SECOND DIVISION

[ G.R. No. 125536, March 16, 2000 ]

PRUDENTIAL BANK, PETITIONER, VS. COURT OF APPEALS AND LETICIA TUPASI-VALENZUELA JOINED BY
HUSBAND FRANCISCO VALENZUELA, RESPONDENTS.

DECISION

QUISUMBING, J.:

This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision
dated January 31, 1996, and the Resolution dated July 2, 1997, of the Court of Appeals in CA G.R. CV No.
35532, which reversed the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch
171, in Civil Case No. 2913-V-88, dismissing the private respondent's complaint for damages. [1]

In setting aside the trial court's decision, the Court of Appeals disposed as follows:

"WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and, another rendered ordering
the appellee bank to pay appellant the sum of P100,000.00 by way of moral damages; P50,000.00 by
way of exemplary damages, P50,000.00 for and as attorney's fees; and to pay the costs.

SO ORDERED."[2]

The facts of the case on record are as follows:

Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and Current Account
No. 01016-3 in the Valenzuela Branch of petitioner Prudential Bank, with automatic transfer of funds
from the savings account to the current account.

On June 1, 1988, herein private respondent deposited in her savings account Check No. 666B (104561 of
even date) the amount of P35,271.60, drawn against the Philippine Commercial International Bank
(PCIB). Taking into account that deposit and a series of withdrawals, private respondent as of June 21,
1988 had a balance of P35,993.48 in her savings account and P776.93 in her current account, or total
deposits of P36,770.41, with petitioner.

Thereafter, private respondent issued Prudential Bank Check No. 983395 in the amount of P11,500.00
post-dated June 20, 1988, in favor of one Belen Legaspi. It was issued to Legaspi as payment for jewelry
which private respondent had purchased. Legaspi, who was in jewelry trade, endorsed the check to one
Philip Lhuillier, a businessman also in the jewelry business. When Lhuillier deposited the check in his
account with the PCIB, Pasay Branch, it was dishonored for being drawn against insufficient funds.
Lhuillier's secretary informed the secretary of Legaspi of the dishonor. The latter told the former to
redeposit the check. Legaspi's secretary tried to contact private respondent but to no avail.

Upon her return from the province, private respondent was surprised to learn of the dishonor of the
check. She went to the Valenzuela Branch of Prudential Bank on July 4, 1988, to inquire why her check
was dishonored. She approached one Albert Angeles Reyes, the officer in charge of current account, and
requested him for the ledger of her current account. Private respondent discovered a debit of P300.00
penalty for the dishonor of her Prudential Check No. 983395. She asked why her check was dishonored
when there were sufficient funds in her account as reflected in her passbook. Reyes told her that there
was no need to review the passbook because the bank ledger was the best proof that she did not have
sufficient funds. Then, he abruptly faced his typewriter and started typing.

Later, it was found out that the check in the amount of P35,271.60 deposited by private respondent on
June 1, 1988, was credited in her savings account only on June 24, 1988, or after a period of 23 days.
Thus the P11,500.00 check was redeposited by Lhuillier on June 24, 1988, and properly cleared on June
27, 1988.

Because of this incident, the bank tried to mollify private respondent by explaining to Legaspi and
Lhuillier that the bank was at fault. Since this was not the first incident private respondent had
experienced with the bank, private respondent was unmoved by the bank's apologies and she
commenced the present suit for damages before the RTC of Valenzuela.

After trial, the court rendered a decision on August 30, 1991, dismissing the complaint of private
respondent, as well as the counterclaim filed by the defendant, now petitioner.

Undeterred, private respondent appealed to the Court of Appeals. On January 31, 1996, respondent
appellate court rendered a decision in her favor, setting aside the trial court's decision and ordering
herein petitioner to pay private respondent the sum of P100,000.00 by way of moral damages;
P50,000.00 exemplary damages; P50,000.00 for and as attorney's fees; and to pay the costs. [3]

Petitioner filed a timely motion for reconsideration but it was denied. Hence, this petition, raising the
following issues:

I. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DEVIATING FROM ESTABLISHED
JURISPRUDENCE IN REVERSING THE DISMISSAL JUDGMENT OF THE TRIAL COURT AND INSTEAD
AWARDED MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S FEES.

II. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHERE, EVEN IN THE ABSENCE OF
EVIDENCE AS FOUND BY THE TRIAL COURT, AWARDED MORAL DAMAGES IN THE AMOUNT OF
P100,000.00.
 III. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION, WHERE, EVEN IN THE ABSENCE OF
EVIDENCE AS FOUND BY THE TRIAL COURT, AWARDED P50,000.00 BY WAY OF EXEMPLARY
DAMAGES.

IV. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION WHERE EVEN IN THE ABSENCE OF EVIDENCE, AWARDED ATTORNEY'S FEES.

Simply stated, the issue is whether the respondent court erred and gravely abused its discretion in
awarding moral and exemplary damages and attorney's fees to be paid by petitioner to private
respondent.

Petitioner claims that generally the factual findings of the lower courts are final and binding upon this
Court. However, there are exceptions to this rule. One is where the trial court and the Court of Appeals
had arrived at diverse factual findings. [4] Petitioner faults the respondent court from deviating from the
basic rule that finding of facts by the trial court is entitled to great weight, because the trial court had
the opportunity to observe the deportment of witness and the evaluation of evidence presented during
the trial. Petitioner contends that the appellate court gravely abused its discretion when it awarded
damages to the plaintiff, even in the face of lack of evidence to prove such damages, as found by the
trial court.

Firstly, petitioner questions the award of moral damages. It claims that private respondent did not suffer
any damage upon the dishonor of the check. Petitioner avers it acted in good faith. It was an honest
mistake on its part, according to petitioner, when misposting of private respondent's deposit on June 1,
1988, happened. Further, petitioner contends that private respondent may not "claim" damages
because the petitioner's manager and other employee had profusely apologized to private respondent
for the error. They offered to make restitution and apology to the payee of the check, Legaspi, as well as
the alleged endorsee, Lhuillier. Regrettably, it was private respondent who declined the offer and
allegedly said, that there was nothing more to it, and that the matter had been put to rest. [5]

Admittedly, as found by both the respondent appellate court and the trial court, petitioner bank had
committed a mistake. It misposted private respondent's check deposit to another account and delayed
the posting of the same to the proper account of the private respondent. The mistake resulted to the
dishonor of the private respondent's check. The trial court found "that the misposting of plaintiff's check
deposit to another account and the delayed posting of the same to the account of the plaintiff is a clear
proof of lack of supervision on the part of the defendant bank."[6] Similarly, the appellate court also
found that "while it may be true that the bank's negligence in dishonoring the properly funded check of
appellant might not have been attended with malice and bad faith, as appellee [bank] submits,
nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged
in so sensitive and accurately demanding task as banking." [7]

In Simex International (Manila), Inc, vs. Court of Appeals, 183 SCRA 360, 367 (1990), and Bank of
Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had occasion to stress the
fiduciary nature of the relationship between a bank and its depositors and the extent of diligence
expected of the former in handling the accounts entrusted to its care, thus:

"In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs. A blunder on the part of bank,
such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment
if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions,
the bank is under obligation to treat the account of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. x x x"

In the recent case of Philippine National Bank vs. Court of Appeals,[8]  we held that "a bank is under
obligation to treat the accounts of its depositors with meticulous care whether such account consists
only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While petitioner's negligence in this case may
not have been attended with malice and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation". Hence we ruled that the offended party in said case was entitled to
recover reasonable moral damages.

Even if malice or bad faith was not sufficiently proved in the instant case, the fact remains that
petitioner has committed a serious mistake. It dishonored the check issued by the private respondent
who turned out to have sufficient funds with petitioner. The bank's negligence was the result of lack of
due care and caution required of managers and employees of a firm engaged in so sensitive and
demanding business as banking. Accordingly, the award of moral damages by the respondent Court of
Appeals could not be said to be in error nor in grave abuse of its discretion.

There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages
since each case must be governed by its own peculiar facts. The yardstick should be that it is not
palpably and scandalously excessive. In our view, the award of P100,000.00 is reasonable, considering
the reputation and social standing of private respondent Leticia T. Valenzuela.[9]

The law allows the grant of exemplary damages by way of example for the public good. [10] The public
relies on the banks' sworn profession of diligence and meticulousness in giving irreproachable service.
The level of meticulousness must be maintained at all times by the banking sector. Hence, the Court of
Appeals did not err in awarding exemplary damages. In our view, however, the reduced amount of
P20,000.00 is more appropriate.
The award of attorney's fees is also proper when exemplary damages are awarded and since private
respondent was compelled to engage the services of a lawyer and incurred expenses to protect her
interest.[11] The standards in fixing attorney's fees are: (1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the nature and importance of the litigation and
business in which the services were rendered; (4) the responsibility imposed; (5) the amount of money
and the value of the property affected by the controversy or involved in the employment; (6) the skill
and the experience called for in the performance of the services; (7) the professional character and the
social standing of the attorney; (8) the results secured, it being a recognized rule that an attorney may
properly charge a much larger fee when it is contingent than when it is not. [12] In this case, all the
aforementioned weighed, and considering that the amount involved in the controversy is only
P36,770.41, the total deposit of private respondent which was misposted by the bank, we find the
award of respondent court of P50,000.00 for attorney's fees, excessive and reduce the same to
P30,000.00.

WHEREFORE, the assailed DECISION of the Court of Appeals is hereby AFFIRMED, with MODIFICATION.
The petitioner is ordered to pay P100,000.00 by way of moral damages in favor of private respondent
Leticia T. Valenzuela. It is further ordered to pay her exemplary damages in the amount of P20,000.00
and P30,000.00, attorney's fees.

Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena,  and  De Leon, Jr., JJ.,  concur.

FIRST DIVISION

[ G.R. No. 191636, January 16, 2017 ]

PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE ISLANDS), PETITIONER, VS. RONALD RAPANOT
AND HOUSING & LAND USE REGULATORY BOARD, RESPONDENTS.

DECISION

CAGUIOA, J:

Only questions of law may be raised in petitions for review on certiorari brought before this Court under
Rule 45, since this Court is not a trier of facts. While there are recognized exceptions which warrant
review of factual findings, mere assertion of these exceptions does not suffice. It is incumbent upon the
party seeking review to overcome the burden of demonstrating that review is justified under the
circumstances prevailing in his case.

The Case

Before the Court is an Appeal by Certiorari[1] under Rule 45 of the Rules of Court (Petition) of the
Decision[2] dated November 18, 2009 (questioned Decision) rendered by the Court of Appeals - Seventh
Division (CA). The questioned Decision stems from a complaint filed by herein private respondent
Ronald Rapanot (Rapanot) against Golden Dragon Real Estate Corporation (Golden Dragon), Golden
Dragon's President Ma. Victoria M. Vazquez[3] and herein petitioner, Bank of the Philippine Islands,
formerly known as Prudential Bank[4] (Bank) for Specific Performance and Damages (Complaint) before
the Housing and Land Use Regulatory Board (HLURB). [5]

The Petition seeks to reverse the questioned Decision insofar as it found that the Bank (i) was not
deprived of due process when the Housing and Land Use Arbiter (Arbiter) issued his Decision dated July
3, 2002 without awaiting submission of the Bank's position paper and draft decision, and (ii) cannot be
deemed a mortgagee in good faith with respect to Unit 2308-B2 mortgaged by Golden Dragon in its
favor as collateral.[5-a]

The Facts

Golden Dragon is the developer of Wack-Wack Twin Towers Condominium, located in Mandaluyong
City. On May 9, 1995, Rapanot paid Golden Dragon the amount ofP453,329.64 as reservation fee for a
41.1050-square meter unit in said condominium, particularly designated as Unit 2308-B2,[6] and covered
by Condominium Certificate of Title (CCT) No. 2383 in the name of Golden Dragon. [7]

On September 13, 1995, the Bank extended a loan to Golden Dragon amounting to P50,000,000.00 [8] to
be utilized by the latter as additional working capital.[9] To secure the loan, Golden Dragon executed a
Mortgage Agreement in favor of the Bank, which had the effect of constituting a real estate mortgage
over several condominium units owned and registered under Golden Dragon's name. Among the units
subject of the Mortgage Agreement was Unit 2308-B2.[10] The mortgage was annotated on CCT No. 2383
on September 13, 1995.[11]

On May 21, 1996, Rapanot and Golden Dragon entered into a Contract to Sell covering Unit 2308-B2. On
April 23, 1997, Rapanot completed payment of the full purchase price of said unit amounting to
P1,511,098.97.[12] Golden Dragon executed a Deed of Absolute Sale in favor of Rapanot of the same
date.[13] Thereafter, Rapanot made several verbal demands for the delivery of Unit 2308-B2.[14]

Prompted by Rapanot's verbal demands, Golden Dragon sent a letter to the Bank dated March 17, 1998,
requesting for a substitution of collateral for the purpose of replacing Unit 2308-B2 with another unit
with the same area. However, the Bank denied Golden Dragon's request due to the latter's unpaid
accounts.[15] Because of this, Golden Dragon failed to comply with Rapanot's verbal demands.

