G.R. No.

175554

December 23, 2008

EDSEL LIGA, petitioner, vs. ALLEGRO RESOURCES CORP., respondent. DECISION TINGA, J.: Before the Court is the petition for review 1 under Rule 45 of the Rules of Court assailing the Court of Appeals' Decision2 dated 25 January 2006 and Resolution3 dated 22 November 2006 in CA-G.R. SP No. 86331. The undisputed factual antecedents of the case are as follows: On 10 October 1975, Ortigas & Company, Limited Partnership (Ortigas) entered into a lease agreement with La Paz Investment & Realty Corporation (La Paz) wherein the former leased to the latter its parcel of land located in San Juan, Metro Manila (now San Juan City) consisting of 5,514 square meters for a period of twenty-five (25) years from 1 January 1976 to 31 December 2000. Under the lease agreement, La Paz undertook to construct a two or three-storey concrete framed commercial building for the establishment of first class stores which would be subdivided into various stalls for subleasing to interested parties.4 In compliance with its undertaking, La Paz constructed the Greenhills Shopping Arcade (GSA) and divided it into several stalls and subleased them to other people. One of the sub-lessees was Edsel Liga (Liga), who obtained the leasehold right to Unit No. 26, Level A of the GSA. As the lease of La Paz had expired on 31 December 2000, the stallholders, through the Greenhills Shoppesville Unit Lessees' Association, Inc. (GSULAI), made several attempts to have their leasehold rights extended. Even prior to the expiration of their leaseholds, the sub-lessees made several overtures to Ortigas but these were all denied. These developments notwithstanding, Liga was allowed by Ortigas to remain in possession of her leased property. On 30 August 2001, Ortigas formally informed the GSULAI of the impending lease of the GSA to respondent Allegro Resources Corporation (Allegro).5 On 3 September 2001, Ortigas and Allegro executed the corresponding Contract of Lease.6 On the same day, the same parties executed the Addendum to Agreement, Section 1 of which provides that "(t)he LESSEE (Allegro) shall take immediate possession and control of the leased premises upon the signing of the Contract of Lease." and "also assist in the collection of back rentals due to the LESSOR (Ortigas) in Shoppesville Arcade from 1 January 2001 up to the 31 August 2001, when it shall commence to pay rentals for its own account."7 As the new lessee, Allegro offered to sublease Unit No. 26, Level A to Liga. Subsequently they entered into a lease agreement dubbed Rental Information8 in which Liga agreed to pay rental of P40,000.00 monthly starting 1 September 2001. She also agreed to pay the back rentals covering the months of January through August 2001 due Ortigas. Upon signing the agreement, Liga also gave P40,000.00 as one month advance rental and another P40,000.00 as one month security deposit as provided in the agreement.9 Liga's compliance with the agreement ended as soon as it was executed. Despite repeated demands from Allegro, Liga had failed to pay her rentals for the subleased property, as well as the back rentals from January to August 2001 due Ortigas. Hence, Allegro filed a complaint for ejectment on 15 March 2002 with the Metropolitan Trial Court (MeTC) of San Juan, Metro Manila, Branch 57.10 The MeTC rendered a decision11 in favor of Allegro, ordering Liga to vacate the subleased stall and to pay back rentals for her continuous possession of the property. The MeTC held that Allegro has rightful possession over the disputed stall since Liga's continued occupancy from 1 January 2001 to 31 August 2001 was by mere tolerance of Ortigas and that ceased upon the execution of a contract of lease between Ortigas and Allegro. The MeTC found that Liga had agreed to sublease the property for P40,000.00 per month. In compliance with the lease agreement with Allegro, Liga even paid the sum of P80,000.00 corresponding to one-month advance rental and one-month security deposit as evidenced by a provisional receipt issued by the former. It thus ordered Liga to pay Allegro P210,000.00 representing back rentals from 1 October 2001 to February 2002 and P20,000.00 per month as reasonable compensation for the use of the premises from the filing of the ejectment suit until it is vacated. On appeal, the Regional Trial Court (RTC) affirmed the decision of the MeTC but made modifications with respect to its monetary awards.12 It extended the period of lease over the property for two years at a rental rate of P20,000.00 per month, and ordered Liga to pay P80,000.00 as back rentals for the period of September 2001 to February 2002 and P20,000.00 per month as rental from March 2002 until the property is vacated.

Allegro filed a petition for review13 under Rule 42 of the Rules of Court before the Court of Appeals assailing the modified decision of the RTC. The appellate court, in a Decision dated 25 January 2006, granted Allegro's petition and set aside the RTC's decision. 14 It held that after the expiration of La Paz's lease with Ortigas on 31 December 2000, Liga occupied the property merely by tolerance of Ortigas and that it was incorrect for the RTC to extend the lease contract for two years since it would infringe on the parties right to contract and Liga herself had never raised as an issue the extension of the lease contract before the MeTC. It found that Liga signed the Rental Information with Allegro and agreed to a monthly rental of P40,000.00 starting 1 September 2001. The appellate court ordered Liga to pay Ortigas back rentals of P20,000.00 per month for the period of 1 January 2001 to 31 August 2001 and P40,000.00 per month as rentals to Allegro starting 1 September 2001 until the property is vacated. In a Resolution dated 22 November 2006, the Court of Appeals denied Liga's motion for reconsideration.15 Hence, the present petition for review before this Court. The petition raised the following issues: whether the Court of Appeals had erred in ordering Liga to pay: (a) to Ortigas back rentals covering the period 1 January 2001 to 31 August 2001 totaling of P160,000.00; (b) to Allegro back rentals in the amount of P40,000.00 a month starting from 1 September 2001 until such time as she vacates the leased property; and (c) to Allegro the amount of P20,000.00 as attorney's fees and the costs of suit.16 Liga argues that the Court of Appeals erred in ordering her to pay Ortigas back rentals although the latter is not a party in the instant case. The ruling of the appellate court ran counter to the Court's doctrine that judgment cannot bind persons who are not parties to the action. 17 She avers that Allegro was already estopped from claiming monthly rentals in the amount of P40,000.00 starting from 1 September 2001 since it filed the Motion to Release Cash Bond in Favor of Plaintiff 18 with the MeTC. By filing the motion, Allegro signified its concurrence in the monthly rental of P20,000.00.19 Since Liga is willing and able to pay the appropriate rentals as evidenced by the deposits she made before the RTC, she should not be made liable for attorney's fees in the amount of P20,000.00 and for the costs of suit.20 The Court will discuss the issues in seriatim. We sustain Liga on the first issue. The Court of Appeals erred in awarding back rentals for the month of 1 January 2001 to 31 August 2001 in favor of Ortigas. Firstly, Ortigas is not a party to this case, whether as plaintiff or otherwise. It is basic that no relief can be extended in a judgment to a stranger or one who is not a party to a case.21 Secondly, Allegro cannot justify the award as a legal representative by virtue of a provision in its lease agreement with Ortigas. Although Section 1 of Rule 70 of the Rules of Court22 specifically allows "the legal representatives or assigns of any such lessor, vendor, vendee, or other person" to bring action for restitution of possession with damages and costs against persons who unlawfully withheld or deprived the lawful possessor of possession over any land or building, Allegro did not aver in its complaint that it was acting as Ortigas's legal representative and seeking the back rentals due Ortigas. Thirdly, there is no allegation or prayer in the complaint that Allegro was seeking the collection of the back rentals due Ortigas. Nor was there evidence to that effect. It is elementary that a judgment must conform to, and be supported by, both the pleadings and the evidence, and be in accordance with the theory of the action on which the pleadings are framed and the case was tried.23 The judgment must be secundum allegata et probata. In Falcon v. Manzano,24 the Court set aside the judgment of the trial court in conceding to her a remedy which was not prayed for in the complaint as the trial court rendered judgment allowing plaintiff to recover from the defendant the unpaid portion of the purchase price of a parcel of land when the plaintiff only asked for the nullification of the contract of sale of the realty and the return of the property to her. We held that courts, in rendering decisions, ought to limit themselves to the issues presented by the parties in their pleadings. In the analogous case of Lerma v. De la Cruz,25 the plaintiff therein brought an action to recover accrued rents and damages for the injury to the land but the trial court extended the relief sought by giving judgment for possession of the land. The Court held that "(t)he plaintiff did not ask for possession, nor is there any prayer to that effect in the complaint, and the judgment must, therefore be reversed insofar as it undertakes to provide for the restitution of the land in question to the plaintiff." As to the second issue, the Court cannot countenance the obstinate refusal of Liga to pay P40,000.00 a month to Allegro since she had already acquiesced to pay such rental rate when she signed the Rental Information. It is fundamental that a contract is the law between the parties. 26 Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.27 Unless the stipulations in a contract are contrary to law, morals, good customs, public order or public policy, the same are binding as between the parties.28 It is a general principle of law that no one may be permitted to change his mind or

disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party.29 Likewise, it is settled that if the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the stipulations would be controlling.30 The filing by Allegro of the Motion to Release Cash Bond in Favor of the Plaintiff did not operate to estop it from claiming a monthly rental rate of P40,000.00. Estoppel cannot be sustained by mere argument or doubtful inference.31 Allegro did not abandon its stance nor did it represent to Liga that it was doing so. Liga cannot feign ignorance of such fact since Allegro's petition for review before the Court of Appeals puts as an issue the reduction by the RTC of the monthly rentals from P40,000.00 to P20,000.00.32 Allegro never made any deed or representation that could have misled Liga. Moreover, the Court has previously sanctioned a similar partial execution of the trial court's decision awarding damages in an ejectment suit at the instance of the plaintiff. Not only is such an act procedurally sound, it also serves the ends of justice. As the Court succinctly held in Sps. Catungal v. Jao:33 Finally, respondent questions why petitioners would want to reinstate the RTC decision when in fact they had already applied for a writ of execution of the 8 March 1997 Decision. Respondent is of the view that since petitioners had already moved for the execution of the decision awarding a smaller amount of damages or fair rental value, the same is inconsistent with a petition asking for a greater fair rental value and, therefore, a possible case of unjust enrichment in favor of the petitioners. We are not persuaded. In order to avoid further injustice to a lawful possessor, an immediate execution of a judgment is mandated and the court's duty to order such execution is practically ministerial. In City of Manila, et al. v. CA, et al., We held that "Section 8 (now Section 19), Rule 70, on execution pending appeal, also applies even if the plaintiff-lessor appeals where, as in that case, judgment was rendered in favor of the lessor but it was not satisfied with the increased rentals granted by the trial court, hence the appeal xxx." As above discussed, the petitioners have long been deprived of the exercise of their proprietary rights over the leased premises and the rightful amount of rentals at the rate of P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals of P27,000.00, which is the difference between P40,000.00 awarded by the Regional Trial Court and P13,000.00 awarded by the MeTC and affirmed by the Court of Appeals. Said amount of P27,000.00 should rightly be the subject of another writ of execution being distinct from the subject of the first writ of execution filed by petitioners. (Emphasis supplied.) On the last issue regarding damages, Liga also ends up at the shorter end. Law and jurisprudence support the award of attorney's fees and costs of suit in favor of Allegro. The award of damages and attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.34 Attorney's fees and costs of litigation are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." 35 Having delivered possession over the leased property to Liga, Allegro had already performed its obligation under the lease agreement. Liga should have exercised fairness and good judgment in dealing with Allegro by religiously paying the agreed monthly rental of P40,000.00. However, the Court deems it proper to award interest in favor of Allegro. In Eastern Shipping Lines, Inc. v. Court of Appeals,36 we gave the following guidelines in the award of interest: II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.37 The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon is twelve percent (12%) per annum from the time of extrajudicial demand on 15 December 2001.38 WHEREFORE, the petition for review is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 86331 is AFFIRMED with the MODIFICATIONS that the award of back rentals for the period of 1 January 2001 to 31 August 2001 to Ortigas & Company, Limited Partnership is DELETED and that petitioner Edsel Liga is ORDERED to pay respondent Allegro Resources Corporation legal interest of twelve percent (12%) per annum on the back rentals from the date of extrajudicial demand on 15 December 2001 until fully paid.

G.R. No. 100728 June 18, 1992 WILHELMINA JOVELLANOS, MERCY JOVELLANOS-MARTINEZ and JOSE HERMILO JOVELLANOS, petitioners, vs. THE COURT OF APPEALS, and ANNETTE H. JOVELLANOS, for and in her behalf, and in representation of her two minor daughters as natural guardian, ANA MARIA and MA. JENNETTE, both surnamed JOVELLANOS, respondents.

REGALADO, J.: This petition for review on certiorari seeks to reverse and set aside the decision 1 promulgated by respondent court on June 26, 1991 in CA-G.R. CV No. 27556 affirming with some modifications the earlier decision of the Regional Trial Court of Quezon City, Branch 85, which, inter alia, awarded one-half (1/2) of the property subject of Civil Case No. Q-52058 therein to private respondent Annette H. Jovellanos and one-sixth (1/6) each of the other half of said property to the three private respondents. all as pro indiviso owners of their aforesaid respective portions. As found by respondent court, 2 on September 2, 1955, Daniel Jovellanos and Philippine American Life Insurance Company (Philamlife) entered into a contract denominated as a lease and conditional sale agreement over Lot 8, Block 3 of the latter's Quezon City Community Development Project, including a bungalow thereon, located at and known as No. 55 South Maya Drive, Philamlife Homes, Quezon City. At that time, Daniel Jovellanos was married to Leonor Dizon, with whom he had three children, the petitioners herein. Leonor Dizon died on January 2, 1959. On May 30, 1967, Daniel married private respondent Annette H. Jovellanos with whom he begot two children, her herein co-respondents. On December 18, 1971, petitioner Mercy Jovellanos married Gil Martinez and, at the behest of Daniel Jovellanos, they built a house on the back portion of the premises. On January 8, 1975, with the lease amounts having been paid, Philamlife executed to Daniel Jovellanos a deed of absolute sale and, on the next day, the latter donated to herein petitioners all his rights, title and interests over the lot and bungalow thereon. On September 8, 1985, Daniel Jovellanos died and his death spawned the present controversy, resulting in the filing by private respondents of Civil Case No. Q-52058 in the court below. Private respondent Annette H. Jovellanos claimed in the lower court that the aforestated property was acquired by her deceased husband while their marriage was still subsisting, by virtue of the deed of absolute sale dated January 8, 1975 executed by Philamlife in favor of her husband, Daniel Jovellanos. who was issued Transfer Certificate of Title No. 212286 of the Register of Deeds of Quezon City and which forms part of the conjugal partnership of the second marriage. Petitioners, on the other hand, contend that the property, specifically the lot and the bungalow erected thereon, as well as the beneficial and equitable title thereto, were acquired by their parents during the existence of the first marriage under their lease and conditional sale agreement with Philamlife of September 2, 1955. On December 28, 1989, the court a quo rendered judgment 3 with the following dispositions: WHEREFORE, premises considered, judgment is hereby rendered as follows 1. Ordering the liquidation of the partnership of the second marriage and directing the reimbursement of the amount advanced by the partnership of the first marriage as well (as) by the late Daniel Jovellanos and the defendants spouses Gil and Mercia * J. Martinez in the acquisition of the lot and bungalow described in the Lease and Conditional Sale Agreement (Exhs. D and 1); 2. After such liquidation and reimbursement, declaring the plaintiff Annette Jovellanos as proindiviso owner of 1/2 of the property described in TCT No. 212268 (sic) and the bungalow erected therein; 3. Declaring the plaintiff Annette Jovellanos, as well as the minors Anna Marie and Ma. Jeannette (sic) both surnamed Jovellanos and the herein defendants, as owners pro indiviso of 1/6 each of the other half of said property; 4. Declaring the defendants spouses Gil and Mercia Martinez as exclusive owners of the twostorey house erected on the property at the back of the said bungalow, with all the rights vested in them as builders in good faith under Article 448 of the New Civil Code;

5. Ordering the parties to make a partition among themselves by proper instruments of conveyances, subject to the confirmation of this Court, and if they are unable to agree upon the partition, ordering that the partition should be made by not more than three (3) competent and disinterested persons as commissioners who shall make the partition in accordance with Sec. 5, Rule 69 of the Revised Rules of Court; 6. Ordering the defendant(s) to pay plaintiffs, jointly and severally, the sum of P5,000.00 as attorney's fees, plus costs. SO ORDERED. 4 Respondent Court of Appeals, in its challenged decision, held that the lease and conditional sale agreement executed by and between Daniel Jovellanos and Philamlife is a lease contract and, in support of its conclusion, reproduced as its own the following findings of the trial court: It is therefore incumbent upon the vendee to comply with all his obligations, i.e., the payment of the stipulated rentals and adherence to the limitations set forth in the contract before the legal title over the property is conveyed to the lessee-vendee. This, in effect. is a pactum reservati dominii which is common in sales on installment plan of real estate whereby ownership is retained by the vendor and payment of the agreed price being a condition precedent before full ownership could be transferred (Wells vs. Samonte, 38768-R, March 23, 1973; Perez vs. Erlanger and Galinger Inc., CA 54 OG 6088). The dominion or full ownership of the subject property was only transferred to Daniel Jovellanos upon full payment of the stipulated price giving rise to the execution of the Deed of Absolute Sale on January 8, 1975 (Exh. 2) when the marriage between the plaintiff and Daniel Jovellanos was already in existence. The contention of the defendants that the jus in re aliena or right in the property of another person (Gabuya vs. Cruz, 38 SCRA 98) or beneficial use and enjoyment of the property or the equitable title has long been vested in the vendee-lessee Daniel Jovellanos upon execution of Exh. "1" is true, But the instant case should be differentiated from the cited cases of Pugeda v. Trias, et al., 4 SCRA 849; and Alvarez vs. Espiritu, G.R. L-18833, August 14, 1965, which cannot be applied herein even by analogy. In Pugeda. the subject property refers solely to friar lands and is governed by Act 1120 wherein the certificate of sale is considered a conveyance of ownership subject only to the resolutory condition that the sale may be rescinded if the agreed price has not been paid in full; in the case at bar, however, payment of the stipulated price is a condition precedent before ownership could be transferred to the vendee. 5 With the modification that private respondents should also reimburse to petitioners their proportionate shares on the proven hospitalization and burial expenses of the late Daniel Jovellanos, respondent Court of Appeals affirmed the judgment of the trial court. applying Article 118 of the Family Code which provides: Art. 118. Property bought on installment paid partly from exclusive funds of either or both spouses and partly from conjugal funds belongs to the buyer or buyers if full ownership was vested before the marriage and to the conjugal partnership if such ownership was vested during the marriage. In either case, any amount advanced by the partnership or by either or both spouses shall be reimbursed by the owner or owners upon liquidation of the partnership. Petitioners now seek this review, invoking their assignment of errors raised before the respondent court and which may be capsulized into two contentions, namely, that (1) the lower court erred in holding that the lot and bungalow covered by the lease and conditional sale agreement (Exhibit 1) is conjugal property of the second marriage of the late Daniel Jovellanos: and (2) the lower court erred in holding that the provisions of the Family Code are applicable in resolving the rights of the parties herein. 6 It is petitioners' position that the Family Code should not be applied in determining the successional rights of the party litigants to the estate of Daniel Jovellanos. for to do so would be to impair their vested property rights over the property in litigation which they have acquired long before the Family Code took effect. 7 To arrive at the applicable law, it would accordingly be best to look into the nature of the contract entered into by the contracting parties. As appositely observed by respondent court, the so-called lease agreement is, therefore, very much in issue. Preliminarily, we do not lose sight of the basic rule that a contract which is not contrary to law, morals, good customs, public order or public policy has the force of law between the contracting parties and should be complied with in good faith. 8 Its provisions are binding not only upon them but also upon their heirs and assigns. 9 The contract entered into by the late Daniel Jovellanos and Philamlife is specifically denominated as a "Lease and Conditional Sale Agreement" over the property involved with a lease period of twenty years at a monthly rental of P288.87, by virtue of which the former, as lessee-vendee, had only the right of possession over the property. 10 In a lease agreement, the lessor transfers merely the temporary use and enjoyment of the thing

