G.R. No. 73345. April 7, 1993.

SOCIAL SECURITY SYSTEM, petitioner,

vs.
MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA
U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as
Register of Deeds for the Province of Cavite, ARTURO SOLITO, in his capacity as Register of
Deeds for Metro Manila District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE
COURT, respondents.

The Solicitor General for petitioner.

K.V. Faylona & Associates for private respondents.

DECISION

CAMPOS, JR., J p:

Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate
Court affirming in toto the decision of the former Court of First Instance of Rizal, Seventh
Judicial District, Branch XXIX, Pasay City.

The facts as found by the Appellate Court are as follows:

"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the
Court of First Instance of Rizal against Moonwalk Development & Housing Corporation,
Moonwalk for short, alleging that the former had committed an error in failing to compute the
12% interest due on delayed payments on the loan of Moonwalk — resulting in a chain of errors
in the application of payments made by Moonwalk and, in an unpaid balance on the principal
loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or
account an unpaid balance on the said penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.

Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to
ascertain the truth but failed to do so.

The trial court set the case for pre-trial at which pre-trial conference, the court issued an order
giving both parties thirty (30) days within which to submit a stipulation of facts.

The Order of October 6, 1980 dismissing the complaint followed the submission by the parties
on September 19, 1980 of the following stipulation of Facts:

"1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim
loan in the amount of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of developing
and constructing a housing project in the provinces of Rizal and Cavite;

"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of
P9,595,000.00 was released to defendant Moonwalk as of November 28, 1973;
"3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D'
providing for restructuring of the payment of the released amount of P9,595,000.00.

"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively,
under paragraph 5 of the aforesaid Third Amended Deed of First Mortgage substituted
Associated Construction and Surveys Corporation, Philippine Model Homes Development
Corporation, Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors;

"5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00,
made to defendant Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note
for TWELVE MILLION TWO HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS
(P12,254,700.00) Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and
Rosita U. Alberto;

"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of
P12,254,700.00 released to it. The last payment made by Moonwalk in the amount of
P15,004,905.74 were based on the Statement of Account, Annex "F" prepared by plaintiff SSS
for defendant;

"7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the
Release of Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and
'H' on October 9, 1979 and October 11, 1979 respectively.

"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another
letter dated December 17, 1979, plaintiff alleged that it committed an honest mistake in
releasing defendant.

"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely
paid its obligations to SSS;

"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O'
inclusive, of the Complaint and the letter dated December 21, 1979 of the defendant's counsel
to the plaintiff are admitted.

"Manila for Pasay City, September 2, 1980." 2

On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that
the obligation was already extinguished by the payment by Moonwalk of its indebtedness to
SSS and by the latter's act of cancelling the real estate mortgages executed in its favor by
defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was
likewise dismissed by the latter.

These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced
the errors assigned by the SSS into this issue: ". . . are defendants-appellees, namely,
Moonwalk Development and Housing Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA
House, Inc. still liable for the unpaid penalties as claimed by plaintiff-appellant or is their
obligation extinguished?" 3 As We have stated earlier, the respondent Court held that
Moonwalk's obligation was extinguished and affirmed the trial court.

Hence, this Petition wherein SSS raises the following grounds for review:
"First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred,"
the appellate court disregarded the basic tenet that waiver of a right must be express, made in a
clear and unequivocal manner. There is no evidence in the case at bar to show that SSS made
a clear, positive waiver of the penalties, made with full knowledge of the circumstances.

Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere
trustee, cannot perform acts affecting the same, including condonation of penalties, that would
diminish property rights of the owners and beneficiaries thereof. (United Christian Missionary
Society v. Social Security Commission, 30 SCRA 982, 988 [1969]).

Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.

Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact."
4

The same problem which confronted the respondent court is presented before Us: Is the penalty
demandable even after the extinguishment of the principal obligation?

The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the
negative. It reasoned, thus:

"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief,
what is sought to be recovered in this case is not the 12% interest on the loan but the 12%
penalty for failure to pay on time the amortization. What is sought to be enforced therefore is the
penal clause of the contract entered into between the parties.

Now, what is a penal clause. A penal clause has been defined as

"an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special presentation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118).

Now an accessory obligation has been defined as that attached to a principal obligation in order
to complete the same or take its place in the case of breach (4 Puig Peña Part 1 p. 76). Note
therefore that an accessory obligation is dependent for its existence on the existence of a
principal obligation. A principal obligation may exist without an accessory obligation but an
accessory obligation cannot exist without a principal obligation. For example, the contract of
mortgage is an accessory obligation to enforce the performance of the main obligation of
indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist
without the indebtedness, which is the principal obligation. In the present case, the principal
obligation is the loan between the parties. The accessory obligation of a penal clause is to
enforce the main obligation of payment of the loan. If therefore the principal obligation does not
exist the penalty being accessory cannot exist.

Now then when is the penalty demandable? A penalty is demandable in case of non
performance or late performance of the main obligation. In other words in order that the penalty
may arise there must be a breach of the obligation either by total or partial non fulfillment or
there is non fulfillment in point of time which is called mora or delay. The debtor therefore
violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay
unless there is a demand. It is noteworthy that in the present case during all the period when the
principal obligation was still subsisting, although there were late amortizations there was no
demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to
the time of the letter of plaintiff-appellant there was no demand for the payment of the penalty,
hence the debtor was no in mora in the payment of the penalty.

