and diligence on the latter's part as a tour
guide. 24 It further claims that these calls were needed so that it could monitor
the progress of the tour and respond to any problem immediately. 25 We are
not persuaded. The truth of the matter is that Zapanta, as an inexperienced
trainee-on-the-job, was required to make these calls to private respondent for
the latter to gauge her ability in coping with her first assignment and to
provide instructions to her. 26
Clearly, therefore, private respondent's choice of Zapanta as the tour guide is
a manifest disregard of its specific assurances to the tour group, resulting in
agitation and anxiety on their part, and which deliberate omission is contrary
to the elementary rules of good faith and fair play. It is extremely doubtful if
any group of Filipino tourists would knowingly agree to be used in effect as
guinea pigs in an employees' training program of a travel agency, to be
conducted in unfamiliar European countries with their diverse cultures,
lifestyles and languages.
On the matter of the European tour manager, private respondent's
advertisement in its tour contract declares and represents as follows:
FILIPINO TOUR ESCORT!
He will accompany you throughout Europe. He speaks your
language, shares your culture and feels your excitement.
He won't be alone because you will also be accompanied by
a...
EUROPEAN TOUR MANAGER!
You get the best of both worlds. Having done so may tours in
the past with people like you, he knows your sentiments, too.
So knowledgeable about Europe, there is hardly a question
he can't answer. 27
Private respondent contends that the term "European Tour Manager" does not
refer to an individual but to an organization, allegedly the Kuoni Travel of
Switzerland which supposedly prepared the itinerary for its "Volare Europe
Tour," negotiated with all the hotels in Europe, selected tourist spots and
historical places to visit, and appointed experienced local tour guides for the
tour group. 28
We regret this unseemly quibbling which perforce cannot be allowed to pass
judicial muster.
A cursory reading of said advertisement will readily reveal the express
representation that the contemplated European tour manager is a natural
person, and not a juridical one as private respondent asserts. A corporate
entity could not possibly accompany the members of the tour group to places
in Europe; neither can it answer questions from the tourists during the tour. Of
course, it is absurd that if a tourist would want to know how he could possibly
go to the nearest store or supermarket, he would still have to call Kuoni Travel
of Switzerland.
Furthermore, both lower courts observed, and we uphold their observations,
that indeed private respondent had the obligation to provide the tour group
not only with a European tour manger, but also with local European tour
guides. The latter, parenthetically, were likewise never made
available. 29 Zapanta claims that she was accompanied by a European local
tour guide in most of the major cities in Europe. We entertain serious doubts
on, and accordingly reject, this pretension for she could not even remember
the name of said European tour guide. 30 If such a guide really existed, it is
incredible why she could not even identify the former when she testified a
year later, despite the length of their sojourn and the duration of their
association.
As to why the word "he" was used in the aforequoted advertisement, private
respondent maintains that the pronoun "he" also includes the word "it," as
where it is used as a "nominative case form in general statements (as in
statutes) to include females, fictitious persons (as corporations)." 31 We are
constrained to reject this submission as patently strained and untenable. As
already demonstrated, it is incredible that the word "he" was used by private
respondent to denote an artificial or corporate being. From its advertisement,
it is beyond cavil that the import of the word "he" is a natural and not a
juridical person. There is no need for further interpretation when the wordings
are clear. The meaning that will determine the legal effect of a contract is
that which is arrived at by objective standards; one is bound, not by what he
subjectively intends, but by what he leads others reasonably to think he
intends. 32
In an obvious but hopeless attempt to arrive at a possible justification, private
respondent further contends that it explained the concept of a European tour
manager to its clients at the pre-departure briefing, which petitioner did not
attend. 33 Significantly, however, private respondent failed to present even
one member of the tour group to substantiate its claim. It is a basic rule of
evidence that a party must prove his own affirmative allegations. 34 Besides, if
it was really its intention to provide a juridical European tour manager, it could
not have kept on promising its tourists during the tour that a European tour
manager would come, 35 supposedly to join and assist them.
Veering to another line of defense, private respondent seeks sanctuary in the
delimitation of its responsibility as printed on the face of its brochure on the
Volare 3 program, to wit:
 RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR
TRAVEL AGENT, THEIR EMPLOYEES OR SUB-AGENTS SHALL BE
RESPONSIBLE ONLY FOR BOOKING AND MAKING
ARRANGEMENTS AS YOUR AGENTS. Kenstar Travel
Corporation, your travel Agent, their employees or sub-agents
assume no responsibility or liability arising out of or in
connection with the services or lack of services, of any train,
vessel, other conveyance or station whatsoever in the
performance of their duty to the passengers or guests, neither
will they be responsible for any act, error or omission, or of any
damages, injury, loss, accident, delay or irregularity which
may be occasioned by reason (of) or any defect in . .
. lodging place or any facilities . . . . (Emphasis by private
respondent.) 36
While, generally, the terms of a contract result from the mutual formulation
thereof by the parties thereto, it is of common knowledge that there are
certain contracts almost all the provisions of which have been drafted by only
one party, usually a corporation. Such contracts are called contracts of
adhesion, because the only participation of the party is the affixing of his
signature or his "adhesion" thereto. 37 In situations like these, when a party
imposes upon another a ready-made form of contract, 38 and the other is
reduced to the alternative of taking it or leaving it, giving no room for
negotiation and depriving the latter of the opportunity to bargain on equal
footing, a contract of adhesion results. While it is true that an adhesion
contract is not necessarily void, it must nevertheless be construed strictly
against the one who drafted the same. 39 This is especially true where the
stipulations are printed in fine letters and are hardly legible as is the case of
the tour contract 40 involved in the present controversy.
Yet, even assuming arguendo that the contractual limitation aforequoted is
enforceable, private respondent still cannot be exculpated for the reason
that responsibility arising from fraudulent acts, as in the instant case, cannot
be stipulated against by reason of public policy. Consequently, for the
foregoing reasons, private respondent cannot rely on its defense of
"substantial compliance" with the contract.
Private respondent submits likewise that the tour was satisfactory, considering
that only petitioner, out of eighteen participants in the Volare 3 Tour Program,
actually complained. 41 We cannot accept this argument. Section 28, Rule
130 of the Rules of Court declares that the rights of a party cannot be
prejudiced by an act, declaration, or omission of another, a statutory
adaptation of the first branch of the hornbook rule of res inter alios
acta 42 which we do not have to belabor here.
Besides, it is a commonly known fact that there are tourists who, although the
tour was far from what the tour operator undertook under the contract,
choose to remain silent and forego recourse to a suit just to avoid the
expenses, hassle and rancor of litigation, and not because the tour was in
accord with was promised. One does not relish adding to the bitter memory of
a misadventure the unpleasantness of another extended confrontation.
Furthermore, contrary to private respondent's assertion, not only petitioner but
two other members of the tour group, Luz Sui Haw and Ercilla Ampil, confirmed
petitioner's complaints when they testified as witnesses for her as plaintiff in the
court below. 43
Private respondent likewise committed a grave misrepresentation when it
assured in its Volare 3 tour package that the hotels it had chosen would
provide the tourists complete amenities and were conveniently located along
the way for the daily itineraries. 44 It turned out that some of the hotels were
not sufficiently equipped with even the basic facilities and were at a distance
from the cities covered by the projected tour. Petitioner testified on her disgust
with the conditions and locations of the hotels, thus:
Q And that these bathrooms ha(ve) bath
tub(s) and hot and cold shower(s)?
A Not all, sir.
Q Did they also provide soap and towels?
