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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159617

August 8, 2007

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


vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr.
(petitioner Sicam) and Agencia deR.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 letter 4 to petitioner Sicam expressing disbelief

stating that when the robbery happened, all jewelry pawned were deposited with Far
East Bank near the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare
the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to
return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a
complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was docketed as Civil Case
No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as
the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C.
Sicam, Inc; that petitioner corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made liable for an event
that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner
corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned
considering that he is not the real party-in-interest. Respondents opposed the same.
The RTC denied the motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision 6 dated January 12, 1993,
dismissing respondents complaint as well as petitioners counterclaim. The RTC held
that petitioner Sicam could not be made personally liable for a claim arising out of a
corporate transaction; that in the Amended Complaint of respondents, they asserted
that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a
consequence of the separate juridical personality of a corporation, the corporate debt
or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the loss
of the pawned jewelry since it had not been rebutted by respondents that the loss of
the pledged pieces of jewelry in the possession of the corporation was occasioned by
armed robbery; that robbery is a fortuitous event which exempts the victim from
liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties
transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code,
the pawnshop as a pledgee is not responsible for those events which could not be
foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31,
2003, the CA reversed the RTC, the dispositive portion of which reads as follows:

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


the Decision dated January 12, 1993,of the Regional Trial Court of Makati,
Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to
pay appellants the actual value of the lost jewelry amounting
to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA applied
the doctrine of piercing the veil of corporate entity reasoning that respondents were
misled into thinking that they were dealing with the pawnshop owned by petitioner
Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C.
Sicam"; and that there was no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which explained why respondents
had to amend their complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it
should take steps to secure and protect the pledged items and should take steps to
insure itself against the loss of articles which are entrusted to its custody as it derives
earnings from the pawnshop trade which petitioners failed to do; that Austria is not
applicable to this case since the robbery incident happened in 1961 when the
criminality had not as yet reached the levels attained in the present day; that they are
at least guilty of contributory negligence and should be held liable for the loss of
jewelries; and that robberies and hold-ups are foreseeable risks in that those
engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to
respondents for the loss of the pawned jewelry.
Petitioners motion for reconsideration was denied in a Resolution dated August 8,
2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN
ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE
SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT
ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9

Anent the first assigned error, petitioners point out that the CAs finding that petitioner
Sicam is personally liable for the loss of the pawned jewelries is "a virtual and
uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief."10
Petitioners argue that the reproduced arguments of respondents in their Appellants
Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended
Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia
de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised
and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced
the corporate veil since a corporation has a personality distinct and separate
from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their negligence is
likewise an unedited reproduction of respondents brief which had the following
defects:
(1) There were unrebutted evidence on record that petitioners had observed
the diligence required of them, i.e, they wanted to open a vault with a nearby
bank for purposes of safekeeping the pawned articles but was discouraged
by the Central Bank (CB) since CB rules provide that they can only store the
pawned articles in a vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance
against the loss of the pledged jelweries, but it is judicial notice that due to
high incidence of crimes, insurance companies refused to cover pawnshops
and banks because of high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46),
the victim of robbery was exonerated from liability for the sum of money
belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties
subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact reproductions
of the arguments raised in respondents (appellants) brief filed with the CA, we find

the same to be not fatally infirmed. Upon examination of the Decision, we find that it
expressed clearly and distinctly the facts and the law on which it is based as required
by Section 8, Article VIII of the Constitution. The discretion to decide a case one way
or another is broad enough to justify the adoption of the arguments put forth by one of
the parties, as long as these are legally tenable and supported by law and the facts
on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of
law committed by the appellate court. Generally, the findings of fact of the appellate
court are deemed conclusive and we are not duty-bound to analyze and calibrate all
over again the evidence adduced by the parties in the court a quo.12 This rule,
however, is not without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory 13 as is obtaining in the
instant case.

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.

However, after a careful examination of the records, we find no justification to absolve


petitioner Sicam from liability.

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.

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

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).

Notably, the evidence on record shows that at the time respondent Lulu pawned her
jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly observed
by the CA, in all the pawnshop receipts issued to respondent Lulu in September
1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the
pawnshop was allegedly incorporated in April 1987. The receipts issued after such
alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the wrong impression to
respondents and the public as well, that the pawnshop was owned solely by petitioner
Sicam and not by a corporation.
Even petitioners counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15,
1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

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:

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.

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."

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.

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 deR.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:

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.

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

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

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.

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.

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.

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 ofAustria v. Court of
Appeals,35 Hernandez v. Chairman, Commission on Audit 36 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.
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, JJ., concur.
Republic of the Philippines

Supreme Court
Manila

MANILA ELECTRIC COMPANY,

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, praying that the Decision[1] of the Court of Appeals (CA) dated December 16,
2002, ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio
Ramoy[2] moral and exemplary damages and attorney's fees, and the CA
Resolution[3] dated July 1, 2003, denying petitioner's motion for reconsideration, be
reversed and set aside.

G.R. No. 158911


Petitioner,
Present
- versus -

The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized
the facts as culled from the records, thus:

THIRD DIVISION

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
MATILDE MACABAGDAL RAMOY,
CHICO-NAZARIO,
BIENVENIDO RAMOY, ROMANA
NACHURA, and
RAMOY-RAMOS, ROSEMARIE

The evidence on record has established that in the year 1987 the National Power
Corporation (NPC) filed with the MTC Quezon City a case for ejectment against
several persons allegedly illegally occupying its properties in Baesa, Quezon City.
Among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs
in the case at bar. On April 28, 1989 after the defendants failed to file an answer in
spite of summons duly served, the MTC Branch 36, Quezon City rendered judgment
for the plaintiff [MERALCO] and ordering the defendants to demolish or remove the
building and structures they built on the land of the plaintiff and to vacate the
premises. In the case of Leoncio Ramoy, the Court found that he was occupying a
portion of Lot No. 72-B-2-B with the exact location of his apartments indicated and
encircled in the location map as No. 7. A copy of the decision was furnished Leoncio
Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131, Record; TSN, July 2, 1993, p. 5).

REYES, JJ.
RAMOY, OFELIA DURIAN and
CYRENE PANADO,
Promulgated:
Respondents.
March 4, 2008
x--------------------------------------------------x
DECISION

AUSTRIA-MARTINEZ, J.:

On June 20, 1990 NPC wrote Meralco requesting for the immediate disconnection of
electric power supply to all residential and commercial establishments beneath the
NPC transmission lines along Baesa, Quezon City (Exh. 7, p. 143, Record). Attached
to the letter was a list of establishments affected which included plaintiffs Leoncio and
Matilde Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After
deliberating on NPC's letter, Meralco decided to comply with NPC's request (Exhibits
6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection to all
establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C),
Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).