However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F)

showing the total obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment
from defendant-appellee. Because of the demand for payment, Moonwalk made several
payments on September 29, October 9 and 19, 1979 respectively, all in all totalling
P15,004,905.74 which was a complete payment of its obligation as stated in Exhibit F. Because
of this payment the obligation of Moonwalk was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by Moonwalk were released on October 9,
1979 and October 10, 1979 (Exhibits G and H). For all purposes therefore the principal
obligation of defendant-appellee was deemed extinguished as well as the accessory obligation
of real estate mortgage; and that is the reason for the release of all the Real Estate Mortgages
on October 9 and 10, 1979 respectively.

Now, besides the Real Estate Mortgages, the penal clause which is also an accessory
obligation must also be deemed extinguished considering that the principal obligation was
considered extinguished, and the penal clause being an accessory obligation. That being the
case, the demand for payment of the penal clause made by plaintiff-appellant in its demand
letter dated November 28, 1979 and its follow up letter dated December 17, 1979 (which
parenthetically are the only demands for payment of the penalties) are therefore ineffective as
there was nothing to demand. It would be otherwise, if the demand for the payment of the
penalty was made prior to the extinguishment of the obligation because then the obligation of
Moonwalk would consist of: 1) the principal obligation 2) the interest of 12% on the principal
obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be in
mora and therefore liable for the penalty.

Let it be emphasized that at the time of the demand made in the letters of November 28, 1979
and December 17, 1979 as far as the penalty is concerned, the defendant-appellee was not in
default since there was no mora prior to the demand. That being the case, therefore, the
demand made after the extinguishment of the principal obligation which carried with it the
extinguishment of the penal clause being merely an accessory obligation, was an exercise in
futility.

3. At the time of the payment made of the full obligation on October 10, 1979 together with the
12% interest by defendant-appellee Moonwalk, its obligation was extinguished. It being
extinguished, there was no more need for the penal clause. Now, it is to be noted that penalty at
anytime can be modified by the Court. Even substantial performance under Art. 1234 authorizes
the Court to consider it as complete performance minus damages. Now, Art, 1229 Civil Code of
the Philippines provides:

"ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable."

If the penalty can be reduced after the principal obligation has been partly or irregularly
complied with by the debtor, which is nonetheless a breach of the obligation, with more reason
the penal clause is not demandable when full obligation has been complied with since in that
case there is no breach of the obligation. In the present case, there has been as yet no demand
for payment of the penalty at the time of the extinguishment of the obligation, hence there was
likewise an extinguishment of the penalty.

Let Us emphasize that the obligation of defendant-appellee was fully complied with by the
debtor, that is, the amount loaned together with the 12% interest has been fully paid by the
appellee. That being so, there is no basis for demanding the penal clause since the obligation
has been extinguished. Here there has been a waiver of the penal clause as it was not
demanded before the full obligation was fully paid and extinguished. Again, emphasis must be
made on the fact that plaintiff-appellant has not lost anything under the contract since in got
back in full the amount loan (sic) as well as the interest thereof. The same thing would have
happened if the obligation was paid on time, for then the penal clause, under the terms of the
contract would not apply. Payment of the penalty does not mean gain or loss of plaintiff-
appellant since it is merely for the purpose of enforcing the performance of the main obligation
has been fully complied with and extinguished, the penal clause has lost its raison d' entre." 5

We find no reason to depart from the appellate court's decision. We, however, advance the
following reasons for the denial of this petition.

Article 1226 of the Civil Code provides:

"Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code." (Emphasis Ours.)

A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It

has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive
force of the obligation by the threat of greater responsibility in the event of breach. 7 From the
foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the
performance of his obligation. Thus, if there should be default, the penalty may be enforced.
One commentator of the Civil Code wrote:

"Now when is the penalty deemed demandable in accordance with the provisions of the Civil
Code? We must make a distinction between a positive and a negative obligation. With regard to
obligations which are positive (to give and to do), the penalty is demandable when the debtor is
in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 8

When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially
or extrajudicially demands from the obligor the performance of the obligation.

"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."

There are only three instances when demand is not necessary to render the obligor in default.
These are the following:
"(1) When the obligation or the law expressly so declares;

(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 the demand would be useless, as when the obligor has rendered it beyond his power
to perform." 9

This case does not fall within any of the established exceptions. Hence, despite the provision in
the promissory note that "(a)ll amortization payments shall be made every first five (5) days of
the calendar month until the principal and interest on the loan or any portion thereof actually
released has been fully paid," 10 petitioner is not excused from making a demand. It has been
established that at the time of payment of the full obligation, private respondent Moonwalk has
long been delinquent in meeting its monthly arrears and in paying the full amount of the loan
itself as the obligation matured sometime in January, 1977. But mere delinquency in payment
does not necessarily mean delay in the legal concept. To be in default ". . . is different from
mere delay in the grammatical sense, because it involves the beginning of a special condition or
status which has its own peculiar effects or results." 11 In order that the debtor may be in default
it is necessary that the following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires
the performance judicially and extrajudicially. 12 Default generally begins from the moment the
creditor demands the performance of the obligation. 13

Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its
monthly amortizations. Neither did it show that petitioner demanded the payment of the
stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the
complaint itself showed was that SSS tried to enforce the obligation sometime in September,
1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this
foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The
next demand for payment happened on October 1, 1979 when SSS issued a Statement of
Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full.
What is clear, therefore, is that Moonwalk was never in default because SSS never compelled
performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon
the entreaties of Moonwalk. If the Statement of Account could properly be considered as
demand for payment, the demand was complied with on time. Hence, no delay occurred and
there was, therefore, no occasion when the penalty became demandable and enforceable.
Since there was no default in the performance of the main obligation — payment of the loan —
SSS was never entitled to recover any penalty, not at the time it made the Statement of Account
and certainly, not after the extinguishment of the principal obligation because then, all the more
that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for
waiver or even mistake in the application for payment because there was nothing for SSS to
waive as its right to enforce the penalty did not arise.

SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds it
held were trust funds and as trustee, the petitioner could not perform acts affecting the funds
that would diminish property rights of the owners and beneficiaries thereof. To support its claim,
SSS cited the case of United Christian Missionary Society v. Social Security Commission. 14
We looked into the case and found out that it is not applicable to the present case as it dealt not
with the right of the SSS to collect penalties which were provided for in contracts which it
entered into but with its right to collect premiums and its duty to collect the penalty for delayed
payment or non-payment of premiums. The Supreme Court, in that case, stated:

"No discretion or alternative is granted respondent Commission in the enforcement of the law's
mandate that the employer who fails to comply with his legal obligation to remit the premiums to
the System within the prescribed period shall pay a penalty of three (3%) per month. The
prescribed penalty is evidently of a punitive character, provided by the legislature to assure that
employers do not take lightly the State's exercise of the police power in the implementation of
the Republic's declared policy "to develop, establish gradually and perfect a social security
system which shall be suitable to the needs of the people throughout the Philippines and (to)
provide protection to employers against the hazards of disability, sickness, old age and death . .
."

Thus, We agree with the decision of the respondent court on the matter which We quote, to wit:

"Note that the above case refers to the condonation of the penalty for the non remittance of the
premium which is provided for by Section 22(a) of the Social Security Act . . . In other words,
what was sought to be condoned was the penalty provided for by law for non remittance of
premium for coverage under the Social Security Act.

The case at bar does not refer to any penalty provided for by law nor does it refer to the non
remittance of premium. The case at bar refers to a contract of loan entered into between plaintiff
and defendant Moonwalk Development and Housing Corporation. Note, therefore, that no
provision of law is involved in this case, nor is there any penalty imposed by law nor a case
about non-remittance of premium required by law. The present case refers to a contract of loan
payable in installments not provided for by law but by agreement of the parties. Therefore, the
ratio decidendi of the case of United Christian Missionary Society vs. Social Security
Commission which plaintiff-appellant relies is not applicable in this case; clearly, the Social
Security Commission, which is a creature of the Social Security Act cannot condone a
mandatory provision of law providing for the payment of premiums and for penalties for non
remittance. The life of the Social Security Act is in the premiums because these are the funds
from which the Social Security Act gets the money for its purposes and the non-remittance of
the premiums is penalized not by the Social Security Commission but by law.

xxx xxx xxx

It is admitted that when a government created corporation enters into a contract with private
party concerning a loan, it descends to the level of a private person. Hence, the rules on
contract applicable to private parties are applicable to it. The argument therefore that the Social
Security Commission cannot waive or condone the penalties which was applied in the United
Christian Missionary Society cannot apply in this case. First, because what was not paid were
installments on a loan but premiums required by law to be paid by the parties covered by the
Social Security Act. Secondly, what is sought to be condoned or waived are penalties not
imposed by law for failure to remit premiums required by law, but a penalty for non payment
provided for by the agreement of the parties in the contract between them . . ." 15

WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the
respondent court is AFFIRMED. LLpr
 [G.R. Nos. 128833. April 20, 1998]

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.

LAO,petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC., respondents.

[G.R. No. 128834. April 20, 1998]

RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs. COURT OF APPEALS,

ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO
TENG KOK and BETTY CHIU SUK YING alias BETTY GO, respondents.

[G.R. No. 128866. April 20, 1998]

MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS, INC. respondent.

D EC I S I O N
MELO, J.:
 The issues relevant to the herein three consolidated petitions revolve around the fire loss
claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance Company,
Inc. (MICO) in connection with the mortgage contracts entered into by and between Rizal
Commercial Banking Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
P74,040,518.58, plus 37% interest per annum commencing July 27, 1992. RCBC was ordered to
pay actual and compensatory damages in the amount of P5,000,000.00. MICO and RCBC were
held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages and P1,500,000.00 for
attorneys fees. GOYUs obligation to RCBC was fixed at P68,785,069.04 as of April 1992, without
any interest, surcharges, and penalties. RCBC and MICO appealed separately but, in view of the
common facts and issues involved, their individual petitions were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun
Bing and Eli D. Lao, recommended GOYUs application for approval by RCBCs executive
committee. A credit facility in the amount of P30 million was initially granted. Upon GOYUs
application and Uys and Laos recommendation, RCBCs executive committee increased GOYUs
credit facility to P50 million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and
two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at
Valenzuela, Metro Manila.Under each of these four mortgage contracts, GOYU committed itself
to insure the mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU (Exhibits 1-Malayan to 9-Malayan).
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured
against. MICO denied the claim on the ground that the insurance policies were either attached
pursuant to writs of attachments/garnishments issued by various courts or that the insurance
proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds
than the insured. GOYU filed a complaint for specific performance and damages which was
docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as
Civil Case No. 93-65442, now subject of the present G.R. No. 128833 and 128866.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of
the insurance policies, but said claims were also denied for the same reasons that MICO denied
GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial
Court of Manila (Branch 3), confirmed that GOYUs other creditors, namely, Urban Bank, Alfredo
Sebastian, and Philippine Trust Company obtained their respective writs of attachments from
various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds
of the ten insurance policies be deposited with the said court minus the aforementioned
P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the amount of
P50,505,594.60 with Branch 3 of the Manila RTC.
 In the meantime, another notice of garnishment was handed down by another Manila RTC
sala (Branch 28) for the amount of P8,696,838.75 (Exhibit 22-Malayan).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation, ordering the
latter as follows:

