G.R. No.

164349 January 31, 2006

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,

vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA
VERCHEZ-CATIBOG, AND FORTUNATO CATIBOG, Respondents.

DECISION

CARPIO MORALES, J.:

On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon
Provincial Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante
(Grace) immediately hied to the Sorsogon Branch of the Radio Communications of the
Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister
Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village,
Quezon City1 reading: "Send check money Mommy hospital." For RCPI’s services, Grace
paid P10.502 for which she was issued a receipt.3

As three days after RCPI was engaged to send the telegram to Zenaida no response was
received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service,
reprimanding her for not sending any financial aid.

Immediately after she received Grace’s letter, Zenaida, along with her husband Fortunato
Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she
disclaimed having received any telegram.

In the meantime, Zenaida and her husband, together with her mother Editha left for
Quezon City on January 28, 1991 and brought Editha to the Veterans Memorial Hospital
in Quezon City where she was confined from January 30, 1991 to March 21, 1991.

The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991.4 On
inquiry from RCPI why it took that long to deliver it, a messenger of RCPI replied that he
had nothing to do with the delivery thereof as it was another messenger who previously
was assigned to deliver the same but the address could not be located, hence, the
telegram was resent on February 2, 1991, and the second messenger finally found the
address on February 15, 1991.

Editha’s husband Alfonso Verchez (Verchez), by letter of March 5, 1991,5 demanded an

explanation from the manager of the Service Quality Control Department of the RCPI, Mrs.
Lorna D. Fabian, who replied, by letter of March 13, 1991,6 as follows:

Our investigation on this matter disclosed that subject telegram was duly processed in
accordance with our standard operating procedure. However, delivery was not
immediately effected due to the occurrence of circumstances which were beyond the
control and foresight of RCPI. Among others, during the transmission process, the radio
link connecting the points of communication involved encountered radio noise and
interferences such that subject telegram did not initially registered (sic) in the receiving
teleprinter machine.

Our internal message monitoring led to the discovery of the above. Thus, a repeat
transmission was made and subsequent delivery was effected. (Underscoring supplied)
Verchez’s lawyer thereupon wrote RCPI’s manager Fabian, by letter of July 23,
1991,7 requesting for a conference on a specified date and time, but no representative of
RCPI showed up at said date and time.

On April 17, 1992, Editha died.

On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their
respective spouses, filed a complaint against RCPI before the Regional Trial Court (RTC)
of Sorsogon for damages. In their complaint, the plaintiffs alleged that, inter alia, the delay
in delivering the telegram contributed to the early demise of the late Editha to their
damage and prejudice,8 for which they prayed for the award of moral and exemplary
damages9 and attorney’s fees.10

After its motion to dismiss the complaint for improper venue11 was denied12 by Branch 5 of
the RTC of Sorsogon, RCPI filed its answer, alleging that except with respect to
Grace,13 the other plaintiffs had no privity of contract with it; any delay in the sending of the
telegram was due to force majeure, "specifically, but not limited to, radio noise and
interferences which adversely affected the transmission and/or reception of the
telegraphic message";14 the clause in the Telegram Transmission Form signed by Grace
absolved it from liability for any damage arising from the transmission other than the
refund of telegram tolls;15 it observed due diligence in the selection and supervision of its
employees; and at all events, any cause of action had been barred by laches.16

The trial court, observing that "although the delayed delivery of the questioned telegram
was not apparently the proximate cause of the death of Editha," ruled out the presence
of force majeure. Respecting the clause in the telegram relied upon by RCPI, the trial
court held that it partakes of the nature of a contract of adhesion.

Finding that the nature of RCPI’s business obligated it to dispatch the telegram to the
addressee at the earliest possible time but that it did not in view of the negligence of its
employees to repair its radio transmitter and the concomitant delay in delivering the
telegram on time, the trial court, upon the following provisions of the Civil Code, to wit:

Article 2176 – Whoever by act or omission causes damage to another, there being at fault
or negligence, is obliged to pay for the damage done. Such fault or negligence if there is
no pre-existing contractual relation between the parties, is called quasi-delict and is
governed by the provisions of this Chapter.

Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the person, of the time, or the place."

In the instant case, the obligation of the defendant to deliver the telegram to the
addressee is of an urgent nature. Its essence is the early delivery of the telegram to the
concerned person. Yet, due to the negligence of its employees, the defendant failed to
discharge of its obligation on time making it liable for damages under Article 2176.

The negligence on the part of the employees gives rise to the presumption of negligence
on the part of the employer.17 (Underscoring supplied),

rendered judgment against RCPI. Accordingly, it disposed:

WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in
favor of the plaintiffs and against the defendant, to wit:

Ordering the defendant to pay the plaintiffs the following amount:

1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;

2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney’s fees; and

3. To pay the costs.

SO ORDERED.18

On appeal, the Court of Appeals, by Decision of February 27, 2004,19 affirmed the trial
court’s decision.

Hence, RCPI’s present petition for review on certiorari, it raising the following questions:
(1) "Is the award of moral damages proper even if the trial court found that there was no
direct connection between the injury and the alleged negligent acts?"20 and (2) "Are the
stipulations in the ‘Telegram Transmission Form,’ in the nature "contracts of adhesion"
(sic)?21

RCPI insists that respondents failed to prove any causal connection between its delay in
transmitting the telegram and Editha’s death.22

RCPI’s stand fails. It bears noting that its liability is anchored on culpa contractual or
breach of contract with regard to Grace, and on tort with regard to her
co-plaintiffs-herein-co-respondents.

Article 1170 of the Civil Code provides:

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

Passing on this codal provision, this Court explained:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of
its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the tenor thereof.
A breach upon the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the interests of the
promissee that may include his "expectation interest," which is his interest in having the
benefit of his bargain by being put in as good a position as he would have been in had the
contract been performed, or his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by being put in as good a position
as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred
on the other party. Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every infraction is to
create a new duty, that is, to make recompense to the one who has been injured by the
failure of another to observe his contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability.23 (Emphasis and underscoring
supplied)

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible
time. It took 25 days, however, for RCPI to deliver it.

RCPI invokes force majeure, specifically, the alleged radio noise and interferences which
adversely affected the transmission and/or reception of the telegraphic message.
Additionally, its messenger claimed he could not locate the address of Zenaida and it was
only on the third attempt that he was able to deliver the telegram.

For the defense of force majeure to prosper,

x x x it is necessary that one has committed no negligence or misconduct that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed
to take steps to forestall the possible adverse consequences of such a loss. One’s
negligence may have concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate cause of the damage or
injury was a fortuitous event would not exempt one from liability. When the effect is
found to be partly the result of a person’s participation – whether by active
intervention, neglect or failure to act – the whole occurrence is humanized and
removed from the rules applicable to acts of God.

xxxx

Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous
event that could not be foreseen or, though foreseen, was inevitable. In other words,
there must be an exclusion of human intervention from the cause of injury or
loss.24 (Emphasis and underscoring supplied)

Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the
telegram at the soonest possible time, it should have at least informed Grace of the
non-transmission and the non-delivery so that she could have taken steps to remedy the
situation. But it did not. There lies the fault or negligence.

In an earlier case also involving RCPI, this Court held:

Considering the public utility of RCPI’s business and its contractual obligation to transmit
messages, it should exercise due diligence to ascertain that messages are delivered to
the persons at the given address and should provide a system whereby in cases of
undelivered messages the sender is given notice of non-delivery. Messages sent
by cable or wireless means are usually more important and urgent than those which
can wait for the mail.25

xxxx

People depend on telecommunications companies in times of deep emotional

stress or pressing financial needs. Knowing that messages about the illnesses or
deaths of loved ones, births or marriages in a family, important business transactions, and
notices of conferences or meetings as in this case, are coursed through the petitioner and
similar corporations, it is incumbent upon them to exercise a greater amount of care and
concern than that shown in this case. Every reasonable effort to inform senders of the
non-delivery of messages should be undertaken.26

(Emphasis and underscoring supplied)

RCPI argues, however, against the presence of urgency in the delivery of the telegram, as
well as the basis for the award of moral damages, thus:27

The request to send check as written in the telegraphic text negates the existence of
urgency that private respondents’ allegations that ‘time was of the essence’ imports. A
check drawn against a Manila Bank and transmitted to Sorsogon, Sorsogon will have to
be deposited in a bank in Sorsogon and pass thru a minimum clearing period of 5 days
before it may be encashed or withdrawn. If the transmittal of the requested check to
Sorsogon took 1 day – private respondents could therefore still wait for 6 days before the
same may be withdrawn. Requesting a check that would take 6 days before it could be
withdrawn therefore contradicts plaintiff’s claim of urgency or need.28

At any rate, any sense of urgency of the situation was met when Grace Verchez was able
to communicate to Manila via a letter that she sent to the same addressee in Manila thru
JRS.29

xxxx

As far as the respondent court’s award for moral damages is concerned, the same has no
basis whatsoever since private respondent Alfonso Verchez did not accompany his late
wife when the latter went to Manila by bus. He stayed behind in Sorsogon for almost 1
week before he proceeded to Manila. 30

When pressed on cross-examination, private respondent Alfonso Verchez could not give
any plausible reason as to the reason why he did not accompany his ailing wife to
Manila.31

xxxx

It is also important to consider in resolving private respondents’ claim for moral damages
that private respondent Grace Verchez did not accompany her ailing mother to Manila.32

xxxx

It is the common reaction of a husband to be at his ailing wife’s side as much as

possible. The fact that private respondent Alfonso Verchez stayed behind in Sorsogon for
almost 1 week convincingly demonstrates that he himself knew that his wife was not in
critical condition.33

(Emphasis and underscoring supplied)

RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears
repeating, anchored. Since RCPI breached its contract, the presumption is that it was at
fault or negligent. It, however, failed to rebut this presumption.

For breach of contract then, RCPI is liable to Grace for damages.

And for quasi-delict, RCPI is liable to Grace’s co-respondents following Article 2176 of the
Civil Code which provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter. (Underscoring supplied)

RCPI’s liability as an employer could of course be avoided if it could prove that it observed
the diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code
so provides:

The obligation imposed by Article 2176 is demandable not only for one’s own acts or
omissions, but also for those of persons for whom one is responsible.

xxxx

The owners and managers of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
(Underscoring supplied)

RCPI failed, however, to prove that it observed all the diligence of a good father of a family
to prevent damage.

Respecting the assailed award of moral damages, a determination of the presence of the
following requisites to justify the award is in order:

x x x firstly, evidence of besmirched reputation or physical, mental or psychological

suffering sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the defendant is the
proximate cause of damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by Article 2219 and Article
2220 of the Civil Code.34

Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents

was correctly appreciated by the CA in this wise:

The failure of RCPI to deliver the telegram containing the message of appellees on time,
disturbed their filial tranquillity. Family members blamed each other for failing to respond
swiftly to an emergency that involved the life of the late Mrs. Verchez, who suffered from
diabetes.35
As reflected in the foregoing discussions, the second and third requisites are present.

On the fourth requisite, Article 2220 of the Civil Code provides:

Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad
faith. (Emphasis and underscoring supplied)

After RCPI’s first attempt to deliver the telegram failed, it did not inform Grace of the
non-delivery thereof and waited for 12 days before trying to deliver it again, knowing – as
it should know – that time is of the essence in the delivery of telegrams. When its second
long-delayed attempt to deliver the telegram again failed, it, again, waited for another 12
days before making a third attempt. Such nonchalance in performing its urgent obligation
indicates gross negligence amounting to bad faith. The fourth requisite is thus also
present.

In applying the above-quoted Article 2220, this Court has awarded moral damages in
cases of breach of contract where the defendant was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligation.36

As for RCPI’s tort-based liability, Article 2219 of the Civil Code provides:

Moral damages may be recovered in the following and analogous cases:

xxxx

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
(Emphasis supplied)

Article 26 of the Civil Code, in turn, provides:

Every person shall respect the dignity, personality, privacy and peace of mind of his
neighbors and other persons. The following and similar acts, though they may not
constitute a criminal offense, shall produce a cause of action for damages, prevention,
and other relief:

xxxx

(2) Meddling with or disturbing the private life or family relations of another. (Emphasis
supplied)

RCPI’s negligence in not promptly performing its obligation undoubtedly disturbed the
peace of mind not only of Grace but also her co-respondents. As observed by the
appellate court, it disrupted the "filial tranquillity" among them as they blamed each other
"for failing to respond swiftly to an emergency." The tortious acts and/or omissions
complained of in this case are, therefore, analogous to acts mentioned under Article 26 of
the Civil Code, which are among the instances of quasi-delict when courts may award
moral damages under Article 2219 of the Civil Code.
In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is
the award of attorney’s fees, respondents having been compelled to litigate to protect their
rights.

