FIRST DIVISION

[G.R. No. 149627. September 18, 2003]

KENNETH O. NADELA, petitioner, vs. THE CITY OF CEBU and METRO CEBU DEVELOPMENT PROJECT, respondents.

D E C I S I O NAZCUNA, J.:

Before us is a petition for review on certiorari of the Decision of the Court of Appeals promulgated on April 30, 2001 in CA-G.R. CV No. 61910, which affirmed the Order of the Regional Trial Court of Cebu City, Branch 12, dated March 12, 1998, [1] dismissing the action of petitioner Kenneth O. Nadela for recovery of ownership and possession of a parcel of land with damages against respondents City of Cebu and Metro Cebu Development Project (MCDP).

On March 4, 1997, herein petitioner, Kenneth O. Nadela, filed an action before the Regional Trial Court of Cebu City, Branch 12, for recovery of ownership and possession of a parcel of land with damages and a prayer for the issuance of a temporary restraining order and/or preliminary injunction against respondents.

In his Amended Complaint,[2] petitioner alleged, thus:

1. For more than thirty (30) years, he and his predecessors-in-interest have been in actual, adverse, peaceful and continuous possession in the concept of owner of an unregistered parcel of land described as:

A parcel of agricultural land known as Lot No. Psu-07-006450, situated at Barangay Inayawan, Cebu City, Philippines, and bounded:

North Public Land;

East -- Public Land;

South -- Psu-07-006451 (Heirs of Alipio Bacalso);

West -- Public Land and Property of Felicisimo Rallon.

With an assessed value of SIX THOUSAND (P6,000) PESOS.[3]

2. He merely tolerated respondents act of dumping garbage on his property believing that it will not be prejudicial to his interest. However, sometime in the month of January 1997, respondents, without his consent, dumped thereon not just garbage but also other filling materials. Respondents likewise conducted some earthwork for the purpose of forcibly wresting from him the ownership and possession of said property.

3. In utter disregard of his rights, respondent MCDP blocked the approval of the survey plan of the subject property. Consequently, the Bureau of Lands (now the Lands Management Services), Department of Environment and Natural Resources, Region VII, deferred action on the said plan.

4. Since the month of January 1997, respondent MCDP placed and stationed some security guards in the subject property, thereby preventing him from entering and exercising his right of ownership and possession over the property.

5. Said unlawful acts of respondents will not only cause irreparable injury but will also work injustice to him, and complicate, aggravate and multiply the issues in this case.

Petitioner prayed that pending hearing of the case on the merits, and after the parties shall have been heard, the court issue a writ of preliminary injunction, directing the respondents to desist and refrain from conducting any earthwork, introducing any improvement, or placing any guard on the property. Thereafter, petitioner prayed that judgment be rendered (1) declaring him as the true and lawful owner of the subject property; (2) ordering the respondents and all persons acting in their behalf, control or direction, and/or who derived their right of possession from the respondents, to vacate the subject property; (3) ordering the respondents to pay the sum of P500,000 as actual damages plus the sum ofP50,000 a month until petitioners possession of the subject property shall have been restored, P100,000 as attorneys fees and costs of suit.

Respondent City of Cebu filed a Motion to Dismiss [4] on the ground that petitioner has no cause of action since (1) the suit is against the State and there is no allegation that it has given its consent; and (2) the Complaint itself shows that the case is premature since petitioner admitted that he is in possession in the concept of owner of an unregistered parcel of land.

Respondent MCDP, represented by the Solicitor General, also filed a Motion to Dismiss[5] on the following grounds: (1) the Complaint states no cause of action as the land involved is a public land and thus belongs to the State, petitioner being a mere claimant thereof; (2) petitioner failed to exhaust available administrative remedies; and (3) petitioners suit is barred under the doctrine of state immunity from suit.

Petitioner filed an Opposition[6] to respondents respective motion to dismiss asserting that the property in litigation is a private agricultural land and that neither the doctrine of state immunity from suit nor the general rule of exhaustion of administrative remedies applies in this case. Petitioner brought to the attention of the trial court the following facts:

(1) That pursuant to Land Classification Map No. 222, Project No. 5, Certified on November 20, 1912, the property in litigation (Lot No. PSU-07-006450, situated at

Barangay Inayawan, Pardo, Cebu City) had long been classified as alienable and disposable land;

(2) That the said lot is a portion of a parcel of land originally owned by Alipio O. Bacalso, whose possession of the same commenced way back in 1962, as evidenced by a tax declaration issued in his name;

(3) That on April 22, 1989, spouses Alipio Bacalso and Eleuteria Bacalso assigned their property situated at Barangay Inayawan, Pardo, Cebu City, to Nadela Agro-Industrial Development Corporation;

(4) That in 1993, the same property was declared for taxation purposes in the name of Nadela Agro-Industrial Development Corporation;

(5) That on May 4, 1995, Nadela Agro-Industrial Development Corporation assigned the property in litigation to the plaintiff; and

(6) That for more than thirty (30) years, plaintiff and his predecessors-in-interest paid realty taxes for the property in litigation.[7]

Respondents filed their respective Reply[8] to petitioners Opposition.

On September 19, 1997, Acting Presiding Judge Victorino U. Montecillo issued an Order[9] granting petitioners application for a writ of injunction.

Respondents City of Cebu and MCDP filed their respective Motion for Reconsideration[10] of said Order. Petitioner filed a Comment and Opposition [11] to the motion for reconsideration of respondent MCDP, which in turn filed a Reply. [12] Petitioner filed a Rejoinder[13] to said Reply.

On January 23, 1998, Presiding Judge Aproniano B. Taypin issued an Order[14] setting aside the Order of the Court dated September 19, 1997, which granted the application for a writ of injunction. The trial court ruled that the project undertaken by respondent MCDP falls within the definition of infrastructure project and pursuant to Presidential Decree No. 1818, courts are prohibited from issuing writs of injunction to stop any person, entity or government official from proceeding with or continuing the implementation of any such infrastructure project. The trial court further ordered that the case be tried on the merits.

Respondent City of Cebu filed a Motion for Reconsideration of the Order denying the Motion to Dismiss[15] reiterating therein that the Complaint states no cause of action and is premature as the lot in question is admittedly an unregistered parcel of land; hence, it is still a part of the public domain and owned by the State.

On March 12, 1998, the trial court issued an Order,[16] thus:

ORDER

This is a motion for reconsideration of an Order denying the motion to dismiss filed by the herein defendant, City of Cebu. A copy of said motion was duly furnished to the herein plaintiff thru its counsels on record.

The instant case involved an unregistered parcel of land, henceforth, a part of the public domain and owned by the state. The Tax Declarations presented by the plaintiff are not considered conclusive evidence of ownership, as has been held in the case of Rivera vs. Court of Appeals, 244 SCRA 218. Moreover, the subject property being unclassified, whatever possession the applicant may have had and however long cannot ripen into private ownership. (Director of lands vs. Intermediate Appellate Court, 219 SCRA 339).

Finally, under the Regalian Doctrine, all lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State (Director of Lands v. Intermediate Appellate Court, 219 SCRA 339).

Wherefore, in consideration of all the foregoing, the instant case is hereby dismissed.

SO ORDERED.

Petitioner filed a motion for reconsideration, which was denied by the trial court for being unmeritorious.[17]

Petitioner thereafter appealed to the Court of Appeals alleging that (1) the trial court erred in dismissing Civil Case No. Ceb-19990 without conducting a hearing of the case on the merits; and (2) the trial court acted with grave abuse of discretion and denied him due process when it denied his motion for reconsideration of the order of dismissal. [18]

On April 30, 2001, the Court of Appeals rendered a decision against petitioner, the dispositive portion of which reads:

WHEREFORE, premises considered, the present appeal is hereby dismissed and the appealed Order dated March 12, 1998 in Civil Case No. CEB-19990 is hereby AFFIRMED.[19]

The Court of Appeals ruled that the trial court did not err in ordering the dismissal of the Complaint based on the following:

(1) Petitioners allegations in the Amended Complaint that the disputed property is still an unregistered parcel of land and that he has a pending application for a survey plan with the Lands

Management Bureau of the Department of Environment and Natural Resources, which the appellate court misstated as a pending application for a judicial confirmation of title, are admissions of the States ownership of the property.

(2) Granting that petitioner has been in possession in the concept of owner of the subject property for more than 30 years, still petitioner cannot be deemed to have acquired a grant by operation of law because his possession thereof did not commence since June 12, 1945 as required by Section 48 (b) of the Public Land Act as amended by Presidential Decree No. 1073, considering that the earliest tax declaration he submitted during the hearing on the application for a writ of preliminary injunction was only for the year 1962.

The Court of Appeals also held that in denying petitioners motion for reconsideration of the order of dismissal of the case, the trial court was of the honest opinion, after evaluating the grounds of said motion, that the same was not meritorious.[20] Hence, the appellate court ruled that the trial court did not act with grave abuse of discretion as there was no capricious or whimsical exercise of judgment tantamount to lack of jurisdiction in the issuance of said order.[21]

Petitioner filed a motion for reconsideration, which was denied by the Court of Appeals for lack of merit.[22]

Hence, this appeal.

Petitioner contends that the Court of Appeals erred, thus:

I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING THE REGIONAL TRIAL COURT OF CEBU CITY (BRANCH 12) GRANTING THE MOTION TO DISMISS ON THE GROUND OF NO CAUSE OF ACTION.

II. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN FAILING TO RECOGNIZE PETITIONERS CONSTITUTIONAL RIGHT TO PROPERTY WITHOUT DUE PROCESS AND JUST COMPENSATION.

III. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN FAILING TO RECOGNIZE PETITIONERS CONSTITUTIONAL RIGHT TO DUE PROCESS BY NOT ALLOWING THE LATTER TO PRESENT HIS EVIDENCE-IN-CHIEF IN A TRIAL ON THE MERITS BY REMANDING THE INSTANT CASE TO THE REGIONAL TRIAL COURT FOR FURTHER PROCEEDING. [23]

The Courts Ruling

Petitioner contends that the Court of Appeals erred in affirming the Order of the trial court which granted the motion to dismiss of respondents on the ground that the Complaint states no cause of action. In essence, petitioner asserts in his assigned errors that the allegations in his Amended Complaint are sufficient to establish his cause of action, and said allegations were hypothetically admitted by respondents when they filed a motion to dismiss. Petitioner prays that he be given an opportunity to prove ownership over the subject property in a trial on the merits.

The contention is untenable.

The test of the sufficiency of the facts to constitute a cause of action is whether admitting the facts alleged, the court can render a valid judgment upon the same in

accordance with the prayer of the complaint. [24] In answering the query, only the facts asserted in the complaint must be taken into account without modification although with reasonable inferences therefrom.[25] Nevertheless, in Tan v. Director of Forestry[26] and Santiago v. Pioneer Savings and Loan Bank,[27] evidence submitted by the parties during a hearing in an application for a writ of preliminary injunction was considered by the court in resolving the motion to dismiss. In Llanto v. Ali Dimaporo,[28] this Court held that the trial court can properly dismiss a complaint on a motion to dismiss due to lack of cause of action even without a hearing, by taking into consideration the discussion in said motion and the opposition thereto. In Marcopper Mining Corporation v. Garcia,[29] this Court ruled that the trial court did not err in considering other pleadings, aside from the complaint, in deciding whether or not the complaint should be dismissed for lack of cause of action.

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.[30]

From the allegations in the Complaint, petitioner claims ownership of the subject property for having possessed it in the concept of an owner openly, adversely, peacefully and exclusively for more than 30 years. Petitioner did not allege in his Complaint the actual date when his ownership of the subject property accrued. However, in his Opposition[31] to respondents motion to dismiss, petitioner brought to the attention of the trial court the fact that the said lot is a portion of a parcel of land originally owned by Alipio O. Bacalso, whose possession of the same commenced way back in 1962, as evidenced by a tax declaration issued in his name. (Emphasis supplied.)