In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to
determine all the establishments which are considered under NPC property in view of
the fact that the houses in the area are very close to each other (Exh. 12). Shortly
thereafter, a joint survey was conducted and the NPC personnel pointed out the
electric meters to be disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN, July
1994, p. 8).

In due time, the electric service connection of the plaintiffs [herein respondents] was
disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).

Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a
parcel of land covered by TCT No. 326346, a portion of which was occupied by
plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado as
lessees. When the Meralco employees were disconnecting plaintiffs' power
connection, plaintiff Leoncio Ramoy objected by informing the Meralco foreman that
his property was outside the NPC property and pointing out the monuments showing
the boundaries of his property. However, he was threatened and told not to interfere
by the armed men who accompanied the Meralco employees. After the electric power
in Ramoy's apartment was cut off, the plaintiffs-lessees left the premises.

During the ocular inspection ordered by the Court and attended by the parties, it was
found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was
indeed outside the NPC property. This was confirmed by defendant's witness R.P.
Monsale III on cross-examination (TSN, October 13, 1993, pp. 10 and 11). Monsale
also admitted that he did not inform his supervisor about this fact nor did he
recommend re-connection of plaintiffs' power supply (Ibid., p. 14).

The record also shows that at the request of NPC, defendant Meralco re-connected
the electric service of four customers previously disconnected none of whom was any
of the plaintiffs (Exh. 14).[4]

The RTC decided in favor of MERALCO by dismissing herein respondents' claim for
moral damages, exemplary damages and attorney's fees. However, the RTC ordered
MERALCO to restore the electric power supply of respondents.

Respondents then appealed to the CA. In its Decision dated December 16, 2002, the
CA faulted MERALCO for not requiring from National Power Corporation (NPC) a writ
of execution or demolition and in not coordinating with the court sheriff or other proper
officer before complying with the NPC's request. Thus, the CA held MERALCO liable
for moral and exemplary damages and attorney's fees. MERALCO's motion for
reconsideration of the Decision was denied per Resolution dated July 1, 2003.

Hence, herein petition for review on certiorari on the following grounds:

I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO
NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF
RESPONDENTS.

II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER
THE CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH IN THE
DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. [5]

The petition is partly meritorious.

MERALCO admits[6] that respondents are its customers under a Service Contract
whereby it is obliged to supply respondents with electricity. Nevertheless, upon
request of the NPC, MERALCO disconnected its power supply to respondents on the
ground that they were illegally occupying the NPC's right of way. Under the Service
Contract, [a] customer of electric service must show his right or proper interest over
the property in order that he will be provided with and assured a continuous electric
service.[7] MERALCO argues that since there is a Decision of the Metropolitan Trial
Court (MTC) of Quezon City ruling that herein respondents were among the illegal
occupants of the NPC's right of way, MERALCO was justified in cutting off service to
respondents.

Clearly, respondents' cause of action against MERALCO is anchored on culpa


contractual or breach of contract for the latter's discontinuance of its service to
respondents under Article 1170 of the Civil Code which provides:

Article 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.
In Radio Communications of the Philippines, Inc. v. Verchez,[8] the Court expounded
on the nature of culpa contractual, thus:
In culpa contractual x x x the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual undertaking or a

contravention of the tenor thereof. A breach upon the contract confers upon the
injured party a valid cause for recovering that which may have been lost or suffered.
The remedy serves to preserve the interests of the promissee that may include his
expectation interest, which is his interest in having the benefit of his bargain by being
put in as good a position as he would have been in had the contract been performed,
or his reliance interest, which is his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a position as he would have been in
had the contract not been made; or his restitution interest, which is his interest in
having restored to him any benefit that he has conferred on the other party. Indeed,
agreements can accomplish little, either for their makers or for society, unless they
are made the basis for action. The effect of every infraction is to create a new duty,
that is, to make recompense to the one who has been injured by the failure of another
to observe his contractual obligation unless he can show extenuating circumstances,
like proof of his exercise of due diligence x x x or of the attendance of fortuitous
event, to excuse him from his ensuing liability.[9] (Emphasis supplied)

[B]eing a public utility vested with vital public interest, MERALCO is impressed with
certain obligations towards its customers and any omission on its part to perform such
duties would be prejudicial to its interest. For in the final analysis, the bottom line is
that those who do not exercise such prudence in the discharge of their duties shall be
made to bear the consequences of such oversight.[13]

Article 1173 also provides that the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. The
Court emphasized in Ridjo Tape & Chemical Corporation v. Court of Appeals[10] that
as a public utility, MERALCO has the obligation to discharge its functions with utmost
care and diligence.[11]

Article 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.

The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of it.
To repeat, it was not enough for MERALCO to merely rely on the Decision of the MTC
without ascertaining whether it had become final and executory. Verily, only upon
finality of said Decision can it be said with conclusiveness that respondents have no
right or proper interest over the subject property, thus, are not entitled to the services
of MERALCO.

This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.

The next question is: Are respondents entitled to moral and exemplary damages and
attorney's fees?

Article 2220 of the Civil Code provides:

In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by


withholding from him and his tenants the supply of electricity to which they were
entitled under the Service Contract. This is contrary to public policy because, as
discussed above, MERALCO, being a vital public utility, is expected to exercise
utmost care and diligence in the performance of its obligation. It was incumbent upon
MERALCO to do everything within its power to ensure that the improvements built by
respondents are within the NPCs right of way before disconnecting their power
supply. The Court emphasized in Samar II Electric Cooperative, Inc. v. Quijano[14]
that:

Although MERALCO insists that the MTC Decision is final and executory, it never
showed any documentary evidence to support this allegation. Moreover, if it were true
that the decision was final and executory, the most prudent thing for MERALCO to
have done was to coordinate with the proper court officials in determining which
structures are covered by said court order. Likewise, there is no evidence on record to
show that this was done by MERALCO.