A Not all, sir, some (had) no toilet paper. 45
Q Which one?
A The 2 stars, the 3 stars and some 4 stars (sic)
hotels.
Q What I am saying . . .
A You are asking a question? I am answering
you. 2 stars, 3 stars and some 4 stars (sic)
hotels, no soap, toilet paper and (the) bowl
stinks. . . .
xxx xxx xxx
Q And that except for the fact that some of
these four star hotels were outside the city
they provided you with the comfort?
A Not all, sir.
Q Can you mention some which did not
provide you that comfort?
A For example, if Ramada Hotel Venezia is in
Quezon City, our hotel is in Meycauayan.
And if Florence or Ferenze is in manila, our
hotel is in Muntinlupa. 46
xxx xxx xxx
A One more hotel, sir, in Barcelona, Hotel
Saint Jacques is also outside the city.
Suppose Barcelona is in Quezon City, our
 hotel is in Marilao. We looked for this hotel
inside the city of Barcelona for three (3)
hours. We wasted our time looking for almost
all the hotels and places where to eat. That is
the kind of tour that you have. 47
Luz Sui Haw, who availed of the Volare 3 tour package with her husband for
their honeymoon, shared the sentiments of petitioner and testified as follows:
Q . . . Will you kindly tell us why the hotels
where you stayed are not considered first
class hotels?
A Because the hotels where we went, sir,
(are) far from the City and the materials used
are not first class and at times there were no
towels and soap. And the two (2) hotels in
Nevers and Florence the conditions (are)
very worse (sic). 48
Q Considering that you are honeymooners
together with your husband, what (were)
your feelings when you found out that the
condition were not fulfilled by the
defendant?
A I would like to be very honest. I got sick
when I reached Florence and half of my
body got itch (sic). I think for a honeymooner
I would like to emphasize that we should
enjoy that day of our life and it seems my
feet kept on itching because of the
condition of the hotel. And I was so
dissatisfied because the European Tour
Manager was not around there (were)
beautiful promises. They kept on telling us
that a European Tour Manager will come
over; until our Paris tour was ended there was
no European tour manager. 49
xxx xxx xxx
Q You will file an action against the
defendant because there was a disruption of
your happiness, in your honeymoon, is that
correct?
A That is one of my causes of (sic) coming up
here. Secondly, i was very dissatisfied (with)
the condition. Thirdly, that Volare 89 it says it
will let your heart sing. That is not true. There
was no European tour (manager) and the
highlights of the tour (were) very poor. The
hotels were worse (sic) hotels. 50
Q All the conditions of the hotels as you . . .
A Not all but as stated in the brochure that it
is first class hotel. The first class hotels state
that all things are beautiful and it is neat and
clean with complete amenities and I
encountered the Luxembourg hotel which is
quite very dilapidated because of the
flooring when you step on the side
"kumikiring" and the cabinets (are) antiques
and as honeymooners we don't want to be
disturbed or seen. 51
xxx xxx xxx
Q None of these are first class hotels?
A Yes, sir.
Q So, for example Ramada Hotel Venezia
which according to Miss Geraldez is first class
hotel is not first class hotel?
A Yes, sir.
Q You share the opinion of Miss Geraldez?
A Yes, sir.
Q The same is true with Grand Hotel Palatino
which is not a first class hotel?
A Yes, sir.
Q And Hotel Delta Florence is not first class
hotel?
A That is how I got my itch, sir. Seven (7) days
of itch.
Q How about Hotel Saint-Jacquez, Paris?
A It is far from the city. It is not first class hotel.
Q So with Hotel Le Prieure Du Coeur de Jesus
neither a first class hotel?
A Yes, sir.
Q Hotel De Nevers is not a first class hotel?
A Yes, sir.
Q Hotel Roc Blanc Andorra is not a first class
hotel?
 A Yes, sir.
Q Saint Just Hotel, Barcelona is not a first
class hotel?
A Yes, sir.
Q Hotel Pullman Nice neither is not a first
class hotel?
A Yes, sir.
Q Hotel Prinz Eugen and Austrotel are not first
class hotels?
A Yes, sir. 52
Private respondent cannot escape responsibility by seeking refuge under the
listing of first-class hotels in publications like the "Official Hotel and Resort
Guide" and Worldwide Hotel Guide." 53 Kuoni Travel, its tour operator, 54 which
prepared the hotel listings, is a European-based travel agency 55 and, as such,
could have easily verified the matter of first-class accommodations. Nor can it
logically claim that the first-class hotels in Europe may not necessarily be the
first-class hotels here in the Philippines. 56 It is reasonable for petitioner to
assume that the promised first-class hotels are equivalent to what are
considered first-class hotels in Manila. Even assuming arguendo that there is
indeed a difference in classifications, it cannot be gainsaid that a first-class
hotel could at the very least provide basic necessities and sanitary
accommodations. We are accordingly not at all impressed by private
respondent's attempts to trivialize the complaints thereon by petitioner and
her companions.
In a last ditch effort to justify its choice of the hotels, private respondent
contends that it merely provided such "first class" hotels which are
commensurate to the tourists budget, or which were, under the given
circumstances, the "best for their money." It postulated that it could not have
offered better hostelry when the consideration paid for hotel
accommodations by the tour participants was only so much, 57 and the tour
price of $2,990.00 covers a European tour for 22 days inclusive of lower room
rates and meals. 58 this is implausible, self-serving and borders on sophistry.
The fact that the tourists were to pay a supposedly lower amount, such that
private respondent allegedly retained hardly enough as reasonable
profit, 59 does not justify a substandard form of service in return. It was private
respondent, in the first place, which fixed the charges for the package tour
and determined the services that could be availed of corresponding to such
price. Hence, it cannot now be heard to complain that it only made a
putative marginal profit out of the transaction. if it could not provide the tour
participants with first-class lodgings on the basis of the amount that they paid,
it could and should have instead increased the price to enable it to arrange
for the promised first-class accommodations.
On the foregoing considerations, respondent court erred in deleting the
award for moral and exemplary damages. Moral damages may be awarded
in breaches of contract where the obligor acted fraudulently or in bad
faith. 60From the facts earlier narrated, private respondent can be faulted with
fraud in the inducement, which is employed by a party to a contract in
securing the consent of the other.
This fraud or dolo which is present or employed at the time of birth or
perfection of a contract may either be dolocausante or dolo incidente. The
first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without
which the other party would not have entered into the contract. Dolo
incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would
still have entered into the contract. 61Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to some
particular or accident of the
obligations. 62 The effects of dolo causante are the nullity of the contract and
the indemnification of damages, 63 and dolo incidente also obliges the person
employing it to pay damages. 64
In either case, whether private respondent has committed dolo
causante or dolo incidente by making misrepresentations in its contracts with
petitioner and other members of the tour group, which deceptions became
patent in the light of after-events when, contrary to its representations, it
employed an inexperienced tour guide, housed the tourist group in
substandard hotels, and reneged on its promise of a European tour manager
and the visit to the leather factory, it is indubitably liable for damages to
petitioner.
In the belief that an experienced tour escort and a European tour manager
would accompany them, with the concomitant reassuring and comforting
thought of having security and assistance readily at hand, petitioner was
induced to join the Volare 3 tourists, instead of travelling alone 65 She likewise
suffered serious anxiety and distress when the group was unable to visit the
leather factory and when she did not receive first-class accommodations in
their lodgings which were misrepresented as first-class hotels. These, to our
mind, justify the award for moral damages, which are in the category of an
award designed to compensate the claimant for that injury which she had
suffered, and not as a penalty on the wrongdoer, 66 we believe that an award
of P100,000.00 is sufficient and reasonable.