leased. 11 In fact, Daniel Jovellanos bound himself therein, among other things, to use the property solely as a residence, take care thereof like a good father of a family, permit inspection thereof by representatives of Philamlife in regard to the use and preservation of the property. 12 It is specifically provided, however, that "(i)f, at the expiration of the lease period herein agreed upon, the LESSEE-VENDEE shall have fully faithfully complied with all his obligations herein stipulated, the LESSORVENDOR shall immediately sell, transfer and convey to the LESSEE-VENDEE the property which is the subject matter of this agreement; . . . 13 The conditional sale agreement in said contract is, therefore, also in the nature of a contract to sell, as contrdistinguished from a contract of sale. In a contract to sell or a conditional sale, ownership is not transferred upon delivery of the property but upon full payment of the purchase price. 14 Generally, ownership is transferred upon delivery, but even if delivered, the ownership may still be with the seller until full payment of the price is made, if there is stipulation to this effect. The stipulation is usually known as a pactum reservati dominii, or contractual reservation of title, and is common in sales on the installment plan. 15 Compliance with the stipulated payments is a suspensive condition. 16 the failure of which prevents the obligation of the vendor to convey title from acquiring binding force. 17 Hornbook lore from civilists clearly lays down the distinctions between a contract of sale in which the title passes to the buyer upon delivery of the thing sold, and a contract to sell where, by agreement, the ownership is reserved in the seller and is not to pass until full payment of the purchase price: In the former, non-payment of the price is a negative resolutory condition; in the latter, full payment is a positive suspensive condition. In the former, the vendor loses and cannot recover the ownership of the thing sold until and unless the contract of sale is rescinded or set aside; in the latter, the title remains in the vendor if the vendee does not comply with the condition precedent of making full payment as specified in the contract. Accordingly, viewed either as a lease contract or a contract to sell, or as a contractual amalgam with facets of both, what was vested by the aforestated contract in petitioners' predecessor in interest was merely the beneficial title to the property in question. His monthly payments were made in the concept of rentals, but with the agreement that if he faithfully complied with all the stipulations in the contract the same would in effect be considered as amortization payments to be applied to the predetermined price of the said property. He consequently acquired ownership thereof only upon full payment of the said amount hence, although he had been in possession of the premises since September 2, 1955, it was only on January 8, 1975 that Philamlife executed the deed of absolute sale thereof in his favor. The conditions of the aforesaid agreement also bear notice, considering the stipulations therein that Daniel Jovellanos, as lessee-vendee, shall not xxx xxx xxx (b) Sublease said property to a third party; (c) Engage in business or practice any profession within the property; xxx xxx xxx (f) Make any alteration or improvement on the property without the prior written consent of the LESSOR-VENDOR; (g) Cut down, damage, or remove any tree or shrub, or remove or quarry any stone, rock or earth within the property, without the prior written consent of the LESSOR-VENDOR; (h) Assign to another his right, title and interest under and by virtue of this Agreement, without the prior written consent and approval of the LESSOR-VENDOR. 18 The above restrictions further bolster the conclusion that Daniel Jovellanos did not enjoy the full attributes of ownership until the execution of the deed of sale in his favor. The law recognizes in the owner the right to enjoy and dispose of a thing, without other limitations than those established by law, 19 and, under the contract, Daniel Jovellanos evidently did not possess or enjoy such rights of ownership. We find no legal impediment to the application in this case of the rule of retroactivity provided in the Family Code to the effect that Art. 256. This Code shall have retroactive effect insofar as it does not prejudice or impair vested or acquired nights in accordance with the Civil Code or other laws.

The right of Daniel Jovellanos to the property under the contract with Philamlife was merely an inchoate and expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested right as an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant or contingent. 20 It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no obstacle exists, 21 and which is perfect in itself and not dependent upon a contingency. 22 Thus, for a property right to be vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have become fixed or established and is no longer open to doubt or controversy. 23 The trial court which was upheld by respondent court, correctly ruled that the cases cited by petitioners are inapplicable to the case at bar since said cases involved friar lands which are governed by a special law, Act 1120, which was specifically enacted for the purpose. In the sale of friar lands, upon execution of the contract to sell, a certificate of sale is delivered to the vendee and such act is considered as a conveyance of ownership, subject only to the resolutory condition that the sale may be rescinded if the agreed price shall not be paid in full. In the instant case, no certificate of sale was delivered and full payment of the rentals was a condition precedent before ownership could be transferred to the vendee. 24 We have earlier underscored that the deed of absolute sale was executed in 1975 by Philamlife, pursuant to the basic contract between the parties, only after full payment of the rentals. Upon the execution of said deed of absolute sale, full ownership was vested in Daniel Jovellanos. Since. as early as 1967, he was already married to Annette H. Jovellanos, this property necessarily belonged to his conjugal partnership with his said second wife. As found by the trial court, the parties stipulated during the pre-trial conference in the case below that the rentals/installments under the lease and conditional sale agreement were paid as follows (a) from September 2, 1955 to January 2, 1959, by conjugal funds of the first marriage; (b) from January 3, 1959 to May 29, 1967, by capital of Daniel Jovellanos; (c) from May 30, 1967 to 1971, by conjugal funds of the second marriage; and (d) from 1972 to January 8, 1975, by conjugal funds of the spouses Gil and Mercy Jovellanos Martinez. 25 Both courts, therefore, ordered that reimbursements should be made in line with the pertinent provision of Article 118 of the Family Code that "any amount advanced by the partnership or by either or both spouses shall be reimbursed by the owner or owners upon liquidation of the partnership." ACCORDINGLY, finding no reversible error in the judgment of respondent court, the same is hereby AFFIRMED. SO ORDERED.

G.R. No. 129018

November 15, 2001

CARMELITA LEAO, assisted by her husband GREGORIO CUACHON, petitioner, vs. COURT OF APPEALS and HERMOGENES FERNANDO, respondents. PARDO, J.: The Case The case is a petition for review on certiorari of the decision1 of the Court of Appeals affirming that of the Regional Trial Court, Malolos, Branch 72 ordering petitioner Leao to pay respondent Hermogenes Fernando the sum of P183,687.70 corresponding to her outstanding obligations under the contract to sell, with interest and surcharges due thereon, attorney's fees and costs.1wphi1.nt The Facts On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao, as vendee executed a contract to sell involving a piece of land, Lot No. 876-B, with an area of 431 square meters, located at Sto. Cristo, Baliuag, Bulacan.3 In the contract, Carmelita Leao bound herself to pay Hermogenes Fernando the sum of one hundred seven thousand and seven hundred and fifty pesos (P107,750.00) as the total purchase price of the lot. The manner of paying the total purchase price was as follows: "The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00) PESOS, shall be paid at the signing of this contract as DOWN PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of TEN (10) years at a monthly amortization of P1,747.30 to begin from December 7, 1985 with interest at eighteen per cent (18%) per annum based on balances."4 The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments.5 Should a period of ninety (90) days elapse from the expiration of the grace period without the overdue and unpaid installments having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into. The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and as liquidated damages.6 After the execution of the contract, Carmelita Leao made several payments in lump sum.7 Thereafter, she constructed a house on the lot valued at P800,000.00.8 The last payment that she made was on April 1, 1989. On September 16, 1991, the trial court rendered a decision in an ejectment case9 earlier filed by respondent Fernando ordering petitioner Leao to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property from May 27, 1991 until she vacated the premises, attorney's fees and costs of the suit.10 On August 24, 1993, the trial court issued a writ of execution which was duly served on petitioner Leao. On September 27, 1993, petitioner Leao filed with the Regional Trial Court of Malolos, Bulacan a complaint for specific performance with preliminary injunction.11 Petitioner Leao assailed the validity of the judgment of the municipal trial court12 for being violative of her right to due process and for being contrary to the avowed intentions of Republic Act No. 6552 regarding protection to buyers of lots on installments. Petitioner Leao deposited P18,000.00 with the clerk of court, Regional Trial Court, Bulacan, to cover the balance of the total cost of Lot 876-B.13 On November 4, 1993, after petitioner Leao posted a cash bond of P50,000.00,14 the trial court issued a writ of preliminary injunction15 to stay the enforcement of the decision of the municipal trial court.16 On February 6, 1995, the trial court rendered a decision, the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered as follows: "1. The preliminary injunction issued by this court per its order dated November 4, 1993 is hereby made permanent;

"2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70 corresponding to her outstanding obligations under the contract to sell (Exhibit "A" Exhibit "B") consisting of the principal of said obligation together with the interest and surcharges due thereon as of February 28, 1994, plus interest thereon at the rate of 18% per annum in accordance with the provision of said contract to be computed from March 1, 1994, until the same becomes fully paid; "3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by way of attorney's fees; "4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case No. 1680 aforementioned. "SO ORDERED. "Malolos, Bulacan, February 6, 1995.

"(sgd.) DANILO A. MANALASTAS Judge"17 On February 21, 1995, respondent Fernando filed a motion for reconsideration18 and the supplement19 thereto. The trial court increased the amount of P103,090.70 to P183,687.00 and ordered petitioner Leao ordered to pay attorney's fees.20 According to the trial court, the transaction between the parties was an absolute sale, making petitioner Leao the owner of the lot upon actual and constructive delivery thereof. Respondent Fernando, the seller, was divested of ownership and cannot recover the same unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial or notarial demand. Since there had been no rescission, petitioner Leao, as the owner in possession of the property, cannot be evicted. On the issue of delay, the trial court held: "While the said contract provides that the whole purchase price is payable within a ten-year period, yet the same contract clearly specifies that the purchase price shall be payable in monthly installments for which the corresponding penalty shall be imposed in case of default. The plaintiff certainly cannot ignore the binding effect of such stipulation by merely asserting that the ten-year period for payment of the whole purchase price has not yet lapsed. In other words, the plaintiff has clearly defaulted in the payment of the amortizations due under the contract as recited in the statement of account (Exhibit "2") and she should be liable for the payment of interest and penalties in accordance with the stipulations in the contract pertaining thereto."21 The trial court disregarded petitioner Leaos claim that she made a downpayment of P10,000.00, at the time of the execution of the contract. The trial court relied on the statement of account22 and the summary23 prepared by respondent Fernando to determine petitioner Leao's liability for the payment of interests and penalties. The trial court held that the consignation made by petitioner Leao in the amount of P18,000.00 did not produce any legal effect as the same was not done in accordance with Articles 1176, 1177 and 1178 of the Civil Code. In time, petitioner Leao appealed the decision to the Court of Appeals.24 On January 22, 1997, Court of Appeals promulgated a decision affirming that of the Regional Trial Court in toto.25 On February 11, 1997, petitioner Leao filed a motion for reconsideration.26 On April 18, 1997, the Court of Appeals denied the motion.27 Hence, this petition.28 The Issues The issues to be resolved in this petition for review are (1) whether the transaction between the parties in an absolute sale or a conditional sale; (2) whether there was a proper cancellation of the contract to sell; and (3) whether petitioner was in delay in the payment of the monthly amortizations. The Court's Ruling Contrary to the findings of the trial court, the transaction between the parties was a conditional sale not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price. Consider the following:

First, the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in the contract to sell.29 Second, what was transferred was the possession of the property, not ownership. The possession is even limited by the following: (1) that the vendee may continue therewith "as long as the VENDEE complies with all the terms and conditions mentioned, and (2) that the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any right, interest or equity that she may have or acquire in and to the said parcel of land nor to lease or to sublease it or give possession to another person without the written consent of the seller.30 Finally, the ownership of the lot was not transferred to Carmelita Leao. As the land is covered by a torrens title, the act of registration of the deed of sale was the operative act that could transfer ownership over the lot.31 There is not even a deed that could be registered since the contract provides that the seller will execute such a deed "upon complete payment by the VENDEE of the total purchase price of the property" with the stipulated interest.32 In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force.33 The transfer of ownership and title would occur after full payment of the price.34 In the case at bar, petitioner Leao's non-payment of the installments after April 1, 1989, prevented the obligation of respondent Fernando to convey the property from arising. In fact, it brought into effect the provision of the contract on cancellation. Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable to the case at bar.35However, any attempt to cancel the contract to sell would have to comply with the provisions of Republic Act No. 6552, the "Realty Installment Buyer Protection Act." R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.36 The law also provides for the rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides that: "If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payment made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer." [Emphasis supplied] The decision in the ejectment case37 operated as the notice of cancellation required by Sec. 3(b). As petitioner Leao was not given then cash surrender value of the payments that she made, there was still no actual cancellation of the contract. Consequently, petitioner Leao may still reinstate the contract by updating the account during the grace period and before actual cancellation.38 Should petitioner Leao wish to reinstate the contract, she would have to update her accounts with respondent Fernando in accordance with the statement of account39 which amount was P183,687.00.40 On the issue of whether petitioner Leao was in delay in paying the amortizations, we rule that while the contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leao cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.1wphi1.nt In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leao to continue in possession and use of the property. Clearly, when petitioner Leao did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages.41 However, we agree with the trial court that the default committed by petitioner Leao in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question.42 It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.43 Thus, as there is no ambiguity in the language of the contract, there is no room for construction, only compliance.

The Fallo IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court of Appeals44 in toto. No costs. SO ORDERED.

G.R. No. 127695

December 3, 2001

HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R. BACUS, SR., SATURNINO R. BACUS, PRISCILA VDA. DE CABANERO, CARMELITA B. SUQUIB, BERNARDITA B. CARDENAS, RAUL R. BACUS, MEDARDO R. BACUS, ANSELMA B. ALBAN, RICARDO R. BACUS, FELICISIMA B. JUDICO, and DOMINICIANA B. TANGAL, petitioners, vs. HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and VICTORIANA DURAY, respondents. QUISUMBING, J.: This petition assails the decision dated November 29, 1996, of the Court of Appeals in CA-G.R. CV No. 37566, affirming the decision dated August 3, 1991, of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-8935. The facts, as culled from the records, are as follows: On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered by Transfer Certificate of Title No. 48866. The lease was for six years, ending May 31, 1990. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US dollar, which at the time of the execution of the contract was fourteen pesos.1 Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary documents, such as a Special Power of Attorney authorizing him to enter into a contract of sale,2 on behalf of his sisters who were then abroad. On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was annotated by the Register of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No. 3661-A-3-B-2-A.3 Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis Bacus with the Lupon Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. At the hearing, Duray presented a certification4 from the manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with Luis Bacus.5 Having failed to reach an agreement before the Lupon, on April 27, 1990, private respondents filed a complaint for specific performance with damages against petitioners before the Regional Trial Court, praying that the latter, (a) execute a deed of sale over the subject property in favor of private respondents; (b) receive the payment of the purchase price; and (c) pay the damages. On the other hand, petitioners alleged that before Luis Bacus' death, private respondents conveyed to them the former's lack of interest to exercise their option because of insufficiency of funds, but they were surprised to learn of private respondents' demand. In turn, they requested private respondents to pay the purchase price in full but the latter refused. They further alleged that private respondents did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be deemed legal tender. On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashier's check in the amount of P650,0006 payable to petitioners at anytime upon demand. On August 3, 1991, the Regional Trial Court ruled in favor of private respondents, the dispositive portion of which reads: Premises considered, the court finds for the plaintiffs and orders the defendants to specifically perform their obligation in the option to buy and to execute a document of sale over the property covered by Transfer Certificate of Title # T-63269 upon payment by the plaintiffs to them in the amount of Six Hundred Seventy-Five Thousand Six Hundred Seventy-Five (P675,675.00) Pesos within a period of thirty (30) days from the date this decision becomes final. SO ORDERED.7

Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied the appeal on November 29, 1996, on the ground that the private respondents exercised their option to buy the leased property before the expiration of the contract of lease. It held: . . . After a careful review of the entire records of this case, we are convinced that the plaintiffs-appellees validly and effectively exercised their option to buy the subject property. As opined by the lower court, "the readiness and preparedness of the plaintiff on his part, is manifested by his cautionary letters, the prepared bank certification long before the date of May 31, 1990, the final day of the option, and his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had no intention to purchase the property, he would not have bothered to write those letters to the defendant-appellants (which were all received by them) and neither would he be interested in having his adverse claim annotated at the back of the T.C.T. of the subject property, two (2) months before the expiration of the lease. Moreover, he even went to the extent of seeking the help of the Lupon Tagapamayapa to compel the defendantsappellants to recognize his right to purchase the property and for them to perform their corresponding obligation.8 xxx xxx xxx

We therefore find no merit in this appeal. WHEREFORE, the decision appealed from is hereby AFFIRMED.9 Hence, this petition where petitioners aver that the Court of Appeals gravely erred and abused its discretion in: I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE PROPERTY IN QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION BECOMES FINAL; II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF LAW AND JURISPRUDENCE IN UPHOLDING THE DECISION OF THE TRIAL COURT TO THE EFFECT THAT PRIVATE RESPONDENTS HAD EXERCISED THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE PRESENTATION OF THE CERTIFICATION OF THE BANK MANAGER OF A BANK DEPOSIT IN THE NAME OF ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS EQUIVALENT TO A VALID TENDER OF PAYMENT AND A SUFFICIENT COMPLAINCE (SIC) OF A CONDITION FOR THE EXERCISE OF THE OPTION TO BUY; AND III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT THE PRESENTATION OF A CASHER'S (SIC) CHECK BY THE RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN AFTER THE TERMINATION OF THE TRIAL ON THE MERITS WITH BOTH PARTIES ALREADY HAVING RESTED THEIR CASE, WAS STILL VALID COMPLIANCE OF THE CONDITION FOR THE PRIVATE RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF OPTION TO BUY AND HAD A FORCE OF VALID AND FULL TENDER OF PAYMENT WITHIN THE AGREED PERIOD.10 Petitioners insist that they cannot be compelled to sell the disputed property by virtue of the nonfulfillment of the obligation under the option contract of the private respondents. Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of the Rules of Court govern their petition, and that petitioners only raised questions of facts which this Court cannot properly entertain in a petition for review. They claim that even assuming that the instant petition is one under Rule 45, the same must be denied for the Court of Appeals has correctly determined that they had validly exercised their option to buy the leased property before the contract expired. In response, petitioners state that private respondents erred in initially classifying the instant petition as one under Rule 65 of the Rules of Court. They argue that the petition is one under Rule 45 where errors of the Court of Appeals, whether evidentiary or legal in nature, may be reviewed. We agree with private respondents that in a petition for review under Rule 45, only questions of law may be raised.11 However, a close reading of petitioners' arguments reveal the following legal issues which may properly be entertained in the instant petition: a) When private respondents opted to buy the property covered by the lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner executes a deed of transfer? b) Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract?

On the first issue, petitioners contend that private respondents failed to comply with their obligation because there was neither actual delivery to them nor consignation in court or with the Municipal, City or Provincial Treasurer of the purchase price before the contract expired. Private respondents' bank certificate stating that arrangements were being made by the bank to release P700,000 as a loan to private respondents cannot be considered as legal tender that may substitute for delivery of payment to petitioners nor was it a consignation. Obligations under an option to buy are reciprocal obligations.12 The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation.13 In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners' actual execution and delivery of the deed of sale were they required to pay. As earlier stated, the latter was contingent upon the former. In Nietes vs. Court of Appeals, 46 SCRA 654 (1972), we held that notice of the creditor's decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. In instances, where no debt is due and owing, consignation is not proper.14 Therefore, petitioners' contention that private respondents failed to comply with their obligation under the option to buy because they failed to actually deliver the purchase price or consign it in court before the contract expired and before they execute a deed, has no leg to stand on. Corollary, private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begin.15 In this case, private respondents, as early as March 15, 1990, communicated to petitioners their intention to buy the property and they were at that time undertaking to meet their obligation before the expiration of the contract on May 31, 1990. However, petitioners refused to execute the deed of sale and it was their demand to private respondents to first deliver the money before they would execute the same which prompted private respondents to institute a case for specific performance in the Lupong Tagapamayapa and then in the RTC. On October 30, 1990, after the case had been submitted for decision but before the trial court rendered its decision, private respondents issued a cashier's check in petitioners' favor purportedly to bolster their claim that they were ready to pay the purchase price. The trial court considered this in private respondents' favor and we believe that it rightly did so, because at the time the check was issued, petitioners had not yet executed a deed of sale nor expressed readiness to do so. Accordingly, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when the cashier's check was issued even after the contract expired. WHEREFORE, the instant petition is DENIED. The decision dated November 29, 1996 of the Court of Appeals is hereby AFFIRMED. Costs against petitioners. SO ORDERED.