Thereafter, Rapanot, through his counsel, sent several demand letters to Golden Dragon and the Bank,
formally demanding the delivery of Unit 2308-B2 and its corresponding CCT No. 2383, free from all liens
and encumbrances.[16] Neither Golden Dragon nor the Bank complied with Rapanot's written demands.
[17]

Proceedings before the HLURB

On April 27, 2001, Rapanot filed a Complaint with the Expanded National Capital Region Field Office of
the HLURB.[18] The Field Office then scheduled the preliminary hearing and held several conferences with
a view of arriving at an amicable settlement. However, no settlement was reached. [19]

Despite service of summons to all the defendants named in the Complaint, only the Bank filed its
Answer.[20] Thus, on April 5, 2002, the Arbiter issued an order declaring Golden Dragon and its President
Maria Victoria Vazquez in default, and directing Rapanot and the Bank to submit their respective
position papers and draft decisions (April 2002 Order). [21] Copies of the April 2002 Order were served on
Rapanot and the Bank via registered mail. [22] However, the envelope bearing the copy sent to the Bank
was returned to the Arbiter, bearing the notation "refused to receive". [23]

Rapanot complied with the April 2002 Order and personally served copies of its position paper and draft
decision on the Bank on May 22, 2002 and May 24, 2002, respectively. [24] In the opening statement of
Rapanot's position paper, Rapanot made reference to the April 2002 Order. [25]

On July 3, 2002, the Arbiter rendered a decision (Arbiter's Decision) in favor of Rapanot, the dispositive
portion of which reads:

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

1. Declaring the mortgage over the condominium unit No. 2308-B2 covered by Condominium
Certificate of Title No. 2383 in favor of respondent Bank as null and void for violation of Section
18 of Presidential Decree No. 957[;]

2. Ordering respondent Bank to cancel the mortgage on the subject condominium unit, and
accordingly, release the title thereof to the complainant;

3. Ordering respondents to pay jointly and severally the complainant the following sums:

a. P100,000.00 as moral damages,

b. P100,000.00 as exemplary damages,

c. P50,000.00 as attorney's fees,

 d. The costs of litigations (sic), and

e. An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable to this Office

fifteen (15) days upon receipt of this decision, for violation of Section 18 in relation to
Section 38 of PD 957;

4. Directing the Register of Deeds of Mandaluyong City to cancel the aforesaid mortgage on the
title of the subject condominium unit; and

5. Immediate[ly] upon receipt by the complainant of the owner's duplicate Condominium

Certificate of Title of Unit 2308-B2, delivery of CCT No. 2383 over Unit 2308-B2 in favor of the
complainant free from all liens and encumbrances.

SO ORDERED.[26]

On July 25, 2002, the Bank received a copy of Rapanot's Manifestation dated July 24, 2002, stating that
he had received a copy of the Arbiter's Decision. [27] On July 29, 2002, the Bank filed a Manifestation and
Motion for Clarification,[28] requesting for the opportunity to file its position paper and draft decision,
and seeking confirmation as to whether a decision had indeed been rendered notwithstanding the fact
that it had yet to file such submissions.

Subsequently, the Bank received a copy of Rapanot's Motion for Execution dated September 2, 2002,
[29]
 to which it filed an Opposition dated September 4, 2002. [30]

Meanwhile, the Bank's Manifestation and Motion for Clarification remained unresolved despite the
lapse of five (5) months from the date of filing. This prompted the Bank to secure a certified true copy of
the Arbiter's Decision from the HLURB. [31]

On January 16, 2003, the Bank filed a Petition for Review with the HLURB Board of Commissioners
(HLURB Board) alleging, among others, that it had been deprived of due process when the Arbiter
rendered a decision without affording the Bank the opportunity to submit its position paper and draft
decision.

The HLURB Board modified the Arbiter's Decision by: (i) reducing the award for moral damages from
P100,000.00 to P50,000.00, (ii) deleting the award for exemplary damages, (iii) reducing the award for
attorney's fees from P50,000.00 to P20,000.00, and (iv) directing Golden Dragon to pay the Bank all the
damages the latter is directed to pay thereunder, and settle the mortgage obligation corresponding to
Unit 2308-B2.[32]

Anent the issue of due process, the HLURB Board held, as follows:
xxxx

With respect to the first issue, we find the same untenable. Records show that prior to the rendition of
its decision, the office below has issued and duly sent an Order to the parties declaring respondent
GDREC in default and directing respondent Bank to submit its position paper. x x x [33] (Underscoring
omitted)

Proceedings before the Office of the President

The Bank appealed the decision of the HLURB Board to the Office of the President (OP). On October 10,
2005, the OP issued a resolution denying the Bank's appeal. In so doing, the OP adopted the BLURB's
findings.[34] The Bank filed a Motion for Reconsideration, which was denied by the OP in an Order dated
March 3, 2006.[35]

Proceedings before the CA

The Bank filed a Petition for Review with the CA on April 17, 2006 assailing the resolution and
subsequent order of the OP. The Bank argued, among others, that the OP erred when it found that the
Bank (i) was not denied due process before the HLURB, and (ii) is jointly and severally liable with Golden
Dragon for damages due Rapanot.[36]

After submission of the parties' respective memoranda, the CA rendered the questioned Decision
dismissing the Bank's Petition for Review. On the issue of due process, the CA held:

Petitioner asserts that it was denied due process because it did not receive any notice to file its position
paper nor a copy of the Housing Arbiter's Decision. Rapanot, meanwhile, contends that the Housing
Arbiter sent petitioner a copy of the April 5, 2002 Order to file position paper by registered mail, as
evidenced by the list of persons furnished with a copy thereof. However, according to Rapanot,
petitioner "refused to receive" it.

xxxx

In the instant case, there is no denial of due process. Petitioner filed its Answer where it was able to
explain its side through its special and affirmative defenses. Furthermore, it participated in the
preliminary hearing and attended scheduled conferences held to resolve differences between the
parties. Petitioner was also served with respondent's position paper and draft decision. Having received
said pleadings of respondent, petitioner could have manifested before the Housing Arbiter that it did
not receive, if correct, its order requiring the submission of its pleadings and therefore prayed that it be
given time to do so. Or, it could have filed its position paper and draft decision without awaiting the
order to file the same. Under the circumstances, petitioner was thus afforded and availed of the
opportunity to present its side. It cannot make capital of the defense of denial of due process as a
screen for neglecting to avail of opportunities to file other pleadings. [37]
With respect to the Bank's liability for damages, the CA held thus:

Section 18 of PD 957, requires prior written authority of the HLURB before the owner or developer of a
subdivision lot or condominium unit may enter into a contract of mortgage. Hence, the jurisdiction of
the HLURB is broad enough to include complaints for annulment of mortgage involving violations of PD
957.

Petitioner argues that, as a mortgagee in good faith and for value, it must be accorded protection and
should not be held jointly and severally liable with Golden Dragon and its President, Victoria Vasquez.

It is true that a mortgagee in good faith and for value is entitled to protection, as held in Rural Bank of
Compostela vs. Court of Appeals but petitioner's dependence on this ruling is misplaced as it cannot be
considered a mortgagee in good faith.

The doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property
covered by a certificate of title, as mortgagees, are not required to go beyond what appears on the face
of the title.

However, while a mortgagee is not under obligation to look beyond the certificate of title, the nature of
petitioner's business requires it to take further steps to assure that there are no encumbrances or liens
on the mortgaged property, especially since it knew that it was dealing with a condominium developer.
It should have inquired deeper into the status of the properties offered as collateral and verified if the
HLURB's authority to mortgage was in fact previously obtained. This it failed to do.

It has been ruled that a bank, like petitioner, cannot argue that simply because the titles offered as
security were clean of any encumbrances or lien, it was relieved of taking any other step to verify the
implications should the same be sold by the developer. While it is not expected to conduct an
exhaustive investigation of the mortgagor's title, it cannot be excused from the duty of exercising the
due diligence required of banking institutions, for banks are expected to exercise more care and
prudence than private individuals in their dealings, even those involving registered property, for their
business is affected with public interest.

As aforesaid, petitioner should have ascertained that the required authority to mortgage the
condominium units was obtained from the HLURB before it approved Golden Dragon's loan. It cannot
feign lack of knowledge of the sales activities of Golden Dragon since, as an extender of credit, it is
aware of the practices, both good or bad, of condominium developers. Since petitioner was negligent in
its duty to investigate the status of the properties offered to it as collateral, it cannot claim that it was a
mortgagee in good faith.[38]

The Bank filed a Motion for Reconsideration, which was denied by the CA in a Resolution dated March
17,2010.[39] The Bank received a copy of the resolution on March 22, 2010. [39-a]
On April 6, 2010, the Bank filed with the Court a motion praying for an additional period of 30 days
within which to file its petition for review on certiorari.[39-b]

On May 6, 2010, the Bank filed the instant Petition.

Rapanot filed his Comment to the Petition on September 7, 2010. [40] Accordingly, the Bank filed its Reply
on January 28, 2011.[41]

Issues

Essentially, the Bank requests this Court to resolve the following issues:

1. Whether or not the CA erred when it affirmed the resolution of the OP finding that the Bank had
been afforded due process before the HLURB; and

2. Whether or not the CA erred when it affirmed the resolution of the OP holding that the Bank
cannot be considered a mortgagee in good faith.

The Court's Ruling

In the instant Petition, the Bank avers that the CA misappreciated material facts when it affirmed the
OP's resolution which denied its appeal. The Bank contends that the CA committed reversible error
when it concluded that the Bank was properly afforded due process before the HLURB, and when it
failed to recognize the Bank as a mortgagee in good faith. The Bank concludes that these alleged errors
justify the reversal of the questioned Decision, and ultimately call for the dismissal of the Complaint
against it.

The Court disagrees.

Time and again, the Court has emphasized that review of appeals under Rule 45 is "not a matter of right,
but of sound judicial discretion."[42] Thus, a petition for review on certiorari shall only be granted on the
basis of special and important reasons.[43]

As a general rule, only questions of law may be raised in petitions filed under Rule 45. [44] However, there
are recognized exceptions to this general rule, namely:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; and
(11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion. x x x[45] (Emphasis supplied)

The Bank avers that the second, fourth and eleventh exceptions above are present in this case.
However, after a judicious examination of the records of this case and the respective submissions of the
parties, the Court finds that none of these exceptions apply.

The Bank was not deprived of due process before the HLURB.

The Bank asserts that it never received the April2002 Order. It claims that it was taken by surprise on
July 25, 2002, when it received a copy of Rapanot's Manifestation alluding to the issuance of the
Arbiter's Decision on July 3, 2002. Hence, the Bank claims that it was deprived of due process, since it
was not able to set forth its "valid and meritorious" defenses for the Arbiter's consideration through its
position paper and draft decision.[46]

The Court finds these submissions untenable.

"The essence of due process is to be heard." [47] In administrative proceedings, due process entails "a fair
and reasonable opportunity to explain one's side, or an opportunity to seek a reconsideration of the
action or ruling complained of. Administrative due process cannot be fully equated with due process in
its strict judicial sense, for in the former a formal or trial-type hearing is not always necessary, and
technical rules of procedure are not strictly applied." [48]

As correctly pointed out by the CA in the questioned Decision, the Bank was able to set out its position
by participating in the preliminary hearing and the scheduled conferences before the Arbiter. [49] The
Bank was likewise able to assert its special and affirmative defenses in its Answer to Rapanot's
Complaint.[50]

The fact that the Arbiter's Decision was rendered without having considered the Bank's position paper
and draft decision is of no moment. An examination of the 1996 Rules of Procedure of the
HLURB[51] then prevailing shows that the Arbiter merely acted in accordance therewith when he
rendered his decision on the basis of the pleadings and records submitted by the parties thus far. The
relevant rules provide:

RULE VI - PRELIMINARY CONFERENCE AND RESOLUTION

xxxx

Section 4. Position Papers. - If the parties fail to settle within the period of preliminary conference, then
they will be given a period of not more than thirty (30) calendar days to file their respective verified
position papers, attaching thereto the affidavits of their witnesses and documentary evidence.

In addition, as provided for by Executive Order No. 26, Series of 1992, the parties shall be required to
submit their respective draft decisions within the same thirty (30)-day period.

Said draft decision shall state clearly and distinctly the findings of facts, the issues and the applicable law
and jurisprudence on which it is based. The arbiter may adopt in whole or in part either of the parties'
draft decision, or reject both and prepare his own decision.

The party who fails to submit a draft decision shall be fined P2,000.00.

Section 5. Summary Resolution - With or without the position paper and draft decision[,] the Arbiter
shall summarily resolve the case on the basis of the verified pleadings and pertinent records of the
Board. (Emphasis and underscoring supplied)

Clearly, the Arbiter cannot be faulted for rendering his Decision, since the rules then prevailing required
him to do so.

The Bank cannot likewise rely on the absence of proof of service to further its cause. Notably, while the
Bank firmly contends that it did not receive the copy of the April 2002 Order, it did not assail the veracity
of the notation "refused to receive" inscribed on the envelope bearing said order. In fact, the Bank only
offered the following explanation respecting said notation:

9. The claim that the Bank "refused to receive" the envelope that bore the Order cannot be given
credence and is belied by the Bank's act of immediately manifesting before the Housing Arbiter that it
had not yet received an order for filing the position paper and draft decision. [52]

This is specious, at best. More importantly, the records show that the Bank gained actual notice of the
Arbiter's directive to file their position papers and draft decisions as early as May 22, 2002, when it was
personally served a copy of Rapanot's position paper which made reference to the April 2002 Order.
[53]
 This shows as mere pretense the Bank's assertion that it learned of the Arbiter's Decision only
through Rapanot's Manifestation.[54] Worse, the Bank waited until the lapse of five (5) months before it
took steps to secure a copy of the Arbiter's Decision directly from the HLURB for the purpose of assailing
the same before the OP.

The Mortgage Agreement is null and void as against Rapanot, and thus cannot be enforced against him.