When moral damages are awarded, especially for fraudulent conduct,
exemplary damages may also be decreed. Exemplary damages are imposed
by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. According to the code
Commission, exemplary damages are required by public policy, for wanton
acts must be suppressed. 67 An award, therefore, of P50,000.00 is called for to
deter travel agencies from resorting to advertisements and enticements with
the intention of realizing considerable profit at the expense of the public,
without ensuring compliance with their express commitments. While, under the
present state of the law, extraordinary diligence is not required in travel or tour
contracts, such as that in the case at bar, the travel agency acting as tour
operator must nevertheless be held to strict accounting for contracted
services, considering the public interest in tourism, whether in the local or in
the international scene. Consequently, we have to likewise reject the theory
of private respondent that the promise it made in the tour brochure may be
regarded only as "commendatory trade talk." 68
With regard to the honorarium for counsel as an item of damages, since we
are awarding moral and exemplary damages, 69 and considering the legal
importance of the instant litigation and the efforts of counsel evident from the
records of three levels of the judicial hierarchy, we favorably consider the
amount of P20,000.00 therefor.
WHEREFORE, premises considered, the decision of respondent Court of
Appeals is hereby SET ASIDE, and another one rendered, ordering private
respondent Kenstar Travel Corporation to pay petitioner Lydia L. Geraldez the
sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary
damages, and P20,000.00 as and for attorney's fees, with costs against private
respondent. The award for nominal damages is hereby deleted.
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,
vs. IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA
CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO,
ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO
CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE
COURT, respondents
Petition for review on certiorari of the decision * of the Intermediate Appellate
Court, dated 11 February 1986, in AC-G.R. No. CV-70245, entitled "Ignacio
Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast Communication/Philippine
Wireless, Inc., Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio
Castro, Sr. and mother of the other plaintiffs, passed away in Lingayen,
Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then
vacationing in the Philippines, addressed a telegram to plaintiff Ignacio
Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing
Consolacion's death. The telegram was accepted by the defendant in its
Dagupan office, for transmission, after payment of the required fees or
charges.
The telegram never reached its addressee. Consolacion was interred with only
her daughter Sofia in attendance. Neither the husband nor any of the other
children of the deceased, then all residing in the United States, returned for
the burial.
When Sofia returned to the United States, she discovered that the wire she
had caused the defendant to send, had not been received. She and the
other plaintiffs thereupon brought action for damages arising from
defendant's breach of contract. The case was filed in the Court of First
Instance of Pangasinan and docketed therein as Civil Case No. 15356. The
only defense of the defendant was that it was unable to transmit the telegram
because of "technical and atmospheric factors beyond its control." 1 No
evidence appears on record that defendant ever made any attempt to
advise the plaintiff Sofia C. Crouch as to why it could not transmit the
telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant
(now petitioner) to pay the plaintiffs (now private respondents) damages, as
follows, with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory
damages and P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary
damages in the amount of P1,000.00 to each of the plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial
court's decision but eliminated the award of P16,000.00 as compensatory
damages to Sofia C. Crouch and the award of P1,000.00 to each of the
private respondents as exemplary damages. The award of P20,000.00 as
moral damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda
C. Floro was also reduced to P120,000. 00 for each. 3
Petitioner appeals from the judgment of the appellate court, contending that
the award of moral damages should be eliminated as defendant's negligent
act was not motivated by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P 31.92,
the fee or charges paid by Sofia C. Crouch for the telegram that was never
sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "those who in the performance of
their obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages." Art. 2176 also
provides that "whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered
into a contract whereby, for a fee, petitioner undertook to send said private
respondent's message overseas by telegram. This, petitioner did not do,
despite performance by said private respondent of her obligation by paying
the required charges. Petitioner was therefore guilty of contravening its
obligation to said private respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain
petitioner's contrary position in this regard would result in an inequitous
situation where petitioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states:
"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 results of the
defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was
precisely the cause of the suffering private respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish
and the sorrow that the overseas children must have suffered
upon learning of the death of their mother after she had
already been interred, without being given the opportunity to
even make a choice on whether they wanted to pay her
their last respects? There is no doubt that these emotional
sufferings were proximately caused by appellant's omission
and substantive law provides for the justification for the
award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory
damages to Sofia C. Crouch representing the expenses she incurred when she
came to the Philippines from the United States to testify before the trial court.
Had petitioner not been remiss in performing its obligation, there would have
been no need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and,
therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due
diligence in transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so
that petitioner is held liable to private respondents in the following amounts:
(1) P10,000.00 as moral damages, to each of private
respondents;
(2) P1,000.00 as exemplary damages, to each of private
respondents;
(3) P16,000.00 as compensatory damages, to private
respondent Sofia C. Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
Facts: An action for damages by reason of contractual breach was filed by
petitioner Lydia L. Geraldez against private respondent Kenstar Travel
Corporation. Sometime in October 1989, Petitioner came to know about
private respondent from numerous advertisements in newspapers of
general circulation regarding tours in Europe. She then contacted private
respondent by phone and the latter sent its representative, who gave her the
brochure for the tour and later discussed its highlights. The European tours
offered wereclassified into four, and petitioner chose the classification
denominated as "VOLARE 3" covering a 22-day tour of Europe for S2,990.00.
She paid the total equivalent amount of P190,000.00charged by private
respondent for her and her sister, Dolores. Petitioner claimed that, during the
tour, she was very uneasy and disappointed when it turned out that, contrary
to what was stated in the brochure, there was no European tour manager for
their group of tourists, the hotels in which she and the group stayed were not
first-class, the UGC Leather Factory which was specifically added as a
highlight of the tour was not visited, and the Filipino lady tour guide by private
respondent was a first timer, that is, she was performing her duties and
responsibilities as such for the first time.
Issue: Whether or not the respondent company committed fraud in order for
the petitioner to enter into the contract.
Held: This fraud or dolo, which is present or employed at the time ofbirth or
perfection of a contract, may either be dolo causante or dolo incidente. The
first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without
which the other party would not have entered into the contract. Dolo
incidente, or incidental fraud which is referred to in Article 1344, are those,
which are not serious in character and without which the other party would
still have entered into the contract. Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligations. The effects of dolocausante are the
nullity of the contract and the indemnification of damages, and dolo
incidente also obliges the person employing it to pay damages.
In either case, whether private respondent has committed dolocausante or
dolo incidente by making misrepresentations in its contracts with petitioner
and other members of the tour group, which deceptions became patent in
the light of after-events when, contrary to its representations, it employed an
inexperienced tour guide, housed the tourist group in substandard hotels, and
reneged on its promise of a European tour manager and the visit to the
leather factory, it is indubitably liable for damages to petitioner.
LEGASPI OIL CO., INC., petitioner, vs.THE COURT OF APPEALS and BERNARD
OSERAOS, respondent.
The petition for review on certiorari before us seeks to set aside the decision
dated March 23, 1990 of the Court of Appeals in CA-G.R. CV No. 05828,
penned by the Honorable Justice Abelardo Dayrit with whom Justices
Javellana and Kalalo concurred, which dismissed petitioner's complaint for
damages (p. 48, Rollo).