Petitioners claim is an assertion that the subject property is private land, or that even assuming it was part of the public domain, petitioner had already acquired imperfect title thereto under Section 48 (b) of Commonwealth Act No. 141, otherwise known as the Public Land Act, as amended by Republic Act No. 1942. [32] Said section provides:

SEC. 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate therefor, under the Land Registration Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors in interest have been in the open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under abona fide claim of acquisition of ownership, for at

least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

Said Section 48(b) was amended by Presidential Decree No. 1073, approved on January 25, 1977, thus:

SEC. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII, of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-in-interest, under a bona fide claim of acquisition of ownership, since June 12, 1945.

In Heirs of Marciano Nagano v. Court of Appeals,[33] we ruled that under Section 48, a subject lot is, for all intents and purposes, segregated from the public domain, because the beneficiary is conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

In Director of Lands v. Bengzon,[34] we also ruled:

We cannot subscribe to the view of petitioner that it is only after a possessor has been issued a certificate of title that the land can be considered private land. In interpreting the provisions of Section 48 (b) of Commonwealth Act No. [141], this Court said in Herico vs. Dar, . . . when the conditions as specified in the foregoing provision are complied with, the possessor is deemed to have acquired, by operation of law, a right to a grant, a government grant, without the necessity of a certificate of title being issued. The land, therefore, ceases to be of the public domain, and beyond the authority of the Director of Lands to dispose of. The application for confirmation is a mere formality, the lack of which does not affect the legal sufficiency of the title as would be evidenced by the patent and the Torrens title to be issued upon the strength of said patent.

In Suzi v. Razon and Director of Lands,[35] we ruled that if, as above stated, the land, the possession of which is in dispute, had already become, by operation of law private property of the plaintiff, there lacking only the judicial sanction of his title, [plaintiff] has the right to bring an action to recover the possession thereof. One claiming private rights must prove that he has complied with Commonwealth Act No. 141, as amended.[36]

Notably, the Court of Appeals knew that petitioner was claiming ownership over the subject property under Section 48 (b) of the Public Land Act. However, it correctly affirmed the dismissal of the case as it properly considered the evidence submitted by

petitioner during the hearing of the application for a writ of preliminary injunction. [37] The Court of Appeals held:

In view of the required length of possession, even if We hypothetically admit the truth of appellants allegation in his complaint that he had been for more than thirty (30) years been in open, continuous, exclusive and notorious possession in concept of owner of the subject land, still he cannot be deemed to have acquired a grant, or a right to a grant, by operation of law, considering his possession thereof did not commence since June 12, 1945 or earlier as required by Sec. 48 (b) and (c), as amended by P.D. No. 1073. Among the documentary evidence submitted by appellant during the hearing on the application for a writ of preliminary injunction are tax declarations in his name and that of his predecessor-in-interest Alipio Bacalso, the oldest being for the year 1962. Appellant, therefore, has not acquired ownership and title under the law, over the property subject of litigation, which remained part of the public domain, exclusively belonging to the State. The trial court thus did not err in ordering the dismissal of the complaint upon the ground of failure to state a cause of action.[38]

Petitioner, therefore, clearly relies on Tax Declaration No. 117609 [39] for the year 1962,[40] the earliest tax declaration presented during the hearing on the application for a writ of preliminary injunction, which appears to be the evidence mentioned in petitioners Opposition[41] to respondents motion to dismiss wherein petitioner brought to the attention of the trial court the fact that the subject property is a portion of a parcel of land originally owned by Alipio O. Bacalso, whose possession of the same commenced way back in 1962, as evidenced by a tax declaration issued in his name (emphasis supplied).

Considering appellants allegation in his Opposition that his predecessor-in-interest, Alipio O. Bacalso, necessarily the first and earliest, in view of the words originally owned, commenced possession of the subject property only in 1962, and his submission of tax declarations, the earliest of which was for the year 1962, [42] during the hearing on the application for a writ of preliminary injunction, petitioner cannot be presumed to have performed all the conditions essential to a Government grant inasmuch as his possession of the subject property did not commence since June 12, 1945 or earlier, as required by Section 48 (b) of Commonwealth Act No. 141, as amended by Presidential Decree No. 1073. Hence, the Court of Appeals did not err in affirming the Order of the trial court dismissing the Complaint on the ground of failure to state a cause of action.

WHEREFORE, in view of the foregoing, the instant petition is DENIED for lack of merit. The questioned Decision of the Court of Appeals in CA-G.R. CV No. 61910 is hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur.

SECOND DIVISION

[G.R. No. 127695. December 3, 2001]

HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R. BACUS, SR., SATURNINO R. BACUS, PRISCILA VDA. DE CABANERO, CARMELITA B. SUQUIB, BERNARDITA B. CARDENAS, RAUL R. BACUS, MEDARDO R. BACUS, ANSELMA B. ALBAN, RICARDO R. BACUS, FELICISIMA B. JUDICO, and DOMINICIANA B. TANGAL, petitioners, vs. HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and VICTORIANA DURAY, respondents.

D E C I S I O NQUISUMBING, J.:

This petition assails the decision dated November 29, 1996, of the Court of Appeals in CA-G.R. CV No. 37566, affirming the decision dated August 3, 1991, of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-8935.

The facts, as culled from the records, are as follows:

On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered by Transfer Certificate of Title No. 48866. The lease was for six years, ending May 31, 1990. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US dollar, which at the time of the execution of the contract was fourteen pesos. [1]

Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary documents, such as a Special Power of Attorney authorizing him to enter into a contract of sale,[2] on behalf of his sisters who were then abroad.

On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Durays adverse claim was annotated by the Register of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No. 3661-A-3-B-2-A.[3]

Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis Bacus with the Lupon Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. At the hearing, Duray presented a certification[4] from the manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with Luis Bacus.[5]

Having failed to reach an agreement before the Lupon, on April 27, 1990, private respondents filed a complaint for specific performance with damages against petitioners before the Regional Trial Court, praying that the latter, (a) execute a deed of sale over the subject property in favor of private respondents; (b) receive the payment of the purchase price; and (c) pay the damages.

On the other hand, petitioners alleged that before Luis Bacus death, private respondents conveyed to them the formers lack of interest to exercise their option because of insufficiency of funds, but they were surprised to learn of private respondents demand. In turn, they requested private respondents to pay the purchase price in full but the latter refused. They further alleged that private respondents did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be deemed legal tender.

On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashiers check in the amount of P650,000[6] payable to petitioners at anytime upon demand.

On August 3, 1991, the Regional Trial Court ruled in favor of private respondents, the dispositive portion of which reads:

Premises considered, the court finds for the plaintiffs and orders the defendants to specifically perform their obligation in the option to buy and to execute a document of sale over the property covered by Transfer Certificate of Title # T-63269 upon payment by the plaintiffs to them in the amount of Six Hundred Seventy-Five Thousand Six Hundred Seventy-Five (P675,675.00) Pesos within a period of thirty (30) days from the date this decision becomes final.

SO ORDERED.[7]

Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied the appeal on November 29, 1996, on the ground that the private respondents exercised their option to buy the leased property before the expiration of the contract of lease. It held:

... After a careful review of the entire records of this case, we are convinced that the plaintiffs-appellees validly and effectively exercised their option to buy the subject property. As opined by the lower court, the readiness and preparedness of the plaintiff on his part, is manifested by his cautionary letters, the prepared bank certification long before the date of May 31, 1990, the final day of the option, and his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had no intention to purchase the property, he would not have bothered to write those letters to the defendant-

appellants (which were all received by them) and neither would he be interested in having his adverse claim annotated at the back of the T.C.T. of the subject property, two (2) months before the expiration of the lease. Moreover, he even went to the extent of seeking the help of the Lupon Tagapamayapa to compel the defendants-appellants to recognize his right to purchase the property and for them to perform their corresponding obligation.[8]

x x x

We therefore find no merit in this appeal.

WHEREFORE, the decision appealed from is hereby AFFIRMED. [9]

Hence, this petition where petitioners aver that the Court of Appeals gravely erred and abused its discretion in:

I. ...UPHOLDING THE TRIAL COURTS RULING IN THE SPECIFIC PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE PROPERTY IN QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION BECOMES FINAL;

II. ...DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF LAW AND JURISPRUDENCE IN UPHOLDING THE DECISION OF THE TRIAL COURT TO THE EFFECT THAT PRIVATE RESPONDENTS HAD EXERCISED THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE PRESENTATION OF THE CERTIFICATION OF THE BANK MANAGER OF A BANK DEPOSIT IN THE NAME OF ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS EQUIVALENT TO A VALID TENDER OF PAYMENT AND A SUFFICIENT COMPLAINCE (SIC) OF A CONDITION FOR THE EXERCISE OF THE OPTION TO BUY; AND

III UPHOLDING THE TRIAL COURTS RULING THAT THE PRESENTATION OF A CASHERS (SIC) CHECK BY THE RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN AFTER THE TERMINATION OF THE TRIAL ON THE MERITS WITH BOTH PARTIES ALREADY HAVING RESTED THEIR CASE, WAS STILL VALID COMPLIANCE OF THE CONDITION FOR THE PRIVATE RESPONDENTS (PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF OPTION TO BUY AND HAD A FORCE OF VALID AND FULL TENDER OF PAYMENT WITHIN THE AGREED PERIOD.[10]

Petitioners insist that they cannot be compelled to sell the disputed property by virtue of the nonfulfillment of the obligation under the option contract of the private respondents.

Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of the Rules of Court govern their petition, and that petitioners only raised questions of facts which this Court cannot properly entertain in a petition for review. They claim that even assuming that the instant petition is one under Rule 45, the same must be denied for the Court of Appeals has correctly determined that they had validly exercised their option to buy the leased property before the contract expired.

In response, petitioners state that private respondents erred in initially classifying the instant petition as one under Rule 65 of the Rules of Court. They argue that the petition is one under Rule 45 where errors of the Court of Appeals, whether evidentiary or legal in nature, may be reviewed.

We agree with private respondents that in a petition for review under Rule 45, only questions of law may be raised.[11] However, a close reading of petitioners arguments reveal the following legal issues which may properly be entertained in the instant petition:

a) When private respondents opted to buy the property covered by the lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner executes a deed of transfer?

b) Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract?

On the first issue, petitioners contend that private respondents failed to comply with their obligation because there was neither actual delivery to them nor consignation in court or with the Municipal, City or Provincial Treasurer of the purchase price before the contract expired. Private respondents bank certificate stating that arrangements were being made by the bank to release P700,000 as a loan to private respondents cannot be considered as legal tender that may substitute for delivery of payment to petitioners nor was it a consignation.

Obligations under an option to buy are reciprocal obligations. [12] The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation.[13] In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners actual execution and delivery of the deed of sale were they required to pay. As earlier stated, the latter was contingent upon the former. In Nietes vs. Court of Appeals, 46 SCRA 654 (1972), we held that notice of the creditors decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required.

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment.In instances, where no debt is due and owing, consignation is not proper.[14] Therefore, petitioners contention that private respondents failed to comply with their obligation under the option to buy because they failed to actually deliver the purchase price or consign it in court before the contract expired and before they execute a deed, has no leg to stand on.

Corollary, private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begin.[15]

In this case, private respondents, as early as March 15, 1990, communicated to petitioners their intention to buy the property and they were at that time undertaking to meet their obligation before the expiration of the contract on May 31, 1990. However, petitioners refused to execute the deed of sale and it was their demand to private respondents to first deliver the money before they would execute the same which prompted private respondents to institute a case for specific performance in the Lupong Tagapamayapa and then in the RTC. On October 30, 1990, after the case had been submitted for decision but before the trial court rendered its decision, private respondents issued a cashiers check in petitioners favor purportedly to bolster their claim that they were ready to pay the purchase price. The trial court considered this in private respondents favor and we believe that it rightly did so, because at the time the check was issued, petitioners had not yet executed a deed of sale nor expressed readiness to do so. Accordingly, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when the cashiers check was issued even after the contract expired.

WHEREFORE, the instant petition is DENIED. The decision dated November 29, 1996 of the Court of Appeals is hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.

Today is Thursday, November 26, 2015

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-13602            April 6, 1918

LEUNG BEN, plaintiff, vs.P. J. O'BRIEN, JAMES A OSTRAND and GEO. R. HARVEY, judges of First Instance of city of Manila,defendants.

Thos. D. Aitken and W. A. Armstrong for plaintiff.Kincaid & Perkins for defendants.

