SECOND DIVISION

[G.R. No. 119771. April 24, 1998]

SAN ILDEFONSO LINES, INC., and EDUARDO JAVIER, petitioners, vs. COURT OF APPEALS (Thirteenth
Division) and PIONEER INSURANCE and SURETY CORPORATION, respondents.

DECISION
MARTINEZ, J.:

At around 3:30 in the afternoon of June 24, 1991, a Toyota Lite Ace Van being driven by its owner Annie U. Jao
and a passenger bus of herein petitioner San Ildefonso Lines, Inc. (hereafter, SILI) figured in a vehicular mishap at
the intersection of Julia Vargas Avenue and Rodriguez Lanuza Avenue in Pasig, Metro Manila, totally wrecking the
Toyota van and injuring Ms. Jao and her two (2) passengers in the process.
A criminal case was thereafter filed with the Regional Trial Court of Pasig on September 18, 1991 charging the
driver of the bus, herein petitioner Eduardo Javier, with reckless imprudence resulting in damage to property with
multiple physical injuries.
About four (4) months later, or on January 13, 1992, herein private respondent Pioneer Insurance and Surety
Corporation (PISC), as insurer of the van and subrogee, filed a case for damages against petitioner SILI with the
Regional Trial Court of Manila, seeking to recover the sums it paid the assured under a motor vehicle insurance policy
as well as other damages, totaling P564,500.00 (P454,000.00 as actual/compensatory damages; P50,000.00 as
exemplary damages; P50,000.00 as attorney's fees; P10,000.00 as litigation expenses; and P500.00 as appearance
fees.)[1]
With the issues having been joined upon the filing of the petitioners' answer to the complaint for damages and
after submission by the parties of their respective pre-trial briefs, petitioners filed on September 18, 1992 a
Manifestation and Motion to Suspend Civil Proceedings grounded on the pendency of the criminal case against
petitioner Javier in the Pasig RTC and the failure of respondent PISC to make a reservation to file a separate damage
suit in said criminal action. This was denied by the Manila Regional Trial Court in its Order dated July 21,
1993,[2] ruling thus:

"Answering the first question thus posed, the court holds that plaintiff may legally institute the present civil action
even in the absence of a reservation in the criminal action. This is so because it falls among the very exceptions to
the rule cited by the movant.

"It is true that the general rule is that once a criminal action has been instituted, then civil action based thereon is
deemed instituted together with the criminal action, such that if the offended party did not reserve the filing of the
civil action when the criminal action was filed, then such filing of the civil action is therefore barred; on the other
hand, if there was such reservation, still the civil action cannot be instituted until final judgment has been rendered
in the criminal action;

"But, this rule (Section 2, Rule 111, Revised Rules of Court) is subject to exemptions, the same being those
provided for in Section 3 of the same rule which states:

'Section 3. When civil action may proceed independently. - In the cases provided for in Articles 32, 33, 34 and 2176
of the Civil Code of the Philippines, the independent civil action which was been reserved may be brought by the
offended party, shall proceed independently of the criminal action, and shall require only a preponderance of
evidence.'
"Besides, the requirement in Section 2 of Rule 111 of the former Rules on Criminal Procedure that there be a
reservation in the criminal case of the right to institute an independent civil action has been declared as not in
accordance with law. It is regarded as an unauthorized amendment to our substantive law, i.e., the Civil Code which
does not require such reservation. In fact, the reservation of the right to file an independent civil action has been
deleted from Section 2, Rule 111 of the 1985 Rules on Criminal Procedure, in consonance with the decisions of this
Court declaring such requirement of a reservation as ineffective. (Bonite vs. Zosa, 162 SCRA 180)

"Further, the Court rules that a subrogee-plaintiff may institute and prosecute the civil action, it being allowed by
Article 2207 of the Civil Code."

After their motion for reconsideration of said July 21, 1993 Order was denied, petitioners elevated the matter to
this Court via petition for certiorari which was, however, referred to public respondent Court of Appeals for
disposition. On February 24, 1995, a decision adverse to petitioners once again was rendered by respondent court,
upholding the assailed Manila Regional Trial Court Order in this wise:

"A separate civil action lies against the offender in a criminal act, whether or not he is criminally prosecuted and
found guilty or acquitted, provided that the offended party is not allowed (if the tortfeasor is actually charged also
criminally), to recover damages on both scores, and would be entitled in such eventuality only to the bigger award of
the two, assuming the awards made in the two cases vary.

"To subordinate the civil action contemplated in the said articles to the result of the criminal prosecution - whether it
be conviction or acquittal - would render meaningless the independent character of the civil action and the clear
injunction in Art. 31, that this action may proceed independently of the criminal proceedings and regardless of the
result of the latter.

"In Yakult Phil. vs. CA, the Supreme Court said:

'Even if there was no reservation in the criminal case and that the civil action was not filed before the filing of the
criminal action but before the prosecution presented evidence in the criminal action, and the judge handling the
criminal case was informed thereof, then the actual filing of the civil action is even far better than a compliance with
the requirement of an express reservation that should be made by the offended party before the prosecution
presented its evidence.'

"The purpose of this rule requiring reservation is to prevent the offended party from recovering damages twice for
the same act or omission.

"Substantial compliance with the reservation requirement may, therefore, be made by making a manifestation in the
criminal case that the private respondent has instituted a separate and independent civil action for damages.

"Oft-repeated is the dictum that courts should not place undue importance on technicalities when by so doing,
substantial justice is sacrificed. While the rules of procedure require adherence, it must be remembered that said
rules of procedure are intended to promote, not defeat, substantial justice, and therefore, they should not be applied
in a very rigid and technical sense."

Hence, this petition for review after a motion for reconsideration of said respondent court judgment was denied.
The two (2) crucial issues to be resolved, as posited by petitioners, are:
1) If a criminal case was filed, can an independent civil action based on quasi-delict under Article 2176 of the
Civil Code be filed if no reservation was made in the said criminal case?
2) Can a subrogee of an offended party maintain an independent civil action during the pendency of a criminal
action when no reservation of the right to file an independent civil action was made in the criminal action and despite
the fact that the private complainant is actively participating through a private prosecutor in the aforementioned
criminal case?
 We rule for petitioners.
On the chief issue of "reservation", at the fore is Section 3, Rule 111 of the Rules of Court which reads:

"Sec. 3. When civil action may proceed independently. -- In the cases provided for in Articles 32, 33, 34 and 2176 of
the Civil Code of the Philippines, the independent civil action which has been reserved may be brought by the
offended party, shall proceed independently of the criminal action, and shall require only a preponderance of
evidence."

There is no dispute that these so-called "independent civil actions" based on the aforementioned Civil Code articles
are the exceptions to the primacy of the criminal action over the civil action as set forth in Section 2 of Rule
111.[3] However, it is easily deducible from the present wording of Section 3 as brought about by the 1988 amendments
to the Rules on Criminal Procedure -- particularly the phrase " which has been reserved" -- that the "independent"
character of these civil actions does not do away with the reservation requirement. In other words, prior reservation is
a condition sine qua non before any of these independent civil actions can be instituted and thereafter have a
continuous determination apart from or simultaneous with the criminal action. That this should now be the controlling
procedural rule is confirmed by no less than retired Justice Jose Y. Feria,remedial law expert and a member of the
committee which drafted the 1988 amendments, whose learned explanation on the matter was aptly pointed out by
petitioners, to wit:

"The 1988 amendment expands the scope of the civil action which is deemed impliedly instituted with the criminal
action unless waived, reserved or previously instituted xxx.

Under the present Rule as amended, such a civil action includes not only recovery of indemnity under the Revised
Penal Code and damages under Articles 32, 33, 34 of the Civil Code of the Philippines, but also damages under
Article 2176 of the said code. xxx

Objections were raised to the inclusion in this Rule of quasi-delicts under Article 2176 of the Civil Code of the
Philippines. However, in view of Article 2177 of the said code which provides that the offended party may not
recover twice for the same act or omission of the accused, and in line with the policy of avoiding multiplicity of
suits, these objections were overruled. In any event, the offended party is not precluded from filing a civil action to
recover damages arising from quasi-delict before the institution of the criminal action, or from reserving his right to
file such a separate civil action, just as he is not precluded from filing a civil action for damages under Articles 32,
33 and 34 before the institution of the criminal action, or from reserving his right to file such a separate civil action.
It is only in those cases where the offended party has not previously filed a civil action or has not reserved his right
to file a separate civil action that his civil action is deemed impliedly instituted with the criminal action.

It should be noted that while it was ruled in Abella vs. Marave (57 SCRA 106) that a reservation of the right to file
an independent civil action is not necessary, such a reservation is necessary under the amended rule. Without such
reservation, the civil action is deemed impliedly instituted with the criminal action, unless previously waived or
instituted. (Underscoring ours. Justice Jose Y. Feria [Ret.], 1988 Amendments to the 1985 Rules on Criminal
Procedure, a pamphlet, published by Central Lawbook Publishing Co., Inc., Philippine Legal Studies, Series No. 3,
5-6).[4]

Sharing the same view on the indispensability of a prior reservation is Mr. Justice Florenz D. Regalado, whose
analysis of the historical changes in Rule 111 since the 1964 Rules of Court is equally illuminating. Thus,

"1. Under Rule 111 of the 1964 Rules of Court, the civil liability arising from the offense charged was impliedly
instituted with the criminal action, unless such civil action was expressly waived or reserved. The offended party
was authorized to bring an independent civil action in the cases provided for in Articles 31, 32, 33, 34 and 2177 of
the Civil Code provided such right was reserved.

In the 1985 Rules on Criminal Procedure, the same Rule 111 thereof reiterated said provision on the civil liability
arising from the offense charged. The independent civil actions, however, were limited to the cases provided for in
Articles 32, 33 and 34 of the Civil Code, obviously because the actions contemplated in Articles 31 and 2177 of said
Code are not liabilities ex delicto. Furthermore, no reservation was required in order the civil actions in said Articles
32, 33 and 34 may be pursued separately.

2. The present amendments introduced by the Supreme Court have the following notable features on this particular
procedural aspect, viz:

a. The civil action which is impliedly instituted with the criminal action, barring a waiver,
reservation or prior institution thereof, need not arise from the offense charged, as the
phrase 'arising from the offense charged' which creates that nexus has been specifically
eliminated.

b. The independent civil actions contemplated in the present Rule 111 include the quasi-
delicts provided for in Art. 2176 of the Civil Code, in addition to the cases provided in
Arts. 32, 33 and 34 thereof. It is necessary, however, that the civil liability under all the
said articles arise 'from the same act or omission of the accused.' Furthermore, a
reservation of the right to institute these separate civil actions is again required,
otherwise, said civil actions are impliedly instituted with the criminal action, unless the
former are waived or filed ahead of the criminal action." (Emphasis supplied.)[5]

In fact, a deeper reading of the "Yakult Phils. vs. CA" case[6] relied upon by respondent court reveals an
acknowledgement of the reservation requirement. After recognizing that the civil case instituted by private respondent
therein Roy Camaso (represented by his father David Camaso) against petitioner Yakult Phils. (the owner of the
motorcycle that sideswiped Roy Camaso, only five years old at the time of the accident) and Larry Salvado (the driver
of the motorcycle) during the pendency of the criminal case against Salvado for reckless imprudence resulting to slight
physical injuries, as one based on tort, this Court said:

"The civil liability sought arising from the act or omission of the accused in this case is a quasi-delict as defined
under Article 2176 of the Civil Code as follows:

xxxxxxxxx

"The aforecited rule [referring to the amended Section 1, Rule111] requiring such previous reservation also
covers quasi-delict as defined under Article 2176 of the Civil Code arising from the same act or omission of the
accused"(Underscoring supplied).

But what prompted the Court to validate the institution and non-suspension of the civil case involved in "Yakult" was
the peculiar facts attendant therein. Thus,

"Although the separate civil action filed in this case was without previous reservation in the criminal case,
nevertheless since it was instituted before the prosecution presented evidence in the criminal action, and the judge
handling the criminal case was informed thereof, then the actual filing of the civil action is even far better than a
compliance with the requirement of an express reservation that should be made by the offended party before the
prosecution presents its evidence"

The distinct factual scenario in "Yakult" simply does not obtain in this case. No satisfactory proof exists to show
that private respondent PISC's damage suit was instituted before the prosecution presented its evidence in the criminal
case pending in the Pasig Regional Trial Court. Neither is there any indication that the judge presiding over the
criminal action has been made aware of the civil case. It is in this light that reliance on the "Yakult" case is indeed
misplaced.
Now that the necessity of a prior reservation is the standing rule that shall govern the institution of the
independent civil actions referred to in Rule 111 of the Rules of Court, past pronouncements that view the reservation
requirement as an "unauthorized amendment" to substantive law - i.e., the Civil Code, should no longer be controlling.
There must be a renewed adherence to the time-honored dictum that procedural rules are designed, not to defeat, but
to safeguard the ends of substantial justice. And for this noble reason, no less than the Constitution itself has mandated
this Court to promulgate rules concerning the enforcement of rights with the end in view of providing a simplified and
inexpensive procedure for the speedy disposition of cases which should not diminish, increase or modify substantive
rights.[7] Far from altering substantive rights, the primary purpose of the reservation is, to borrow the words of the
Court in "Caos v. Peralta":[8]

" to avoid multiplicity of suits, to guard against oppression and abuse, to prevent delays, to clear congested dockets,
to simplify the work of the trial court; in short, the attainment of justice with the least expense and vexation to the
parties-litigants."

Clearly then, private respondent PISC, as subrogee under Article 2207 of the Civil Code, [9] is not exempt from
the reservation requirement with respect to its damages suit based on quasi-delict arising from the same act or
omission of petitioner Javier complained of in the criminal case. As private respondent PISC merely stepped into the
shoes of Ms. Jao (as owner of the insured Toyota van), then it is bound to observe the procedural requirements which
Ms. Jao ought to follow had she herself instituted the civil case.
WHEREFORE, premises considered, the assailed decision of the Court of Appeals dated February 24, 1995
and the Resolution dated April 3, 1995 denying the motion for reconsideration thereof are hereby REVERSED and
SET ASIDE. The "MANIFESTATION AND MOTION TO SUSPEND CIVIL PROCEEDINGS" filed by petitioners
is GRANTED.
SO ORDERED.
 EN BANC

[G.R. No. 129029. April 3, 2000]

RAFAEL REYES TRUCKING CORPORATION, petitioner, vs. PEOPLE OF THE PHILIPPINES and
ROSARIO P. DY (for herself and on behalf of the minors Maria Luisa, Francis Edward, Francis Mark and
Francis Rafael, all surnamed Dy), respondents.

DECISION

PARDO, J.:

The case is an appeal via certiorari from the amended decision[1] of the Court of Appeals[2] affirming the decision
and supplemental decision of the trial court,[3] as follows:

"IN VIEW OF THE FOREGOING, judgment is hereby rendered dismissing the appeals
interposed by both accused and Reyes Trucking Corporation and affirming the Decision and
Supplemental Decision dated June 6, 1992 and October 26, 1992 respectively.

"SO ORDERED."[4]

The facts are as follows:

On October 10, 1989, Provincial Prosecutor Patricio T. Durian of Isabela filed with the Regional Trial Court,
Isabela, Branch 19, Cauayan an amended information charging Romeo Dunca y de Tumol with reckless imprudence
resulting in double homicide and damage to property, reading as follows:

"That on or about the 20th day of June, 1989, in the Municipality of Cauayan, Province of Isabela,
Philippines, and within the jurisdiction of this Honorable Court, the said accused being the driver
and person-in-charge of a Trailer Truck Tractor bearing Plate No. N2A-867 registered in the name
of Rafael Reyes Trucking Corporation, with a load of 2,000 cases of empty bottles of beer grande,
willfully, unlawfully and feloniously drove and operated the same while along the National
Highway of Barangay Tagaran, in said Municipality, in a negligent, careless and imprudent
manner, without due regard to traffic laws, rules and ordinances and without taking the necessary
precautions to prevent injuries to persons and damage to property, causing by such negligence,
carelessness and imprudence the said trailer truck to hit and bump a Nissan Pick-up bearing Plate
No. BBG-957 driven by Feliciano Balcita and Francisco Dy, Jr., @ Pacquing, due to irreversible
shock, internal and external hemorrhage and multiple injuries, open wounds, abrasions, and further
causing damages to the heirs of Feliciano Balcita in the amount of P100,000.00 and to the death of
Francisco Dy, Jr.; @ Pacquing and damages to his Nissan Pick-Up bearing Plate No. BBG-957 in
the total amount of P2,000,000.00.

"CONTRARY TO LAW.

"Cauayan, Isabela, October 10, 1989.