Petitioner does not dispute the facts of the case, as found by respondent
Court of Appeals. The findings of the respondent Court are thus adopted, to
wit:
From the evidence presented by the plaintiff-appellee [now petitioner
Legaspi Oil Company, Inc.], it appears that defendant-appellant [now private
respondent Bernard Oseraos] acting through his authorized agents, had
several transactions with appellee Legaspi Oil Co. for the sale of copra to the
latter. The price at which appellant sells the copra varies from time to time,
depending on the prevailing market price when the contract is entered into.
One of his authorized agents, Jose Llover, had previous transactions with
appellee for the sale and delivery of copra. The records show that he
concluded a sale for 70 tons of copra at P95.00 per 100 kilos on May 27, 1975
(Exhibit G-5) and another sale for 30 tons of P102.00 per 100 kilos on
September 23, 1975 (Exhibit G-3). Subsequently, on November 6, 1975, another
designated agent signed a contract in behalf of appellant for the sale of 100
tons of copra at P79.00 per 100 kilos with the delivery terms of 25 days
effective December 15, 1975 (Exhibit G-2). At this point, it must be noted that
the price of copra had been fluctuating (going up and down), indicating its
unsteady position in the market.
 On February 16, 1976, appellant's agent Jose Llover signed contract
No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos with delivery
terms of 20 days effective March 8, 1976 (Exhibit G, for the plaintiff). As
compared to appellant's transaction on November 6, 1975, the current price
agreed upon is slightly higher than the last contract. In all these contracts
though, the selling price had always been stated as "total price" rather than
per 100 kilos. However, the parties had understood the same to be per 100
kilos in their previous transactions.
After the period to deliver had lapsed, appellant sold only 46,334 kilos
of copra thus leaving a balance of 53,666 kilos as per running account card
(Exhibit "F"). Accordingly, demands were made upon appellant to deliver the
balance with a final warning embodied in a letter dated October 6, 1976, that
failure to deliver will mean cancellation of the contract, the balance to be
purchased at open market and the price differential to be charged against
appellant. On October 22, 1976, since there was still no compliance, appellee
exercised its option under the contract and purchased the undelivered
balance from the open market at the prevailing price of P168.00 per 100 kilos,
or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76
chargeable against appellant.
On November 3, 1976, petitioner filed a complaint against private respondent
for breach of a contract and for damages.
After trial, the then Court of First Instance (now Regional Trial Court) of Albay in
Civil Case No. 5529 rendered a decision holding herein private respondent
(then defendant) Oseraos liable for damages in the amount of P48,152.76,
attorney's fees (P2,000), and litigation costs.
Oseraos appealed to respondent Court which thereafter rendered a reversal
decision on March 23, 1990, ordering the dismissal of the complaint.
Hence, the instant petition for review on certiorari.
The sole issued posed by the petition is whether or not private respondent
Oseraos is liable for damages arising from fraud or bad faith in deliberately
breaching the contract of sale entered into by the parties.
After a review of the case, we believe and thus hold, that private respondent
is guilty of fraud in the performance of his obligation under the sales contract
whereunder he bound himself to deliver to petitioner 100 metric tons of copra
within twenty (20) days from March 8, 1976. However within the delivery
period, Oseraos delivered only 46,334 kilograms of copra to petitioner, leaving
an undelivered balance of 53,666 kilograms. Petitioner made repeated
demands upon private respondent to comply with his contractual
undertaking to deliver the balance of 53,666 kilograms but private respondent
elected to ignore the same. In a letter dated October 6, 1976, petitioner
made a final demand with a warning that, should private respondent fail to
complete delivery of the balance of 53,666 kilograms of copra, petitioner
would purchase the balance at the open market and charge the price
differential to private respondent. Still private respondent failed to fulfill his
contractual obligation to deliver the remaining 53,666 kilograms of copra. On
October 22, 1976, since there was still no compliance by private respondent,
petitioner exercised its right under the contract and purchased 53,666
kilograms of copra, the undelivered balance, at the open market at the then
prevailing price of P168.00 per 100 kilograms, a price differential of P86.00 per
100 kilograms or a total price differential of P46,152.76.
Under the foregoing undisputed circumstances, the actuality of private
respondent's fraud cannot be gainsaid. In general, fraud may be defined as
the voluntary execution of a wrongful act, or a wilfull omission, knowing and
intending the effects which naturally and necessarily arise from such act or
omission; the fraud referred to in Article 1170 of the Civil Code of the
Philippines is the deliberate and intentional evasion of the normal fulfillment of
obligation; it is distinguished from negligence by the presence of deliberate
intent, which is lacking in the latter (Tolentino's Civil Code of the Philippines,
Vol. IV, p. 110). The conduct of private respondent clearly manifests his
deliberate fraudulent intent to evade his contractual obligation for the price
of copra had in the meantime more than doubled from P82.00 to P168 per 100
kilograms. Under Article 1170 of the Civil Code of the Philippines, 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. Pursuant to said article, private respondent is liable for damages.
The next point of inquiry, therefore, is the amount of damages which private
respondent is liable to pay petitioner. As aforementioned, on account of
private respondent's deliberate breach of his contractual obligation,
petitioner was compelled to buy the balance of 53,666 kilos of copra in the
open market at the then prevailing price of P168 per 100 kilograms thereby
paying P46,152.76 more than he would have paid had private respondent
completed delivery of the copra as agreed upon. Thus, private respondent is
liable to pay respondent the amount of P46,152.76 as damages. In case of
fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all
damages which may be reasonably attributed to the non performance of the
obligation (Magat vs. Medialdea, 121 SCRA 418 [1983]). Article 1101 of the old
Civil Code, later to be reproduced as Article 1170 of our present Civil Code,
was the basis of our decision in an old case, Acme Films, Inc. vs. Theaters
Supply Corporation, (63 Phil, 657 [1936]), wherein we held:
It is not denied that the plaintiff company failed to supply the
defendant with the cinematographic films which were the subject matter of
the contracts entered into on March 20, 1934 (Exhibits 1 and 2), and two films
under the contract of March 24, 1934 (Exhibit 3), one of said films being a serial
entitled "Whispering Shadow". Guillermo Garcia Bosque testified that because
the plaintiff company had failed to supply said films, the defendants had to
resort to the Universal Pictures Corporation and ask for films to replace those
which said plaintiff had failed to supply under the contract, having had to pay
therefor five per cent more than for those films contracted with said plaintiff
Acme Films, Inc., and that the total cost thereof, including the printing of
programs, posters paraded through the streets with bands of music to
announce the showing of the films which the plaintiff company failed to
supply, amount to from P400 to P550. The plaintiff company did not submit
evidence to rebut the testimony of said witness and the fact that the estimate
of the expenses is approximate does not make said estimate inadmissible. It
was incumbent upon the plaintiff company to submit evidence in rebuttal, or
at least ascertain the amount of the different items in cross-examination. There
being no evidence to the contrary, it is logical to admit that the defendant
company spent at least the sum of P400.
Inasmuch as the plaintiff company had failed to comply with a part of its
booking contract, and as the defendant company had suffered damages as
a result thereof, the former is liable to indemnify the damages caused to the
latter, in accordance with the provisions of Article 1101 of the Civil Code.
WHEREFORE, the instant petition is hereby GRANTED. The
decision of the respondent Court of Appeals in CA-G.R. CV
No. 05828 is ANNULLED and SET ASIDE and the decision of the
trial court in Civil Case No. 5529 REINSTATED, with costs against
private respondent.
NANCY GO AND ALEX GO, petitioners, vs. THE HONORABLE COURT OF APPEALS,
HERMOGENES ONG and JANE C. ONG, respondents.