Clutching at straws, RCPI insists that the limited liability clause in the "Telegram
Transmission Form" is not a contract of adhesion. Thus it argues:

Neither can the Telegram Transmission Form be considered a contract of adhesion as

held by the respondent court. The said stipulations were all written in bold letters right in
front of the Telegram Transmission Form. As a matter of fact they were beside the space
where the telegram senders write their telegraphic messages. It would have been different
if the stipulations were written at the back for surely there is no way the sender will easily
notice them. The fact that the stipulations were located in a particular space where they
can easily be seen, is sufficient notice to any sender (like Grace Verchez-Infante) where
she could manifest her disapproval, leave the RCPI station and avail of the services of the
other telegram operators.37 (Underscoring supplied)

RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the
stipulations nor their physical location in the contract determines whether it is one of
adhesion.

A contract of adhesion is defined as one in which one of the parties imposes a

ready-made form of contract, which the other party may accept or reject, but which the
latter cannot modify. One party prepares the stipulation in the contract, while the other
party merely affixes his signature or his "adhesion" thereto, giving no room for
negotiation and depriving the latter of the opportunity to bargain on equal
footing.38 (Emphasis and underscoring supplied)

While a contract of adhesion is not necessarily void and unenforceable, since it is

construed strictly against the party who drafted it or gave rise to any ambiguity therein, it is
stricken down as void and unenforceable or subversive of public policy when the weaker
party is imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing.39

This Court holds that the Court of Appeals’ finding that the parties’ contract is one of
adhesion which is void is, given the facts and circumstances of the case, thus well-taken.

WHEREFORE, the petition is DENIED, and the challenged decision of the Court of
Appeals is AFFIRMED.

Costs against petitioner.

SO ORDERED.

[G.R. No. 115129. February 12, 1997.]

IGNACIO BARZAGA, Petitioner, v. COURT OF APPEALS and ANGELITO ALVIAR, Respondents.

Franco L. Loyola, for Petitioners.

Monsod Valencia and Associates for Private Respondent.

SYLLABUS

1. CIVIL. LAW; OBLIGATION AND CONTRACTS; EFFECT OF OBLIGATIONS; A PARTY GUILTY OF

NEGLIGENCE AND DELAY IN THE PERFORMANCE OF HIS CONTRACTUAL OBLIGATION IS LIABLE FOR
DAMAGES. — An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was
negligent and incurred in delay in the performance of his contractual obligation. This sufficiently
entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of
delay or a contractual breach. The law expressly provides that those who in the performance of their
obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor
thereof, are liable for damages.

2. ID.; ID.; ID.; ID.; THE ARGUMENT THAT THE INVOICES NEVER INDICATED A SPECIFIC DELIVERY
TIME MUST FALL IN THE FACE OF THE POSITIVE VERBAL COMMITMENT OF RESPONDENT’S
STOREKEEPER; CASE AT BAR. — Contrary to the appellate court’s factual determination, there was a
specific time agreed upon for the delivery materials to the cemetery. Petitioner went to private
respondent’s store on 21 December precisely to inquire if the materials he intended to purchase
could be delivered immediately. But he was told by the storekeeper that if there were still deliveries
to be made that afternoon his order would be delivered the following day. With this in mind Barzaga
decided to buy the construction materials the following morning after he was assured of immediate
delivery according to his time frame. The argument that the invoices never indicated a specific
delivery time must fall in the face of the positive verbal commitment of respondent’s storekeeper.
Consequently it was no longer necessary to indicate in the invoices the exact time the purchased
items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her
custom not to indicate the time of delivery whenever she prepared invoices.

3. ID.; ID.; ID.; ID.; THE DELIBERATE SUPPRESSION OF MATERIAL INFORMATION BY ITSELF
MANIFESTS A CERTAIN DEGREE OF BAD FAITH. — One piece of testimony by respondent’s witness
Marina Boncales has caught our attention — that the delivery truck arrived a little late than usual
because it came from a delivery of materials in Langcaan, Dasmariñas, Cavite. Significantly, this
information was withheld by Boncales from petitioner when the latter was negotiating with her for
the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she
told petitioner of this fact and that the delivery of the materials would consequently be delayed,
petitioner would not have bought the materials from respondent’s hardware store but elsewhere
which would meet his time requirement. The deliberate suppression of this information by itself
manifests a certain degree of bad faith on the part of respondent’s storekeeper.

4. ID.; ID.; ID.; ID.; CASE AT BAR; A CASE OF NON-PERFORMANCE OF A RECIPROCAL OBLIGATION. —
This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase
and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the
payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill
his obligation to deliver the goods otherwise delay would attach.

5. ID.; DAMAGES; AWARD OF MORAL DAMAGES; SUSTAINED. — We sustain the award of moral
damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental
anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved
one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the
inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by
the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance
of an obligation voluntarily entered into.

6. ID.; ID.; GROSS NEGLIGENCE IN THE FULFILLMENT OF ONE’S BUSINESS OBLIGATIONS ENTITLES
THE AGGRIEVED PARTY TO EXEMPLARY DAMAGES. — We also affirm the grant of exemplary damages.
The lackadaisical and feckless attitude of the employees of respondent over which he exercised
supervisory authority indicates gross negligence in the fulfillment of his business obligations.
Respondent Alviar and his employees should have exercised fairness and good judgment in dealing
with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him,
respondent and his employees contributed to petitioner’s anguish by causing him to bear the agony
resulting from his inability to fulfill his wife’s dying wish.

7. ID.; ID.; TEMPERATE DAMAGES; MAY NOT BE AWARDED IN CASES WHERE THE AMOUNT OF
PECUNIARY LOSSES, BY THEIR VERY NATURE, COULD BE ESTABLISHED WITH CERTAINTY. — We delete
the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more
than nominal but less than compensatory, and may be recovered when the court finds that some
pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with
certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for
the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the
wake. The record however does not show that petitioner presented proof of the actual amount of
expenses he incurred which seems to be the reason the trial court awarded to him temperate
damages instead. This is an erroneous application of the concept of temperate damages. While
petitioner may have indeed suffered pecuniary losses, these by their very nature could be established
with certainty by means of payment receipts.

8. ID.; ID.; ACTUAL OR COMPENSATORY DAMAGES; PARTY’S FAILURE TO PROVE ACTUAL

EXPENDITURE CONDUCES TO A FAILURE OF HIS CLAIM. — Petitioner’s claim falls unequivocally within
the realm of actual or compensatory damages. However, his failure to prove actual expenditure
consequently conduces to a failure of his claim. For in determining actual damages, the court cannot
rely on mere assertions, speculations, conjectures or guesswork but must depend on competent
proof and on the best evidence obtainable regarding the actual amount of loss.

DECISION
BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the
nineteenth of December Ignacio’s wife succumbed to a debilitating ailment after prolonged pain and
suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to
be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains
while the whole of Christendom celebrate the Nativity of their Redeemer.

Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake
for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of
December in obedience semper fidelis to her dying wish. But her final entreaty, unfortunately, could
not be carried out. Dire events conspired to block his plans that forthwith gave him and his family
their gloomiest Christmas ever.

This is Barzaga’s story. On 21 December 1990, at about three o’clock in the afternoon, he went to the
hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to
be used in the construction of a niche for his wife. He also asked if the materials could be delivered at
once. Marina Boncales, Alviar’s storekeeper, replied that she had yet to verify if the store had pending
deliveries that afternoon because if there were then all subsequent purchases would have to be
delivered the following day. With that reply petitioner left.

At seven o’ clock the following morning, 22 December, Barzaga returned to Alviar’s hardware store to
follow up his purchase of construction materials. He told the store employees that the materials he
was buying would have to be delivered at the Memorial Cemetery in Dasmariñas, Cavite, by eight
o’clock that morning since his hired workers were already at the burial site and time was of the
essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With
this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter
he joined his workers at the cemetery, which was only a kilometer away, to await the delivery.

The construction materials did not arrive at eight o’clock as promised. At nine o’ clock, the delivery
was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay.
Boncales assured him that although the delivery truck was not yet around it had already left the
garage and that as soon as it arrived the materials would be brought over to the cemetery in no time
at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the
materials.

By ten o’clock, there was still no delivery. This prompted petitioner to return to the store to inquire
about the materials. But he received the same answer from respondent’s employees who even
cajoled him to go back to the burial place as they would just follow with his construction materials.

After hours of waiting — which seemed interminable to him — Barzaga became extremely upset. He
decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby,
and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he
returned again to the store he saw the delivery truck already there but the materials he purchased
were not yet ready for loading. Distressed that Alviar’s employees were not the least concerned,
despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for
construction materials elsewhere.

In the afternoon of that day, petitioner was able to buy from another store. But since darkness was
already setting in and his workers had left, he made up his mind to start his project the following
morning, 23 December. But he knew that the niche would not be finished in time for the scheduled
burial the following day. His laborers had to take a break on Christmas Day and they could only
resume in the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga’s
wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.

On 21 January 1991, tormented perhaps by his inability to fulfill his wife’s dying wish, Barzaga wrote
private respondent Alviar demanding recompense for the damage he suffered. Alviar did not respond.
Consequently, petitioner sued him before the Regional Trial Court. 1

Resisting petitioner’s claim, private respondent contended that legal delay could not be validly
ascribed to him because no specific time of delivery was agreed upon between them. He pointed out
that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery
and that assuming that the materials were not delivered within the period desired by petitioner, the
delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men
were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused
to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that
caused the delay in the construction of the niche and the consequent failure of the family to inter
their loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other
who brought about all his personal woes.chanroblesvirtuallawlibrary:red

Upholding the proposition that respondent incurred in delay in the delivery of the construction
materials resulting in undue prejudice to petitioner, the trial court ordered respondent Alviar to pay
petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum
computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate
damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as
attorney’s fees.

On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no
contractual commitment as to the exact time of delivery since this was not indicated in the invoice
receipts covering the sale. 2

The arrangement to deliver the materials merely implied that delivery should be made within a
reasonable time but that the conclusion that since petitioner’s workers were already at the graveyard
the delivery had to be made at that precise moment, is non-sequitur. The Court of Appeals also held
that assuming that there was delay, petitioner still had sufficient time to construct the tomb and hold
his wife’s burial as she wished.
We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito
Alviar was negligent and incurred in delay in the performance of his contractual obligation. This
sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a
consequence of delay or a contractual breach. The law expressly provides that those who in the
performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages. 3

Contrary to the appellate court’s factual determination, there was a specific time agreed upon for the
delivery of the materials to the cemetery. Petitioner went to private respondent’s store on 21
December precisely to inquire if the materials he intended to purchase could be delivered
immediately. But he was told by the storekeeper that if there were still deliveries to be made that
afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy
the construction materials the following morning after he was assured of immediate delivery
according to his time frame. The argument that the invoices never indicated a specific delivery time
must fall in the face of the positive verbal commitment of respondent’s storekeeper. Consequently it
was no longer necessary to indicate in the invoices the exact time the purchased items were to be
brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to
indicate the time of delivery whenever she prepared invoices. 4

Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery
of petitioner’s purchases. He maintains that Barzaga should have allowed his delivery men a little
more time to bring the construction materials over to the cemetery since a few hours more would not
really matter and considering that his truck had a flat tire. Besides, according to him, Barzaga still had
sufficient time to build the tomb for his wife.

This is a gratuitous assertion that borders on callousness. Private respondent had no right to
manipulate petitioner’s timetable and substitute it with his own. Petitioner had a deadline to meet. A
few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other
pressing family concerns. Despite this, respondent’s employees still made light of his earnest
importunings for an immediate delivery. As petitioner bitterly declared in court." . . they
(respondent’s employees) were making a fool out of me." 5

We also find unacceptable respondent’s justification that his truck had a flat tire, for this event, if
indeed it happened, was foreseeable according to the trial court, and as such should have been
reasonably guarded against. The nature of private respondent’s business requires that he should be
ready at all times to meet contingencies of this kind. One piece of testimony by respondent’s witness
Marina Boncales has caught our attention — that the delivery truck arrived a little late than usual
because it came from a delivery of materials in Langcaan, Dasmariñas, Cavite. 6 Significantly, this
information was withheld by Boncales from petitioner when the latter was negotiating with her for
the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she
told petitioner of this fact and that the delivery of the materials would consequently be delayed,
petitioner would not have bought the materials from respondent’s hardware store but elsewhere
which could meet his time requirement. The deliberate suppression of this information by itself
manifests a certain degree of bad faith on the part of respondent’s storekeeper.
The appellate court appears to have belittled petitioner’s submission that under the prevailing
circumstances time was of the essence in the delivery of the materials to the grave site. However, we
find petitioner’s assertion to be anchored on solid ground. The niche had to be constructed at the
very least on the twenty-second of December considering that it would take about two (2) days to
finish the job if the interment was to take place on the twenty-fourth of the month. Respondent’s
delay in the delivery of the construction materials wasted so much time that construction of the tomb
could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner’s wife.
This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put
off on Christmas day.