The Bank avers that contrary to the CA's conclusion in the questioned Decision, it exercised due
diligence before it entered into the Mortgage Agreement with Golden Dragon and accepted Unit 2308-
B2, among other properties, as collateral. [55] The Bank stressed that prior to the approval of Golden
Dragon's loan, it deployed representatives to ascertain that the properties being offered as collateral
were in order. Moreover, it confirmed that the titles corresponding to the properties offered as
collateral were free from existing liens, mortgages and other encumbrances. [56] Proceeding from this, the
Bank claims that the CA overlooked these facts when it failed to recognize the Bank as a mortgagee in
good faith.

The Court finds the Bank's assertions indefensible.

First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may be
constituted by a developer without prior written approval of the National Housing Authority, now
HLURB.[57] PD 957 further requires developers to notify buyers of the loan value of their corresponding
mortgaged properties before the proceeds of the secured loan are released. The relevant provision
states:

Section 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer
without prior written approval of the Authority. Such approval shall not be granted unless it is shown
that the proceeds of the mortgage loan shall be used for the development of the condominium or
subdivision project and effective measures have been provided to ensure such utilization. The loan value
of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be
notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or
unit directly to the mortgagee who shall apply the payments to the corresponding mortgage
indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to
obtain title over the lot or unit promptly after full payment thereof.

In Far East Bank & Trust Co. v. Marquez,[58] the Court clarified the legal effect of a mortgage constituted
in violation of the foregoing provision, thus:

The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the
property, was not notified of the mortgage before the release of the loan proceeds by petitioner. Acts
executed against the provisions of mandatory or prohibitory laws shall be void. Hence, the mortgage
over the lot is null and void insofar as private respondent is concerned.[59] (Emphasis supplied)

The Court reiterated the foregoing pronouncement in the recent case of Philippine National Bank v.
Lim[60] and again in United Overseas Bank of the Philippines, Inc. v. Board of Commissioners-HLURB.[61]

Thus, the Mortgage Agreement cannot have the effect of curtailing Rapanot's right as buyer of Unit
2308-B2, precisely because of the Bank's failure to comply with PD 957.

Moreover, contrary to the Bank's assertions, it cannot be considered a mortgagee in good faith. The
Bank failed to ascertain whether Golden Dragon secured HLURB's prior written approval as required by
PD 957 before it accepted Golden Dragon's properties as collateral. It also failed to ascertain whether
any of the properties offered as collateral already had corresponding buyers at the time the Mortgage
Agreement was executed.

The Bank cannot harp on the fact that the Mortgage Agreement was executed before the Contract to
Sell and Deed of Absolute Sale between Rapanot and Golden Dragon were executed, such that no
amount of verification could have revealed Rapanot's right over Unit 2308-B2. [62] The Court particularly
notes that Rapanot made his initial payment for Unit 2308-B2 as early as May 9, 1995, four (4) months
prior to the execution of the Mortgage Agreement. Surely, the Bank could have easily verified such fact
if it had simply requested Golden Dragon to confirm if Unit 2308-B2 already had a buyer, given that the
nature of the latter's business inherently involves the sale of condominium units on a commercial scale.

It bears stressing that banks are required to exercise the highest degree of diligence in the conduct of
their affairs. The Court explained this exacting requirement in the recent case of Philippine National
Bank v. Vila,[63] thus:

In Land Bank of the Philippines v. Belle Corporation, the Court exhorted banks to exercise the highest
degree of diligence in its dealing with properties offered as securities for the loan obligation:

When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for
value is applied more strictly. Being in the business of extending loans secured by real estate mortgage,
banks are presumed to be familiar with the rules on land registration. Since the banking business is
impressed with public interest, they are expected to be more cautious, to exercise a higher degree of
diligence, care and prudence, than private individuals in their dealings, even those involving registered
lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot assume that, x
x x the title offered as security is on its face free of any encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As
expected, the ascertainment of the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of the bank's operations. x x x (Citations omitted)

We never fail to stress the remarkable significance of a banking institution to commercial

transactions, in particular, and to the country's economy in general. The banking system is an
indispensable institution in the modern world and plays a vital role in the economic life of every
civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most of all, confidence.
Consequently, the highest degree of diligence is expected, and high standards of integrity and
performance are even required, of it.[64] (Emphasis and underscoring supplied)

In loan transactions, banks have the particular obligation of ensuring that clients comply with all the
documentary requirements pertaining to the approval of their loan applications and the subsequent
release of their proceeds.[65]

If only the Bank exercised the highest degree of diligence required by the nature of its business as a
financial institution, it would have discovered that (i) Golden Dragon did not comply with the approval
requirement imposed by Section 18 of PD 957, and (ii) that Rapanot already paid a reservation fee and
had made several installment payments in favor of Golden Dragon, with a view of acquiring Unit 2308-
B2.[66]
The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its
assertion that it is a mortgagee in good faith. On this point, this Court's ruling in the case of Far East
Bank & Trust Co. v. Marquez[67] is instructive:

Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since
the title offered as security was clean of any encumbrance or lien. We do not agree.

"x x x As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in
the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore
further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate
right that may subsequently defeat his right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee has knowledge of a defect or lack of title in the vendor, or that he
was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the
property in litigation."

Petitioner bank should have considered that it was dealing with a town house project that was already
in progress. A reasonable person should have been aware that, to finance the project, sources of funds
could have been used other than the loan, which was intended to serve the purpose only partially.
Hence, there was need to verity whether any part of the property was already the subject of any other
contract involving buyers or potential buyers. In granting the loan, petitioner bank should not have
been content merely with a clean title, considering the presence of circumstances indicating the need
for a thorough investigation of the existence of buyers like respondent. Having been wanting in care
and prudence, the latter cannot be deemed to be an innocent mortgagee.

Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the
Office of the President and by the CA. Petitioner should not have relied only on the representation of
the mortgagor that the latter had secured all requisite permits and licenses from the government
agencies concerned. The former should have required the submission of certified true copies of those
documents and verified their authenticity through its own independent effort.

Having been negligent in finding out what respondent's rights were over the lot, petitioner must be
deemed to possess constructive knowledge of those rights. (Emphasis supplied)

The Court can surely take judicial notice of the fact that commercial banks extend credit
accommodations to real estate developers on a regular basis. In the course of its everyday dealings, the
Bank has surely been made aware of the approval and notice requirements under Section 18 of PD 957.
At this juncture, this Court deems it necessary to stress that a person who deliberately ignores a
significant fact that could create suspicion in an otherwise reasonable person cannot be deemed a
mortgagee in good faith.[68] The nature of the Bank's business precludes it from feigning ignorance of the
need to confirm that such requirements are complied with prior to the release of the loan in favor of
Golden Dragon, in view of the exacting standard of diligence it is required to exert in the conduct of its
affairs.
Proceeding from the foregoing, we find that neither mistake nor misapprehension of facts can be
ascribed to the CA in rendering the questioned Decision. The Court likewise finds that contrary to the
Bank's claim, the CA did not overlook material facts, since the questioned Decision proceeded from a
thorough deliberation of the facts established by the submissions of the parties and the evidence on
record.

For these reasons, we resolve to deny the instant Petition for lack of merit.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Decision dated
November 18, 2009 and Resolution dated March 17, 2010 of the Court of Appeals in CA-G.R. SP No.
93862 are hereby AFFIRMED.

SO ORDERED.

FIRST DIVISION

[ G.R. No. 82619, September 15, 1993 ]

PHILIPPINE AIRLINES, INC., PETITIONER, VS. COURT OF APPEALS AND PEDRO ZAPATOS,
RESPONDENTS.

DECISION

BELLOSILLO, J.:

This petition for review on certiorari seeks to annul and set aside the decision of the then Intermediate
Appellate Court,[1] now Court of Appeals, dated 28 February 1985, in AC-G.R. CV No. 69327 ("Pedro
Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court of First Instance, now
Regional Trial Court, declaring Philippine Airlines, Inc., liable in damages for breach of contract.

On 25 November 1976, private respondent filed a complaint for damages for breach of contract of
carriage[2] against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now Regional
Trial Court, of Misamis Occidental, at Ozamiz City. According to him, on 2 August 1976, he was among
the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound for Ozamiz City. The
routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes
before landing at Ozamiz City, the pilot received a radio message that the airport was closed due to
heavy rains and inclement weather and that he should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to return
to Cebu on Flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take the next
flight to Cebu the following day, or remain at Cotabato and take the next available flight to Ozamiz City
on 5 August 1975.[3] The Station Agent likewise informed them that Flight 560 bound for Manila would
make a stop-over at Cebu to bring some of the diverted passengers; that there were only six (6) seats
available as there were already confirmed passengers for Manila; and, that the basis for priority would
be the check-in sequence at Cebu.

Private respondent chose to return to Cebu but was not accommodated because he checked-in as
passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in the
accommodation, but the Station Agent refused private respondent’s demand explaining that the latter's
predicament was not due to PAL's own doing but to a force majeure.[4]

Private respondent tried to stop the departure of Flight 560 as his personal belongings, including a
package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe Obid of
Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private respondent a free
ticket to Iligan City, which the latter received under protest. [5] Private respondent was left at the airport
and could not even hitch a ride in the Ford Fiera loaded with PAL personnel. [6] PAL neither provided
private respondent with transportation from the airport to the city proper nor food and accommodation
for his stay in Cotabato City.

The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL personnel
that he would not use the free ticket because he was filing a case against PAL. [7] In Iligan City, private
respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching Ozamiz City by
crossing the bay in a launch.[8] His personal effects including the camera, which were valued at
P2,000.00, were no longer recovered.

On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate private
respondent.[9] It alleged that there was simply no more seat for private respondent on Flight 560 since
there were only six (6) seats available and the priority of accommodation on Flight 560 was based on the
check-in sequence in Cebu; that the first six (6) priority passengers on Flight 477 chose to take Flight
560; that its Station Agent explained in a courteous and polite manner to all passengers the reason for
PAL's inability to transport all of them back to Cebu; that the stranded passengers agreed to avail of the
options and had their respective tickets exchanged for their onward trips; that it was only the private
respondent who insisted on being given priority in the accommodation; that pieces of checked-in
baggage and handcarried items of the Ozamiz City passengers were removed from the aircraft; that the
reason for the pilot's inability to land at Ozamiz City airport was because the runway was wet due to
rains thus posing a threat to the safety of both passengers and aircraft; and, that such reason of force
majeure was a valid justification for the pilot to bypass Ozamiz City and proceed directly to Cotabato
City.

On 4 June 1981, the trial court rendered its decision [10] the dispositive portion of which states:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Philippine
Air Lines, Inc. ordering the latter to pay:

(1) As actual damages, the sum of Two Hundred Pesos (P200.00) representing plaintiff's expenses for
transportation, food and accommodation during his stranded stay at Cotabato City; the sum of Forty-
Eight Pesos (P48.00) representing his flight fare from Cotabato City to Iligan City; the sum of Five
Hundred Pesos (P500.00) representing plaintiff's transportation expenses from Iligan City to Ozamiz City;
and the sum of Five Thousand Pesos (P5,000.00) as loss of business opportunities during his stranded
stay in Cotabato City;

(2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00 ) for plaintiff's hurt feelings, serious
anxiety, mental anguish and unkind and discourteous treatment perpetrated by defendant's employees
during his stay as stranded passenger in Cotabato City;

(3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a precedent to the
defendant airline that it shall provide means to give comfort and convenience to stranded passengers;

(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;

(5) To pay the costs of this suit. "

PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error, affirmed
the judgment of the court a quo.[11]

PAL then sought recourse to this Court by way of a petition for review on certiorari[12] upon the following
issues: (1) Can the Court of Appeals render a decision finding petitioner (then defendant-appellant in the
court below) negligent and, consequently, liable for damages on a question of substance which was
neither raised in the complaint nor proved at the trial? (2) Can the Court of Appeals award actual and
moral damages contrary to the evidence and established jurisprudence? [13]

An assiduous examination of the records yields no valid reason for reversal of the judgment on appeal;
only a modification of its disposition.

In its petition, PAL vigorously maintains that private respondent's principal cause of action was its
alleged denial of private respondent's demand for priority over the confirmed passengers on Flight 560.
Likewise, PAL points out that the complaint did not impute to PAL neglect in failing to attend to the
needs of the diverted passengers; and, that the question of negligence was not and never put in issue
by the pleadings or proved at the trial.

Contrary to the above arguments, private respondent's amended complaint touched on PAL's
indifference and inattention to his predicament. The pertinent portion of the amended
complaint[14] reads:

"10. That by virtue of the refusal of the defendant through its agent in Cotabato to accomodate (sic) and
allow the plaintiff to take and board the plane back to Cebu, and by accomodating (sic) and allowing
passengers from Cotabato for Cebu in his stead and place, thus forcing the plaintiff against his will, to be
left and stranded in Cotabato, exposed to the peril and danger of muslim rebels plundering at the time,
the plaintiff, as a consequence, (have) suffered mental anguish, mental torture, social humiliation,
bismirched reputation and wounded feeling, all amounting to a conservative amount of thirty thousand
(P30,000.00) Pesos."

To substantiate this aspect of apathy, private respondent testified [15] -

"A.   I did not even notice that I was I think the last passenger or the last person out of the PAL
employees and army personnel that were left there. I did not notice that when I was already outside of
the building after our conversation.

Q.   What did you do next?

A.    I banished (sic) because it seems that there was a war not far from the airport. The sound of guns
and the soldiers were plenty.

Q.   After that what did you do?

A.    I tried to look for a transportation that could bring me down to the City of Cotabato.

Q.   Were you able to go there?

A.    I was at about 7:00 o'clock in the evening more or less and it was a private jeep that I boarded.
I was even questioned why I and who am (sic) I then. Then I explained my side that I am (sic) stranded
passenger. Then they brought me downtown at Cotabato.