ROMERO, J.:
No less than the Constitution commands us to protect marriage as an
inviolable social institution and the foundation of the family. [1] In our society,
the importance of a wedding ceremony cannot be underestimated as it is the
matrix of the family and, therefore, an occasion worth reliving in the
succeeding years.
It is in this light that we narrate the following undisputed facts:
Private respondents spouses Hermogenes and Jane Ong were married
on June 7, 1981, in Dumaguete City. The video coverage of the wedding was
provided by petitioners at a contract price of P1,650.00. Three times
thereafter, the newlyweds tried to claim the video tape of their wedding,
which they planned to show to their relatives in the United States where they
were to spend their honeymoon, and thrice they failed because the tape was
apparently not yet processed. The parties then agreed that the tape would
be ready upon private respondents return.
When private respondents came home from their honeymoon, however,
they found out that the tape had been erased by petitioners and therefore,
could no longer be delivered.
Furious at the loss of the tape which was supposed to be the only record
of their wedding, private respondents filed on September 23, 1981 a
complaint for specific performance and damages against petitioners before
the Regional Trial Court, 7th Judicial District, Branch 33, Dumaguete City. After
a protracted trial, the court a quo rendered a decision, to wit:
WHEREFORE, judgment is hereby granted:
1. Ordering the rescission of the agreement entered into between plaintiff
Hermogenes Ong and defendant Nancy Go;
2. Declaring defendants Alex Go and Nancy Go jointly and severally liable to
plaintiffs Hermogenes Ong and Jane C. Ong for the following sums:
a) P450.00, the down payment made at contract time;
b) P75,000.00, as moral damages;
c) P20,000.00, as exemplary damages;
d) P5,000.00, as attorneys fees; and
e) P2,000.00, as litigation expenses;
Defendants are also ordered to pay the costs.
SO ORDERED.
Dissatisfied with the decision, petitioners elevated the case to the Court
of Appeals which, on September 14, 1993, dismissed the appeal and affirmed
the trial courts decision.
Hence, this petition.
Petitioners contend that the Court of Appeals erred in not appreciating
the evidence they presented to prove that they acted only as agents of a
certain Pablo Lim and, as such, should not have been held liable. In addition,
they aver that there is no evidence to show that the erasure of the tape was
done in bad faith so as to justify the award of damages.[2]
The petition is not meritorious.
Petitioners claim that for the video coverage, the cameraman was
employed by Pablo Lim who also owned the video equipment used. They
further assert that they merely get a commission for all customers solicited for
their principal.[3]
This contention is primarily premised on Article 1883 of the Civil Code
which states thus:
ART. 1883. If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contracted; neither have
such persons against the principal.
In such case the agent is the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal.
xxx xxx xxx
Petitioners argument that since the video equipment used belonged to
Lim and thus the contract was actually entered into between private
respondents and Lim is not deserving of any serious consideration. In the
instant case, the contract entered into is one of service, that is, for the video
coverage of the wedding. Consequently, it can hardly be said that the object
of the contract was the video equipment used. The use by petitioners of the
video equipment of another person is of no consequence.
It must also be noted that in the course of the protracted trial below,
petitioners did not even present Lim to corroborate their contention that they
were mere agents of the latter. It would not be unwarranted to assume that
their failure to present such a vital witness would have had an adverse result
on the case.[4]
As regards the award of damages, petitioners would impress upon this
Court their lack of malice or fraudulent intent in the erasure of the tape. They
insist that since private respondents did not claim the tape after the lapse of
thirty days, as agreed upon in their contract, the erasure was done in
consonance with consistent business practice to minimize losses.[5]
We are not persuaded.
As correctly observed by the Court of Appeals, it is contrary to human
nature for any newlywed couple to neglect to claim the video coverage of
their wedding; the fact that private respondents filed a case against
petitioners belies such assertion. Clearly, petitioners are guilty of actionable
delay for having failed to process the video tape. Considering that private
respondents were about to leave for the United States, they took care to
inform petitioners that they would just claim the tape upon their return two
months later. Thus, the erasure of the tape after the lapse of thirty days was
unjustified.
In this regard, Article 1170 of the Civil Code provides that those who in
the performance of their obligations are guilty of fraud, negligence or delay,
and those who is any manner contravene the tenor thereof, are liable for
damages.
In the instant case, petitioners and private respondents entered into a
contract whereby, for a fee, the former undertook to cover the latters
wedding and deliver to them a video copy of said event.For whatever reason,
petitioners failed to provide private respondents with their tape. Clearly,
petitioners are guilty of contravening their obligation to said private
respondents and are thus liable for damages.
The grant of actual or compensatory damages in the amount of P450.00
is justified, as reimbursement of the downpayment paid by private
respondents to petitioners.[6]
Generally, moral damages cannot be recovered in an action for breach
of contract because this case is not among those enumerated in Article 2219
of the Civil Code. However, it is also accepted in this jurisdiction that liability for
a quasi-delict may still exist despite the presence of contractual relations, that
is, the act which violates the contract may also constitute a quasi-
delict.[7]Consequently, moral damages are recoverable for the breach of
contract which was palpably wanton, reckless, malicious or in bad faith,
oppresive or abusive.[8]
Petitioners act or omission in recklessly erasing the video coverage of
private respondents wedding was precisely the cause of the suffering private
respondents had to undergo.
As the appellate court aptly observed:
Considering the sentimental value of the tapes and the fact that the event
therein recorded a wedding which in our culture is a significant milestone to
be cherished and remembered could no longer be reenacted and was lost
forever, the trial court was correct in awarding the appellees moral damages
albeit in the amount of P75,000.00, which was a great reduction from plaintiffs
demand in the complaint, in compensation for the mental anguish, tortured
feelings, sleepless nights and humiliation that the appellees suffered and
which under the circumstances could be awarded as allowed under Articles
2217 and 2218 of the Civil Code.[9]
Considering the attendant wanton negligence committed by petitioners
in the case at bar, the award of exemplary damages by the trial court is
justified[10] to serve as a warning to all entities engaged in the same business to
observe due diligence in the conduct of their affairs.
The award of attorneys fees and litigation expenses are likewise proper,
consistent with Article 2208[11] of the Civil Code.
Finally, petitioner Alex Go questions the finding of the trial and appellate
courts holding him jointly and severally liable with his wife Nancy regarding the
pecuniary liabilities imposed. He argues that when his wife entered into the
contract with private respondent, she was acting alone for her sole interest.[12]
We find merit in this contention. Under Article 117 of the Civil Code (now
Article 73 of the Family Code), the wife may exercise any profession,
occupation or engage in business without the consent of the husband. In the
instant case, we are convinced that it was only petitioner Nancy Go who
entered into the contract with private respondent. Consequently, we rule that
she is solely liable to private respondents for the damages awarded below,
pursuant to the principle that contracts produce effect only as between the
parties who execute them.[13]
WHEREFORE, the assailed decision dated September 14, 1993 is hereby
AFFIRMED with the MODIFICATION that petitioner Alex Go is absolved from any
liability to private respondents and that petitioner Nancy Go is solely liable to
said private respondents for the judgment award. Costs against petitioners.
SO ORDERED.
FACTS:
Rolito Go while traveling in the wrong direction on a one-way street, nearly
bumped Eldon Maguan’s car. Go alighted from his car, shot Maguan and left
the scene. A security guard at a nearby restaurant was able to take down
petitioner’s car plate number. The police arrived shortly thereafter at the
scene of the shooting. A manhunt ensued.
Six days after, petitioner presented himself before the San Juan Police Station
to verify news reports that he was being hunted by the police; he was
accompanied by two (2) lawyers. The police forthwith detained him. An
eyewitness to the shooting, who was at the police station at that time,
positively identified petitioner as the gunman.