"(Sgd.) FAUSTO C. CABANTAC

"Third Assistant Provincial Prosecutor"

Upon arraignment on October 23, 1989, the accused entered a plea of not guilty. On the same occasion, the offended
parties (Rosario P. Dy and minor children and Angelina M. Balcita and minor son Paolo) made a reservation to file a
separate civil action against the accused arising from the offense charged.[5] On November 29, 1989, the offended
parties actually filed with the Regional Trial Court, Isabela, Branch 19, Cauayan a complaint against petitioner
Rafael Reyes Trucking Corporation, as employer of driver Romeo Dunca y de Tumol, based on quasi delict. The
petitioner settled the claim of the heirs of Feliciano Balcita (the driver of the other vehicle involved in the accident).
The private respondents opted to pursue the criminal action but did not withdraw the civil case quasi ex delicto they
filed against petitioner. On December 15, 1989, private respondents withdrew the reservation to file a separate civil
action against the accused and manifested that they would prosecute the civil aspect ex delicto in the criminal
action.[6] However, they did not withdraw the separate civil action based on quasi delict against petitioner as
employer arising from the same act or omission of the accused driver. [7]

Upon agreement of the parties, the trial court consolidated both criminal and civil cases and conducted a joint trial of
the same.

The facts, as found by the trial court, which appear to be undisputed, are as follows:

"The defendant Rafael Reyes Trucking Corporation is a domestic corporation engaged in the
business of transporting beer products for the San Miguel Corporation (SMC for short) from the
latters San Fernando, Pampanga plant to its various sales outlets in Luzon. Among its fleets of
vehicles for hire is the white truck trailer described above driven by Romeo Dunca y Tumol, a
duly licensed driver. Aside from the Corporations memorandum to all its drivers and helpers to
physically inspect their vehicles before each trip (Exh. 15, pars. 4 & 5), the SMCs Traffic
Investigator-Inspector certified the roadworthiness of this White Truck trailer prior to June 20,
1989 (Exh. 17). In addition to a professional drivers license, it also conducts a rigid examination
of all driver applicants before they are hired.

"In the early morning of June 20, 1989, the White Truck driven by Dunca left Tuguegarao,
Cagayan bound to San Fernando, Pampanga loaded with 2,000 cases of empty beer "Grande"
bottles. Seated at the front right seat beside him was Ferdinand Domingo, his truck helper
("pahinante" in Pilipino). At around 4:00 oclock that same morning while the truck was
descending at a slight downgrade along the national road at Tagaran, Cauayan, Isabela, it
approached a damaged portion of the road covering the full width of the trucks right lane going
south and about six meters in length. These made the surface of the road uneven because the
potholes were about five to six inches deep. The left lane parallel to this damaged portion is
smooth. As narrated by Ferdinand Domingo, before approaching the potholes, he and Dunca saw
the Nissan with its headlights on coming from the opposite direction. They used to evade this
damaged road by taking the left lance but at that particular moment, because of the incoming
vehicle, they had to run over it. This caused the truck to bounce wildly. Dunca lost control of the
wheels and the truck swerved to the left invading the lane of the Nissan. As a result, Duncas
vehicle rammed the incoming Nissan dragging it to the left shoulder of the road and climbed a
ridge above said shoulder where it finally stopped. (see Exh. A-5, p. 8, record). The Nissan was
severely damaged (Exhs. A-7, A-8, A-9 and A-14, pp. 9-11, record), and its two passengers,
namely: Feliciano Balcita and Francisco Dy, Jr. died instantly (Exh. A-19) from external and
internal hemorrhage and multiple fractures (pp. 15 and 16, record).

"For the funeral expenses of Francisco Dy, Jr. her widow spent P651,360.00 (Exh. I-3). At the
time of his death he was 45 years old. He was the President and Chairman of the Board of the
Dynamic Wood Products and Development Corporation (DWPC), a wood processing
establishment, from which he was receiving an income of P10,000.00 a month (Exh. D). In the
Articles of Incorporation of the DWPC, the spouses Francisco Dy, Jr. and Rosario Perez Dy
appear to be stockholders of 10,000 shares each with par value of P100.00 per share out of its
outstanding and subscribed capital stock of 60,000 shares valued at P6,000,000.00 (Exhs. K-1 &
10-B). Under its 1988 Income Tax Returns (Exh. J) the DWPC had a taxable net income of
P78,499.30 (Exh. J). Francisco Dy, Jr. was a La Salle University graduate in Business
Administration, past president of the Pasay Jaycees, National Treasurer and President of the
Philippine Jaycees in 1971 and 1976, respectively, and World Vice-President of Jaycees
International in 1979. He was also the recipient of numerous awards as a civic leader (Exh. C). His
 children were all studying in prestigious schools and spent about P180,000.00 for their education
in 1988 alone (Exh. H-4).

"As stated earlier, the plaintiffs procurement of a writ of attachment of the properties of the
Corporation was declared illegal by the Court of Appeals. It was shown that on December 26,
1989, Deputy Sheriff Edgardo Zabat of the RTC at San Fernando, Pampanga, attached six units of
Truck Tractors and trailers of the Corporation at its garage at San Fernando, Pampanga. These
vehicles were kept under PC guard by the plaintiffs in said garage thus preventing the Corporation
to operate them. However, on December 28, 1989, the Court of Appeals dissolved the writ (p. 30,
record) and on December 29, 1989, said Sheriff reported to this Court that the attached vehicles
were taken by the defendants representative, Melita Manapil (Exh. O, p. 31, record). The
defendants general Manager declared that it lost P21,000.00 per day for the non-operation of the
six units during their attachment (p. 31, t.s.n., Natividad C. Babaran, proceedings on December 10,
1990)."[8]

On June 6, 1992, the trial court rendered a joint decision, the dispositive portion of which reads as follows:

"WHEREFORE, in view of the foregoing considerations judgment is hereby rendered:

"1. Finding the accused Romeo Dunca y de Tumol guilty beyond reasonable doubt of the crime of
Double Homicide through Reckless Imprudence with violation of the Motor Vehicle Law (Rep.
Act No. 4136), and appreciating in his favor the mitigating circumstance of voluntary surrender
without any aggravating circumstance to offset the same, the Court hereby sentences him to suffer
two (2) indeterminate penalties of four months and one day of arresto mayor as minimum to three
years, six months and twenty days as maximum; to indemnify the Heirs of Francisco Dy. Jr. in the
amount of P3,000,000.00 as compensatory damages, P1,000,000.00 as moral damages, and
P1,030,000.00 as funeral expenses;

"2. Ordering the plaintiff in Civil Case No. Br. 19-424 to pay the defendant therein actual damages
in the amount of P84,000.00; and

"3. Ordering the dismissal of the complaint in Civil Case No. Br. 19-424.

"No pronouncement as to costs.

"SO ORDERED.

"Cauayan, Isabela, June 6, 1992.

"(Sgd.) ARTEMIO R. ALIVIA

"Regional Trial Judge"[9]

On September 3, 1992, petitioner and the accused filed a notice of appeal from the joint decision. [10]

On the other hand, private respondents moved for amendment of the dispositive portion of the joint decision so as to
hold petitioner subsidiarily liable for the damages awarded to the private respondents in the event of insolvency of
the accused.[11]

On October 26, 1992, the trial court rendered a supplemental decision amending the dispositive portion by inserting
an additional paragraph reading as follows:

"2:A Ordering the defendant Reyes Trucking Corporation subsidiarily liable for all the damages
awarded to the heirs of Francisco Dy, Jr., in the event of insolvency of the accused but deducting
 therefrom the damages of P84,000.00 awarded to said defendant in the next preceding paragraph;
and x x x"[12]

On November 12, 1992, petitioner filed with the trial court a supplemental notice of appeal from the supplemental
decision.[13]

During the pendency of the appeal, the accused jumped bail and fled to a foreign country. By resolution dated
December 29, 1994, the Court of Appeals dismissed the appeal of the accused in the criminal case. [14]

On January 6, 1997, the Court of Appeals rendered an amended decision affirming that of the trial court, as set out
in the opening paragraph of this decision.[15]

On January 31, 1997, petitioner filed a motion for reconsideration of the amended decision. [16]

On April 21, 1997, the Court of Appeals denied petitioners motion for reconsideration for lack of merit.[17]

Hence, this petition for review.[18]

On July 21, 1997, the Court required respondents to comment on the petition within ten (10) days from notice. [19]

On January 27, 1998, the Solicitor General filed his comment.[20] On April 13, 1998, the Court granted leave to
petitioner to file a reply and noted the reply it filed on March 11, 1998. [21]

We now resolve to give due course to the petition and decide the case.

Petitioner raises three (3) grounds for allowance of the petition, which, however, boil down to two (2) basic issues,
namely:

1.....May petitioner as owner of the truck involved in the accident be held subsidiarily liable for
the damages awarded to the offended parties in the criminal action against the truck driver despite
the filing of a separate civil action by the offended parties against the employer of the truck
driver?

2.....May the Court award damages to the offended parties in the criminal case despite the filing of
a civil action against the employer of the truck driver; and in amounts exceeding that alleged in the
information for reckless imprudence resulting in homicide and damage to property? [22]

We grant the petition, resolving under the circumstances pro hac vice to remand the cases to the trial court for
determination of the civil liability of petitioner as employer of the accused driver in the civil action quasi ex
delicto re-opened for the purpose.

In negligence cases, the aggrieved party has the choice between (1) an action to enforce civil liability arising from
crime under Article 100 of the Revised Penal Code; and (2) a separate action for quasi delict under Article 2176 of
the Civil Code of the Philippines. Once the choice is made, the injured party can not avail himself of any other
remedy because he may not recover damages twice for the same negligent act or omission of the accused. [23] This is
the rule against double recovery.

In other words, "the same act or omission can create two kinds of liability on the part of the offender, that is, civil
liability ex delicto, and civil liability quasi delicto" either of which "may be enforced against the culprit, subject to
the caveat under Article 2177 of the Civil Code that the offended party can not recover damages under both types of
liability."[24]
In the instant case, the offended parties elected to file a separate civil action for damages against petitioner as
employer of the accused, based on quasi delict, under Article 2176 of the Civil Code of the Philippines. Private
respondents sued petitioner Rafael Reyes Trucking Corporation, as the employer of the accused, to be vicariously
liable for the fault or negligence of the latter. Under the law, this vicarious liability of the employer is founded on at
least two specific provisions of law.

The first is expressed in Article 2176 in relation to Article 2180 of the Civil Code, which would allow an action
predicated on quasi-delict to be instituted by the injured party against the employer for an act or omission of the
employee and would necessitate only a preponderance of evidence to prevail. Here, the liability of the employer for
the negligent conduct of the subordinate is direct and primary, subject to the defense of due diligence in the selection
and supervision of the employee. The enforcement of the judgment against the employer in an action based on
Article 2176 does not require the employee to be insolvent since the nature of the liability of the employer with that
of the employee, the two being statutorily considered joint tortfeasors, is solidary.[25] The second, predicated on
Article 103 of the Revised Penal Code, provides that an employer may be held subsidiarily civilly liable for a felony
committed by his employee in the discharge of his duty. This liability attaches when the employee is convicted of a
crime done in the performance of his work and is found to be insolvent that renders him unable to properly respond
to the civil liability adjudged.[26]

As regards the first issue, the answer is in the negative. Rafael Reyes Trucking Corporation, as employer of the
accused who has been adjudged guilty in the criminal case for reckless imprudence, can not be held subsidiarily
liable because of the filing of the separate civil action based on quasi delict against it. In view of the reservation to
file, and the subsequent filing of the civil action for recovery of civil liability, the same was not instituted with the
criminal action. Such separate civil action was for recovery of damages under Article 2176 of the Civil Code, arising
from the same act or omission of the accused.[27]

Pursuant to the provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules of Criminal Procedure, when private
respondents, as complainants in the criminal action, reserved the right to file the separate civil action, they waived
other available civil actions predicated on the same act or omission of the accused-driver. Such civil action includes
the recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, and 34 of the Civil
Code of the Philippines arising from the same act or omission of the accused. [28]

The intention of private respondents to proceed primarily and directly against petitioner as employer of accused
truck driver became clearer when they did not ask for the dismissal of the civil action against the latter based
on quasi delict.

Consequently, the Court of Appeals and the trial court erred in holding the accused civilly liable, and petitioner-
employer of the accused subsidiarily liable for damages arising from crime (ex delicto) in the criminal action as the
offended parties in fact filed a separate civil action against the employer based on quasi delict resulting in the waiver
of the civil action ex delicto.

It might be argued that private respondents as complainants in the criminal case withdrew the reservation to file a
civil action against the driver (accused) and manifested that they would pursue the civil liability of the driver in the
criminal action. However, the withdrawal is ineffective to reverse the effect of the reservation earlier made because
private respondents did not withdraw the civil action against petitioner based on quasi delict. In such a case, the
provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules on Criminal Procedure is clear that the reservation
to file or the filing of a separate civil action results in a waiver of other available civil actions arising from the same
act or omission of the accused. Rule 111, Section 1, paragraph 2 enumerated what are the civil actions deemed
waived upon such reservation or filing, and one of which is the civil indemnity under the Revised Penal Code. Rule
111, Section 1, paragraph 3 of the 1985 Rules on Criminal Procedure specifically provides:

"A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation
of the right to file, any of said civil actions separately waives the others."
The rationale behind this rule is the avoidance of multiple suits between the same litigants arising out of the same
act or omission of the offender. The restrictive phraseology of the section under consideration is meant to cover all
kinds of civil actions, regardless of their source in law, provided that the action has for its basis the same act or
omission of the offender.[29]

However, petitioner as defendant in the separate civil action for damages filed against it, based on quasi delict, may
be held liable thereon. Thus, the trial court grievously erred in dismissing plaintiffs civil complaint. And the Court of
Appeals erred in affirming the trial courts decision. Unfortunately private respondents did not appeal from such
dismissal and could not be granted affirmative relief.[30]

The Court, however, in exceptional cases has relaxed the rules "in order to promote their objectives and assist the
parties in obtaining just, speedy, and inexpensive determination of every action or proceeding" [31] or exempted "a
particular case from the operation of the rules." [32]

Invoking this principle, we rule that the trial court erred in awarding civil damages in the criminal case and in
dismissing the civil action. Apparently satisfied with such award, private respondent did not appeal from the
dismissal of the civil case. However, petitioner did appeal. Hence, this case should be remanded to the trial court so
that it may render decision in the civil case awarding damages as may be warranted by the evidence. [33]

With regard to the second issue, the award of damages in the criminal case was improper because the civil action for
the recovery of civil liability was waived in the criminal action by the filing of a separate civil action against the
employer. As enunciated in Ramos vs. Gonong,[34] "civil indemnity is not part of the penalty for the crime
committed." The only issue brought before the trial court in the criminal action is whether accused Romeo Dunca y
de Tumol is guilty of reckless imprudence resulting in homicide and damage to property. The action for recovery of
civil liability is not included therein, but is covered by the separate civil action filed against the petitioner as
employer of the accused truck-driver.

In this case, accused-driver jumped bail pending his appeal from his conviction. Thus, the judgment convicting the
accused became final and executory, but only insofar as the penalty in the criminal action is concerned. The
damages awarded in the criminal action was invalid because of its effective waiver. The pronouncement was void
because the action for recovery of the civil liability arising from the crime has been waived in said criminal action.

With respect to the issue that the award of damages in the criminal action exceeded the amount of damages alleged
in the amended information, the issue is de minimis. At any rate, the trial court erred in awarding damages in the
criminal case because by virtue of the reservation of the right to bring a separate civil action or the filing thereof,
"there would be no possibility that the employer would be held liable because in such a case there would be no
pronouncement as to the civil liability of the accused.[35]

As a final note, we reiterate that "the policy against double recovery requires that only one action be maintained for
the same act or omission whether the action is brought against the employee or against his employer.[36] The injured
party must choose which of the available causes of action for damages he will bring. [37]

Parenthetically, the trial court found the accused "guilty beyond reasonable doubt of the crime of Double Homicide
Through Reckless Imprudence with violation of the Motor Vehicle Law (Rep. Act No. 4136)." There is no such
nomenclature of an offense under the Revised Penal Code. Thus, the trial court was misled to sentence the accused
"to suffer two (2) indeterminate penalties of four (4) months and one (1) day of arresto mayor, as minimum, to three
(3) years, six (6) months and twenty (20) days of prision correccional, as maximum." This is erroneous because in
reckless imprudence cases, the actual penalty for criminal negligence bears no relation to the individual willful
crime or crimes committed, but is set in relation to a whole class, or series of crimes. [38]

Unfortunately, we can no longer correct this judgment even if erroneous, as it is, because it has become final and
executory.
Under Article 365 of the Revised Penal Code, criminal negligence "is treated as a mere quasi offense, and dealt with
separately from willful offenses. It is not a question of classification or terminology. In intentional crimes, the act
itself is punished; in negligence or imprudence, what is principally penalized is the mental attitude or condition
behind the act, the dangerous recklessness, lack of care or foresight, the imprudencia punible. Much of the confusion
has arisen from the common use of such descriptive phrase as homicide through reckless imprudence, and the like;
when the strict technical sense is, more accurately, reckless imprudence resulting in homicide; or simple imprudence
causing damages to property." [39]

There is need, therefore, to rectify the designation of the offense without disturbing the imposed penalty for the
guidance of bench and bar in strict adherence to precedent.