Q.   During your conversation with the Manager were you not offered any vehicle or transportation to
Cotabato airport downtown?

A.    In fact I told him (Manager) now I am by-passed passenger here which is not my destination what
can you offer me. Then they answered, "it is not my fault. Let us forget that.

Q.   In other words when the Manager told you that offer was there a vehicle ready?

A.    Not yet. Not long after that the Ford Fiera loaded with PAL personnel was passing by going to the
City of Cotabato and I stopped it to take me a ride because there was no more available transportation
but I was not accommodated."

Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the protest or
objection against the admission of evidence should be presented at the time the evidence is offered,
and that the proper time to make protest or objection to the admissibility of evidence is when the
question is presented to the witness or at the time the answer thereto is given. [16] There being no
objection, such evidence becomes property of the case and all the parties are amenable to any
favorable or unfavorable effects resulting from the evidence.[17]
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate its
counter allegation for want of concrete proof [18] -

"Atty. Rubin O. Rivera - PAL's counsel:

Q.   You said PAL refused to help you when you were in Cotabato, is that right?

Private respondent:

A.    Yes.

Q.   Did you ask them to help you regarding any offer of transportation or of any other matter asked of
them?

A.    Yes, he (PAL PERSONNEL) said what is? It is not our fault.

Q.   Are you not aware that one fellow passenger even claimed that he was given Hotel accommodation
because they have no money?

xxxx

A.    No, sir, that was never offered to me. I said, I tried to stop them but they were already riding that
PAL pick-up jeep, and I was not accommodated."

Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL cannot
now turn around and feign surprise at the outcome of the case. When issues not raised by the pleadings
are tried by express or implied consent of the parties, they shall be treated in all respects as if they had
been raised in the pleadings.[19]

With regard to the award of damages affirmed by the appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged with the task of looking after the passengers'
comfort and convenience because the diversion of the flight was due to a fortuitous event, and that if
made liable, an added burden is given to PAL which is over and beyond its duties under the contract of
carriage. It submits that granting arguendo that negligence exists, PAL cannot be liable in damages in the
absence of fraud or bad faith; that private respondent failed to apprise PAL of the nature of his trip and
possible business losses; and, that private respondent himself is to be blamed for unreasonably refusing
to use the free ticket which PAL issued.

The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires
common carriers to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with due regard for all the circumstances.[20] In Air  France
v. Carrascoso,[21] we held that -

“A contract to transport passengers is quite different in kind and degree from any other contractual
relation. And this, because of the relation which an air carrier sustains with the public. Its business is
mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation attended with a public duty x x x x" (underlining
supplied).

The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard
required by law. Undisputably, PAL'S diversion of its flight due to inclement weather was a fortuitous
event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the
business of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with
situations as in the case at bar. What we said in one case once again must be stressed, i.e., the relation
of carrier and passenger continues until the latter has been landed at the port of destination and has left
the carrier's premises.[22] Hence, PAL necessarily would still have to exercise extraordinary diligence in
safeguarding the comfort, convenience and safety of its stranded passengers until they have reached
their final destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a
stranger to the place. As the appellate court correctly ruled -

"While the failure of plaintiff in the first instance to reach his destination at Ozamis City in accordance
with the contract of carriage was due to the closure of the airport on account of rain and inclement
weather which was radioed to defendant 15 minutes before landing, it has not been disputed by
defendant airline that Ozamis City has no all-weather airport and has to cancel its flight to Ozamis City or
by-pass it in the event of inclement weather. Knowing this fact, it becomes the duty of defendant to
provide all means of comfort and convenience to its passengers when they would have to be left in a
strange place in case of such by-passing. The steps taken by defendant airline company towards this end
has not been put in evidence, especially for those 7 others who were not accommodated in the return
trip to Cebu, only 6 of the 21 having been so accommodated. It appears that plaintiff had to leave on the
next flight 2 days later. If the cause of non-fulfillment of the contract is due to a fortuitous event, it has
to be the sole and only cause (Art. 1755 C.C., Art. 1733 C.C.) Since part of the failure to comply with the
obligation of common carrier to deliver its passengers safely to their destination lay in the defendant’s
failure to provide comfort and convenience to its stranded passengers using extra-ordinary diligence,
the cause of non-fulfillment is not solely and exclusively due to fortuitous event, but due to something
which defendant airline could have prevented, defendant becomes liable to plaintiff."[23]

While we find PAL remiss in its duty of extending utmost care to private respondent while being
stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him about his
non-accommodation on Flight 560, or that it was inattentive to his queries relative thereto.

On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that -

"3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three pax opted to
take F442 August 03. The remaining ten (10) including subject requested that they be instead
accomodated (sic) on F446 CBO-IGN the following day where they intended to take the surface
transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and boiceterous (sic) at the
counter and we tactfully managed to steer him inside the Station Agent's office. Mr. Pedro Zapatos then
adamantly insisted that all the diverted passengers should have been given priority over the originating
passengers of F560 whether confirmed or otherwise. We explained our policies and after awhile he
seemed pacified and thereafter took his ticket (in-lieued (sic) to CBO-IGN, COCON basis), at the counter
in the presence of five other passengers who were waiting for their tickets too. The rest of the diverted
pax had left earlier after being assured that their tickets will be ready the following day.” [24]

Aforesaid Report being an entry in the course of business is prima facie evidence of the facts therein
stated. Private respondent, apart from his testimony, did not offer any controverting evidence. If indeed
PAL omitted to give information about the options available to its diverted passengers, it would have
been deluged with complaints. But, only private respondent complained -

"Atty. Rivera (for PAL)

Q.   I understand from you Mr. Zapatos that at the time you were waiting at Cotabato Airport for the
decision of PAL, you were not informed of that decision until after the airplane left is that correct?

A.    Yes.

COURT:

Q.   What do you mean by "yes"? You meant you were not informed?

A.    Yes, I was not informed of their decision, that they will only accommodate few passengers.

Q.   Aside from you there were many other stranded passengers?

A.    I believed, yes.

Q.   And you want us to believe that PAL did not explain (to) any of these passengers about the decision
regarding those who will board the aircraft back to Cebu?

A.    No, Sir.

Q.   Despite these facts Mr. Zapatos did any of the other passengers complained (sic) regarding that
incident?

xxxx

A.    There were plenty of arguments and I was one of those talking about my case.

Q.   Did you hear anybody complained (sic) that he has not been informed of the decision before the
plane left for Cebu?

A.    No."[25]

Admittedly, private respondent's insistence on being given priority in accommodation was unreasonable
considering the fortuitous event and that there was a sequence to be observed in the booking, i.e., in
the order the passengers checked-in at their port of origin. His intransigence in fact was the main cause
for his having to stay at the airport longer than was necessary -
"Atty. Rivera:

Q.   And, you were saying that despite the fact that according to your testimony there were at least 16
passengers who were stranded there in Cotabato airport according to your testimony, and later you said
that there were no other people left there at that time, is that correct?

A.    Yes, I did not see anyone there around. I think I was the only civilian who was left there.

Q.   Why is it that it took you long time to leave that place?

A.    Because I was arguing with the PAL personnel. "[26]

Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent, the
records are bereft of evidence to support the same. Thus, the ruling of respondent Court of Appeals in
this regard is without basis.[27] On the contrary, private respondent was attended to not only by the
personnel of PAL but also by its Manager. [28]

In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos (P50,000.00)
unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos (P10,000.00). Conformably
herewith, the award of exemplary damages is also reduced to Five Thousand Pesos (P5,000.00). Moral
damages are not intended to enrich the private respondent. They are awarded only to enable the
injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering
he has undergone by reason of the defendant's culpable action. [29]

With regard to the award of actual damages in the amount of P5,000.00 representing
private respondent’s alleged business losses occasioned by his stay at Cotabato City, we find the same
unwarranted. Private respondent's testimony that he had a scheduled business "transaction of shark
liver oil supposedly to have been consummated on August 3, 1975 in the morning" and that "since
(private respondent) was out for nearly two weeks I missed to buy about 10 barrels of shark liver
oil,"[30] are purely speculative. Actual or compensatory damages cannot be presumed but must be duly
proved with reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork
as to the fact and amount of damages, but must depend upon competent proof that they have suffered
and on evidence of the actual amount thereof. [31]

WHEREFORE the decision appealed from is AFFIRMED with modification however that the award of
moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand Pesos (P10,000.00)
while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also reduced to Five Thousand
Pesos (P5,000.00). The award of actual damages in the amount Five Thousand Pesos (P5,000.00)
representing business losses occasioned by private respondent's being stranded in Cotabato City is
deleted.

SO ORDERED.
 THIRD DIVISION
[ G.R. No. 126389, July 10, 1998 ]
SOUTHEASTERN COLLEGE, INC., PETITIONER, VS. COURT OF
APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA
DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO
AND MILAGROS DIMAANO, RESPONDENTS.

DECISION

PURISIMA, J.:

Petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision[1] promulgated on July 31, 1996, and Resolution [2] dated September 12,
1996 of the Court of Appeals[3] in CA-G.R. No. 41422, entitled “Juanita de Jesus
vda. de Dimaano, et al. vs. Southeastern College, Inc.”, which reduced the moral
damages awarded below from P1,000,000.00 to P200,000.00. [4] The Resolution
under attack denied petitioner’s motion for reconsideration.

Private respondents are owners of a house at 326 College Road, Pasay City, while
petitioner owns a four-storey school building along the same College Road. On
October 11, 1989, at about 6:30 in the morning, a powerful typhoon “Saling” hit
Metro Manila. Buffeted by very strong winds, the roof of petitioner’s building was
partly ripped off and blown away, landing on and destroying portions of the roofing
of private respondents’ house. After the typhoon had passed, an ocular inspection
of the destroyed buildings was conducted by a team of engineers headed by the
city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter’s
Report[5] dated October 18, 1989 stated, as follows:

“5. One of the factors that may have led to this calamitous event is the formation of
the buildings in the area and the general direction of the wind. Situated in the
peripheral lot is an almost U-shaped formation of 4-storey building. Thus, with the
strong winds having a westerly direction, the general formation of the buildings
becomes a big funnel-like structure, the one situated along College Road, receiving
the heaviest impact of the strong winds. Hence, there are portions of the roofing,
those located on both ends of the building, which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging of the
roofings structural trusses is the improper anchorage of the said trusses to the roof
beams. The 1/2” diameter steel bars embedded on the concrete roof beams which
serve as truss anchorage are not bolted nor nailed to the trusses. Still, there are
other steel bars which were not even bent to the trusses, thus, those trusses are
not anchored at all to the roof beams.”

It then recommended that “to avoid any further loss and damage to lives, limbs
and property of persons living in the vicinity,” the fourth floor of subject school
building be declared as a “structural hazard.”

In their Complaint[6] before the Regional Trial Court of Pasay City, Branch 117, for
damages based on culpa aquiliana, private respondents alleged that the damage to
their house rendered the same uninhabitable, forcing them to stay temporarily in
others’ houses. And so they sought to recover from petitioner P117,116.00, as
actual damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary
damages and P100,000.00, for and as attorney’s fees; plus costs.

In its Answer, petitioner averred that subject school building had withstood several
devastating typhoons and other calamities in the past, without its roofing or any
portion thereof giving way; that it has not been remiss in its responsibility to see to
it that said school building, which houses school children, faculty members, and
employees, is “in tip-top condition”; and furthermore, typhoon “Saling” was “an act
of God and therefore beyond human control” such that petitioner cannot be
answerable for the damages wrought thereby, absent any negligence on its part.

The trial court, giving credence to the ocular inspection report to the effect that
subject school building had a “defective roofing structure,” found that, while
typhoon “Saling” was accompanied by strong winds, the damage to private
respondents’ house “could have been avoided if the construction of the roof of
[petitioner’s] building was not faulty.” The dispositive portion of the lower court’s
decision[7] reads thus:

“WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of
the plaintiff (sic) and against the defendants, (sic) ordering the latter to pay jointly
and severally the former as follows:

a) P117,116.00, as actual damages, plus litigation expenses;

b) P1,000,000.00 as moral damages;

c) P100,000.00 as attorney’s fees;

d) Costs of the instant suit.

The claim for exemplary damages is denied for the reason that the defendants (sic)
did not act in a wanton fraudulent, reckless, oppressive or malevolent manner.”

In its appeal to the Court of Appeals, petitioner assigned as errors, [8] that:

THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON “SALING”, AS AN

ACT OF GOD, IS NOT “THE SOLE AND ABSOLUTE REASON” FOR THE
RIPPING-OFF OF THE SMALL PORTION OF THE ROOF OF SOUTHEASTERN’S
FOUR (4) STOREY SCHOOL BUILDING.

II

THE TRIAL COURT ERRED IN HOLDING THAT “THE CONSTRUCTION OF THE

ROOF OF DEFENDANT’S SCHOOL BUILDING WAS FAULTY”
NOTWITHSTANDING THE ADMISSION THAT THERE WERE TYPHOONS
BEFORE BUT NOT AS GRAVE AS TYPHOON “SALING” WHICH IS THE DIRECT
AND PROXIMATE CAUSE OF THE INCIDENT.

III

THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS

WELL AS ATTORNEY’S FEES AND LITIGATION EXPENSES AND COSTS OF
SUIT TO DIMAANOS WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES
AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN
INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC.

IV

THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF

EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERN’S APPEAL
WHEN THERE IS NO COMPELLING REASON FOR THE ISSUANCE THERETO.