Electricity is a basic necessity the generation and distribution of which is imbued with
public interest, and its provider is a public utility subject to strict regulation by the
State in the exercise of police power. Failure to comply with these regulations will give
rise to the presumption of bad faith or abuse of right.[15] (Emphasis supplied)

The utmost care and diligence required of MERALCO necessitates such great degree
of prudence on its part, and failure to exercise the diligence required means that
MERALCO was at fault and negligent in the performance of its obligation. In Ridjo
Tape,[12] the Court explained:

Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the
performance of its obligation to Leoncio Ramoy, its customer, is tantamount to bad
faith. Leoncio Ramoy testified that he suffered wounded feelings because of
MERALCO's actions.[16] Furthermore, due to the lack of power supply, the lessees of
his four apartments on subject lot left the premises.[17] Clearly, therefore, Leoncio
Ramoy is entitled to moral damages in the amount awarded by the CA.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified
regarding the effects on him of MERALCO's electric service disconnection. His corespondents Matilde Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado
did not present any evidence of damages they suffered.

nights, wounded feelings or similar injury. There was no better witness to this
experience than respondent himself. Since respondent failed to testify on the witness
stand, the trial court did not have any factual basis to award moral damages to him.
[19] (Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may
be awarded moral damages.[20]
It is a hornbook principle that damages may be awarded only if proven. In Mahinay v.
Velasquez, Jr.,[18] the Court held thus:

In order that moral damages may be awarded, there must be pleading and proof of
moral suffering, mental anguish, fright and the like. While respondent alleged in his
complaint that he suffered mental anguish, serious anxiety, wounded feelings and
moral shock, he failed to prove them during the trial. Indeed, respondent should have
taken the witness stand and should have testified on the mental anguish, serious
anxiety, wounded feelings and other emotional and mental suffering he purportedly
suffered to sustain his claim for moral damages. Mere allegations do not suffice; they
must be substantiated by clear and convincing proof. No other person could have
proven such damages except the respondent himself as they were extremely
personal to him.

In Keirulf vs. Court of Appeals, we held:

While no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court, it is
nevertheless essential that the claimant should satisfactorily show the existence of
the factual basis of damages and its causal connection to defendants acts. This is so
because moral damages, though incapable of pecuniary estimation, 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. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of mental suffering.
Thus, if the plaintiff fails to take the witness stand and testify as to his/her social
humiliation, wounded feelings and anxiety, moral damages cannot be awarded. In
Cocoland Development Corporation vs. National Labor Relations Commission, the
Court held that additional facts must be pleaded and proven to warrant the grant of
moral damages under the Civil Code, these being, x x x social humiliation, wounded
feelings, grave anxiety, etc. that resulted therefrom.

x x x The award of moral damages must be anchored to a clear showing that


respondent actually experienced mental anguish, besmirched reputation, sleepless

With regard to exemplary damages, Article 2232 of the Civil Code provides that in
contracts and quasi-contracts, the court may award exemplary damages if the
defendant, in this case MERALCO, acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, while Article 2233 of the same Code provides that
such damages cannot be recovered as a matter of right and the adjudication of the
same is within the discretion of the court.

The Court finds that MERALCO fell short of exercising the due diligence required, but
its actions cannot be considered wanton, fraudulent, reckless, oppressive or
malevolent. Records show that MERALCO did take some measures, i.e., coordinating
with NPC officials and conducting a joint survey of the subject area, to verify which
electric meters should be disconnected although these measures are not sufficient,
considering the degree of diligence required of it. Thus, in this case, exemplary
damages should not be awarded.

Since the Court does not deem it proper to award exemplary damages in this case,
then the CA's award for attorney's fees should likewise be deleted, as Article 2208 of
the Civil Code states that in the absence of stipulation, attorney's fees cannot be
recovered except in cases provided for in said Article, to wit:

Article 2208. In the absence of stipulation, attorneys fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1)

When exemplary damages are awarded;

(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

No costs.
SO ORDERED.

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;

Republic of the Philippines


Supreme Court
Manila
SECOND DIVISION

SOLAR HARVEST, INC.,


Petitioner,
- versus -

(8) In actions for indemnity under workmens compensation and employers liability
laws;

DAVAO CORRUGATED CARTON CORPORATION,


Respondent.
G.R. No. 176868

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.

Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

Promulgated:
In all cases, the attorneys fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.


WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of
Appeals is AFFIRMED with MODIFICATION. The award for exemplary damages and
attorney's fees is DELETED.

July 26, 2010


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

DECISION
NACHURA, J.:

Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated September
21, 2006 and Resolution[2] dated February 23, 2007, which denied petitioners motion
for reconsideration. The assailed Decision denied petitioners claim for reimbursement
for the amount it paid to respondent for the manufacture of corrugated carton boxes.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement
with respondent, Davao Corrugated Carton Corporation, for the purchase of
corrugated carton boxes, specifically designed for petitioners business of exporting
fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get
the production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in
respondents US Dollar Savings Account with Westmont Bank, as full payment for the
ordered boxes.

Despite such payment, petitioner did not receive any boxes from respondent. On
January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount
paid.[3] On February 19, 2001, respondent replied that the boxes had been
completed as early as April 3, 1998 and that petitioner failed to pick them up from the
formers warehouse 30 days from completion, as agreed upon. Respondent
mentioned that petitioner even placed an additional order of 24,000 boxes, out of
which, 14,000 had been manufactured without any advanced payment from petitioner.
Respondent then demanded petitioner to remove the boxes from the factory and to
pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as
storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages
against respondent. The Complaint averred that the parties agreed that the boxes will
be delivered within 30 days from payment but respondent failed to manufacture and
deliver the boxes within such time. It further alleged

6. That repeated follow-up was made by the plaintiff for the immediate production of
the ordered boxes, but every time, defendant [would] only show samples of boxes
and ma[k]e repeated promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff
ha[d] to cancel the same and demand payment and/or refund from the defendant but
the latter refused to pay and/or refund the US$40,150.00 payment made by the
former for the ordered boxes.[4]
In its Answer with Counterclaim,[5] respondent insisted that, as early as April 3, 1998,
it had already completed production of the 36,500 boxes, contrary to petitioners
allegation. According to respondent, petitioner, in fact, made an additional order of

24,000 boxes, out of which, 14,000 had been completed without waiting for
petitioners payment. Respondent stated that petitioner was to pick up the boxes at
the factory as agreed upon, but petitioner failed to do so. Respondent averred that, on
October 8, 1998, petitioners representative, Bobby Que (Que), went to the factory
and saw that the boxes were ready for pick up. On February 20, 1999, Que visited the
factory again and supposedly advised respondent to sell the boxes as rejects to
recoup the cost of the unpaid 14,000 boxes, because petitioners transaction to ship
bananas to China did not materialize. Respondent claimed that the boxes were
occupying warehouse space and that petitioner should be made to pay storage fee at
P60.00 per square meter for every month from April 1998. As counterclaim,
respondent prayed that judgment be rendered ordering petitioner to pay $15,400.00,
plus interest, moral and exemplary damages, attorneys fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that
respondent already completed the initial order of 36,500 boxes and 14,000 boxes out
of the second order. It maintained that

respondent only manufactured a sample of the ordered boxes and that respondent
could not have produced 14,000 boxes without the required pre-payments.[6]
During trial, petitioner presented Que as its sole witness. Que testified that he ordered
the boxes from respondent and deposited the money in respondents account.[7] He
specifically stated that, when he visited respondents factory, he saw that the boxes
had no print of petitioners logo.[8] A few months later, he followed-up the order and
was told that the company had full production, and thus, was promised that
production of the order would be rushed. He told respondent that it should indeed
rush production because the need for the boxes was urgent. Thereafter, he asked his
partner, Alfred Ong, to cancel the order because it was already late for them to meet
their commitment to ship the bananas to China.[9] On cross-examination, Que further
testified that China Zero Food, the Chinese company that ordered the bananas, was
sending a ship to Davao to get the bananas, but since there were no cartons, the ship
could not proceed. He said that, at that time, bananas from Tagum Agricultural
Development Corporation (TADECO) were already there. He denied that petitioner
made an additional order of 24,000 boxes. He explained that it took three years to
refer the matter to counsel because respondent promised to pay.[10]