G.R. No. 121772 January 13, 2003 ELNORA R. CORTES AND EDMUNDO CORTES, Petitioners, -versusCOURT OF APPEALS, F. S. MANAGEMENT & DEVELOPMENT CORP. AND FELIX MOYA, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.: . Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision of the Court of Appeals dated March 17, 1995[1], the dispositive portion of which reads:chan robles virtual law library

WHEREFORE, premises considered, the appealed Order dated July 16, 1992 is hereby AFFIRMED with modification. Appellants spouses Cortes in addition to the P100,000.00 is further ORDERED to pay six percent (6%) per annum legal interest of such amount from July 25, 1992 until fully paid.chan robles virtual law library

Cost against appellants spouses Cortes. SO ORDERED.[2] The controversy stemmed from a civil case for specific performance with damages filed by F.S. Management and Development Corporation (FSMDC) against spouses Edmundo and Elnora Cortes involving the sale of the parcel of land owned by the said spouses.[3] Spouses Cortes retained the professional services of Atty. Felix Moya for the purpose of representing them in said case. However, they did not agree on the amount of compensation for the services to be rendered by Atty. Moya.chan robles virtual law library Before a full-blown trial could be had, defendants spouses Cortes and plaintiff FSMDC decided to enter into a compromise agreement. On June 4, 1991, defendants spouses received from plaintiff FSMDC, three checks totaling P2,754,340.00 which represents the remaining balance of the purchase price of the subject land. On June 7, 1991, Atty. Moya filed an "Urgent Motion to Fix Attorneys Fees, Etc." praying that he be paid a sum equivalent to thirty-five percent (35%) of the amount received by the defendants spouses[4] which the latter opposed contending that the amount Atty. Moya seeks to recover is utterly excessive and is not commensurate to the nature, extent and quality of the services he had rendered.[5]chan robles virtual law library

On July 2, 1991, the Cortes spouses and Atty. Moya settled their differences by agreeing in open court that the former will pay the latter the amount of P100,000.00 as his attorneys fees. Pursuant to such agreement, the trial court issued an order of even date which reads as follows: Parties in open Court agreed to movants attorneys fees of P100,000.00 to be paid out of any check paid by the plaintiff to defendants. Not later than July 15, 1991, parties are hereby ordered to inform the Court whether or not this is complied with, so the Court can act accordingly. SO ORDERED.[6] Subsequently, the Cortes spouses terminated the services of Atty. Moya and retained the services of another lawyer. On January 8, 1992, or about six months after the afore-quoted Order, Atty. Moya filed an Ex-Parte

Manifestation praying that his Motion to Fix Attorneys Fees be resolved on the basis of the agreement of the parties "in chambers".[7]chan robles virtual law library The Cortes spouses filed their Comment claiming: "1. That they agreed to the settlement of P100,000.00 attorneys fees expecting that the checks paid by plaintiff by way of settlement will be good and may be encashed by them but it turned out that they were all dishonored, and no compromise agreement was pushed through;chan robles virtual law library 2. That defendants are willing to pay Atty. Moya as additional compensation for his services only in the amount of P50,000.00 subject to the condition that same shall be paid after the case is terminated in their favor and/or the property involved is sold;chan robles virtual law library 3. That defendants shall compensate Atty. Moya said amount in addition to what they have paid before."[8] On June 26, 1992, Atty. Moya filed a "Motion for Early Resolution of Pending Incidents and to Order Defendants to Pay Their Previous Counsel".[9] On July 16, 1992, the trial court issued an Order directing the Cortes spouses to pay Atty. Moya the sum of P100,000.00 as and by way of attorneys fees.[10] The Cortes spouses filed a Notice of Appeal to the Court of Appeals.[11] On July 31, 1992, Atty. Moya filed an "Ex-Parte Motion to Dismiss Defendants Appeal" which was denied by the trial court in its Order dated August 4, 1992.[12] Consequently, he filed a notice of appeal questioning the Orders of the trial court dated July 16, 1992 and August 4, 1992.[13] On March 17, 1995, the Court of Appeals rendered the herein assailed decision resolving the respective appeals of spouses Cortes and Atty. Moya in favor of the latter.[14] Spouses Cortes moved for the reconsideration of the decision of the appellate court which the Court denied in its Resolution issued on August 30, 1995.[15] Hence, herein petition filed by the Cortes spouses, raising the following issues:chan robles virtual law library "1. Whether the award of P100,000.00 in favor of private respondent as and by way of attorneys [fees] for the handling of petitioners case before the services of the former was legally terminated is tenable under the facts of this case. 2 Whether the respondent Honorable Court of Appeals misapplied the principle of Estoppel in this case."[16] As both issues are interrelated, we shall resolve them jointly.chan robles virtual law library Petitioners spouses claim that they have already paid private respondent Moya the total amount of P36,000.00 in acceptance and appearance fees.[17] However, a perusal of the records shows that no competent evidence, oral or documentary, was presented to prove said claim. It is settled that he who alleges a fact has the burden of proving it; that mere allegation is not evidence.[18] Besides, records show that the alleged payment by petitioners of said amount was never raised before the lower court. It was only raised on appeal with respondent appellate court. Settled is the rule that litigants cannot raise an issue for the first time on appeal as this would contravene the basic rules of fair play and justice.[19]chan robles virtual law library Nevertheless, petitioners main contention is that the award of P100,000.00 to private respondent Moya as and by way of attorneys fees "is unconscionable and unreasonable." On its face, the Order dated July 2, 1991 appears to be explicit and leaves no room for any other interpretation. The first paragraph of said Order states that parties in open Court agreed that the attorneys fees in the amount of P100,000.00 shall be paid out of any check paid by the plaintiff to defendants.[20] The said agreement is therefore in the nature of a compromise agreement. However, petitioners contend that they agreed to pay private respondent P100,000.00 out of the three (3) checks paid by FSMDC on June 4, 1991 and not out of any other check issued by FSMDC. This contention finds support in the prayer of private respondent, Atty. Moya himself, in his Urgent Motion to Fix Attorneys Fees, Etc.explicitly asking that he "be paid immediately upon the encashment of the P1,000,000.00 check dated June 10, 1991 by the defendants". He even expressed concern that he "may not be paid the corresponding attorneys fees out of the check that is due for payment on said date". [21] Clearly therefrom, the amount of P100,000.00 due to Atty. Moya was expected to be taken not from any check paid by FSMDC to petitioners but specifically from the check dated June 10, 1991 given to petitioners spouses.chan robles virtual law library As already stated, the Order in question appears to be a compromise agreement between spouses Cortes and Atty. Moya. It is true that under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.[22] A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. [23] But, in technical estoppel, the party to be estopped must knowingly have acted so as to mislead his

adversary, and the adversary must have placed reliance on the action and acted as he would otherwise not have done.[24] In the present case, petitioners had evidently agreed to pay private respondent P100,000.00 out of the checks paid by FSMDC on June 4, 1991. However, the trial court ordered the payment to be sourced out of any check paid by FSMDC to petitioners. Yet, it does not appear from the original records that both the petitioners and the private respondent were actually sent copies of the Order of July 2, 1991. Thus, petitioners spouses were deprived of the opportunity to question the content of the Order on ground of mistake or excusable negligence, pursuant to the remedy provided for under Section 1, Rule 38 of the Rules of Court. Since petitioners did not receive a copy of the said Order they could not therefore be considered as having knowingly agreed to it as to mislead the court or the private respondent into believing that they unconditionally acceded to pay private respondent the amount of P100,000.00 out of any check given by FSMDC. Consequently, they are not estopped from questioning the correctness of such Order. Elementary fairness dictates that petitioners, who were unaware of the questioned Order, should not be estopped from questioning the same.chan robles virtual law library Having disposed of the issue on estoppel, we now turn to the question of whether or not the amount of P100,000.00 awarded to the private respondent is in consonance with the prevailing principles and guidelines governing compensation due to attorneys for the professional services they have rendered. The reasonableness of the amount of attorneys fees awarded to private respondent should be properly gauged on the basis of the long-standing rule of quantum meruit, meaning, "as much as he deserves". Where a lawyer is employed without agreement as to the amount to be paid for his services, the courts shall fix the amount on quantum meruit basis. In such a case, he would be entitled to receive what he merits for his services.[25] In this respect, Section 24, Rule 138 of the Rules of Court provides: "Sec. 24. Compensation of attorneys, agreement as to fees. - An attorney shall be entitled to have and recover from his client no more than a reasonable compensation for his services, with a view to the importance of the subject matter of the controversy, the extent of the services rendered, and the professional standing of the attorney. x x x" In addition, the following circumstances, codified in Rule 20.1, Canon 20 of the Code of Professional Responsibility, serves as a guideline in fixing a reasonable compensation for services rendered by a lawyer on the basis of quantum meruit:chan robles virtual law library time spent and the extent of the services rendered or required; The novelty and difficulty of the questions involved; c) The importance of the subject matter; d) The skill demanded;chan robles virtual law library e) The probability of losing other employment as a result of acceptance of the proffered case; f) The customary charges for similar services and the schedule of fees of the IBP chapter to which he belongs; b) g) The amount involved in the controversy and the benefits resulting to the client from the services; h) The contingency or certainty of compensation; i) The character of the employment, whether occasional or established; and j) The professional standing of the lawyer. In the present case, aside from invoking his professional standing, private respondent claims that he was the one responsible in forging the initial compromise agreement wherein FSMDC agreed to pay P2,754,380.00. The fact remains, however, that such agreement was not consummated because the checks given by FSMDC were all dishonored. It was not the private respondent who was responsible in bringing into fruition the subsequent compromise agreement between petitioners and FSMDC. Nonetheless, it is undisputed that private respondent has rendered services as counsel for the petitioners. He prepared petitioners Answer and Pre- Trial Brief, appeared at the Pre-Trial Conference, attended a hearing held on July 13, 1990, cross-examined the witness of FSMDC, and was present in the conference at the Manila Hotel between the parties and their respective counsels. All these services were rendered in the years 1990 and 1991 where the value of a peso is higher. Thus, we find the sum of P100,000.00 awarded to private respondent as his attorneys fees to be disproportionate to the services rendered by him to petitioners. The amount of P50,000.00 as compensation for the services rendered by Atty. Moya is just and reasonable. Besides, the imposition of legal interest on the amount payable to private respondent is unwarranted. Article 2209[26] of the Civil Code invoked by Atty. Moya and cited by the appellate court, finds no application in the present case. It is a provision of law governing ordinary obligations and contracts. Contracts for attorneys services in this jurisdiction stand upon an entirely different footing from contracts for the payment of compensation for any other services.[27]chan robles virtual law library We have held that lawyering is not a moneymaking venture and lawyers are not merchants.[28] a) The

"Law advocacy x x x is not capital that yields profits. The returns it births are simple rewards for a job done or service rendered. It is a calling that, unlike mercantile pursuits which enjoy a greater deal of freedom from government interference, is impressed with a public interest, for which it is subject to State regulation."[29] Thus, a lawyers compensation for professional services rendered are subject to the supervision of the court, not just to guarantee that the fees he charges and receives remain reasonable and commensurate with the services rendered, but also to maintain the dignity and integrity of the legal profession to which he belongs.[30] WHEREFORE, the decision appealed from is AFFIRMED WITH MODIFICATIONS to the effect that the attorneys fees awarded to private respondent Felix Moya is REDUCED to P50,000.00 and the legal interest of 6% per annum imposed by the Court of Appeals on the amount due to respondent Moya is DELETED. No costs. SO ORDERED.

[G.R. No. 158768, February 12, 2008] TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION, Petitioner, vs. PRIMETOWN PROPERTY GROUP, INC., Respondent. DECISION CORONA, J.: This petition for review on certiorari[1] seeks to set aside the decision of the Court of Appeals (CA) in CA-G.R. CV No. 61353[2] and its resolution[3] denying reconsideration. In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works[4] of its 32storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development Corporation. [5] The parties formalized their agreement in a construction contract[6] dated February 4, 1993.[7] Upon the completion of MPT's structural works, respondent awarded the P130,000,000 contract for the tower's architectural works[8] (project) to petitioner. Thus, on January 31, 1994, the parties executed a supplemental agreement.[9] The salient portions thereof were: 1. the [project] shall cover the scope of work of the detailed construction bid plans and specifications and bid documents dated 28 September 1993, attached and forming an integral part hereof as Annex A. 2. the contract price for the said works shall be P130 million.

3. the payment terms shall be full swapping or full payment in condominium units. The
condominium units earmarked for the [petitioner] are shown in the attached Annex B.

4. the [respondent] shall transfer and surrender to [petitioner] the condominium units abovestated in
accordance with the following schedule:

(a)

80% of units upon posting and acceptance by [respondent] of the performance bond [and] 20% or remaining balance upon completion of the project as provided in the construction contract and simultaneous with the posting by [petitioner] of the reglementary guarantee bond.

(b)

5. the contract period shall be fifteen (15) months reckoned from the release of the condominium certificates of title (CCTs) covering eighty percent (80%) of the units transferable to [petitioner] as aforesaid[.] Significantly, the supplemental agreement adopted those provisions of the construction contract which it did not specifically discuss or provide for.[10] Among those carried over was the designation of GEMM Construction Corporation (GEMM) as the project's construction manager.[11] Petitioner started working on the project in February 1994.

On June 30, 1994, respondent executed a deed of sale [12] (covering 114 condominium units and 20 parking slots of the MPT collectively valued by the parties at P112,416,716.88)[13] in favor of petitioner pursuant to the full-swapping payment provision of the supplemental agreement. Shortly thereafter, petitioner sold some of its units to third persons. [14]

In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the progress of the project.[15] In its September 7, 1995 report,[16] ITI informed respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11 months and six days behind schedule).[17] Meanwhile, petitioner and respondent were discussing the possibility of the latters take over of the projects supervision. Despite ongoing negotiations, respondent did not obtain petitioners consent in hiring ITI as the projects construction manager. Neither did it inform petitioner of ITIs September 7, 1995 report.

On October 12, 1995, petitioner sought to confirm respondent's plan to take over the project.[18] Its letter stated: The mutual agreement arrived at sometime in the last week of August 1995 for [respondent] to take over the construction supervision of the balance of the [project] from [petitioner's] [e]ngineering staff and complete [the] same by December 31, 1995 as promised by [petitioner's] engineer. The [petitioner's] accomplished works as of this date of [t]ake over is of acceptable quality in materials and workmanship. This mutual agreement on the take over should not be misconstrued in any other way except that the take over is part of the long range plan of [respondent] that [petitioner], in the spirit of cooperation, agreed to hand over the construction supervision to [respondent] as requested. (emphasis supplied)[19] Engineers Antonio Co, general construction manager of respondent, and Luzon Y. Tablante, project manager of petitioner, signed the letter.

In its September 7, 1995 report, ITI estimated that petitioner should have accomplished 48.71% of the project as of the October 12, 1995 takeover date.[20] Petitioner repudiated this figure[21] but qualifiedly admitted that it did not finish the project.[22] Records showed that respondent did not merely take over the supervision of the project but took full control thereof.[23] Petitioner consequently conducted an inventory.[24] On the basis thereof, petitioner demanded from respondent the payment of its balance amounting to P1,779,744.85.[25] On February 19, 1996, petitioner sent a second letter to respondent demanding P2,023,876.25. This new figure included the cost of materials (P244,331.40) petitioner advanced from December 5, 1995 to January 26, 1996.
[26]

On November 22, 1996, petitioner demanded from respondent the delivery of MPT's management certificate[27] and the keys to the condominium units and the payment of its (respondent's) balance.[28] Because respondent ignored petitioner's demand, petitioner, on December 9, 1996, filed a complaint for specific performance[29] in the Housing and Land Use Regulatory Board (HLURB). While the complaint for specific performance was pending in the HLURB, respondent sent a demand letter to petitioner asking it to reimburse the actual costs incurred in finishing the project (or P69,785,923.47). [30] In view of the pendency of the HLURB case, petitioner did not heed respondent's demands. On April 29, 1997, the HLURB rendered a decision in favor of petitioner. [31] It ruled that the instrument executed on June 30, 1994 was a deed of absolute sale because the conveyance of the condominium units and parking slots was not subject to any condition. [32] Thus, it ordered respondent to issue MPTs management certificate and to deliver the keys to the condominium units to petitioner. [33] Respondent did not appeal this decision. Consequently, a writ of execution was issued upon its finality. [34] Undaunted by the finality of the HLURB decision, respondent filed a complaint for collection of sum of money[35] against petitioner in the Regional Trial Court (RTC) of Makati City, Branch 58 on July 2, 1997. It prayed for the reimbursement of the value of the projects unfinished portion amounting to P66,677,000.[36] During trial, the RTC found that because respondent modified the MPT's architectural design, petitioner had to adjust the scope of work.[37] Moreover, respondent belatedly informed petitioner of those modifications. It also failed to deliver the concrete mix and rebars according to schedule. For this reason, petitioner was not responsible for the project's delay.[38] The trial court thus allowed petitioner to set-off respondent's other outstanding liabilities with respondents excess payment in the project.[39] It concluded that respondent owed petitioner P2,023,876.25.[40] In addition, because respondent refused to deliver the keys to the condominium units and the management certificate to petitioner, the RTC found that petitioner lost rental income amounting to US$1,665,260.[41] The dispositive portion of the RTC decision stated: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered dismissing [respondent's] [c]omplaint for lack of merit. On the other hand, finding preponderance of evidence to sustain [petitioner's] counterclaim, judgment is hereby rendered in favor of [petitioner] ordering [respondent] to pay the former: 1. The unpaid balance of the consideration for [petitioner's] services in [the project] in the amount of P2,023,867.25 with legal interest from the date of demand until fully paid; 2. Compensatory damages in the amount of US$1,665,260 or its peso equivalent at the current foreign exchange rate representing lost rental income due only as of July 1997 and the accrued lost earnings from then on until the date of actual payment, with legal interest from the date of demand until fully paid; and 3. Attorney's fees in the amount of P100,000 as acceptance fee, P1,000 appearance fee per hearing and 25% of the total amount awarded to [petitioner].

With

costs

against

the

[respondent].

SO ORDERED.[42] Respondent appealed the RTC decision to the CA.[43] The appellate court found that respondent fully performed its obligation when it executed the June 30, 1994 deed of absolute sale in favor of petitioner. [44] Moreover, ITI's report clearly established that petitioner had completed only 48.71% of the project as of October 12, 1995, the takeover date. Not only did it incur delay in the performance of its obligation but petitioner also failed to finish the project. The CA ruled that respondent was entitled to recover the value of the unfinished portion of the project under the principle of unjust enrichment.[45] Thus: WHEREFORE, the appealed decision is REVERSED and a new one entered dismissing [petitioner's] counterclaims of P2,023,867.25 representing unpaid balance for [its] services in [the project]; US$1,665,260 as accrued lost earnings, and attorney's fees. [Petitioner] is hereby ordered to return to [respondent] the amount of P66,677,000 representing the value of unfinished [portion of the project], plus legal interest thereon until fully paid. Upon payment by [petitioner] of the aforementioned amount, [respondent] is hereby ordered to deliver the keys and [m]anagement [c]ertificate of the [Makati Prime Tower] paid to [petitioner] as consideration for the [project].[46] Petitioner moved for reconsideration but it was denied. Hence, this petition. Petitioner contends that the CA erred in giving weight to ITI's report because the project evaluation was commissioned only by respondent,[47] in disregard of industry practice. Project evaluations are agreed upon by the parties and conducted by a disinterested third party.[48] We REVIEW FACTUAL grant OF the CONFLICTING FINDINGS petition.