As mentioned earlier, respondent Court of Appeals affirmed with modification the

trial court’s disposition by reducing the award of moral damages from
P1,000,000.00 to P200,000.00. Hence, petitioner’s resort to this Court, raising for
resolution the issues of:
“1. Whether or not the award of actual damage [sic] to respondent Dimaanos on
the basis of speculation or conjecture, without proof or receipts of actual damage,
[sic] legally feasible or justified.

2. Whether or not the award of moral damages to respondent Dimaanos, without

the latter having suffered, actual damage has legal basis.

3. Whether or not respondent Dimaanos who are no longer the owner of the
property, subject matter of the case, during its pendency, has the right to pursue
their complaint against petitioner when the case was already rendered moot and
academic by the sale of the property to third party.

4. Whether or not the award of attorney’s fees when the case was already moot
and academic [sic] legally justified.

5. Whether or not petitioner is liable for damage caused to others by typhoon

“Saling” being an act of God.

6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or

without hearing, has support in law.”

The pivot of inquiry here, determinative of the other issues, is whether the damage
on the roof of the building of private respondents resulting from the impact of the
falling portions of the school building’s roof ripped off by the strong winds of
typhoon “Saling”, was, within legal contemplation, due to fortuitous event? If so,
petitioner cannot be held liable for the damages suffered by the private
respondents. This conclusion finds support in Article 1174 of the Civil Code, which
provides:

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

The antecedent of fortuitous event or caso fortuito is found in the Partidas which
defines it as “an event which takes place by accident and could not have been
foreseen.”[9] Escriche elaborates it as “an unexpected event or act of God which
could neither be foreseen nor resisted.”[10] Civilist Arturo M. Tolentino adds that
“[f]ortuitous events may be produced by two general causes: (1) by nature, such
as earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man,
such as an armed invasion, attack by bandits, governmental prohibitions, robbery,
etc.”[11]
In order that a fortuitous event may exempt a person from liability, it is necessary
that he be free from any previous negligence or misconduct by reason of which the
loss may have been occasioned.[12] An act of God cannot be invoked for the
protection of a person who has been guilty of gross negligence in not trying to
forestall its possible adverse consequences. When a person’s negligence concurs
with an act of God in producing damage or injury to another, such person is not
exempt from liability by showing that the immediate or proximate cause of the
damage or injury was a fortuitous event. When the effect is found to be partly the
result of the participation of man – whether it be from active intervention, or
neglect, or failure to act – the whole occurrence is hereby humanized, and removed
from the rules applicable to acts of God.[13]

In the case under consideration, the lower court accorded full credence to the
finding of the investigating team that subject school building’s roofing had “no
sufficient anchorage to hold it in position especially when battered by strong
winds.” Based on such finding, the trial court imputed negligence to petitioner and
adjudged it liable for damages to private respondents.

After a thorough study and evaluation of the evidence on record, this Court believes
otherwise, notwithstanding the general rule that factual findings by the trial court,
especially when affirmed by the appellate court, are binding and conclusive upon
this Court.[14] After a careful scrutiny of the records and the pleadings submitted by
the parties, we find exception to this rule and hold that the lower courts
misappreciated the evidence proffered.

There is no question that a typhoon or storm is a fortuitous event, a natural

occurrence which may be foreseen but is unavoidable despite any amount of
foresight, diligence or care.[15] In order to be exempt from liability arising from any
adverse consequence engendered thereby, there should have been no human
participation amounting to a negligent act.[16] In other words, the person seeking
exoneration from liability must not be guilty of negligence. Negligence, as
commonly understood, is conduct which naturally or reasonably creates undue risk
or harm to others. It may be the failure to observe that degree of care, precaution,
and vigilance which the circumstances justly demand,[17] or the omission to do
something which a prudent and reasonable man, guided by considerations which
ordinarily regulate the conduct of human affairs, would do. [18] From these premises,
we proceed to determine whether petitioner was negligent, such that if it were not,
the damage caused to private respondents’ house could have been avoided?

At the outset, it bears emphasizing that a person claiming damages for the
negligence of another has the burden of proving the existence of fault or negligence
causative of his injury or loss. The facts constitutive of negligence must be
affirmatively established by competent evidence,[19] not merely by presumptions
and conclusions without basis in fact. Private respondents, in establishing the
culpability of petitioner, merely relied on the aforementioned report submitted by a
team which made an ocular inspection of petitioner’s school building after the
typhoon. As the term imparts, an ocular inspection is one by means of actual sight
or viewing.[20] What is visual to the eye though, is not always reflective of the real
cause behind. For instance, one who hears a gunshot and then sees a wounded
person, cannot always definitely conclude that a third person shot the victim. It
could have been self-inflicted or caused accidentally by a stray bullet. The
relationship of cause and effect must be clearly shown.

In the present case, other than the said ocular inspection, no investigation was
conducted to determine the real cause of the partial unroofing of petitioner’s school
building. Private respondents did not even show that the plans, specifications and
design of said school building were deficient and defective. Neither did they prove
any substantial deviation from the approved plans and specifications. Nor did they
conclusively establish that the construction of such building was basically flawed.[21]

On the other hand, petitioner elicited from one of the witnesses of private
respondents, city building official Jesus Reyna, that the original plans and design of
petitioner’s school building were approved prior to its construction. Engr. Reyna
admitted that it was a legal requirement before the construction of any building to
obtain a permit from the city building official (city engineer, prior to the passage of
the Building Act of 1977). In like manner, after construction of the building, a
certification must be secured from the same official attesting to the readiness for
occupancy of the edifice. Having obtained both building permit and certificate of
occupancy, these are, at the very least, prima facie evidence of the regular and
proper construction of subject school building.[22]

Furthermore, when part of its roof needed repairs of the damage inflicted by
typhoon “Saling”, the same city official gave the go-signal for such repairs –
without any deviation from the original design – and subsequently, authorized the
use of the entire fourth floor of the same building. These only prove that subject
building suffers from no structural defect, contrary to the report that its ”U-shaped”
form was “structurally defective.” Having given his unqualified imprimatur, the city
building official is presumed to have properly performed his duties [23] in connection
therewith.

In addition, petitioner presented its vice president for finance and administration
who testified that an annual maintenance inspection and repair of subject school
building were regularly undertaken. Petitioner was even willing to present its
maintenance supervisor to attest to the extent of such regular inspection but
private respondents agreed to dispense with his testimony and simply stipulated
that it would be corroborative of the vice president’s narration.

Moreover, the city building official, who has been in the city government service
since 1974, admitted in open court that no complaint regarding any defect on the
same structure has ever been lodged before his office prior to the institution of the
case at bench. It is a matter of judicial notice that typhoons are common
occurrences in this country. If subject school building’s roofing was not firmly
anchored to its trusses, obviously, it could not have withstood long years and
several typhoons even stronger than “Saling.”

In light of the foregoing, we find no clear and convincing evidence to sustain the
judgment of the appellate court. We thus hold that petitioner has not been shown
negligent or at fault regarding the construction and maintenance of its school
building in question and that typhoon “Saling” was the proximate cause of the
damage suffered by private respondents’ house.

With this disposition on the pivotal issue, private respondents’ claim for actual and
moral damages as well as attorney’s fees must fail.[24] Petitioner cannot be made to
answer for a purely fortuitous event. [25] More so because no bad faith or willful act
to cause damage was alleged and proven to warrant moral damages.

Private respondents failed to adduce adequate and competent proof of the

pecuniary loss they actually incurred.[26] It is not enough that the damage be
capable of proof but must be actually proved with a reasonable degree of certainty,
pointing out specific facts that afford a basis for measuring whatever compensatory
damages are borne.[27] Private respondents merely submitted an estimated amount
needed for the repair of the roof of their subject building. What is more, whether
the “necessary repairs” were caused ONLY by petitioner’s alleged negligence in the
maintenance of its school building, or included the ordinary wear and tear of the
house itself, is an essential question that remains indeterminable.

The Court deems unnecessary to resolve the other issues posed by petitioner.

As regards the sixth issue, however, the writ of execution issued on April 1, 1993
by the trial court is hereby nullified and set aside. Private respondents are ordered
to reimburse any amount or return to petitioner any property which they may have
received by virtue of the enforcement of said writ.

WHEREFORE, the petition is GRANTED and the challenged Decision

is REVERSED. The complaint of private respondents in Civil Case No. 7314 before
the trial court a quo is ordered DISMISSED and the writ of execution issued on April
1, 1993 in said case is SET ASIDE. Accordingly, private respondents
are ORDERED to return to petitioner any amount or property received by them by
virtue of said writ. Costs against the private respondents.
SO ORDERED.

[ G.R. No. 147324 and G.R. No. 147334, May

25, 2004 ]
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION,
PETITIONER, VS. GLOBE TELECOM, INC. (FORMERLY AND
GLOBE MCKAY CABLE AND RADIO CORPORATION),
RESPONDENTS.

GLOBE TELECOM, INC., PETITIONER, VS. PHILIPPINE

COMMUNICATION SATELLITE CORPORATION, RESPONDENT.

DECISION

TINGA, J,:

Before the Court are two Petitions for Review assailing the Decision of the Court of
Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619. [1]

The facts of the case are undisputed.

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

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby

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

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

Subsequently, Philcomsat installed and established the earth station at Cubi Point
and the USDCA made use of the same.

On 16 September 1991, the Senate passed and adopted Senate Resolution No.
141, expressing its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements that was
supposed to extend the term of the use by the US of Subic Naval Base, among
others. [5] The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing
relationship between the two countries in the spirit of friendship, cooperation and
sovereign equality: Now, therefore, be it

Resolved by the Senate, as it is hereby resolved, To express its decision not to

concur in the ratification of the Treaty of Friendship, Cooperation and Security and
its Supplementary Agreements, at the same time reaffirming its desire to continue
friendly relations with the government and people of the United States of America.
[6]

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

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

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to

discontinue the use of the earth station effective 08 November 1992 in view of the
withdrawal of US military personnel from Subic Naval Base after the termination of
the RP-US Military Bases Agreement. Globe invoked as basis for the letter of
termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to
perform its obligation under this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event. Either party is thus precluded
from performing its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall mean
circumstances beyond the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that “we
expect [Globe] to know its commitment to pay the stipulated rentals for the
remaining terms of the Agreement even after [Globe] shall have discontinue[d] the
use of the earth station after November 08, 1992.” [7] Philcomsat referred to Section
7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE

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

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

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

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to pay the plaintiff the amount of Ninety Two
Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its
equivalent in Philippine Currency (computed at the exchange rate prevailing
at the time of compliance or payment) representing rentals for the month of
December 1992 with interest thereon at the legal rate of twelve percent
(12%) per annum starting December 1992 until the amount is fully paid;
 2. Ordering the defendant to pay the plaintiff the amount of Three Hundred
Thousand (P300,000.00) Pesos as and for attorney’s fees;

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

4. With costs against the defendant.

SO ORDERED.[9]

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

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

Globe, on the other hand, contended that the RTC erred in holding it liable for
payment of rent of the earth station for December 1992 and of attorney’s fees. It
explained that it terminated Philcomsat’s services on 08 November 1992; hence, it
had no reason to pay for rentals beyond that date.

On 27 February 2001, the Court of Appeals promulgated its Decision dismissing

Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that
certain events constituting force majeure under Section 8 the Agreement occurred
and justified the non-payment by Globe of rentals for the remainder of the term of
the Agreement.

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

However, the Court of Appeals ruled that although Globe sought to terminate
Philcomsat’s services by 08 November 1992, it is still liable to pay rentals for the
December 1992, amounting to US$92,238.00 plus interest, considering that the US
military forces and personnel completely withdrew from Cubi Point only on 31
December 1992.[10]

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

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

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

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

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

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

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

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

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

TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES. [12]

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

Philcomsat further claims that the Court of Appeals erred in holding that Globe is
not liable to pay for the rental of the earth station for the entire term of the
Agreement because it runs counter to what was plainly stipulated by the parties in
Section 7 thereof. Moreover, said ruling is inconsistent with the appellate court’s
pronouncement that Globe is liable to pay rentals for December 1992 even though
it terminated Philcomsat’s services effective 08 November 1992, because the US
military and personnel completely withdrew from Cubi Point only in December
1992. Philcomsat points out that it was Globe which proposed the five-year term of
the Agreement, and that the other provisions of the Agreement, such as Section
4.1 [14] thereof, evince the intent of Globe to be bound to pay rentals for the entire
five-year term.[15]

Philcomsat also maintains that contrary to the appellate court’s findings, it is

entitled to attorney’s fees and exemplary damages.[16]
In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of the
Agreement is not contrary to Article 1174 of the Civil Code because said provision
does not prohibit parties to a contract from providing for other instances when they
would be exempt from fulfilling their contractual obligations. Globe also claims that
the termination of the RP- US Military Bases Agreement constitutes force
majeure and exempts it from complying with its obligations under the Agreement.
[17] 
On the issue of the propriety of awarding attorney’s fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto
because in refusing to pay rentals for the remainder of the term of the Agreement,
Globe only acted in accordance with its rights.[18]

In G.R. No. 147334,[19] Globe, the petitioner therein, contends that the Court of
Appeals erred in finding it liable for the amount of US$92,238.00, representing
rentals for December 1992, since Philcomsat’s services were actually terminated on
08 November 1992.[20]

In its Comment, Philcomsat claims that Globe’s petition should be dismissed as it

raises a factual issue which is not cognizable by the Court in a petition for review
on certiorari. [21]

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

Philcomsat’s Petition in G.R. No. 147324 and required the parties to submit their
respective memoranda.[22]

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

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in

the two cases, reiterating their arguments in their respective petitions.

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

No reversible error was committed by the Court of Appeals in issuing the assailed
Decision; hence the petitions are denied.