This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract of purchase
and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the
payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill
his obligation to deliver the goods otherwise delay would attach.

We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family
suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day
over the remains of their loved one who could not be laid to rest on the date she herself had chosen.
There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that
moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his
employees in the performance of an obligation voluntarily entered into.

We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the
employees of respondent over which he exercised supervisory authority indicates gross negligence in
the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised
fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife.
Instead of commiserating with him, respondent and his employees contributed to petitioner’s anguish
by causing him to bear the agony resulting from his inability to fulfill his wife’s dying wish.

We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate
damages are more than nominal but less than compensatory, and may be recovered when the court
finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case,
be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form
of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2)
days of the wake. The record however does not show that petitioner presented proof of the actual
amount of expenses he incurred which seems to be the reason the trial court awarded to him
temperate damages instead. This is an erroneous application of the concept of temperate damages.
While petitioner may have indeed suffered pecuniary losses, these by their very nature could be
established with certainty by means of payment receipts. As such, the claim falls unequivocally within
the realm of actual or compensatory damages. Petitioner’s failure to prove actual expenditure
consequently conduces to a failure of his claim. For in determining actual damages, the court cannot
rely on mere assertions, speculations, conjectures or guesswork but must depend on competent
proof and on the best evidence obtainable regarding the actual amount of loss. 8
We affirm the award of attorney’s fees and litigation expenses. Award of damages, attorney’s fees
and litigation costs is left to the sound discretion of the court, and if such discretion be well exercised,
as in this case, it will not be disturbed on appeal. 9

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it
GRANTED on a motion for reconsideration the refund by private respondent of the amount of
P2,110.00 paid by petitioner for the construction materials. Consequently, except for the award of
P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Court granting
petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate
per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as
exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney’s fees, is
AFFIRMED. No costs.

SO ORDERED.

[G.R. NO. 165662 : May 3, 2006]

SELEGNA MANAGEMENT AND DEVELOPMENT

CORPORATION; and Spouses EDGARDO and ZENAIDA
ANGELES, Petitioners, v.UNITED COCONUT PLANTERS
BANK,* Respondent.

DECISION

PANGANIBAN, C.J.:

A writ of preliminary injunction is issued to prevent an

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

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules

of Court, assailing the May 4, 2004 Amended Decision 2 and
the October 12, 2004 Resolution3 of the Court of Appeals (CA)
in CA-GR SP No. 70966. The challenged Amended Decision
disposed thus:
"WHEREFORE, the Motion for Reconsideration is GRANTED.
The July 18, 2003 Decision is hereby REVERSED and SET
ASIDE and another one entered GRANTING the petition and
REVERSING and SETTING ASIDE the March 15, 2002 Order of
the Regional Trial Court, Branch 58, Makati City in Civil Case
No. 99-1061."4

The assailed Resolution denied reconsideration.

The Facts

On September 19, 1995, Petitioners Selegna Management

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

The parties stipulated in their Credit Agreement dated

September 19, 1995,5 that failure to pay "any availment of
the accommodation or interest, or any sum due" shall
constitute an event of default,6 which shall consequently allow
respondent bank to "declare [as immediately due and payable]
all outstanding availments

of the accommodation together with accrued interest and any

other sum payable." 7

In need of further business capital, petitioners obtained from

UCPB an increase in their credit facility.8 For this purpose,
they executed a Promissory Note for P103,909,710.82, which
was to mature on March 26, 1999.9 In the same note, they
agreed to an interest rate of 21.75 percent per annum,
payable by monthly amortizations.
On December 21, 1998, respondent sent petitioners a
demand letter, worded as follows:

"Gentlemen:

"With reference to your loan with principal outstanding

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

"x x x x x x x x x

"Accordingly, formal demand is hereby made upon you to pay

your outstanding obligations in the total amount of
P14,959,525.10, which includes unpaid interest and penalties
as of 21 December 1998 due on the promissory note, eight (8)
days from date hereof."10

Respondent decided to invoke the acceleration provision in

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

"Gentlemen:

"x x x x x x
x x x

"It appears from the record of [UCPB] that you

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

"Consequently, we hereby inform you that our

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

"Accordingly, formal demand is hereby made upon

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

Respondent sent another letter of demand on March 4, 1999.

It contained a final demand on petitioners "to settle in full
[petitioners'] said past due obligation to [UCPB] within five (5)
days from [petitioners'] receipt of [the] letter."12

In response, petitioners paid respondent the amount of

P10,199,473.96 as partial payment of the accrued
interests.13Apparently unsatisfied, UCPB applied for
extrajudicial foreclosure of petitioners' mortgaged properties.

When petitioners received the Notice of Extra Judicial

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

On May 25, 1999, the Bank denied petitioners' request in

these words:

"This is to reply to your letter dated May 20, 1999, which

confirms the request you made the previous day when you
paid us a visit.

"As earlier advised, your account has been referred to

external counsel for appropriate legal action. Demand has
also been made for the full settlement of your account.

"We regret that the Bank is unable to grant your request

unless a definite offer is made for settlement."15
In order to forestall the extrajudicial foreclosure scheduled for
May 31, 1999, petitioners filed a Complaint16 (docketed as
Civil Case No. 99-1061) for "Damages, Annulment of Interest,
Penalty Increase and Accounting with Prayer for Temporary
Restraining Order/Preliminary Injunction." All subsequent
proceedings in the trial court and in the CA involved only the
propriety of issuing a TRO and a writ of preliminary injunction.

Judge Josefina G. Salonga,17 then executive judge of the

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

After due hearing, Judge Pimentel issued an Order dated May

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

Subsequently, respondent filed new applications for

foreclosure in the cities where the mortgaged properties were
located. Undaunted, petitioners filed another Motion for the
Issuance of a TRO/Injunction and a Supplementary Motion for
the Issuance of TRO/Injunction with Motion to Clarify Order of
September 6, 1999.24

On October 27, 1999, Judge Pimentel issued an

Order25 granting a 20-day TRO in favor of petitioners. After
several hearings, he issued his November 26, 1999
Order,26 granting their prayer for a writ of preliminary
injunction on the foreclosures, but only for a period of twenty
(20) days. The Order states:

"Admitted by defendant witness is the fact that in all the

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

"x x x x x x x x x

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

"x x x x x x x x x

"WHEREFORE, premises considered, and finding compelling

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

The corresponding Writ of Preliminary Injunction28 was issued

on November 29, 1999.

Respondent moved for reconsideration. On the other hand,

petitioners filed a Motion to Clarify Order of November 26,
1999. Conceding that the November 26 Order had granted an
injunction during the pendency of the case, respondent
contended that the injunctive writ merely restrained it for a
period of 20 (twenty) days.
On December 29, 2000, Judge Pimentel issued an
Order29 granting respondent's Motion for Reconsideration and
clarifying his November 26, 1999 Order in this manner:

"There may have been an error in the Writ of Preliminary

Injunction issued dated November 29, 1999 as the same
[appeared to be actually] an extension of the TRO issued by
this Court dated 27 October 1999 for another 20 days period.
Plaintiff's seeks to enjoin defendants for an indefinite period
pending trial of the case.

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

"x x x x x x x x x

"What the [c]ourt wanted the defendants to do was to merely

modify the notice of [the] auction sale in order that the
amount of P131,854,773.98 x x x would not appear to be the
value of each property being sold on auction. x x x.30

"WHEREFORE, premises considered and after finding merit on

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

"1.] To give due course to defendant[']s motion for

reconsideration, as the same is hereby GRANTED, however,
with reservation that this Order shall take effect upon after
its[] finality[.]"31

Consequently, respondent proceeded with the foreclosure

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

The case was then re-raffled to Branch 58 of the RTC of Makati

City, presided by Judge Escolastico U. Cruz.34 The
proceedings before him were, however, all nullified by the
Supreme Court in its En Banc Resolution dated September 18,
2001.35 He was eventually dismissed from service.36

The case was re-raffled to the pairing judge of Branch 58,

Winlove M. Dumayas. On March 15, 2002, Judge Dumayas
granted petitioners' Omnibus Motion for Reconsideration and
Specification of the Foreclosure Proceeds, as follows:

"WHEREFORE, premises considered, the Motion to Reconsider

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

The aggrieved respondent filed before the Court of Appeals a

Petition for Certiorari, seeking the nullification of the RTC
Order dated March 15, 2002, on the ground that it was issued
with grave abuse of discretion.38

The Special Fifteenth Division, speaking through Justice

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

Respondent filed a Motion for Reconsideration, which was

granted by a Special Division of Five of the Former Special
Fifteenth Division.

Ruling of the Court of Appeals

Citing China Banking Corporation v. Court of Appeals,40 the

appellate court held in its Amended Decision41 that the
foreclosure proceedings should not be enjoined in the light of
the clear failure of petitioners to meet their obligations upon
maturity.42

Also citing Zulueta v. Reyes,43 the CA, through Justice Jose

Catral Mendoza, went on to say that a pending question on
accounting did not warrant an injunction on the foreclosure.

Parenthetically, the CA added that petitioners were not

without recourse or protection. Further, it noted their pending
action for annulment of interest, damages and accounting. It
likewise said that they could protect themselves by causing
the annotation of lis pendens on the titles of the mortgaged or
foreclosed properties.

In his Separate Concurring Opinion,44 Justice Magdangal M.

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

Petitioners filed a Motion for Reconsideration dated May 31,

2004, which the appellate court denied.46
Hence, this Petition.47

Issues

Petitioners raise the following issues for our consideration:

p align="center">"I

"Whether or not the Honorable Court of Appeals

denied the petitioners of due process.

"II

"Whether or not the Honorable Court of Appeals

supported its Amended Decision by invoking
jurisprudence not applicable and completely
identical with the instant case.

"III

"Whether or not the Honorable Court of Appeals

failed to establish its finding that RTC Judge
Winlove Dumayas has acted with grave abuse of
discretion."48

The resolution of this case hinges on two issues: 1) whether

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

The Court's Ruling

The Petition has no merit.

First Issue:

Default

The resolution of the present controversy necessarily begins

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

Mora solvendi, or debtor's default, is defined as a delay49 in

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

Mortgagors' Default of Monthly Interest Amortizations

In the present case, the Promissory Note executed on March

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

"Section 8.01. Events of Default. Each of the following events

and occurrences shall constitute an Event of Default of this
AGREEMENT:

"1. The CLIENT shall fail to pay, when due, any availment of
the Accommodation or interest, or any other sum due
thereunder in accordance with the terms thereof; ςηαñrοb lεš νι r†υ αl lαω l ιbrαrÿ

"x x x x x x x x x"

"Section 8.02. Consequences of Default. (a) If an Event of

Default shall occur and be continuing, the Bank may:

"1. By written notice to the CLIENT, declare all outstanding

availments of the Accommodation together with accrued
interest and any other sum payable hereunder to be
immediately due and payable without presentment, demand
or notice of any kind, other than the notice specifically
required by this Section, all of which are expressly waived by
the CLIENT[.]"53

Considering that the contract is the law between the

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

Petitioners' failure to pay on that date set into effect Article IX

of the Real Estate Mortgage,57 worded thus:

"If, at any time, an event of default as defined in the credit

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

The foregoing discussion satisfactorily shows that UCPB had

every right to apply for extrajudicial foreclosure on the basis
of petitioners' undisputed and continuing default.
Petitioners' Debt Considered Liquidated Despite the Alleged

Lack of Accounting

Petitioners do not even attempt to deny the aforementioned

matters. They assert, though, that they have a right to a
detailed accounting before they can be declared in default. As
regards the three requisites of default, they say that the first
requisite - - liquidated debt - - is absent. Continuing with
foreclosure on the basis of an unliquidated obligation allegedly
violates their right to due process. They also maintain that
their partial payment of P10 million averted the maturity of
their obligation.59

On the other hand, respondent asserts that questions

regarding the running balance of the obligation of petitioners
are not valid reasons for restraining the foreclosure.
Nevertheless, it maintains that it has furnished them a
detailed monthly statement of account.