As a general rule, only questions of law may be raised in a petition for review on certiorari. Factual issues are entertained only in exceptional cases such as where the findings of fact of the CA and the trial court are conflicting.[49] Here, a glaring contradiction exists between the factual findings of the RTC and the CA. The trial court found that respondent contributed to the project's delay because it belatedly communicated the modifications and failed to deliver the necessary materials on time. The CA, however, found that petitioner incurred delay in the performance of its obligation. It relied on ITI's report which stated that petitioner had accomplished only 48.71% of the project as of October 12, 1995. JANUARY SUPPLEMENTAL WAS 31, 1994 AGREEMENT EXTINGUISHED

A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.[50] This case involved two contracts entered into by the parties with regard to the project. The parties first entered into a contract for a piece of work[51] when they executed the supplemental agreement. Petitioner as contractor bound itself to execute the project for respondent, the owner/developer, in consideration of a price certain (P130,000,000). The supplemental agreement was reciprocal in nature because the obligation of respondent to pay the entire contract price depended on the obligation of petitioner to complete the project (and vice versa). Thereafter, the parties entered into a second contract. They agreed to extinguish the supplemental agreement as evidenced by the October 12, 1995 letter-agreement which was duly acknowledged by their respective representatives.[52] While the October 12, 1995 letter-agreement stated that respondent was to take over merely the supervision of the project, it actually took over the whole project itself. In fact, respondent subsequently hired two contractors in petitioner's stead.[53] Moreover, petitioner's project engineer at site only monitored the progress of architectural works undertaken in its condominium units.[54] Petitioner never objected to this arrangement; hence, it voluntarily surrendered its participation in the project. Moreover, it judicially admitted in its answer that respondent took over the entire project, not merely its supervision, pursuant to its (respondents) long-range plans. [55] Because the parties agreed to extinguish the supplemental agreement, they were no longer required to fully perform their respective obligations. Petitioner was relieved of its obligation to complete the project while respondent was freed of its obligation to pay the entire contract price. However, respondent, by executing the June 30, 1994 deed of absolute sale, was deemed to have paid P112,416,716.88. Nevertheless, because petitioner applied part of what it received to respondents outstanding liabilities, [56] it admitted overpayment. Because petitioner acknowledged that it had been overpaid, it was obliged to return the excess to respondent. Embodying the principle of solutio indebiti, Article 2154 of the Civil Code provides:

Article 2154. If something is received when there is no right to demand it and it was unduly delivered through mistake, the obligation to return it arises. For the extra-contractual obligation of solutio indebiti to arise, the following requisites must be proven: 1. the absence of a right to collect the excess sums and

2. the payment was made by mistake.[57]

With regard to the first requisite, because the supplemental agreement had been extinguished by the mutual agreement of the parties, petitioner became entitled only to the cost of services it actually rendered (i.e., that fraction of the project cost in proportion to the percentage of its actual accomplishment in the project). It was not entitled to the excess (or extent of overpayment). On the second requisite, Article 2163 of the Civil Code provides: Article 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but, he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. (emphasis supplied) In this instance, respondent paid part of the contract price under the assumption that petitioner would complete the project within the stipulated period. However, after the supplemental agreement was extinguished, petitioner ceased working on the project. Therefore, the compensation petitioner received in excess of the cost of its actual accomplishment as of October 12, 1995 was never due. The condominium units and parking slots corresponding to the said excess were mistakenly delivered by respondent and were therefore not due to petitioner. Stated simply, respondent erroneously delivered excess units to petitioner and the latter, pursuant to Article 2154, was obliged to the return them to respondent.[58] Article 2160 of the Civil Code provides: Article 2160. He who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to collect the sum. One who receives payment by mistake in good faith is, as a general rule, only liable to return the thing delivered. [59] If he benefited therefrom, he is also liable for the impairment or loss of the thing delivered and its accessories and accessions.[60] If he sold the thing delivered, he should either deliver the proceeds of the sale or assign the action to collect to the other party.[61] The situation is, however, complicated by the following facts: a) the basis of the valuation (P112,416,716.99) of the condominium units and parking slots covered by the June 30, 1994 deed of sale is unknown; b) the percentage of petitioner's actual accomplishment in the project has not been determined and c) the records of this case do not show the actual number of condominium units and parking slots sold by petitioners. Because this Court is not a trier of facts, the determination of these matters should be remanded to the RTC for reception of further evidence. The RTC must first determine the percentage of the project petitioner actually completed and its proportionate cost.[62] This will be the amount due to petitioner. Thereafter, based on the stipulated valuation in the June 30, 1994 deed of sale, the RTC shall determine how many condominium units and parking slots correspond to the amount due to petitioner. It will only be the management certificate and the keys to these units that petitioner will be entitled to. The remaining units, having been mistakenly delivered by respondent, will therefore be the subject of solutio indebiti. What exactly must petitioner give back to respondent? Under Article 2160 in relation to Article 2154, it should return to respondent the condominium units and parking slots in excess of the value of its actual accomplishment (i.e., the amount due to it) as of October 12, 1995. If these properties include units and/or slots already sold to third persons, petitioner shall deliver the proceeds of the sale thereof or assign the actions for collection to respondent as required by Article 2160. DELAY OF IN THE THE COMPLETION PROJECT

Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). [63] A debtor is deemed to have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay.[64] The construction contract[65] provided a procedure for protesting delay: Article DELAYS AND ABANDONMENT XIV

15.1. If at any time during the effectivity of this contract, [PETITIONER] shall incur unreasonable delay or slippages of more than fifteen percent (15%) of the scheduled work program, [RESPONDENT] should notify [PETITIONER] in writing to accelerate the work and reduce, if not erase, slippage. If after the lapse of sixty (60) days from receipt of such notice, [PETITIONER] fails to rectify the delay or slippage, [RESPONDENT] shall have the right to terminate this contract except in cases where the same was caused by force majeure. FORCE MAJEURE as contemplated herein, and in determination of delay includes, but is not limited to, typhoon, flood, earthquake, coup d'etat, rebellion, sedition, transport strike, stoppage of work, mass public action that prevents workers from reporting for work, and such other causes beyond [PETITIONER'S] control.[66] (emphasis supplied) xxx xxx xxx Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took over the project, it would have sent a written demand as required by the construction contract. Moreover, according to the October 12, 1995 letteragreement, respondent took over the project for the sole reason that such move was part of its (respondent's) long-term plan. Respondent, on the other hand, relied on ITI's September 7, 1995 report. The construction contract named GEMM, not ITI, as construction manager.[67] Because petitioner did not consent to the change of the designated construction manager, ITI's September 7, 1995 report could not bind it. In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation. RECOVERY RESULTING OF FROM ADDITIONAL COSTS CHANGES

The supplemental agreement was a contract for a stipulated price.[68] In such contracts, the recovery of additional costs (incurred due to changes in plans or specifications) is governed by Article 1724 of the Civil Code. Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and specifications agreed upon with the landowner, can neither withdraw from the contract nor demand an increase in the price on account of higher cost of labor or materials, save when there has been a change in plans and specifications, provided: 1. such change has been authorized by the proprietor in writing; and 2. the additional price to be paid to the contractor has been determined in writing by both parties. In Powton Conglomerate, Inc. v. Agcolicol,[69] we reiterated that a claim for the cost of additional work arising from changes in the scope of work can only be allowed upon the: 1. written authority from the developer/owner ordering/allowing the changes in work; and

2. written agreement of parties with regard to the increase in cost (or price) due to the change in work or
design modification. [70] Furthermore: Compliance with the two requisites of Article 1724, a specific provision governing additional works, is a condition precedent of the recovery. The absence of one or the other bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence for purposes of recovery.[71] (emphasis supplied) Petitioner submitted neither one. In addition, petitioners project coordinator Estellita Garcia testified that respondent never approved any change order.[72] Thus, under Article 1724 and pursuant to our ruling in Powton Conglomerate, Inc., petitioner cannot recover the cost it incurred in effecting the design modifications. A contractor who fails to secure the owner or developer's written authority to changes in the work or written assent to the additional cost to be incurred cannot invoke the principle of unjust enrichment. [73] RECOVERY COMPENSATORY OF DAMAGES

Indemnification for damages comprehends not only the loss suffered (actual damages or damnum emergens) but also the claimant's lost profits (compensatory damages or lucrum cessans). For compensatory damages to be awarded, it is necessary to prove the actual amount of the alleged loss by preponderance of evidence. [74] The RTC awarded compensatory damages based on the rental pool rates submitted by petitioner [75] and on the premise that all those units would have been leased had respondent only finished the project by December 31, 1995.[76] However, other than bare assertions, petitioner submitted no proof that the rental pool was in fact able to lease out the units. We thus hold that the losses sustained by petitioner were merely speculative and there was no basis for the award.

REMAND

OF

OTHER

CLAIMS

Since respondent did not repudiate petitioner's other claims stated in the inventory [77] in the RTC and CA, it is estopped from questioning the validity thereof.[78] However, because some of petitioner's claims have been disallowed, we remand the records of this case to the RTC for the computation of respondent's liability. [79] WHEREFORE, the petition is hereby GRANTED.

The March 15, 2002 decision and May 29, 2003 resolution of the Court of Appeals in CA-G.R. CV No. 61353 and the August 5, 1998 decision of the Regional Trial Court, Branch 58, Makati City in Civil Case No. 97-1501 are hereby SET ASIDE. New judgment is entered:

1. ordering petitioner Titan-Ikeda Construction and Development Corporation to return to respondent

Primetown Property Group, Inc. the condominium units and parking slots corresponding to the payment made in excess of the proportionate (project) cost of its actual accomplishment as of October 12, 1995, subject to its (petitioners) allowable claims as stated in the inventory and

2. dismissing petitioner Titan-Ikeda Construction and Development Corporations claims for the cost of
additional work (or change order) and damages. The records of this case are remanded to the Regional Trial Court of Makati City, Branch 58 for:

1. the reception of additional evidence to determine a)

the percentage of the architectural work actually completed by petitioner Titan-Ikeda Construction a Development Corporation as of October 12, 1995 on the Makati Prime Tower and

the number of condominium units and parking slots sold by petitioner Titan-Ikeda Construction a Development Corporation to third persons; 2. the computation of petitioner Titan-Ikeda Construction and Development Corporation's actual liability to respondent Primetown Property Group, Inc. or vice-versa, and the determination of imposable interests and/or penalties, if any. SO ORDERED.

(b)

G.R. No. 174269

May 8, 2009

POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC., Respondent. DECISION TINGA, J.: The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the group had arrived late in the city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the entire city before ending the tour. The following day, the last day of the tour, the group arrived at the Coster Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond polishing that lasted for around ten minutes. 1 Afterwards, the group was led to the stores showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation that she decided to buy. 2 Mrs. Pantaleon also selected for purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00. To pay for these purchases, Pantaleon presented his American Express credit card together with his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated to depart from the store. The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m. Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His son, who had already boarded the tour bus, soon returned to Coster and informed the other members of the Pantaleon family that the entire tour group was waiting for them. As it was already 9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent had demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed his daughter to return to the bus and apologize to the tour group for the delay. At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes after the tour group was supposed to have left the store, Coster decided to release the items even without respondents approval of the purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of apology were met by their tourmates with stony silence. 4 The tour groups visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his nerves. It later emerged that Pantaleons purchase was first transmitted for approval to respondents Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was transmitted to respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had already left Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry store to respondents Amsterdam office. After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use his AmEx card, several times without hassle or delay, but with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money instead from a friend, after more than 30 minutes had transpired without the purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth $87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by respondent. On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and his family thereby suffered" for respondents refusal to provide credit authorization for the aforementioned purchases. 8 In response, respondent sent a letter dated 24 March 1992, 9 stating among others that the delay in authorizing the purchase from Coster was attributable to the circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase pattern established." 10 Since respondent refused to accede to Pantaleons

demand for an apology, the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch 145.11 Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation expenses.12 On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding him P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial reconsideration, praying that the trial court award the increased amount of moral and exemplary damages he had prayed for.14 The RTC denied Pantaleons motion for partial reconsideration, and thereafter gave due course to respondents Notice of Appeal.15 On 18 August 2006, the Court of Appeals rendered a decision 16 reversing the award of damages in favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this petition. The key question is whether respondent, in connection with the aforementioned transactions, had committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming that respondent had not been in breach of its obligations, it still remained liable for damages under Article 21 of the Civil Code. The RTC had concluded, based on the testimonial representations of Pantaleon and respondents credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of seconds." Based on that standard, respondent had been in clear delay with respect to the three subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the part of respondent in approving the purchases. However, it made two critical conclusions in favor of respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had established for himself, as exemplified by the fact that at Coster, he was "making his very first single charge purchase of US$13,826," and "the record of [petitioner]s past spending with [respondent] at the time does not favorably support his ability to pay for such purchase."17 On the premise that there was an obligation on the part of respondent "to approve or disapprove with dispatch the charge purchase," petitioner argues that the failure to timely approve or disapprove the purchase constituted mora solvendi on the part of respondent in the performance of its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation to him as "to approve purchases instantaneously or in a matter of seconds." Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially or extrajudicially requires the debtors performance.18 Petitioner asserts that the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the part of the obligee in accepting the performance of the obligation by the obligor. The requisites of mora accipiendi are: an offer of performance by the debtor who has the required capacity; the offer must be to comply with the prestation as it should be performed; and the creditor refuses the performance without just cause.19 The error of the appellate court, argues petitioner, is in relying on the invocation by respondent of "just cause" for the delay, since while just cause is determinative of mora accipiendi, it is not so with the case of mora solvendi. We can see the possible source of confusion as to which type of mora to appreciate. Generally, the relationship between a credit card provider and its card holders is that of creditor-debtor, 20 with the card company as the creditor extending loans and credit to the card holder, who as debtor is obliged to repay the creditor. This relationship already takes exception to the general rule that as between a bank and its depositors, the bank is deemed as the debtor while the depositor is considered as the creditor. 21 Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit card company as the debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to act promptly on its purchases on credit. Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent as the creditor in the context of this cause of action. If there was delay on the part of respondent in its normal role as creditor to the cardholder, such delay would not have been in the acceptance of the performance of the debtors obligation (i.e., the repayment of the debt), but it would be delay in the extension of the credit in the first place. Such delay would not fall under mora accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases on credit, has already been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had not yet been perfected, as it remained pending the approval or consent of the respondent credit card company. Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that there was indeed an obligation on the part of respondent to act on petitioners purchases with "timely dispatch," or for the purposes of this case, within a period significantly less than the one hour it apparently took before the purchase at Coster was finally approved. The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting on petitioners purchase at Coster did constitute culpable delay on its part in complying with its obligation

to act promptly on its customers purchase request, whether such action be favorable or unfavorable. We quote the trial court, thus: As to the first issue, both parties have testified that normal approval time for purchases was a matter of seconds. Plaintiff testified that his personal experience with the use of the card was that except for the three charge purchases subject of this case, approvals of his charge purchases were always obtained in a matter of seconds. Defendants credit authorizer Edgardo Jaurique likewise testified: Q. You also testified that on normal occasions, the normal approval time for charges would be 3 to 4 seconds? A. Yes, Maam. Both parties likewise presented evidence that the processing and approval of plaintiffs charge purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of seconds". Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that defendants Amsterdam office received the request to approve plaintiffs charge purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18] minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive Identification of Card holder necessary further charges require bank information due to high exposure. By Jack Manila." The delay in the processing is apparent to be undue as shown from the frantic successive queries of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase referred to it, yet it sat on its hand, unconcerned. xxx To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants own record shows: 01:22 the authorization is referred to Manila Amexco 01:32 Netherlands gives information that the identification of the cardmember has been presented and he is buying jewelries worth US $13,826. 01:33 Netherlands asks "How long will this take?" 02:08 Netherlands is still asking "How long will this take?" The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on his use of the card abroad "with special handling."22 (Citations omitted) xxx Notwithstanding the popular notion that credit card purchases are approved "within seconds," there really is no strict, legally determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a customers purchase, much less one specifically contracted upon by the parties. Yet this is one of those instances when "youd know it when youd see it," and one hour appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a kilometer away, withdraw money over the counter, and return to the store. Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly, had respondent disapproved petitioners purchase "within seconds" or within a timely manner, this particular action would have never seen the light of day. Petitioner and his family would have returned to the bus without delay internally humiliated perhaps over the rejection of his card yet spared the shame of being held accountable by newlymade friends for making them miss the chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is within his means to make such transaction. The culpable failure of respondent herein is not the failure to timely approve petitioners purchase, but the more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that respondents credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason why respondent could not have promptly informed petitioner the reason for the delay, and duly advised him that resolving the same could take some time. In that way, petitioner would have had informed basis on whether or not to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the wrath of foreign folk. Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith, and the court should find that under the circumstances, such damages are due. The findings of the trial court are ample in establishing the bad faith and unjustified neglect of respondent, attributable in particular to the "dillydallying" of respondents Manila credit authorizer, Edgardo Jaurique.23 Wrote the trial court: While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the amount of time it should take defendant to grant authorization for a charge purchase, defendant acknowledged that the normal time for approval should only be three to four seconds. Specially so with cards used abroad which requires "special handling", meaning with priority. Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and consumers would be better off carrying bundles of currency or travellers checks, which can be delivered and accepted quickly. Such right was not accorded to plaintiff in the instances complained off for reasons known only to defendant at that time. This, to the Courts mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract.24 xxx The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have consumed more than one hour to simply go over plaintiffs past credit history with defendant, his payment record and his credit and bank references, when all such data are already stored and readily available from its computer. This Court also takes note of the fact that there is nothing in plaintiffs billing history that would warrant the imprudent suspension of action by defendant in processing the purchase. Defendants witness Jaurique admits: Q. But did you discover that he did not have any outstanding account? A. Nothing in arrears at that time. Q. You were well aware of this fact on this very date? A. Yes, sir. Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account.25 It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages are remunerative. 26 Moral damages do not avail to soothe the plaints of the simply impatient, so this decision should not be cause for relief for those who time the length of their credit card transactions with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster that there was a deadline for the completion of that purchase by petitioner before any delay would redound to the injury of his several traveling companions gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by the RTC.27 Those circumstances are fairly unusual, and should not give rise to a general entitlement for damages under a more mundane set of facts. We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts, however, it must be commensurate to the loss or injury suffered. 28 Petitioners original prayer for P5,000,000.00 for moral damages is excessive under the circumstances, and the amount awarded by the trial court of P500,000.00 in moral damages more seemly.1avvphi1 Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00 appropriate. There is similarly no cause though to disturb the determined award of P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.

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

G.R. No. 106664 March 8, 1995 PHILIPPINE AIR LINES, petitioner, vs. FLORANTE A. MIANO, respondent.