1. For defendant Malayan Insurance Co., Inc.:

a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the
amount of P50,000,000.00 which is deposited with this Court;

b. To pay the plaintiff damages by way of interest for the duration of the delay since
July 27, 1992 (ninety days after defendant insurers receipt of the required proof
of loss and notice of loss) at the rate of twice the ceiling prescribed by the
Monetary Board, on the following amounts:

1) P50,000,000.00 from July 27, 1992 up to the time said amount was deposited
with this Court on January 7, 1994;

2) P24,040,518.58 from July 27, 1992 up to the time when the writs of attachments
were received by defendant Malayan;

2. For defendant Rizal Commercial Banking Corporation:

a. To pay the plaintiff actual and compensatory damages in the amount of

P2,000,000.00;

3. For both defendants Malayan and RCBC:

a. To pay the plaintiff, jointly and severally, the following amounts:

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorneys fees;

3) Costs of suit.

and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan
obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27,
1992, with interest thereon at the rate stipulated in the respective promissory notes
(without surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C.

FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release
immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court by defendant
Malayan, together with all the interests earned thereon.
 (Record, pp. 478-479.)

From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied
with the amounts awarded in its favor. MICO and RCBC disputed the trial courts findings of liability
on their part. The Court of Appeals partly granted GOYUs appeal, but sustained the findings of
the trial court with respect to MICO and RCBCs liabilities, thusly:

WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as
follows:

1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:

a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the amount of
P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said amount at the rate of thirty-
seven (37%) percent per annum which is twice the ceiling prescribed by the Monetary Board.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:

a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00.

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING

CORPORATION, UY CHUN BING AND ELI D. LAO:

a) To pay the plaintiff jointly and severally the following amounts:

1. P1,500,000.00 as exemplary damages;

2. P1,500,000.00 as and for attorneys fees.

4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any interest,
surcharges and penalties.

The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately
release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited
with it by Malayan Insurance Co., Inc., together with all the interests thereon.

(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking
review and consequent reversal of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376,
which case, by virtue of the Court of Appeals resolution dated August 7, 1996, was consolidated
with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue in said petition is
RCBCs right to intervene in the action between Alfredo C. Sebastian (the creditor) and GOYU
(the debtor), where the subject insurance policies were attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts below in relation to the
pertinent and applicable laws, we find merit in the submissions of RCBC and MICO.
 The several causes of action pursued below by GOYU gave rise to several related issues
which are now submitted in the petitions before us. This Court, however, discerns one primary
and central issue, and this is, whether or not RCBC, as mortgagee, has any right over the
insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the
latter executed several mortgage contracts in favor of RCBC. It was expressly stipulated in these
mortgage contracts that GOYU shall insure the mortgaged property with any of the insurance
companies acceptable to RCBC. GOYU indeed insured the mortgaged property with MICO, an
insurance company acceptable to RCBC. Based on their stipulations in the mortgage contracts,
GOYU was supposed to endorse these insurance policies in favor of, and deliver them, to
RCBC. Alchester Insurance Agency, Inc., MICOs underwriter from whom GOYU obtained the
subject insurance policies, prepared the nine endorsements (see Exh. 1-Malayan to 9-Malayan;
also Exh. 51-RCBC to 59-RCBC), copies of which were delivered to GOYU, RCBC, and
MICO. However, because these endorsements do not bear the signature of any officer of GOYU,
the trial court, as well as the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests
in the same mortgaged property, such that each one of them may insure the same property for
his own sole benefit. There is no question that GOYU could insure the mortgaged property for its
own exclusive benefit. In the present case, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of
justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor of
RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific
insurance policy in favor of any particular beneficiary or payee other than the insured had not
such named payee or beneficiary been specifically disclosed by the insured itself. It is also
significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister
company of RCBC, and not just from any other insurance company. Alchester would not have
found out that the subject pieces of property were mortgaged to RCBC had not such information
been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have
known of GOYUs intention of obtaining insurance coverage in compliance with its undertaking in
the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies to
RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to
rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained
in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable principles and the equities in the
case. It is designed to aid the law in the administration of justice where without its aid injustice
might result. It has been applied by this Court wherever and whenever special circumstances of
a case so demand.

(p. 368.)
 Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr.
Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement documents for
GOYUs nine insurance policies in favor of RCBC. The original copies of each of these nine
endorsement documents were sent to GOYU, and the others were sent to RCBC and MICO, while
the fourth copies were retained for Alchesters file (tsn, February 23, pp. 7-8). GOYU has not
denied having received from Alchester the originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under
the circumstances of the case.GOYU failed to seasonably repudiate the authority of the person
or persons who prepared such endorsements. Over and above this, GOYU continued, in the
meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence
of the loss insured against, it was too late for GOYU to disown the endorsements for any imagined
or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had
not been actually an implied ratification of said endorsements by virtue of GOYUs inaction in this
case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU
to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits
of the credit facilities of RCBC which believed in good faith that there was due endorsement
pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair
dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the
peculiar circumstances obtaining in this case, the Court is bound to recognize RCBCs right to the
proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the
basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose name or for
whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case
presents a justification to take exception to the strict application of said provision, it having been
sufficiently established that it was the intention of the parties to designate RCBC as the party for
whose benefit the insurance policies were taken out. Consider thus the following:

1. It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYUs credit
facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as
mortgagor, undertook to have the mortgaged property properly covered against any loss by an
insurance company acceptable to RCBC.