A debt is liquidated when the amount is known or is

determinable by inspection of
relevant promissory
documentation.60 Failure to
statement of account does
unliquidated obligation.
the terms and conditions of the
notes and related
furnish a debtor a detailed
not ipso facto result in an

Petitioners executed a Promissory Note, in which they stated

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

It is in fact clear from the agreement of the parties that when

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

Moreover, when they made their partial payment, petitioners

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

In Spouses Estares v. CA,66 we did not find any justification to

grant a preliminary injunction, even when the mortgagors
were disputing the amount being sought from them. We held
in that case that "[u]pon the nonpayment of the loan, which
was secured by the mortgage, the mortgaged property is
properly subject to a foreclosure sale."67

Compared with Estares, the denial of injunctive relief in this

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

At any rate, whether respondent furnished them a detailed

statement of account is a question of fact that this Court need
not and will not resolve in this instance. As held in Zulueta v.
Reyes,68 in which there was no genuine controversy as to the
amounts due and demandable, the foreclosure should not be
restrained by the unnecessary question of accounting.
Maturity of the Loan Not Averted by Partial Compliance with
Respondent's Demand

Petitioners allege that their partial payment of P10 million on

March 25, 1999, had the effect of forestalling the maturity of
the loan;69hence the foreclosure proceedings are
premature. 70
We disagree.

To be sure, their partial payment did not extinguish the

obligation. The Civil Code states that a debt is not paid "unless
the thing x x x in which the obligation consists has been
completely delivered x x x."71Besides, a late partial payment
could not have possibly forestalled a long-expired maturity
date.

The only possible legal relevance of the partial payment was

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

Petitioners are mistaken. When creditors receive partial

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

"When the obligee accepts the performance, knowing its

incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with."

Thus, to imply that creditors accept partial payment as

complete performance of their obligation, their acceptance
must be made under circumstances that indicate their
intention to consider the performance complete and to
renounce their claim arising from the defect.74

There are no circumstances that would indicate a renunciation

of the right of respondent to foreclose the mortgaged
properties extrajudicially, on the basis of petitioners'
continuing default. On the contrary, it asserted its right by
filing an application for extrajudicial foreclosure after
receiving the partial payment. Clearly, it did not intend to give
petitioners more time to meet their obligation.

Parenthetically, respondent cannot be reproved for accepting

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

Second Issue:

Enjoining the Extrajudicial Foreclosure

A writ of preliminary injunction is a provisional remedy that

may be resorted to by litigants, only to protect or preserve
their rights or interests during the pendency of the principal
action. To authorize a temporary injunction, the plaintiff must
show, at least prima facie, a right to the final
relief.75 Moreover, it must show that the invasion of the right
sought to be protected is material and substantial, and that
there is an urgent and paramount necessity for the writ to
prevent serious damage.76

In the absence of a clear legal right, the issuance of the

injunctive writ constitutes grave abuse of discretion.
Injunction is not designed to protect contingent or future
rights. It is not proper when the complainant's right is
doubtful or disputed.77

As a general rule, courts should avoid issuing this writ, which

in effect disposes of the main case without trial.78 In Manila
International Airport Authority v. CA,79 we urged courts to
exercise caution in issuing the writ, as follows:

"x x x. We remind trial courts that while generally the grant of

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

'It has been consistently held that there is no power the

exercise of which is more delicate, which requires greater
caution, deliberation and sound discretion, or more dangerous
in a doubtful case, than the issuance of an injunction. It is the
strong arm of equity that should never be extended unless to
cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.

'Every court should remember that an injunction is a limitation

upon the freedom of action of the defendant and should not be
granted lightly or precipitately. It should be granted only
when the court is fully satisfied that the law permits it and the
emergency demands it.' "80 (Citations omitted) chanroblesvi rtua llawlib ra ry

Petitioners do not have any clear right to be protected. As

shown in our earlier findings, they failed to substantiate their
allegations that their right to due process had been violated
and the maturity of their obligation forestalled. Since they
indisputably failed to meet their obligations in spite of
repeated demands, we hold that there is no legal justification
to enjoin respondent from enforcing its undeniable right to
foreclose the mortgaged properties.

In any case, petitioners will not be deprived outrightly of their

property. Pursuant to Section 47 of the General Banking Law
of 2000,81 mortgagors who have judicially or extrajudicially
sold their real property for the full or partial payment of their
obligation have the right to redeem the property within one
year after the sale. They can redeem their real estate by
paying the amount due, with interest rate specified, under the
mortgage deed; as well as all the costs and expenses incurred
by the bank.82

Moreover, in extrajudicial foreclosures, petitioners have the

right to receive any surplus in the selling price. This right was
recognized in Sulit v. CA,83 in which the Court held that "if the
mortgagee is retaining more of the proceeds of the sale than
he is entitled to, this fact alone will not affect the validity of the
sale but simply gives the mortgagor a cause of action to
recover such surplus."84

Petitioners failed to demonstrate the prejudice they would

probably suffer by reason of the foreclosure. Also, it is clear
that they would be adequately protected by law. Hence, we
find no legal basis to reverse the assailed Amended Decision
of the CA dated May 4, 2004.

WHEREFORE, the Petition is DENIED and the assailed

Amended Decision and Resolution AFFIRMED. Costs against
petitioners.

SO ORDERED.

G.R. No. 193723 July 20, 2011

GENERAL MILLING CORPORATION, Petitioner,

vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in
CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos v.
General Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the
Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for
Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract
with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC
was to supply broiler chickens for the spouses to raise on their land in Barangay
Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract
was accompanied by a Deed of Real Estate Mortgage over a piece of real property upon
which their conjugal home was built. The spouses further agreed to put up a surety bond
at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate
Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable
within an indefinite period with an interest of twelve percent (12%) per annum.2

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and
faithful compliance of [MORTGAGORS’] obligation/s with the MORTGAGEE by a First
Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and the
improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality
of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced
by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province of
Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day term and to
secure the payment of the same plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged
that they suffered business losses because of the negligence of GMC and its violation of
the Growers Contract.3

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would
institute foreclosure proceedings on their mortgaged property.4

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June
10, 1997, the property subject of the foreclosure was subsequently sold by public auction
to GMC after the required posting and publication.5 It was foreclosed for PhP 935,882,075,
an amount representing the losses on chicks and feeds exclusive of interest at 12% per
annum and attorney’s fees.6 To complicate matters, on October 27, 1997, GMC informed
the spouses that its Agribusiness Division had closed its business and poultry operations.7

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of
Nullity of the Extrajudicial Foreclosure Sale with Damages. They contended that the
extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and publication of notices under Act No.
3135, as amended, or An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages. They likewise claimed that there was no
sheriff’s affidavit to prove compliance with the requirements on posting and publication of
notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A
prayer for moral and exemplary damages and attorney’s fees was also included in the
complaint.8Librado Ramos alleged that, when the property was foreclosed, GMC did not
notify him at all of the foreclosure.9

During the trial, the parties agreed to limit the issues to the following: (1) the validity of the
Deed of Real Estate Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the
party liable for damages.10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities
under the Growers Contract. It argued that it was compelled to foreclose the mortgage
because of Spouses Ramos’ failure to pay their obligation. GMC insisted that it had
observed all the requirements of posting and publication of notices under Act No. 3135.11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate
Mortgage was valid even if its term was not fixed. Since the duration of the term was made
to depend exclusively upon the will of the debtors-spouses, the trial court cited
jurisprudence and said that "the obligation is not due and payable until an action is
commenced by the mortgagee against the mortgagor for the purpose of having the court
fix the date on and after which the instrument is payable and the date of maturity is fixed in
pursuance thereto."12

The trial court held that the action of GMC in moving for the foreclosure of the spouses’
properties was premature, because the latter’s obligation under their contract was not yet
due.

The trial court awarded attorney’s fees because of the premature action taken by GMC in
filing extrajudicial foreclosure proceedings before the obligation of the spouses became
due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby

declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and
puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado

and Remedios Ramos attorney’s fees in the total amount of P 57,000.00 representing
acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a
total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial
foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos
attorney’s fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a different
ground. Contrary to the findings of the trial court, the CA ruled that the requirements of
posting and publication of notices under Act No. 3135 were complied with. The CA,
however, still found that GMC’s action against Spouses Ramos was premature, as they
were not in default when the action was filed on May 7, 1997.14

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-appellant
GMC made no demand to spouses Ramos for the full payment of their obligation. While it
was alleged in the Answer as well as in the Affidavit constituting the direct testimony of
Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were
sent to spouses Ramos, the documentary evidence proves otherwise. A perusal of the
letters presented and offered as evidence by defendant-appellant GMC did not "demand"
but only request spouses Ramos to go to the office of GMC to "discuss" the settlement of
their account.15

According to the CA, however, the RTC erroneously awarded attorney’s fees to Spouses
Ramos, since the presumption of good faith on the part of GMC was not overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional
Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby AFFIRMED with
MODIFICATION by deleting the award of attorney’s fees to plaintiffs-appellees spouses
Librado Ramos and Remedios Ramos.16

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN
THE LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT.

B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO

DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR
OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL
DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS.17

The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not raised in
the trial court, the CA, by considering such issue, violated the basic requirements of fair
play, justice, and due process.18

In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on
matters not assigned as errors on appeal if these are indispensable or necessary to the
just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an appellate
court has a broad discretionary power in waiving the lack of assignment of errors in the
following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the
subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is necessary in
arriving at a just decision and complete resolution of the case or to serve the interests of a
justice or to avoid dispensing piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raised in the trial court and
are matters of record having some bearing on the issue submitted which the parties failed
to raise or which the lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a
question properly assigned, is dependent.

Paragraph (c) above applies to the instant case, for there would be a just and complete
resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually in
default of their obligation to GMC.

Was there sufficient demand?

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA
in finding that no demand was made on Spouses Ramos to pay their obligation. On the
contrary, it claims that its March 31, 1997 letter is akin to a demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtor’s performance.21

According to the CA, GMC did not make a demand on Spouses Ramos but merely
requested them to go to GMC’s office to discuss the settlement of their account. In spite of
the lack of demand made on the spouses, however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the Deed of Real Estate Mortgage
allowing GMC to extrajudicially foreclose the mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being
necessary for delay to exist, We agree with the appellate court that GMC should have first
made a demand on the spouses before proceeding to foreclose the real estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to the instant case:

The issue of whether demand was made before the foreclosure was effected is
essential. If demand was made and duly received by the respondents and the latter still
1avvphi1

did not pay, then they were already in default and foreclosure was proper. However, if
demand was not made, then the loans had not yet become due and demandable. This
meant that respondents had not defaulted in their payments and the foreclosure by
petitioner was premature. Foreclosure is valid only when the debtor is in default in the
payment of his obligation.22

In turn, whether or not demand was made is a question of fact.23 This petition filed under
Rule 45 of the Rules of Court shall raise only questions of law. For a question to be one of
law, it must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review
of the evidence presented, the question posed is one of fact.24 It need not be reiterated
that this Court is not a trier of facts.25 We will defer to the factual findings of the trial court,
because petitioner GMC has not shown any circumstances making this case an exception
to the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400
is AFFIRMED.

SO ORDERED.

G.R. No. 167346 April 2, 2007

SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST

COMPANY, Petitioner, *

vs.
SPOUSES PETER and SUSAN TAN, Respondents.

DECISION

CORONA, J.:

Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the
decision1 and resolution2of the Court of Appeals (CA) dated November 26, 2004 and
March 1, 2005, respectively, in CA-G.R. CV No. 58618,3 affirming the decision of the
Regional Trial Court (RTC) of Manila, Branch 31.4

On December 2, 1991, respondents’ representative, Remigia Frias, deposited with

petitioner ten checks worth ₱455,962. Grace Neri, petitioner’s teller no. 8 in its Juan Luna,
Manila Branch, received two deposit slips for the checks, an original and a duplicate. Neri
verified the checks and their amounts in the deposit slips then returned the duplicate copy
to Frias and kept the original copy for petitioner.

In accordance with the usual practice between petitioner and respondents, the latter’s
passbook was left with petitioner for the recording of the deposits on the bank’s ledger.
Later, respondents retrieved the passbook and discovered that one of the checks,
Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in
the sum of ₱250,000 was not posted therein.