STREET, J.:

This is an application for a writ of certiorari, the purpose of which is to quash an attachment issued from the Court of First Instance of the City of Manila under circumstances hereinbelow stated.

Upon December 12, 1917, an action was instituted in the Court of First Instance of the city of Manila by P. J. O'Brien to recover of Leung Ben the sum of P15,000 alleged to have been lost by the plaintiff to the defendant in a series of gambling, banking and percentage games conducted ruing the two or three months prior to the institution of the suit. In his verified complaint the plaintiff asked for an attachment, under section 424, and 412 (1) of the Code of Civil Procedure, against the property of the defendant, on the ground that the latter was about to depart from the Philippine islands with intent to defraud his creditors. This attachment was issued; and acting under the authority thereof, the sheriff attached the sum of P15,000 which had been deposited by the defendant with the International Banking Corporation.

The defendant thereupon appeared by his attorney and moved the court to quash the attachment. Said motion having dismissed in the Court of First Instance, the petitioner, Leung Ben, the defendant in that action, presented to this court, upon January 8, 1918 his petition for the writ of certiorari directed against P. J. O'Brien and the judges of the Court of First Instance of the city of Manila whose names are mentioned in the caption hereof. The prayer is that the Honorable James A. Ostrand, as the judge having cognizance of the action in said court be required to certify the record to this court for review and that the order of attachment which had been issued should be revoked and discharged. with costs. Upon the filing of said petition in this court the usual order was entered requiring the defendants to show cause why the writ should not issue. The response of the defendants, in the nature of a demurrer, was filed upon January 21, 1918; and the matter is now heard upon the pleadings thus presented.

The provision of law under which this attachment was issued requires that there should be accuse of action arising upon contract, express or implied. The contention of the petitioner is that the statutory action to recover money lost at gaming is that the statutory action to recover money lost at gaming is no such an action as is contemplated in this provision, and he therefore insists that the original complaint shows on its face that the remedy of attachment is not available in aid thereof; that the Court of First Instance acted in excess of its jurisdiction in granting the writ of attachment; that the petitioner has no plain, speedy, and adequate remedy by appeal or otherwise; and that consequently the writ of certiorari supplies the appropriate remedy for his relief.

The case presents the two following questions of law, either of which, if decided unfavorably to the petitioner, will be fatal to his application:

(1) Supposing that the Court of First Instance has granted an attachment for which there is no statutory authority, can this court entertain the present petition and grant the desired relief?

(2) Is the statutory obligation to restore money won at gaming an obligation arising from "contract, express or implied?"

We are of the opinion that the answer to the first question should be in the affirmative. Under section 514 of the Code of Civil Procedure the Supreme Court has original jurisdiction by the writ of certiorari over the proceedings of Courts of First Instance, wherever said courts have exceeded their jurisdiction and there is no plaint, speedy, and adequate remedy. In the same section, it is further declared that the proceedings in the Supreme Court in such cases hall be as prescribed for Courts of First Instance in section 217-221, inclusive, of said Code. This Supreme Court, so far as applicable, the provisions contained in those section to the same extent as if they had been reproduced verbatim immediately after section 514. Turning to section 217, we find that, in defining the conditions under which certiorari can be maintained in a Court of First Instance substantially the same language is used as is the same remedy can be maintained in the Supreme Court of First Instance, substantially the same language is used as is found in section 514 relative to the conditions under which the same remedy can be maintained in the Supreme Court, namely, when the inferior tribunal has exceeded its jurisdiction and there is no appeal, nor any plain, speedy and adequate remedy. In using these expressions the author of the Code of Civil Procedure merely adopted the language which, in American jurisdictions at least, had long ago reached the stage of stereotyped formula.

In section 220 of the same Code, we have a provision relative to the final proceedings in certiorari, and herein it is stated that the court shall determine whether the inferior tribunal has regularly pursued its authority it shall give judgment either affirming annulling, or modifying the proceedings below, as the law requires. The expression, has not regularly pursued its authority as here used, is suggestive, and we think it should be construed in connection with the other expressions have exceeded their jurisdiction, as used in section 514, and has exceeded their jurisdiction as used in section 217. Taking the three together, it results in our opinion that any irregular exercise of juridical power by a Court of First Instance, in excess of its lawful jurisdiction, is remediable by the writ of certiorari, provided there is no other plain, speedy, and adequate remedy; and in order to make out a case for the granting of the writ it is not necessary that the court should have acted in the matter without any jurisdiction whatever. Indeed the repeated use of expression excess of jurisdiction shows that the lawmaker contemplated the situation where a court, having jurisdiction should irregularly transcend its authority as well as the situation where the court is totally devoid of lawful power.

It may be observed in this connection that the word jurisdiction as used in attachment cases, has reference not only to the authority of the court to entertain the principal action but also to its authority to issue the attachment, as dependent upon the existence of the statutory ground. (6 C. J., 89.) This distinction between jurisdiction to issue the attachment as an ancillary remedy incident to the principal litigation is of importance; as a court's jurisdiction over the main action may be complete, and yet it may lack authority to grant an attachment as ancillary to such action. This distinction between jurisdiction over the ancillary has been recognized by this court in connection with actions involving the appointment of a receiver. Thus in Rocha & Co. vs. Crossfield and Figueras (6 Phil. Rep., 355), a receiver had been appointed without legal justification. It was held that the order making the appointment was beyond the jurisdiction of the court; and though the court admittedly had jurisdiction of the main cause, the order was vacated by this court upon application a writ of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep., 358, Blanco vs. Ambler and McMicking 3 Phil. Rep., 735, Yangco

vs. Rohde, 1 Phil. Rep., 404.)

By parity of reasoning it must follow that when a court issues a writ of attachment for which there is no statutory authority, it is acting irregularly and in excess of its jurisdiction, in the sense necessary to justify the Supreme Court in granting relief by the writ of certiorari. In applying this proposition it is of course necessary to take account of the difference between a ground of attachment based on the nature of the action and a ground of attachment based on the acts or the conditions of the defendant. Every complaint must show a cause of action some sort; and when the statue declares that the attachment may issue in an action arising upon contract, the express or implied, it announces a criterion which may be determined from an inspection of the language of the complaint. The determination of this question is purely a matter of law. On the other hand, when the stature declares that an attachment may be issued when the defendant is about to depart from the Islands, a criterion is announced which is wholly foreign to the cause of action; and the determination of it may involve a disputed question of fact which must be decided by the court. In making this determination, the court obviously acts within its powers; and it would be idle to suppose that the writ of certiorari would be available to reverse the action of a Court of First Instance in determining the sufficiency of the proof on such a disputed point, and in granting or refusing the attachment accordingly.

We should not be understood, in anything that has been said, as intending to infringe the doctrine enunciated by this court in Herrera vs. Barretto and Joaquin (25 Phil. Rep., 245), when properly applied. It was there held that we would not, upon application for a writ of certiorari, dissolve an interlocutory mandatory injunction that had been issued in a Court of First Instance as an incident in an action of mandamus. The issuance of an interlocutory injunction depends upon conditions essentially different from those involved in the issuance of an attachment. The injunction is designed primarily for the prevention of irreparable injury and the use of the remedy is in a great measure dependent upon the exercise of discretion. Generally, it may be said that the exercise of the injunctive powers is inherent in judicial authority; and ordinarily it would be impossible to distinguish between the jurisdiction of the court in the main litigation and its jurisdiction to grant an interlocutory injunction, for the latter is involved in the former. That the writ of certiorari can not be used to reverse an order denying a motion for a preliminary injunction is of course not to cavil. (Somes vs. Crossfield and Molina, 8 Phil. Rep., 284.)

But it will be said that the writ of certiorari is not available in this cae, because the petitioner is protected by the attachment bond, and that he has a plain, speedy, and adequate remedy appeal. This suggestion seems to be sufficiently answered in the case of Rocha & Co vs. Crossfield and Figueras (6 Phil. Rep., 355), already referred to, and the earlier case there cited. The remedy by appeal is not sufficiently speedy to meet the exigencies of the case. An attachment is extremely violent, and its abuse may often result in infliction of damage which could never be repaired by any pecuniary award at the final hearing. To postpone the granting of the writ in such a case until the final hearing and to compel the petitioner to bring the case here upon appeal merely in order to correct the action of the trial court in the matter of allowing the attachment would seem both unjust and unnecessary.

Passing to the problem propounded in the second question it may be observed that, upon general principles,. recognize both the civil and common law, money lost in gaming and voluntarily paid by the loser to the winner can not in the absence of statue, be recovered in a civil action. But Act No. 1757 of the Philippine Commission, which defines and penalizes several forms of gambling, contains numerous provisions recognizing the right to recover money lost in gambling or in the playing of certain games (secs. 6, 7, 8, 9, 11). The original complaint in the action in the Court of First Instance is not clear as to the particular section of Act No. 1757 under which the action is brought, but it is alleged that the money was lost at gambling, banking, and percentage game in which the defendant was banker. It must therefore be assumed that the action is based upon the right of recovery given in Section 7 of said Act, which declares that an action may be brought against the banker by any person losing money at a banking or percentage game.

Is this a cause arising upon contract, express or implied, as this term is used in section 412 of the Code of Civil Procedure? To begin the discussion, the English version of the Code of Civil Procedure is controlling (sec. 15, Admin. Code, ed. of 1917). Furthermore it is universally admitted to be proper in the interpretation of any statute, to consider its historical antecedents and its juris prudential sources. The Code of Civil Procedure, as is well known, is an American contribution to Philippine legislation. It therefore speaks the language of the common-law and for the most part reflects its ideas. When the draftsman of this Code used the expression contract, express or implied, he used a phrase that has been long current among writers on American and English law; and it is therefore appropriate to resort to that system of law to discover the appropriate to resort to that system of law to discover the meaning which the legislator intended to convey by those meaning which the legislator intended to convey by those terms. We remark in passing that the expression contrato tracito, used in the official translation of the Code of Civil Procedure as the Spanish equivalent of implied contract, does not appear to render the full sense of the English expression.

The English contract law, so far as relates to simple contracts is planted upon two foundations, which are supplied by two very different conceptions of legal liability. These two conceptions are revealed in the ideas respectively underlying (1) the common- law debt and (2) the assumptual promise. In the early and formative stages of the common-law the only simple contract of which the courts took account was the real contract or contract re, in which the contractual duty imposed by law arises upon the delivery of a chattle, as in the mutuum, commodatum,depositum, and the like; and the purely consensual agreements of the Roman Law found no congenial place in the early common law system.

In course of time the idea underlying the contract re was extended so as to include from one person to another under such circumstances as to constitute a justa cuas debendi. The obligation thereby created was a debt. The constitutive element in this litigation is found in the fact that the debtor has received something from the creditor, which he is bound by the obligation of law to return or pay for. From an early day this element was

denominated the quid pro quo, an ungainly phrase coined by Mediaeval Latinity. The quid pro quo was primarily a materials or physical object, and its constituted the recompense or equivalent acquired by the debtor. Upon the passage of thequid pro quo from one party to the other, the law imposed that real contractual duty peculiar to the debt. No one conversant with the early history of English law would ever conceive of the debt as an obligation created by promise. It is the legal duty to pay or deliver a sum certain of money or an ascertainable quantity of ponderable or measurable chattles.

The ordinary debt, as already stated, originates in a contract in which a quid pro quo passes to the debtor at the time of the creation of the debt, but the term is equally applicable to duties imposed by custom or statute, or by judgment of a court.

The existence of a debt supposes one person to have possession of thing (res) which he owes and hence ought to turn over the owner. This obligation is the oldest conception of contract with which the common law is familiar; and notwithstanding the centuries that have rolled over Westminster Hall that conception remains as one of the fundamental bases of the common-law contract.

Near the end of the fifteenth century there was evolved in England a new conception of contractual liability, which embodied the idea of obligation resulting from promise and which found expression in the common law assumpsit, or parol promise supported by a consideration. The application of this novel conception had the effect of greatly extending the filed of contractual liability and by this means rights of action came to be recognized which had been unknown before. The action of assumpsit which was the instrument for giving effect to this obligation was found to be a useful remedy; and presently this action came to be used for the enforcement of common-law debts. The result was to give to our contract law the superficial appearance of being based more or less exclusively upon the notion of the obligation of promise.