2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO,
no less than a sister company of RCBC and definitely an acceptable insurance company to
RCBC.

3. Endorsement documents were prepared by MICOs underwriter, Alchester Insurance Agency,

Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of
late, the validity of said endorsements.

4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities
extended by RCBC which was conditioned upon the endorsement of the insurance policies to
be taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence of its written conformity thereto,
obviously considered said endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities
and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to
constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The
intention of the parties will have to be given full force and effect in this particular case.The
insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual
circumstances of the case, is truly the person or entity for whose benefit the policies were clearly
intended.
Moreover, the laws evident intention to protect the interests of the mortgagee upon the
mortgaged property is expressed in Article 2127 of the Civil Code which states:

ART. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and
limitations established by law, whether the estate remains in the possession of the mortgagor,
or it passes into the hands of a third person.

Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8
of them appear to have been subject of the endorsements prepared and delivered by Alchester
for and upon instructions of GOYU as shown below:

INSURANCE POLICY PARTICULARS ENDORSEMENT

a. Policy Number : F-114-07795 None

Issue Date : March 18, 1992

Expiry Date : April 5, 1993

Amount : P9,646,224.92

b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan

Issue Date : January 18, 1992

Expiry Date : February 9, 1993

Amount : P4,307,217.54

c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan

Issue Date : January 18, 1992

Expiry Date : February 15, 1993

Amount : P6,603,586.43

d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan

Issue Date : January 18, 1992

Expiry Date : (not legible)

Amount : P6,603,586.43

e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan

Issue Date : January 18, 1992

Expiry Date : February 9, 1993

Amount : P9,457,972.76

f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan

Issue Date : January 13, 1992

Expiry Date : January 13, 1993

Amount : P24,750,000.00

g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan

Issue Date : May 29, 1991

Expiry Date : June 27, 1992

Amount : P6,000,000.00

h. Policy Number : CI/F-128-03341 None

Issue Date : May 3, 1991

Expiry Date : May 3, 1992

Amount : P10,000,000.00

i. Policy Number : F-114-07402 Exhibit 8-Malayan

Issue Date : September 16, 1991

Expiry Date : October 19, 1992

Amount : P32,252,125.20

j. Policy Number : F-114-07525 Exhibit 9-Malayan

Issue Date : November 20, 1991

Expiry Date : December 5, 1992

Amount : P6,603,586.43

(pp. 456-457, Record; Folder of Exhibits for MICO.)

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by
MICOs witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows no
endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the endorsement
documents, Exhibit 5-Malayan, refers to a certain insurance policy number ACIA-F-07066, which
is not among the insurance policies involved in the complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by Alchester
to RCBC, which we already ruled to have the force and effect of an endorsement by GOYU itself,
these 8 policies can not be attached by GOYUs other creditors up to the extent of the GOYUs
outstanding obligation in RCBCs favor. Section 53 of the Insurance Code ordains that the
insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of
the person for whose benefit it was made. In this case, to the extent of GOYUs obligation with
RCBC, the interest of GOYU in the subject policies had been transferred to RCBC effective as of
the time of the endorsement. These policies may no longer be attached by the other creditors of
GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless forthwith
be dismissed for being moot and academic in view of the results reached herein. Only the two
other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon
by GOYUs other creditors. To the extent of GOYUs outstanding obligation with RCBC, all the rest
of the other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be
released from attachment, garnishment, and levy by the other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the extent of GOYUs
outstanding obligation with RCBC which the proceeds of the 8 insurance policies will discharge
and liquidate, or put differently, the actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that GOYUS
total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the trial
courts exclusion of Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and
Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground that their
execution is highly questionable for not only are these dated after the fire, but also because the
signatures of either GOYU or any its representative are conspicuously absent. Accordingly, the
Court of Appeals speculated thusly:

Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff
in blank terms, as averred by plaintiff, in contemplation of the speedy grant of future loans, for
the same practice of procedure has always been adopted in its previous dealings with the bank.

(Rollo, pp. 181-182.)

The fact that the promissory notes bear dates posterior to the fire does not necessarily mean
that the documents are spurious, for it is presumed that the ordinary course of business had been
followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA 486
[1993]). The obligor and not the holder of the negotiable instrument has the burden of proof of
showing that he no longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals,
210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private transactions, receipt of the loan
amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the
testimony of Go Song Hiap when he answered the queries of the trial court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the amounts
stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I asked which is correct,
Your Honor.
COURT
 Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all the proceeds of the 29
promissory notes as hereinabove quoted, GOYU also offered and admitted to RCBC that its
obligation be fixed at P116,301,992.60 as shown in its letter dated March 9, 1993, which
pertinently reads:

We wish to inform you, therefore that we are ready and willing to pay the current past due
account of this company in the amount of P116,301,992.60 as of 21 January 1993, specified in
pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the Urban case at
Makati, Metro Manila and in the Zamboanga case at Zamboanga city, respectively, less the total
of P8,851,519.71 paid from the Seaboard and Equitable insurance companies and other
legitimate deductions. We accept and confirm this amount of P116,301,992.60 as stated as true
and correct.

(Exhibit BB.)