PUNO, J.: The petitioner questions the Decision of the Regional Trial Court of Makati, Branch 148, dated July 29, 1992, 1 awarding private respondent moral and exemplary damages and attorney's fees for want of legal justification. We grant the petition. The facts are uncontroverted. On August 31, 1988, private respondent took petitioner's flight PR 722, Mabuhay Class, bound for Frankfurt, Germany. He had an immediate onward connecting flight via Lufthansa flight LH 1452 to Vienna, Austria. At the Ninoy Aquino International Airport, he checked-in one brown suitcase weighing twenty (20) kilograms 2 but did not declare a higher valuation. He claimed that his suitcase contained money, documents, one Nikkon camera with zoom lens, suits, sweaters, shirts, pants, shoes, and other accessories. 3 Upon private respondent's arrival at Vienna via Lufthansa flight LH 1452, his checked-in baggage was missing. He reported the matter to the Lufthansa authorities. After three (3) hours of waiting in vain, he proceeded to Piestany, Czechoslovakia. Eleven (11) days after or on September 11, 1988, his suitcase was delivered to him in his hotel in Piestany, Czechoslovakia. He claimed that because of the delay in the delivery of his suitcase, he was forced to borrow money to buy some clothes, to pay $200.00 for the transportation of his baggage from Vienna to Piestany, and lost his Nikkon camera. 4 In November 1988, private respondent wrote to petitioner a letter demanding: (1) P10,000.00 cost of allegedly lost Nikkon camera; (2) $200.00 for alleged cost of transporting luggage from Vienna to Piestany; and (3) P100,000.00 as damages. In its reply, petitioner informed private respondent that his letter was forwarded to its legal department for investigation. Private respondent felt his demand letter was left unheeded. He instituted an action for Damages docketed as Civil Case No. 89-3496 before the Regional Trial Court of Makati. Petitioner contested the complaint. It disclaimed any liability on the ground that there was neither a report of mishandled baggage on flight PR 722 nor a tracer telex received from its Vienna Station. It, however, contended that if at all liable its obligation is limited by the Warsaw Convention rate. Petitioner filed a Third-Party Complaint against Lufthansa German Airlines imputing the mishandling of private respondent's baggage, but was dismissed for its failure to prosecute. In its decision, the trial court observed that petitioner's actuation was not attended by bad faith. Nevertheless, it awarded private respondent damages and attorney's fees, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff (private respondent) and against the defendant (petitioner), thereby ordering the latter to pay the following: (a) U.S. $200.00 as cost of transporting the suitcase from Vienna to Czechoslovakia; (b) P40,000.00 as moral damages; (c) P20,000.00 as exemplary damages; and (d) P15,000.00 as attorney's fees. SO ORDERED. 5 Hence, this petition for review. In breach of contract of carriage by air, moral damages are awarded only if the defendant acted fraudulently or in bad faith. 6 Bad faith means a breach of a known duty through same motive of interest or ill will. 7

The trial court erred in awarding moral damages to private respondent. The established facts evince that petitioner's late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In fact, it immediately coordinated with its Central Baggage Services to trace private respondent's suitcase and succeeded in finding it. At the hearing, petitioner's Manager for Administration of Airport Services Department Miguel Ebio testified that their records disclosed that Manila, the originating station, did not receive any tracer telex. 8 A tracer telex, an airline lingo, is an action of any station that the airlines operate from whom a passenger may complain or have not received his baggage upon his arrival. 9 It was reasonable to presume that the handling of the baggage was normal and regular. Upon inquiry from their Frankfurt Station, it was however discovered that the interline tag of private respondent's baggage was accidentally taken off. According to Mr. Ebio, it was customary for destination stations to hold a tagless baggage until properly identified. The tracer telex, which contained information on the baggage, is matched with the tagless luggage for identification. Without the tracer telex, the color and the type of baggage are used as basis for the matching. Thus, the delay. Worthy to stress, the trial court made an unequivocal conclusion that petitioner did not act in bad faith or with malice, viz.: xxx xxx xxx Absent a finding as to the bad intention of defendant (petitioner) PAL, this court finds it appropriate to apply the Warsaw Convention with respect to the liability of Air Carriers. 10 xxx xxx xxx The mere fact that defendant (petitioner) exerted effort to assist plaintiff (private respondent) in his predicament as shown in defendant's (petitioner's) letter to plaintiff (private respondent) (Exh. "E") and likewise the letter from Mr. Miguel Ebio, Manager-Airport Services Administration of defendant (petitioner) PAL to its Senior Counsel-Litigation, Atty. Marceliano Calica (Exh. "3") which reveals the fact that an investigation was conducted as to mishandled baggage, coupled with the fact that said information were then relayed to plaintiff (private respondent) as evidenced by a letter of defendant (petitioner) to plaintiff (private respondent) (Exh. "4") does not warrant a showing of malice on the part of defendant ( petitioner). 11 xxx xxx xxx Under the circumstances obtaining, considering that defendant's (petitioner's) actuation was not attendant with bad faith, the award of moral damages in the amount of P40,000.00 is but just and fair. 12 Bad faith must Appeals, 13 we ruled: be substantiated by evidence. In LBC vs. Court of

Bad faith under the law cannot be presumed; it must be established by clear and convincing evidence. Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could reasonably have foreseen. The damages, however, will not include liability far moral damages. (Citations omitted) We can neither sustain the award of exemplary damages. The prerequisite for the award of exemplary damages in cases of contract or quasi-contract 14 is that the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. 15 The undisputed facts do not so warrant the characterization of the action of petitioner. The award of attorney's fees must also be disallowed for lack of legal leg to stand on. The fact that private respondent was compelled to litigate and incur expenses to protect and enforce his claim did not justify the award of attorney's fees. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. 16 Petitioner is willing to pay the just claim of $200.00 as a result of the delay in the transportation of the luggage in accord with the Warsaw Convention. Needless to say, the award of attorney's fees must be deleted where the award of moral and exemplary damages are eliminated. IN VIEW WHEREOF, the assailed Decision of July 29, 1992 is MODIFIED deleting the award of moral and exemplary damages and attorney's fees. No costs. SO ORDERED.

G.R. No. 141968

February 12, 2001

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. KAPUNAN, J.: The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes.1wphi1.nt The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ of Replevin"1 before the Metropolitan Trial Court of Pasay City, Branch 45.2 On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the bank's compound. On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a manager's check in amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit.3 On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank: 1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Manager's check - the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to .secure said Manager's Check, over which appellants have no control; 2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorney's fees, and 3. to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED.4 The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of which reads: WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs against petitioner. SO ORDERED.5 The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages.

The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following assigned errors: I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT. II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS. III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT ALREADY BECAME STALE.6 As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this Court.7 While there are exceptions to this rule,8 the present case does not fall under anyone of them, the petitioner's claim to the contrary, notwithstanding. Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss. The Court of Appeals made the factual findings in this wise: In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32). The trial court, whose factual findings are entitled to respect since it has the 'opportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies' (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. The trial court opined, thus: 'As regards the third issue, plaintiffs' claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover his car. Second, he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith.' (Rollo, p. 15) The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August 28, 1995 was merely for the lowering of the price, hence 'xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to

P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him.' (Rollo, p. 12) The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In dismissing petitioner's claim, the lower court declared, thus: 'If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua non for the reduction of the appellants' obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in manager's check form to be submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the answer up to now eludes this Court's comprehension. The appellees would like this Court to believe that Dr Gueco was informed by Mr. Rivera Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29, 1995. 'This Court is not convinced by the appellees' posturing. Such claim rests on too slender a frame, being inconsistent with human experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants' substantive right, it is more in accord with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the Manager's Check and for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in reaching a compromise.' xxx.9 We see no reason to reverse. Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both .the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared: The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the 'deliberate and intentional evasion of the normal fulfillment of obligation' When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorney's fees.10 We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.11 We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. 12 The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fait. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless, oppressive or malevolent."13 We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995, respondent Dr. Gueco delivered a manager's check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent bank. However, since Dr. Gueco refused to sign

the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check.14 Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco instructed the bank to disregard the 'hold order" letter and demanded the immediate release of his car,15 to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime.16 While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners,17 it appears from the pleadings that said check has not been encashed. The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner: 1. to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Manager's Check - the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Manager's Check over which appellants have no control.18 Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale. 19 It is their position that delivery of the manager's check produced the effect of payment 20 and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance respondents' position. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof.21 A check must be presented for payment within a reasonable time after its issue,22 and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.23 The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.24 This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check.25 Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale.26 Thus, even a delay of one (1) week27 or two (2) days,28 under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance.29 It is really the bank's own check and may be treated as a promissory note with the bank as a maker.30 The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.31 Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay.32 Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined.33 In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank.1wphi1.nt WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation of the manager's check in the latter's possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. SO ORDERED.

G.R. No. L-55300 March 15, 1990 FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by her husband, FRANKLIN G. GACAL, petitioners, vs. PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON C. ANIMAS, in his capacity as PRESIDING JUDGE of the COURT OF FIRST INSTANCE OF SOUTH COTABATO, BRANCH I, respondents. Vicente A. Mirabueno for petitioners. Siguion Reyna, Montecillo & Ongsiako for private respondent.

PARAS, J.: This is a, petition for review on certiorari of the decision of the Court of First Instance of South Cotabato, Branch 1, * promulgated on August 26, 1980 dismissing three (3) consolidated cases for damages: Civil Case No. 1701, Civil Case No. 1773 and Civil Case No. 1797 (Rollo, p. 35). The facts, as found by respondent court, are as follows: Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the late Elma de Guzman, were then passengers boarding defendant's BAC 1-11 at Davao Airport for a flight to Manila, not knowing that on the same flight, Macalinog, Taurac Pendatum known as Commander Zapata, Nasser Omar, Liling Pusuan Radia, Dimantong Dimarosing and Mike Randa, all of Marawi City and members of the Moro National Liberation Front (MNLF), were their co-passengers, three (3) armed with grenades, two (2) with .45 caliber pistols, and one with a .22 caliber pistol. Ten (10) minutes after take off at about 2:30 in the afternoon, the hijackers brandishing their respective firearms announced the hijacking of the aircraft and directed its pilot to fly to Libya. With the pilot explaining to them especially to its leader, Commander Zapata, of the inherent fuel limitations of the plane and that they are not rated for international flights, the hijackers directed the pilot to fly to Sabah. With the same explanation, they relented and directed the aircraft to land at Zamboanga Airport, Zamboanga City for refueling. The aircraft landed at 3:00 o'clock in the afternoon of May 21, 1976 at Zamboanga Airport. When the plane began to taxi at the runway, it was met by two armored cars of the military with machine guns pointed at the plane, and it stopped there. The rebels thru its commander demanded that a DC-aircraft take them to Libya with the President of the defendant company as hostage and that they be given $375,000 and six (6) armalites, otherwise they will blow up the plane if their demands will not be met by the government and Philippine Air Lines. Meanwhile, the passengers were not served any food nor water and it was only on May 23, a Sunday, at about 1:00 o'clock in the afternoon that they were served 1/4 slice of a sandwich and 1/10 cup of PAL water. After that, relatives of the hijackers were allowed to board the plane but immediately after they alighted therefrom, an armored car bumped the stairs. That commenced the battle between the military and the hijackers which led ultimately to the liberation of the surviving crew and the passengers, with the final score of ten (10) passengers and three (3) hijackers dead on the spot and three (3) hijackers captured. City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the course of her jumping out of the plane when it was peppered with bullets by the army and after two (2) hand grenades exploded inside the plane. She was hospitalized at General Santos Doctors Hospital, General Santos City, for two (2) days, spending P245.60 for hospital and medical expenses, Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left elbow for which she was hospitalized and operated on at the San Pedro Hospital, Davao City, and therefore, at Davao Regional Hospital, Davao City, spending P4,500.00. Elma de Guzman died because of that battle. Hence, the action of damages instituted by the plaintiffs demanding the following damages, to wit: Civil Case No. 1701 City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal actual damages: P245.60 for hospital and medical expenses of Mrs Gacal; P8,995.00 for their personal belongings which were lost and not recovered; P50,000.00 each for moral damages; and P5,000.00 for attorney's fees, apart from the prayer for an award of exemplary damages (Record, pp. 4-6, Civil Case No. 1701). Civil Case No. 1773

xxx xxx xxx Civil Case No. 1797 xxx xxx xxx The trial court, on August 26, 1980, dismissed the complaints finding that all the damages sustained in the premises were attributed to force majeure. On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal, plaintiffs in Civil Case No. 1701, filed a notice of appeal with the lower court on pure questions of law (Rollo, p. 55) and the petition for review on certiorari was filed with this Court on October 20, 1980 (Rollo, p. 30). The Court gave due course to the petition (Rollo, p. 147) and both parties filed their respective briefs but petitioner failed to file reply brief which was noted by the Court in the resolution dated May 3, 1982 (Rollo, p. 183). Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton and inexcusable negligence of respondent Airline personnel in their failure to frisk the passengers adequately in order to discover hidden weapons in the bodies of the six (6) hijackers. They claimed that despite the prevalence of skyjacking, PAL did not use a metal detector which is the most effective means of discovering potential skyjackers among the passengers (Rollo, pp. 6-7). Respondent Airline averred that in the performance of its obligation to safely transport passengers as far as human care and foresight can provide, it has exercised the utmost diligence of a very cautious person with due regard to all circumstances, but the security checks and measures and surveillance precautions in all flights, including the inspection of baggages and cargo and frisking of passengers at the Davao Airport were performed and rendered solely by military personnel who under appropriate authority had assumed exclusive jurisdiction over the same in all airports in the Philippines. Similarly, the negotiations with the hijackers were a purely government matter and a military operation, handled by and subject to the absolute and exclusive jurisdiction of the military authorities. Hence, it concluded that the accident that befell RP-C1161 was caused by fortuitous event, force majeure and other causes beyond the control of the respondent Airline. The determinative issue in this case is whether or not hijacking or air piracy during martial law and under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the incident. Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case (Article 1733). They are presumed at fault or to have acted negligently whenever a passenger dies or is injured (Philippine Airlines, Inc. v. National Labor Relations Commission, 124 SCRA 583 [1983]) or for the loss, destruction or deterioration of goods in cases other than those enumerated in Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463 [1987]). The source of a common carrier's legal liability is the contract of carriage, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide. There is breach of this obligation if it fails to exert extraordinary diligence according to all the circumstances of the case in exercise of the utmost diligence of a very cautious person (Isaac v. Ammen Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]). It is the duty of a common carrier to overcome the presumption of negligence (Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed the required extraordinary diligence of a very cautious person as far as human care and foresight can provide or that the accident was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523 [1976]). Thus, as ruled by this Court, no person shall be responsible for those "events which could not be foreseen or which though foreseen were inevitable. (Article 1174, Civil Code). The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the same sense as "force majeure" (Words and Phrases Permanent Edition, Vol. 17, p. 362). In order to constitute a caso fortuito or force majeure that would exempt a person from liability under Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of the breach of the obligation must be independent of the human will (the will of the debtor or the obligor); (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971];

Estrada v. Consolacion, supra; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same (Republic v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]). Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all members of the Moro National Liberation Front (MNLF), without any connection with private respondent, hence, independent of the will of either the PAL or of its passengers. Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been avoided had there been a more thorough frisking of passengers and inspection of baggages as authorized by R.A. No. 6235. But the incident in question occurred during Martial Law where there was a military take-over of airport security including the frisking of passengers and the inspection of their luggage preparatory to boarding domestic and international flights. In fact military take-over was specifically announced on October 20, 1973 by General Jose L. Rancudo, Commanding General of the Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the Civil Aeronautics Administration (Rollo, pp. 71-72) later confirmed shortly before the hijacking incident of May 21, 1976 by Letter of Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72). Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the Philippines to the exclusion of the former. Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence of force majeure has been established exempting respondent PAL from the payment of damages to its passengers who suffered death or injuries in their persons and for loss of their baggages. PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the decision of the Court of First Instance of South Cotabato, Branch I is hereby AFFIRMED. SO ORDERED.

G.R. No. L-54470 May 8, 1990 PHILIPPINE AIRLINES, INC., petitioner, vs. HON. COURT OF APPEALS and NATIVIDAD VDA. DE PADILLA, substituted by her legal heirs, namely: AUGUSTO A. PADILLA, ALBERTO A. PADILLA, CRESENCIO R. ABES (representing the deceased Isabel Padilla Abes) MIGUEL A. PADILLA and RAMON A. PADILLA, respondents. Siguion Reyna, Montecillo & Ongsiako for petitioner. Ambrosio Padilla, Mempin & Reyes Law Offices for private respondents.

GRIO-AQUINO, J.: The only legal issue raised by the petitioner in this thirty-year-old case is whether the indemnity for the death of private respondent's son, the late Nicanor A. Padilla should be computed on the basis of his life expectancy, as the trial court and the Court of Appeals did, rather than the life expectancy of private respondent, his only legal heir, as the petitioner contends. On November 23, 1960, at 5:30 P.M., Starlight Flight No. 26 of the Philippine Air Lines (hereafter PAL) took off from the Manduriao Airport in Iloilo, on its way to Manila, with 33 persons on board, including the plane's complement. The plane did not reach its destination but crashed on Mt. Baco, Mindoro, one hour and fifteen minutes after takeoff .The plane was Identified as PI-C133, a DC-3 type aircraft manufactured in 1942 and acquired by PAL in 1948. It had flown almost 18,000 hours at the time of its illfated flight. It had been certified as airworthy by the Civil Aeronautics Administration. Among the fatalities was Nicanor Padilla who was a passenger on the star crossed flight. He was 29 years old, single. His mother, Natividad A. Vda. de Padilla, was his only legal heir. As a result of her son's death, Mrs. Padilla filed a complaint (which was amended twice) against PAL, demanding payment of P600,000 as actual and compensatory damages, plus exemplary damages and P60,000 as attorney's fees. In its answer, PAL denied that the accident was caused by its negligence or that of any of the plane's flight crew, and that, moreover, the damages sought were excessive and speculative. On November 23, 1964, the trial court issued a pre-trial order requiring the parties to file on or before January 30, 1965 a stipulation of facts, or a negative manifestation in case they failed to submit a stipulation. On June 8, 1965, the parties submitted a partial stipulation of facts providing as follows: 1. Plaintiff is the widow of the late Alberto R. Padilla Filipino, of legal age, and a resident of and with postal address at No. 970 (formerly No. 247) Gral. Solano St., San Miguel, Manila, while defendant Philippine Air Lines, Inc. is a corporation duly organized, registered and existing under and by virtue of the laws of the Philippines, engaged, as a common carrier in the business of carrying or transporting by air passengers and goods, offering its services to the public as such for compensation, with offices at Makati Bldg., Makati, Rizal. 2. Nicanor A. Padilla was born on January 10, 1931. He was a son by lawful marriage of plaintiff and Alberto R. Padilla, who died on September 2, 1948. 3. Nicanor A. Padilla finished the elementary grades in 1943, high school in 1947, graduated the Reserve Officer's Course (Infantry Basic Course) Armed Forces of the Philippines in 1949, and graduated with the degree of Bachelor of Literature in 1951 and the degree of Bachelor of Laws in 1954, all in Ateneo de Manila. 4.