WHEREFORE, the Court GRANTS the petition and SETS ASIDE the amended decision and resolution of the
Court of Appeals in CA-G. R. CR No. 14448, promulgated on January 6, 1997, and the joint decision of the
Regional Trial Court, Isabela, Branch 19, Cauayan, in Criminal Case No. Br. 19-311 and Civil Case No. Br. 19-424,
dated June 6, 1992.

IN LIEU THEREOF, the Court renders judgment as follows:

(1) In Criminal Case No. Br. 19-311, the Court declares the accused Romeo Dunca y de Tumol guilty beyond
reasonable doubt of reckless imprudence resulting in homicide and damage to property, defined and penalized under
Article 365, paragraph 2 of the Revised Penal Code, with violation of the automobile law (R. A. No. 4136, as
amended), and sentences him to suffer two (2) indeterminate penalties of four (4) months and one (1) day of arresto
mayor, as minimum, to three (3) years, six (6) months and twenty (20) days of prision correccional, as
maximum,[40] without indemnity, and to pay the costs, and

(2) In Civil Case No. Br. 19-424, the Court orders the case re-opened to determine the liability of the defendant
Rafael Reyes Trucking Corporation to plaintiffs and that of plaintiffs on defendants counterclaim.

No costs in this instance.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 145804. February 6, 2003]

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners, vs. MARJORIE NAVIDAD,
Heirs of the Late NICANOR NAVIDAD & PRUDENT SECURITY AGENCY, respondents.

DECISION
VITUG, J.:

The case before the Court is an appeal from the decision and resolution of the Court of Appeals, promulgated on
27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720, entitled Marjorie Navidad and Heirs of
the Late Nicanor Navidad vs. Rodolfo Roman, et. al., which has modified the decision of 11 August 1998 of the
Regional Trial Court, Branch 266, Pasig City, exonerating Prudent Security Agency (Prudent) from liability and
finding Light Rail Transit Authority (LRTA) and Rodolfo Roman liable for damages on account of the death of
Nicanor Navidad.
On 14 October 1993, about half an hour past seven oclock in the evening, Nicanor Navidad, then drunk, entered
the EDSA LRT station after purchasing a token (representing payment of the fare). While Navidad was standing on
the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached Navidad. A
misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however,
was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later
fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman,
was coming in. Navidad was struck by the moving train, and he was killed instantaneously.
On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with her children,
filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization,
Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and Roman filed a counterclaim against Navidad
and a cross-claim against Escartin and Prudent. Prudent, in its answer, denied liability and averred that it had exercised
due diligence in the selection and supervision of its security guards.
The LRTA and Roman presented their evidence while Prudent and Escartin, instead of presenting evidence, filed
a demurrer contending that Navidad had failed to prove that Escartin was negligent in his assigned task. On 11 August
1998, the trial court rendered its decision; it adjudged:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants Prudent Security
and Junelito Escartin ordering the latter to pay jointly and severally the plaintiffs the following:

a) 1) Actual damages of P44,830.00;

2) Compensatory damages of P443,520.00;

3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;

b) Moral damages of P50,000.00;

c) Attorneys fees of P20,000;

d) Costs of suit.
The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.

The compulsory counterclaim of LRTA and Roman are likewise dismissed. [1]

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its now assailed
decision exonerating Prudent from any liability for the death of Nicanor Navidad and, instead, holding the LRTA and
Roman jointly and severally liable thusly:

WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from any liability for
the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail Transit Authority (LRTA)
are held liable for his death and are hereby directed to pay jointly and severally to the plaintiffs-appellees, the
following amounts:

a) P44,830.00 as actual damages;

b) P50,000.00 as nominal damages;

c) P50,000.00 as moral damages;

d) P50,000.00 as indemnity for the death of the deceased; and

e) P20,000.00 as and for attorneys fees.[2]

The appellate court ratiocinated that while the deceased might not have then as yet boarded the train, a contract
of carriage theretofore had already existed when the victim entered the place where passengers were supposed to be
after paying the fare and getting the corresponding token therefor. In exempting Prudent from liability, the court
stressed that there was nothing to link the security agency to the death of Navidad. It said that Navidad failed to show
that Escartin inflicted fist blows upon the victim and the evidence merely established the fact of death of Navidad by
reason of his having been hit by the train owned and managed by the LRTA and operated at the time by Roman. The
appellate court faulted petitioners for their failure to present expert evidence to establish the fact that the application
of emergency brakes could not have stopped the train.
The appellate court denied petitioners motion for reconsideration in its resolution of 10 October 2000.
In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz:
I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE FINDINGS OF

FACTS BY THE TRIAL COURT

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT PETITIONERS ARE
LIABLE FOR THE DEATH OF NICANOR NAVIDAD, JR.

III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RODOLFO ROMAN IS
AN EMPLOYEE OF LRTA.[3]

Petitioners would contend that the appellate court ignored the evidence and the factual findings of the trial court
by holding them liable on the basis of a sweeping conclusion that the presumption of negligence on the part of a
common carrier was not overcome. Petitioners would insist that Escartins assault upon Navidad, which caused the
latter to fall on the tracks, was an act of a stranger that could not have been foreseen or prevented. The LRTA would
add that the appellate courts conclusion on the existence of an employer-employee relationship between Roman and
LRTA lacked basis because Roman himself had testified being an employee of Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court, contended that a contract of carriage was deemed
created from the moment Navidad paid the fare at the LRT station and entered the premises of the latter, entitling
Navidad to all the rights and protection under a contractual relation, and that the appellate court had correctly held
LRTA and Roman liable for the death of Navidad in failing to exercise extraordinary diligence imposed upon a
common carrier.
Law and jurisprudence dictate that a common carrier, both from the nature of its business and for reasons of
public policy, is burdened with the duty of exercising utmost diligence in ensuring the safety of passengers. [4] The
Civil Code, governing the liability of a common carrier for death of or injury to its passengers, provides:

Article 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733
and 1755.

Article 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or willful
acts of the formers employees, although such employees may have acted beyond the scope of their authority or in
violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father
of a family in the selection and supervision of their employees.

Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or
negligence of other passengers or of strangers, if the common carriers employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the act or omission.

The law requires common carriers to carry passengers safely using the utmost diligence of very cautious persons
with due regard for all circumstances.[5] Such duty of a common carrier to provide safety to its passengers so obligates
it not only during the course of the trip but for so long as the passengers are within its premises and where they ought
to be in pursuance to the contract of carriage.[6] The statutory provisions render a common carrier liable for death of
or injury to passengers (a) through the negligence or wilful acts of its employees or b) on account of wilful acts or
negligence of other passengers or of strangers if the common carriers employees through the exercise of due
diligence could have prevented or stopped the act or omission.[7] In case of such death or injury, a carrier is
presumed to have been at fault or been negligent, and[8]by simple proof of injury, the passenger is relieved of the duty
to still establish the fault or negligence of the carrier or of its employees and the burden shifts upon the carrier to prove
that the injury is due to an unforeseen event or to force majeure. [9] In the absence of satisfactory explanation by the
carrier on how the accident occurred, which petitioners, according to the appellate court, have failed to show, the
presumption would be that it has been at fault,[10] an exception from the general rule that negligence must be proved.[11]
The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the victim arises
from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In
the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or
avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common
carrier is not relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions of
Article 2176[12] and related provisions, in conjunction with Article 2180, [13] of the Civil Code. The premise, however,
for the employers liability is negligence or fault on the part of the employee. Once such fault is established, the
employer can then be made liable on the basis of the presumption juris tantum that the employer failed to
exercise diligentissimi patris families in the selection and supervision of its employees.The liability is primary and
can only be negated by showing due diligence in the selection and supervision of the employee, a factual matter that
has not been shown. Absent such a showing, one might ask further, how then must the liability of the common carrier,
on the one hand, and an independent contractor, on the other hand, be described? It would be solidary. A contractual
obligation can be breached by tort and when the same act or omission causes the injury, one resulting in culpa
contractual and the other in culpa aquiliana,Article 2194[14] of the Civil Code can well apply.[15] In fine, a liability for
tort may arise even under a contract, where tort is that which breaches the contract. [16] Stated differently, when an act
which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no
contract existed between the parties, the contract can be said to have been breached by tort, thereby allowing the rules
on tort to apply.[17]
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad, this Court
is concluded by the factual finding of the Court of Appeals that there is nothing to link (Prudent) to the death of
Nicanor (Navidad), for the reason that the negligence of its employee, Escartin, has not been duly proven x x x. This
finding of the appellate court is not without substantial justification in our own review of the records of the case.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or
omission, he must also be absolved from liability. Needless to say, the contractual tie between the LRT and Navidad
is not itself a juridical relation between the latter and Roman; thus, Roman can be made liable only for his own fault
or negligence.
The award of nominal damages in addition to actual damages is untenable. Nominal damages are adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. [18] It is an established
rule that nominal damages cannot co-exist with compensatory damages.[19]
WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but only in
that (a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is absolved from liability. No
costs.
SO ORDERED.
 SECOND DIVISION

EDSEL LIGA, G.R. No. 175554

Petitioner,

Present:

QUISUMBING, J.,
- versus - Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.
ALLEGRO RESOURCES CORP.,
Respondent. Promulgated:

December 23, 2008

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

DECISION
TINGA, J.:

Before the Court is the petition for review[1] under Rule 45 of the Rules of Court assailing the Court of
Appeals Decision[2] dated 25 January 2006 and Resolution[3] dated 22 November 2006 in CA-G.R. SP No. 86331.

The undisputed factual antecedents of the case are as follows:

On 10 October 1975, Ortigas & Company, Limited Partnership (Ortigas) entered into a lease agreement with
La Paz Investment & Realty Corporation (La Paz) wherein the former leased to the latter its parcel of land located in
San Juan, Metro Manila (now San Juan City) consisting of 5,514 square meters for a period of twenty-five (25) years
from 1 January 1976 to 31 December 2000. Under the lease agreement, La Paz undertook to construct a two or three-
storey concrete framed commercial building for the establishment of first class stores which would be subdivided into
various stalls for subleasing to interested parties.[4]

In compliance with its undertaking, La Paz constructed the Greenhills Shopping Arcade (GSA) and divided
it into several stalls and subleased them to other people. One of the sub-lessees was Edsel Liga (Liga), who obtained
the leasehold right to Unit No. 26, Level A of the GSA.

As the lease of La Paz had expired on 31 December 2000, the stallholders, through the Greenhills
Shoppesville Unit Lessees Association, Inc. (GSULAI), made several attempts to have their leasehold rights extended.
Even prior to the expiration of their leaseholds, the sub-lessees made several overtures to Ortigas but these were all
denied. These developments notwithstanding, Liga was allowed by Ortigas to remain in possession of her leased
property.

On 30 August 2001, Ortigas formally informed the GSULAI of the impending lease of the GSA to respondent
Allegro Resources Corporation (Allegro).[5] On 3 September 2001, Ortigas and Allegro executed the corresponding
Contract of Lease.[6] On the same day, the same parties executed the Addendum to Agreement, Section 1 of which
provides that (t)he LESSEE (Allegro) shall take immediate possession and control of the leased premises upon the
signing of the Contract of Lease. and also assist in the collection of back rentals due to the LESSOR (Ortigas) in
Shoppesville Arcade from 1 January 2001 up to the 31 August 2001, when it shall commence to pay rentals for its
own account.[7]
As the new lessee, Allegro offered to sublease Unit No. 26, Level A to Liga. Subsequently they entered into
a lease agreement dubbed Rental Information[8] in which Liga agreed to pay rental of P40,000.00 monthly starting 1
September 2001. She also agreed to pay the back rentals covering the months of January through August 2001 due
Ortigas. Upon signing the agreement, Liga also gave P40,000.00 as one month advance rental and another P40,000.00
as one month security deposit as provided in the agreement.[9]

Ligas compliance with the agreement ended as soon as it was executed. Despite repeated demands from
Allegro, Liga had failed to pay her rentals for the subleased property, as well as the back rentals from January to
August 2001 due Ortigas. Hence, Allegro filed a complaint for ejectment on 15 March 2002 with the Metropolitan
Trial Court (MeTC) of San Juan, Metro Manila, Branch 57.[10]

The MeTC rendered a decision[11] in favor of Allegro, ordering Liga to vacate the subleased stall and to pay
back rentals for her continuous possession of the property. The MeTC held that Allegro has rightful possession over
the disputed stall since Ligas continued occupancy from 1 January 2001 to 31 August 2001 was by mere tolerance of
Ortigas and that ceased upon the execution of a contract of lease between Ortigas and Allegro. The MeTC found that
Liga had agreed to sublease the property for P40,000.00 per month. In compliance with the lease agreement with
Allegro, Liga even paid the sum of P80,000.00 corresponding to one-month advance rental and one-month security
deposit as evidenced by a provisional receipt issued by the former. It thus ordered Liga to pay Allegro P210,000.00
representing back rentals from 1 October 2001 to February 2002 and P20,000.00 per month as reasonable
compensation for the use of the premises from the filing of the ejectment suit until it is vacated.
 On appeal, the Regional Trial Court (RTC) affirmed the decision of the MeTC but made modifications with
respect to its monetary awards.[12] It extended the period of lease over the property for two years at a rental rate
of P20,000.00 per month, and ordered Liga to pay P80,000.00 as back rentals for the period of September 2001 to
February 2002 and P20,000.00 per month as rental from March 2002 until the property is vacated.

Allegro filed a petition for review[13] under Rule 42 of the Rules of Court before the Court of Appeals assailing
the modified decision of the RTC. The appellate court, in a Decision dated 25 January 2006, granted Allegros petition
and set aside the RTCs decision.[14] It held that after the expiration of La Pazs lease with Ortigas on 31 December 2000,
Liga occupied the property merely by tolerance of Ortigas and that it was incorrect for the RTC to extend the lease
contract for two years since it would infringe on the parties right to contract and Liga herself had never raised as an
issue the extension of the lease contract before the MeTC. It found that Liga signed the Rental Information with Allegro
and agreed to a monthly rental of P40,000.00 starting 1 September 2001. The appellate court ordered Liga to pay
Ortigas back rentals of P20,000.00 per month for the period of 1 January 2001 to 31 August 2001 and P40,000.00 per
month as rentals to Allegro starting 1 September 2001 until the property is vacated. In a Resolution dated 22 November
2006, the Court of Appeals denied Ligas motion for reconsideration. [15]

Hence, the present petition for review before this Court.

The petition raised the following issues: whether the Court of Appeals had erred in ordering Liga to pay: (a)
to Ortigas back rentals covering the period 1 January 2001 to 31 August 2001 totaling of P160,000.00; (b) to Allegro
back rentals in the amount of P40,000.00 a month starting from 1 September 2001 until such time as she vacates the
leased property; and (c) to Allegro the amount of P20,000.00 as attorneys fees and the costs of suit.[16]

Liga argues that the Court of Appeals erred in ordering her to pay Ortigas back rentals although the latter is
not a party in the instant case. The ruling of the appellate court ran counter to the Courts doctrine that judgment cannot
bind persons who are not parties to the action.[17] She avers that Allegro was already estopped from
claiming monthly rentals in the amount of P40,000.00 starting from 1
September 2001 since it filed the Motion to Release Cash Bond in Favor of Plaintiff [18] with the MeTC. By filing the
motion, Allegro signified its concurrence in the monthly rental of P20,000.00.[19] Since Liga is willing and able to pay
the appropriate rentals as evidenced by the deposits she made before the RTC, she should not be made liable for
attorneys fees in the amount of P20,000.00 and for the costs of suit.[20]

The Court will discuss the issues in seriatim.

We sustain Liga on the first issue. The Court of Appeals erred in awarding back rentals for the month of 1 January
2001 to 31 August 2001 in favor of Ortigas.
 Firstly, Ortigas is not a party to this case, whether as plaintiff or otherwise. It is basic that no relief can be
extended in a judgment to a stranger or one who is not a party to a case. [21]

Secondly, Allegro cannot justify the award as a legal representative by virtue of a provision in its lease
agreement with Ortigas. Although Section 1 of Rule 70 of the Rules of Court [22] specifically allows the legal
representatives or assigns of any such lessor, vendor, vendee, or other person to bring action for restitution of
possession with damages and costs against persons who unlawfully withheld or deprived the lawful possessor of
possession over any land or building, Allegro did not aver in its complaint that it was acting as Ortigass legal
representative and seeking the back rentals due Ortigas.