The Court of Appeals erred in placing much significance on the fact that the excluded
promissory notes are dated after the fire. It failed to consider that said notes had for their origin
transactions consummated prior to the fire. Thus, careful attention must be paid to the fact that
Promissory Notes No. 420-92 and 421-92 are mere renewals of Promissory Notes No. 908-91
and 952-91, loans already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they ruled should
be excluded for bearing dates which are after that of the fire, are mere renewals of previous
ones. The proceeds of the loan represented by these promissory notes were admittedly received
by GOYU. There is ample factual and legal basis for giving GOYUs judicial admission of liability
in the amount of P116,301,992.60 full force and effect
It should, however, be quickly added that whatever amount RCBC may have recovered from
the other insurers of the mortgaged property will, nonetheless, have to be applied as payment
against GOYUs obligation.But, contrary to the lower courts findings, payments effected by GOYU
prior to January 21, 1993 should no longer be deducted. Such payments had obviously been duly
considered by GOYU, in its aforequoted letter dated March 9, 1993, wherein it admitted that its
past due account totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of
January 21, 1993, to wit:

Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60

Broken down as follows

Principal[1] Interest

Regular 80,535,946.32

FDU 7,548,025.17
____________ _____________

Total: 108,083,971.49 8,218,021.11[2]

LESS:

1) Proceeds from

Seaboard Eastern

Insurance Company: 6,095,145.81

2) Proceeds from

Equitable Insurance

Company: 2,756,373.00

3) Payment from

foreign department

negotiation: 203,584.89

9,055,104.70[3]

NET AMOUNT as of January 21, 1993: P 107,246,887.90

The need for the payment of interest due upon the principal amount of the obligation, which
is the cost of money to RCBC, the primary end and the ultimate reason for RCBCs existence and
being, was duly recognized by the trial court when it ruled favorably on RCBCs counterclaim,
ordering GOYU to pay its loan obligation with RCBC in the amount of P68,785,069.04, as of April
27,1992, with interest thereon at the rate stipulated in the respective promissory notes (without
surcharges and penalties) per computation, pp. 14-A, 14-B, 14-C (Record, p. 479). Inexplicably,
the Court of Appeals, without even laying down the factual or legal justification for its ruling,
modified the trial courts ruling and ordered GOYU to pay the principal amount of
P68,785,069.04 without any interest, surcharges and penalties (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much uncertainty
deleted the payment of additional interest, penalties, and charges, in this manner:

Regarding defendant RCBCs commitment not to charge additional interest, penalties

and surcharges, the same does not require that it be embodied in a document or some form of
writing to be binding and enforceable. The principle is well known that generally a verbal
agreement or contract is no less binding and effective than a written one. And the existence of
such a verbal agreement has been amply established by the evidence in this case. In any event,
regardless of the existence of such verbal agreement, it would still be unjust and inequitable for
defendant RCBC to charge the plaintiff with surcharges and penalties considering the latters
pitiful situation. (Emphasis supplied.)
 (Record, p. 476)

The essence or rationale for the payment of interest or cost of money is separate and distinct
from that of surcharges and penalties. What may justify a court in not allowing the creditor to
charge surcharges and penalties despite express stipulation therefor in a valid agreement, may
not equally justify non-payment of interest. The charging of interest for loans forms a very
essential and fundamental element of the banking business, which may truly be considered to be
at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it
will not charge any interest at all. We fail to find justification for the Court of Appeals outright
deletion of the payment of interest as agreed upon in the respective promissory notes. This
constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules of thumb laid
down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]),
shall apply, to wit:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable
damages.

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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date of the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.

(pp. 95-97.)
 There being written stipulations as to the rate of interest owing on each specific promissory
note as summarized and tabulated by the trial court in its decision (pp.470 and 471, Record) such
agreed interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1
quoted above.
On the issue of payment of surcharges and penalties, we partly agree that GOYUs pitiful
situation must be taken into account. We do not agree, however, that payment of any amount as
surcharges and penalties should altogether be deleted. Even assuming that RCBC, through its
responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its assurance
for assistance to GOYU immediately after the occurrence of the fire, we cannot accept the lower
courts finding that RCBC had thereby ipso facto effectively waived collection of any additional
interests, surcharges, and penalties from GOYU. Assurances of assistance are one thing, but
waiver of additional interests, surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default partake of the
nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article
2227 thereof provides:

ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably
reduced if they are iniquitous and unconscionable.

In exercising this vested power to determine what is iniquitous and unconscionable, the Court
must consider the circumstances of each case. It should be stressed that the Court will not make
any sweeping ruling that surcharges and penalties imposed by banks for non-payment of the
loans extended by them are generally iniquitous and unconscionable. What may be iniquitous
and unconscionable in one case, may be totally just and equitable in another. This provision of
law will have to be applied to the established facts of any given case. Given the circumstances
under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges
rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely
iniquitous and unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYUs offer to pay the amount of P116,301,992.60 to
RCBC as March 1993 (See: Exhibit BB), which RCBC refused, we find it more in keeping with
justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that
time onward.
Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in
damages for denying or withholding the proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance
policies, RCBC has the right to claim the insurance proceeds, in substitution of the property lost
in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said
insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent
(Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally agreed, however,
that an insurer may in good faith and honesty entertain a difference of opinion as to its
liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should
not be inflicted unless the evidence and circumstances show that such refusal was willful and
without reasonable cause as the facts appear to a reasonable and prudent man (Buffalo Ins. Co.
vs. Bommarito[CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28
SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR
189). The case at bar does not show that MICO wantonly and in bad faith delayed the release of
the proceeds. The problem in the determination of who is the actual beneficiary of the insurance
policies, aggravated by the claim of various creditors who wanted to partake of the insurance
proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now
borne out by the outcome herein, justified MICO in withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot
avail itself of two simultaneous remedies in enforcing the claim of an unpaid creditor, one for
specific performance and the other for foreclosure. In doing so, said the appellate court, the
second action is deemed barred, RCBC having split a single cause of action (Rollo, pp. 195-
199). The Court of Appeals was too accommodating in giving due consideration to this argument
of GOYU, for the foreclosure suit is still pending appeal before the same Court of Appeals in CA
G.R CV No. 46247, the case having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of
Appeals pre-empted the resolution of said foreclosure case which is not before it. This is plain
reversible error if not grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):