For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in


Davao in October 1998 to inspect the boxes and that the latter got samples of them.
In February 2000, they inspected the boxes again and Que got more samples.
Estanislao said that petitioner did not pick up the boxes because the ship did not
arrive.[11] Jaime Tan (Tan), president of respondent, also testified that his company
finished production of the 36,500 boxes on April 3, 1998 and that petitioner made a
second order of 24,000 boxes. He said that the agreement was for respondent to
produce the boxes and for petitioner to pick them up from the warehouse.[12] He also
said that the reason why petitioner did not pick up the boxes was that the ship that
was to carry the bananas did not arrive.[13] According to him, during the last visit of

Que and Estanislao, he asked them to withdraw the boxes immediately because they
were occupying a big space in his plant, but they, instead, told him to sell the cartons
as rejects. He was able to sell 5,000 boxes at P20.00 each for a total of P100,000.00.
They then told him to apply the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent
did not commit any breach of faith that would justify rescission of the contract and the
consequent reimbursement of the amount paid by petitioner. The RTC said that
respondent was able to produce the ordered boxes but petitioner failed to obtain
possession thereof because its ship did not arrive. It thus dismissed the complaint
and respondents counterclaims, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of


defendant and against the plaintiff and, accordingly, plaintiffs complaint is hereby
ordered DISMISSED without pronouncement as to cost. Defendants counterclaims
are similarly dismissed for lack of merit.
SO ORDERED.[14]

Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of merit.[15] The appellate
court held that petitioner failed to discharge its burden of proving what it claimed to be
the parties agreement with respect to the delivery of the boxes. According to the CA,
it was unthinkable that, over a period of more than two years, petitioner did not even
demand for the delivery of the boxes. The CA added that even assuming that the
agreement was for respondent to deliver the boxes, respondent would not be liable
for breach of contract as petitioner had not yet demanded from it the delivery of the
boxes.[16]

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The right to rescind a contract arises once the other party defaults in the performance
of his obligation. In determining when default occurs, Art. 1191 should be taken in
conjunction with Art. 1169 of the same law, which provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:

(1)

When the obligation or the law expressly so declares; or

(2)
When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of the contract; or

Petitioner moved for reconsideration,[17] but the motion was denied by the CA in its
Resolution of February 23, 2007.[18]
In this petition, petitioner insists that respondent did not completely manufacture the
boxes and that it was respondent which was obliged to deliver the boxes to TADECO.

(3)
When demand would be useless, as when the obligor has rendered it
beyond his power to perform.

We find no reversible error in the assailed Decision that would justify the grant of this
petition.

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.

Petitioners claim for reimbursement is actually one for rescission (or resolution) of
contract under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment
of the parties respective obligations should be simultaneous. Hence, no demand is
generally necessary because, once a party fulfills his obligation and the other party

does not fulfill his, the latter automatically incurs in delay. But when different dates for
performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present article,[19] that is,
the other party would incur in delay only from the moment the other party demands
fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the period
for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a cause of action for
rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack
of demand by petitioner upon respondent to fulfill its obligation to manufacture and
deliver the boxes. The Complaint only alleged that petitioner made a follow-up upon
respondent, which, however, would not qualify as a demand for the fulfillment of the
obligation. Petitioners witness also testified that they made a follow-up of the boxes,
but not a demand. Note is taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the witness testified that a demand letter
was sent to respondent. Without a previous demand for the fulfillment of the
obligation, petitioner would not have a cause of action for rescission against
respondent as the latter would not yet be considered in breach of its contractual
obligation.

ocular inspection of their warehouse. Even in its Comment to this petition, respondent
prays that petitioner be ordered to remove the boxes from its factory site,[23] which
could only mean that the boxes are, up to the present, still in respondents premises.

We also believe that the agreement between the parties was for petitioner to pick up
the boxes from respondents warehouse, contrary to petitioners allegation. Thus, it
was due to petitioners fault that the boxes were not delivered to TADECO.

Petitioner had the burden to prove that the agreement was, in fact, for respondent to
deliver the boxes within 30 days from payment, as alleged in the Complaint. Its sole
witness, Que, was not even competent to testify on the terms of the agreement and,
therefore, we cannot give much credence to his testimony. It appeared from the
testimony of Que that he did not personally place the order with Tan, thus:

Q. No, my question is, you went to Davao City and placed your order there?

Even assuming that a demand had been previously made before filing the present
case, petitioners claim for reimbursement would still fail, as the circumstances would
show that respondent was not guilty of breach of contract.

A. I made a phone call.

The existence of a breach of contract is a factual matter not usually reviewed in a


petition for review under Rule 45.[20] The Court, in petitions for review, limits its
inquiry only to questions of law. After all, it is not a trier of facts, and findings of fact
made by the trial court, especially when reiterated by the CA, must be given great
respect if not considered as final.[21] In dealing with this petition, we will not veer
away from this doctrine and will thus sustain the factual findings of the CA, which we
find to be adequately supported by the evidence on record.

Q. You made a phone call to Mr. Tan?

As correctly observed by the CA, aside from the pictures of the finished boxes and
the production report thereof, there is ample showing that the boxes had already been
manufactured by respondent. There is the testimony of Estanislao who accompanied
Que to the factory, attesting that, during their first visit to the company, they saw the
pile of petitioners boxes and Que took samples thereof. Que, petitioners witness,
himself confirmed this incident. He testified that Tan pointed the boxes to him and that
he got a sample and saw that it was blank. Ques absolute assertion that the boxes
were not manufactured is, therefore, implausible and suspicious.

In fact, we note that respondents counsel manifested in court, during trial, that his
client was willing to shoulder expenses for a representative of the court to visit the
plant and see the boxes.[22] Had it been true that the boxes were not yet completed,
respondent would not have been so bold as to challenge the court to conduct an

A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr.
Tan.

Q. So, your first statement that you were the one who placed the order is not true?
A. Thats true. The Solar Harvest made a contact with Mr. Tan and I deposited the
money in the bank.

Q. You said a while ago [t]hat you were the one who called Mr. Tan and placed the
order for 36,500 boxes, isnt it?
A. First time it was Mr. Alfred Ong.