Thirdly, there is no allegation or prayer in the complaint that Allegro was seeking the collection of the back
rentals due Ortigas. Nor was there evidence to that effect. It is elementary that a judgment must conform to, and be
supported by, both the pleadings and the evidence, and be in accordance with the theory of the action on which the
pleadings are framed and the case was tried.[23] The judgment must be secundum allegata et probata.

In Falcon v. Manzano,[24] the Court set aside the judgment of the trial court in conceding to her a remedy
which was not prayed for in the complaint as the trial court rendered judgment allowing plaintiff to recover from the
defendant the unpaid portion of the purchase price of a parcel of land when the plaintiff only asked for the nullification
of the contract of sale of the realty and the return of the property to her. We held that courts, in rendering decisions,
ought to limit themselves to the issues presented by the parties in their pleadings.

In the analogous case of Lerma v. De la Cruz,[25] the plaintiff therein brought an action to recover accrued
rents and damages for the injury to the land but the trial court extended the relief sought by giving judgment for
possession of the land. The Court held that (t)he plaintiff did not ask for possession, nor is there any prayer to that
effect in the complaint, and the judgment must, therefore be reversed insofar as it undertakes to provide for the
restitution of the land in question to the plaintiff.

As to the second issue, the Court cannot countenance the obstinate refusal of Liga to pay P40,000.00 a month
to Allegro since she had already acquiesced to pay such rental rate when she signed the Rental Information. It is
fundamental that a contract is the law between the parties.[26] Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.[27] Unless the stipulations in a contract are
contrary to law, morals, good customs, public order or public policy, the same are binding as between the parties.[28] It
is a general principle of law that no one may be permitted to change his mind or disavow and go back upon his own
acts, or to proceed contrary thereto, to the prejudice of the other party. [29] Likewise, it is settled that if the terms of the
contract clearly express the intention of the contracting parties, the literal meaning of the stipulations would be
controlling.[30]
The filing by Allegro of the Motion to Release Cash Bond in Favor of the Plaintiff did not operate to estop it
from claiming a monthly rental rate of P40,000.00. Estoppel cannot be sustained by mere argument or doubtful
inference.[31] Allegro did not abandon its stance nor did it represent to Liga that it was doing so. Liga cannot feign
ignorance of such fact since Allegros petition for review before the Court of Appeals puts as an issue the reduction by
the RTC of the monthly rentals from P40,000.00 to P20,000.00.[32] Allegro never made any deed or representation that
could have misled Liga.
Moreover, the Court has previously sanctioned a similar partial execution of the trial courts decision awarding
damages in an ejectment suit at the instance of the plaintiff. Not only is such an act procedurally sound, it also serves
the ends of justice. As the Court succinctly held in Sps. Catungal v. Jao:[33]

Finally, respondent questions why petitioners would want to reinstate the RTC decision
when in fact they had already applied for a writ of execution of the 8 March
1997Decision. Respondent is of the view that since petitioners had already moved for the execution
of the decision awarding a smaller amount of damages or fair rental value, the same is inconsistent
with a petition asking for a greater fair rental value and, therefore, a possible case of unjust
enrichment in favor of the petitioners. We are not persuaded.

In order to avoid further injustice to a lawful possessor, an immediate execution of a

judgment is mandated and the courts duty to order such execution is practically ministerial.
In City of Manila, et al. v. CA, et al., We held that Section 8 (now Section 19), Rule 70, on
execution pending appeal, also applies even if the plaintiff-lessor appeals where, as in that
case, judgment was rendered in favor of the lessor but it was not satisfied with the increased
rentals granted by the trial court, hence the appeal xxx.

As above discussed, the petitioners have long been deprived of the exercise of their
proprietary rights over the leased premises and the rightful amount of rentals at the rate
of P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals
of P27,000.00, which is the difference between P40,000.00 awarded by the Regional Trial Court
and P13,000.00 awarded by the MeTC and affirmed by the Court of Appeals. Said amount
of P27,000.00 should rightly be the subject of another writ of execution being distinct from the
subject of the first writ of execution filed by petitioners.(Emphasis supplied.)

On the last issue regarding damages, Liga also ends up at the shorter end. Law and jurisprudence support the
award of attorneys fees and costs of suit in favor of Allegro. The award of damages and attorneys fees is left to the
sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on
appeal.[34] Attorneys fees and costs of litigation are awarded in instances where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim. [35] Having delivered
possession over the leased property to Liga, Allegro had already performed its obligation under the lease
agreement. Liga should have exercised fairness and good judgment in dealing with Allegro by religiously paying the
agreed monthly rental of P40,000.00.
 However, the Court deems it proper to award interest in favor of Allegro. In Eastern Shipping Lines, Inc. v.
Court of Appeals,[36] we gave the following guidelines in the award of interest:

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.[37]

The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon is
twelve percent (12%) per annum from the time of extrajudicial demand on 15 December 2001.[38]

WHEREFORE, the petition for review is DENIED. The Decision of the Court of Appeals in CA-G.R. SP
No. 86331 is AFFIRMED with the MODIFICATIONS that the award of back rentals for the period of 1 January 2001
to 31 August 2001 to Ortigas & Company, Limited Partnership is DELETED and that petitioner Edsel Liga is
ORDERED to pay respondent Allegro Resources Corporation legal interest of twelve percent (12%) per annum on
the back rentals from the date of extrajudicial demand on 15 December 2001 until fully paid.

SO ORDERED.
 THIRD DIVISION

MAKATI STOCK EXCHANGE, INC., MA. G.R. No. 138814

VIVIAN YUCHENGCO, ADOLFO M.
DUARTE, MYRON C. PAPA, NORBERTO C.
NAZARENO, GEORGE UY-TIOCO, Present:
ANTONIO A. LOPA, RAMON B. ARNAIZ,
LUIS J.L. VIRATA, and ANTONIO GARCIA,
JR. YNARES-SANTIAGO, J.,
Petitioners, Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
- versus - NACHURA, and
PERALTA, JJ.

MIGUEL V. CAMPOS, substituted by JULIA

ORTIGAS VDA. DE CAMPOS,[1]
Respondent.
Promulgated:

April 16, 2009

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

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the Decision[2] dated 11
February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R. SP No. 38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos, who filed
with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC),
a Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-Tioco, Antonio A, Lopa, Ramon
B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification of the
Resolution dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of his right to participate
equally in the allocation of Initial Public Offerings (IPO) of corporations registered with MKSE; (2) the delivery of
the IPO shares he was allegedly deprived of, for which he would pay IPO prices; and (3) the payment of P2 million
as moral damages, P1 million as exemplary damages, and P500,000.00 as attorneys fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondents prayer for the issuance of a Temporary
Restraining Order to enjoin petitioners from implementing or enforcing the 3 June 1993 Resolution of the MKSE
Board of Directors.
 The SICD subsequently issued another Order on 10 March 1994 granting respondents application for a Writ
of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No. 02-94-4678, the
implementation or enforcement of the MKSE Board Resolution in question. Petitioners assailed this SICD Order
dated 10 March 1994 in a Petition for Certiorari filed with the SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition in SEC Case No. 02-94-4678,
based on the following grounds: (1) the Petition became moot due to the cancellation of the license of MKSE; (2) the
SICD had no jurisdiction over the Petition; and (3) the Petition failed to state a cause of action.

The SICD denied petitioners Motion to Dismiss in an Order dated 4 May 1994. Petitioners again challenged
the 4 May 1994 Order of SICD before the SEC en banc through another Petition for Certiorari, docketed as SEC-EB
No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10 March 1994 Order of
SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary Injunction in favor of respondent. Likewise, in an
Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in SEC
Case No. 02-94-4678 denying petitioners Motion to Dismiss, and accordingly ordered the dismissal of respondents
Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders of the SEC en
banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No. 403, respectively. Respondents
Petition before the appellate court was docketed as CA-G.R. SP No. 38455.

On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No. 38455, granting
respondents Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders dated May 31,
1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is GRANTED. The said orders are
hereby rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied by the Court of
Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I.

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED BY
RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF ACTION.

II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE

ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE MAKATI
STOCK EXCHANGE, INC.
 III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO MAKE A
DETERMINATION AS TO THE TRUTH OF RESPONDENTS ALLEGATIONS IN HIS
PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE HEARING ON
THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO DETERMINE
THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF ACTION.

IV.

IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE

BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested to this Court that his client died on 7 May 2001. In
a Resolution dated 24 October 2001, the Court directed the substitution of respondent by his surviving spouse, Julia
Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of respondents Petition in SEC Case
No. 02-94-4678 for failure to state a cause of action.On the other hand, respondent insists on the sufficiency of his
Petition and seeks the continuation of the proceedings before the SICD.

A cause of action is the act or omission by which a party violates a right of another.[4] A complaint states a
cause of action where it contains three essential elements of a cause of action, namely: (1) the legal right of the plaintiff,
(2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal
right. If these elements are absent, the complaint becomes vulnerable to dismissal on the ground of failure to state a
cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action, he is regarded as
having hypothetically admitted all the averments thereof.The test of sufficiency of the facts found in a complaint as
constituting a cause of action is whether or not admitting the facts alleged, the court can render a valid judgment upon
the same in accordance with the prayer thereof. The hypothetical admission extends to the relevant and material facts
well pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the allegations in the complaint
furnish sufficient basis by which the complaint can be maintained, the same should not be dismissed regardless of the
defense that may be assessed by the defendant.[5]
Given the foregoing, the issue of whether respondents Petition in SEC Case No. 02-94-4678 sufficiently
states a cause of action may be alternatively stated as whether, hypothetically admitting to be true the allegations in
respondents Petition in SEC Case No. 02-94-4678, the SICD may render a valid judgment in accordance with the
prayer of said Petition.

A reading of the exact text of respondents Petition in SEC Case No. 02-94-4678 is, therefore,
unavoidable. Pertinent portions of the said Petition reads:
 7. In recognition of petitioners invaluable services, the general membership of respondent
corporation [MKSE] passed a resolution sometime in 1989 amending its Articles of Incorporation,
to include the following provision therein:

ELEVENTH WHEREAS, Mr. Miguel Campos is the only surviving

incorporator of the Makati Stock Exchange, Inc. who has maintained his
membership;

WHEREAS, he has unselfishly served the Exchange in various

capacities, as governor from 1977 to the present and as President from 1972 to
1976 and again as President from 1988 to the present;

WHEREAS, such dedicated service and leadership which has

contributed to the advancement and well being not only of the Exchange and its
members but also to the Securities industry, needs to be recognized and
appreciated;

WHEREAS, as such, the Board of Governors in its meeting held on

February 09, 1989 has correspondingly adopted a resolution recognizing his
valuable service to the Exchange, reward the same, and preserve for posterity such
recognition by proposing a resolution to the membership body which would make
him as Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;

NOW, THEREFORE, for and in consideration of the above premises,

the position of the Chairman Emeritus to be occupied by Mr. Miguel Campos
during his lifetime and irregardless of his continued membership in the Exchange
with the Privilege to attend all membership meetings as well as the meetings of
the Board of Governors of the Exchange, is hereby created.

8. Hence, to this day, petitioner is not only an active member of the respondent corporation,
but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and Chairman
Emeritus of respondent corporation, petitioner has always enjoyed the right given to all the other
members to participate equally in the Initial Public Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior to the listing in the
trading floor of the countrys two stock exchanges. Normally, Twenty Five Percent (25%) of these
shares are divided equally between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of respondent-
corporation, individual respondents passed a resolution to stop giving petitioner the IPOs he is
entitled to, based on the ground that these shares were allegedly benefiting Gerardo O. Lanuza, Jr.,
who these individual respondents wanted to get even with, for having filed cases before the Securities
and Exchange (SEC) for their disqualification as member of the Board of Directors of respondent
corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived of his
right to subscribe to the IPOs of corporations listing in the stock market at their offering prices.

13. The collective act of the individual respondents in depriving petitioner of his right to a
share in the IPOs for the aforementioned reason, is unjust, dishonest and done in bad faith, causing
petitioner substantial financial damage.[6]
 There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of respondent,
particularly, respondents alleged right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices; and stipulates the correlative obligation of petitioners to respect respondents right, specifically, by
continuing to allow respondent to subscribe to the IPOs of corporations listed in the stock market at their offering
prices.

However, the terms right and obligation in respondents Petition are not magic words that would
automatically lead to the conclusion that such Petition sufficiently states a cause of action. Right and obligation are
legal terms with specific legal meaning. A right is a claim or title to an interest in anything whatsoever that is
enforceable by law.[7] An obligation is defined in the Civil Code as a juridical necessity to give, to do or not to
do.[8] For every right enjoyed by any person, there is a corresponding obligation on the part of another person to respect
such right. Thus, Justice J.B.L. Reyes offers[9] the definition given by Arias Ramos as a more complete definition:

An obligation is a juridical relation whereby a person (called the creditor) may demand
from another (called the debtor) the observance of a determinative conduct (the giving, doing or
not doing), and in case of breach, may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding right granted to another, must be rooted
in at least one of these five sources. The mere assertion of a right and claim of an obligation in an initiatory pleading,
whether a Complaint or Petition, without identifying the basis or source thereof, is merely a conclusion of fact and
law. A pleading should state the ultimate facts essential to the rights of action or defense asserted, as distinguished
from mere conclusions of factor conclusions of law.[10] Thus, a Complaint or Petition filed by a person claiming a right
to the Office of the President of this Republic, but without stating the source of his purported right, cannot be said to
have sufficiently stated a cause of action. Also, a person claiming to be the owner of a parcel of land cannot merely
state that he has a right to the ownership thereof, but must likewise assert in the Complaint either a mode of acquisition
of ownership or at least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondents right to
subscribe to the IPOs of corporations listed in the stock market at their offering prices, and petitioners obligation to
continue respecting and observing such right, the Petition utterly failed to lay down the source or basis of respondents
right and/or petitioners obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989, granting
him the position of Chairman Emeritus of MKSE for life. However, there is nothing in the said Petition from which
the Court can deduce that respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by law,
contract, or any other legal source, the right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged to have been
done in accord with a practice normally observed by the members of the stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing in the trading floor
of the countrys two stock exchanges. Normally, Twenty-Five Percent (25%) of these shares are
divided equally between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price. [11](Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or enforceable
[12]
right. Indeed, in labor cases, benefits which were voluntarily given by the employer, and which have ripened into
company practice, are considered as rights that cannot be diminished by the employer.[13] Nevertheless, even in such
cases, the source of the employees right is not custom, but ultimately, the law, since Article 100 of the Labor Code
explicitly prohibits elimination or diminution of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to MKSE members, for
subscription at their offering prices, into an enforceable or demandable right. Thus, even if it is hypothetically admitted
that normally, twenty five percent (25%) of the IPOs are divided equally between the two stock exchanges -- which,
in turn, divide their respective allocation equally among their members, including the Chairman Emeritus, who pay
for IPO shares at the offering price -- the Court cannot grant respondents prayer for damages which allegedly resulted
from the MKSE Board Resolution dated 3 June 1993 deviating from said practice by no longer allocating any shares
to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-94-4678 should be
dismissed for failure to state a cause of action. It does not matter that the SEC en banc, in its Order dated 14 August
1995 in SEC-EB No. 403, overstepped its bounds by not limiting itself to the issue of whether respondents Petition
before the SICD sufficiently stated a cause of action. The SEC en banc may have been mistaken in considering
extraneous evidence in granting petitioners Motion to Dismiss, but its discussion thereof are merely superfluous
and obiter dictum. In the main, the SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for
its failure to state the basis for respondents alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for his alleged right
to participate equally in the IPO allocations of the Exchange. He cited paragraph 11 of the amended
articles of incorporation of the Exchange in support of his position but a careful reading of the said
provision shows nothing therein that would bear out his claim.The provision merely created the
position of chairman emeritus of the Exchange but it mentioned nothing about conferring upon the
occupant thereof the right to receive IPO allocations.[14]
With the dismissal of respondents Petition in SEC Case No. 02-94-4678, there is no more need for this Court
to resolve the propriety of the issuance by SCID of a writ of preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 11 February 1997
and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 are REVERSED and SET ASIDE. The Orders
dated 31 May 1995 and 14 August 1995 of the Securities and Exchange Commission en banc in SEC-EB Case No.
393 and No. 403, respectively, are hereby reinstated. No pronouncement as to costs. SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

DIESEL CONSTRUCTION CO., G.R. No. 154885

INC.,
Petitioner,

- versus -

UPSI PROPERTY HOLDINGS, INC.,

Respondent.

x------------------------------------------------x
UPSI PROPERTY HOLDINGS, INC., G.R. No. 154937
Petitioner,
Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO MORALES,
TINGA,
VELASCO, JR., and
CHICO-NAZARIO,* JJ.
DIESEL CONSTRUCTION CO., INC. Promulgated:
and FGU INSURANCE CORP.,
Respondents. March 24, 2008
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

Before the Court are these petitions for review under Rule 45 separately interposed by Diesel Construction
Co., Inc. (Diesel) and UPSI Property Holdings, Inc. (UPSI) to set aside the Decision [1] dated April 16, 2002 as partly
modified in a Resolution[2] of August 21, 2002, both rendered by the Court of Appeals (CA) in CA-G.R. SP No. 68340,
entitled UPSI Property Holdings, Inc. v. Diesel Construction Co., Inc., and FGU Insurance Corporation. The CA
Decision modified the Decision dated December 14, 2001 of the Arbitral Tribunal of the Construction Industry
Arbitration Commission (CIAC) in CIAC Case No. 18-2001, while the CA Resolution granted in part the motion of
Diesel for reconsideration and denied a similar motion of UPSI.
The Facts
 The facts, as found in the CA Decision under review, are as follows:

On August 26, 1995, Diesel, as Contractor, and UPSI, as Owner, entered into a Construction
Agreement[3] (Agreement) for the interior architectural construction works for the 14th to 16th floors of the UPSI
Building 3 Meditel/Condotel Project (Project) located on Gen. Luna St., Ermita, Manila. Under the Agreement, as
amended, Diesel, for PhP 12,739,099, agreed to undertake the Project, payable by progress billing. [4] As stipulated,
Diesel posted, through FGU Insurance Corp. (FGU), a performance bond in favor of UPSI. [5]

Inter alia, the Agreement contained provisions on contract works and Project completion, extensions of contract
period, change/extra works orders, delays, and damages for negative slippage.