Immediately, respondents notified petitioner of the problem. Petitioner showed respondent

Peter Tan a duplicate

copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include
the missing check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no.
8" who previously received the checks.

Still later, respondent Peter Tan learned from Metrobank (where he maintained an
account) that Metrobank check no. 403954 had cleared after it was inexplicably deposited
by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna. Respondents
demanded that petitioner pay the amount of the check but it refused, hence, they filed a
case for collection of a sum of money in the RTC of Manila, Branch 31.

In its answer, petitioner averred that the deposit slips Frias used when she deposited the
checks were spurious. Petitioner accused respondents of engaging in a scheme to
illegally exact money from it. It added that, contrary to the claim of respondents, it was
"teller no. 7" who received the deposit slips and, although respondents insisted that Frias
deposited ten checks, only nine checks were actually received by said teller. By way of
counterclaim, it sought payment of ₱1,000,000 as actual and moral damages and
₱500,000 as exemplary damages.

After trial, the RTC found petitioner liable to respondents:

Upon examination of the oral, as well as of the documentary evidence which the parties
presented at the trial in support of their respective contentions, and after taking into
consideration all the circumstances of the case, this Court believes that the loss of
Metrobank Check No. 403954 in the sum of ₱250,000.00 was due to the fault of
[petitioner]…[It] retained the original copy of the [deposit slip marked by "Teller No. 7"].
There is a presumption in law that evidence willfully suppressed would be adverse if
produced.

Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the person of the time and of the place"; and that
"if the law or contract does not state the diligence which is to be observed in the
performance, the same as expected of a good father of a family shall be required."

…For failure to comply with its obligation, [petitioner] is presumed to have been at fault or
to have acted negligently unless they prove that they observe extraordinary diligence as
prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756)…

xxx xxx xxx

WHEREFORE, premises considered, judgment is hereby rendered in favor of
[respondents], ordering [petitioner] to pay the sum of ₱250,000, with legal interest from
the time the complaint [for collection of a sum of money] was filed until satisfied;
₱25,000.00 moral damages; ₱25,000.00 exemplary damages plus 20% of the amount
due [respondents] as and for attorney’s fees. With costs.

SO ORDERED.5

Petitioner appealed to the CA which affirmed in toto the RTC’s assailed decision:

Serious doubt [was] engendered by the fact that [petitioner] did not present the original of
the deposit slip marked with "Teller No. 7" and on which the entry as to Metrobank Check
No. 403954 did not appear. Even the most cursory look at the handwriting thereon
reveal[ed] a very marked difference with that in the other deposit slips filled up [by Frias]
on December 2, 1991. Said circumstances spawn[ed] the belief thus, the said deposit slip
was prepared by [petitioner] itself to cover up for the lost check.6

Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal. 1a\^/phi1. net

Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that:
(1) the findings of the RTC and the CA were not supported by the evidence and records of
the case; (2) the award of damages in favor of respondents was unwarranted and (3) the
application by the RTC, as affirmed by the CA, of the provisions of the Civil Code on
common carriers to the instant case was erroneous.7

The petition must fail.

On the first issue, petitioner contends that the lower courts erred in finding it negligent for
the loss of the subject check. According to petitioner, the fact that the check was
deposited in Premier Bank affirmed its claim that it did not receive the check.

At the outset, the Court stresses that it accords respect to the factual findings of the trial
court and, unless it overlooked substantial matters that would alter the outcome of the
case, this Court will not disturb such findings.8We meticulously reviewed the records of the
case and found no reason to deviate from the rule. Moreover, since the CA affirmed these
findings on appeal, they are final and conclusive on us.9 We therefore sustain the RTC’s
and CA’s findings that petitioner was indeed negligent and responsible for respondents’
lost check.

On the issue of damages, petitioner argues that the moral and exemplary damages
awarded by the lower courts had no legal basis. For the award of moral damages to stand,
petitioner avers that respondents should have proven the existence of bad faith by clear
and convincing evidence. According to petitioner, simple negligence cannot be a basis for
its award. It insists that the award of exemplary damages is justified only when the act
complained of was done in a wanton, fraudulent and oppressive manner.10

We disagree.

While petitioner may argue that simple negligence does not warrant the award of moral
damages, it nonetheless cannot insist that that was all it was guilty of. It refused to
produce the original copy of the deposit slip which could have proven its claim that it did
not receive respondents’ missing check. Thus, in suppressing the best evidence that
could have bolstered its claim and confirmed its innocence, the presumption now arises
that it withheld the same for fraudulent purposes.11

Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioner’s
bad faith was apparent and unmistakable. Bad faith imports a dishonest purpose or some
moral obliquity or conscious doing of a wrong that partakes of the nature of fraud.12

As to the award of exemplary damages, the law allows it by way of example for the public
good. The business of banking is impressed with public interest and great reliance is
made on the bank’s sworn profession of diligence and meticulousness in giving
irreproachable service.13 For petitioner’s failure to carry out its responsibility and to
account for respondents’ lost check, we hold that the lower courts did not err in awarding
exemplary damages to the latter.

On the last issue, we hold that the trial court did not commit any error. A cursory reading
1awp hi1.n ét

of its decision reveals that it anchored its conclusion that petitioner was negligent on
Article 1173 of the Civil Code.14

In citing the different provisions of the Civil Code on common carriers,15 the trial court
merely made reference to the kind of diligence that petitioner should have performed
under the circumstances. In other words, like a common carrier whose business is also
imbued with public interest, petitioner should have exercised extraordinary diligence to
negate its liability to respondents.

Assuming arguendo that the trial court indeed used the provisions on common carriers to
pin down liability on petitioner, still we see no reason to strike down the RTC and CA
rulings on this ground alone.

In one case,16 the Court did not hesitate to apply the doctrine of last clear chance
(commonly used in transportation laws involving common carriers) to a banking
transaction where it adjudged the bank responsible for the encashment of a forged check.
There, we enunciated that the degree of diligence required of banks is more than that of a
good father of a family in keeping with their responsibility to exercise the necessary care
and prudence in handling their clients’ money.

We find no compelling reason to disallow the application of the provisions on common

carriers to this case if only to emphasize the fact that banking institutions (like petitioner)
have the duty to exercise the highest degree of diligence when transacting with the public.
By the nature of their business, they are required to observe the highest standards of
integrity and performance, and utmost assiduousness as well.17

WHEREFORE, the assailed decision and resolution of the Court of Appeals dated
November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618 are
hereby AFFIRMED. Accordingly, the petition is DENIED.

Costs against petitioner.

SO ORDERED.
G.R. No. 147324 May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.

x-----------------------------x

GLOBE TELECOM, INC., petitioner,

vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

DECISION

TINGA, J.:

Before the Court are two Petitions for Review assailing the Decision of the Court of
Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.1

The facts of the case are undisputed.

For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe
Telecom, Inc. (Globe), had been engaged in the coordination of the provision of various
communication facilities for the military bases of the United States of America (US) in
Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The
said communication facilities were installed and configured for the exclusive use of the US
Defense Communications Agency (USDCA), and for security reasons, were operated only
by its personnel or those of American companies contracted by it to operate said facilities.
The USDCA contracted with said American companies, and the latter, in turn, contracted
with Globe for the use of the communication facilities. Globe, on the other hand,
contracted with local service providers such as the Philippine Communications Satellite
Corporation (Philcomsat) for the provision of the communication facilities.

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat
obligated itself to establish, operate and provide an IBS Standard B earth station (earth
station) within Cubi Point for the exclusive use of the USDCA.2 The term of the contract
was for 60 months, or five (5) years.3 In turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved.4

At the time of the execution of the Agreement, both parties knew that the Military Bases
Agreement between the Republic of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval
Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which include those located at the
US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty
is duly concurred in by the Senate and ratified by a majority of the votes cast by the
people in a national referendum when the Congress so requires, and such new treaty is
recognized as such by the US Government.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141,
expressing its decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval Base, among others.5 The last two
paragraphs of the Resolution state:

FINDING that the Treaty constitutes a defective framework for the continuing relationship
between the two countries in the spirit of friendship, cooperation and sovereign equality:
Now, therefore, be it Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements, at the same time reaffirming its desire to
continue friendly relations with the government and people of the United States of
America.6

On 31 December 1991, the Philippine Government sent a Note Verbale to the US

Government through the US Embassy, notifying it of the Philippines’ termination of the
RP-US Military Bases Agreement. The Note Verbalestated that since the RP-US Military
Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of
all US military forces from Subic Naval Base should be completed by said date.

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue
the use of the earth station effective 08 November 1992 in view of the withdrawal of US
military personnel from Subic Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the letter of termination Section 8 (Default)
of the Agreement, which provides:

Neither party shall be held liable or deemed to be in default for any failure to perform its
obligation under this Agreement if such failure results directly or indirectly from force
majeure or fortuitous event. Either party is thus precluded from performing its obligation
until such force majeure or fortuitous event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances beyond the control of the party
involved including, but not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or
acts of God.

Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect
[Globe] to know its commitment to pay the stipulated rentals for the remaining terms of the
Agreement even after [Globe] shall have discontinue[d] the use of the earth station after
November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating as
follows:

7. DISCONTINUANCE OF SERVICE

Should [Globe] decide to discontinue with the use of the earth station after it has been put
into operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days
prior to the expected date of termination. Notwithstanding the non-use of the earth station,
[Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1
circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the
remaining life of the agreement. However, should PHILCOMSAT make use or sell the
earth station subject to this agreement, the obligation of [Globe] to pay the rental for the
remaining life of the agreement shall be at such monthly rate as may be agreed upon by
the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24
November 1993 demanding payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused
to heed Philcomsat’s demand.

On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati
a Complaint against Globe, praying that the latter be ordered to pay liquidated damages
under the Agreement, with legal interest, exemplary damages, attorney’s fees and costs
of suit. The case was raffled to Branch 59 of said court.

Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the
non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period of the Agreement.

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which
reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two
Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency
(computed at the exchange rate prevailing at the time of compliance or payment)
representing rentals for the month of December 1992 with interest thereon at the legal
rate of twelve percent (12%) per annum starting December 1992 until the amount is fully
paid;

2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorney’s fees;

3. Ordering the DISMISSAL of defendant’s counterclaim for lack of merit; and

4. With costs against the defendant.

SO ORDERED.9

Both parties appealed the trial court’s Decision to the Court of Appeals.

Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the
Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements constitutes force majeure which exempts Globe from complying with its
obligations under the Agreement; (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for
exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for payment of
rent of the earth station for December 1992 and of attorney’s fees. It explained that it
terminated Philcomsat’s services on 08 November 1992; hence, it had no reason to pay
for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that certain
events constituting force majeure under Section 8 the Agreement occurred and justified
the non-payment by Globe of rentals for the remainder of the term of the Agreement.

The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement effective 31 December
1991 as stated in the Philippine Government’s Note Verbale to the US Government, are
acts, directions, or requests of the Government of the Philippines which constitute force
majeure. In addition, there were circumstances beyond the control of the parties, such as
the issuance of a formal order by Cdr. Walter Corliss of the US Navy, the issuance of the
letter notification from ATT and the complete withdrawal of all US military forces and
personnel from Cubi Point, which prevented further use of the earth station under the
Agreement.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s
services by 08 November 1992, it is still liable to pay rentals for the December 1992,
amounting to US$92,238.00 plus interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992.10

Both parties filed their respective Petitions for Review assailing the Decision of the Court
of Appeals.

In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:

A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION

OF FORCE MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN
ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE
TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE

TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING
TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.

C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL

COURT’S AWARD OF ATTORNEY’S FEES IN FAVOR OF PHILCOMSAT.