It should have been enough, nonetheless, for the appellate court to merely set aside the
questioned orders of the trial court for having been issued by the latter with grave abuse of
discretion. In likewise enjoining permanently herein petitioner from entering in and interfering
with the use or occupation and enjoyment of petitioners (now private respondent) residential
house and compound, the appellate court in effect, precipitately resolved with finality the case
for injunction that was yet to be heard on the merits by the lower court. Elevated to the appellate
court, it might be stressed, were mere incidents of the principal case still pending with the trial
court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the
Court of Appeals would have no jurisdiction in a certiorari proceeding involving an incident in a
case to rule on the merits of the main case itself which was not on appeal before it.

(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional
Trial Court, since it has been determined that RCBC has the right to the insurance proceeds, the
subject matter of intervention is rendered moot and academic. Respondent Sebastian must,
however, yield to the preferential right of RCBC over the MICO insurance policies. It is basic and
fundamental that the first mortgagee has superior rights over junior mortgagees or attaching
creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance
Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET
ASIDE, and a new one entered:

1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before
Branch 3 of the Manila Regional Trial Court for lack of merit;

2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking

Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per report
of adjuster Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests
earned to Rizal Commercial Banking Corporation;

4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective rates
stipulated in each promissory note from January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus
payments made by Malayan Insurance Company, Inc. and the proceeds of the amount
deposited with the trial court and its earned interest. The total amount due RCBC at the time of
the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other
stipulated interests and charges until fully paid.

The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-
GR CV 48376 is DISMISSED for being moot and academic in view of the results herein arrived
at. Respondent Sebastians right as attaching creditor must yield to the preferential rights of Rizal
Commercial Banking Corporation over the Malayan insurance policies as first mortgagee.
 [G.R. No. 115129. February 12, 1997]

IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO

ALVIAR, respondents.