Petitioner posted bail, the prosecutor filed the case to the lower court, setting
and commencing trial without preliminary investigation. Prosecutor reasons
that the petitioner has waived his right to preliminary investigation as bail has
been posted and that such situation, that petitioner has been arrested without
a warrant lawfully, falls under Section 5, Rule 113 and Section 7, Rule 112 of
The 1985 Rules of Criminal Procedure which provides for the rules and
procedure pertaining to situations of lawful warrantless arrests.
Petitioner argues that he was not lawfully arrested without warrant because
he went to the police station six (6) days after the shooting which he had
allegedly perpetrated. Thus, petitioner argues, the crime had not been “just
committed” at the time that he was arrested. Moreover, none of the police
officers who arrested him had been an eyewitness to the shooting of Maguan
and accordingly none had the “personal knowledge” required for the
lawfulness of a warrantless arrest. Since there had been no lawful warrantless
arrest, Section 7, Rule 112 of the Rules of Court which establishes the only
exception to the right to preliminary investigation, could not apply in respect
of petitioner.
Issue/s:
Whether or not a lawful warrantless arrest had been effected by the San
Juan Police in respect of petitioner Go;
Whether petitioner had effectively waived his right to preliminary investigation
Held:
1. No. The Court does not believe that the warrantless “arrest” or detention of
petitioner in the instant case falls within the terms of Section 5 of Rule 113 of
the 1985 Rules on Criminal Procedure which provides as follows:
“Sec. 5. Arrest without warrant; when lawful. — A peace officer or a private
person may, without a warrant, arrest a person;
(a) When, in his presence, the person to be arrested has committed, is motion in court asking for leave to conduct preliminary investigation, he
actually committing, or is attempting to commit an offense; clearly if impliedly recognized that petitioner’s claim to preliminary
investigation was a legitimate one.

(b) When an offense has in fact just been committed, and he has personal
knowledge of facts indicating that the person to be arrested has committed
it; and

(c) When the person to be arrested is a prisoner who has escaped from a
penal establishment or place where he is serving final judgment or temporarily
confined while his case is pending, or has escaped while being transferred
from one confinement to another.

In cases falling under paragraphs (a) and (b) hereof, the person arrested
without a warrant shall be forthwith delivered to the nearest police station or
jail, and he shall be proceeded against in accordance with Rule 112, Section RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.COURT OF
7.” APPEALS and FELIPE LUSTRE, respondents.

Petitioner’s “arrest” took place six (6) days after the shooting of Maguan. The
“arresting” officers obviously were not present, within the meaning of Section
5(a), at the time petitioner had allegedly shot Maguan. Neither could the
“arrest” effected six (6) days after the shooting be reasonably regarded as
effected “when [the shooting had] in fact just been committed” within the
meaning of Section 5 (b). Moreover, none of the “arresting” officers had any
“personal knowledge” of facts indicating that petitioner was the gunman who
had shot Maguan. The information upon which the police acted had been
derived from statements made by alleged eyewitnesses to the shooting —
one stated that petitioner was the gunman; another was able to take down
the alleged gunman’s car’s plate number which turned out to be registered in
petitioner’s wife’s name. That information did not, however, constitute
“personal knowledge.”
It is thus clear to the Court that there was no lawful warrantless arrest of
petitioner within the meaning of Section 5 of Rule 113.
2. No. In the circumstances of this case, the Court does not believe that by
posting bail, petitioner had waived his right to preliminary investigation.
In People v. Selfaison, the Court held that appellants there had waived their
right to preliminary investigation because immediately after their arrest, they
filed bail and proceeded to trial “without previously claiming that they did not
have the benefit of a preliminary investigation.”
In the instant case, petitioner Go asked for release on recognizance or on bail
and for preliminary investigation in one omnibus motion. He had thus claimed
his right to preliminary investigation before respondent Judge approved the
cash bond posted by petitioner and ordered his release on 12 July 1991.
Accordingly, the Court cannot reasonably imply waiver of preliminary
investigation on the part of petitioner. In fact, when the Prosecutor filed a
KAPUNAN, J.:
A simple telephone call and an ounce of good faith on the part of petitioner
could have prevented the present controversy.
On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota
Corolla from Toyota Shaw, Inc. for which he made a down payment of
P164,620.00, the balance of the purchase price to be paid in 24 equal
monthly installments. Private respondent thus issued 24 postdated checks for
the amount of P14,976.00 each. The first was dated April 10, 1991; subsequent
checks were dated every 10th day of each succeeding month.
To secure the balance, private respondent executed a promissory note 1 and
a contract of chattel mortgage 2 over the vehicle in favor of Toyota Shaw,
Inc. The contract of chattel mortgage, in paragraph 11 thereof, provided for
an acceleration clause stating that should the mortgagor default in the
payment of any installment, the whole amount remaining unpaid shall
become due. In addition, the mortgagor shall be liable for 25% of the principal
due as liquidated damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the
chattel mortgage to petitioner Rizal Commercial Banking Corporation (RCBC).
All the checks dated April 10, 1991 to January 10, 1993 were thereafter
encashed and debited by RCBC from private respondent's account, except
for RCBC Check No. 279805 representing the payment for August 10, 1991,
which was unsigned. Previously, the amount represented by RCBC Check No.
279805 was debited from private respondent's account but was later recalled
and re-credited, to him. Because of the recall, the last two checks, dated C. RCBC to pay Atty. Obispo
February 10, 1993 and March 10, 1993, were no longer presented for payment. P50,000.00 as Attorney's fees.
This was purportedly in conformity with petitioner bank's procedure that once Atty. Lustre is not entitled to
a client's account was forwarded to its account representative, all remaining any fee for lawyering for
checks outstanding as of the date the account was forwarded were no himself.
longer presented for patent.
All awards for damages are subject to
On the theory that respondent defaulted in his payments, the check payment of fees to be assessed by the Clerk
representing the payment for August 10, 1991 being unsigned, petitioner, in a of Court, RTC, Pasay City.
letter dated January 21, 1993, demanded from private respondent the
payment of the balance of the debt, including liquidated damages. The latter SO ORDERED.
refused, prompting petitioner to file an action for replevin and damages
before the Pasay City Regional Trial Court (RTC). Private respondent, in his
On appeal by petitioner, the Court of Appeals affirmed the decision of the
Answer, interposed a counterclaim for damages.
RTC, thus:

After trial, the. RTC 3 rendered a decision disposing of the case as follows:
We . . . concur with the trial court's ruling that the Chattel
Mortgage contract being a contract of adhesion — that is,
WHEREFORE, in view of the foregoing, judgment is hereby, one wherein a party, usually a corporation, prepares the
rendered as follows: stipulations in the contract, while the other party merely
affixes his signature or his "adhesion" thereto . . . — is to be
I. The complaint; for lack of cause of action, is hereby strictly construed against appellant bank which prepared the
DISMISSED and plaintiff RCBC is hereby ordered, form Contract . . . Hence . . . paragraph 11 of the Chattel
Mortgage contract [containing the acceleration clause]
A. To accept the payment should be construed to cover only deliberate and advertent
equivalent to the three failure on the part of the mortgagor to pay an amortization as
checks amounting to a total it became due in line with the consistent holding of the
of P44,938.00, without Supreme Court construing obscurities and ambiguities in the
interest. restrictive sense against the drafter thereof . . . in the light of
Article 1377 of the Civil Code.