D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE

TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12

Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable. Although
the Agreement was freely entered into by both parties, Section 8 should be deemed
ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the
view that the validity of the parties’ definition of force majeure in Section 8 of the
Agreement as "circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God,"
should be deemed subject to Article 1174 which defines fortuitous events as events which
could not be foreseen, or which, though foreseen, were inevitable.13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable
to pay for the rental of the earth station for the entire term of the Agreement because it
runs counter to what was plainly stipulated by the parties in Section 7 thereof. Moreover,
said ruling is inconsistent with the appellate court’s pronouncement that Globe is liable to
pay rentals for December 1992 even though it terminated Philcomsat’s services effective
08 November 1992, because the US military and personnel completely withdrew from
Cubi Point only in December 1992. Philcomsat points out that it was Globe which
proposed the five-year term of the Agreement, and that the other provisions of the
Agreement, such as Section 4.114 thereof, evince the intent of Globe to be bound to pay
rentals for the entire five-year term.15

Philcomsat also maintains that contrary to the appellate court’s findings, it is entitled to
attorney’s fees and exemplary damages.16

In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of the Agreement is
not contrary to Article 1174 of the Civil Code because said provision does not prohibit
parties to a contract from providing for other instances when they would be exempt from
fulfilling their contractual obligations. Globe also claims that the termination of the RP-US
Military Bases Agreement constitutes force majeure and exempts it from complying with
its obligations under the Agreement.17 On the issue of the propriety of awarding attorney’s
fees and exemplary damages to Philcomsat, Globe maintains that Philcomsat is not
entitled thereto because in refusing to pay rentals for the remainder of the term of the
Agreement, Globe only acted in accordance with its rights.18

In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals
erred in finding it liable for the amount of US$92,238.00, representing rentals for
December 1992, since Philcomsat’s services were actually terminated on 08 November
1992.20

In its Comment, Philcomsat claims that Globe’s petition should be dismissed as it raises a
factual issue which is not cognizable by the Court in a petition for review on certiorari.21

On 15 August 2001, the Court issued a Resolution giving due course to

Philcomsat’s Petition in G.R. No.

147324 and required the parties to submit their respective memoranda.22

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to
the Petition filed by Globe in G.R. No. 147334 and required both parties to submit their
memoranda.23

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.

The Court is tasked to resolve the following issues: (1) whether the termination of the
RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security, and the consequent withdrawal of US military forces and
personnel from Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with Philcomsat; (2)
whether Globe is liable to pay rentals under the Agreement for the month of December
1992; and (3) whether Philcomsat is entitled to attorney’s fees and exemplary damages.

No reversible error was committed by the Court of Appeals in issuing the

assailed Decision; hence the petitions are denied.

There is no merit is Philcomsat’s argument that Section 8 of the Agreement cannot be

given effect because the enumeration of events constituting force majeure therein unduly
expands the concept of a fortuitous event under Article 1174 of the Civil Code and is
therefore invalid.

In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an
event must be unforeseen in order to exempt a party to a contract from complying with its
obligations therein. It insists that since the expiration of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and
the withdrawal of US military forces and personnel from Cubi Point were not
unforeseeable, but were possibilities known to it and Globe at the time they entered into
the Agreement, such events cannot exempt Globe from performing its obligation of paying
rentals for the entire five-year term thereof.

However, Article 1174, which exempts an obligor from liability on account of fortuitous
events or force majeure, refers not only to events that are unforeseeable, but also to
those which are foreseeable, but inevitable:

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

A fortuitous event under Article 1174 may either be an "act of God," or natural
occurrences such as floods or typhoons,24 or an "act of man," such as riots, strikes or
wars.25

Philcomsat and Globe agreed in Section 8 of the Agreement that the following events
shall be deemed events constituting force majeure:

1. Any law, order, regulation, direction or request of the Philippine Government;

2. Strikes or other labor difficulties;

3. Insurrection;

4. Riots;

5. National emergencies;

6. War;

7. Acts of public enemies;

8. Fire, floods, typhoons or other catastrophies or acts of God;

9. Other circumstances beyond the control of the parties.

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of
the parties. There is nothing in the enumeration that runs contrary to, or expands, the
concept of a fortuitous event under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish
such stipulations, clauses, terms and conditions as they may deem fit, as long as the
same do not run counter to the law, morals, good customs, public order or public policy.27

Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have
the force of law between the contracting parties and should be complied with in good
faith."28 Courts cannot stipulate for the parties nor amend their agreement where the same
does not contravene law, morals, good customs, public order or public policy, for to do so
would be to alter the real intent of the parties, and would run contrary to the function of the
courts to give force and effect thereto.29

Not being contrary to law, morals, good customs, public order, or public policy, Section 8
of the Agreement which Philcomsat and Globe freely agreed upon has the force of law
between them.30

In order that Globe may be exempt from non-compliance with its obligation to pay rentals
under Section 8, the concurrence of the following elements must be established: (1) the
event must be independent of the human will; (2) the occurrence must render it impossible
for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free
of participation in, or aggravation of, the injury to the creditor.31

The Court agrees with the Court of Appeals and the trial court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no control over the
non-renewal of the term of the RP-US Military Bases Agreement when the same expired
in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to
the Senate. Neither did the parties have control over the subsequent withdrawal of the US
military forces and personnel from Cubi Point in December 1992:

Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and
its Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on September
16, 1991 is beyond the control of the parties. This resolution was followed by the sending
on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government
to the US Government notifying the latter of the former’s termination of the RP-US Military
Bases Agreement (as amended) on 31 December 1992 and that accordingly, the
withdrawal of all U.S. military forces from Subic Naval Base should be completed by said
date. Subsequently, defendant [Globe] received a formal order from Cdr. Walter F. Corliss
II Commander USN dated July 31, 1992 and a notification from ATT dated July 29, 1992
to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective
November 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said order and
letter by the defendant on August 06, 1992.

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government of
the Philippines and circumstances beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete
withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992
are also acts and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute "force majeure or fortuitous event(s) as defined under paragraph
8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the
rentals for the facility for the remaining term of the contract.

As a consequence of the termination of the RP-US Military Bases Agreement (as

amended) the continued stay of all US Military forces and personnel from Subic Naval
Base would no longer be allowed, hence, plaintiff would no longer be in any position to
render the service it was obligated under the Agreement. To put it blantly (sic), since the
US military forces and personnel left or withdrew from Cubi Point in the year end
December 1992, there was no longer any necessity for the plaintiff to continue maintaining
the IBS facility…. 32 (Emphasis in the original.)

The aforementioned events made impossible the continuation of the Agreement until the
end of its five-year term without fault on the part of either party. The Court of Appeals was
thus correct in ruling that the happening of such fortuitous events rendered Globe exempt
from payment of rentals for the remainder of the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though
Philcomsat cannot be compelled to perform its corresponding obligation under the
Agreement. As noted by the appellate court:

We also point out the sheer inequity of PHILCOMSAT’s position. PHILCOMSAT would
like to charge GLOBE rentals for the balance of the lease term without there being any
corresponding telecommunications service subject of the lease. It will be grossly unfair
and iniquitous to hold GLOBE liable for lease charges for a service that was not and could
not have been rendered due to an act of the government which was clearly beyond
GLOBE’s control. The binding effect of a contract on both parties is based on the principle
that the obligations arising from contracts have the force of law between the contracting
parties, and there must be mutuality between them based essentially on their equality
under which it is repugnant to have one party bound by the contract while leaving the
other party free therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA
357)….33

With respect to the issue of whether Globe is liable for payment of rentals for the month of
December 1992, the Court likewise affirms the appellate court’s ruling that Globe should
pay the same.

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08
November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the
date when they actually ceased using the earth station subject of the Agreement was not
established during the trial.34 However, the trial court found that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992.35 Thus, until
that date, the USDCA had control over the earth station and had the option of using the
same. Furthermore, Philcomsat could not have removed or rendered ineffective said
communication facility until after 31 December 1992 because Cubi Point was accessible
only to US naval personnel up to that time. Hence, the Court of Appeals did not err when it
affirmed the trial court’s ruling that Globe is liable for payment of rentals until December
1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled
to attorney’s fees and exemplary damages.

The award of attorney’s fees is the exception rather than the rule, and must be supported
by factual, legal and equitable justifications.36 In previously decided cases, the Court
awarded attorney’s fees where a party acted in gross and evident bad faith in refusing to
satisfy the other party’s claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded,38 or where moral or exemplary
damages are awarded.39 However, in cases where both parties have legitimate claims
against each other and no party actually prevailed, such as in the present case where the
claims of both parties were sustained in part, an award of attorney’s fees would not be
warranted.40

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if

the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.41 In the present case, it was not shown that Globe acted wantonly or oppressively
in not heeding Philcomsat’s demands for payment of rentals. It was established during the
trial of the case before the trial court that Globe had valid grounds for refusing to comply
with its contractual obligations after 1992.

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the
Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.

SO ORDERED.

G.R. No. 185798, January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners, v. SPOUSES CONRADO AND
MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil
Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed
the Decision of the Office of the President in O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while
co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado
and Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium unit at
Central Park Place Tower in Mandaluyong City for a pre-selling contract price of FIVE MILLION ONE
HUNDRED SEVENTY-FOUR THOUSAND ONLY (P5,174,000.00). On 29 August 1997, respondents
executed and signed a Reservation Application Agreement wherein they deposited P200,000.00 as
reservation fee. As agreed upon, respondents paid the full downpayment of P1,552,200.00 and had
been paying the P63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their
monthly amortization. Claiming to have paid a total of P2,198,949.96 to petitioners, respondents
through two (2) successive letters, demanded a full refund of their payment with interest. When their
demands went unheeded, respondents were constrained to file a Complaint for Refund and Damages
before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for
reimbursement/refund of P2,198,949.96 representing the total amortization payments, P200,000.00
as and by way of moral damages, attorney’s fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their
Answer within the reglementary period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their position paper attributing the
delay in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or
misrepresentation which could entitle respondents to an award of moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering
petitioners to jointly and severally pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED FORTY
NINE PESOS & 96/100 (P2,198,949.96) with interest thereon at twelve percent (12%) per annum to be
computed from the time of the complainants’ demand for refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable to this Office fifteen (15)
days upon receipt of this decision, for violation of Section 20 in relation to Section 38 of PD 957.3

The Arbiter considered petitioners’ failure to develop the condominium project as a substantial
breach of their obligation which entitles respondents to seek for rescission with payment of damages.
The Arbiter also stated that mere economic hardship is not an excuse for contractual and legal delay.
Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII of the
1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners of the HLURB
denied4 the petition and affirmed the Arbiter’s Decision. The HLURB reiterated that the depreciation
of the peso as a result of the Asian financial crisis is not a fortuitous event which will exempt
petitioners from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter,
petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007, petitioners’
appeal was dismissed6 by the Office of the President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied7 on 26 July 2007.

Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43
containing the same arguments they raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HONORABLE
HOUSING AND LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-APPELLANTS TO
REFUND RESPONDENTS-APPELLEES THE SUM OF P2,198,949.96 WITH 12% INTEREST FROM 8
OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF
ACTION AGAINST PETITIONERS-APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE
BELOW ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM OF
P100,000.00 AS MORAL DAMAGES AND P50,000.00 AS ATTORNEY’S FEES CONSIDERING THE ABSENCE
OF ANY FACTUAL OR LEGAL BASIS THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING
AND LAND USE REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAY P10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH
FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate
court echoed the HLURB Arbiter’s ruling that "a buyer for a condominium/subdivision unit/lot unit
which has not been developed in accordance with the approved condominium/subdivision plan
within the time limit for complying with said developmental requirement may opt for reimbursement
under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court
supported the HLURB Arbiter’s conclusion, which was affirmed by the HLURB Board of Commission
and the Office of the President, that petitioners’ failure to develop the condominium project is
tantamount to a substantial breach which warrants a refund of the total amount paid, including
interest. The appellate court pointed out that petitioners failed to prove that the Asian financial crisis
constitutes a fortuitous event which could excuse them from the performance of their contractual
and statutory obligations. The appellate court also affirmed the award of moral damages in light of
petitioners’ unjustified refusal to satisfy respondents’ claim and the legality of the administrative fine,
as provided in Section 20 of Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by
the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE
OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE
RESPONDENTS DESPITE LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES,
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST
OF TWELVE PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF
THE OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF P100,000.00 AS MORAL DAMAGES,
P50,000.00 AS ATTORNEY’S FEES AND P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because they allegedly have not
committed any act of misrepresentation amounting to bad faith which could entitle respondents to a
refund. Petitioners claim that there was a mere delay in the completion of the project and that they
only resorted to "suspension and reformatting as a testament to their commitment to their buyers."
Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate industry.
Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held liable for a
fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas Bank v.
Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central Bank.

Lastly, petitioners aver that they should not be ordered to pay moral damages because they never
intended to cause delay, and again blamed the Asian economic crisis as the direct, proximate and only
cause of their failure to complete the project. Petitioners submit that moral damages should not be
awarded unless so stipulated except under the instances enumerated in Article 2208 of the New Civil
Code. Lastly, petitioners refuse to pay the administrative fine because the delay in the project was
caused not by their own deceptive intent to defraud their buyers, but due to unforeseen
circumstances beyond their control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a
fortuitous event which would justify delay by petitioners in the performance of their contractual
obligation; 2) assuming that petitioners are liable, whether or not 12% interest was correctly imposed
on the judgment award, and 3) whether the award of moral damages, attorney’s fees and
administrative fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings
were consistent that first, the Asian financial crisis is not a fortuitous event that would excuse
petitioners from performing their contractual obligation; second, as a result of the breach committed
by petitioners, respondents are entitled to rescind the contract and to be refunded the amount of
amortizations paid including interest and damages; and third, petitioners are likewise obligated to pay
attorney’s fees and the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the
Office of the President and the Court of Appeals.

Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under

Article 1191 of the New Civil Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner
or developer when the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the subdivision or condominium
project according to the approved plans and within the time limit for complying with the same. Such
buyer may, at his option, be reimbursed the total amount paid including amortization interests but
excluding delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and
demand reimbursement for the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v.
Spouses Go13 promulgated on 17 August 2007, where the Court stated that the Asian financial crisis
is not an instance of caso fortuito. Bearing the same factual milieu as the instant case, G.R. No.
165164 involves the same company, Fil-Estate, albeit about a different condominium property. The
company likewise reneged on its obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the contract price. Fil-Estate advanced the same
argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of the
construction project. First off, the Court classified the issue as a question of fact which may not be
raised in a petition for review considering that there was no variance in the factual findings of the
HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the previous
rulings of Asian Construction and Development Corporation v. Philippine Commercial International
Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals15 holding that the 1997
Asian financial crisis did not constitute a valid justification to renege on obligations. The Court
expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the
control of a business corporation. It is unfortunate that petitioner apparently met with considerable
difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its
real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency movements
and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is
an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an
instance of caso fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are substantially
the same, as in this case. The principle of stare decisis, which means adherence to judicial precedents,
applies.

In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6%
legal interest computed from the date of demand. The Court also awarded attorney’s fees. We follow
that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar
v. Gallery Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas
Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6% regardless of the
source of obligation.

We likewise affirm the award of attorney’s fees because respondents were forced to litigate for 14
years and incur expenses to protect their rights and interest by reason of the unjustified act on the
part of petitioners.18 The imposition of P10,000.00 administrative fine is correct pursuant to Section
38 of Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten
thousand pesos for violations of the provisions of this Decree or of any rule or regulation thereunder.
Fines shall be payable to the Authority and enforceable through writs of execution in accordance with
the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in
breach of contract cases, the defendant must have acted in bad faith, must be found guilty of gross
negligence amounting to bad faith, or must have acted in wanton disregard of contractual
obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their
contract, when they failed to address respondents’ grievances and when they adamantly refused to
refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and
Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed
from the time of respondents' demand for refund on 8 October 1998.

SO ORDERED.

G.R. No. 191189 January 29, 2014

MANLAR RICE MILL, INC., Petitioner,

vs.
LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center"
and JENNELITA DEYTO ANG, a.k.a. "JANET ANG," Respondents.

DECISION

DEL CASTILLO, J.:

As a general rule, a contract affects only the parties to it, and cannot be enforced by or
against a person who is not a party thereto.
This Petition for Review on Certiorari seeks to set aside the October 30, 2009 Decision of
1 2

the Court of Appeals (CA) in CA-G.R. CV No. 91239, entitled "Maniar Rice Mill, Inc.,
Plaintiff-Appellee, versus Lourdes L. Deyto, doing business under the trade name JD
Grains Center, Defendant-Appellant," as well as its February 9, 2010 Resolution denying
3

reconsideration of the assailed judgment.

Factual Antecedents

Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is
engaged in the business of rice milling and selling of grains. Respondent Lourdes L.
Deyto (Deyto) does business under the trade name "JD Grains Center" and is likewise
engaged in the business of milling and selling of grains. Respondent Jennelita Deyto Ang
or Janet Ang (Ang) is Deyto’s daughter and, prior to her alleged absconding, operated her
own rice trading business through her own store, "Janet Commercial Store". 4

It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with
the former purchasing rice from the latter amounting to ₱3,843,220.00. The transaction
was covered by nine postdated checks issued by Ang from her personal bank/checking
account with Chinabank, to wit:
5

Check Number Date Amount (PhP)

146514 October 19, 2000 P 204,660.00

146552 October 20, 2000 472,200.00

146739 October 27, 2000 327,600.00

146626 October 26, 2000 212,460.00

146627 6
October 27, 2000 565,600.00

146740 October 30, 2000 515,000.00

146628 October 31, 2000 358,500.00

146630 November 4, 2000 593,600.00

146555 November 6, 2000 593,600.00

TOTAL P 3,843,220.00

Upon presentment, the first two checks were dishonored for having been drawn against
insufficient funds; the remaining seven checks were dishonored for being drawn against a
closed account. Manlar made oral and written demands upon both Deyto and Ang, which
went unheeded. It appears that during the time demand was being made upon Deyto, she
7

informed Manlar, through its Sales Manager Pablo Pua (Pua), that Ang could not be
located.8
On November 24, 2000, Manlar filed a Complaint for sum of money against Deyto and
9 10

Ang before the Regional Trial Court (RTC) of Quezon City. The case was docketed as
Civil Case No. Q-00-42527 and assigned to Branch 215. The Complaint essentially
sought to hold Deyto and Ang solidarily liable on the rice supply contract. Manlar prayed
for actual damages in the total amount of ₱3,843,220.00, with interest; ₱300,000.00
attorney’s fees, with charges for appearance fees; and attachment bond and attachment
expenses.

Deyto filed her Answer with Compulsory Counterclaim, claiming that she did not contract
11

with Manlar or any of its representatives regarding the purchase and delivery of rice; that
JD Grains Center was solely owned by her, and Ang had no participation therein, whether
as employee, consultant, agent or other capacity; that JD Grains Center was engaged in
rice milling and not in the buying and selling of rice; and that one of her customers was her
daughter Ang, who was engaged in the buying and selling of rice under the trade name
"Janet Commercial Store." Deyto prayed among others that the Complaint be dismissed.

For her part, Ang failed to file an Answer despite summons by publication; for this reason,
she was declared in default.

On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special
meeting of its board of directors dated November 8, 2000, indicating that Pua was
12

authorized to file and prosecute the Complaint in Civil Case No. Q-00-42527.

In a July 31, 2001 Resolution, the trial court resolved to deny Deyto’s special/affirmative
13

defenses contained in her Answer. Regarding her objection to Pua’s authority to

prosecute the case for lack of the proper board resolution to such effect, the trial court
held that the issue had been rendered moot by Manlar’s submission on June 7, 2001 of
the notarized board resolution.

During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and
Ang since 1995; that Ang was the Operations Manager of JD Grains Center; that they
(Deyto and Ang) bought rice from Manlar on "cash on delivery" basis from 1995 up to
2000; that since 2000, they increased the volume of their purchases and requested that
they pay Manlar by postdated checks on a weekly basis, to which Manlar acceded; that
Manlar agreed to this arrangement because Deyto induced Pua to deliver rice on the
assurance that Deyto had extensive assets, financial capacity and a thriving business,
and Deyto provided Pua with copies of JD Grains Center’s certificate of registration,
business permit, business card, and certificates of title covering property belonging to
Deyto; that when rice deliveries were made by Manlar, Deyto was not around; that it was
solely Ang who issued the subject checks and delivered them to Pua or Manlar; that
initially, they (Deyto and Ang) faithfully complied with the arrangement; that later on, they
defaulted in their payments thus resulting in the dishonor of the subject nine checks
previously issued to Manlar; that by then, Manlar had delivered rice to them totaling
₱3,843,220.00; that he went to the residence of Deyto at No. 93 Bulusan Street, La Loma,
Quezon City on five occasions to demand payment from Deyto; and that he likewise went
to Ang’s residence at No. 4 Sabucoy Street, San Francisco del Monte, Quezon City to
14

demand payment. 15

On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at
Deyto’s Bulusan Street residence; that Deyto guaranteed Ang’s checks, although the
guarantee was made verbally; that although he ordered Manlar’s drivers to deliver rice at
Deyto’s residence at Bulusan Street, the deliveries would actually end up at Ang’s
Sabucoy residence. 16
On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang,
and Homer Petallano (Petallano), Chinabank del Monte branch Operations Head. Deyto
testified that she did not know Pua; that Pua was a liar and that she did not enter into a
contract with him for the purchase and delivery of rice; that she did not receive at any time
any rice delivery from Manlar; that while she had a house at No. 93 Bulusan Street, La
Loma, Quezon City, she actually resided in Santiago City, Isabela; that she met Pua for
the first time when the latter went to her La Loma residence sometime in November or
December 2000 looking for Ang, and claiming that Ang was indebted to Manlar; that she
had nothing to do with the obligations of Ang incurred for rice deliveries made to her or JD
Grains Center, as Ang was not connected with JD Grains Center, and it was her son, Jose
D. Ang, who managed and ran the business; that all the checks issued to Manlar were
drawn by Ang from her own bank account, as a businessperson in her own right and with
her own business and receipts; that as of 2000, Ang was the proprietress of Jane
Commercial with address at No. 49 Corumi Street, Masambong, San Francisco del Monte,
Quezon City, and not at No. 93 Bulusan Street, La Loma, Quezon City; that the last time
she saw Ang was in June 2000, during the blessing of Ang’s Sabucoy residence; that she
was not on talking terms with her daughter as early as June 2000 on account of Ang’s
activities and involvements; that one of Ang’s children was living with her after the child
was recovered from a kidnapping perpetrated by Ang’s best friend; that Ang’s other child
lived with the child’s father; and that Ang’s whereabouts could not be ascertained. 17

Jose D. Ang, on the other hand, testified that he is Deyto’s son; that from the start, JD
Grains Center has been under his supervision and control as Manager and Deyto had no
participation in the actual operation thereof; that JD Grains Center was registered in the
name of Deyto for convenience, to avoid jealousy or intrigue among his siblings, and
because they used Deyto’s properties as collateral to borrow money for the business; that
Ang was originally an agent of JD Grains Center, but was removed in 1997 for failure to
remit her collections. 18

Finally, Petallano testified that he was the Operations Head of Chinabank del Monte
branch and that Ang is the sole owner and depositor of the account from which the subject
checks were drawn. 19

Ruling of the Trial Court

On November 22, 2007, a Decision was rendered by the trial court in Civil Case No.
20

Q-00-42527, the dispositive portion of which reads, as follows:

WHEREFORE, premises considered, judgment is hereby rendered finding the defendants

liable to the plaintiff jointly and severally and ordering them as follows:

1. To pay plaintiff actual damages in the sum of ₱3,843,200.00 plus interest [thereon] at
21

6% per annum reckoned from the time of demand up to the time of payment thereof;

2. To pay plaintiff attorney’s fees in the sum of ₱200,000.00 plus ₱2,500.00 as per
appearance fee; and

3. To pay the costs of this suit.

SO ORDERED. 22
Essentially, the trial court believed Pua’s declarations that both Deyto and Ang personally
transacted with him in purchasing rice from Manlar for JD Grains Center – with Ang paying
for the deliveries with her personal checks and his testimony that both Deyto and Ang
received Manlar’s rice deliveries. For these reasons, the trial court ruled that both
defendants should be held solidarily liable for the unpaid and outstanding Manlar account.

Ruling of the Court of Appeals

Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming
that there was no evidence to show her participation in the transactions between Manlar
and Ang, or that rice deliveries were even made to her; that she had no legal obligation to
pay Manlar what Ang owed the latter in her personal capacity; that the evidence proved
that Ang had overpaid Manlar; that the Complaint in Civil Case No. Q-00-42527 was
defective for lack of the required board resolution authorizing Pua to sign the Complaint,
verification, and certification against forum shopping on behalf of Manlar; and that the trial
court erred in not awarding damages in her favor.

On October 30, 2009, the CA issued the assailed Decision, which held thus:

WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in
Civil Case No. Q-00-42527 of the Regional Trial Court, Branch 215, Quezon City is
REVERSED and SET ASIDE, and a new one entered, DISMISSING the complaint for lack
of merit.

SO ORDERED. 23

The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign
the verification and certification against forum shopping, the Complaint in Civil Case No.
Q-00-42527 should have been dismissed; the subsequent submission on June 7, 2001 –
or six months after the filing of the case – of the notarized minutes of a special meeting of
Manlar’s board of directors cannot have the effect of curing or amending the defective
Complaint, as Revised Supreme Court Circular No. 28-91 enjoins strict compliance.
24

Substantial compliance does not suffice.