An idea is widely entertained to the effect that all simple contracts recognized in the common-law system are referable to a singly category. They all have their roots, so many of us imagine, in one general notion of obligation; and of course the obligation of promise is supposed to supply this general notion, being considered a sort of menstruum in which all other forms of contractual obligation have been dissolved. This a mistake. The idea of contractual duty embodied in the debt which was the first conception of contract liability revealed in the common law, has remained, although it was detained to be in a measure obscured by the more modern conception of obligation resulting from promise.

What has been said is intended to exhibit the fact that the duty to pay or deliver a sum certain of money or an ascertainable quantity of ponderable or measurable chattles — which is indicated by them debt — has ever been recognized, in the common-law system, as a true contract, regardless, of the source of the duty or the manner in which it is create — whether derived from custom, statue or some consensual transaction depending upon the voluntary acts of the parties. the form of contract known as the debt is of the most ancient lineage; and when reference is had to historical antecedents, the right of the debt to be classed as a contract cannot be questioned. Indeed when the new form of engagement consisting of the parol promise supported by a consideration first appeared, it was looked upon as an upstart and its right to be considered a true contract was questioned. It was long customary to refer to it exclusively as an assumpsit, agreement, undertaking, or parol promise, in fact anything but a contract. Only in time did the new form of engagement attain the dignity of being classed among true contract.

The term implied takers us into shadowy domain of those obligations the theoretical classification of which has engaged the attention of scholars from the time of Gaius until our own day and has been a source of as much difficulty to the civilian as to the common-law jurist. There we are concerned with those acts which make one person debtor to another without there having intervened between them any true agreement tending to produce a legal bond (vinculum juris). Of late years some American and English writers have adopted the term quasi-contract as descriptive of these obligations or some of them; but the expression more commonly used is implied contract.

Upon examination of these obligations, from the view point of the common-law jurisprudence, it will be found that they fall readily into two divisions according as they bear an analogy to the common-law debt or to the common law assumpsit. To exhibit the scope of these different classes of obligations is here impracticable. It is only necessary in this connection to observe that the most conspicuous division is that which comprises duties in the nature of debt. The characteristic feature of these obligations is that upon certain states of fact the law imposes an obligation to pay a sum certain of money; and it is characteristic of this obligation that the money in respect to which the duty is raised is conceived as being equivalent of something taken or detained under circumstances giving rise to the duty to return or compensate therefore. The proposition that no one shall be allowed to enrich himself unduly at the expense of another embodies the general principle here lying at the basis of obligation. The right to recover money improperly paid (repeticion de lo indebido) is also recognized as belong to this class of duties.

It will observed that according to the Civil Code obligations are supposed to be derived either from (1) the law, (2) contracts and quasi-contracts, (3) illicit acts and omission, or (4) acts in which some sort ob lame or negligence is present. This enumeration of sources of obligations and the obligation imposed by law are different types. The learned Italian jurist, Jorge Giorgi, criticises this assumption and says that the classification embodied in the code is theoretically erroneous. His conclusion is that one or the other of these categories should have been suppressed and merged in the other. (Giorgi, Teoria de las Obligaciones, Spanish ed., vol. 5 arts. 5, 7, 9.) The validity of this criticism is, we thin, self-evident; and it is of interest to note that the common law makes no distinction between the two sources of liability. The obligations which in the Code are indicated as quasi-contracts, as well as those arising ex lege, are in the common la system, merged into the category of obligations imposed by law, and all are denominated implied contracts.

Many refinements, more or less illusory, have been attempted by various writers in distinguishing different sorts of implied contracts, as for example, the contract implied as of fact and the contract implied as of law. No explanation of these distinctions will be here attempted. Suffice it to say that the term contract, express or implied, is used to by common-law jurists to include all purely personal obligations other than those which have their source in delict, or tort. As to these it may be said that, generally speaking, the law does not impose a contractual duty upon a wrongdoer to compensate for injury done. It is true that in certain situations where a wrongdoer unjustly acquired something at the expense of another, the law imposes on him a duty to surrender his unjust acquisitions, and the injured party may here elect to sue upon this contractual duty instead of suing upon the tort; but even here the distinction between the two liabilities, in contract and in tort, is never lost to sight; and it is always recognized that the liability arising out of the tort is delictual and not of a contractual or quasi-contractual nature.

In the case now under consideration the duty of the defendant to refund the money which he won from the plaintiff at gaming is a duty imposed by statute. It therefore arises ex lege. Furthermore, it is a duty to return a certain sum which had passed from the plaintiff to the defendant. By all the criteria which the common law supplies, this a duty in the nature of debt and is properly classified as an implied contract. It is well- settled by the English authorities that money lost in gambling or by lottery, if recoverable at all, can be recovered by the loser in an action ofindebitatus assumpsit for money had and received. (Clarke vs. Johnson. Lofft, 759; Mason vs. Waite, 17 Mass., 560; Burnham vs. Fisher, 25 Vt., 514.) This means that in the common law the duty to return money won in this way is an implied contract, or quasi-contract.

It is no argument to say in reply to this that the obligation here recognized is called an implied contract merely because the remedy commonly used in suing upon ordinary contract can be here used, or that the law adopted the fiction of promise in order to bring the obligation within the scope of the action of assumpsit. Such statements fail to express the true import of the phenomenon. Before the remedy was the idea; and the use of the remedy could not have been approved if it had not been for historical antecedents which made the recognition of this remedy at one logical and proper. Furthermore, it should not be forgotten that the question is not how this duty but what sort of obligation did the author of the Code of Civil Procedure intend to describe when he sued the term implied contract in section 412.

In what has been said we have assumed that the obligation which is at the foundation of the original action in the court below is not a quasi-contract, when judge by the principles of the civil law. A few observations will show that this assumption is not by any means free from doubt. The obligation in question certainly does not fall under the definition of either of the two-quasi- contracts which are made the subject of special treatment in the Civil Code, for its does not arise from a licit act as contemplated in article 1895. The obligation is clearly a creation of the positive law — a circumstance which brings it within the purview of article 1090, in relation with article, 1089; and it is also derived from an illicit act, namely, the playing of a prohibited game. It is thus seen that the provisions of the Civil Code which might be consulted with a view to the correct theoretical classification of this obligation are unsatisfactory and confusing.

The two obligations treated in the chapter devoted to quasi-contracts in the Civil Code are (1) the obligation incident to the officious management of the affairs of other person (gestion de negocios ajenos) and (2) the recovery of what has been improperly paid (cabro de lo indebido). That the authors of the Civil Code selected these two obligations for special treatment does not signify an intention to deny the possibility of the existence of other quasi-contractual obligations. As is well said by the commentator Manresa.

The number of the quasi-contracts may be indefinite as may be the number of lawful facts, the generations of the said obligations; but the Code, just as we shall see further on, in the impracticableness of enumerating or including them all in a methodical and orderly classification, has concerned itself with two only — namely, the management of the affairs of other person and the recovery of things improperly paid — without attempting by this to exclude the others. (Manresa, 2d ed., vol. 12, p. 549.)

It would indeed have been surprising if the authors of the Code, in the light of the jurisprudence of more than a thousand years, should have arbitrarily assumed to limit the quasi-contract to two obligations. The author from whom we have just quoted further observes that the two obligations in question were selected for special treatment in the Code not only because they were the most conspicuous of the quasi-contracts, but because they had not been the subject of consideration in other parts of the Code. (Opus citat., 550.)

It is well recognized among civilian jurists that the quasi- contractual obligations cover a wide range. The Italian jurist, Jorge Giorgi, to whom we have already referred, considers under this head, among other obligations, the following: payments made upon a future consideration which is not realized or upon an existing consideration which fails; payments wrongfully made upon a consideration which is contrary to law, or opposed to public policy; and payments made upon a vicious consideration or obtained by illicit means (Giorgi, Teoria de las Obligaciones, vol. 5, art. 130.)

Im permitting the recovery of money lost at play, Act No. 1757 has introduced modifications in the application of articles 1798, 180`, and 1305 of the Civil Code. The first two of these articles relate to gambling contracts, while article 1305 treats of the nullity of contracts proceeding from a vicious or illicit consideration. Taking all these provisions together, it must be apparent that the obligation to return money lost at play has a decided affinity to contractual obligations; and we believe that it could, without violence to the doctrines of the civil law, be held that such obligations is an innominate quasi-contract. It is, however, unnecessary to place the decision on this ground.

From what has been said it follows that in our opinion the cause of action stated in the complaints in the court below is based on a contract, express or

implied and is therefore of such nature that the court had authority to issue writ of attachment. The application for the writ of certiorari must therefore be denied and the proceedings dismissed. So ordered.

Arellano, C.J., Torres, Johnson and Carson, JJ., concur.

Separate Opinions

MALCOLM, J., concurring:

As I finished reading the learned and interesting decision of the majority, the impression which remained was that the court was enticed by the nice and unusual points presented to make a hard case out of an easy one and unfortunately t do violence to the principles of certiorari. The simple questions are : Di the Court of First Instance of city of Manila exceed its jurisdiction in granting an attachments against the property of the defendant, now plaintiff? Has this defendant, now become the plaintiff, any other plain, speedy and adequate remedy? The answer are found in the decision of thinks court, in Herrera vs. Barretto and Joaquin ([1913], 25 Phil., 245), from which I quote the following:

It has been repeatedly held by this court that a writ of certiorari will not be issued unless it clearly appears that the court to which it is to be directed acted without or in excess of jurisdiction. It will not be issued to cure errors in the proceedings or to correct erroneous conclusions of law or of fact. If the court has jurisdiction. It will not be issued to cure errors in the proceedings to correct jurisdiction of the subject matter and f the person, decisions upon all question pertaining to the cause are decisions within its jurisdiction and, however irregular or erroneous they may be, cannot be corrected by certiorari. The Code of Civil Procedure giving Courts of First Instance general jurisdiction in actions for mandamus, it goes without saying that the Court of First Instance had jurisdiction in the present case to resolve every question arising in such an action and t decide every question presented to it which pertained to the cause. It has already been held by this court, that while it is a power to be exercised only in extreme case, a Court of First Instance has power to issue a mandatory injunction t stand until the final determination of the action in which it is issued. While the issuance of the mandatory injunction in this particular case may have been irregular and erroneous, a question concerning which we express no opinion, nevertheless its issuance was within the jurisdiction of the court and its action is not reveiwable on certiorari. It is not sufficient to say that it was issued wrongfully and without sufficient grounds and in the absence of the other party. The question is, Did the court act with jurisdiction?

It has been urged that the court exceeded its jurisdiction in requiring the municipal president t issue the license, for the reason that he was not the proper person to issue it and that, if he was the proper person, he had the right to exercise a discretion as to whom the license should be issued. We do not believe that either of these questions goes to the jurisdiction of the court to act. One of the fundamental question in amandamus against a public officer is whether or not that officer has the right to exercise discretion in the performance of the act which the plaintiff asks him to perform. It is one of the essential determinations of the cause. To claim that the resolution of that question may deprive the court of jurisdiction is to assert a novel proposition. It is equivalent to the contention that a court has jurisdiction if he decides right but no jurisdiction if he decides wrong. It may be stated generally that it is never necessary to decide the fundamental questions of a cause to determine whether the court has jurisdiction. The question of jurisdiction is preliminary and never touches the merits of the case. The determination of the fundamental questions of a cause are merely the exercise of a jurisdiction already conceded. In the case at bar no one denies the power, authority or jurisdiction of the Court of First Instance to take cognizance of an action formandamus and to decide very question which arises in that cause and pertains thereto. The contention that the decision of one of those question, if wrong, destroys jurisdiction involves an evident contradiction.

Jurisdiction is the authority to hear and determine a cause — the right to act in a case. Since it is the power to hear and determine, it does not depend either upon the regularity of the exercise of that power or upon the rightfulness of the decision made. Jurisdiction should therefore be distinguished from the exercise of jurisdiction. The authority to decide a case at all, and not the decision rendered therein, is what makes up jurisdiction. Where there is jurisdiction of the person and subject matter, as we have said before, the decision of all other questions arising in the case an exercise of that jurisdiction.