Q. It was Mr. Ong who placed the order[,] not you?


A. Yes, sir.[24]

Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?
A. Yes, sir.[25]

Moreover, assuming that respondent was obliged to deliver the boxes, it could not
have complied with such obligation. Que, insisting that the boxes had not been
manufactured, admitted that he did not give respondent the authority to deliver the
boxes to TADECO:

Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals


Decision dated September 21, 2006 and Resolution dated February 23, 2007 are
AFFIRMED. In addition, petitioner is given a period of 30 days from notice within
which to cause the removal of the 36,500
boxes from respondents warehouse. After the lapse of said period and petitioner fails
to effect such removal, respondent shall have the right to dispose of the boxes in any
manner it may deem fit.

SO ORDERED.

A. No, sir. As I have said, before the delivery, we must have to check the carton, the
quantity and quality. But I have not seen a single carton.

Q. Are you trying to impress upon the [c]ourt that it is only after the boxes are
completed, will you give authority to Mr. Tan to deliver the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan
to rush the carton but not[26]

SECOND DIVISION

MINDANAO TERMINAL AND G.R. No. 162467


BROKERAGE SERVICE, INC.

Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?

Petitioner, Present:

A. Because I have not seen any of my carton.


- versus - CARPIO MORALES ,* JJ.,
Q. You dont have any authority yet given to Mr. Tan?
A. None, your Honor.[27]

Acting Chairperson,
TINGA,
PHOENIX ASSURANCE VELASCO, JR.,

Surely, without such authority, TADECO would not have allowed respondent to
deposit the boxes within its premises.

COMPANY OF NEW YORK/ LEONARDO DE CASTRO,** and


MCGEE & CO., INC., BRION, JJ.
Respondent.

In sum, the Court finds that petitioner failed to establish a cause of action for
rescission, the evidence having shown that respondent did not commit any breach of
its contractual obligation. As previously stated, the subject boxes are still within
respondents premises. To put a rest to this dispute, we therefore relieve respondent
from the burden of having to keep the boxes within its premises and, consequently,
give it the right to dispose of them, after petitioner is given a period of time within
which to remove them from the premises.

Promulgated:
May 8, 2009
x------------------------------------------------------------------------------------x

DECISION

TINGA, J.:
Before us is a petition for review on certiorari[1] under Rule 45 of the 1997 Rules of
Civil Procedure of the 29 October 2003[2] Decision of the Court of Appeals and the 26
February 2004 Resolution[3] of the same court denying petitioners motion for
reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and
stow a shipment of 146,288 cartons of fresh green Philippine bananas and 15,202
cartons of fresh pineapples belonging to Del Monte Fresh Produce International, Inc.
(Del Monte Produce) into the cargo hold of the vessel M/V Mistrau. The vessel was
docked at the port of Davao City and the goods were to be transported by it to the
port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce
insured the shipment under an open cargo policy with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance company, and
private respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of
Phoenix.[4]

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The
vessel set sail from the port of Davao City and arrived at the port of Inchon, Korea. It
was then discovered upon discharge that some of the cargo was in bad condition.
The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea,
through its representative Byeong Yong Ahn (Byeong), surveyed the extent of the
damage of the shipment. In a survey report, it was stated that 16,069 cartons of the
banana shipment and 2,185 cartons of the pineapple shipment were so damaged that
they no longer had commercial value.[5]

Del Monte Produce filed a claim under the open cargo policy for the damages to its
shipment. McGees Marine Claims Insurance Adjuster evaluated the claim and
recommended that payment in the amount of $210,266.43 be made. A check for the
recommended amount was sent to Del Monte Produce; the latter then issued a
subrogation receipt[6] to Phoenix and McGee.

Phoenix and McGee instituted an action for damages[7] against Mindanao Terminal in
the Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,[8] in a
decision dated 20 October 1999, held that the only participation of Mindanao Terminal
was to load the cargoes on board the M/V Mistrau under the direction and supervision
of the ships officers, who would not have accepted the cargoes on board the vessel
and signed the foremans report unless they were properly arranged and tightly
secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal
cannot be held liable for whatever happened to the cargoes after it had loaded and
stowed them. Moreover, citing the survey report, it was found by the RTC that the
cargoes were damaged on account of a typhoon which M/V Mistrau had encountered
during the voyage. It was further held that Phoenix and McGee had no cause of
action against Mindanao Terminal because the latter, whose services were contracted
by Del Monte, a distinct corporation from Del Monte Produce, had no contract with the
assured Del Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual damages
and P100,000.00 as attorneys fees.[9] The actual damages were awarded as
reimbursement for the expenses incurred by Mindanao Terminals lawyer in attending
the hearings in the case wherein he had to travel all the way from Metro Manila to
Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed
and set aside[10] the decision of the RTC in its 29 October 2003 decision. The same
court ordered Mindanao Terminal to pay Phoenix and McGee the total amount of
$210,265.45 plus legal interest from the filing of the complaint until fully paid and
attorneys fees of 20% of the claim.[11] It sustained Phoenixs and McGees argument
that the damage in the cargoes was the result of improper stowage by Mindanao
Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It further held
that even with the absence of a contractual relationship between Mindanao Terminal
and Del Monte Produce, the cause of action of Phoenix and McGee could be based
on quasi-delict under Article 2176 of the Civil Code.[12]

Mindanao Terminal filed a motion for reconsideration,[13] which the Court of Appeals
denied in its 26 February 2004[14] resolution. Hence, the present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it was
careless and negligent in the loading and stowage of the cargoes onboard M/V
Mistrau making it liable for damages; and, whether Phoenix and McGee has a cause
of action against Mindanao Terminal under Article 2176 of the Civil Code on quasidelict. To resolve the petition, three questions have to be answered: first, whether
Phoenix and McGee have a cause of action against Mindanao Terminal; second,
whether Mindanao Terminal, as a stevedoring company, is under obligation to
observe the same extraordinary degree of diligence in the conduct of its business as

required by law for common carriers[15] and warehousemen;[16] and third, whether
Mindanao Terminal observed the degree of diligence required by law of a stevedoring
company.