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

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

However, Article 1174, which exempts an obligor from liability on account of

fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which, could not be foreseen, or which,
though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an “act of God,” or natural
occurrences such as floods or typhoons, [24] or an “act of man,” such as riots, strikes
or wars.[25]

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

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

2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.

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

Furthermore, under Article 1306[26] of the Civil Code, parties to a contract may
establish such stipulations, clauses, terms and conditions as they may deem fit, as
long as the same do not run counter to the law, morals, good customs, public order
or public policy.[27]

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

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

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

The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat and Globe
had no control over the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate. Neither did the parties
have control over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement
(and its Supplemental Agreements) under its Resolution No. 141. (Exhibit “2”) on
September 16, 1991 is beyond the control of the parties. This resolution was
followed by the sending on December 31, 1991 o[f] a “Note Verbale” (Exhibit “3”)
by the Philippine Government to the US Government notifying the latter of the
former’s termination of the RP-US Military Bases Agreement (as amended) on 31
December 1992 and that accordingly, the withdrawal of all U.S. military forces from
Subic Naval Base should be completed by said date. Subsequently, defendant
[Globe] received a formal order from Cdr. Walter F. Corliss II Commander USN
dated July 31, 1992 and a notification from ATT dated July 29, 1992 to terminate
the provision of T1s services (via an IBS Standard B Earth Station) effective
November 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said
order and letter by the defendant on August 06, 1992.

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the
Government of the Philippines and circumstances beyond the control of the
defendant. The formal order from Cdr. Walter Corliss of the USN, the letter
notification from ATT and the complete withdrawal of all the military forces and
personnel from Cubi Point in the year-end 1992 are also acts and circumstances
beyond the control of the defendant.

Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute “force majeure or fortuitous event(s) as defined under
paragraph 8 of the Agreement.
 …

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

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

amended) the continued stay of all US Military forces and personnel from Subic
Naval Base would no longer be allowed, hence, plaintiff would no longer be in any
position to render the service it was obligated under the Agreement. To put it
blantly (sic), since the US military forces and personnel left or withdrew from Cubi
Point in the year end December 1992, there was no longer any necessity for the
plaintiff to continue maintaining the IBS facility…. [32] (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement
until the end of its five-year term without fault on the part of either party. The
Court of Appeals was thus correct in ruling that the happening of such fortuitous
events rendered Globe exempt from payment of rentals for the remainder of the
term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even

though Philcomsat cannot be compelled to perform its corresponding obligation
under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSAT’s position. PHILCOMSAT would
like to charge GLOBE rentals for the balance of the lease term without there being
any corresponding telecommunications service subject of the lease. It will be
grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service
that was not and could not have been rendered due to an act of the government
which was clearly beyond GLOBE’s control. The binding effect of a contract on both
parties is based on the principle that the obligations arising from contracts have the
force of law between the contracting parties, and there must be mutuality between
them based essentially on their equality under which it is repugnant to have one
party bound by the contract while leaving the other party free therefrom (Allied
Banking Corporation v. Court of Appeals, 284 SCRA 357)….[33]
With respect to the issue of whether Globe is liable for payment of rentals for the
month of December 1992, the Court likewise affirms the appellate court’s ruling
that Globe should pay the same.

Although Globe alleged that it terminated the Agreement with Philcomsat effective
08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US
Navy, the date when they actually ceased using the earth station subject of the
Agreement was not established during the trial. [34] However, the trial court found
that the US military forces and personnel completely withdrew from Cubi Point only
on 31 December 1992.[35] Thus, until that date, the USDCA had control over the
earth station and had the option of using the same. Furthermore, Philcomsat could
not have removed or rendered ineffective said communication facility until after 31
December 1992 because Cubi Point was accessible only to US naval personnel up to
that time. Hence, the Court of Appeals did not err when it affirmed the trial court’s
ruling that Globe is liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not
entitled to attorney’s fees and exemplary damages.

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

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

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

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision  of

the Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.

SO ORDERED.

Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Puno, J., (Chairman), on official leave.

[ G.R. NO. 147839, June 08, 2006 ]

GAISANO CAGAYAN, INC. PETITIONER, VS. INSURANCE
COMPANY OF NORTH AMERICA, RESPONDENT.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision[1] dated

October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set
aside the Decision dated August 31, 1998 of the  Regional Trial Court, Branch 138,
Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages
of Insurance Company of North America (respondent) against Gaisano Cagayan,
Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks
owned by Levi Strauss & Co..  IMC and LSPI separately obtained from respondent
fire insurance policies with book debt endorsements.  The insurance policies provide
for coverage on "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."[2]  The policies defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days after the time
of the loss covered under this Policy."[3] The policies also provide for the following
conditions:

1. Warranted that the Company shall not be liable for any unpaid account in
respect of the merchandise sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess of six (6) months from
the date of the covering invoice or actual delivery of the merchandise
whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12)
days after the close of every calendar month all amount shown in their books
of accounts as unpaid and thus become receivable item from their customers
and dealers.  x x x[4]

xxxx

Petitioner is a customer and dealer of the products of IMC and LSPI. On February
25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by
petitioner, was consumed by fire.  Included in the items lost or destroyed in the fire
were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner.

It alleges that IMC and LSPI filed with respondent their claims under their
respective fire insurance policies with book debt endorsements; that as of February
25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made
clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00;
that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent
was subrogated to their rights against petitioner; that respondent made several
demands for payment upon petitioner but these went unheeded.[5]

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it
could not be held liable because the property covered by the insurance policies
were destroyed due to fortuities event or force majeure; that respondent's right of
subrogation has no basis inasmuch as there was no breach of contract committed
by it since the loss was due to fire which it could not prevent or foresee; that IMC
and LSPI never communicated to it that they insured their properties; that it never
consented to paying the claim of the insured.[6]

At the pre-trial conference the parties failed to arrive at an amicable settlement. [7] 
Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's
complaint.[8] It held that the fire was purely accidental; that the cause of the fire
was not attributable to the negligence of the petitioner; that it has not been
established that petitioner is the debtor of IMC and LSPI; that since the sales
invoices state that "it is further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains the property
of the vendor until the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.[9]  On October 11, 2000, the CA

rendered its decision setting aside the decision of the RTC. The dispositive portion
of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan,
Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-

appellant to the insured Inter Capitol Marketing Corporation, plus legal
interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-

appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the
time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.[10]
The CA held that the sales invoices are proofs of sale, being detailed statements of
the nature, quantity and cost of the thing sold; that loss of the goods in the fire
must be borne by petitioner since the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to the general rule that if the
thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the
time the loss under the principle of res perit domino; that petitioner's obligation to
IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid
account and as such the obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the insurer has the right to go
against petitioner; that, being a fire insurance with book debt endorsements, what
was insured was the vendor's interest as a creditor.[11]

Petitioner filed a motion for reconsideration[12] but it was denied by the CA in its

Resolution dated April 11, 2001.[13]
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE  INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON
DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC

SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.
[14]

Anent the first error, petitioner contends that the insurance in the present case
cannot be deemed to be over credit since an insurance "on credit" belies not only
the nature of fire insurance but the express terms of the policies; that it was not
credit that was insured since respondent paid on the occasion of the loss of the
insured goods to fire and not because of the non-payment by petitioner of any
obligation; that, even if the insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior demands were made by IMC
and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance
policies.[15]

As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire
insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in

favor of respondent as no valid insurance could be maintained thereon by IMC and
LSPI since all risk had transferred to petitioner upon delivery of the goods; that
petitioner was not privy to the insurance contract or the payment between
respondent and its insured nor was its consent or approval ever secured; that this
lack of privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made
clothing materials was transferred upon delivery to petitioner, IMC and LSPI have
insurable interest over said goods as creditors who stand to suffer direct pecuniary
loss from its destruction by fire; that petitioner is liable for loss of the ready-made
clothing materials since it failed to overcome the presumption of liability under
Article 1265[16] of the Civil Code; that the fire was caused through petitioner's
negligence in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually short circuit
unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross and
evident bad faith in refusing to pay respondent's valid claim and should be liable to
respondent for contracted lawyer's fees, litigation expenses and cost of suit.[17]
As a general rule, in petitions for review, the jurisdiction of this Court in cases
brought before it from the CA is limited to reviewing questions of law which involves
no examination of the probative value of the evidence presented by the litigants or
any of them.[18] The Supreme Court is not a trier of facts; it is not its function to
analyze or weigh evidence all over again.[19]  Accordingly, findings of fact of the
appellate court are generally conclusive on the Supreme Court. [20]

Nevertheless, jurisprudence has recognized several exceptions in which factual

issues may be resolved by this Court, such as: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings
the CA went beyond the issues of the case, or its  findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion. [21] 
Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy.  Petitioner

claims that the CA erred in construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since such insurance applies to loss
of the ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.[22]  In this case, the questioned
insurance policies provide coverage for "book debts in connection with ready-made
clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."[23]; and defined book debts as
the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy."[24]  Nowhere is it provided in
the questioned insurance policies that the subject of the insurance is the goods sold
and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the terms are
to be understood literally just as they appear on the face of the contract. [25] Thus,
what were insured against were the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and not the loss or destruction
of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved
ownership of the goods by stipulating in the sales invoices that "[i]t is further
agreed that merely for purpose of securing the payment of the purchase price the
above described merchandise remains the property of the vendor until the purchase
price thereof is fully paid."[26]

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk whether actual delivery
has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the
time of such delivery;  (Emphasis supplied)

xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its
debt, the risk of loss is borne by the buyer.[27]  Accordingly, petitioner bears the risk
of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods.  They have an
insurable interest until full payment of the value of the delivered goods.  Unlike the
civil law concept of res perit domino, where ownership is the basis for consideration
of who bears the risk of loss, in property insurance, one's interest is not determined
by concept of title, but whether insured has substantial economic interest in the
property.[28]

Section 13 of our Insurance Code defines insurable interest as "every interest in

property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same Code, an insurable interest
in property may consist in: (a) an existing interest; (b) an inchoate interest
founded on existing interest; or (c) an expectancy, coupled with an existing interest
in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property

interest in, or a lien upon, or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite to the existence of such an
interest, it is sufficient that the insured is so situated with reference to the property
that he would be liable to loss should it be injured or destroyed by the peril against
which it is insured.[29] Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction. [30]  Indeed, a
vendor or seller retains an insurable interest in the property sold so long as he has
any interest therein, in other words, so long as he would suffer by its destruction,
as where he has a vendor's lien.[31]  In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days
after the time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 1174[32] of the Civil Code is misplaced.  As held earlier, petitioner bears the
loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods
by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45
days after the fire.  Accordingly, petitioner's obligation is for the payment of
money.  As correctly stated by the CA, where the obligation consists in the payment
of money, the failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability.[33] The rationale for this is that
the rule that an obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in case of
fortuitous event.  It does not apply when the obligation is pecuniary in nature.[34]

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind does not extinguish the
obligation." If the obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any particular designation or
physical segregation from all others of the same class, the loss or destruction of
anything of the same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the obligation. [35] This rule
is based on the principle that the genus of a thing can never perish. Genus
nunquan perit.[36] An obligation to pay money is generic; therefore, it is not excused
by fortuitous loss of any specific property of the debtor. [37]

Thus, whether fire is a fortuitous event or petitioner was negligent are matters
immaterial to this case. What is relevant here is whether it has been established
that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits
"C" to "C-22"[38] show that petitioner has an outstanding account with IMC in the
amount of P2,119,205.00. Exhibit "E"[39] is the check voucher evidencing payment
to IMC. Exhibit "F"[40] is the subrogation receipt executed by IMC in favor of
respondent upon receipt of the insurance proceeds. All these documents have been
properly identified, presented and marked as exhibits in court.  The subrogation
receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance
claim.  The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.[41] Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207.  If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract.  x x x
Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of

action.  No evidentiary weight can be given to Exhibit "F Levi Strauss", [42] a letter
dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr.,
since it is not an admission of petitioner's unpaid account with LSPI.  It only
confirms the loss of Levi's products in the amount of P535,613.00 in the fire that
razed petitioner's building on February 25, 1991. 

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no

subrogation receipt was offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated

October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in
CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to
pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION
[ G.R. NO. 159617, August 08, 2007 ]
ROBERTO C. SICAM AND AGENCIA DE R.C. SICAM, INC.,
PETITIONERS, VS. LULU V. JORGE AND CESAR JORGE,
RESPONDENTS.

DECISION

AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr.
(petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking
to annul the Decision[1] of the Court of Appeals dated March 31, 2003, and its
Resolution[2] dated August 8, 2003, in CA G.R. CV No. 56633.

It appears that on different dates from September to October 1987, Lulu V. Jorge
(respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a
loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. The incident was
entered in the police blotter of the Southern Police District, Parañaque Police
Station as follows:

Investigation shows that at above TDPO, while victims were inside the office, two
(2) male unidentified persons entered into the said office with guns drawn.
Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and
thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward
Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the
floor. Suspects asked forcibly the case and assorted pawned jewelries items
mentioned above.

Suspects after taking the money and jewelries fled on board a Marson Toyota
unidentified plate number.[3]

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing
her of the loss of her jewelry due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a letter [4] to petitioner Sicam
expressing disbelief stating that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the pawnshop since it had been the
practice that before they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed
a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was docketed as Civil Case
No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest
as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C.
Sicam, Inc; that petitioner corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made liable for an event
that is fortuitous.