Then follows an elaborate citation and discussion of American authorities, including a decision of the United States Supreme Court and of the applicable Philippine cases. The decision continues"

The reasons givens in these cases last cited for the allowance of the writ of prohibition are applicable only to the class of cases with which the decision deal and do not in any way militate against the general proposition herein asserted. Those which relate to election contest are based upon the principle that those proceedings, are special in their nature and must be strictly followed, a material departure from the statute resulting a loss, or in an excess of jurisdiction. The cases relating to receivers are based, in a

measure, upon the principle the appointment of a receiver being governed by the statute; and in part upon the theory that the appointment of a receiver in an improper case is in substance a bankruptcy proceeding, the taking of which is expressly prohibited by law. The case relative to the allowance of alimony pendente lite when the answer denies the marriage is more difficult to distinguish. The reasons in support of the doctrine laid down in that case are given the opinion in full and they seem to place the particular case to which they refer in a class by itself.

It is not alight things that the lawmakers have abolished writs of error and with them certiorari and prohibition, in so far as they were methods by which the mere errors of an inferior curt could be corrected. As instruments to that end they no longer exist. Their place is no taken by the appeal. So long as the inferior court retains jurisdiction its errors can be corrected only by that method. The office of the writ ofcertiorari has been reduced to the correction of defects of jurisdiction solely and cannot legally be used for any other purpose. It is truly an extra ordinary remedy and in this jurisdiction, its use is restricted to truly extraordinary cases — cases in which the action of the inferior court is wholly void, where any further steps in the case would result in a waste of time and money and would produce no result whatever; where the parties, or their privies, would be utterly deceived; where a final judgment or decree would be nought but a snare and a delusion, deciding nothing, protecting nobody, a juridical pretension, a recorded falsehood, a standing menace. It is only to avoid such result as these that a writ of certiorari is issuable; and even here an appeal will lie if the aggrieved party prefers to prosecute it.

A full and thorough examination of all the decided cases in this court touching the question of certiorari and prohibition fully supports the proposition already stated that, where a Court of First Instance has jurisdiction of the subject matter and of the person, its decision of any question pertaining to the cause, however, erroneous, cannot be reviewed by certiorari, but must be corrected by appeal.

I see no reason to override the decision in Herrera vs. Barretto and Joaquin (supra). Accordingly, I can do no better than to make the language of Justice Moreland my own. applying these principles, it is self-evident that this court should no entertain the present petition and should not grant the desired relief.

FISHER, J., dissenting:

I am in full accord with the view that the remedy of certiorari may be invoked in such cases as this, but I am constrained to dissent from the opinion of the majority as regards the meaning of the term implied contract.

Section 412 of the code of Civil Procedure in connection with section 424, authorizes the preliminary attachment of the property of the defendant: "(1) In an action for the recovery of money or damages on a cause of action arising upon contract, express or implied, when the defendant is about to depart from the Philippine Islands, with intent to defraud his creditors; (2) . . .; (3) . . .; (4) . . .; (5) When the defendant has removed or disposed of his property, or is about to do so, with intent to defraud his creditors."

It is evident that the terms of paragraph five of the article cited are much broader than those of the first paragraph. The fifth paragraph is not limited to action arising from contract, but is by its terms applicable to actions brought for the purpose of enforcing extra-contractual rights as well as contract rights. The limitation upon cases falling under paragraph five is to be found, not in the character of the obligation for the enforcement for which the action is brought, but in the terms of article 4265, which requires that the affidavit show that the amount due the plaintiff . . . is as much as the sum for which the order is granted.

That is to say, when application is made for a preliminary attachment upon the ground that the plaintiff is about to dispose of his property with intent to defraud his creditors — thus bringing the case within the terms of paragraph five of the section — it is not necessary to show that the obligation in suit is contractual in its origin, but is sufficient to show that the breach of the obligation, as shown by the facts stated in the complaint and affidavit, imposes upon the defendant the obligation to pay a specific and definite sum. For example, if it is alleged in the complaint that the defendant by negligence, has caused the destruction by fire of a building belonging to plaintiff, and that such building was worth a certain sum of money, these facts would show a definite basis upon which to authorize the granting of the writ. But if it were averred that the defendant has published a libel concerning the plaintiff, to the injury of his feeling and reputation, there is no definite basis upon which to grant an attachment, because the amount of the damage suffered, being necessarily uncertain and indeterminate, cannot be ascertained definitely until the trail has been completed.

But it appears that the legislature although it has seen fit to authorize a preliminary attachment in aid of action of all kinds when the defendant is concealing his property with intent to defraud his creditors, has provided is about to depart from the country with intent to defraud his creditos, the writ will issue only when the action in aid of which it is sought arises from a contract express or implied. If an attachment were permitted upon facts bringing the application with the first paragraph of the section in support of action of any kind, whether the obligation sued upon is contractual or not,

then paragraph five would by construction be made absolutely identical with paragraph one, and this would be in effect equivalent to the complete eliminated of the last two lines of the first paragraph. It is a rule of statutory construction that effect should be given to all parts of the statue, if possible. I can see no reason why the legislature should have limited cases falling within the firs paragraph to action arising from contract and have refrained from imposing this limitation with respect to cases falling within the terms of the fifth paragraph, but this should have no effect upon us in applying the law. Whether there be a good reason for it or not the distinction exists.

Had the phrase express or implied not been used to qualify contract, there would be no doubt whatever with regard to the meaning of the word. In the Spanish Civil law contract are always consensual, and it would be impossible to define as a contract the judicial relation existing between a person who has lost money at gaming and the winner of such money, simple because the law imposes upon the winner the obligation of making restitution. An obligation of this kind, far from being consensual in its origin, arises against the will of the debtor. To call such a relation a contract is, from the standpoint of the civil law, a contradiction in terms.

But is said that as the phase express or implied has been used to qualify the word contract and these words are found in statue which speaks the language of the common law, this implies the introduction into our law of the concept of the implied contract of the English common-law, a concept which embraces a certain class of obligation originating ex lege, which have been arbitrarily classified as contracts, so that they might be enforced by one of the formal actions of the common law which legal tradition and practice has reserved for the enforcement of contract. I cannot concur in this reasoning. I believe that when a technical juridical term of substantive law is used in the adjective law of these islands, we should seek its meaning in our own substantive law rather than in the law of America or of England. The code of Civil Procedure was not enacted to establish rules of substantive law, but upon the assumption of the existence of these rules.

In the case of Cayce vs. Curtis (Dallam's Decisions Texas Reports, 403), it appears that the legislature, at a time when that State still retained to a large extent the Spanish substantive civil law, enacted a statue in which the word bonds is used. In litigation involving the construction of that statute, one of the parties contended that the work bond should be given the technical meaning which it had in the English Common Law. The court rejected this contention saying —

On the first point it is urged by counsel for the appellant that the word bond used in the statute being a common law term, we must refer to the common law for its legal signification; and that by that law no instrument is a bond which is not under seal. The truth of the proposition that sealing is an absolute requisite to the validity of a bond at common law is readily admitted; but the applicability of that rule of the case under consideration is not perceived. This bond was taken at a time when the common law afforded no rule of decision or practice in this country, and consequently that law cannot be legitimately resorted to, even for the purpose for which it is invoked by the counsel for the appellant, unless it be shown that the civil law had not term of similar import for we regard it as a correct rule of construction, that where technical terms are used in a statute they are to be referred for their signification to terms f similar import in the system of laws which prevails in the country where the statues is passed, and not to another system which is entirely foreign t the whole system of municipal regulations by which that country is governed. (Martin's Reports, vol. 3, 185; 7 Martin [N. S.], 162.)"

Consequently, I believe that in the interpretation of phase "contract, express or implied," we should apply the rules of our own substantive law. The phrase in itself offers no difficulty. The concept of the contract, under the Civil Code, as a legal relation of exclusively consensual origin, offers no difficulty. Nor is any difficulty encountered in the gramatical sense of the words express and "implied". Express according to the New International Dictionary is that which is directly and distinctly stated; expressed, not merely implied or left to interference. Therefore, a contract entered into by means of letters, in which the offer and the acceptance have been manifested by appropriate words, would be an "express contract." The word "imply" according to the same dictionary, is to involve in substance or essence, or by fair inference, or by construction of law, when not expressly stated in words or signs; to contain by implication to include virtually.

Therefore, if I enter a tailor shop and order a suit of clothes, although nothing is said regarding payment, it is an inference, both logical and legal, from my act that is my intention to pay the reasonable value of the garments. The contract is implied, therefore, is that in which the consent of the parties is implied.

Manresa, commenting upon article 1262 of the Civil Code, says:

The essence of consent is the agreement of the parties concerning that which is to constitute the contract . . . . The forms of this agreement may vary according to whether it is expressed verbally or in writing, by words or by acts. Leaving the other differences for consideration hereafter, we will only refer now to those which exist between express consent and implied consent . . . . It is unquestionable that implied consentmanifested by act or conduct, produces a contract. . . .

If it were necessary to have recourse to the English common law for the purpose of ascertaining the meaning of the phrase under consideration, we could find many decisions which gave it the same meaning as that for which I contend.

An implied contract is where one party receives benefits from another party, under such circumstances that the law presume a promise on the part of the party benefited to pay a reasonable price for the same. (Jones vs. Tucker [Del.], 84 Atlantic, 1012.)

It is true that English courts have extended the concept of the term contract to include certain obligations arisingex lege without consent, express or implied. True contracts created by implied consent are designated in the English common law as contracts implied in the fact, while the so-called contracts in which the consent is a fiction of law are called contracts implied by law. But is evident that the latter are not real contracts. They have been called contract arbitrarily by the courts of England, and those of the Untied States in which the English common law is in force, in order that certain actions arising ex lege may be enforced by the action of assumpsit. In the rigid formulism of the English common law the substantive right had to be accommodated to the form of action. As is stated in the monograph on the action of assumpsit in Ruling Case Law. (volume 2, 743) —

In theory it wan action to recover for the nonperformance f simple contracts, and the formula and proceedings were constructed and carried on accordingly. . . . From the reign of Elizabeth this action has been extended to almost every case where an obligation arises from natural reason, . . . and it is now maintained in many cases which its principles do not comprehend and where fictions and intendments are resorted to, to fit the actual cause of action to the theory of the remedy. It is thus sanctioned where there has been no . . . real contract, but where some duty is deemed sufficient to justify the court in imputing the promise to perform its, and hence in bending the transaction to the form of action.

In the ancient English common law procedure the form of the action was regarded as being much more important than the substantive right to be enforced. If no form of action was found in which the facts would fit, so much the worse for the facts! to avoid the injustices to which this condition of affairs gave rise, the judges invented those fictions which permitted them to preserve the appearance of conservatism and change the law without expressly admitting that they were doing so. The indispensable averment, that they were doing so. The indispensable avernment without which the action of assumpsit would not lie, was that the defendant promised to pay plaintiff the amount demanded. (Sector vs. Holmes, 17 Vs., 566.) In true contracts, whether express or implied, this promise in fact exists. In obligations arising ex lege there is no such promise, and therefore the action of assumpsit could not be maintained, and therefore the action of assumpsit could not be maintained, although by reason of its relative simplicity it was one of the most favored forms of action. In order to permit the litigant to make use of this form of action for the enforcement of ascertain classes of obligations arising ex lege, the judges invented the fiction of the promise of the defendant to pay the amount of the obligation, and as this fictitious promise give the appearance of consensuality to the legal relations of the parties, the name of implied contract is given to that class of extra-contractual obligations enforcible by the action of assumpsit.

Now, it is not be supposed that it was the intention of the Legislature in making use in the first paragraph of article 412 of the phrase contract, express or implied to corrupt the logical simplicity of our concept of obligations by importing into our law the antiquated fictions of the mediaeval English common law. If one of the concepts of the term "implied contract" in the English common law, namely, that in which consent is presume from the conduct of the debtor, harmonizes with the concept of the contract in our law, why should we reject that meaning and hold that the Legislature intended to use this phrase in the foreign and illogical sense of a contract arising without consent? This is a civil law country. why should we be compelled to study the fictions of the ancient English common law, in order to be informed as to the meaning of the word contract in the law of the Philippine Islands? Much more reasonable to my mind was the conclusion of the Texas court, under similar circumstances, to the effect to be referred for their signification to terms of similar import in the system of laws which prevails in the country where the statue is passed." (Cayce vs. Curtis, supra.)