He was admitted by the Supreme Court of the Philippines to practice law on January 28, 1955, and from January 1958, to the time of his death on November 23, 1960, he was associated with the law offices of Senator Ambrosio Padilla, brother of his father, Alberto R. Padilla. 5. At the time of his death, he was the President and General Manager of the Padilla Shipping Co., Inc. He was also Vice-President and Treasurer of the Allied Overseas Trading Co., Inc. 6. He was a member of the Board of Directors of the Junior Chamber of Commerce (Jaycees) International and Chairman of its Committee on Governmental Affairs for the term 1960-1961. This Committee on Governmental Affairs published a pamphlet entitled "Good Government is our Business," for which the deceased was named "Jaycee of the Month of January 1960." 7. Nicanor A. Padilla, while travelling and being transported and flown as a paid passenger on one [of] defendant's aircraft, a DC-3 with registry No. PI-C133, on "Star Light Flight" No. 26 bound for Manila from the City of Iloilo on November 23, 1960, was killed when said plane crashed in the area of Mount Baco, Oriental Mindoro 8. Nicanor A. Padilla died single, leaving as his nearest of kin and sole heiress to his estate his mother the plaintiff herein with whom he was residing at the time of his death at 970 Gral. Solano St., Manila. 9. The aircraft (PI-C133) that crashed on Mt. Baco, Oriental Mindoro on November 23, 1960, was a twin-engine passenger plane of the Philippine Air Lines of the DC-3 type. It was manufactured by Douglas Aircraft Corporation of the United States for the U.S. Army and was purchased from the latter by the Commercial Air lines, Inc., on September 25, 1946. The defendant Philippine Air Lines acquired the plane from the Commercial Air Lines, Inc., on October 15, 1948. The aircraft was registered by Philippine Air Lines with the Civil Aeronautics Administration as PIC142 on May 10, 1949. On October 15, 1953, PI-C142 met with a non-fatal accident at Piat, Tuguegarao, Cagayan. PAL requested the Civil Aeronautics Administration for a change in the identification mark. Said request was granted and the registration number was changed from PIC142 to PI-C133 on July 29, 1954. As [ofl November 22, 1960, the day before the fatal crash on Mt. Baco, PI-C133 had a total flying time of 17,996:33 hours. 10. PI-C133 was issued a certificate of airworthiness by the Civil Aeronautics Administration on September 13, 1960 which was to expire on September 12, 1961; a copy of which is attached hereto as Exhibit "I" and made a part of this stipulation. 11. Other facts on which the parties cannot agree will be subject to proof at the trial. (pp. 34-39, Record on Appeal; p. 11 7, Rollo.) On January 15, 1966, the parties submitted another partial stipulation of facts: 1. That in the book written by Salvador B. Salvosa, M.S. University of Michigan and member of the Actuarial Society of the Philippine, entitled; "Filipino Experience Mortality Table," the complete life expectancy of Filipinos appear on page 3 thereof, a photostat of which is attached hereto as Exhibit "A." 2. That in said Exhibit "A", the columns under the heading "Age x," refers to the age of the individual, and the columns "oe x" refers to the corresponding number of years the individuals

expected to live. Thus, under the column "Age x," a person aged 29, the corresponding life expectancy of said person under column "oex" is "42.60" years; and under said column "Age x" a person aged 60, corresponding life expec tancy of said person under column 'oex' is "17.90" years; 3. That Salvador B. Salvosa's "Filipino Experience Mortality Table," including the table of life expectancy are used by the Philippine International life Insurance Co., the Sterling Life Insurance Co., the Cardinal Life Insurance Co., and Star life Insurance Co., and that the same has been approved by the Insurance Commissioner for the use of life insurance companies doing business in the Philippines as shown by a certificate issued by said Commissioner which is attached hereto as Exhibit "B"; 4. That the book of Nelson and Warren, Consulting Actuaries of St. Luis and Kansas cities, Missouri, entitled: "Principal Mortality Tables", contains a table of comparison of complete life expectancy based on principal mortality tables used by life insurance companies, a photostat of which is likewise attached hereto as Exhibits "C", "C-l", "C-2", and "C-3"; 5. That of the life expectancy based on the different systems mentioned in said Exhibits "C", "C-1", "C-2" and "C-3", the following are also used in the Philippines for life insurance purposes: (a) the American Experience appearing in Exhibit "B", 'fifth columns on both pages, the first column corresponding to the age of the individual (pages 12 and 13 of the book); (b) the Standard Industrial, appearing in the same Exhibit "B", "sixth column on both pages (pages 12 and 13 of the book); and (c) the 1941 Commissioner Standard Ordinary, or CSO 1941 for short, appearing in Exhibit "B-1", third column, on both pages (pages 14 and 15 of the book). 6. That the materiality and applicability [sic] of the life expectancy tables shown in Exhibit A or Exhibits "C", "C-1", "C-2" and "C-3" are left to the judgment of the Honorable Court. (pp. 39-42, Record on Appeal; p. 117, Rollo.) On March 19, 1970, a third joint partial stipulation of facts was submitted by the parties to the trial court which reads, thus: JOINT FIRST PARTIAL STIPULATION OF FACTS Plaintiff and defendant through their respective counsel, respectfully submit the following partial stipulation of facts: 1. Defendant in November, 1960 and even before was authorized and rated to repair aircrafts of U.S. and foreign registries and as such holds the following: Description Exhibit a) US FAA Air Agency 1 Certificate b) US FAA Repair Station Operations Specifications (2 pages) PI- 2 and 2-A c) CAA Rating Grant to operate Repair Station with ratings on [sic] (i) Aircraft Metal

propeller Hubs Overhaul Shop, (ii) Aircraft Engine Overhaul Shop. 3 d) PI.-CAA Rating Grant to operate a repair station with ratings on (i) Aircraft of Composite Construction; (ii) Aircraft of all Metal Construction; (iii) Aircraft Instrument. 4 2. Defendant maintained and repaired aircrafts of the U.S. Air Force, U.S. Navy and commercial carriers like PANAM Northwest Airways, KLM and other foreign airlines. 3. Also in 1960 defendant was maintaining and following a CAA approved system of aircraft maintenance control using worksheets and work card which record the specific job on any particular aircraft. They are: a) Preflight inspections consisting of the (i) Through Check: the visual inspection of an aircraft prior to flight and performed in stations where maintenance men are assigned. (ii) Terminating Check: the visual inspection of the aircraft performed in stations were aircraft terminated a flight and where maintenance men are assigned. (iii) After Maintenance Check: the visual inspection of an aircraft preparatory to any flight following the completion of any check from Check No. 1 to Cheek No. 6, to wit: (a) Check No. 1 known as daily inspection check; (b) Check No. 2 which is accomplished every 125 hours; (c) Check No. 3 which is accomplished every 250 flying hours; (d) Check No. 4 which is accomplished every 500 flying hours; (e) Check No. 5 which is accomplished every 1,250 flying hours; (f) Check No. 6 which is a series broken down into 6- A, 6-B, 6-C, 6-D, 6-E and 6-F; 4. The Quality Control Division is the custodian of all worksheets for the checks performed and under PI-CAA regulations, is required to keep the records for at least 90 days. 5. The forms used and accomplished for the various checks were: Description Exhibit a) Preflight check sheet, including DC-3C Daily

Airplane and Engine Routine and Cleaning Routine; 5,6 & 6-A b) Check No. 2, consisting of 37 work control cards; 7-A to 7-KK c) Check No. 3 consisting of 49 work control cards; 8, 8-A to 8-XX d) Check No. 4 consisting of a work control card; 9, 9-A to 9-F e) Check No. 5 consisting of 00, 10-A to 9 work control cards; 10-H f) Check No. 6-A consisting of 11, 11-A to 112 work control cards; 11-(G) g) Check No. 6-B consisting of 12, 12-A to 114 work control cards; 12-(J) h) Check No. 6-C consisting of 13, 13-A to 117 work control cards 13-(I) i) Check No. 6-D consisting of 14,14-A to 110 work control cards; 14-(E) j) Check No. 6-E consisting of 15,15-A to 120 work control cards; 15-(E) k) Check No. 6-F consisting of 16,16-A to 118 work control cards 16-(M) The parties reserve their right to agree to additional stipulation of facts and/or to adduce evidence on other matters not covered by this stipulation. All exhibits mentioned and identified are attached to this stipulation. (pp. 42-46, Record on Appeal; p. 117, Rollo.) During the hearing on September 4, 1972, the parties stipulated that they were reproducing the testimonial and documentary evidence presented in Civil Cases Nos. 5728 and 2790 of the Court of First Instance of Iloilo, arising out of the same accident. Certified copy of said transcript of stenographic notes were then submitted to the trial court. A fourth partial stipulation of facts was submitted by the parties, reading as follows: PARTIAL STIPULATION OF FACTS Plaintiff and defendant respectfully submit the following partial stipulation of facts: 1. For the convenience and brevity of these proceedings, considering that defendant's evidence on the basic issues of fortuitous event and extraordinary diligence of the carrier consists of the witnesses and documents presented in Civil Case No. 5720 of the Court of First Instance of Iloilo entitled "Pedro R. Davila vs. Preciosa C. Tirol," now pending appeal before the Supreme

Court in G.R. No. L-28512, defendant has proposed to reproduce in this case the testimonies of same witnesses and documentary evidence Identified and marked in the course of the same proceedings, as reflected in the corresponding transcript of stenographic notes, to wit: Transcript of Witnesses Stenographic Notes At Pages Exhibit a Mario Rodriguez October 30, 1962 1 - 67 37 October 31, 1962 67 - 153 38 January 7, 1963 17 - 74 39 October 14, 1963 6 - 11 40 b. Pedro N. Mallari March 19, 1963 17 - 39) c. Arturo Camatoy March 19, 1963 39 - 75) 41 d. Ponciano Saldaa March 19, 1963 75 - 88) e. Melecio Joson March 20, 1963 91 - 161) 42 f. Alfredo Subesa March 20, 1963 162 - 166) g. Eduardo Estrella October 14, 1963 11 - 27) h. Vicente Sison October 14, 1963 27 - 74) i. Felipe Paculaba October 15, 1963 4 - 15 j. Antonio Lopez October 15, 1963 15 - 25) 43 k. Isaac Lamela October 15, 1963 26 - 55) l. Ramon Pedrosa December 19, 1963 6 - 83 44 m. Cesar Mijares December 20, 1963 15 - 89 45 n. Jaime Manzano February 6, 1964 3 - 15) 46 o. Offer of documentary evidence February 6, 1964 18 - 76) 2. The transcript of stenographic notes are attached hereto and marked as above set forth. 3. If aforenamed witnesses were called to testify in this case, they would give the same testimony as shown in the afore-mentioned transcript of stenographic notes on direct examination, cross-examination and re-direct examination, as the case may be plaintiffs counsel hereby adopting the manifestations, objections, cross and recross examination by the plaintiff's counsels in Davila vs. PAL, supra and so far as the joint hearings held on December 20, 1963 and February 6, 1964, also of plaintiff's counsels in Abeto, et al. vs. PAL, Civil Case No. 5790, also of the Court of First Instance of Iloilo. 4. All the documentary evidence marked in the course of the hearings shown in the transcripts of stenographic notes attached hereto have already been marked correspondingly before the Commissioner of this Honorable Court on a hearing held on May 24, 1968 with the same exhibit identification. 5. Defendant reserves its right to present evidence on the question of damages.

6. Plaintiff reserves her right to present such further evidence as she may deem proper in rebuttal. (pp. 47-50, Record on Appeal; p. 117, Rollo.) In addition to the stipulations of facts, private respondent Padilla testified that her son, Nicanor Padilla, prior to his death, was 29 years old, single, in good health, President and General Manager of Padilla Shipping Company at Iloilo City, and a legal assistant of the Padilla Law Office; that upon learning of the death of her son in the plane crash, she suffered shock and mental anguish, because her son who was still single was living with her; and that Nicanor had a life insurance of P20,000, the proceeds of which were paid to his sister. Eduardo Mate, manager of the Allied Overseas Trading Company, testified that the deceased, Nicanor Padilla, was one of the incorporators of the company and also its vice-president and treasurer, receiving a monthly salary of P455. Isaac M. Reyes, auditor of the Padilla Shipping Company, declared that the deceased was the President and General of the firm and received a salary of P1,500 monthly. The trial court in its decision stated that on March 19, 1970, it was manifested in court that "the parties agreed that they will abide with whatever decision the Supreme Court may have in similar cases involving the same airplane crash accident then pending before other courts pending decision in Supreme Court" (p. 51, Rec. on Appeal; p. 117, Rollo) On August 31, 1973, the trial court promulgated a decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the defendant Philippine Air Lines, Inc. to pay the plaintiff Natividad A. Vda. de Padilla the sum of P477,000.00 as award for the expected income of the deceased Nicanor; P10,000.00 as moral damages; P10,000.00 as attorney's fees; and to pay the costs. (pp. 59-60, Record on Appeal; p. 117, Rollo.) On Appeal to the Court of Appeals (CA-G.R. No. 56079-R) dated July 17, 1980, the decision of the trial court was affirmed in toto. As pointed out at the outset, the lone issue is whether or not the respondent court erred in computing the awarded indemnity on the basis of the life expectancy of the late Nicanor A. Padilla rather than on the life expectancy of private respondent, and thus erred in awarding what appears to the petitioner as the excessive sum of P477,000 as indemnity for loss of earnings. Petitioner relies on "the principle of law generally recognized and applied by the courts in the United States" that "the controlling element in determining loss of earnings arising from death is, as established by authorities, the life expectancy of the deceased or of the beneficiary, whichever is shorter (p. 19, Brief for the DefendantAppellant; p. 119, Rollo). However, resort to foreign jurisprudence would be proper only if no law or jurisprudence is available locally to settle a controversy. Even in the absence of local statute and case law, foreign jurisprudence is only persuasive. For the settlement of the issue at hand, there are enough applicable local laws and jurisprudence. Under Article 1764 and Article 2206(1) of the Civil Code, the award of damages for death is computed on the basis of the life expectancy of the deceased, not of his beneficiary. The articles provide: Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Art. 2206. The amount of damages for death caused by a crime or quasi- delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; . . . (Emphasis supplied.) In the case of Davila vs. PAL, 49 SCRA 497 which involved the same tragic plane crash, this Court determined not only PALs liability for negligence or breach of contract, but also the manner of computing the damages due the plaintiff therein which it based on the life expectancy of the deceased, Pedro Davila, Jr. This Court held thus:

The deceased, Pedro Davila, Jr., was single and 30 years of age when he died. At that age one's normal life expectancy is 33-1/3 years, according to the formula (2/3 x [80-30]) adopted by this Court in the case of Villa Rey Transit, Inc. vs. Court of Appeals on the basis of the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality. However, although the deceased was in relatively good health, his medical history shows that he had complained of and been treated for such ailments as backaches, chest pains and occasional feelings of tiredness. It is reasonable to make an allowance for these circumstances and consider, for purposes of this case, a reduction of his life expectancy to 25 years. xxx xxx xxx Considering the fact that the deceased was getting his income from three (3) different sources, namely, from managing a radio station, from law practice and from farming, the expenses incidental to the generation of such income were necessarily more than if he had only one source. Together with his living expenses, a deduction of P600.00 a month, or P7,200.00 a year, seems to Us reasonable, leaving a net yearly income of P7,800.00. This amount, multiplied by 25 years, or P195,000.00 is the amount which should be awarded to the plaintiffs in this particular respect. (pp. 504-505, Rollo.) The petitioner's recourse to our decision in Alcantara vs. Surro, 93 Phil. 472, undermines instead of supporting its stand here, for the indemnity in that case was also based on the life expectancy of the deceased and not of his beneficiaries. The petitioner's contention that actual damages under Article 2206 of the Civil Code must be proven by clear and satisfactory evidence is correct, but its perception that such evidence was not presented in this case, is error. The witnesses Mate and Reyes, who were respectively the manager and auditor of Allied Overseas Trading Company and Padilla Shipping Company, were competent to testify on matters within their personal knowledge because of their positions, such as the income and salary of the deceased, Nicanor A. Padilla (Sec. 30, Rule 130, Rules of Court). As observed by the Court of Appeals, since they were cross-examined by petitioner's counsel, any objections to their competence and the admissibility of their testimonies, were deemed waived. The payrolls of the companies and the decedent's income tax returns could, it is true, have constituted the best evidence of his salaries, but there is no rule disqualifying competent officers of the corporation from testifying on the compensation of the deceased as an officer of the same corporation, and in any event, no timely objection was made to their testimonies. Following the procedure used by the Supreme Court in the case of Davila vs. PAL, 49 SCRA 497, the trial court determined the victims gross annual income to be P23,100 based on his yearly salaries of P18,000 from the Padilla Shipping Company and P5,100 from the Allied Overseas Trading Corporation. Considering that he was single, the court deducted P9,200 as yearly living expenses, resulting in a net income of P13,900 (not P15,900 as erroneously stated in the decision). Since Nicanor Padilla was only 29 years old and in good health, the trial court allowed him a life expectancy of 30 years. Multiplying his annual net income of P13,900 by his life expectancy of 30 years, the product is P417,000 (not P477,000) which is the amount of death indemnity due his mother and only forced heir (p. 58, Record on Appeal; p. 117, Rollo). While as a general rule, an appellee who has not appealed is not entitled to affirmative relief other than the ones granted in the decision of the court below (Aparri vs. CA, 13 SCRA 611; Dy vs. Kuizon, 113 Phil. 592; Borromeo vs. Zaballero, 109 Phil. 332), we nevertheless find merit in the private respondent's plea for relief for the long delay this case has suffered on account of the petitioner's multiple appeals. Indeed, because of the 16 year delay in the disposition of this case, the private respondent herself has already joined her son in the Great Beyond without being able to receive the indemnity she well deserved. Considering how inflation has depleted the value of the judgment in her favor, in the interest of justice, the petitioner should pay legal rate of interest on the indemnity due her. The failure of the trial court to award such interest amounts to a "plain error" which we may rectify on appeal although it was not specified in the appellee's brief (Sec. 7, Rule 51, Rules of Court). WHEREFORE, the petition is dismissed. The decision of the trial court is affirmed with modification. The petitioner is ordered to pay the private respondent or her heirs death indemnity in the sum of P417,000 (not P477,000), with legal rate of interest of 6% per annum from the date of the judgment on August 31, 1973, until it is fully paid. Costs against the petitioner. SO ORDERED.

G.R. No. 126389 July 10, 1998 SOUTHEASTERN COLLEGE INC., petitioner, vs. COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO and MILAGROS DIMAANO, respondents.

PURISIMA, J.: Petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision 1 promulgated on July 31, 1996, and Resolution 2 dated September 12, 1996 of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda. de Dimaano, et al. vs. Southeastern College, Inc.", which reduced the moral damages awarded below from P1,000,000.00 to P200,000.00. 4 The Resolution under attack denied petitioner's motion for reconsideration. Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a four-storey school building along the same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit Metro Manila. Buffeted by very strong winds, the roof of petitioner's building was partly ripped off and blown away, landing on and destroying portions of the roofing of private respondents' house. After the typhoon had passed, an ocular inspection of the destroyed building was conducted by a team of engineers headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's Report 5 dated October 18, 1989 stated, as follows: 5. One of the factors that may have led to this calamitous event is the formation of the building in the area and the general direction of the wind. Situated in the peripheral lot is an almost Ushaped formation of 4-storey building. Thus, with the strong winds having a westerly direction, the general formation of the building becomes a big funnel-like structure, the one situated along College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of the roofing, those located on both ends of the building, which remained intact after the storm. 6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural trusses is the improper anchorage of the said trusses to the roof beams. The 1/2' diameter steel bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses, thus, those trusses are not anchored at all to the roof beams. It then recommended that "to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity," the fourth floor of subject school building be declared as a "structural hazard." In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for damages based on culpa aquiliana, private respondents alleged that the damage to their house rendered the same uninhabitable, forcing them to stay temporarily in others' houses. And so they sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary damages and P100,000.00, for and as attorney's fees; plus costs. In its Answer, petitioner averred that subject school building had withstood several devastating typhoons and other calamities in the past, without its roofing or any portion thereof giving way; that it has not been remiss in its responsibility to see to it that said school building, which houses school children, faculty members, and employees, is "in tip-top condition"; and furthermore, typhoon "Saling" was "an act of God and therefore beyond human control" such that petitioner cannot be answerable for the damages wrought thereby, absent any negligence on its part. The trial court, giving credence to the ocular inspection report to the effect that subject school building had a "defective roofing structure," found that, while typhoon "Saling" was accompanied by strong winds, the damage to private respondents' houses "could have been avoided if the construction of the roof of [petitioner's] building was not faulty." The dispositive portion of the lower court's decision 7 reads, thus: WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff (sic) and against the defendants, (sic) ordering the latter to pay jointly and severally the former as follows: a) P117,116.00, as actual damages, plus litigation expenses;

b) P1,000,000.00 as moral damages; c) P100,000.00 as attorney's fees; d) Costs of the instant suit. The claim for exemplary damages is denied for the reason that the defendants (sic) did in a wanton fraudulent, reckless, oppressive or malevolent manner. In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that: I THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON "SALING", AS AN ACT OF GOD, IS NOT "THE SOLE AND ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4) STOREY SCHOOL BUILDING. II THE TRIAL COURT ERRED IN HOLDING THAT "THE CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON "SALING" WHICH IS THE DIRECT AND PROXIMATE CAUSE OF THE INCIDENT. III THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL AS ATTORNEY'S FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC. IV THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERN'S APPEAL WHEN THERE IS NO COMPELLING REASON FOR THE ISSUANCE THERETO. As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court's disposition by reducing the award of moral damages from P1,000,000.00 to P200,000.00. Hence, petitioner's resort to this Court, raising for resolution the issues of: 1. Whether or not the award of actual damages [sic] to respondent Dimaanos on the basis of speculation or conjecture, without proof or receipts of actual damage, [sic] legally feasible or justified. 2. Whether or not the award of moral damages to respondent Dimaanos, with the latter having suffered, actual damage has legal basis. 3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject matter of the case, during its pendency, has the right to pursue their complaint against petitioner when the case was already moot and academic by the sale of the property to third party. 4. Whether or not the award of attorney's fees when the case was already moot academic [sic] legally justified. 5. Whether or not petitioner is liable for damage caused to others by typhoon "Saling" being an act of God. 6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without hearing, has support in law. The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof of the building of private respondents resulting from the impact of the falling portions of the school building's roof ripped off by the strong winds of typhoon "Saling", was, within legal contemplation, due to fortuitous event? If so, petitioner cannot be held liable for the damages suffered by the private respondents. This conclusion finds support in Article 1174 of Civil Code, which provides:

Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as "an event which takes place by accident and could not have been foreseen." 9 Escriche elaborates it as "an unexpected event or act of God which could neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino adds that "[f]ortuitous events may be produced by two general causes: (1) by nature, such as earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." 11 In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or misconduct by reason of which the loss may have been occasioned. 12 An act of God cannot be invoked for the protection of a person who has been guilty of gross negligence in not trying to forestall its possible adverse consequences. When a person's negligence concurs with an act of God in producing damage or injury to another, such person is not exempt from liability by showing that the immediate or proximate cause of the damages or injury was a fortuitous event. When the effect is found to be partly the result of the participation of man whether it be from active intervention, or neglect, or failure to act the whole occurrence is hereby humanized, and removed from the rules applicable to acts of God. 13 In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school building's roofing had "no sufficient anchorage to hold it in position especially when battered by strong winds." Based on such finding, the trial court imputed negligence to petitioner and adjudged it liable for damages to private respondents. After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the general rule that factual findings by the trail court, especially when affirmed by the appellate court, are binding and conclusive upon this Court. 14 After a careful scrutiny of the records and the pleadings submitted by the parties, we find exception to this rule and hold that the lower courts misappreciated the evidence proffered. There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable despite any amount of foresight, diligence or care. 15 In order to be exempt from liability arising from any adverse consequence engendered thereby, there should have been no human participation amounting to a negligent act. 16 In other words; the person seeking exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance which the circumstances justify demand, 17 or the omission to do something which a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human affairs, would do. 18 From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused to private respondents' house could have been avoided? At the outset, it bears emphasizing that a person claiming damages for the negligence of another has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts constitutive of negligence must be affirmatively established by competent evidence, 19 not merely by presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of petitioner, merely relied on the aforementioned report submitted by a team which made an ocular inspection of petitioner's school building after the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or viewing. 20 What is visual to the eye through, is not always reflective of the real cause behind. For instance, one who hears a gunshot and then sees a wounded person, cannot always definitely conclude that a third person shot the victim. It could have been self-inflicted or caused accidentally by a stray bullet. The relationship of cause and effect must be clearly shown. In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial unroofing of petitioner's school building. Private respondents did not even show that the plans, specifications and design of said school building were deficient and defective. Neither did they prove any substantial deviation from the approved plans and specifications. Nor did they conclusively establish that the construction of such building was basically flawed. 21 On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the original plans and design of petitioner's school building were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement before the construction of any building to obtain a permit from the city building official (city engineer, prior to the passage of the Building Act of 1977). In like manner, after construction of the building, a certification must be secured from the same official attesting to the readiness for occupancy of the edifice. Having obtained both building permit and certificate of occupancy, these are, at the very least, prima facie evidence of the regular and proper construction of subject school building. 22

Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official gave the go-signal for such repairs without any deviation from the original design and subsequently, authorized the use of the entire fourth floor of the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its "U-shaped" form was "structurally defective." Having given his unqualified imprimatur, the city building official is presumed to have properly performed his duties 23 in connection therewith. In addition, petitioner presented its vice president for finance and administration who testified that an annual maintenance inspection and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it would be corroborative of the vice president's narration. Moreover, the city building official, who has been in the city government service since 1974, admitted in open court that no complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench. It is a matter of judicial notice that typhoons are common occurrences in this country. If subject school building's roofing was not firmly anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than "Saling." In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We thus hold that petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school building in question and that typhoon "Saling" was the proximate cause of the damage suffered by private respondents' house. With this disposition on the pivotal issue, private respondents' claim for actual and moral damages as well as attorney's fees must fail. 24 Petitioner cannot be made to answer for a purely fortuitous event. 25 More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral damages. Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred. 26 It is not enough that the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts that afford a basis for measuring whatever compensatory damages are borne. 27 Private respondents merely submitted an estimated amount needed for the repair of the roof their subject building. What is more, whether the "necessary repairs" were caused ONLY by petitioner's alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question that remains indeterminable. The Court deems unnecessary to resolve the other issues posed by petitioner. As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is hereby nullified and set aside. Private respondents are ordered to reimburse any amount or return to petitioner any property which they may have received by virtue of the enforcement of said writ. WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The complaint of private respondents in Civil Case No. 7314 before the trial court a quo is ordered DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET ASIDE. Accordingly, private respondents are ORDERED to return to petitioner any amount or property received by them by virtue of said writ. Costs against the private respondents. 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., 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 Verbale stated 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 petitioner,

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 attorneys fees. However, Globe refused to heed Philcomsats 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, attorneys 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 attorneys fees; 3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and 4. With costs against the defendant. SO ORDERED.9 Both parties appealed the trial courts 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 attorneys fees. It explained that it terminated Philcomsats 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 Philcomsats appeal for lack of merit and affirming the trial courts 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 Governments 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 Philcomsats 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 MAJEURE DIFFERENT 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 COURTS AWARD OF ATTORNEYS 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 courts pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated Philcomsats 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 courts findings, it is entitled to attorneys fees and exemplary damages.16 In its Comment to Philcomsats 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 attorneys 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 Philcomsats services were actually terminated on 08 November 1992.20 In its Comment, Philcomsat claims that Globes 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 Philcomsats 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 attorneys 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 Philcomsats 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 formers 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 PHILCOMSATs 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 GLOBEs 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 courts 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 courts 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 attorneys fees and exemplary damages. The award of attorneys 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 attorneys fees where a party acted in gross and evident bad faith in refusing to satisfy the other partys 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 attorneys 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 Philcomsats 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 CAG.R. CV No. 63619 is AFFIRMED. SO ORDERED.

G.R. No. 159617

August 8, 2007 de R.C. SICAM, INC., petitioners,

ROBERTO C. SICAM and AGENCIA vs. LULU V. JORGE and CESAR JORGE, respondents. DECISION AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633. It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan in the total amount of P59,500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Paraaque Police Station as follows: Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above. Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number.3 Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry. On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035. Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. Respondents subsequently filed an Amended Complaint to include petitioner corporation. Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.5 After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing respondents complaint as well as petitioners counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder. The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties transaction was that of a

pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen. Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8 In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation. The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry. Petitioners motion for reconsideration was denied in a Resolution dated August 8, 2003. Hence, the instant petition for review with the following assignment of errors: THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE. THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9 Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief."10 Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer from infirmities, as follows: (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents; (2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and (3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members. Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents brief which had the following defects: (1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned

articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place; (2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies; (3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers. Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda. We find no merit in the petition. To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents (appellants) brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties, as long as these are legally tenable and supported by law and the facts on records.11 Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. Generally, the findings of fact of the appellate court are deemed conclusive and we are not dutybound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo.12 This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case. However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability. The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them.15 Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation. Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis. Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying that he made such an admission.17 The Committee on the Revision of the Rules of Court explained the second exception in this wise: x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the "admission" may show that he made no "such" admission, or that his admission was taken out of context.

x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the admission is made to appear. That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made," the rule would not really be providing for a contradiction of the admission but just a denial.18 (Emphasis supplied). While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry. Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows: Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the real party in interest in this case." It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit of which can only be reached after consideration of the evidence to be presented in due course.19 Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name militates for the piercing of the corporate veil. We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC. Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be directed. 20 In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision in this manner: x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction. This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of a corporation.21 Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case. The next question is whether petitioners are liable for the loss of the pawned articles in their possession. Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all. We are not persuaded. Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. 22 To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. 23 The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. 24 And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. 25 It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. 26 Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense of fortuitous event. Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held: It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.28 Just like in Co, petitioners merely presented the police report of the Paraaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.29 Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. In this connection, Article 1173 of the Civil Code further provides: Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do.31 It is want of care required by the circumstances. A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus: Court: Q. Do you have security guards in your pawnshop? A. Yes, your honor. Q. Then how come that the robbers were able to enter the premises when according to you there was a security guard? A. Sir, if these robbers can rob a bank, how much more a pawnshop. Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard? A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Paraaque they pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a hold up. Q. Did you come to know how the vault was opened? A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The combination is off. Q. No one open (sic) the vault for the robbers? A. No one your honor it was open at the time of the robbery. Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to you inside the vault. A. Yes sir.32 revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees.33 Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified in court. Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded.

Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries. Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit: Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance Commissioner. However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit: Sec. 17 Insurance of Office Building and Pawns The office building/premises and pawns of a pawnshop must be insured against fire. (emphasis supplied). where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of pawned articles against burglary. The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent. Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code. The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform. 34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability, find no application to the present case. In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault on the debtors part, and this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence.38 We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971. In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed. In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of the employees and the operating expenses of the project. However for some

reason, the processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the next working day after July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence. Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles. In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then reported the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient justification to grant the request for relief from accountability. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruzs mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed. Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop. WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED. Costs against petitioners. SO ORDERED.

G.R. No. 154188

June 15, 2005

MONDRAGON LEISURE AND RESORTS CORPORATION, Petitioner, vs. COURT OF APPEALS, ASIAN BANK CORPORATION, FAR EAST BANK AND TRUST COMPANY, and UNITED COCONUT PLANTERS BANK, Respondents. DECISION QUISUMBING, J.: In its DECISION1 dated March 12, 2002, the Court of Appeals in CA-G.R. SP No. 61047 dismissed the petition for certiorari filed by Mondragon Leisure and Resorts Corporation against the Order2 dated March 9, 2000, of the Regional Trial Court of Angeles City, Branch 61, in Civil Case No. 9527. Likewise, in its Resolution dated July 3, 2002, the CA denied the motion for reconsideration. The facts of the case are undisputed. On February 28, 1994, Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and herein petitioner entered into a lease agreement with the Clark Development Corporation (CDC) for the development of what is now known as the Mimosa Leisure Estate. To help finance the project, petitioner, on June 30, 1997, entered into an Omnibus Loan and Security Agreement3 (hereafter Omnibus Agreement) with respondent banks for a syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, as amended on January 19, 1999,4 the proceeds of the loan were to be released through advances evidenced by promissory notes to be executed by petitioner in favor of each lender-bank, and to be paid within a six-year period from the date of initial advance inclusive of a one year and two quarters grace period. To secure the repayment of the loan, petitioner pledged in favor of respondents US$20M worth of MIPI shares of stocks; assigned, transferred and delivered all rights, title to and interest in the pledged shares; and assigned by way of security its leasehold rights over the project and all the rights, title, interests and benefits in, to and under any and all agreements in connection with the project. On July 3, 1997, petitioner fully availed of and received the full amount of the syndicated loan agreement. Petitioner, which had regularly paid the monthly interests due on the promissory notes until October 1998, thereafter failed to make payments. Consequently, on January 6 and February 5, 1999, written notices of default, acceleration of payment and demand letters were sent by the lenders to the petitioner. Then on August 27, 1999, respondents filed a complaint, docketed as Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner. Petitioner moved for the dismissal of the complaint on the following grounds: (1) a condition precedent for the filing of the complaint has not been complied with and/or the instant complaint failed to state a cause of action, or otherwise the filing was premature; (2) the certification of non-forum shopping appended to the complaint was fatally defective since one of the plaintiffs, UCPB, deliberately failed to mention that it had previously filed another complaint; and (3) plaintiffs had engaged in forum shopping in filing the instant complaint. The trial court denied the motion and ruled as follows: ... After a careful study of the arguments of the parties, this court finds that the motion to dismiss is without merit. As correctly pointed out by the plaintiffs under par. 6.01, the borrower defaults when interests due at stated maturity are not paid and the lenders are authorized to accelerate any amount payable under the loan agreements. One of the consequences of such default is the foreclosure of collaterals. This is the action taken by the herein plaintiffs-lenders. This court also finds the alleged force majeure baseless. The same are not those provided for under Sec. 1, Article 41 of the loan agreement. As to the allegation of forum shopping, the herein parties Asian Bank Corporation and Far East Bank and Trust Company are not parties to this case in 9510 (sic). The subject matter of Civil Case No. 9527 is not the same with the subject matter in Civil Case No. 9510. Wherefore, premises considered, the motion to dismiss is denied. The defendant is given 15 days from receipt hereof within which to file its answer and/or responsive pleading.

SO ORDERED.5 Petitioner moved for the reconsideration of the order and argued that the complaint is premature, since it had not been validly declared in default.6 The trial court denied the motion for reconsideration. Seasonably, petitioner filed a special civil action for certiorari with the Court of Appeals. Before the appellate court, petitioner reiterated its arguments in its motion to dismiss before the trial court, including the failure of the respondents to attach the board resolutions authorizing them to file the complaint.7 The Court of Appeals dismissed the petition and denied the subsequent motion for reconsideration. Hence, this appeal by certiorari8 imputing the following errors: I THE RESPONDENT-APPELLEE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN RULING THAT THE COMPLAINT IN CIVIL CASE NO. 9527 COMPLIED WITH THE MANDATORY REQUIREMENTS OF CERTIFICATION OF NON-FORUM SHOPPING. II THE RESPONDENT-APPELLEE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN NOT RULING THAT A CONDITION PRECEDENT FOR THE FILING OF THE COMPLAINT IN CIVIL CASE NO. 9527 HAS NOT BEEN COMPLIED WITH, OR THAT IT IS OTHERWISE PREMATURE, AND/OR THAT IT FAILS TO STATE A CAUSE OF ACTION AGAINST PETITIONER-APPELLANT. III THE RESPONDENT-APPELLEE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN NOT RULING THAT RESPONDENT-APPELLEE BANKS, IN FILING THE COMPLAINT IN CIVIL CASE NO. 9527, DELIBERATELY ENGAGED IN FORUM SHOPPING.9 In brief, three issues are presented for resolution, namely, (1) Was the certificate of non-forum shopping defective? (2) Did respondents engage in forum shopping? and (3) Do respondents have a cause of action against the petitioner? On the first issue, petitioner asserts that the verification and certificate of forum shopping were defective because there was no proof as to the authority of the signatories to file the complaint. Petitioner avers that UCPB Resolution 48-87, which was only presented in the Court of Appeals, merely authorized the signatory to "appear, act for, or otherwise represent the bank in all judicial, quasi-judicial or administrative hearings or incidents, including pre-trial conference, and in connection therewith, to do any and all of the following acts and deeds" and clearly pertains to a pending proceeding. Respondents, on the other hand, contend that the lack of authority of the persons who verified and certified the complaint was neither raised in the motion to dismiss nor in the motion for reconsideration of the petitioner. They aver that the verification and certification of non-forum shopping contained a statement by the persons who signed it that they had been so authorized by the board of directors of their respective corporations. Considering the submissions of the parties, we are constrained to agree with the respondents contention. The trial court did not err in denying the motion to dismiss. The issue concerning the signatories authorization was never raised before it. Likewise, the appellate court did not err in refusing to take cognizance of the issue, since the parties did not raise it beforehand. Issues not raised in the trial court cannot be raised for the first time on appeal.10 On the second issue, petitioner claims that respondent UCPB engaged in forum shopping since it earlier instituted an action for foreclosure of mortgage and/or collection, docketed as Civil Case No. 9510. 11 This claim, in our view, is untenable. A comparison of the two complaints would show its utter lack of merit. Civil Case No. 9510 pertains to an Omnibus Credit and Security Agreement executed by and between the petitioner and respondent UCPB on November 23, 1995. This is separate and distinct from the Omnibus Agreement involved in Civil Case No. 9527. Moreover, respondents Asian Bank and Far East Bank are not among the parties to Civil Case No. 9510. As pointed out by the Court of Appeals, forum shopping exists when both actions involve the same transactions, with the same essential facts and circumstances; and where identical causes of actions, subject matter and

issues are raised. The test to determine the existence of forum shopping is whether the elements of litis pendentia are present, or whether a final judgment in one case will amount to res judicata in another.12 The requisites in order that an action may be dismissed on the ground of litis pendentia are (a) the identity of parties, or at least such as representing the same interest in both actions; (b) the identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other.13 Such requisites are not present in this controversy. Apropos the third issue, petitioner contends the subject obligation of the instant case is not yet due and demandable because the Omnibus Agreement allows a full six-year term of payment. Even if it failed to pay some installments, petitioner insists it is not in default because respondents merely sent collection and demand letters, but failed to give the written notice of default required under their agreement. Moreover, petitioner avers that the provisions on default in the Omnibus Agreement have been rendered inapplicable and unenforceable by fortuitous events, namely the Asian economic crisis and the closure of the Mimosa Regency Casino, which was petitioners primary source of revenues.1avvphi1.zw+ Respondents counter that the Omnibus Agreement defines, as an event of default, the failure of petitioner to pay when due at stated maturity, by acceleration or otherwise, any amount payable under the loan documents. Since petitioner is also required to pay interest, respondents posit that non-payment thereof constituted a clear and unmistakable case of default. Respondents add that they had properly advised the petitioner that it had been declared in default, referring to the January 6 and February 5, 1999 letters as their compliance with the notice requirement. On this issue, we are unable to agree with the petitioner. Section 2.06 (a) of Part B of the Omnibus Agreement provides that the borrower shall pay interest on the advances outstanding from time to time on each interest payment date, while Section 6 of Part A reads 6.01 Events of Default Each of the following events shall constitute an Event of Default under this Omnibus Agreement: (a) Payment Default The BORROWER defaults in the payment when due at stated maturity, by acceleration or otherwise, of any amount payable under the Loan Documents.14 ... Clearly, under the foregoing provisions of the Agreement, petitioner may be validly declared in default for failure to pay the interest. As a consequence of default, the unpaid amount shall earn default interest,15 and the respondent-banks have four alternative remedies without prejudice to the application of the provisions on collaterals and any other steps or action which may be adopted by the majority lender.16 The four remedies are alternative, with the right of choice given to the lenders, in this case the respondents. Under Article 1201 of the Civil Code, the choice shall produce no effect except from the time it has been communicated. This is the reason why a written notice is required under Section 6.02 of the Omnibus Agreement. In the present case, we find that written notices were sent to the petitioner by the respondents. The notices clearly indicate respondents choice of remedy: to accelerate all payments payable under the loan agreement. On January 6, 1999, respondents notified petitioner that it was in default, and demanded payment of the stated amount within five days from receipt of the letter, otherwise all outstanding availments of the US$20M term loan together with interests and other sum payable shall be declared due and demandable. 17 The letter clearly indicated the choice of remedy by the respondents, pursuant to the Omnibus Agreement. Even though subsequent demand is waived by the petitioner in Section 6.02 of Part B of the Omnibus Agreement, on February 5, 1999, the respondents nevertheless actually made their demand in writing for the payment of the principal plus interest and penalty charges due on or before February 28, 1999, with express notice that they would take all legal remedies available to protect the interests of their clients. 18 Clearly, respondents have more than complied with the requirement concerning notice to the petitioner. It should be noted that the agreement also provides that the choice of remedy is without prejudice to the action on the collaterals. Thus, respondents could properly file an action for foreclosure of the leasehold rights to obtain payment for the amount demanded. Petitioners claim, that the respondents could not be held in default because of a fortuitous event, is untenable. Said event, the Asian financial crisis of 1997, is not among the fortuitous events contemplated under Article 117419 of the Civil Code. To exempt the obligor from liability for a breach of an obligation by reason of a fortuitous event, the following requisites must concur: (a) the cause of the breach of the obligation must be

independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.20 As pointed out by the respondents, the loan agreement was entered into on June 30, 1997, or when the Asian economic crisis had already started. Petitioner, as a long established corporation, should have been well aware of the economic environment at that time, yet it still took the risk to expand operations. Likewise, the closure of the Mimosa Regency Casino was not an unforeseeable or unavoidable event, in the context of the contract of lease between petitioner and CDC. Every business venture involves risks. Risks are not unforeseeable; they are inherent in business. Worthy of note, risk is an exception to the general rule on fortuitous events. Under the law, these exceptions are: (1) when the law expressly so specifies; (2) when it is otherwise declared by the parties; and (3) when the nature of the obligation requires the assumption of risks.21 We find that in the Omnibus Agreement, the parties expressly agreed that any enactment, official action, act of war, act of nature or other force majeure or other similar circumstances shall in no way affect the obligation of the borrowers to make payments.22 In sum, the appellate court did not err in dismissing petitioners action for certiorari and in denying the motion for reconsideration. It committed no reversible error, much less any grave abuse of discretion amounting to lack or excess of jurisdiction, contrary to petitioners contentions. WHEREFORE, the appeal is DENIED for lack of merit. The Decision dated March 12, 2002 and the Resolution dated July 3, 2002 of the Court of Appeals in CA-G.R. SP No. 61047 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.