Respondents subsequently filed an Amended Complaint to include petitioner

corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned

considering that he is not the real party-in-interest. Respondents opposed the
same. The RTC denied the motion in an Order dated November 8, 1989. [5]

After trial on the merits, the RTC rendered its Decision[6] dated January 12, 1993,
dismissing respondents' complaint as well as petitioners' counterclaim. The RTC
held that petitioner Sicam could not be made personally liable for a claim arising
out of a corporate transaction; that in the Amended Complaint of respondents, they
asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and
that as a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the
loss of the pawned jewelry since it had not been rebutted by respondents that the
loss of the pledged pieces of jewelry in the possession of the corporation was
occasioned by armed robbery; that robbery is a fortuitous event which exempts the
victim from liability for the loss, citing the case of Austria v. Court of Appeals;[7] and
that the parties' transaction was that of a pledgor and pledgee and under Art. 1174
of the Civil Code, the pawnshop as a pledgee is not responsible for those events
which could not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31,
2003, the CA reversed the RTC, the dispositive portion of which reads as follows:

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

Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is
hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the
actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of
P27,200.00.[8]

In finding petitioner Sicam liable together with petitioner corporation, the CA

applied the doctrine of piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were dealing with the pawnshop
owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop
tickets that it was the petitioner corporation that owned the pawnshop which
explained why respondents had to amend their complaint impleading petitioner
corporation.

The CA further held that the corresponding diligence required of a pawnshop is that
it should take steps to secure and protect the pledged items and should take steps
to insure itself against the loss of articles which are entrusted to its custody as it
derives earnings from the pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the robbery incident happened in
1961 when the criminality had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory negligence and should be held
liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks
in that those engaged in the pawnshop business are expected to foresee.

The CA concluded that both petitioners should be jointly and severally held liable to
respondents for the loss of the pawned jewelry.

Petitioners' motion for reconsideration was denied in a Resolution dated August 8,

2003.

Hence, the instant petition for review with the following assignment of errors:

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO

REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS
OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE
RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY
UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO

REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY
(BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS
IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT
THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.[9]

Anent the first assigned error, petitioners point out that the CA's finding that
petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual
and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants'
brief."[10]

Petitioners argue that the reproduced arguments of respondents in their Appellants'

Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint
that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of
respondents;

(2) The issue resolved against petitioner Sicam was not among those raised and
litigated in the trial court; and

(3) By reason of the above infirmities, it was error for the CA to have pierced the
corporate veil since a corporation has a personality distinct and separate from its
individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence
is likewise an unedited reproduction of respondents' brief which had the following
defects:

(1) There were unrebutted evidence on record that petitioners had observed the
diligence required of them, i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was discouraged by the Central
Bank (CB) since CB rules provide that they can only store the pawned articles in a
vault inside the pawnshop premises and no other place;

(2) Petitioners were adjudged negligent as they did not take insurance against the
loss of the pledged jelweries, but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover pawnshops and banks because of
high probability of losses due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the

victim of robbery was exonerated from liability for the sum of money belonging to
others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply thereto. The
parties subsequently submitted their respective Memoranda.

We find no merit in the petition.

To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents' (appellants') brief filed with
the CA, we find the same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the facts and the law on
which it is based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as long as these are
legally tenable and supported by law and the facts on records. [11]

Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors
of law committed by the appellate court. Generally, the findings of fact of the
appellate court are deemed conclusive and we are not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the court a quo.
[12]
 This rule, however, is not without exceptions, such as where the factual findings
of the Court of Appeals and the trial court are conflicting or contradictory [13] as is
obtaining in the instant case.

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

absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner
Sicam liable together with petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues. [14] The theory of corporate entity was not meant to
promote unfair objectives or otherwise to shield them. [15]

Notably, the evidence on record shows that at the time respondent Lulu pawned her
jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly
observed by the CA, in all the pawnshop receipts issued to respondent Lulu in
September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that
the pawnshop was allegedly incorporated in April 1987. The receipts issued after
such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the wrong impression to
respondents and the public as well, that the pawnshop was owned solely by
petitioner Sicam and not by a corporation.

Even petitioners' counsel, Atty. Marcial T. Balgos, in his letter [16] dated October 15,
1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

We also find no merit in petitioners' argument that since respondents had alleged in
their Amended Complaint that petitioner corporation is the present owner of the
pawnshop, the CA is bound to decide the case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or
written, made by a party in the course of the proceedings in the same case, does
not require proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party making
it and does not require proof, admits of two exceptions, to wit: (1) when it is shown
that such admission was made through palpable mistake, and (2) when it is shown
that no such admission was in fact made. The latter exception allows one to
contradict an admission by denying that he made such an admission. [17]

The Committee on the Revision of the Rules of Court explained the second
exception in this wise:

x x x if a party invokes an "admission" by an adverse party, but cites the admission

"out of context," then the one making the "admission" may show that he made no
"such" admission, or that his admission was taken out of context.

x x x that the party can also show that he made no "such admission", i.e.,
not in the sense in which the admission is made to appear.

That is the reason for the modifier "such" because if the rule simply states that the
admission may be contradicted by showing that "no admission was made," the rule
would not really be providing for a contradiction of the admission but just a denial.
[18]
 (Emphasis supplied).

While it is true that respondents alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, they did so only because
petitioner Sicam alleged in his Answer to the original complaint filed against him
that he was not the real party-in-interest as the pawnshop was incorporated in April
1987. Moreover, a reading of the Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and petitioner corporation where they
(respondents) pawned their assorted pieces of jewelry and ascribed to both the
failure to observe due diligence commensurate with the business which resulted in
the loss of their pawned jewelry.

Markedly, respondents, in their Opposition to petitioners' Motion to Dismiss

Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:

Roberto C. Sicam was named the defendant in the original complaint because the
pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop
was a corporation. In paragraph 1 of his Answer, he admitted the allegations in
paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now
the real party in interest in this case."

It was defendant Sicam's omission to correct the pawnshop tickets used in the
subject transactions in this case which was the cause of the instant action. He
cannot now ask for the dismissal of the complaint against him simply on the mere
allegation that his pawnshop business is now incorporated. It is a matter of
defense, the merit of which can only be reached after consideration of the evidence
to be presented in due course.[19]

Unmistakably, the alleged admission made in respondents' Amended Complaint was

taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the
fact that petitioner Sicam continued to issue pawnshop receipts under his name and
not under the corporation's name militates for the piercing of the corporate veil.

We likewise find no merit in petitioners' contention that the CA erred in piercing the
veil of corporate fiction of petitioner corporation, as it was not an issue raised and
litigated before the RTC.

Petitioner Sicam had alleged in his Answer filed with the trial court that he was not
the real party-in-interest because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-
trial brief filed by petitioner Sicam, he submitted that as far as he was concerned,
the basic issue was whether he is the real party in interest against whom the
complaint should be directed.[20] In fact, he subsequently moved for the dismissal of
the complaint as to him but was not favorably acted upon by the trial court.
Moreover, the issue was squarely passed upon, although erroneously, by the trial
court in its Decision in this manner:

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is

concerned for the reason that he cannot be made personally liable for a claim
arising from a corporate transaction.

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that "plaintiff pawned assorted jewelries in
defendant's pawnshop." It has been held that " as a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is not the debt or
credit of the stockholder, nor is the stockholder's debt or credit that of a
corporation.[21]

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether
petitioner Sicam is personally liable is inextricably connected with the determination
of the question whether the doctrine of piercing the corporate veil should or should
not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned
articles in their possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they
are not negligent at all.

We are not persuaded.

Article 1174 of the Civil Code provides:

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

Fortuitous events by definition are extraordinary events not foreseeable or

avoidable. It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to foresee or
to avoid. The mere difficulty to foresee the happening is not impossibility to foresee
the same. [22]

To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner; and, (d)
the obligor must be free from any participation in the aggravation of the injury or
loss. [23]

The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it.[24] And, in order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that may have
occasioned the loss. [25]

It has been held that an act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of
the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person's participation --
whether by active intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God. [26]

Petitioner Sicam had testified that there was a security guard in their pawnshop at
the time of the robbery. He likewise testified that when he started the pawnshop
business in 1983, he thought of opening a vault with the nearby bank for the
purpose of safekeeping the valuables but was discouraged by the Central Bank
since pawned articles should only be stored in a vault inside the pawnshop. The
very measures which petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but actually foreseen and
anticipated. Petitioner Sicam's testimony, in effect, contradicts petitioners' defense
of fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by
which the loss of the pawned jewelry may have been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose
the possibility of negligence on the part of herein petitioners. In Co v. Court of
Appeals,[27] the Court held:

It is not a defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered as a fortuitous event. The
fact that a thing was unlawfully and forcefully taken from another's
rightful possession, as in cases of carnapping, does not automatically give
rise to a fortuitous event. To be considered as such, carnapping entails
more than the mere forceful taking of another's property. It must be
proved and established that the event was an act of God or was done
solely by third parties and that neither the claimant nor the person alleged
to be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous event
rests on him who invokes it - which in this case is the private
respondent. However, other than the police report of the alleged carnapping
incident, no other evidence was presented by private respondent to the effect that
the incident was not due to its fault. A police report of an alleged crime, to which
only private respondent is privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car was carnapped.
Carnapping does not foreclose the possibility of fault or negligence on the part of
private respondent.[28]

Just like in Co, petitioners merely presented the police report of the Parañaque
Police Station on the robbery committed based on the report of petitioners'
employees which is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not err in finding
that petitioners are guilty of concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.[29]

Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the special
laws and regulations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that
the creditor shall take care of the thing pledged with the diligence of a good father
of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.

We expounded in Cruz v. Gangan[30] that negligence is the omission to do

something which a reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do; or the doing of something which a
prudent and reasonable man would not do.[31] It is want of care required by the
circumstances.

A review of the records clearly shows that petitioners failed to exercise reasonable
care and caution that an ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the operation of their pawnshop
business. Petitioner Sicam testified, thus:

Court:

Q. Do you have security guards in your pawnshop?

A. Yes, your honor.

Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there
was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the
afternoon and it happened on a Saturday and everything was quiet in the area BF
Homes Parañaque they pretended to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only when it was announced that it
was a hold up.

Q. Did you come to know how the vault was opened?

A. When the pawnshop is official (sic) open your honor the pawnshop is partly
open. The combination is off.

Q. No one open (sic) the vault for the robbers?

A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was open the reason why
the robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.[32]

revealing that there were no security measures adopted by petitioners in the

operation of the pawnshop. Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from unlawful intrusion. There was
no clear showing that there was any security guard at all. Or if there was one, that
he had sufficient training in securing a pawnshop. Further, there is no showing that
the alleged security guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious individuals were allowed to enter
the premises. In fact, it is even doubtful that there was a security guard, since it is
quite impossible that he would not have noticed that the robbers were armed with
caliber .45 pistols each, which were allegedly poked at the employees.
[33]
 Significantly, the alleged security guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners' employees who were present during
the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of
robbery is clearly a proof of petitioners' failure to observe the care, precaution and
vigilance that the circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place on a Saturday afternoon
and the area in BF Homes Parañaque at that time was quiet, there was more
reason for petitioners to have exercised reasonable foresight and diligence in
protecting the pawned jewelries. Instead of taking the precaution to protect them,
they let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.

We, however, do not agree with the CA when it found petitioners negligent for not
taking steps to insure themselves against loss of the pawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for
Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to
Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns
pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and against
burglary as well as for the latter(sic), by an insurance company accredited by the
Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No. 764 which
took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns - The office building/premises and
pawns of a pawnshop must be insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the
Central Bank considered it not feasible to require insurance of pawned articles
against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted
amendment, there is no statutory duty imposed on petitioners to insure the pawned
jewelry in which case it was error for the CA to consider it as a factor in concluding
that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to

exercise the diligence required of them under the Civil Code.

The diligence with which the law requires the individual at all times to govern his
conduct varies with the nature of the situation in which he is placed and the
importance of the act which he is to perform.[34] Thus, the cases of Austria v. Court
of Appeals,[35] Hernandez v. Chairman, Commission on Audit[36] and Cruz v.
Gangan[37] cited by petitioners in their pleadings, where the victims of robbery were
exonerated from liability, find no application to the present case.

In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to
be sold on commission basis, but which Abad failed to subsequently return because
of a robbery committed upon her in 1961. The incident became the subject of a
criminal case filed against several persons. Austria filed an action against Abad and
her husband (Abads) for recovery of the pendant or its value, but the Abads set up
the defense that the robbery extinguished their obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was
guilty of negligence. The CA, however, reversed the RTC decision holding that the
fact of robbery was duly established and declared the Abads not responsible for the
loss of the jewelry on account of a fortuitous event. We held that for the Abads to
be relieved from the civil liability of returning the pendant under Art. 1174 of the
Civil Code, it would only be sufficient that the unforeseen event, the robbery, took
place without any concurrent fault on the debtor's part, and this can be done by
preponderance of evidence; that to be free from liability for reason of fortuitous
event, the debtor must, in addition to the casus itself, be free of any concurrent or
contributory fault or negligence.[38]

We found in Austria that under the circumstances prevailing at the time the

Decision was promulgated in 1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that rendered travel after nightfall
a matter to be sedulously avoided without suitable precaution and protection; that
the conduct of Maria Abad in returning alone to her house in the evening carrying
jewelry of considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did not hold
Abad liable for negligence since, the robbery happened ten years previously; i.e.,
1961, when criminality had not reached the level of incidence obtaining in 1971.