My conclusion is that the phase contract, express or implied should be interpreted in the grammatical sense of the words and limited to true contracts, consensual obligations arising from consent, whether expressed in words, writing or signs, or presumed from conduct. As it is evident that the defendant in the present case never promised, him in the gambling game in question, his obligation to restor the amounts won, imposed by the law, is no contractual, but purely extra-contractual and therefore the action brought not being one arising upon contract express or implied, the plaintiff is not entitled to a preliminary attachment upon the averment that the defendant is about to depart from the Philippine Islands with with intent t defraud his creditors, no averment being made in the compliant or in the affidavit that the defendant has removed or disposed of his property, or is about to depart with intent to defraud his creditors, so as to bring the case within the terms of the fifth paragraph of section 412.

I am unable to agree with the contention of the application (Brief, p. 39) here that the phase in question should be interpreted in such a way as to include all obligations, whether arising from consent or ex lege, because that is equivalent to eliminating all distinction between the first and the fifth paragraphs by practically striking out the first two lines of paragraph one. The Legislature has deliberately established this distinction, and while we may be unable to see any reason why it should have been made, it is our duty to apply and interpret the law, and we are not authorized under the guise of interpretation to virtually repeal part of the statute.

Nor can it be said that the relations between the parties litigant constitute a quasi-contract. In the first place, quasi- contracts are "lawful and purely voluntary acts by which the authors thereof become obligated in favor of a third person. . . ." The act which gave rise to the obligation ex lege relied upon by the plaintiff in the court below is illicit— an unlawful gambling game. In the second place, the first paragraph of section 412 of the Code of Civil Procedure does not authorize an attachment in actions arising out of quasi contracts, but only in actions arising out of contract, express or implied.

I am therefore of the opinion that the court below was without jurisdiction to issue that writ of attachment and that the writ should be declared null and void.

Avanceña, J., concurs.

The Lawphil Project - Arellano Law Foundation

Republic of the PhilippinesSupreme Court

Manila  

SPECIAL SECOND DIVISION  

POLO S. PANTALEON,Petitioner,

-         versus -

AMERICAN EXPRESS INTERNATIONAL, INC.,Respondent.

G.R. No. 174269

Present:

CARPIO MORALES, J.,Acting Chairperson,VELASCO, JR.,LEONARDO-DE CASTRO,BRION, and*BERSAMIN, JJ.Promulgated:August 25, 2010

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

R E S O L U T I O N BRION, J.:

 We resolve the motion for reconsideration filed by respondent American Express International, Inc. (AMEX) dated June 8, 2009,[1] seeking to reverse our Decision

dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral and exemplary damages, as well as attorneys fees and costs of litigation.[2]

 FACTUAL ANTECEDENTS

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

 In October 1991, Pantaleon, together with his wife (Julialinda), daughter

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

 The next day, the group began their sightseeing at around 8:50 a.m. with a

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

 While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces

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

 At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his Philippine depository banks. At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even without AMEXs approval. 

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

 From the records, it appears that after Pantaleons purchase was transmitted for approval to AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manilaoffice at 9:33 a.m.; and was approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally transmitted the Approval Code to AMEXsAmsterdam office. In all, it took AMEX a total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store.[7]

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in securing approval for purchases using his American Express credit card on two separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market in Boston on November 3, 1991. Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the credit card company with the Makati City Regional Trial Court (RTC).

On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00 as moral damages, P300,000.00 as exemplary damages,P100,000.00 as attorneys fees, and P85,233.01 as litigation expenses.

 On appeal, the CA reversed the awards.[8] While the CA recognized that

delay in the nature of mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay was not attended by bad faith, malice or gross negligence. The appellate court found that AMEX exercised diligent efforts to effect the approval of Pantaleons purchases; the purchase at Coster posed particularly a problem because it was at variance with Pantaleons established charge pattern. As there was no proof that AMEX breached its

contract, or that it acted in a wanton, fraudulent or malevolent manner, the appellate court ruled that AMEX could not be held liable for any form of damages.

 Pantaleon questioned this decision via a petition for review

on certiorari with this Court. In our May 8, 2009 decision, we reversed the appellate courts decision and

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

 Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the

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

THE MOTION FOR RECONSIDERATION 

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

Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit card, AMEX argues that the transaction necessarily required the credit authorizer to carefully review Pantaleons credit history and bank references. AMEX maintains that it did this not only to ensure Pantaleons

protection (to minimize the possibility that a third party was fraudulently using his credit card), but also to protect itself from the risk that Pantaleon might not be able to pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with the extraordinary degree of diligence required of banks in handling its transactions. AMEX concluded that in these lights, the thorough review of Pantaleons credit record was motivated by legitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.

 AMEX further points out that the proximate cause of Pantaleons humiliation

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

 In his Comment dated February 24, 2010, Pantaleon maintains that AMEX

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

 In response to AMEXs assertion that the delay was in keeping with its duty

to perform its obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt performance of its obligation.

 As to AMEXs contention that moral or exemplary damages cannot be

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

OUR RULING We GRANT the motion for reconsideration.

  Brief historical background 

A credit card is defined as any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods, property, labor or

services or anything of value on credit.[9] It traces its roots to the charge card first introduced by the Diners Club in New York City in 1950.[10] American Express followed suit by introducing its own charge card to the American market in 1958.[11]

 In the Philippines, the now defunct Pacific Bank was responsible for

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

 Nature of Credit Card Transactions 

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

 The bank credit card system involves a tripartite relationship

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

 The merchants participating in the system agree to honor the

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

 These slips are forwarded to the member bank which originally

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

 

 We adopted a similar view in CIR v. American Express International, Inc.

(Philippine branch),[15] where we also recognized that credit card issuers are not limited to banks. We said:

 Under RA 8484, the credit card that is issued by banks in general,

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

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

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

(a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to paybetween the credit card issuer and the merchant or business establishment.[16]

Credit card issuer cardholder relationship 

 When a credit card company gives the holder the privilege of charging items

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

 The issuance of a credit card is but an offer to extend a line of open

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

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

Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling that the mere issuance of a credit card did not create a contractual relationship with the cardholder. On the other end of the spectrum is Gray v. American Express Company[20] which recognized the card membership agreement itself as a binding contract between the credit card issuer and the card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray paid an annual fee for the privilege of being an American Express cardholder. In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the credit card issuer and the credit card holder as a contractual one that is governed by the terms and conditions found in the card membership agreement.[21] This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa. 

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

 

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

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

 Although we recognize the existence of a relationship between the credit

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

 From the loan agreement perspective, the contractual relationship begins to

exist only upon the meeting of the offer[25] and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which provides:

 Article 1319. Consent is manifested by the meeting of the offer

and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

 

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

ii. AMEX not guilty of culpable delay 

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

 Article 1169. Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x x.

  

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

 Based on the above, the first requisite is no longer met because AMEX, by

the express terms of the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a demandable obligation, there can be no finding of default.

 Apart from the lack of any demandable obligation, we also find that

Pantaleon failed to make the demand required by Article 1169 of the Civil Code. As previously established, the use of a credit card to pay for a purchase is

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

 Thus, every time that Pantaleon used his AMEX credit card to pay for his

purchases, what the stores transmitted to AMEX were his offers to execute loan

contracts. These obviously could not be classified as the demand required by law to make the debtor in default, given that no obligation could arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleons offers. Pantaleons act of insisting on and waiting for the charge purchases to be approved by AMEX[28] is not the demand contemplated by Article 1169 of the Civil Code.

 For failing to comply with the requisites of Article 1169, Pantaleons charge

that AMEX is guilty of culpable delay in approving his purchase requests must fail.

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

 Even assuming that AMEX had the right to review his credit card history

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

 Pantaleons assertions fail to convince us. We originally held that AMEX was in culpable delay when it acted on the

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

 AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-

set spending limit in a credit card simply means that the charges made by the cardholder are approved based on his ability to pay, as demonstrated by his past spending, payment patterns, and personal resources.[29] Nevertheless, every time Pantaleon charges a purchase on his credit card, the credit card company still has to determine whether it will allow this charge, based on his past credit history. This right to review a card holders credit history, although not specifically set out in the card membership agreement, is a necessary implication of AMEXs right to deny authorization for any requested charge.

 As for Pantaleons previous experiences with AMEX (i.e., that in the past 12

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

 We next examine the credit card membership agreement, the contract that

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

 Nor can Pantaleon look to the law or government issuances as the source of

AMEXs alleged obligation to act upon his credit card purchases within a matter of seconds. As the following survey of Philippine law on credit card transactions demonstrates, the State does not require credit card companies to act upon its cardholders purchase requests within a specific period of time. 

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

 As financial institutions engaged in the business of providing credit, credit

card companies fall under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).[34] BSP Circular No. 398 dated August 21, 2003 embodies the BSPs policy when it comes to credit cards

The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. (Emphasis supplied)

 Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their

subsidiary credit card companies must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments.[35] As the above-quoted policy expressly states, the general intent is to foster fair and sound consumer credit practices.

 Other than BSP Circular No. 398, a related circular is BSP Circular No. 454,

issued on September 24, 2004, but this circular merely enumerates the unfair collection practices of credit card companies a matter not relevant to the issue at hand. 

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

 Thus far, we have already established that: (a) AMEX had neither a

contractual nor a legal obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEX has a right to review a cardholders credit card history. Our recognition of these entitlements, however, does not give AMEX an unlimited right to put off action on cardholders purchase requests for indefinite periods of time. In acting on cardholders purchase requests, AMEX must take care not to abuse its rights and cause injury to its clients and/or third persons. We cite in this regard Article 19, in conjunction with Article 21, of the Civil Code, which provide:

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

 Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.Article 19 pervades the entire legal system and ensures that a person

suffering damage in the course of anothers exercise of right or performance of duty, should find himself without relief.[36] It sets the standard for the conduct of all persons, whether artificial or natural, and requires that everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c) observe honesty and good faith. It is not because a person invokes his rights that he can do anything, even to the prejudice and disadvantage of another.[37]

 While Article 19 enumerates the standards of conduct, Article 21 provides

the remedy for the person injured by the willful act, an action for damages. We explained how these two provisions correlate with each other in GF Equity, Inc. v. Valenzona:[38]

 [Article 19], known to contain what is commonly referred to as

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

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

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

 It is an elementary rule in our jurisdiction that good faith is presumed and

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

 Pantaleon countered that this review procedure is primarily intended to

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

 We also cannot turn a blind eye to the circumstances surrounding the Coster

transaction which, in our opinion, justified the wait. In Edgardo Jaurigues own words: 

Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the request was relayed at1:33 a.m., can you explain why the approval came after about 46 minutes, more or less? A21: Because we have to make certain considerations and evaluations of [Pantaleons] past spending pattern with [AMEX] at that time before approving plaintiffs request because [Pantaleon] was at that time

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

 x x x x

 Q: Why did it take so long? 

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

  As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for

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

 Finally, we said in Garciano v. Court of Appeals that the right to recover

[moral damages] under Article 21 is based on equity, and he who comes to court to demand equity, must come with clean hands. Article 21 should be construed as granting the right to recover damages to injured persons who are not themselves at fault.[44] As will be discussed below, Pantaleon is not a blameless party in all this. Pantaleons action was the proximate cause for his injury 

Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and humiliation that he felt when the European tour group had to

wait for him and his wife for approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After thoroughly reviewing the records of this case, we have come to the conclusion that Pantaleon is the proximate cause for this embarrassment and humiliation.

 As borne by the records, Pantaleon knew even before entering Coster that

the tour group would have to leave the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam before they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus ahead of his family, returned to the store to inform his family that they were the only ones not on the bus and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale at 9:40 a.m. because he did not want to cause any inconvenience to the tour group. However, when Costers sale manager asked him to wait a few more minutes for the credit card approval, he agreed, despite the knowledge that he had already caused a 10-minute delay and that the city tour could not start without him.