The CA added that the trial court’s Decision overlooked, misapprehended, and failed to
appreciate important facts and circumstances of the case. Specifically, it held that Manlar
failed to present documentary evidence to prove deliveries of rice to Deyto, yet the trial
court sweepingly concluded that she took actual delivery of Manlar’s rice. Likewise, Pua’s
declaration that Manlar delivered rice to Deyto at her La Loma residence was not based
on personal knowledge or experience, but on Manlar’s drivers’ supposed accounts of
events. Because these drivers were not called to testify on such fact or claim, the CA held
that Pua’s testimony regarding Deyto’s alleged acceptance of rice deliveries from Manlar
was hearsay.

The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her
own; the evidence failed to indicate that Deyto had any participation in the supposed
transactions between her daughter and Manlar. The record reveals that Deyto and Ang
owned separate milling and grains businesses: JD Grains Center and Janet Commercial
Store. If Ang did business with Manlar, it is likely that she did so on her own or in her
personal capacity, and not for and in behalf of Deyto’s JD Grains Center. Besides, the
subject checks were drawn against Ang’s personal bank account, therefore Ang, not
Deyto is bound to make good on the dishonored checks.
Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang
for what the latter may owe Manlar.

Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its
ground. Hence, Manlar took the present recourse.

Issues

Manlar raises the following issues in its Petition:

1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT

SET ASIDE THE JUDGMENT OF THE TRIAL COURT BY SWEEPINGLY AND
BASELESSLY CONCLUDING THAT THE VERIFICATION AND CERTIFICATE
AGAINST FORUM SHOPPING IN THE COMPLAINT WERE ALLEGEDLY "DEFECTIVE"
IN THAT PABLO PUA, THE SALES MANAGER, WAS SUPPOSEDLY "NOT
AUTHORIZED" TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM
SHOPPING FOR MANLAR RICE MILL, INC.

2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE

ALL-ENCOMPASSING PHRASE IN THE BOARD RESOLUTION THAT "MR. PABLO
PUA IS AUTHORIZED TO SIGN ANY DOCUMENT, PAPERS, FOR AND IN BEHALF OF
THE COMPANY, AND TO REPRESENT THE COMPANY IN ANY SUCH CASE OR
CASES" IS ALLEGEDLY "NOT SUFFICIENT" AUTHORITY FOR PABLO PUA TO SIGN
THE VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IS GROSSLY
ERRONEOUS AND MANIFESTLY MISTAKEN BECAUSE IT IS DIRECTLY NEGATED
AND DISPROVED BY THE EXPRESS TERMS OF HIS AUTHORITY.

3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS IN

CONCLUDING THAT PABLO PUA WAS ALLEGEDLY NOT AUTHORIZED TO SIGN
THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING HAD BEEN
PREVIOUSLY RAISED AND SQUARELY RESOLVED BY THE TRIAL COURT AND ITS
RESOLUTION ON THIS ISSUE HAD LONG BECOME FINAL AND EXECUTORY
WITHOUT LOURDES L. DEYTO TAKING ANY APPELLATE REMEDY.

4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING

THAT "THERE WAS NO DOCUMENTARY EVIDENCE TO PROVE ACTUAL
DELIVERIES OF RICE" AS BASIS FOR THE DISMISSAL OF THE CASE BECAUSE
THIS IS MANIFESTLY MISTAKEN AND NEGATED BY THE RECORDS SINCE
RESPONDENTS (MOTHER AND DAUGHTER) ISSUED NINE (9) POSTDATED
CHECKS TO PETITIONER THRU PABLO PUA IN THE TOTAL AMOUNT OF
₱3,843,2[2]0.00 IN PAYMENT OF THE RICE DELIVERED TO THEM.

5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF

RICE TO RESPONDENTS MOTHER AND DAUGHTER AND THEIR ISSUANCE OF
NINE (9) POSTDATED CHECKS (₱3,843,220.00) AS PAYMENT THEREOF BY
RESPONDENTS, BUT THAT THE NINE (9) POSTDATED CHECKS OF
RESPONDENTS WERE LATER DISHONORED.

6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY

"THE PARTICIPATION OF APPELLANT (LOURDES L. DEYTO) TO WHATEVER
BUSINESS TRANSACTIONS HER DAUGHTER (CO-RESPONDENT JENNELITA
DEYTO ANG) HAD WITH MANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS NOT
ONLY A PURE SPECULATION BUT IS SQUARELY NEGATED AND DISPROVED BY
THE OVERWHELMING EVIDENCE OF THE CONSPIRACY AND COLLABORATIVE
EFFORTS OF BOTH MOTHER AND DAUGHTER IN KNOWINGLY DEFRAUDING
PETITIONER. 25

Petitioner’s Arguments

In its Petition and Reply, Manlar insists that the CA’s findings and conclusions are not
26

supported by the evidence on record. On the procedural issue, it reiterates the trial court’s
pronouncement that its subsequent submission – on June 7, 2001, or six months after the
filing of Civil Case No. Q-00-42527 – of the notarized minutes of a special meeting of its
board of directors authorizing Pua to file and prosecute Civil Case No. Q-00-42527,
effectively cured the defective Complaint, or rendered the issue of lack of proper authority
moot and academic, and should not result in the dismissal of the case. Because Deyto did
not question this ruling through the proper petition or appeal, it should stand; besides, the
trial court’s disposition on the matter is sound and just.

Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence to
prove deliveries of rice to Deyto, apart from that delivered to Ang in her personal capacity.
It points to "compelling and convincing evidence" that both Deyto and Ang induced it to
deliver rice to them, and that both of them issued the subject postdated checks. It claims
that it was Deyto who delivered the checks to Pua at his office in Manila; that Deyto
induced Pua to deliver rice to respondents on the assurance that Deyto had extensive
assets, financial capacity and a thriving business; and that Deyto provided Pua with
copies of JD Grains Center’s certificate of registration, business permit, business card,
and certificates of title covering property belonging to Deyto.

Manlar adds that Deyto disposed of some of her personal properties – specifically
delivery/cargo trucks – in fraud of her creditors, including Manlar. It is also argued that the
fact that Deyto was in possession of Ang’s negotiated checks proved that both of them
connived to defraud Manlar by using the said checks to convince and induce Pua to
contract with them.

Manlar goes on to argue that Ang and another of Deyto’s children, Judith Ang Yu (Judith),
were charged and the latter convicted of estafa for defrauding another rice trader, a
certain Sergio Casaclang, of ₱3,800,000.00 – attaching a certified true copy of the
Decision of Branch 215 of the RTC of Quezon City in Criminal Case No. Q-01-105698,
indicating that Judith was sentenced to three months of arresto mayor and to pay a fine
and indemnity.

Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to
Deyto and Ang in order to prove the existence of their obligation; the issuance of the
subject postdated checks as payment established the obligation.

Manlar thus prays that the Court annul and set aside the assailed CA dispositions and
thus reinstate the trial court’s November 22, 2007 Decision finding Deyto liable under the
rice supply contract.

Respondent’s Arguments

Praying that the Petition be denied, respondent Deyto in her Comment essentially argues
27

that petitioner Manlar’s claims are "products of pure imagination", having no factual and
legal basis, and that Manlar’s impleading her is simply a desperate strategy or attempt to
recover its losses from her, considering that Ang can no longer be located. Furthermore,
Deyto claims that Manlar’s alleged rice deliveries are not covered by sufficient
documentary evidence, and while it may appear that Ang had transacted with Manlar, she
did so in her sole capacity; thus, Deyto may not be held liable under a transaction in which
she took no part.

Deyto adds that Pua’s basis for claiming that deliveries were made at her Bulusan Street
residence is unfounded, considering that it springs from hearsay, or on the mere
affirmation of Manlar’s drivers – who were not presented in court to testify on such fact.
Pua himself had no personal knowledge of such fact, and thus could not be believed in
testifying that rice was indeed delivered to Deyto at her Bulusan Street residence. She
argues further that overall, Pua – Manlar’s lone witness – proved to be an unreliable
witness, constantly changing his testimony when the inconsistencies of his previous
declarations were called out.

Finally, Deyto reiterates the CA ruling that Manlar’s Complaint in Civil Case No.
Q-00-42527 was defective for lack of the required board resolution authorizing Pua to sign
the verification and certification against forum shopping, characterizing the belated
submission of the required resolution six months later as a mere afterthought.

Our Ruling

The Court denies the Petition.

It is a basic rule in evidence that he who alleges must prove his case or claim by the
degree of evidence required.

x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the
ancient rule that "if the plaintiff, upon whom rests the burden of proving his cause of action,
fails to show in a satisfactory manner the facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense." 28

In civil cases, the quantum of proof required is preponderance of evidence, which

connotes "that evidence that is of greater weight or is more convincing than that which is
in opposition to it. It does not mean absolute truth; rather, it means that the testimony of
one side is more believable than that of the other side, and that the probability of truth is
on one side than on the other." 29

The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable
with Ang for what the latter may owe Manlar. The evidence does not support Manlar’s
view that both Deyto and Ang contracted with Manlar for the delivery of rice on credit;
quite the contrary, the preponderance of evidence indicates that it was Ang alone who
entered into the rice supply agreement with Manlar. Pua’s own direct testimony indicated
that whenever rice deliveries were made by Manlar, Deyto was not around; that it was
solely Ang who issued the subject checks and delivered them to Pua or Manlar. On
cross-examination, he testified that no rice deliveries were in fact made by Manlar at
Deyto’s Bulusan Street residence; that although Deyto guaranteed Ang’s checks, this
guarantee was made verbally; and that while he ordered Manlar’s drivers to deliver rice at
Deyto’s residence at Bulusan Street, the deliveries would actually end up at Ang’s
Sabucoy residence.
The documentary evidence, on the other hand, shows that the subject checks were issued
from a bank account in Chinabank del Monte branch belonging to Ang alone. They did not
emanate from an account that belonged to both Ang and Deyto. This is supported by no
less than the testimony of Chinabank del Monte branch Operations Head Petallano. 1âwphi1

The evidence on record further indicates that Deyto was an old lady who owned vast
tracts of land in Isabela province, and other properties in Metro Manila; that she is a
reputable businessperson in Isabela; that Ang originally worked for JD Grains Center, but
was removed in 1997 for failure to remit collections; that as early as June 2000, or prior to
the alleged transaction with Manlar, Ang and Deyto were no longer on good terms as a
result of Ang’s activities; that Deyto took custody of one of Ang’s children, who was
previously recovered from a kidnapping perpetrated by no less than Ang’s best friend; and
that Ang appears to have abandoned her own family and could no longer be located. This
shows not only what kind of person Ang is; it likewise indicates the improbability of Deyto’s
involvement in Ang’s activities, noting her age, condition, reputation, and the extent of her
business activities and holdings.

This Court cannot believe Manlar’s claims that Deyto induced Pua to transact with her and
Ang by providing him with copies of JD Grains Center’s certificate of registration, business
permit, business card, and certificates of title covering property belonging to Deyto to
show her creditworthiness, extensive assets, financial capacity and a thriving business.
The documents presented by Manlar during trial – copies of JD Grains Center’s certificate
of registration, business permit, and certificates of title covering Deyto’s landholdings –
are public documents which Manlar could readily obtain from appropriate government
agencies; it is improbable that Deyto provided Manlar with copies of these documents in
order to induce the latter to contract with her. Considering that both Manlar and Deyto
were in the same line of business in the same province, it may be said that Manlar knew
Deyto all along without the latter having to supply it with actual proof of her
creditworthiness.

The allegations that Deyto guaranteed Ang’s checks and that she consented to be held
solidarily liable with Ang under the latter’s rice supply contract with Manlar are hardly
credible. Pua in fact admitted that this was not in writing, just a verbal assurance. But this
will not suffice. "Well-entrenched is the rule that solidary obligation cannot lightly be
inferred. There is a solidary liability only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires." 30

What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and
Ang so that the former may recover its losses, since it could no longer recover them from
Ang as a result of her absconding; this conclusion is indeed consistent with what the
totality of the evidence on record appears to show. This, however, may not be allowed. As
a general rule, a contract affects only the parties to it, and cannot be enforced by or
against a person who is not a party thereto. "It is a basic principle in law that contracts can
bind only the parties who had entered into it; it cannot favor or prejudice a third
person." Under Article 1311 of the Civil Code, contracts take effect only between the
31

parties, their assigns and heirs. Thus, Manlar may sue Ang, but not Deyto, who the Court
finds to be not a party to the rice supply contract.

Having decided the case in the foregoing manner, the Court finds no need to resolve the
other issues raised by the parties.

WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals
are AFFIRMED.
SO ORDERED.