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee
against Mindanao Terminal, from which the present case has arisen, states a cause
of action. The present action is based on quasi-delict, arising from the negligent and
careless loading and stowing of the cargoes belonging to Del Monte Produce. Even
assuming that both Phoenix and McGee have only been subrogated in the rights of
Del Monte Produce, who is not a party to the contract of service between Mindanao
Terminal and Del Monte, still the insurance carriers may have a cause of action in
light of the Courts consistent ruling that the act that breaks the contract may be also a
tort.[17] In fine, a liability for tort may arise even under a contract, where tort is that
which breaches the contract[18]. In the present case, Phoenix and McGee are not
suing for damages for injuries arising from the breach of the contract of service but
from the alleged negligent manner by which Mindanao Terminal handled the cargoes
belonging to Del Monte Produce. Despite the absence of contractual relationship
between Del Monte Produce and Mindanao Terminal, the allegation of negligence on
the part of the defendant should be sufficient to establish a cause of action arising
from quasi-delict.[19]

is legally liable for the loss of a shipment in its custody and the extent of its liability, is
inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned
by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor,
Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with
Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a
bundle of PC 8 U blades, was discharged from the vessel to the custody of the private
respondent, the exclusive arrastre operator at the South Harbor. Accordingly, three
good-order cargo receipts were issued by NGSC, duly signed by the ship's checker
and a representative of private respondent. When Semirara inspected the shipment at
house, it discovered that the bundle of PC8U blades was missing. From those facts,
the Court observed:

x x x The relationship therefore between the consignee and the arrastre operator
must be examined. This relationship is much akin to that existing between the
consignee or owner of shipped goods and the common carrier, or that between a
depositor and a warehouseman[[22]]. In the performance of its obligations, an
arrastre operator should observe the same degree of diligence as that required of a
common carrier and a warehouseman as enunciated under Article 1733 of the Civil
Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being the
custodian of the goods discharged from a vessel, an arrastre operator's duty is to
take good care of the goods and to turn them over to the party entitled to their
possession. (Emphasis supplied)[23]

The resolution of the two remaining issues is determinative of the ultimate result of
this case.

Article 1173 of the Civil Code is very clear that if the law or contract does not state the
degree of diligence which is to be observed in the performance of an obligation then
that which is expected of a good father of a family or ordinary diligence shall be
required. Mindanao Terminal, a stevedoring company which was charged with the
loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had
acted merely as a labor provider in the case at bar. There is no specific provision of
law that imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and stowing of
cargoes. It was neither alleged nor proven by Phoenix and McGee that Mindanao
Terminal was bound by contractual stipulation to observe a higher degree of diligence
than that required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence only in
loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.

The Court of Appeals erred when it cited the case of Summa Insurance Corporation v.
CA and Port Service Inc.[20] in imposing a higher degree of diligence,[21] on
Mindanao Terminal in loading and stowing the cargoes. The case of Summa
Insurance Corporation v. CA, which involved the issue of whether an arrastre operator

There is a distinction between an arrastre and a stevedore.[24] Arrastre, a Spanish


word which refers to hauling of cargo, comprehends the handling of cargo on the
wharf or between the establishment of the consignee or shipper and the ship's tackle.
The responsibility of the arrastre operator lasts until the delivery of the cargo to the
consignee. The service is usually performed by longshoremen. On the other hand,
stevedoring refers to the handling of the cargo in the holds of the vessel or between
the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends
upon the loading and stowing of the cargo in the vessel.

It is not disputed that Mindanao Terminal was performing purely stevedoring function
while the private respondent in the Summa case was performing arrastre function. In
the present case, Mindanao Terminal, as a stevedore, was only charged with the
loading and stowing of the cargoes from the pier to the ships cargo hold; it was never
the custodian of the shipment of Del Monte Produce. A stevedore is not a common
carrier for it does not transport goods or passengers; it is not akin to a warehouseman
for it does not store goods for profit. The loading and stowing of cargoes would not
have a far reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract and on

quasi-delict. The public policy considerations in legally imposing upon a common


carrier or a warehouseman a higher degree of diligence is not present in a
stevedoring outfit which mainly provides labor in loading and stowing of cargoes for
its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of


evidence[25] that Mindanao Terminal had acted negligently. Where the evidence on
an issue of fact is in equipoise or there is any doubt on which side the evidence
preponderates the party having the burden of proof fails upon that issue. That is to
say, if the evidence touching a disputed fact is equally balanced, or if it does not
produce a just, rational belief of its existence, or if it leaves the mind in a state of
perplexity, the party holding the affirmative as to such fact must fail.[26]
We adopt the findings[27] of the RTC,[28] which are not disputed by Phoenix and
McGee. The Court of Appeals did not make any new findings of fact when it reversed
the decision of the trial court. The only participation of Mindanao Terminal was to load
the cargoes on board M/V Mistrau.[29] It was not disputed by Phoenix and McGee
that the materials, such as ropes, pallets, and cardboards, used in lashing and rigging
the cargoes were all provided by M/V Mistrau and these materials meets industry
standard.[30]
It was further established that Mindanao Terminal loaded and stowed the cargoes of
Del Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a
guide for the area assignments of the goods in the vessels hold, prepared by Del
Monte Produce and the officers of M/V Mistrau.[31] The loading and stowing was
done under the direction and supervision of the ship officers. The vessels officer
would order the closing of the hatches only if the loading was done correctly after a
final inspection.[32] The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to withstand
the voyage in open seas. They would order the stevedore to rectify any error in its
loading and stowing. A foremans report, as proof of work done on board the vessel,
was prepared by the checkers of Mindanao Terminal and concurred in by the Chief
Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded.
[33]

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn[34] and on
the survey report[35] of the damage to the cargoes. Byeong, whose testimony was
refreshed by the survey report,[36] found that the cause of the damage was improper
stowage[37] due to the manner the cargoes were arranged such that there were no
spaces between cartons, the use of cardboards as support system, and the use of
small rope to tie the cartons together but not by the negligent conduct of Mindanao
Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in
their Comment[38] before us, the latter is merely a stevedoring company which was
tasked by Del Monte to load and stow the shipments of fresh banana and pineapple
of Del Monte Produce aboard the M/V Mistrau. How and where it should load and
stow a shipment in a vessel is wholly dependent on the shipper and the officers of the

vessel. In other words, the work of the stevedore was under the supervision of the
shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report
found that it was because of the boisterous stormy weather due to the typhoon Seth,
as encountered by M/V Mistrau during its voyage, which caused the shipments in the
cargo hold to collapse, shift and bruise in extensive extent.[39] Even the deposition of
Byeong was not supported by the conclusion in the survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that damage
occurred aboard the carrying vessel during sea transit, being caused by ships heavy
rolling and pitching under boisterous weather while proceeding from 1600 hrs on 7th
October to 0700 hrs on 12th October, 1994 as described in the sea protest.[40]

As it is clear that Mindanao Terminal had duly exercised the required degree of
diligence in loading and stowing the cargoes, which is the ordinary diligence of a good
father of a family, the grant of the petition is in order.