[G.R. No. 179337, April 30, 2008] JOSEPH SALUDAGA, Petitioner, vs. FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of FEU, Respondents. DECISION

YNARES-SATIAGO, J.: This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the June 29, 2007 Decision[2] of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November 10, 2004 Decision [3] of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007 Resolution[4] denying the Motion for Reconsideration.[5] The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained.[6] Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him. Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint[7] against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.[8] On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads: WHEREFORE, from the foregoing, judgment is hereby rendered ordering: 1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally Joseph Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from the filing of the complaint until fully paid; moral damages of P300,000.00, exemplary damages of P500,000.00, attorney's fees of P100,000.00 and cost of the suit; 2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned amounts; 3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs. SO ORDERED.[9] Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of which provides, viz: WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern University and its President in Civil Case No. 98-89483 is DISMISSED. SO ORDERED.[10] Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the following grounds: THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND JURISPRUDENCE IN RULING THAT: 5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT; 5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE

CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and 5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.[11] Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning environment. The pertinent portions of petitioner's Complaint read: 6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to visit and inquire about his condition. This abject indifference on the part of the defendants continued even after plaintiff was discharged from the hospital when not even a word of consolation was heard from them. Plaintiff waited for more than one (1) year for the defendants to perform their moral obligation but the wait was fruitless. This indifference and total lack of concern of defendants served to exacerbate plaintiff's miserable condition. xxxx 11.0. Defendants are responsible for ensuring the safety of its students while the latter are within the University premises. And that should anything untoward happens to any of its students while they are within the University's premises shall be the responsibility of the defendants. In this case, defendants, despite being legally and morally bound, miserably failed to protect plaintiff from injury and thereafter, to mitigate and compensate plaintiff for said injury; 12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus.[12] In Philippine School of Business Administration v. Court of Appeals,[13] we held that: When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.[14] It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the rules and regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to impart knowledge and equip its students with the necessary skills to pursue higher education or a profession. At the same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus. It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.[15] In the instant case, we find that, when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee;[16] and that they complied with their obligation to ensure a safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy. After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security guard for the university was offered. Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered, respondents must show that no negligence or misconduct was committed that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation - whether by active intervention, neglect or failure to act - the whole occurrence is humanized and removed from the rules applicable to acts of God.[17] Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts.[18] In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical expenses.[19] While the trial court correctly imposed interest on said amount, however, the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the complaint until the finality of this Decision.[20] After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction. The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts. [21] In the absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner. As regards the award of moral damages, there is no hard and fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar circumstances. [22] The testimony of petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting from the shooting incident[23] justify the award of moral damages. However, moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. [24] We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of P100,000.00. Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is reasonable in view of Article 2208 of the Civil Code. [25] However, the award of exemplary damages is deleted considering the absence of proof that respondents acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol,[26] we held that: [A] corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when - (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action.[27] None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus should not be held solidarily liable with respondent FEU. Incidentally, although the main cause of action in the instant case is the breach of the school-student contract, petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of the Civil Code, which provides: Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot be construed as the element of control as to treat respondents as the employers of Rosete.[28] As held in Mercury Drug Corporation v. Libunao:[29] In Soliman, Jr. v. Tuazon,[30] we held that where the security agency recruits, hires and assigns the works of its watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and not the client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client: ... [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the agency is the employer of such guards or watchmen. Liability for illegal or harmful acts committed by the security guards attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events, be demanded from the client whose premises or property are protected by the security guards. xxxx The fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions.[31] We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the Philippines v. Tempengko,[32] we held that: The third-party complaint is, therefore, a procedural device whereby a `third party' who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts.[33] Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the selection of its employees but also in their supervision. Indeed, no administrative sanction was imposed against Rosete despite the shooting incident; moreover, he was even allowed to go on leave of absence which led eventually to his disappearance.[34] Galaxy also failed to monitor petitioner's condition or extend the necessary assistance, other than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse petitioner's medical expenses. For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security agency. It was Imperial who assured petitioner that his medical expenses will be shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his family were no longer interested in filing a formal complaint against them.[35] WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint as well as the August 23, 2007 Resolution denying the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding respondent FEU liable for damages for breach of its obligation to provide students with a safe and secure learning atmosphere, is AFFIRMED with the following MODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount
of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this

Decision. After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00;
moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00;

c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are likewise DISMISSED. Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial are ORDERED to jointly and severally pay respondent FEU damages equivalent to the above-mentioned amounts awarded to petitioner. SO ORDERED.

G.R. No. 167195

May 8, 2009

ASSET PRIVATIZATION TRUST, Petitioner, vs. T.J. ENTERPRISES, Respondent. DECISION TINGA, J.: This is a Rule 45 petition1 which seeks the reversal of the Court of Appeals decision2 and resolution3 affirming the RTCs decision4 holding petitioner liable for actual damages for breach of contract. Petitioner Asset Privatization Trust5 (petitioner) was a government entity created for the purpose to conserve, to provisionally manage and to dispose assets of government institutions. 6 Petitioner had acquired from the Development Bank of the Philippines (DBP) assets consisting of machinery and refrigeration equipment which were then stored at Golden City compound, Pasay City. The compound was then leased to and in the physical possession of Creative Lines, Inc., (Creative Lines). These assets were being sold on an as-is-where-is basis. On 7 November 1990, petitioner and respondent entered into an absolute deed of sale over certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5. Respondent paid the full amount of P84,000.00 as evidenced by petitioners Receipt No. 12844. After two (2) days, respondent demanded the delivery of the machinery it had purchased. Sometime in March 1991, petitioner issued Gate Pass No. 4955. Respondent was able to pull out from the compound the properties designated as Lots Nos. 3 and 5. However, during the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by respondent. The seven (7) items that were left behind consisted of the following: (1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3; (4) one (1) unit blast freezer with all accessories; (5) one (1) unit chest freezer; (6) one (1) unit room air-conditioner; and (7) one (1) unit air compressor. Creative Lines employees prevented respondent from hauling the remaining machinery and equipment. Respondent filed a complaint for specific performance and damages against petitioner and Creative Lines.7 During the pendency of the case, respondent was able to pull out the remaining machinery and equipment. However, upon inspection it was discovered that the machinery and equipment were damaged and had missing parts. Petitioner argued that upon the execution of the deed of sale it had complied with its obligation to deliver the object of the sale since there was no stipulation to the contrary. It further argued that being a sale on an as-iswhere-is basis, it was the duty of respondent to take possession of the property. Petitioner claimed that there was already a constructive delivery of the machinery and equipment. The RTC ruled that the execution of the deed of absolute sale did not result in constructive delivery of the machinery and equipment. It found that at the time of the sale, petitioner did not have control over the machinery and equipment and, thus, could not have transferred ownership by constructive delivery. The RTC ruled that petitioner is liable for breach of contract and should pay for the actual damages suffered by respondent. On petitioners appeal, the Court of Appeals affirmed in toto the decision of the RTC. Hence this petition. Before this Court, petitioner raises issues by attributing the following errors to the Court of Appeals, to wit: I. The Court of Appeals erred in not finding that petitioner had complied with its obligation to make delivery of the properties subject of the contract of sale. II. The Court of Appeals erred in not considering that the sale was on an "as-is-where-is" basis wherein the properties were sold in the condition and in the place where they were located. III. The Court of Appeals erred in not considering that respondents acceptance of petitioners disclaimer of warranty forecloses respondents legal basis to enforce any right arising from the contract.

IV. The reason for the failure to make actual delivery of the properties was not attributable to the fault and was beyond the control of petitioner. The claim for damages against petitioner is therefore bereft of legal basis.8 The first issue hinges on the determination of whether there was a constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale between petitioner and respondent. The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.9 The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.10 As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. 11 In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.12 However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment. 13 It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made.14 Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.15 In this case, there was no constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale or upon the issuance of the gate pass since it was not petitioner but Creative Lines which had actual possession of the property. The presumption of constructive delivery is not applicable as it has to yield to the reality that the purchaser was not placed in possession and control of the property. On the second issue, petitioner posits that the sale being in an as-is-where-is basis, respondent agreed to take possession of the things sold in the condition where they are found and from the place where they are located. The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not to its legal situation.16 It is merely descriptive of the state of the thing sold. Thus, the as-is where-is basis merely describes the actual state and location of the machinery and equipment sold by petitioner to respondent. The depiction does not alter petitioners responsibility to deliver the property to respondent.1awphi1.zw+ Anent the third issue, petitioner maintains that the presence of the disclaimer of warranty in the deed of absolute sale absolves it from all warranties, implied or otherwise. The position is untenable. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.17 Ownership of the thing sold is acquired by the vendee from the moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.18 A perusal of the deed of absolute sale shows that both the vendor and the vendee represented and warranted to each other that each had all the requisite power and authority to enter into the deed of absolute sale and that they shall perform each of their respective obligations under the deed of absolute in accordance with the terms thereof.19 As previously shown, there was no actual or constructive delivery of the things sold. Thus, petitioner has not performed its obligation to transfer ownership and possession of the things sold to respondent. As to the last issue, petitioner claims that its failure to make actual delivery was beyond its control. It posits that the refusal of Creative Lines to allow the hauling of the machinery and equipment was unforeseen and constituted a fortuitous event. The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.20 A fortuitous event may either be an act of God, or natural occurrences such as floods or typhoons, or an act of man such as riots, strikes or wars.21 However, when the loss is found to be partly the result of a persons

participationwhether by active intervention, neglect or failure to actthe whole occurrence is humanized and removed from the rules applicable to a fortuitous event.22 We quote with approval the following findings of the Court of Appeals, to wit: We find that Creative Lines refusal to surrender the property to the vendee does not constitute force majeure which exculpates APT from the payment of damages. This event cannot be considered unavoidable or unforeseen. APT knew for a fact that the properties to be sold were housed in the premises leased by Creative Lines. It should have made arrangements with Creative Lines beforehand for the smooth and orderly removal of the equipment. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God.23 Moreover, Art. 1504 of the Civil Code provides that where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or constructive delivery thereof. As previously discussed, there was no actual or constructive delivery of the machinery and equipment. Thus, the risk of loss or deterioration of property is borne by petitioner. Thus, it should be liable for the damages that may arise from the delay.1avvphi1 Assuming arguendo that Creative Lines refusal to allow the hauling of the machinery and equipment is a fortuitous event, petitioner will still be liable for damages. This Court agrees with the appellate courts findings on the matter of damages, thus: Article 1170 of the Civil Code states: "Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages." In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. 24 The trial court correctly awarded actual damages as pleaded and proven during trial.25 WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of Appeals dated 31 August 2004. Cost against petitioner. SO ORDERED.

G.R. No. 165164 FIL-ESTATE PROPERTIES, INC., Petitioner, versus

SPOUSES GONZALO and CONSUELO GO, Respondents. August 17, 2007

RESOLUTION QUISUMBING, J.:

For review on certiorari are the Decision[1] dated June 9, 2004 of the Court of Appeals in CA-G.R. SP No. 79624, and its Resolution[2] dated August 3, 2004, denying the motion for reconsideration. The basic facts in this case are undisputed. On December 29, 1995, petitioner Fil-Estate Properties, Inc. (Fil-Estate) entered into a contract to sell a condominium unit to respondent spouses Gonzalo and Consuelo Go at Eight Sto. Domingo Place, a condominium project of petitioner located on Sto. Domingo Avenue, Quezon City. The spouses paid a total ofP3,439,000.07 of the full contract price set at P3,620,000.00. Because petitioner failed to develop the condominium project, on August 4, 1999, the spouses demanded the refund of the amount they paid, plus interest. When petitioner did not refund the spouses, the latter filed a complaint against petitioner for reimbursement of P3,620,000 representing the lump sum price of the condominium unit, plus interest, P100,000 attorneys fees, and expenses of litigation before the Housing and Land Use Regulatory Board (HLURB). In answer, petitioner claimed that respondents had no cause of action since the delay in the construction of the condominium was caused by the financial crisis that hit the Asian region, a fortuitous event over which petitioner had no control. On July 18, 2000, the HLURB Regional Director approved the decision of the Housing and Land Use Arbiter in favor of the spouses Go. The HLURB ratiocinated that the Asian financial crisis that resulted in the depreciation of the peso is not a fortuitous event as any fluctuation in the value of the peso is a daily occurrence which is foreseeable and its deleterious effects avoided by economic measures. The HLURB went on to say that when petitioner discontinued the development of its condominium project, it failed to fulfill its contractual obligations to the spouses. And following Article 1475[3] of the Civil Code, upon perfection of the contract, the parties, here the spouses Go, may demand performance. And under Article 1191[4] of the same code, should one of the parties, in this instanceFil-Estate, fail to comply with the obligation, the aggrieved party may choose between fulfillment or rescission of the obligation, with damages in either case. Inasmuch as Fil-Estate could no longer fulfill its obligation, the spouses Go may ask for rescission of the contract with damages. The dispositive portion of the decision reads: WHEREFORE, the foregoing considered, judgment is hereby rendered as follows: 1. Ordering the respondent, Fil-Estate Properties, Inc., to refund to the complainants, P3,439,000.07 (the amount proved) plus 12% interest thereon reckoned from 09 August 1999 (the date the respondent received the demand letter) until the same is fully paid. 2. Ordering the respondent to pay to the complainants P25,000.00 attorneys fees as and by way of damages. All other claims and counterclaims are dismissed. IT IS SO ORDERED.[5]

The Board of Commissioners of the HLURB denied petitioners petition for review and consequent motion for reconsideration.[6] The Office of the President dismissed petitioners appeal and denied its motion for reconsideration.[7] On appeal, asserting that both the HLURB and the Office of the President committed reversible errors, Fil-Estate asked the Court of Appeals to set aside the orders it is appealing. The Court of Appeals affirmed the actions taken by the HLURB and the Office of the President and declared that the Asian financial crisis could not be considered a fortuitous event and that respondents right is provided for in Section 23[8] of Presidential Decree (P.D.) No. 957, otherwise known as The Subdivision and Condominium Buyers Protective Decree. The appellate court also noted that there was yet no crisis in 1995 and 1996 when the project should have been started, and petitioner cannot blame the 1997 crisis for failure of the project, nor for even not starting it, because the project should have been completed by 1997. The appellate court denied petitioners motion for reconsideration. Hence, this petition raising two issues for our resolution as follows: I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE ASIAN FINANCIAL CRISIS IS NOT A FORTUITOUS EVENT THAT WOULD EXCUSE THE DELIVERY BY PETITIONER OF THE SUBJECT CONDOMINIUM UNIT TO RESPONDENTS. II. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR THE PAYMENT OF ATTORNEYS FEES.[9] On the first issue, did the Court of Appeals err in ruling that the Asian financial crisis was not a fortuitous event? Petitioner, citing Article 1174[10] of the Civil Code, argues that the Asian financial crisis was a fortuitous event being unforeseen or inevitable. Petitioner likewise cites Servando v. Philippine Steam Navigation Co.,[11] to bolster its case. Petitioner explains that the extreme economic exigency and extraordinary currency fluctuations could not have been reasonably foreseen and were beyond the contemplation of both parties when they entered the contract. Petitioner further asserts that the resultant economic collapse of the real estate industry was unforeseen by the whole Asia and if it was indeed foreseeable, then all those engaged in the real estate business should have foreseen the impending fiasco. Petitioner adds that it had not committed any fraud; that it had all the required government permits; and that it had not abandoned the project but only suspended the work. It also admits its obligation to complete the project. It says that it had in fact asked the HLURB for extension to complete it.[12] In their Comment, respondents submit that the instant petition be rejected outright for the reason that petitioner has not raised any question of law in the instant petition. The questions of whether or not the Asian financial crisis is a fortuitous event, and whether or not attorneys fees should be granted, are questions of facts which the Court of Appeals recognized as such. Respondent spouses reiterate that contrary to what petitioner avers, the delay in the construction of the building was not attributable to the Asian financial crisis which happened in 1997[13] because petitioner did not even start the project in 1995 when it should have done, so that it could have finished it in 1997, as stipulated in the contract. Preliminarily, respondents bring to the attention of this Court the strange discrepancy in the dates of notarization of the Certification of Non-Forum Shopping and the Affidavit of Service both notarized on September 24, 2004, while the Secretarys Certification was notarized a day earlier on September 23, 2004. However, we shall not delve into technicalities, but we shall proceed with the resolution of the issues raised on the merits. Indeed, the question of whether or not an event is fortuitous is a question of fact. As a general rule, questions of fact may not be raised in a petition for review for as long as there is no variance between the findings of the lower court and the appellate court, as in this case where the HLURB, the Office of the President, and the Court of Appeals were agreed on the fact. Worthy of note, in a previous case, Asian Construction and Development Corporation v. Philippine Commercial International Bank,[14] the Court had said that the 1997 financial crisis that ensued in Asia did not constitute a valid justification to renege on obligations. We emphatically stressed the same view in MondragonLeisure and Resorts Corporation v. Court of Appeals,[15] that the Asian financial crisis in 1997 is not among the fortuitous events contemplated under Article 1174 of the Civil Code.

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. Are respondents entitled to reimbursement of the amount paid, plus interest and attorneys fees? Yes. Section 23 of P.D. No. 957 is clear on this point. It will be noted that respondents sent a demand letter dated August 4, 1999 to Fil-Estate asking for the return of the total amount paid including amortization interests and legal interest due thereon.[16] The latter did not respond favorably, and so the spouses filed a complaint demanding the reimbursement of P3,620,000representing the lump sum price of the condominium unit with interest at the legal rate, and P100,000 attorneys fees. But the respondents actually sought the refund ofP3,620,000.00, the lump sum cost of the condominium, more than their actual payment of P3,439,000.07. We are thus constrained to award only P3,439,000.07, representing the sum of their actual payments plus amortization interests and interest at legal rate which is 6% per annum from the date of demand on August 4, 1999. We are not unaware that the appellate court pegged the interest rate at 12% on the basis of Resolution No. R-421, Series of 1988 of the HLURB. But, conformably with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[17] the award of 12% interest on the amount of refund must be reduced to 6%. Moreover, we are constrained to modify the Court of Appeals grant of attorneys fees from P25,000 to P100,000 as just and equitable since respondents were compelled to secure the services of counsel over eight years to protect their interest due to petitioners delay in the performance of their clear obligation. WHEREFORE, the petition is DENIED for lack of merit. Petitioner is hereby ordered (1) to reimburse respondents P3,439,000.07 at 6% interest startingAugust 4, 1999 until full payment, and (2) to pay respondents P100,000.00 attorneys fees. Costs against petitioner. SO ORDERED.