 In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who

knowingly and voluntarily exposes himself to danger cannot claim damages for the resulting injury: 

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

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

 We do not discount the fact that Pantaleon and his family did feel humiliated

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

 

More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under the principle of damnum absque injuria, or damages without legal wrong, loss without injury.[47] As we held in BPI Express Card v. CA:[48]

We do not dispute the findings of the lower court that private respondent suffered damages as a result of the cancellation of his credit card. However, there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty . In such cases, the consequences must be borne by the injured person alone , the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong.These situations are often called damnum absque injuria.

In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the injury.

 Pantaleon is not entitled to damages

 Because AMEX neither breached its contract with Pantaleon, nor acted with

culpable delay or the willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.

 Similarly, we find no basis to award exemplary damages. In contracts,

exemplary damages can only be awarded if a defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.[49] The plaintiff must also show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded.[50]

 As previously discussed, it took AMEX some time to approve Pantaleons

purchase requests because it had legitimate concerns on the amount being charged;

no malicious intent was ever established here. In the absence of any other damages, the award of exemplary damages clearly lacks legal basis.

 Neither do we find any basis for the award of attorneys fees and costs of

litigation. No premium should be placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees.[51] To be entitled to attorneys fees and litigation costs, a party must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code.[52] This, Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must we delete the award for attorney's fees and litigation expenses.

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

 WHEREFORE, premises considered, we SET ASIDE our May 8,

2009 Decision and GRANT the present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs. 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

GR NO. 146021             March 10, 2006

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.ELIZABETH G. SARMIENTO, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari filed by Bank of the Philippine Islands (petitioner) seeking to annul the Decision dated September 15, 20001 and the Resolution dated November 13, 20002 of the Court of Appeals (CA) in CA G.R. CV No. 50135 affirming in toto the decision of the Regional Trial Court of Quezon City dismissing the complaint for sum of money filed by petitioner against Elizabeth Sarmiento (respondent).

The factual backdrop as found by the CA is as follows:

Appellee Sarmiento was the assistant manager of appellant bank's España Branch. Sometime in 1987, the España Branch was investigated for several alleged anomalous transactions involving time deposits (Exhibit A). Among the suspects in the alleged scam was appellee Sarmiento. From October 10, 1987 to June 30, 1988, appellee Sarmiento did not regularly report for work but went to her office in the bank only once in a while. She however received her full salary for the said period totaling P116,003.52. Subsequently, she received a demand from the appellant bank to return said amount because it was mistakenly paid to her. She refused to do so and so appellant bank instituted an action for collection in the court below.

Appellant bank asserted that since appellee Sarmiento did not actually work during the period adverted to, she was not therefore, entitled to receive any salary. The payment to her of said salary was a mistake.

According to appellee Sarmiento however, when an internal audit was being undertaken in connection with the investigation of the alleged bank scam, Vice President Arturo Kimseng of the Audit Department of appellant bank verbally directed her to stop working while the investigation was going on. This directive was obviously for the purpose of preventing appellee Sarmiento from tampering with the records or from influencing her subordinates to cover-up for her. It was because of said oral instruction that appellee Sarmiento went to office sparingly.3

On April 3, 1995, the Regional Trial Court of Quezon City, Branch 98, dismissed 4 the complaint for failure of petitioner to establish its case by preponderance of evidence with costs against it. The trial court found that the principle of solutio indebiti upon which petitioner based its complaint for a sum of money is untenable. It ruled that

since respondent was petitioner's Assistant Manager at the España Branch, she was a managerial employee who was not under obligation to punch in her card in the bundy clock; that she was allowed to visit the business establishments of petitioner's several clients thus she could not be seen reporting for work which was not a conclusive proof that she was not rendering service to her employer; that respondent was lawfully entitled for payment of her salaries for the period from October 10, 1987 to June 30, 1988, amounting to P116,003.52; that petitioner's averment that during the periods aforementioned respondent had already ceased reporting rest on a very shaky ground since respondent claimed that she was instructed by petitioner's Assistant Vice-President of the Auditing Department to refrain from reporting regularly inasmuch as there was an on-going internal audit; that petitioner failed to present countervailing evidence on this point, hence such claim remained unrebutted; and that petitioner did not even bother to adduce clear and convincing evidence when the services of respondent was terminated.

Petitioner filed its appeal with the CA which in a Decision dated September 15, 2000 affirmed the Decision of the trial court and dismissed the appeal. Petitioner's motion for reconsideration was likewise denied in a Resolution dated November 13, 2000.

In finding for the respondent, the CA made the following disquisition:

These are admitted or fully established facts which constitute the foundation of this Court's verdict, to wit:

1. Appellee Sarmiento was an assistant manager of appellant bank's España Branch and therefore was a managerial employee.

2. As a managerial employee, appellee Sarmiento was not required to report for work in accordance with a definite time schedule.

3. For the period, October 10, 1987 to June 30, 1988, appellee Sarmiento went to her office only once in a while but received her full salary for said period.

4. According to appellant bank, appellee Sarmiento's services in said bank were terminated on August 26, 1988. Consequently, for the period, October 10, 1987 to June 30, 1988, appellee was still an employee of the bank.

5. During the period in question, appellee Sarmiento was not suspended from office.

6. No criminal, civil or administrative action has been instituted by appellant bank against appellee Sarmiento.

In this suit, the basis of appellant's bank's claim for reimbursement of the salary paid to appellee Sarmiento for the period in question is the rule of "no work, no pay". Since she did not work during the period in question, she was not entitled to any salary. Appellee Sarmiento counters this position with the argument that the reason why she did not report for work regularly was because she was verbally instructed by Vice-President Arturo Kimseng not to report for work while the investigation in the bank was going on. Consequently, it was not her desire, much less her fault, that she went to office very rarely.

The only issue to resolve is whether or not appellee Sarmiento was indeed verbally instructed by Vice President Arturo Kimseng not to report for work while the investigation was still going on.

It is true that Vice President Arturo Kimseng denied having given said oral instruction to appellee Sarmiento. That notwithstanding, this Court shares the view of the lower court that indeed appellee Sarmiento was enjoined from reporting for work during the period of investigation.

This is plausible because it jibes with the common practice in the business world. When a managerial employee is under investigation, the employer has three options. First: to suspend the managerial employee during the period of investigation - but this entails notice and hearing to comply with the demands of administrative due process. Second: to allow the managerial employee to continue working during the period of investigation so that the employer can derive benefit out of the salary being paid to the former. Third: to let the managerial employee discontinue working during the period of investigation but continue paying his salary. Usually, the employers choose the third option

because they consider the salary paid without work a reasonable price to pay for ensuring the integrity of the records under the control and to avoid influence being exerted upon subordinate employees who may be potential witnesses against the former.

If there had been no such instruction to appellee Sarmiento, why did not the branch manager or even higher corporate officials call her attention for not reporting to office regularly? If her attention was called but she continued to be absent, why was she not suspended? Why was her salary paid? These questions were not satisfactorily answered by appellant bank.

Accordingly, this Court holds that the payment of the salary to appellee Sarmiento during the period in question was correct and the latter's receipt was legal. She has therefore, no obligation to return it.5

Hence, the instant petition for review on the following grounds:

I. The Honorable Court of Appeals erred in holding based on a misapprehension of facts that the "only issue to resolve is whether it is true or not that appellee Sarmiento was indeed verbally instructed by Vice President Arturo Kimseng not to report for work while the investigation was still going on."

II. In connection with the foregoing, the Honorable Court of Appeals also erred in holding without any basis at all, that it "shares the view of the lower court that indeed appellee Sarmiento was enjoined from reporting for work during the period of investigation."

III. The Honorable Court of Appeals erred in holding based entirely on speculations, surmises or conjecturesthat "the payment of the salary to appellee Sarmiento during the period in question was correct and the latter's receipt (thereof) was legal" and accordingly, "she has therefore no obligation to return it."

IV. The Honorable Court of Appeals erred in dismissing the appeal of BPI and affirming the Decision under appeal. 6

Respondent filed her Comment. Subsequently, upon directive of the Court, the parties submitted their respective memoranda.

Petitioner claims that: when the CA declared that the only issue to resolve is whether it is true or not that appellee Sarmiento was indeed verbally instructed by Assistant Vice-President Arturo Kimseng (AVP Kimseng) not to report for work while the investigation was still going on, the CA impliedly acknowledged that it is convinced that respondent did not report for work while the investigation was going on; petitioner fully agrees with the CA in making such an assumption as it was based on the evidence on record; it was even respondent who admitted in her Answer to the complaint as well as in her testimony in cross-examination that she stopped reporting for work on September 12, 1987; the CA erred in its assumption that AVP Kimseng had the power or authority to order or direct respondent not to report for work since no evidence was presented by the defense to that effect; AVP Kimseng rebutted such claim when he testified that he had no authority to do so; if it was really petitioner's intention not to allow respondent to report for work and yet pay her salaries, there is no reason why it should now proceed to recover from her; it is not uncommon for an employee who is under investigation to cease from reporting for work on her own because she does not want to cooperate or to participate in the investigation being conducted.

The Court dismisses the petition.

It is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court.7Jurisprudence 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 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; or (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.8 None of these exceptions find application in the present case.

After a thorough review of the instant case, the Court finds that the petition raises no substantial question of law. The questions raised as to whether or not respondent was verbally instructed not to report for work by petitioner's AVP Kimseng while the investigation was going on and whether he possesses such authority considering that on rebuttal, he denied having given such instruction claiming that he had no authority to do so, are patently questions of fact beyond the pale of Rule 45 of the Rules of Court which mandates that only questions of law be raised in the petition.

The Court finds no cogent reason to deviate from the findings of the trial court and the CA that respondent is entitled to the payment of her salary from October 10, 1987 to June 30, 1988. Petitioner's witness, Eduardo Cascarro, Head of the Branches Division Investigation Unit, testified that respondent was terminated only on August 26, 1988,9 thus, there is no question that respondent was still an employee of petitioner during the period in question. There was no showing that respondent was even suspended during the said period.

Although respondent testified that she stopped reporting for work on September 12, 1987, she also testified on cross-examination that she still went to her office from September to December 1987 although admittedly she was not doing anything but she still received her salary. The Court likewise agrees with the CA that respondent could not be faulted for not reporting for work because she merely complied with the verbal instruction of AVP Kimseng not to report for work when the latter was conducting the investigation of the branch for anomalies. While AVP Kimseng denied that he made such instruction and declared that he had no authority to give such instruction, the trial court gave more credence to the testimony of respondent that indeed she was instructed not to report for work.

We find no cogent reason to disturb the findings of the trial court in light of the settled rule that the evaluation of the testimonies of witnesses by the trial court is entitled to the highest respect because such court has the direct opportunity to observe the witnesses' demeanor and manner of testifying and thus, is in a better position to assess their credibility.10

The CA finding was supported by the evidence on record. Petitioner contends that respondent was not reporting for work from October 10, 1987 to June 30, 1988, however, petitioner failed to show why its España Branch Manager allowed respondent to be absent or not to do anything during that period if indeed there was no such instruction from AVP Kimseng for her not to report for work. It bears stressing that as an Assistant Branch Manager, respondent has some official duties to perform pertaining to the internal operation of petitioner's branch and yet her Branch Manager allowed her to be absent for such a long period of time without calling her attention on such absences. The only plausible explanation is that, as declared by respondent, which remained unrebutted, she had relayed to her Branch Manager the verbal instruction of AVP Kimseng for her not to report for work while the investigation was on-going. If indeed there was no such instruction, the Branch Manager could have immediately called respondent's attention regarding her absences and that she should have been required to perform her official duties inside the branch office. And if she continued to be absent, she could have been sanctioned or given the corresponding memorandum. Moreover, there is no evidence to show that such absences, if unauthorized, were reported by the Branch Manager to higher authorities of petitioner. On the contrary, without qualification or reservation, respondent's salary and other benefits were given to her by petitioner during the said period.

Petitioner insists that its payment of respondent's salary was by mistake since respondent who chose not to report for work was not entitled to it under the principle of "no work, no pay", thus she has the obligation to return the same. Petitioner based such contention on the principle of solutio indebiti under Article 215411 of the Civil Code.