B. To release/cancel the
mortgage on the car . . . In the case at bench, plaintiff-appellant's imputation of
upon payment of the default to defendant-appellee rested solely on the fact that
amount of P44,938.00, the 5th check issued by appellee . . . was recalled for lack of
without interest. signature. However, the check was recalled only after the
amount covered thereby had been deducted from
defendant-appellee's account, as shown by the testimony of
C. To pay the cost of suit.
plaintiff's own witness Francisco Bulatao who was in charge of
the preparation of the list and trial balances of bank
II. On The Counterclaim. customers . . . . The "default" was therefore not a case of
failure to pay, the check being sufficiently funded, and which
A. Plaintiff RCBC to pay Atty. amount was in fact already debited [sic] from appellee's
Lustre the amount of account by the appellant bank which subsequently re-
P200,000.00 as moral credited the amount to defendant-appelle's account for lack
damages. of signature. All these actions RCBC did on its own without
notifying defendant until sixteen (16) months later when it
B. RCBC to pay P100,000.00 wrote its demand letter dated January 21, 1993.
as exemplary damages.
 Clearly, appellant bank was remiss in the performance, of its
functions for it could have easily called the defendant's
attention to the lack of signature on the check and sent the
check to or summoned, the latter to affix his signature. It is
also to be noted that the demand letter contains no
explanation as to how defendant-appellee incurred
arrearages in the amount of P66,255.70, which is why
defendant-appellee made a protest notation thereon.
Notably, all the other checks issued by the appellee dated
subsequent to August 10, 1991 and dated earlier than the
demand letter, were duly encashed. This fact should have
already prompted the appellant bank to review its action
relative to the unsigned check. . . . 4
We take exception to the application by both the trial and appellate courts of
Article 1377 of the Civil Code, which states:
The interpretation of obscure words or
stipulations in a contract shall not favor the
party who caused the obscurity.
It bears stressing that a contract of adhesion is just as binding as ordinary
contracts. 5 It is true that we have, on occasion, struck down such contracts as
void 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. 6 Nevertheless, contracts of adhesion are not invalid per se; 7 they are
not entirely prohibited. 8 The one who adheres to the contract is in reality free
to reject it entirely; if he adheres, he gives his consent. 9
While ambiguities in a contract of adhesion are to be construed against the
party that prepared the same, 10 this rule applies only if the stipulations in such
contract are obscure or ambiguous. If the terms thereof are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of
its stipulations shall control. 11 In the latter case, there would be no need for
construction. 12
Here, the terms of paragraph 11 of the Chattel Mortgage Contract 13 are
clear. Said paragraph states:
11. In case the MORTGAGOR fails to pay any of the
installments, or to pay the interest that may be due as
provided in the said promissory note, the whole amount
remaining unpaid therein shall immediately become due and
payable and the mortgage on the property (ies) herein-
above described may be foreclosed by the MORTGAGEE, or
the MORTGAGEE may take any other legal action to enforce
collection of the obligation hereby secured, and in either
case the MORTGAGOR further agrees to pay the
MORTGAGEE an additional sum of 25% of the principal due
and unpaid, as liquidated damages, which said sum shall
become part thereof. The MORTGAGOR hereby waives
reimbursement of the amount heretofore paid by him/it to
the MORTGAGEE.
The above terms leave no room for construction. All that is required is the
application thereof.
Petitioner claims that private respondent's check representing the fifth
installment was "not encashed," 14 such that the installment for August 1991
was not paid. By virtue of paragraph 11 above, petitioner submits that it "was
justified in treating the entire balance of the obligation as due and
demandable." 15 Despite demand by petitioner, however, private respondent
refused to pay the balance of the debt. Petitioner, in sum imputes delay on
the part of private respondent.
We do not subscribe to petitioner's theory.
Art. 170 of the Civil Code states that those who in the performance of their
obligations are guilty of delay are liable for damages. The delay in the
performance of the obligation, however, must be either malicious or
negligent. 16Thus, assuming that private respondent was guilty of delay in the
payment of the value of unsigned check, private respondent cannot be held
liable for damages. There is no imputation, much less evidence, that private
respondent acted with malice or negligence in failing to sign the check.
Indeed, we agree with the Court of Appeals finding that such omission was
mere "in advertence" on the part of private respondent. Toyota salesperson
Jorge Geronimo testified that he even verified whether private respondent
had signed all the checks and in fact returned three or four unsigned checks
to him for signing:
Atty. Obispo:
After these receipts were issued, what else
did you do about the transaction?
A: During our transaction with Atty. Lustre, I
found out when he issued to me the 24
checks, I found out 3 to 4 checks are
unsigned and I asked him to signed these
checks.
 Atty. Obispo:
What did you do?
A: I asked him to sign the checks. After
signing the checks, I reviewed again all the
documents, after I reviewed all the
documents and found out that all are
completed and the down payments was
completed, we realed to him the car. 17
Even when the checks were delivered to petitioner, it did not object
to the unsigned check. In view of the lack of malice or negligence on
the part of private respondent, petitioner's blind and mechanical
invocation of paragraph 11 of the contract of chattel mortgage was
unwarranted.
Petitioner's conduct, in the light of the circumstances of this case, can only be
described as mercenary. Petitioner had already debited the value of the
unsigned check from private respondent's account only to re-credit it much
later to him. Thereafter, petitioner encashed checks subsequently dated, then
abruptly refused to encash the last two. More than a year after the date of
the unsigned check, petitioner, claiming delay and invoking paragraph 11,
demanded from private respondent payment of the value of said check and
that of the last two checks, including liquidated damages. As pointed out by
the trial court, this whole controversy could have been avoided if only
petitioner bothered to call up private respondent and ask him to sign the
check. Good faith not only in compliance with its contractual
obligations, 18 but also in observance of the standard in human relations, for
every person "to act with justice, give everyone his due, and observe honesty
and good faith." 19 behooved the bank to do so.
Failing thus, petitioner is liable for damages caused to private
respondent. 20 These include moral damages for the mental anguish, serious
anxiety, besmirched reputation, wounded feelings and social humiliation
suffered by the latter. 21The trial court found that private respondent was:
[a] client who has shared transactions for over twenty years
with a bank . . ..The shabby treatment given the defendant is
unpardonable since he was put to shame and
embarrassment after the case was filed in Court. He is a
lawyer in his own right, married to another member of the
bar. He sired children who are all professionals in their chosen
field. He is known to the community of golfers with whom he
gravitates. Surely the filing of the case made defendant feel
so bad and bothered.
To deter others from emulating petitioner's callous example, we affirm the
award of exemplary damages. 22 As exemplary damages are warranted, so
are attorney's fees. 23
We, however, find excessive the amount of damages awarded by the trial
court in favor of private respondent with respect to his counterclaims and,
accordingly, reduce the same as follows:
(a) Moral damages — from P200,000.00 to P100,000.00
(b) Exemplary damages — from P100,000.00 to P75,000.00
(c) Attorney's fees — from P50,000.00 to P 30,000.00
WHEREFORE, subject to these modifications, the decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
PHILIPPINE NATIONAL BANK, petitioner, vs.COURT OF APPEALS and LILY S.
PUJOL, respondents.