However, the Court finds no basis for the award of attorneys fees in favor of
petitioner. None of the circumstances enumerated in Article 2208 of the Civil Code
exists. The present case is clearly not an unfounded civil action against the plaintiff as
there is no showing that it was instituted for the mere purpose of vexation or injury. It
is not sound public policy to set a premium to the right to litigate where such right is
exercised in good faith, even if erroneously.[41] Likewise, the RTC erred in awarding
P83,945.80 actual damages to Mindanao Terminal. Although actual expenses were
incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the
lawyer of Mindanao Terminal incurred expenses for plane fare, hotel accommodations
and food, as well as other miscellaneous expenses, as he attended the trials coming
all the way from Manila. But there is no showing that Phoenix and McGee made a
false claim against Mindanao Terminal resulting in the protracted trial of the case
necessitating the incurrence of expenditures.[42]

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CAG.R. CV No. 66121 is SET ASIDE and the decision of the Regional Trial Court of

Davao City, Branch 12 in Civil Case No. 25,311.97 is hereby REINSTATED MINUS
the awards of P100,000.00 as attorneys fees and P83,945.80 as actual damages.

SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-30056 August 30, 1988

MARCELO AGCAOILI, plaintiff-appellee

payment of other stipulated installments until GSIS had made the house habitable;
and appellant having refused to do so, opting instead to cancel the award and
demand the vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS
in the Court of First Instance of Manila for specific performance with damages and
having obtained a favorable judgment, the case was appealled to this Court by the
GSIS. Its appeal must fail.

The essential facts are not in dispute. Approval of Agcaoili's aforementioned


application for purchase 1 was contained in a letter 2 addressed to Agcaoili and
signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General
Manager, reading as follows:

Please be informed that your application to purchase a house and lot in our GSIS
Housing Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No.
26, Block No. (48) 2, together with the housing unit constructed thereon, has been
allocated to you.

You are, therefore, advised to occupy the said house immediately.

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.

If you fail to occupy the same within three (3) days from receipt of this notice, your
application shall be considered automatically disapproved and the said house and lot
will be awarded to another applicant.

Artemio L. Agcaoili for plaintiff-appellee.

Office of the Government Corporate Counsel for defendant-appellant.

NARVASA, J.:

The appellant Government Service Insurance System, (GSIS, for short) having
approved the application of the appellee Agcaoili for the purchase of a house and lot
in the GSIS Housing Project at Nangka Marikina, Rizal, subject to the condition that
the latter should forthwith occupy the house, a condition that Agacoili tried to fulfill but
could not for the reason that the house was absolutely uninhabitable; Agcaoili, after
paying the first installment and other fees, having thereafter refused to make further

Agcaoili lost no time in occupying the house. He could not stay in it, however, and had
to leave the very next day, because the house was nothing more than a shell, in such
a state of incompleteness that civilized occupation was not possible: ceiling, stairs,
double walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage,
were inexistent. Agcaoili did however ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending completion of the
construction of the house. Agcaoili thereafter complained to the GSIS, to no avail.

The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili
paid the first monthly installment and the incidental fees, 3 but refused to make further
payments until and unless the GSIS completed the housing unit. What the GSIS did
was to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili
reacted by instituting suit in the Court of First Instance of Manila for specific
performance and damages. 5 Pending the action, a written protest was lodged by
other awardees of housing units in the same subdivision, regarding the failure of the
System to complete construction of their own houses. 6 Judgment was in due course
rendered , 7 on the basis of the evidence adduced by Agcaoili only, the GSIS having

opted to dispense with presentation of its own proofs. The judgment was in Agcaoili's
favor and contained the following dispositions, 8 to wit:

1)
Declaring the cancellation of the award (of a house and lot) in favor of
plaintiff (Mariano Agcaoili) illegal and void;

2)
Ordering the defendant (GSIS) to respect and enforce the aforesaid award
to the plaintiff relative to Lot No. 26, Block No. (48) 2 of the Government Service
Insurance System (GSIS) low cost housing project at Nangka Marikina, Rizal;

3)
Ordering the defendant to complete the house in question so as to make the
same habitable and authorizing it (defendant) to collect the monthly amortization
thereon only after said house shall have been completed under the terms and
conditions mentioned in Exhibit A ;and

4)
Ordering the defendant to pay P100.00 as damages and P300.00 as and for
attorney's fees, and costs.

Appellant GSIS would have this Court reverse this judgment on the argument that

1)
Agcaoili had no right to suspend payment of amortizations on account of the
incompleteness of his housing unit, since said unit had been sold "in the condition
and state of completion then existing ... (and) he is deemed to have accepted the
same in the condition he found it when he accepted the award;" and assuming
indefiniteness of the contract in this regard, such circumstance precludes a judgment
for specific performance. 9

2)
Perfection of the contract of sale between it and Agcaoili being conditioned
upon the latter's immediate occupancy of the house subject thereof, and the latter
having failed to comply with the condition, no contract ever came into existence
between them ; 10

3)
Agcaoili's act of placing his homeless friend, Villanueva, in possession,
"without the prior or subsequent knowledge or consent of the defendant (GSIS)"
operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS at
the same time of the reasonable rental value of the property. 11

Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the
latter, entitled "Application to Purchase a House and/or Lot." Agcaoili filled up the
form, signed it, and submitted it. 12 The acceptance of the application was also set
out in a form (mimeographed) also prepared by the GSIS. As already mentioned, this
form sent to Agcaoili, duly filled up, advised him of the approval of his "application to
purchase a house and lot in our GSIS Housing Project at NANGKA, MARIKINA,
RIZAL," and that "Lot No. 26, Block No. (48) 2, together with the housing unit
constructed thereon, has been allocated to you." Neither the application form nor the
acceptance or approval form of the GSIS nor the notice to commence payment of
a monthly amortizations, which again refers to "the house and lot awarded"
contained any hint that the house was incomplete, and was being sold "as is," i.e., in
whatever state of completion it might be at the time. On the other hand, the condition
explicitly imposed on Agcaoili "to occupy the said house immediately," or in any
case within three (3) days from notice, otherwise his "application shall be considered
automatically disapproved and the said house and lot will be awarded to another
applicant" would imply that construction of the house was more or less complete,
and it was by reasonable standards, habitable, and that indeed, the awardee should
stay and live in it; it could not be interpreted as meaning that the awardee would
occupy it in the sense of a pioneer or settler in a rude wilderness, making do with
whatever he found available in the envirornment.

There was then a perfected contract of sale between the parties; there had been a
meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in
the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in
amortizations at P31.56 per month, and from that moment the parties acquired the
right to reciprocally demand performance. 13 It was, to be sure, the duty of the GSIS,
as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer
for the purpose contemplated , 14 in other words, to deliver the house subject of the
contract in a reasonably livable state. This it failed to do.