In contrast, the robbery in this case took place in 1987 when robbery was already
prevalent and petitioners in fact had already foreseen it as they wanted to deposit
the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no
negligence was committed, we found petitioners negligent in securing their
pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the
Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1,
1983, a Friday, he went to Manila to encash two checks covering the wages of the
employees and the operating expenses of the project. However for some reason,
the processing of the check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the project employees would
be waiting for their pay the following day; otherwise, the workers would have to
wait until July 5, the earliest time, when the main office would open. At that time,
he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive
early evening; or (2) take the money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the following day. He chose the second
option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger
jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the
jeep was held up and the money kept by Hernandez was taken, and the robbers
jumped out of the jeep and ran. Hernandez chased the robbers and caught up with
one robber who was subsequently charged with robbery and pleaded guilty. The
other robber who held the stolen money escaped. The Commission on Audit found
Hernandez negligent because he had not brought the cash proceeds of the checks
to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding to encash
the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due
to the lateness of the hour for the following reasons: (1) he was moved by unselfish
motive for his co-employees to collect their wages and salaries the following day, a
Saturday, a non-working, because to encash the check on July 5, the next working
day after July 1, would have caused discomfort to laborers who were dependent on
their wages for sustenance; and (2) that choosing Marilao as a safer destination,
being nearer, and in view of the comparative hazards in the trips to the two places,
said decision seemed logical at that time. We further held that the fact that two
robbers attacked him in broad daylight in the jeep while it was on a busy highway
and in the presence of other passengers could not be said to be a result of his
imprudence and negligence.

Unlike in Hernandez where the robbery happened in a public utility, the robbery in

this case took place in the pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who were allowed entrance to the
premises and to protect itself from unlawful intrusion. Petitioners had failed to
exercise precautionary measures in ensuring that the robbers were prevented from
entering the pawnshop and for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education

and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT)
from Sen. Puyat Avenue to Monumento when her handbag was slashed and the
contents were stolen by an unidentified person. Among those stolen were her wallet
and the government-issued cellular phone. She then reported the incident to the
police authorities; however, the thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional Director of TESDA, and she
requested that she be freed from accountability for the cellphone. The Resident
Auditor denied her request on the ground that she lacked the diligence required in
the custody of government property and was ordered to pay the purchase value in
the total amount of P4,238.00. The COA found no sufficient justification to grant the
request for relief from accountability. We reversed the ruling and found that riding
the LRT cannot per se be denounced as a negligent act more so because Cruz's
mode of transit was influenced by time and money considerations; that she
boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that
any prudent and rational person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone should not hinder one from
boarding the LRT coach as Cruz did considering that whether she rode a jeep or
bus, the risk of theft would have also been present; that because of her relatively
low position and pay, she was not expected to have her own vehicle or to ride a
taxicab; she did not have a government assigned vehicle; that placing the
cellphone in a bag away from covetous eyes and holding on to that bag as she did
is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the
records did not show any specific act of negligence on her part and negligence can
never be presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop

and they were negligent in not exercising the precautions justly demanded of a
pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals
dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.

Costs against petitioners.

SO ORDERED.

[ G.R. No. 177921, December 04, 2013 ]

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S.
DYCHIAO AND TIU OH YAN, SPOUSES GUILLERMO AND
MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO, PETITIONERS, VS. ALLIED BANK
CORPORATION, RESPONDENT.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] are the Decision[2] dated February

12, 2007 and the Resolution[3] dated May 10, 2007 of the Court of Appeals (CA) in
CA-G.R. CV No. 86896 which reversed and set aside the Decision [4] dated January
17, 2006 of the Regional Trial Court of Makati City, Branch 57 (RTC) in Civil Case
No. 00-1563, thereby ordering petitioners Metro Concast Steel Corporation (Metro
Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo and
Mercedes Dychiao, and Spouses Vicente and Filomena Dychiao (individual
petitioners) to solidarily pay respondent Allied Bank Corporation (Allied Bank) the
aggregate amount of P51,064,094.28, with applicable interests and penalty
charges.

The Facts

On various dates and for different amounts, Metro Concast, a corporation duly
organized and existing under and by virtue of Philippine laws and engaged in the
business of manufacturing steel,[5] through its officers, herein individual petitioners,
obtained several loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts, the details of which
are as follows:

Date Document Amount    

         

Promissory Note No. 96-

December 13, 1996 P 2,000,000.00   
21301[6]

November 7, 1995 Trust Receipt No. 96-202365[7] P 608,603.04   

May 13, 1996  Trust Receipt No. 96-960522[8] P 3,753,777.40   

May 24, 1996  Trust Receipt No. 96-960524[9] P 4,602,648.08   

March 21, 1997 Trust Receipt No. 97-204724[10] P 7,289,757.79   

June 7, 1996  Trust Receipt No. 96-203280[11] P17,340,360.73   

July 26, 1995  Trust Receipt No. 95-201943[12] P 670,709.24   

August 31, 1995  Trust Receipt No. 95-202053[13] P 313,797.41   

November 16, 1995  Trust Receipt No. 96-202439[14] P13,015,109.87   

July 3, 1996  Trust Receipt No. 96-203552[15] P 401,608.89   

June 20, 1995  Trust Receipt No. 95-201710[16] P 750,089.25   

December 13, 1995  Trust Receipt No. 96-379089[17] P 92,919.00   

December 13, 1995 Trust Receipt No. 96/202581[18] P 224,713.58   

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per
annum (p.a.), with penalty charge of 3% per month in case of default; while the
twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a. and
1% penalty charge. By way of security, the individual petitioners executed several
Continuing Guaranty/Comprehensive Surety Agreements[19] in favor of Allied Bank.

Petitioners failed to settle their obligations under the aforementioned promissory

note and trust receipts, hence, Allied Bank, through counsel, sent them demand
letters,[20] all dated December 10, 1998, seeking payment of the total amount of
P51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint
for collection of sum of money[21] (subject complaint) against petitioners before the
RTC, docketed as Civil Case No. 00-1563.

In their second[22] Amended Answer,[23] petitioners admitted their indebtedness to

Allied Bank but denied liability for the interests and penalties charged, claiming to
have paid the total sum of P65,073,055.73 by way of interest charges for the
period covering 1992 to 1997.[24] They also alleged that the economic reverses
suffered by the Philippine economy in 1998 as well as the devaluation of the peso
against the US dollar contributed greatly to the downfall of the steel industry,
directly affecting the business of Metro Concast and eventually leading to its
cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered
the sale of Metro Concast’s remaining assets, consisting of machineries and
equipment, to Allied Bank, which the latter, however, refused. Instead, Allied Bank
advised them to sell the equipment and apply the proceeds of the sale to their
outstanding obligations. Accordingly, petitioners offered the equipment for sale, but
since there were no takers, the equipment was reduced into ferro scrap or scrap
metal over the years.

In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling

(Camiling), expressed interest in buying the scrap metal. During the negotiations
with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of
Allied Bank’s legal department, acted as the latter’s agent. Eventually, with
the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of
Agreement[25] dated November 8, 2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under
which Peakstar obligated itself to purchase the scrap metal for a total consideration
of P34,000,000.00, payable as follows: (a) P4,000,000.00 by way of earnest money
– P2,000,000.00 to be paid in cash and the other P2,000,000.00 to be paid in two
(2) post-dated checks of P1,000,000.00 each;[26] and (b) the balance of
P30,000,000.00 to be paid in ten (10) monthly installments of P3,000,000.00,
secured by bank guarantees from Bankwise, Inc. (Bankwise) in the form of
separate post-dated checks.[27]

Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard,
petitioners asseverated that: (a) their failure to pay their outstanding loan
obligations to Allied Bank must be considered as force majeure; and (b) since Allied
Bank was the party that accepted the terms and conditions of payment proposed by
Peakstar, petitioners must therefore be deemed to have settled their obligations to
Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose Dychiao)
testified[28] during trial that it was Atty. Saw himself who drafted the MoA and
subsequently received[29] the P2,000,000.00 cash and the two (2) Bankwise post-
dated checks worth P1,000,000.00 each from Camiling. However, Atty. Saw turned
over only the two (2) checks and P1,500,000.00 in cash to the wife of Jose
Dychiao.[30]

Claiming that the subject complaint was falsely and maliciously filed, petitioners
prayed for the award of moral damages in the amount of P20,000,000.00 in favor
of Metro Concast and at least P25,000,000.00 for each individual petitioner,
P25,000,000.00 as exemplary damages, P1,000,000.00 as attorney’s fees,
P500,000.00 for other litigation expenses, including costs of suit.

The RTC Ruling

After trial on the merits, the RTC, in a Decision[31] dated January 17, 2006,
dismissed the subject complaint, holding that the “causes of action sued upon had
been paid or otherwise extinguished.” It ruled that since Allied Bank was duly
represented by its agent, Atty. Saw, in all the negotiations and transactions with
Peakstar – considering that Atty. Saw (a) drafted the MoA, (b) accepted the bank
guarantee issued by Bankwise, and (c) was apprised of developments regarding the
sale and disposition of the scrap metal – then it stands to reason that the MoA
between Metro Concast and Peakstar was binding upon said bank.

The CA Ruling

Allied Bank appealed to the CA which, in a Decision [32] dated February 12, 2007,
reversed and set aside the ruling of the RTC, ratiocinating that there was “no legal
basis in fact and in law to declare that when Bankwise reneged its guarantee under
the [MoA], herein [petitioners] should be deemed to be discharged from their
obligations lawfully incurred in favor of [Allied Bank].”[33] The CA examined the MoA
executed between Metro Concast, as seller of the ferro scrap, and Peakstar, as the
buyer thereof, and found that the same did not indicate that Allied Bank intervened
or was a party thereto. It also pointed out the fact that the post-dated checks
pursuant to the MoA were issued in favor of Jose Dychiao.

Likewise, the CA found no sufficient evidence on record showing that Atty. Saw was
duly and legally authorized to act for and on behalf of Allied Bank, opining that the
RTC was “indulging in hypothesis and speculation”[34] when it made a contrary
pronouncement. While Atty. Saw received the earnest money from Peakstar, the
receipt was signed by him on behalf of Jose Dychiao. [35] It also added that “[i]n the
final analysis, the aforesaid checks and receipts were signed by [Atty.] Saw either
as representative of [petitioners] or as partner of the latter’s legal counsel, and not
in anyway as representative of [Allied Bank].”[36]

Consequently, the CA granted the appeal and directed petitioners to solidarily pay
Allied Bank their corresponding obligations under the aforementioned promissory
note and trust receipts, plus interests, penalty charges and attorney’s fees.

Petitioners sought reconsideration[37] which was, however, denied in a

Resolution[38] dated May 10, 2007. Hence, this petition.

The Issue Before the Court

At the core of the present controversy is the sole issue of whether or not the loan
obligations incurred by the petitioners under the subject promissory note and
various trust receipts have already been extinguished.

The Court’s Ruling

Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due,  the condonation or remission of
the debt,  the confusion or merger of the rights of creditor and debtor,
compensation or novation.

In the present case, petitioners essentially argue that their loan obligations to Allied
Bank had already been extinguished due to Peakstar’s failure to perform its own
obligations to Metro Concast pursuant to the MoA. Petitioners classify Peakstar’s
default as a form of force majeure in the sense that they have, beyond their
control, lost the funds they expected to have received from the Peakstar (due to
the MoA) which they would, in turn, use to pay their own loan obligations to Allied
Bank. They further state that Allied Bank was equally bound by Metro Concast’s
MoA with Peakstar since its agent, Atty. Saw, actively represented it during the
negotiations and execution of the said agreement.

Petitioners’ arguments are untenable.

At the outset, the Court must dispel the notion that the MoA would have any
relevance to the performance of petitioners’ obligations to Allied Bank. The MoA is a
sale of assets contract, while petitioners’ obligations to Allied Bank arose from
various loan transactions. Absent any showing that the terms and conditions of the
latter transactions have been, in any way, modified or novated by the terms and
conditions in the MoA, said contracts should be treated separately and distinctly
from each other, such that the existence, performance or breach of one would not
depend on the existence, performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank expressed its conformity to the
assets sale transaction between Metro Concast and Peakstar (as evidenced by the
MoA) is actually irrelevant to the issues related to petitioners’ loan obligations to
the bank. Besides, as the CA pointed out, the fact of Allied Bank’s representation
has not been proven in this case and hence, cannot be deemed as a sustainable
defense to exculpate petitioners from their loan obligations to Allied Bank.

Now, anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s
breach of its obligations to Metro Concast arising from the MoA cannot be classified
as a fortuitous event under jurisprudential formulation. As discussed in Sicam v.
Jorge:[39]

Fortuitous events by definition are extraordinary events not foreseeable or

avoidable. It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same.

To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner;
and, (d) the obligor must be free from any participation in the aggravation of the
injury or loss.[40] (Emphases supplied)

While it may be argued that Peakstar’s breach of the MoA was unforeseen by
petitioners, the same is clearly not “impossible” to foresee or even an event which
is “independent of human will.” Neither has it been shown that said occurrence
rendered it impossible for petitioners to pay their loan obligations to Allied Bank and
thus, negates the former’s force majeure theory altogether. In any case, as earlier
stated, the performance or breach of the MoA bears no relation to the performance
or breach of the subject loan transactions, they being separate and distinct sources
of obligation. The fact of the matter is that petitioners’ loan obligations to Allied
Bank remain subsisting for the basic reason that the former has not been able to
prove that the same had already been paid[41] or, in any way, extinguished. In this
regard, petitioners’ liability, as adjudged by the CA, must perforce stand.
Considering, however, that Allied Bank’s extra-judicial demand on petitioners
appears to have been made only on December 10, 1998, the computation of the
applicable interests and penalty charges should be reckoned only from such date.

WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and
Resolution dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896
are hereby AFFIRMED with MODIFICATION reckoning the applicable interests
and penalty charges from the date of the extrajudicial demand or on December 10,
1998. The rest of the appellate court’s dispositions stand.

SO ORDERED.