Tasked to oversee Diesels work progress were: Grace S. Reyes Designs, Inc. for interior design and architecture, D.L.
Varias and Associates as Construction Manager, and Ryder Hunt Loacor, Inc. as Quantity Surveyor. [6]

Under the Agreement, the Project prosecution proper was to start on August 2, 1999, to run for a period of 90 days or
until November 8, 1999. The parties later agreed to move the commencement date to August 21, 1999, a development
necessitating the corresponding movement of the completion date to November 20, 1999.

Of particular relevance to this case is the section obliging the contractor, in case of unjustifiable delay, to pay the
owner liquidated damages in the amount equivalent to one-fifth (1/5) of one (1) percent of the total Project cost for
each calendar day of delay.[7]

In the course of the Project implementation, change orders were effected and extensions sought. At one time or
another, Diesel requested for extension owing to the following causes or delaying factors: (1) manual hauling of
materials from the 14th to 16th floors; (2) delayed supply of marble; (3) various change orders; and (4) delay in the
installation of shower assembly.[8]

UPSI, it would appear, disapproved the desired extensions on the basis of the foregoing causes, thus putting
Diesel in a state of default for a given contract work.And for every default situation, UPSI assessed Diesel for
liquidated damages in the form of deductions from Diesels progress payments, as stipulated in the Agreement. [9]

Apparently irked by and excepting from the actions taken by UPSI, Diesel, thru its Project manager, sent, on
March 16, 2000, a letter notice to UPSI stating that the Project has been completed as of that date. UPSI, however,
disregarded the notice, and refused to accept delivery of the contracted premises, claiming that Diesel had abandoned
the Project unfinished. Apart therefrom, UPSI withheld Diesels 10% retention money and refused to pay the unpaid
balance of the contract price.[10]
 It is upon the foregoing factual backdrop that Diesel filed a complaint before the CIAC, praying that UPSI
be compelled to pay the unpaid balance of the contract price, plus damages and attorneys fees. In an answer with
counterclaim, UPSI denied liability, accused Diesel of abandoning a project yet to be finished, and prayed for
repayment of expenses it allegedly incurred for completing the Project and for a declaration that the deductions it
made for liquidated damages were proper. UPSI also sought payment of attorneys fees.[11]

After due hearing following a protracted legal sparring, the Arbitral Tribunal of the CIAC, on December 14,
2001, in CIAC Case No. 18-2001, rendered judgment for Diesel, albeit for an amount lesser than its original demand.
To be precise, the CIAC ordered UPSI to pay Diesel the total amount of PhP 4,027,861.60, broken down as follows:
PhP 3,661,692.60, representing the unpaid balance of the contract price; and PhP 366,169 as attorneys fees. In the
same decision, the CIAC dismissed UPSIs counterclaim[12] and assessed it for arbitration costs in the amount of PhP
298,406.03.[13]

In time, UPSI went to the CA on a petition for review, docketed as CA-G.R. SP No. 68340. Eventually, the
appellate court rendered its assailed Decision dated April 16, 2002, modifying that of the CIAC, thus:

WHEREFORE, premises considered, the petition is GRANTED and the questioned

Decision is MODIFIED in this wise:

a. The claim of [UPSI] for liquidated damages is GRANTED to the extent of PESOS:
ONE MILLION THREE HUNDRED NINE THOUSAND AND FIVE HUNDRED
(P1,309,500.00) representing forty-five (45) days of delay at P29,100 per diem;
b. We hold that [Diesel] substantially complied with the Construction Contract and is
therefore entitled to one hundred percent (100%) payment of the contract price. Therefore, the claim
of [Diesel] for an unpaid balance of PESOS: TWO MILLION FOUR HUNDRED FORTY-ONE
THOUSAND FOUR HUNDRED EIGHTY TWO and SIXTY FOUR centavos (P2,441,482.64),
which amount already includes the retention on the additional works or Change Orders, is
GRANTED, minus liquidated damages. In sum, [UPSI] is held liable to [Diesel] in the amount of
PESOS: ONE MILLION ONE HUNDRED THIRTY ONE THOUSAND NINE HUNDRED
EIGHTY TWO and sixty four centavos (P1,131,982.64), with legal interest until the same is fully
paid;
c. The parties are liable equally for the payment of arbitration costs;
d. All claims for attorneys fees are DISMISSED; and
e. Since there is still due and owing from UPSI an amount of money in favor of Diesel,
respondent FGU is DISCHARGED as surety for Diesel.
Costs de officio.
SO ORDERED.[14]

Therefrom, Diesel and UPSI each sought reconsideration. On August 21, 2002, the CA issued its equally assailed
Resolution denying reconsideration to UPSI, but partially granting Diesels motion, disposing as follows:

WHEREFORE, the Motion for Reconsideration of [Diesel] is partially GRANTED. The

liquidated damages are hereby reduced to P1,146,519.00 (45 days multiplied by P25,478.20 per
diem). However, in accordance with the main opinion, We hold that [UPSI] is liable to [Diesel] for
 the total amount of P3,661,692.64, representing the unpaid balance of the contract price plus the
ten-percent retention, from which the liquidated damages, must, of course, be deducted. Thus, in
sum, as amended, We hold that petitioner is still liable to respondent Diesel in the amount of
P2,515,173.64, with legal interest until the same is fully paid.

The main opinion, in all other respects, STANDS.

SO ORDERED.[15]

Hence, these separate petitions are before us.

Per its Resolution of March 17, 2003, the Court ordered the consolidation of the petitions.

The Issues
In its petition in G.R. No. 154885, Diesel raises the following issues:

1. Whether or not the [CA] has the discretion, indeed the jurisdiction, to pass upon the
qualifications of the individual members of the CIAC Arbitral Tribunal and declare them
to be non-technocrats and not exceptionally well-versed in the construction industry
warranting reversal and nullification of the tribunals findings.

2. Whether or not the [CA] may intervene to annul the findings of a highly specialized
agency, like the CIAC, on the ground that essentially the question to be resolved goes to
the very heart of the substantiality of evidence, when in so doing, [CA] merely substituted
its own conjectural opinion to that of the CIAC Arbitral Tribunals well-supported findings
and award.

3. Whether or not the [CA] erred in its findings, which are contrary to the findings of the
CIAC Arbitral Tribunal.[16]

On the other hand, in G.R. No. 154937, UPSI presents the following issues:
I

Whether or not portion of the Decision dated April 16, 2002 of the Honorable [CA] denying
additional expenses to complete the unfinished and abandoned work of [Diesel], is null and void for
being contrary to clean and convincing evidence on record.

II

Whether or not portion of the Decision x x x of the [CA] finding delay of only forty five (45) days
is null and void for being not in accord with contractual stipulations upon which the controversy
arise.

III

Whether or not the resolution of the Honorable Court of Appeals denying the herein petitioners
motion for reconsideration and partially granting the respondents motion for reconsideration is
likewise null and void as it does not serve its purpose for being more on expounding than rectifying
errors.[17]
The issues shall be discussed in seriatim.
 The Courts Ruling

We resolve to modify the assailed CA Decision.

First Issue

Diesel maintains that the CA erred in its declaration that it may review the CIACs decision considering the doctrine
on the binding effect of conclusions of fact of highly specialized agencies, such as the CIAC, when supported by
substantial evidence.

The above contention is erroneous and, as couched, misleading.

As is noted, the CA, in its assailed resolution, dismissed as untenable Diesels position that the factual findings of the
CIAC are binding on and concludes the appellate court. The CA went to clarify, however, that the general rule is that
factual conclusions of highly specialized bodies are given great weight and even finality when supported by substantial
evidence. Given this perspective, the CA was correct in holding that it may validly review and even overturn such
conclusion of facts when the matter of its being adequately supported by substantial evidence duly adduced on record
comes to the fore and is raised as an issue.

Well-established jurisprudence has it that [t]he consequent policy and practice underlying our Administrative Law is
that courts of justice should respect the findings of fact of said administrative agencies, unless there is absolutely no
evidence in support thereof or such evidence is clearly, manifestly and patently insubstantial. [18]
There can be no serious dispute about the correctness of the CAs above posture. However, what the appellate
court stated later to belabor its point strikes the Court as specious and uncalled for. Wrote the CA:

This dictum finds greater application in the case of the CIAC because x x x as pointed out by
petitioner in its Comment, the doctrine of primary jurisdiction relied upon by [Diesel] is diluted by
the indubitable fact that the CIAC panel x x x is not at all composed of technocrats, or persons
exceptionally well-versed in the construction industry. For instance, its chair x x x is a statistician;
another member, x x x a former magistrate, is a member of the Bar. Doubtless, these two are
preeminent in their fields, and their competence and proficiency in their chosen professions are
unimpeachable. However, when it comes to determining findings of fact with respect to the matter
before Us, the said panel which they partly comprise cannot claim to have any special advantage
over the members of this Court.[19]

The question of whether or not the findings of fact of the CIAC are supported by substantial evidence has no
causal connection to the personal qualifications of the members of the arbitration panel. Surely, a persons
undergraduate or postgraduate degrees, as the case may be, can hardly be invoked as the sole, fool proof basis to
determine that persons qualification to hold a certain position. Ones work experiences and attendance in relevant
seminars and trainings would perhaps be the more important factors in gauging a persons fitness to a certain
undertaking.

Correlatively, Diesel, obviously having in mind the disputable presumption of regularity, correctly argues
that highly specialized agencies are presumed to have the necessary technical expertise in their line of authority. In
other words, the members of the Arbitral Tribunal of the CIAC have in their favor the presumption of possessing the
necessary qualifications and competence exacted by law. A party in whose favor the legal presumption exists may
rely on and invoke such legal presumption to establish a fact in issue. One need not introduce evidence to prove that
the fact for a presumption is prima facie proof of the fact presumed.[20]
To set the records straight, however, the CA did not cast aspersion on the competence let alone the bona
fides of the members of the Arbitral Tribunal to arbitrate.In context, what the appellate court saidin reaction to Diesels
negative commentary about the CAs expertise on construction mattersis that the said members do not really enjoy a
special advantage over the members of the CA in terms of fleshing out the facts from the evidence on record.

In any event, the fact remains that the CA stands justified in reviewing the CIAC decision.

Second and Third Issues

The next two issues, being interrelated, shall be discussed jointly.

Diesel submits that the CA, in reaching its decision, substituted its own conjectural opinion to that of the CIACs well-
grounded findings and award.

Even as Diesels submission has little to commend itself, we deem it prudent to address its concern by reviewing the
incongruent determinations of the CIAC and CA and the factual premises holding such determinations together.

As it were, the CA reduced the award for unpaid balance of the contract cost from PhP 3,661,692.60, as earlier fixed
by the CIAC, to PhP 2,441,482.64, although it would consider the reduction and revert to the original CIAC
figure. Unlike the CIAC which found the award of liquidated damages to be without basis, the CA was of a different
disposition and awarded UPSI PhP 1,309,500, only to reduce the same to PhP 1,146,519 in its assailed
resolution. Also, the CA struck out the CIAC award of PhP 366,169 to Diesel for attorneys fees. Additionally, the
CIACs ruling making UPSI alone liable for the costs of arbitration was modified by the CA, which directed UPSI and
Diesel to equally share the burden.

The CIAC found Diesel not to have incurred delay, thus negating UPSIs entitlement to liquidated damages.
The CA, on the other hand, found Diesel to have been in delay for 45 days.
In determining whether or not Diesel was in delay, the CIAC and CA first turned on the question of Diesels claimed
entitlement to have the Project period extended, an excusable delay being chargeable against the threshold 90-day
completion period. Both were one in saying that occurrence of certain events gave Diesel the right to an extension,
but differed on the matter of length of the extension, and on the nature of the delay, that is, whether the delay is
excusable or not. The CA deemed the delay, and the resulting extension of 14 days, arising from the manual hauling
of materials, as undeserved. But the CIAC saw it otherwise for the reason that Frederick W. Crespillo, the witness
UPSI presented to refute the allegation of Diesels entitlement to time extension for the manual hauling of materials,
was incompetent to testify on the issue. As CIAC observed, Crespillo lacked personal knowledge of the real situation
at the worksite.
The CIACs reasoning, however, is flawed, assuming that the onus rested on UPSI, instead of on Diesel, to prove that
the delay in the execution of the Project was excusable. Diesel explained that there was no place for its own hoisting
machine at the Project site as the assigned location was being used by the General Contractor, while the alternative
location was not feasible due to power constraint. Moreover, Diesel could not use the site elevator of the General
Contractor as its personnel were only permitted to use the same for one hour every day at PhP 600 per hour.

The provisions in the Agreement on excusable delays read:

2.3 Excusable delays: The Contractor shall inform the owner in a timely manner, of any
delay caused by the following:

2.3.a Acts of God, such as storm, floods or earthquakes.

2.3.b Civil disturbance, such as riots, revolutions, insurrection.
2.3.c Any government acts, decrees, general orders or regulations limiting the performance of the
work.
2.3.d Wars (declared or not).
2.3.e Any delays initiated by the Owner or his personnel which are clearly outside the control of the
Contractor.