DECISION
BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the
nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain
and suffering. Forewarned by her attending physicians of her impending death, she expressed
her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over
her remains while the whole of Christendom celebrate the Nativity of their Redeemer.
Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing
the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-
fourth of December in obedience semper fidelis to her dying wish. But her final entreaty,
unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith
gave him and his family their gloomiest Christmas ever.
This is Barzaga's story. On 21 December 1990, at about three o`clock in the afternoon, he
went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain
materials to be used in the construction of a niche for his wife. He also asked if the materials could
be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if
the store had pending deliveries that afternoon because if there were then all subsequent
purchases would have to be delivered the following day. With that reply petitioner left.
At seven o' clock the following morning, 22 December, Barzaga returned to Alviar's hardware
store to follow up his purchase of construction materials. He told the store employees that the
materials he was buying would have to be delivered at the Memorial Cemetery in Dasmarias,
Cavite, by eight o'clock that morning since his hired workers were already at the burial site and
time was of the essence. Marina Boncales agreed to deliver the items at the designated time,
date and place. With this assurance, Barzaga purchased the materials and paid in full the amount
of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a kilometer away,
to await the delivery.
The construction materials did not arrive at eight o'clock as promised. At nine o' clock, the
delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the
delay. Boncales assured him that although the delivery truck was not yet around it had already
left the garage and that as soon as it arrived the materials would be brought over to the cemetery
in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and
wait for the materials.
By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to
inquire about the materials. But he received the same answer from respondent's employees who
even cajoled him to go back to the burial place as they would just follow with his construction
materials.
After hours of waiting - which seemed interminable to him - Barzaga became extremely
upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which
was just nearby, and lodged a complaint against Alviar. He had his complaint entered in the police
blotter. When he returned again to the store he saw the delivery truck already there but the
materials he purchased were not yet ready for loading. Distressed that Alviar's employees were
not the least concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction
with the store and look for construction materials elsewhere.
In the afternoon of that day, petitioner was able to buy from another store. But since darkness
was already setting in and his workers had left, he made up his mind to start his project the
following morning, 23 December.But he knew that the niche would not be finish in time for the
scheduled burial the following day. His laborers had to take a break on Christmas Day and they
could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon
and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind
schedule.
On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga
wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar did
not respond. Consequently, petitioner sued him before the Regional Trial Court.[1]
Resisting petitioner's claim, private respondent contended that legal delay could not be validly
ascribed to him because no specific time of delivery was agreed upon between them. He pointed
out that the invoices evidencing the sale did not contain any stipulation as to the exact time
of delivery and that assuming that the materials were not delivered within the period desired by
petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the
materials. Besides, his men were ready to make the delivery by ten-thirty in the morning of 22
December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal
of petitioner to accept delivery that caused the delay in the construction of the niche and the
consequent failure of the family to inter their loved one on the twenty-fourth of December, and
that, if at all, it was petitioner and no other who brought about all his personal woes.
Upholding the proposition that respondent incurred in delay in the delivery of the construction
materials resulting in undue prejudice to petitioner, the trial court ordered respondent Alviar to pay
petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum
computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate
damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and
(e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the lower court and ruled that there was
no contractual commitment as to the exact time of delivery since this was not indicated in the
invoice receipts covering the sale.[2]
The arrangement to deliver the materials merely implied that delivery should be made within
a reasonable time but that the conclusion that since petitioner's workers were already at the
graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of
Appeals also held that assuming that there was delay, petitioner still had sufficient time to
construct the tomb and hold his wife's burial as she wished.
We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent
Angelito Alviar was negligent and incurred in delay in the performance of his contractual
obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage
he suffered as a consequence of delay or a contractual breach. The law expressly provides that
those who in the performance of their obligation are guilty of fraud, negligence, or delay and those
who in any manner contravene the tenor thereof, are liable for damages.[3]
Contrary to the appellate court's factual determination, there was a specific time agreed upon
for the delivery of the materials to the cemetery. Petitioner went to private respondent's store on
21 December precisely to inquire if the materials he intended to purchase could be delivered
immediately. But he was told by the storekeeper that if there were still deliveries to be made that
afternoon his order would be delivered the following day. With this in mind Barzaga decided to
buy the construction materials the following morning after he was assured of immediate delivery
according to his time frame. The argument that the invoices never indicated a specific delivery
time must fall in the face of the positive verbal commitment of respondent's
storekeeper.Consequently it was no longer necessary to indicate in the invoices the exact time
the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted
that it was her custom not to indicate the time of delivery whenever she prepared invoices.[4]
Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the
delivery of petitioner's purchases. He maintains that Barzaga should have allowed his delivery
men a little more time to bring the construction materials over to the cemetery since a few hours
more would not really matter and considering that his truck had a flat tire. Besides, according to
him, Barzaga still had sufficient time to build the tomb for his wife.
This is a gratuitous assertion that borders on callousness. Private respondent had no right to
manipulate petitioner's timetable and substitute it with his own. Petitioner had a deadline to
meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to
attend to other pressing family concerns. Despite this, respondent's employees still made light of
his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " x x x
they (respondent's employees) were making a fool out of me."[5]
We also find unacceptable respondent's justification that his truck had a flat tire, for this event,
if indeed it happened, was forseeable according to the trial court, and as such should have been
reasonably guarded against. The nature of private respondent's business requires that he should
be ready at all times to meet contingencies of this kind. One piece of testimony by respondent's
witness Marina Boncales has caught our attention - that the delivery truck arrived a little late than
usual because it came from a delivery of materials in Langcaan, Dasmarias,
Cavite.[6] Significantly, this information was withheld by Boncales from petitioner when the latter
was negotiating with her for the purchase of construction materials. Consequently, it is not
unreasonable to suppose that had she told petitioner of this fact and that the delivery of the
materials would consequently be delayed, petitioner would not have bought the materials
from respondent's hardware store but elsewhere which could meet his time requirement. The
deliberate suppression of this information by itself manifests a certain degree of bad faith on the
part of respondent's storekeeper.
The appellate court appears to have belittled petitioner's submission that under the prevailing
circumstances time was of the essence in the delivery of the materials to the grave site. However,
we find petitioner's assertion to be anchored on solid ground. The niche had to be constructed at
the very least on the twenty-second of December considering that it would take about two (2)
days to finish the job if the interment was to take place on the twenty-fourth of the
month. Respondent's delay in the delivery of the construction materials wasted so much time that
construction of the tomb could start only on the twenty-third. It could not be ready for the
scheduled burial of petitioner's wife. This undoubtedly prolonged the wake, in addition to the fact
that work at the cemetery had to be put off on Christmas day.
This case is clearly one of non-performance of a reciprocal obligation.[7] In their contract of
purchase and sale, petitioner had already complied fully with what was required of him as
purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon
respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach.
 We therefore sustain the award of moral damages. It cannot be denied that petitioner and his
family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on
Christmas day over the remains of their loved one who could not be laid to rest on the date she
herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga
and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad
faith of respondent and his employees in the performance of an obligation voluntarily entered into.
We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of
the employees of respondent over which he exercised supervisory authority indicates gross
negligence in the fulfillment of his business obligations. Respondent Alviar and his employees
should have exercised fairness and good judgment in dealing with petitioner who was then
grieving over the loss of his wife. Instead of commiserating with him, respondent and his
employees contributed to petitioner's anguish by causing him to bear the agony resulting from his
inability to fulfill his wife's dying wish.
We delete however the award of temperate damages. Under Art. 2224 of the Civil Code,
temperate damages are more than nominal but less than compensatory, and may be recovered
when the court finds that some pecuniary loss has been suffered but the amount cannot, from the
nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered
damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred
during the extra two (2) days of the wake. The record however does not show that petitioner
presented proof of the actual amount of expenses he incurred which seems to be the reason the
trial court awarded to him temperate damages instead. This is an erroneous application of the
concept of temperate damages. While petitioner may have indeed suffered pecuniary losses,
these by their very nature could be established with certainty by means of payment receipts. As
such, the claim falls unequivocally within the realm of actual or compensatory
damages. Petitioner's failure to prove actual expenditure consequently conduces to a failure of
his claim. For in determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and on the best
evidence obtainable regarding the actual amount of loss.[8]
We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's
fees and litigation costs is left to the sound discretion of the court, and if such discretion be well
exercised, as in this case, it will not be disturbed on appeal.[9]
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except
insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the
amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except for
the award of P5,000.00 as temperate damages which we delete, the decision of the Regional
Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest
computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as
moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses;
and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs.
SO ORDERED.
 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 letter7 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.