It sold a house to Agcaoili, and required him to immediately occupy it under pain of
cancellation of the sale. Under the circumstances there can hardly be any doubt that
the house contemplated was one that could be occupied for purposes of residence in
reasonable comfort and convenience. There would be no sense to require the
awardee to immediately occupy and live in a shell of a house, a structure consisting
only of four walls with openings, and a roof, and to theorize, as the GSIS does, that
this was what was intended by the parties, since the contract did not clearly impose
upon it the obligation to deliver a habitable house, is to advocate an absurdity, the
creation of an unfair situation. By any objective interpretation of its terms, the contract
can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a
reasonably habitable dwelling in return for his undertaking to pay the stipulated price.
Since GSIS did not fulfill that obligation, and was not willing to put the house in
habitable state, it cannot invoke Agcaoili's suspension of payment of amortizations as
cause to cancel the contract between them. It is axiomatic that "(i)n 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." 15

Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the
claim that the latter had not complied with the condition of occupying the house within
three (3) days. The record shows that Agcaoili did try to fulfill the condition; he did try
to occupy the house but found it to be so uninhabitable that he had to leave it the
following day. He did however leave a friend in the structure, who being homeless
and hence willing to accept shelter even of the most rudimentary sort, agreed to stay
therein and look after it. Thus the argument that Agcaoili breached the agreement by
failing to occupy the house, and by allowing another person to stay in it without the
consent of the GSIS, must be rejected as devoid of merit.

Finally, the GSIS should not be heard to say that the agreement between it and
Agcaoili is silent, or imprecise as to its exact prestation Blame for the imprecision
cannot be imputed to Agcaoili; it was after all the GSIS which caused the contract to
come into being by its written acceptance of Agcaoili's offer to purchase, that offer
being contained in a printed form supplied by the GSIS. Said appellant having caused
the ambiguity of which it would now make capital, the question of interpretation
arising therefrom, should be resolved against it.

It will not do, however, to dispose of the controversy by simply declaring that the
contract between the parties had not been validly cancelled and was therefore still in
force, and that Agcaoili could not be compelled by the GSIS to pay the stipulated
price of the house and lot subject of the contract until and unless it had first
completed construction of the house. This would leave the contract hanging or in
suspended animation, as it were, Agcaoili unwilling to pay unless the house were first
completed, and the GSIS averse to completing construction, which is precisely what
has been the state of affairs between the parties for more than twenty (20) years now.
On the other hand, assuming it to be feasible to still finish the construction of the
house at this time, to compel the GSIS to do so so that Agcaoili's prestation to pay the
price might in turn be demanded, without modifying the price therefor, would not be
quite fair. The cost to the GSIS of completion of construction at present prices would
make the stipulated price disproportionate, unrealistic.

The situation calls for the exercise by this Court of its equity jurisdiction, to the end
that it may render complete justice to both parties.

As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579,
589 [1978]). "(E)quity as the complement of legal jurisdiction seeks to reach and do
complete justice where courts of law, through the inflexibility of their rules and want of

power to adapt their judgments to the special circumstances of cases, are


incompetent so to do. Equity regards the spirit of and not the letter, the intent and not
the form, the substance rather than the circumstance, as it is variously expressed by
different courts... " 16

In this case, the Court can not require specific performance of the contract in question
according to its literal terms, as this would result in inequity. The prevailing rule is that
in decreeing specific performance equity requires 17

... not only that the contract be just and equitable in its provisions, but that the
consequences of specific performance likewise be equitable and just. The general
rule is that this equitable relief will not be granted if, under the circumstances of the
case, the result of the specific enforcement of the contract would be harsh,
inequitable, oppressive, or result in an unconscionable advantage to the plaintiff . .

In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in
accordance with the circumstances obtaining at the time of rendition of judgment,
when these are significantly different from those existing at the time of generation of
those rights.

The Court is not restricted to an adjustment of the rights of the parties as they existed
when suit was brought, but will give relief appropriate to events occuring ending the
suit. 18

While equitable jurisdiction is generally to be determined with reference to the


situation existing at the time the suit is filed, the relief to be accorded by the decree is
governed by the conditions which are shown to exist at the time of making thereof,
and not by the circumstances attending the inception of the litigation. In making up
the final decree in an equity suit the judge may rightly consider matters arising after
suit was brought. Therefore, as a general rule, equity will administer such relief as the
nature, rights, facts and exigencies of the case demand at the close of the trial or at
the time of the making of the decree. 19

That adjustment is entirely consistent with the Civil Law principle that in the exercise
of rights a person must act with justice, give everyone his due, and observe honesty
and good faith. 20 Adjustment of rights has been held to be particularly applicable
when there has been a depreciation of currency.

Depreciation of the currency or other medium of payment contracted for has


frequently been held to justify the court in withholding specific performance or at least
conditioning it upon payment of the actual value of the property contracted for. Thus,
in an action for the specific performance of a real estate contract, it has been held
that where the currency in which the plaintiff had contracted to pay had greatly
depreciated before enforcement was sought, the relief would be denied unless the
complaint would undertake to pay the equitable value of the land. (Willard & Tayloe
[U.S.] 8 Wall 557,19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21

In determining the precise relief to give, the Court will "balance the equities" or the
respective interests of the parties, and take account of the relative hardship that one
relief or another may occasion to them .22

The completion of the unfinished house so that it may be put into habitable condition,
as one form of relief to the plaintiff Agcaoili, no longer appears to be a feasible option
in view of the not inconsiderable time that has already elapsed. That would require an
adjustment of the price of the subject of the sale to conform to present prices of
construction materials and labor. It is more in keeping with the realities of the
situation, and with equitable norms, to simply require payment for the land on which
the house stands, and for the house itself, in its unfinished state, as of the time of the
contract. In fact, this is an alternative relief proposed by Agcaoili himself, i.e., "that
judgment issue . . (o)rdering the defendant (GSIS) to execute a deed of sale that
would embody and provide for a reasonable amortization of payment on the basis of
the present actual unfinished and uncompleted condition, worth and value of the said
house. 23

WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets
aside the cancellation by respondent GSIS of the award in favor of petitioner Agcaoili
of Lot No. 26, Block No. (48) 2 of the GSIS low cost housing project at Nangka,
Marikina, Rizal, and orders the former to respect the aforesaid award and to pay
damages in the amounts specified, is AFFIRMED as being in accord with the facts
and the law. Said judgments is however modified by deleting the requirement for
respondent GSIS "to complete the house in question so as to make the same
habitable," and instead it is hereby ORDERED that the contract between the parties
relative to the property above described be modified by adding to the cost of the land,
as of the time of perfection of the contract, the cost of the house in its unfinished state
also as of the time of perfection of the contract, and correspondingly adjusting the
amortizations to be paid by petitioner Agcaoili, the modification to be effected after
determination by the Court a quo of the value of said house on the basis of the
agreement of the parties, or if this is not possible by such commissioner or
commissioners as the Court may appoint. No pronouncement as to costs.

SO ORDERED.

Cruz, Gancayco, Aquino and Medialdea, JJ., concur.

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