BELLOSILLO, J.:
PHILIPPINE NATIONAL, BANK filed this petition for review on certiorari under Rule
45 of the Rules of Court assailing the Decision of the Court of Appeals 1 which
affirmed the award of damages by the Regional Trial Court, Branch 154, Pasig
City in favor of private respondent Lily S. Pujol. 2
Sometime prior to 23 October 1990 private respondent Lily S. Pujol opened
with petitioner Philippine National Bank, Mandaluyong Branch (PNB for
brevity), an account denominated as "Combo Account," a combination of
Savings Account and Current Account in private respondent's business name
"Pujol Trading," under which checks drawn against private respondent's
checking account could be charged against her Savings Account should the
funds in her Current Account be insufficient to cover the value of her checks.
Hence, private respondent was issued by petitioner a passbook on the front
cover of which was typewritten the words "Combo Deposit Plan."
On 23 October 1990, private respondent issued a check in the amount of
P30,000.00 in favor of her daughter-in-law, Dr. Charisse M. Pujol. When issued
and presented for payment, private respondent had sufficient funds in her
Savings Account. However, petitioner dishonored her check allegedly for
insufficiency of funds and debited her account with P250.00 as penalty
charge.
On 24 October 1990 private respondent issued another check in the amount
of P30,000.00 in favor of her daughter, Ms. Venus P. De Ocampo. When issued
and presented for payment petitioner had sufficient funds in her Savings
Account. But, this notwithstanding, petitioner dishonored her check for
insufficiency of funds and debited her account with P250.00 as penalty
charge. On 4 November 1990, after realizing its mistake, petitioner accepted
and honored the second check for P30,000.00 and re-credited to private
respondent's account the P250.00 previously debited as penalty.
Private respondent Lily S. Pujol filed with the Regional Trial Court of Pasig City a
complaint for moral and exemplary damages against petitioner for
dishonoring her checks despite sufficiency of her funds in the bank.
Petitioner admitted in its answer that private respondent Pujol opened a
"Combo Account," a combination of Savings Account and Current Account
with its Mandaluyong branch. It however justified the dishonor of the two (2)
checks by claiming that at the time of their issuance private respondent Pujol's
account was not yet operational due to lack of documentary requirements,
to wit: (a) Certificate of Business Registration; (b) Permit to Operate Business;
(c) ID Card; and, (d) Combination Agreement. Petitioner further alleged that
despite the non-compliance with such requirements petitioner placed the sign
"Combo Flag" on respondent Pujol's account out of courtesy and generosity.
Petitioner also admitted that it later honored private respondent's second
check, debited the amount stated therein from her account and re-credited
the amount of P250.00 initially charged as penalty.
On 27 September 1994 the trial court rendered a decision ordering petitioner
to pay private respondent Pujol moral damages of P100,000.00 and attorney's
fees of P20,000.00. It found that private respondent suffered mental anguish
and besmirched reputation as a result of the dishonor of her checks, and that
being a former member of the judiciary who was expected to be the
embodiment of integrity and good behavior, she was subjected to
embarrassment due to the erroneous dishonor of her checks by petitioner.
The Court of Appeals affirmed in toto the decision of the trial court. Hence,
petitioner comes to this Court alleging that the appellate court erred (a) in
holding that petitioner was estopped from denying the existence of a "Combo
Account" and the fact that it was operational at the time of the issuance of
the checks because respondent Pujol was issued a Savings Account passbook
bearing the printed words "Combo Deposit Plan;" and, (b) in not holding that
the award by the trial court of moral damages of P100,000.00 and attorney's
fees of P20,000.00 was inordinately disproportionate and unconscionable.
We cannot sustain petitioner. Findings of fact and conclusions of the lower
courts are entitled to great weight on appeal and will not be disturbed except
for strong and cogent reasons, and for that matter, the findings of the Court of
Appeals especially when they affirm the trial court, and which are supported
by substantial evidence, are almost beyond the power of review by the
Supreme Court. 3
Petitioner does not dispute the fact that private respondent Pujol maintained
a Savings Account as well as a Current Account with its Mandaluyong Branch
and that private respondent applied for a "Combination Deposit Plan" where
checks issued against the Current Account of the drawer shall be charged
automatically against the latter's Savings Account if her funds in the Current
Account be insufficient to cover her checks. There was also no question that
the Savings Account passbook of respondent Pujol contained the printed
words "Combo Deposit Plan" without qualification or condition that it would
take effect only after submission of certain requirements. Although petitioner
presented evidence before the trial court to prove that the arrangement was
not yet operational at the time respondent Pujol issued the two (2) checks, it
failed to prove that she had actual knowledge that it was not yet operational
at the time she issued the checks considering that the passbook in her Savings
Account already indicated the words "Combo Deposit Plan." Hence,
respondent Pujol had justifiable reason to believe, based on the description in
her passbook, that her accounts were effectively covered by the
arrangement during the issuance of the checks. Either by its own deliberate
act, or its negligence in causing the "Combo Deposit Plan" to be placed in the
passbook, petitioner is considered estopped to deny the existence of and
perfection of the combination deposit agreement with respondent Pujol.
Estoppel in pais or equitable estoppel arises when one, by his acts,
representations or admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief so
that he will be prejudiced if the former is permitted to deny the existence of
such facts. 4
As found by the Court of Appeals, petitioner knew it committed a mistake in
dishonoring the checks of respondent Pujol. This was based on the testimony
of Pedro Lopez, petitioner's employee, that after the second check was
dishonored, petitioner examined respondent Pujol's account and learned that
there was sufficient funds in the Savings Account, and that only after the
second check was dishonored did petitioner rectify its error. 5 The appellate
court also found that respondent Pujol, who is a retired judge and community
leader, issued the first check dated 23 October 1990 to her daughter-in-law,
Dr. Charisse Pujol, who in turn indorsed the check to her mother. The latter
needed the money to refloat two (2) of their vessels which sank during a
typhoon. When the check was dishonored for insufficient funds, private
respondent's daughter-in-law confronted the former which subjected her to
embarrassment and humiliation. Petitioner issued the second check dated 24
October 1990 to daughter Venus de Ocampo as payment for the expenses of
her round trip ticket to the United States which were shouldered by her son-in-
law, husband of Venus de Ocampo. When the second check was initially
dishonored for insufficiency of funds, she again suffered serious anxiety and
mental anguish that her son-in-law would no longer hold her in high esteem. 6
This Court has ruled that a bank is under obligation to treat the accounts of its
depositors with meticulous care whether such account consists only of a few
hundred pesos or of millions of pesos. Responsibility arising from negligence in
the performance of every kind of obligation is demandable. While petitioner's
negligence in this case may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety, embarrassment and humiliation
to private respondent Lily S. Pujol for which she is entitled to recover
reasonable moral damages. 7 In the case of Leopoldo Araneta v. Bank of
America 8 we held that it can hardly be possible that a customer's check can
be wrongfully refused payment without some impeachment of his credit
which must in fact be an actual injury, although he cannot, from the nature of
the case, furnish independent and distinct proof thereof.

Damages are not intended to enrich the complainant at the expense of the
defendant, and there is no hard-and-fast rule in the determination of what
would be a fair amount of moral damages since each case must be
governed by its own peculiar facts. The yardstick should be that it is not
palpably and scandalously excessive. In this case, the award of P100,000.00 is
reasonable considering the reputation and social standing of private
respondent Pujol and applying our rulings in similar cases involving banks'
negligence with regard to the accounts of their depositors. 9 The award of
attorney's fees in the amount of P20,000.00 is proper for respondent Pujol was
compelled to litigate to protect her interest. 10

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals
which affirmed the award by the Regional Trial Court of Pasig City of moral
damages of P100,000.00 and attorney's fees of P20,000.00 in favor of private
respondent Lily S. Pujol is AFFIRMED. Costs against petitioner.