2.3.1 Delays caused by the foregoing shall be excusable. A new schedule or adjustments in contract
time shall be negotiated with the Owner. As time is of the essence of this agreement, all other delays
shall not be excusable.[21]
As may be noted, a common thread runs among the events listed above, that is, the delaying event is unforeseeable
and/or its occurrence is beyond the control of Diesel as contractor. Here, the lack of a location to establish Diesels
own hoisting machine can hardly be tagged as a foreseeable event. As the CA aptly observed:

[U]nder the terms of the contract, it is Diesel that would formulate the schedule to be followed in
the completion of the works; therefore, it was encumbent upon Diesel to take into account all factors
that would come into play in the course of the project. From the records it appears that the General
Contractor x x x had been in the premises ahead of Diesel; hence it would have been a simple matter
for Diesel to have conferred with the formers officer if the use of its equipment would be viable.
Likewise, it would not have been too much trouble for Diesel to have made a prior request from
UPSI for the use of its freight elevator in the face of the denial thereof, it could have made the
necessary remedial measures x x x. In other words, those delays were foreseeable on the part of
Diesel, with the application of even ordinary diligence. But Diesel did all of those when construction
was about to commence. Therefore, We hold that the delays occasioned by Diesels inability to install
 its hoisting machine x x x [were] attributable solely to Diesel, and thus the resultant delay cannot be
charged against the ninety-day period for the termination of the construction.[22]

There can be no quibbling that the delay caused by the manual hauling of materials is not excusable and,
hence, cannot validly be set up as ground for an extension. Thus, the CA excluded the delay caused thereby and only
allowed Diesel a total extension period of 85 days. Such extension, according to that court, effectively translated to a
delay of 45 days in the completion of the project. The CA, in its assailed decision, explained why:

7. All told, We find, and so hold, that [Diesel] has incurred in delay. x x x However, under
the circumstances wherein UPSI was responsible for some of the delay, it would be most unfair to
charge Diesel with two hundred and forty (240) days of delay, so much so that it would still owe
UPSI, even after liquidated damages have eaten up the retention and unpaid balance, the amount of
[P4,340,000.00]. Thus, based on Our own calculations, We deem it more in accord with the spirit
of the contract, as amended, x x x to assess Diesel with an unjustifiable delay of forty-five (45) days
only; hence, at the rate of 1/5 of one percent as stated in the contract, [or at P1,309,500.00], which
should be deducted from the total unpaid balance of [P2,441,482.64], which amount already
includes the retention on the additional works or Change Orders. [23]

The CA, in its questioned resolution, expounded on how it arrived at the figure of 45-day delay in this wise:
7. x x x We likewise cannot give Our assent to the asseveration of [Diesel] that Our
calculations as to the number of days of delay have no basis. For indeed, the same was arrived at
after taking a holistic view of the entire circumstances attendant to the instant case. x x x

But prescinding from the above, the basis for Our ruling should not be hard to discern. To
disabuse the mind of [Diesel] that the forty-five day delay was plucked from out of the blue, allow
Us to let the records speak. The records will show that while the original target date for the
completion x x x was 19 November 1999 x x x, there is a total of eighty-five (85) days of extension
which are justifiable and sanctioned by [UPSI], to wit: thirty (30) days as authorized on 27 January
2000 by UPSIs Construction Manager x x x; thirty (30) days as again consented to by the same
Construction Manager on 24 February 2000 x x x; and twenty-five (25) days on 16 March 2000 by
Rider Hunt and Liacom x x x. The rest of the days claimed by Diesel were, of course, found by Us
to be unjustified in the main opinion. Hence, the project should have been finished by February 12,
2000. However, by 22 March 2000, as certified to by Grace S. Reyes Designs, Inc. the project was
only 97.56% finished, meaning while it was substantially finished, it was not wholly finished. By 25
March 2000, the same consultant conditionally accepted some floors but were still punch listed, so
that from 12 February 2000 to 25 March 2000 was a period of forty-one (41) days. Allowing four
(4) more days for the punch listed items to be accomplished, and for the general cleaning mentioned
by Grace S. Reyes Designs, Inc., to be done, which to Us is a reasonable length of time, equals forty-
five (45) days.

This is why We find the [conclusion] made by the CIAC, x x x that there was no delay
whatsoever in the work done by [Diesel], too patently absurd for Us to offer Our unconditional
assent.[24]

Aside from the fact that the CA seemingly assumed contradictory positions in the span of two paragraphs, its
holding immediately adverted to above is patently erroneous. The CA completely failed to factor in the change orders
of UPSI to Dieselthe directives effectively extending the Project completion time at the behest of UPSI.

Section V of the Agreement on the subject Change Orders reads:

 V. CHANGES IN SCOPE OF WORK AND EXTRA WORK

Any changes or extra work in the SCOPE OF WORK recommended by the INTERIOR
DESIGNER/ARCHITECT or directed and approved by the OWNER shall be presented to the
CONTRACTOR. Within the shortest time possible, the CONTRACTOR x x x shall also inform the
OWNER if such changes shall require a new schedule and/or revised completion date.

The Parties shall then negotiate mutually agreeable terms x x x. The CONTRACTOR shall
not perform any change order or extra work until the covering terms are agreed upon [in writing and
signed by the parties].[25]

Pursuant thereto, UPSI issued Change Order (CO) Nos. 1 to 4 on February 3, 2, 8, and 9, 2000 respectively.
Thereafter, Diesel submitted a Schedule of Completion of Additional Works[26] under which Diesel committed to
undertake CO No. 1 for 30 days from February 10, 2000; CO No. 2 for 21 days from January 6, 2000; CO No. 3 for
15 days, subject to UPSIs acceptance of Diesels proposal; and CO No. 4 for 10 days after the receipt of the items from
UPSI.

The CIAC found that the COs were actually implemented on the following dates:

CO No. 1 February 9 to March 3, 2000

CO No. 3 February 24 to March 10, 2000
CO No. 4 March 16 to April 7, 2000[27]

Hence, as correctly held by the CIAC, UPSI, no less, effectively moved the completion date, through the
various COs, to April 7, 2000.

Moreover, as evidenced by UPSIs Progress Report No. 19 for the period ending March 22, 2000, Diesels
scope of work, as of that date, was already 97.56% complete. [28] Such level of work accomplishment would, by any
rational norm, be considered as substantial to warrant full payment of the contract amount, less actual damages
suffered by UPSI. Article 1234 of the Civil Code says as much, If the obligation had been substantially performed in
good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered
by the obligee.

The fact that the laborers of Diesel were still at the work site as of March 22, 2000 is a reflection of its honest
intention to keep its part of the bargain and complete the Project. Thus, when Diesel attempted to turn over the premises
to UPSI, claiming it had completed the Project on March 15, 2000, Diesel could no longer be considered to be in
delay. Likewise, the CIAC cited the Uniform General Conditions of Contract for Private Construction (CIAP
Document 102), wherein it is stated that no liquidated damages for delay beyond the completion time shall accrue
after the date of substantial completion of the work.[29]
 In all, Diesel cannot be considered as in delay and, hence, is not amenable under the Agreement for liquidated
damages.
As to the issue of attorneys fees, Diesel insists that bad faith tainted UPSIs act of imposing liquidated damages
on account of its (Diesels) alleged delay. And, this prompted Diesel to file its petition for arbitration. Thus, the CIAC
granted Diesel an award of PhP 366,169 as attorneys fees. However, the CA reversed the CIAC on the award, it being
its finding that Diesel was in delay.
The Court resolves to reinstate the CIACs award of attorneys fees, there being sufficient justification for this
kind of disposition. As earlier discussed, Diesel was not strictly in delay in the completion of the Project. No valid
reason, therefore, obtains for UPSI to withhold the retention money or to refuse to pay the unpaid balance of the
contract price. Indeed, the retention and nonpayment were, to us, as was to the CIAC, resorted to by UPSI out of
whim, thus forcing the hand of Diesel to sue to recover what is rightfully due. Thus, the grant of attorneys fees would
be justifiable under Art. 2208 of the Civil Code, thus:

Article 2208. In the absence of stipulation, attorneys fees and expenses of litigation x x x
cannot be recovered, except:

xxxx

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

And for the same reason justifying the award of attorneys fees, arbitration costs ought to be charged against
UPSI, too.
Fourth Issue

UPSI urges a review of the factual basis for the parallel denial by the CIAC and CA of its claim for additional
expenses to complete the Project. UPSI states that the reality of Diesel having abandoned the Project before its agreed
completion is supported by clear and convincing evidence.

The Court cannot accord the desired review. It is settled rule that the Court, not being a trier of facts, is under
no obligation to examine, winnow, and weigh anew evidence adduced below. This general rule is, of course, not
absolute. In Superlines Transportation Company, Inc. v. Philippine National Construction Company, the Court
enumerated the recognized exceptions to be:

x x x (1) when the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues
of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the
 findings of fact are premised on the supposed absence of evidence and contradicted by the evidence
on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different
conclusion.[30] (Emphasis supplied.)

In the instant case, the factual findings of the CIAC and CA, with regard to the completion of the Project and
UPSIs entitlement to recover expenses allegedly incurred to finish the Project, do not fall under any one of these
exceptions. As things stand, the factual findings of the CIAC and CA are supported by evidence presented during the
hearing before the Arbitral Tribunal. Consider what the CIAC wrote:
This Tribunal finds overwhelming evidence to prove that accomplishment as of the alleged
period of takeover was 95.87% as of March 3, 2000 and increased to 97.56% on March 15,
2000 based on Progress Report # 18. x x x This is supported by the statement of [UPSIs] witness,
Mr. Crespillo x x x where he conceded that such admissions and statements bound [UPSI, the
Owner]. By that time, [Diesel] had substantially completed the project and only needed to correct
the items included in the punchlist.[31]

The CA seconded what the CIAC said, thus:

6. Neither are We prepared to sustain UPSIs argument that Diesel left the work
unfinished and pulled-out all of its workmen from the project. This claim is belied by the assessment
of its own Construction Manager in Progress Report No. 19 for the period ending 22 March 2000,
wherein it was plaintly stated that as of that period, with respect to Diesel, there were still twenty-
three laborers on site with the project 97.56% complete x x x. This indicates that the contracted
works of Diesel were substantially completed with only minor corrections x x x, thus contradicting
the avowal of UPSI that the work was abandoned in such a state that necessitated the engagement
of another contractor for the project to be finished. It was therefore not right for UPSI to have
declined the turn-over and refused the full payment of the contract price, x x x. [32]

Given the 97.56% work accomplishment tendered by Diesel, UPSIs theory of abandonment and of its having
spent a sum to complete the work must fall on its face. We can concede hypothetically that UPSI undertook what it
characterized as additional or rectification works on the Project. But as both the CIAC and CA held, UPSI failed to
show that such additional or rectification works, if there be any, were the necessary result of the faulty workmanship
of Diesel.
The Court perceives of no reason to doubt, much less disturb, the coinciding findings of the CIAC and CA
on the matter.
The foregoing notwithstanding and considering that Diesel may only be credited for 97.56% work
accomplishment, UPSI ought to be compensated, by way of damages, in the amount corresponding to the value of the
2.44% unfinished portion (100% 97.56% = 2.44%). In absolute terms, 2.44% of the total Project cost translates to PhP
310,834.01. This disposition is no more than adhering to the command of Art. 1234 of the Civil Code.

The fifth and sixth issues have already been discussed earlier and need not detain us any longer.
 WHEREFORE, Diesels petition is PARTIALLY GRANTED and UPSIs Petition is DENIED with
qualification. The assailed Decision dated April 16, 2002and Resolution dated August 21, 2002 of the CA
are MODIFIED, as follows:

(1) The award for liquidated damages is DELETED;

(2) The award to Diesel for the unpaid balance of the contract price of PhP 3,661,692.64 is AFFIRMED;
(3) UPSI shall pay the costs of arbitration before the CIAC in the amount of PhP 298,406.03;
(4) Diesel is awarded attorneys fees in the amount of PhP 366,169; and
(5) UPSI is awarded damages in the amount of PhP 310,834.01, the same to be deducted from the retention
money, if there still be any, and, if necessary, from the amount referred to in item (2) immediately above.

In summary, the aggregate award to Diesel shall be PhP 3,717,027.64. From this amount shall be deducted
the award of actual damages of PhP 310,834.01 to UPSI which shall pay the costs of arbitration in the amount of PhP
298,406.03.

FGU is released from liability for the performance bond that it issued in favor of Diesel.

No costs.

SO ORDERED.
 EN BANC

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD

BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for
compliance had expired and there was breach of contract by non-performance, it was academic for the plaintiff to
have first petitioned the court to fix a period for the performance of the contract before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE
PHILIPPINES.— Where the defendant virtually admitted non-performance of the contract by returning the
typewriter that he was obliged to repair in a non-working condition, with essential parts missing, Article 1197 of the
Civil Code of the Philippines cannot be invoked. The fixing of a period would thus be a mere formality and would
serve no purpose than to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened the
tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles,’’ he is liable for
the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75, because
the obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost
of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed
or neglected, to return it in the same condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED
OR PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the existence of
the actual basis thereof must be proved. As no findings of fact were made on the claims for damages and attorney’s
fees, there is no factual basis upon which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT;
ONLY QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the
trial court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo on its findings
of fact.

DECISION

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but
was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138,
because it awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral damages and
attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite
repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply with the
same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts,
which amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of
the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the
typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined
the typewriter returned to him by the defendant and found out that the same was in shambles, with the interior cover
and some parts and screws missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally
demanding the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day,
the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost
him a total of P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for
moral damages, and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant made no denials of the facts narrated
above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio
Bocalin, which the defendant denied allegedly because the typewriter was delivered to him personally by the
plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however,
be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total
value of only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the
costs of suit.

"SO ORDERED."cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the
value of the missing parts of the typewriter, instead of the whole cost of labor and materials that went into the repair
of the machine, as provided for in Article 1167 of the Civil Code, reading as follows:jgc:chanrobles.com.ph

"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be
decreed that what has been poorly done he undone."cralaw virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even
for the sum of P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-
appellant should have first filed a petition for the court to fix the period, under Article 1197 of the Civil Code, within
which the defendant appellee was to comply with the contract before said defendant-appellee could be held liable for
breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts,
as found by the trial court, are now conclusive and non-reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine
cleaning and servicing" ; that the defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff" ; that the "defendant merely gave assurances, but failed to comply with the same" ; and that
"after getting exasperated with the delay of the repair of the typewriter", the plaintiff went to the house of the
defendant and asked for its return, which was done. The inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning and servicing a typewriter; that they intended that
the defendant was to finish it at some future time although such time was not specified; and that such time had
passed without the work having been accomplished, far the defendant returned the typewriter cannibalized and
unrepaired, which in itself is a breach of his obligation, without demanding that he should be given more time to
finish the job, or compensation for the work he had already done. The time for compliance having evidently expired,
and there being a breach of contract by non-performance, it was academic for the plaintiff to have first petitioned the
court to fix a period for the performance of the contract before filing his complaint in this case. Defendant cannot
invoke Article 1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts missing. The fixing of a period would thus be
a mere formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the
typewriter but returned it "in shambles", according to the appealed decision. For such contravention, as appellant
contends, he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing the obligation in a
proper manner. The cost of the execution of the obligation in this case should be the cost of the labor or service
expended in the repair of the typewriter, which is in the amount of P58.75. because the obligation or contract was to
repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing
parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to
return it in the same condition it was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly rejected by the
trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and
attorney’s fees must be pleaded, and the existence of the actual basis thereof must be proved. 2 The appealed
judgment thus made no findings on these claims, nor on the fraud or malice charged to the appellee. As no findings
of fact were made on the claims for damages and attorney’s fees, there is no factual basis upon which to make an
award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly to
the Supreme Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the
defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at
the legal rate from the filing of the complaint. Costs in all instances against appellee Fructuoso Gonzales.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 174269 May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.

DECISION

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined an
escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group
arrived in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the group had
arrived late in the city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they would start
early the next day to see the entire city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House in Amsterdam around 10
minutes before 9:00 a.m. The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time
to take in a guided city tour of Amsterdam. The group was ushered into Coster shortly before 9:00 a.m., and listened
to a lecture on the art of diamond polishing that lasted for around ten minutes. 1 Afterwards, the group was led to the
store’s showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to purchase even
before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation that
she decided to buy.2 Mrs. Pantaleon also selected for purchase a pendant and a chain, 3 all of which totaled U.S.
$13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his passport to the
Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated to depart from
the store. The sales clerk took the card’s imprint, and asked Pantaleon to sign the charge slip. The charge purchase
was then referred electronically to respondent’s Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His son, who
had already boarded the tour bus, soon returned to Coster and informed the other members of the Pantaleon family
that the entire tour group was waiting for them. As it was already 9:40 a.m., and he was already worried about
further inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store manager though
asked plaintiff to wait a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent
had demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed his daughter
to return to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes after the
tour group was supposed to have left the store, Coster decided to release the items even without respondent’s
approval of the purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of apology were
met by their tourmates with stony silence.4 The tour group’s visible irritation was aggravated when the tour guide
announced that the city tour of Amsterdam was to be canceled due to lack of remaining time, as they had to catch a
3:00 p.m. ferry at Calais, Belgium to London. 5 Mrs. Pantaleon ended up weeping, while her husband had to take a
tranquilizer to calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s Amsterdam office at
9:20 a.m., Amsterdam time, then referred to respondent’s Manila office at 9:33 a.m, then finally approved at 10:19
a.m., Amsterdam time.6 The Approval Code was transmitted to respondent’s Amsterdam office at 10:38 a.m.,
several minutes after petitioner had already left Coster, and 78 minutes from the time the purchases were
electronically transmitted by the jewelry store to respondent’s Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning to
Manila on 12 November 1992. While in the United States, Pantaleon continued to use his AmEx card, several times
without hassle or delay, but with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991,
Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit
card purchase and borrowed money instead from a friend, after more than 30 minutes had transpired without the
purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase children’s shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the respondent,
demanding an apology for the "inconvenience, humiliation and embarrassment he and his family thereby suffered"
for respondent’s refusal to provide credit authorization for the aforementioned purchases.8 In response, respondent
sent a letter dated 24 March 1992,9 stating among others that the delay in authorizing the purchase from Coster was
attributable to the circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleon’s demand for an apology, the aggrieved
cardholder instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch
145.11 Pantaleon prayed that he be awarded ₱2,000,000.00, as moral damages; ₱500,000.00, as exemplary damages;
₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation expenses.12

On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding him ₱500,000.00 as
moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of
litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial reconsideration, praying that the
trial court award the increased amount of moral and exemplary damages he had prayed for. 14 The RTC denied
Pantaleon’s motion for partial reconsideration, and thereafter gave due course to respondent’s Notice of Appeal. 15

On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages in favor of
Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this petition.

The key question is whether respondent, in connection with the aforementioned transactions, had committed a
breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming that respondent had not
been in breach of its obligations, it still remained liable for damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondent’s credit authorizer,
Edgardo Jaurigue, that the normal approval time for purchases was "a matter of seconds." Based on that standard,
respondent had been in clear delay with respect to the three subject transactions. As it appears, the Court of Appeals
conceded that there had been delay on the part of respondent in approving the purchases. However, it made two
critical conclusions in favor of respondent. First, the appellate court ruled that the delay was not attended by bad
faith, malice, or gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had established for
himself, as exemplified by the fact that at Coster, he was "making his very first single charge purchase of
US$13,826," and "the record of [petitioner]’s past spending with [respondent] at the time does not favorably support
his ability to pay for such purchase." 17

On the premise that there was an obligation on the part of respondent "to approve or disapprove with dispatch the
charge purchase," petitioner argues that the failure to timely approve or disapprove the purchase constituted mora
solvendi on the part of respondent in the performance of its obligation. For its part, respondent characterizes the
depiction by petitioner of its obligation to him as "to approve purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the obligation
is demandable and liquidated; the debtor delays performance; and the creditor judicially or extrajudicially requires
the debtor’s performance.18 Petitioner asserts that the Court of Appeals had wrongly applied the principle of mora
accipiendi, which relates to delay on the part of the obligee in accepting the performance of the obligation by the
obligor. The requisites of mora accipiendi are: an offer of performance by the debtor who has the required capacity;
the offer must be to comply with the prestation as it should be performed; and the creditor refuses the performance
without just cause.19 The error of the appellate court, argues petitioner, is in relying on the invocation by respondent
of "just cause" for the delay, since while just cause is determinative of mora accipiendi, it is not so with the case of
mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the relationship
between a credit card provider and its card holders is that of creditor-debtor,20 with the card company as the creditor
extending loans and credit to the card holder, who as debtor is obliged to repay the creditor. This relationship
already takes exception to the general rule that as between a bank and its depositors, the bank is deemed as the
debtor while the depositor is considered as the creditor. 21 Petitioner is asking us, not baselessly, to again shift
perspectives and again see the credit card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioner’s perspective appears more sensible than if we were to still regard respondent as the creditor
in the context of this cause of action. If there was delay on the part of respondent in its normal role as creditor to the
cardholder, such delay would not have been in the acceptance of the performance of the debtor’s obligation (i.e., the
repayment of the debt), but it would be delay in the extension of the credit in the first place. Such delay would not
fall under mora accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases on
credit, has already been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry)
had not yet been perfected, as it remained pending the approval or consent of the respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that there
was indeed an obligation on the part of respondent to act on petitioner’s purchases with "timely dispatch," or for the
purposes of this case, within a period significantly less than the one hour it apparently took before the purchase at
Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting
on petitioner’s purchase at Coster did constitute culpable delay on its part in complying with its obligation to act
promptly on its customer’s purchase request, whether such action be favorable or unfavorable. We quote the trial
court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a matter of seconds.

Plaintiff testified that his personal experience with the use of the card was that except for the three charge purchases
subject of this case, approvals of his charge purchases were always obtained in a matter of seconds.

Defendant’s credit authorizer Edgardo Jaurique likewise testified:

Q. – You also testified that on normal occasions, the normal approval time for charges would be 3 to 4
seconds?

A. – Yes, Ma’am.

Both parties likewise presented evidence that the processing and approval of plaintiff’s charge purchase at the
Coster Diamond House was way beyond the normal approval time of a "matter of seconds".

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the time he had to
leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit Authorization System (CAS)
record of defendant at Phoenix Amex shows that defendant’s Amsterdam office received the request to approve
plaintiff’s charge purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its
approval to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive Identification of
Card holder necessary further charges require bank information due to high exposure. By Jack Manila."

The delay in the processing is apparent to be undue as shown from the frantic successive queries of Amexco
Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long will this take?" They
were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix. Manila Amexco could be unaware of
the need for speed in resolving the charge purchase referred to it, yet it sat on its hand, unconcerned.

xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how Amexco
Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the
charge purchased was referred for authorization, defendants own record shows:

01:22 – the authorization is referred to Manila Amexco

01:32 – Netherlands gives information that the identification of the cardmember has been presented and he
is buying jewelries worth US $13,826.

01:33 – Netherlands asks "How long will this take?"

02:08 – Netherlands is still asking "How long will this take?"

The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on his use of the
card abroad "with special handling." 22 (Citations omitted)

xxx

Notwithstanding the popular notion that credit card purchases are approved "within seconds," there really is no
strict, legally determinative point of demarcation on how long must it take for a credit card company to approve or
disapprove a customer’s purchase, much less one specifically contracted upon by the parties. Yet this is one of those
instances when "you’d know it when you’d see it," and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the customer
to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in timely
dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly, had respondent
disapproved petitioner’s purchase "within seconds" or within a timely manner, this particular action would have
never seen the light of day. Petitioner and his family would have returned to the bus without delay – internally
humiliated perhaps over the rejection of his card – yet spared the shame of being held accountable by newly-made
friends for making them miss the chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the credit it is
extending upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is within
his means to make such transaction. The culpable failure of respondent herein is not the failure to timely approve
petitioner’s purchase, but the more elemental failure to timely act on the same, whether favorably or unfavorably.
Even assuming that respondent’s credit authorizers did not have sufficient basis on hand to make a judgment, we see
no reason why respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed basis on whether
or not to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the wrath of
foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith, and the
court should find that under the circumstances, such damages are due. The findings of the trial court are ample in
establishing the bad faith and unjustified neglect of respondent, attributable in particular to the "dilly-dallying" of
respondent’s Manila credit authorizer, Edgardo Jaurique. 23 Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the amount of time it
should take defendant to grant authorization for a charge purchase, defendant acknowledged that the normal time for
approval should only be three to four seconds. Specially so with cards used abroad which requires "special
handling", meaning with priority. Otherwise, the object of credit or charge cards would be lost; it would be so
inconvenient to use that buyers and consumers would be better off carrying bundles of currency or traveller’s
checks, which can be delivered and accepted quickly. Such right was not accorded to plaintiff in the instances
complained off for reasons known only to defendant at that time. This, to the Court’s mind, amounts to a wanton and
deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract. 24

xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have
consumed more than one hour to simply go over plaintiff’s past credit history with defendant, his payment record
and his credit and bank references, when all such data are already stored and readily available from its computer.
This Court also takes note of the fact that there is nothing in plaintiff’s billing history that would warrant the
imprudent suspension of action by defendant in processing the purchase. Defendant’s witness Jaurique admits:

Q. – But did you discover that he did not have any outstanding account?

A. – Nothing in arrears at that time.

Q. – You were well aware of this fact on this very date?

A. – Yes, sir.

Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account. 25

It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent
incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries
under Article 2217 of the Civil Code for which moral damages are remunerative.26 Moral damages do not avail to
soothe the plaints of the simply impatient, so this decision should not be cause for relief for those who time the
length of their credit card transactions with a stopwatch. The somewhat unusual attending circumstances to the
purchase at Coster – that there was a deadline for the completion of that purchase by petitioner before any delay
would redound to the injury of his several traveling companions – gave rise to the moral shock, mental anguish,
serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by the
RTC.27 Those circumstances are fairly unusual, and should not give rise to a general entitlement for damages under
a more mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule in
determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its
own peculiar facts, however, it must be commensurate to the loss or injury suffered. 28 Petitioner’s original prayer for
₱5,000,000.00 for moral damages is excessive under the circumstances, and the amount awarded by the trial court of
₱500,000.00 in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the amount of ₱300,000.00
appropriate. There is similarly no cause though to disturb the determined award of ₱100,000.00 as attorney’s fees,
and ₱85,233.01 as expenses of litigation.

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

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

SPECIAL SECOND DIVISION

POLO S. PANTALEON, G.R. No. 174269

Petitioner,
Present:

- versus - CARPIO MORALES, J.,

Acting Chairperson,
VELASCO, JR.,
AMERICAN EXPRESS INTERNATIONAL, LEONARDO-DE CASTRO,
INC., BRION, and
*
Respondent. BERSAMIN, JJ.
Promulgated:
August 25, 2010
x----------------------------------------------------------------------------------------x

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by respondent American Express International, Inc. (AMEX)
dated June 8, 2009,[1] seeking to reverse our Decision dated May 8, 2009 where we ruled that AMEX was guilty of
culpable delay in fulfilling its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we held
AMEX liable for moral and exemplary damages, as well as attorneys fees and costs of litigation. [2]

FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing credit services through the operation of
a charge card system. Pantaleon has been an AMEX cardholder since 1980.[3]

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian Roberto),
went on a guided European tour. On October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival,
they postponed the tour of the city for the following day. [4]

The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster Diamond House
(Coster). To have enough time for take a guided city tour of Amsterdam before their departure scheduled on that
day, the tour group planned to leave Coster by 9:30 a.m. at the latest.

While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826.00.
Pantaleon presented his American Express credit card to the sales clerk to pay for this purchase. He did this at
around 9:15 a.m. The sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then
electronically referred to AMEXs Amsterdam office at 9:20 a.m.[5]

At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store
clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently,
the store manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the
names of his Philippine depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase.
Since the city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at
around 10:05 a.m. the purchased items to Pantaleon even without AMEXs approval.

When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This
irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as
they all had to be in Calais, Belgium by 3 p.m. to catch the ferry to London.[6]

From the records, it appears that after Pantaleons purchase was transmitted for approval to AMEXs Amsterdam office
at 9:20 a.m.; was referred to AMEXs Manilaoffice at 9:33 a.m.; and was approved by the Manila office at 10:19
a.m. At 10:38 a.m., AMEXs Manila office finally transmitted the Approval Code to AMEXs Amsterdam office. In
all, it took AMEX a total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the
jewelry store.[7]
After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in
securing approval for purchases using his American Express credit card on two separate occasions. He experienced
the first delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf
Studio in New York on October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth
US$87.00 at the Quiency Market in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience
he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded
by explaining that the delay in Amsterdam was due to the amount involved the charged purchase of US$13,826.00
deviated from Pantaleons established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed
an action for damages against the credit card company with the Makati City Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00 as moral
damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as litigation expenses.

On appeal, the CA reversed the awards.[8] While the CA recognized that delay in the nature of mora
accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it disagreed with the RTCs finding
that AMEX had breached its contract, noting that the delay was not attended by bad faith, malice or gross
negligence. The appellate court found that AMEX exercised diligent efforts to effect the approval of Pantaleons
purchases; the purchase at Coster posed particularly a problem because it was at variance with Pantaleons established
charge pattern. As there was no proof that AMEX breached its contract, or that it acted in a wanton, fraudulent or
malevolent manner, the appellate court ruled that AMEX could not be held liable for any form of damages.

Pantaleon questioned this decision via a petition for review on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX was guilty
of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit provider to act on Pantaleons
purchase requests, whether to approve or disapprove them, with timely dispatch. Based on the evidence on record, we
found that AMEX failed to timely act on Pantaleons purchases.

Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card
charges would be three to four seconds under regular circumstances. In Pantaleons case, it took AMEX 78 minutes to
approve the Amsterdam purchase. We attributed this delay to AMEXs Manila credit authorizer, Edgardo Jaurique,
who had to go over Pantaleons past credit history, his payment record and his credit and bank references before he
approved the purchase. Finding this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral
and exemplary damages, as well as attorneys fees and costs of litigation.

THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of culpable delay
in complying with its obligation to act with timely dispatch on Pantaleons purchases. While AMEX admits that it
normally takes seconds to approve charge purchases, it emphasizes that Pantaleon experienced delay
in Amsterdam because his transaction was not a normal one. To recall, Pantaleon sought to charge in a single
transaction jewelry items purchased from Coster in the total amount of US$13,826.00 or P383,746.16. While the
total amount of Pantaleons previous purchases using his AMEX credit card did exceed US$13,826.00, AMEX points
out that these purchases were made in a span of more than 10 years, not in a single transaction.

Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit card, AMEX
argues that the transaction necessarily required the credit authorizer to carefully review Pantaleons credit history and
bank references. AMEX maintains that it did this not only to ensure Pantaleons protection (to minimize the possibility
that a third party was fraudulently using his credit card), but also to protect itself from the risk that Pantaleon might
not be able to pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with the
extraordinary degree of diligence required of banks in handling its transactions.AMEX concluded that in these lights,
the thorough review of Pantaleons credit record was motivated by legitimate concerns and could not be evidence of
any ill will, fraud, or negligence by AMEX.

AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassment was his own
decision to proceed with the purchase despite his awareness that the tour group was waiting for him and his wife.
Pantaleon could have prevented the humiliation had he cancelled the sale when he noticed that the credit approval for
the Coster purchase was unusually delayed.

In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora solvendi, or
delay on the part of the debtor, in complying with its obligation to him. Based on jurisprudence, a just cause for delay
does not relieve the debtor in delay from the consequences of delay; thus, even if AMEX had a justifiable reason for
the delay, this reason would not relieve it from the liability arising from its failure to timely act on Pantaleons purchase.

In response to AMEXs assertion that the delay was in keeping with its duty to perform its obligation with
extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt performance of its obligation.

As to AMEXs contention that moral or exemplary damages cannot be awarded absent a finding of malice,
Pantaleon argues that evil motive or design is not always necessary to support a finding of bad faith; gross negligence
or wanton disregard of contractual obligations is sufficient basis for the award of moral and exemplary damages.

OUR RULING
 We GRANT the motion for reconsideration.

Brief historical background

A credit card is defined as any card, plate, coupon book, or other credit device existing for the purpose of
obtaining money, goods, property, labor or services or anything of value on credit. [9] It traces its roots to the charge
card first introduced by the Diners Club in New York City in 1950.[10] American Express followed suit by introducing
its own charge card to the American market in 1958.[11]

In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into the
country in the 1970s.[12] However, it was only in the early 2000s that credit card use gained wide acceptance in the
country, as evidenced by the surge in the number of credit card holders then. [13]

Nature of Credit Card Transactions

To better understand the dynamics involved in credit card transactions, we turn to the United States case
of Harris Trust & Savings Bank v. McCray[14] which explains:

The bank credit card system involves a tripartite relationship between the issuer bank, the
cardholder, and merchants participating in the system. The issuer bank establishes an account on
behalf of the person to whom the card is issued, and the two parties enter into an agreement which
governs their relationship. This agreement provides that the bank will pay for cardholders account
the amount of merchandise or services purchased through the use of the credit card and will also
make cash loans available to the cardholder. It also states that the cardholder shall be liable to the
bank for advances and payments made by the bank and that the cardholders obligation to pay the
bank shall not be affected or impaired by any dispute, claim, or demand by the cardholder with
respect to any merchandise or service purchased.

The merchants participating in the system agree to honor the banks credit cards. The bank
irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant
performs his undertakings such as checking the list of revoked cards before accepting the card. x x x.

These slips are forwarded to the member bank which originally issued the card. The
cardholder receives a statement from the bank periodically and may then decide whether to make
payment to the bank in full within a specified period, free of interest, or to defer payment and
ultimately incur an interest charge.

We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),[15] where we
also recognized that credit card issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in general, or by non-banks in
particular, refers to any card x x x or other credit device existing for the purpose of
obtaining x x x goods x x x or services x x x on credit; and is being used usually on a revolving
basis. This means that the consumer-credit arrangement that exists between the issuer and the holder
 of the credit card enables the latter to procure goods or services on a continuing basis as long as the
outstanding balance does not exceed a specified limit. The card holder is, therefore, given the power
to obtain present control of goods or service on a promise to pay for them in the future.

Business establishments may extend credit sales through the use of the credit card facilities of a non-
bank credit card company to avoid the risk of uncollectible accounts from their customers. Under
this system, the establishments do not deposit in their bank accounts the credit card drafts that arise
from the credit sales. Instead, they merely record their receivables from the credit card company
and periodically send the drafts evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments,
but it does not redeem the drafts at full price. The agreement between them usually provides for
discounts to be taken by the company upon its redemption of the drafts. At the end of each month,
it then bills its credit card holders for their respective drafts redeemed during the previous month. If
the holders fail to pay the amounts owed, the company sustains the loss.

Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the
credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan
agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to paybetween the
credit card issuer and the merchant or business establishment.[16]
Credit card issuer cardholder relationship

When a credit card company gives the holder the privilege of charging items at establishments associated
with the issuer,[17] a necessary question in a legal analysis is when does this relationship begin? There are two
diverging views on the matter. In City Stores Co. v. Henderson,[18] another U.S. decision, held that:

The issuance of a credit card is but an offer to extend a line of open account credit. It is
unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior
notice, for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty for there
is no duty to continue it and violates no rights.

Thus, under this view, each credit card transaction is considered a separate offer and acceptance.

Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling that the mere issuance of a credit
card did not create a contractual relationship with the cardholder.

On the other end of the spectrum is Gray v. American Express Company[20] which recognized the card membership
agreement itself as a binding contract between the credit card issuer and the card holder. Unlike in the Novack and
the City Stores cases, however, the cardholder in Gray paid an annual fee for the privilege of being an American
Express cardholder.

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the credit card issuer
and the credit card holder as a contractual one that is governed by the terms and conditions found in the card
membership agreement.[21] This contract provides the rights and liabilities of a credit card company to its cardholders
and vice versa.

We note that a card membership agreement is a contract of adhesion as its terms are prepared solely by
the credit card issuer, with the cardholder merely affixing his signature signifying his adhesion to these
terms.[22] This circumstance, however, does not render the agreement void; we have uniformly held that contracts
of adhesion are as binding as ordinary contracts, the reason being that the party who adheres to the contract is free
to reject it entirely.[23] The only effect is that the terms of the contract are construed strictly against the party who
drafted it.[24]

On AMEXs obligations to Pantaleon

We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the issuance of his AMEX
credit card, and on which he anchors his claims. First, Pantaleon presumes that since his credit card has no pre-set
spending limit, AMEX has the obligation to approve all his charge requests. Conversely, even if AMEX has no such
obligation, at the very least it is obliged to act on his charge requests within a specific period of time.

i. Use of credit card a mere offer to enter into loan agreements

Although we recognize the existence of a relationship between the credit card issuer and the credit card
holder upon the acceptance by the cardholder of the terms of the card membership agreement (customarily signified
by the act of the cardholder in signing the back of the credit card), we have to distinguish this contractual
relationship from the creditor-debtor relationship which only arises after the credit card issuer has
approved the cardholders purchase request. The first relates merely to an agreement providing for credit facility
to the cardholder. The latter involves the actual credit on loan agreement involving three contracts, namely:
the sales contract between the credit card holder and the merchant or the business establishment which accepted
the credit card; the loan agreement between the credit card issuer and the credit card holder; and the promise to
pay between the credit card issuer and the merchant or business establishment.

From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of
the offer[25] and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to
pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the
latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of
the Civil Code, which provides:
 Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.

This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10,
which clearly states that AMEX reserve[s] the right to deny authorization for any requested Charge. By so
providing, AMEX made its position clear that it has no obligation to approve any and all charge requests made by its
card holders.

ii. AMEX not guilty of culpable delay

Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot
claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a
debtor guilty of culpable delay, states:

Article 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. x x x.

The three requisites for a finding of default are: (a) that the obligation is demandable and liquidated; (b) the
debtor delays performance; and (c) the creditor judicially or extrajudicially requires the debtors performance. [26]

Based on the above, the first requisite is no longer met because AMEX, by the express terms of the credit
card agreement, is not obligated to approve Pantaleons purchase request. Without a demandable obligation, there can
be no finding of default.

Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the demand
required by Article 1169 of the Civil Code.

As previously established, the use of a credit card to pay for a purchase is only an offer to the credit card
company to enter a loan agreement with the credit card holder. Before the credit card issuer accepts this offer, no
obligation relating to the loan agreement exists between them. On the other hand, a demand is defined as the
assertion of a legal right; xxx an asking with authority, claiming or challenging as due.[27] A demand presupposes
the existence of an obligation between the parties.

Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the stores
transmitted to AMEX were his offers to execute loan contracts. These obviously could not be classified as the demand
required by law to make the debtor in default, given that no obligation could arise on the part of AMEX until after
AMEX transmitted its acceptance of Pantaleons offers. Pantaleons act of insisting on and waiting for the charge
purchases to be approved by AMEX[28] is not the demand contemplated by Article 1169 of the Civil Code.

For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty of culpable
delay in approving his purchase requests must fail.

iii. On AMEXs obligation to act on the offer within a specific period of time

Even assuming that AMEX had the right to review his credit card history before it approved his purchase
requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests, either to approve or deny, in
a matter of seconds or in timely dispatch. Pantaleon impresses upon us the existence of this obligation by emphasizing
two points: (a) his card has no pre-set spending limit; and (b) in his twelve years of using his AMEX card, AMEX had
always approved his charges in a matter of seconds.

Pantaleons assertions fail to convince us.

We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as well as the
two other transactions in the United States which took AMEX approximately 15 to 20 minutes to approve. This
conclusion appears valid and reasonable at first glance, comparing the time it took to finally get the Coster purchase
approved (a total of 78 minutes), to AMEXs normal approval time of three to four seconds (based on the testimony of
Edgardo Jaurigue, as well as Pantaleons previous experience). We come to a different result, however, after a closer
look at the factual and legal circumstances of the case.

AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a credit card
simply means that the charges made by the cardholder are approved based on his ability to pay, as demonstrated by
his past spending, payment patterns, and personal resources.[29] Nevertheless, every time Pantaleon charges a
purchase on his credit card, the credit card company still has to determine whether it will allow this charge,
based on his past credit history. This right to review a card holders credit history, although not specifically set out
in the card membership agreement, is a necessary implication of AMEXs right to deny authorization for any requested
charge.

As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has always
approved his charge requests in three or four seconds), this record does not establish that Pantaleon had a legally
enforceable obligation to expect AMEX to act on his charge requests within a matter of seconds. For one, Pantaleon
failed to present any evidence to support his assertion that AMEX acted on purchase requests in a matter of three or
four seconds as an established practice. More importantly, even if Pantaleon did prove that AMEX, as a matter of
practice or custom, acted on its customers purchase requests in a matter of seconds, this would still not be enough to
establish a legally demandable right; as a general rule, a practice or custom is not a source of a legally demandable or
enforceable right.[30]

We next examine the credit card membership agreement, the contract that primarily governs the relationship
between AMEX and Pantaleon. Significantly, there is no provision in this agreement that obligates AMEX to act
on all cardholder purchase requests within a specifically defined period of time. Thus, regardless of whether the
obligation is worded was to act in a matter of seconds or to act in timely dispatch, the fact remains that no obligation
exists on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his testimony that he
could not recall any provision in the Agreement that guaranteed AMEXs approval of his charge requests within a
matter of minutes.[31]

Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged obligation to act
upon his credit card purchases within a matter of seconds. As the following survey of Philippine law on credit card
transactions demonstrates, the State does not require credit card companies to act upon its cardholders purchase
requests within a specific period of time.

Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved on February 11,
1998, is the controlling legislation
that regulates the issuance and use of access devices,[32] including credit cards. The more salient portions of this law
include the imposition of the obligation on a credit card company to disclose certain important financial
information[33] to credit card applicants, as well as a definition of the acts that constitute access device fraud.

As financial institutions engaged in the business of providing credit, credit card companies fall under
the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).[34] BSP Circular No. 398 dated August 21,
2003 embodies the BSPs policy when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit
through innovative products such as credit cards under conditions of fair and sound consumer
credit practices. The BSP likewise encourages competition and transparency to ensure more
efficient delivery of services and fair dealings with customers. (Emphasis supplied)

Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their subsidiary credit card companies
must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable
of fulfilling their credit commitments.[35] As the above-quoted policy expressly states, the general intent is to foster fair
and sound consumer credit practices.
 Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on September 24, 2004,
but this circular merely enumerates the unfair collection practices of credit card companies a matter not relevant to
the issue at hand.

In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor legally obligated
to act on its cardholders purchase requests within any specific period of time, much less a period of a matter of seconds
that Pantaleon uses as his standard. The standard therefore is implicit and, as in all contracts, must be based on fairness
and reasonableness, read in relation to the Civil Code provisions on human relations, as will be discussed below.

AMEX acted with good faith

Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal obligation to act
upon Pantaleons purchases within a specific period of time; and (b) AMEX has a right to review a cardholders credit
card history. Our recognition of these entitlements, however, does not give AMEX an unlimited right to put off
action on cardholders purchase requests for indefinite periods of time. In acting on cardholders purchase requests,
AMEX must take care not to abuse its rights and cause injury to its clients and/or third persons. We cite in this regard
Article 19, in conjunction with Article 21, of the Civil Code, which provide:

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due and observe honesty and good faith.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
Article 19 pervades the entire legal system and ensures that a person suffering damage in the course of
anothers exercise of right or performance of duty, should find himself without relief. [36] It sets the standard for the
conduct of all persons, whether artificial or natural, and requires that everyone, in the exercise of rights and the
performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c) observe honesty and good
faith. It is not because a person invokes his rights that he can do anything, even to the prejudice and disadvantage of
another.[37]

While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the person injured
by the willful act, an action for damages. We explained how these two provisions correlate with each other in GF
Equity, Inc. v. Valenzona:[38]

[Article 19], known to contain what is commonly referred to as the principle of abuse of
rights, sets certain standards which must be observed not only in the exercise of one's rights but also
in the performance of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial
limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19
must be observed. A right, though by itself legal because recognized or granted by law as such,
may nevertheless become the source of some illegality. When a right is exercised in a manner
 which does not conform with the norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the wrongdoer must be held
responsible. But while Article 19 lays down a rule of conduct for the government of human relations
and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an
action for damages under either Article 20 or Article 21 would be proper.

In the context of a credit card relationship, although there is neither a contractual stipulation nor a specific law
requiring the credit card issuer to act on the credit card holders offer within a definite period of time, these principles
provide the standard by which to judge AMEXs actions.

According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused this right when it
unreasonably delayed the processing of the Coster charge purchase, as well as his purchase requests at the Richard
Metz Golf Studio and Kids Unlimited Store; AMEX should have known that its failure to act immediately on charge
referrals would entail inconvenience and result in humiliation, embarrassment, anxiety and distress to its cardholders
who would be required to wait before closing their transactions. [39]

It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of proving bad faith
rests upon the party alleging it.[40] Although it took AMEX some time before it approved Pantaleons three charge
requests, we find no evidence to suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or
acted in a manner that was contrary to morals, good customs or public policy. We give credence to AMEXs claim that
its review procedure was done to ensure Pantaleons own protection as a cardholder and to prevent the possibility that
the credit card was being fraudulently used by a third person.

Pantaleon countered that this review procedure is primarily intended to protect AMEXs interests, to make
sure that the cardholder making the purchase has enough means to pay for the credit extended. Even if this were the
case, however, we do not find any taint of bad faith in such motive. It is but natural for AMEX to want to ensure that
it will extend credit only to people who will have sufficient means to pay for their purchases. AMEX, after all, is
running a business, not a charity, and it would simply be ludicrous to suggest that it would not want to earn profit for
its services. Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts with good faith,
with no intent to cause harm, even if it may occasionally inconvenience others, it cannot be held liable for damages.

We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which, in our opinion,
justified the wait. In Edgardo Jaurigues own words:

Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H, also
Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the request was relayed at 1:33
a.m., can you explain why the approval came after about 46 minutes, more or less?

A21: Because we have to make certain considerations and evaluations of [Pantaleons] past spending
pattern with [AMEX] at that time before approving plaintiffs request because [Pantaleon] was at
 that time making his very first single charge purchase of US$13,826 [this is below the
US$16,112.58 actually billed and paid for by the plaintiff because the difference was already
automatically approved by [AMEX] office in Netherland[s] and the record of [Pantaleons] past
spending with [AMEX] at that time does not favorably support his ability to pay for such
purchase. In fact, if the foregoing internal policy of [AMEX] had been strictly followed, the
transaction would not have been approved at all considering that the past spending pattern of the
plaintiff with [AMEX] at that time does not support his ability to pay for such purchase.[41]

xxxx

Q: Why did it take so long?

A: It took time to review the account on credit, so, if there is any delinquencies [sic] of the
cardmember. There are factors on deciding the charge itself which are standard measures in
approving the authorization. Now in the case of Mr. Pantaleon although his account is single charge
purchase of US$13,826. [sic] this is below the US$16,000. plus actually billed x xx we would have
already declined the charge outright and asked him his bank account to support his charge. But due
to the length of his membership as cardholder we had to make a decision on hand. [42]

As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was because he
had to go over Pantaleons credit card history for the past twelve months.[43] It would certainly be unjust for us to
penalize AMEX for merely exercising its right to review Pantaleons credit history meticulously.

Finally, we said in Garciano v. Court of Appeals that the right to recover [moral damages] under Article 21
is based on equity, and he who comes to court to demand equity, must come with clean hands. Article 21 should be
construed as granting the right to recover damages to injured persons who are not themselves at fault.[44] As will be
discussed below, Pantaleon is not a blameless party in all this.

Pantaleons action was the proximate cause for his injury

Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and humiliation
that he felt when the European tour group had to wait for him and his wife for approximately 35 minutes, and
eventually had to cancel the Amsterdam city tour. After thoroughly reviewing the records of this case, we have come
to the conclusion that Pantaleon is the proximate cause for this embarrassment and humiliation.

As borne by the records, Pantaleon knew even before entering Coster that the tour group would have to leave
the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam before they left the country. After 9:30
a.m., Pantaleons son, who had boarded the bus ahead of his family, returned to the store to inform his family that they
were the only ones not on the bus and that the entire tour group was waiting for them. Significantly, Pantaleon tried
to cancel the sale at 9:40 a.m.because he did not want to cause any inconvenience to the tour group. However,
when Costers sale manager asked him to wait a few more minutes for the credit card approval, he agreed, despite the
knowledge that he had already caused a 10-minute delay and that the city tour could not start without him.
 In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who knowingly and voluntarily exposes
himself to danger cannot claim damages for the resulting injury:

The doctrine of volenti non fit injuria (to which a person assents is not esteemed in law as injury)
refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages by
one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in
doing so.

This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the most basic
rule when travelling in a tour group is that you must never be a cause of any delay because the schedule is very
strict.[46] When Pantaleon made up his mind to push through with his purchase, he must have known that the group
would become annoyed and irritated with him. This was the natural, foreseeable consequence of his decision to make
them all wait.

We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed when they had
to wait for AMEX to approve the Coster purchase in Amsterdam. We have to acknowledge, however, that Pantaleon
was not a helpless victim in this scenario at any time, he could have cancelled the sale so that the group could go on
with the city tour. But he did not.

More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under the
principle of damnum absque injuria, or damages without legal wrong, loss without injury.[47] As we held in BPI
Express Card v. CA:[48]
We do not dispute the findings of the lower court that private respondent suffered damages
as a result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm
which results from the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those instances in which the loss
or harm was not the result of a violation of a legal duty. In such cases, the consequences must
be borne by the injured person alone, the law affords no remedy for damages resulting from an
act which does not amount to a legal injury or wrong. These situations are often called damnum
absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the defendant
owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person
causing it. The underlying basis for the award of tort damages is the premise that an individual
was injured in contemplation of law. Thus, there must first be a breach of some duty and the
imposition of liability for that breach before damages may be awarded; and the breach of such duty
should be the proximate cause of the injury.

Pantaleon is not entitled to damages

 Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the willful
intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.

Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can only be
awarded if a defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. [49] The plaintiff must
also show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question
of whether or not exemplary damages should be awarded.[50]

As previously discussed, it took AMEX some time to approve Pantaleons purchase requests because it had
legitimate concerns on the amount being charged; no malicious intent was ever established here. In the absence of any
other damages, the award of exemplary damages clearly lacks legal basis.

Neither do we find any basis for the award of attorneys fees and costs of litigation. No premium should be
placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees. [51] To be
entitled to attorneys fees and litigation costs, a party must show that he falls under one of the instances enumerated
in Article 2208 of the Civil Code.[52] This, Pantaleon failed to do. Since we eliminated the award of moral and
exemplary damages, so must we delete the award for attorney's fees and litigation expenses.

Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this Resolution and not for
those found in the CA decision.

WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the present
motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs.

SO ORDERED.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

SOLAR HARVEST, INC., G.R. No. 176868

Petitioner,
Present:

CARPIO, J.,
Chairperson,
- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

DAVAO CORRUGATED CARTON CORPORATION,

Respondent. Promulgated:

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

(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.

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.
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.
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.

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 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?
A. I made a phone call.
 Q. You made a phone call to Mr. Tan?
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?
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]

Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my carton.

Q. You dont have any authority yet given to Mr. Tan?

A. None, your Honor.[27]

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

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.
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.