There is solutio indebiti where: (1) payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. x x x The quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich himself unjustly at the expense of another.12

Both elements are lacking in the present case. Mr. Cascarro, the Head of the Branches Division Investigation Unit, had categorically stated that respondent was only terminated from service on August 26, 1988. Respondent was not suspended from office. Consequently, during the period in question, there still existed an employer-employee relationship between petitioner and respondent which entitled respondent to the payment of her salary during the said period. Thus, there can be no mistaken payment in this case. Moreover, it has been shown that the payment of

respondent's salary was with the knowledge and approval of respondent's immediate superior officers. Hence, the principle of solutio indebiti finds no application in this case.

WHEREFORE, the petition is DENIED and the Decision dated September 15, 2000 and the Resolution dated November 13, 2000 of the Court of Appeals are AFFIRMED.

Costs against petitioner.

SO ORDERED.

Republic of the philippinesSupreme court

Manila 

SPECIAL SECOND DIVISION 

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,

Petitioner,

- versus -

RONALDO E. QUIWA, doing business under the name R.E.Q. Construction, EFREN N. RIGOR, doing business under the name Chiara Construction, ROMEO R. DIMATULAC, doing business under the name Ardy Construction, and FELICITAS C. SUMERA, doing business under the name F.C.S. Construction, represented by her attorney-in-fact ROMEO M. DE LEON,

Respondents.

G.R. No. 183444

Present:

CARPIO, J., Chairperson,BRION,SERENO,REYES, andPERLAS-BERNABE,* JJ.

Promulgated:

February 8, 2012

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

RESOLUTION

 SERENO, J.:

 Assailed in this Motion for Partial Reconsideration dated 8 November 2011

filed by petitioner Department of Public Works and Highways (DPWH) is the 12 October 2011 Decision of the Court, primarily affirming the trial and the appellate courts judgments in favor of respondents entitlement to compensation.

To recall, after the Mt. Pinatubo tragedy in 1991, DPWH engaged a number of contractors, including the respondents, for the urgent rehabilitation of the affected river systems. Save for Chiara Construction and Ardy Construction, respectively owned by Efren N. Rigor and Romeo R. Dimatulac, the contractors signed written agreements with Engineer Philip Meez, Project Manager II of the DPWH.

It is undisputed that the contractors have completed their assigned rehabilitation works.[1] But DPWH refused to pay the contractors for the reason that the contracts were invalid due to non-compliance with legal requirements.[2] As such, respondents filed an action for a sum of money against DPWH.[3] The Regional Trial Court (RTC) of Manila, in Civil Case No. 96-77180, held that the contracts were valid and thus directed payment of compensation to the contractors.[4] DPWH appealed to the Court of Appeals (CA), which like the RTC, ruled that the respondents are entitled to their claim of compensation.[5]

Petitioner appealed by certiorari before this Court. In the questioned 12 October 2011 Decision, the Court primarily affirmed the trial and the appellate courts judgments in favor of respondents entitlement to compensation against petitioner DPWH.

On 10 November 2011, petitioner filed a Motion for Partial Reconsideration[6] assailing the aforementioned Decision.

Petitioners main contention is that respondents did not come to court with clean hands to assert their money claims against petitioner in view of their failure to comply with the legal requirements concerning government contracts and in ascertaining the extent of authority of the public official with whom they contracted.[7]These omissions made the contracts void ab initio and, as a consequence, petitioner should not be made to suffer by paying respondents huge sums of money arising from void contracts.[8]

 We deny the motion.

Petitioner unsuccessfully established the applicability of the clean hands doctrine. Citing Muller v. Muller, petitioner points out that a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue.[9]

However, respondents purported omissions, standing alone, cannot be construed as fraudulent or deceitful. Petitioner did not present evidence of actual fraud and merely inferred that because of the omissions, the respondent contractors were in bad faith. Fraud is never presumed but must be established by clear and convincing evidence. The strongest suspicion cannot sway judgment or overcome the presumption of regularity.[10]

Parties who do not come to court with clean hands cannot be allowed to profit from their own wrongdoing.[11] The action (or inaction) of the party seeking equity must be free from fault, and he must have done nothing to lull his adversary into repose, thereby obstructing and preventing vigilance on the part of the latter.[12]Neither the trial court nor the appellate court found any design to defraud on the part of the respondent contractors.

While petitioner is correct in saying that one who seeks equity must do equity, and one who comes into equity must come with clean hands,[13] it is equally true that an allegation of fraud and dishonesty to come within the doctrines purview must be substantiated:

Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them.[14]

 This court recognizes that certain omissions will qualify as acting with

unclean hands. The omission, though, must be such as to give rise to a confusion that leads to an undesirable state of things.[15]

Here, even with the respondents supposed failure to ascertain the validity of the contract and the authority of the public official involved in the construction agreements, there is no such confusion as to the matter of the contracts validity and the equivalent compensation. As found by the court a quo, petitioner had assured the contractors that they would be paid for the work that they would do, as even DPWH Undersecretary Teodoro T. Encarnacion had told them to fast-track the project.[16] Hence, respondents cannot by any stretch of logic, be deprived of compensation for their services when - despite their ostensible omissions - they only heeded the assurance of DPWH and proceeded to work on the urgent project.

Lest it be forgotten, our courts are courts of both law and equity. [17] The petitioner merely claims that the omissions of respondents amount to fraud, while the records show that the public benefitted from the services of respondents. Given these, this Court will remain true to the rule of substantial justice and direct the payment of compensation to the contractors, who have completed their services for the governments Mt. Pinatubo Rehabilitation Project. Otherwise, urgent actions for emergency work in the future would be discouraged.

After the unfounded clean hands doctrine resorted to by petitioner DPWH is cleared up, all that remains is its repeated arguments. Petitioner reiterates that the contracts are void, without legal effect, and cannot be cured by ratification.[18] In the same Motion, it claims that the contracts were unenforceable, as they were entered into beyond the authority of Engineer Meez.[19] Petitioner also stresses that since the construction contracts with Rigor and Dimatulac are unwritten, DPWH cannot be held liable.[20] It raises the point that the writing of government contracts is a requirement for existence, validity and enforceability. Citing the treatise of Bartolome C. Fernandez,[21] petitioner DPWH further asserts that the government, being an artificial person, cannot verbally consent to the contract.[22]

These arguments have already been ruled upon, and we find no reason to disturb the rulings. To reiterate, it has been settled in several cases that payment for services done on account of the government, but based on a void contract, cannot be avoided.[23] The government is unjustified in denying what it owes to contractors and in leaving them uncompensated after it has benefitted from the already completed work.[24] Jurisprudence recognizes the principle of quantum meruit. Accordingly, in the interest of substantial justice, the contractors entitlement to compensation has been and is hereby directed.[25]

IN VIEW THEREOF, the 8 November 2011 Motion for Partial Reconsideration of the 12 October 2011 Decision of this Courts Second Division is DENIEDfor lack of merit.

 SO ORDERED.

\

SECOND DIVISION

[G.R. No. 118492. August 15, 2001]

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.

D E C I S I O NDE LEON, JR., J.:

Before us is a petition for review of the Decision[1] dated July 22, 1994 and Resolution[2] dated December 29, 1994 of the Court of Appeals[3] affirming with modification the Decision[4] dated November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and Trust Company.

The undisputed facts of the case are as follows:

In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the clubs chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian dollars.

Godofredo went to respondent banks Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent banks assistant cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in

Sydney. Godofredo asked if there could be a way for respondent bank to accommodate PRCIs urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A (Westpac-New York for brevity).This arrangement has been customarily resorted to since the 1960s and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference.

On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00), payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank.

On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: xxx No account held with Westpac. Meanwhile, on August 16, 1988, Westpac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) was debited. On August 19, 1988, in response to PRCIs complaint about the dishonor of the said foreign exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the Westpac-Sydney and informing the latter to be reimbursed from the respondent banks dollar account in Westpac-New York. The respondent bank on the same day likewise informed Westpac-New York requesting the latter to honor the reimbursement claim of Westpac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit dollar account with the drawee Westpac-Sydney.

On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates from various member countries, he was told by a lady member of the conference secretariat that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the second time. A discussion ensued in the presence and within the hearing of many delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit. The lady member of the conference secretariat relented and gave him his name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised.

Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too was embarrassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft.  She felt herself trembling and unable to look at the people around her. Fortunately, she saw her husband coming toward her. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fees in cash once he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate and conference kit.

At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House of Representatives representing the lone Congressional District of Makati, Metro Manila. She has been an officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary service as the Societys campaign chairman for the ninth (9th) consecutive year.

On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent bank due to the dishonor of the said foreign exchange demand draft issued by the respondent bank. The petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience.

On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiffs complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable attorneys fees. Costs against the plaintiff.

SO ORDERED.[5]

The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted the award of attorneys fees to the defendant (herein respondent bank) and the pronouncement as to the costs. The decretal portion of the decision of the appellate court states:

WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs.

SO ORDERED.[6]

According to the appellate court, there is no basis to hold the respondent bank liable for damages for the reason that it exerted every effort for the subject foreign exchange demand draft to be honored. The appellate court found and declared that:

xxx xxx xxx

Thus, the Bank had every reason to believe that the transaction finally went through smoothly, considering that its New York account had been debited and that there was no miscommunication between it and Westpac-New York. SWIFT is a world wide association used by almost all banks and is known to be the most reliable mode of communication in the international banking business. Besides, the above procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-Sydney.

From the evidence, it appears that the root cause of the miscommunications of the Banks SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Banks SWIFT message as an MT799 format. However, a closer look at the Banks Exhs. 6 and 7 would show that despite what appears to be an asterisk written over the figure before 99, the figure can still be distinctly seen as a number 1 and not number 7, to the effect that Westpac-Sydney was responsible for the dishonor and not the Bank.

Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the numbers 1 to 7, since Exhs. 6 and 7 are just documentary copies of the cable message sent to Westpac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Banks message to be sent to the wrong department, the mistake was Westpacs, not the Banks. The Bank had done what an ordinary prudent person is required to do in the particular situation, although appellants expect the Bank to have done more. The Bank having done everything necessary or usual in the ordinary course of banking transaction, it cannot be held liable for any embarrassment and corresponding damage that appellants may have incurred.[7]

xxx xxx xxx

Hence, this petition, anchored on the following assignment of errors:I

THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN ORDINARY PRUDENT PERSON

WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.

II

THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENTS WARRANTY AS THE DRAWER THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT WAS DUE TO PRIVATE RESPONDENTS NEGLIGENCE AND NOT THE DRAWEE BANK.[8]

The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the respondent bank should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as in the case at bar. The appellate court, according to petitioners, erred in applying the standard of diligence of an ordinary prudent person only. Petitioners also claim that the respondent bank violated Section 61 of the Negotiable Instruments Law[9] which provides the warranty of a drawer that xxx on due presentment, the instrument will be accepted or paid, or both, according to its tenor xxx. Thus, the petitioners argue that respondent bank should be held liable for damages for violation of this warranty. The petitioners pray this Court to re-examine the facts to cite certain instances of negligence.

It is our view and we hold that there is no reversible error in the decision of the appellate court.

Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he petition (for review) shall raise only questions of law which must be distinctly set forth. Thus, we have ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.[10]

The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-Sydney. Respondent banks assistant cashier explained to Godofredo Reyes, representating PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the 20 th Asian Racing Conference Secretatriat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative, agreed to that arrangement or procedure. In other words, the petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. In fact, the

SWIFT cable message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch, Westpac-New York where respondent bank has a deposit dollar account.

The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as MT799 instead of as MT199. As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft.The appellate court correctly found that the figure before 99 can still be distinctly seen as a number 1 and not number 7. Indeed, the line of a 7 is in a slanting position while the line of a 1 is in a horizontal position. Thus, the number 1 in MT199 cannot be construed as 7.[11]

The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the subject foreign exchange demand draft, the respondent bank advised Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar account[12] of respondent bank with the former. As soon as the demand draft was dishonored, the respondent bank, thinking that the problem was with the reimbursement and without any idea that it was due to miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac-Sydney. [13] Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the demand draft was not honored.[14]

With these established facts, we now determine the degree of diligence that banks are required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals[15] upholding a long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20 th Asian Racing Conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.

The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable

message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU$1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent banks) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft.

In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand draft is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any event, it was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals did not commit any reversable error in its challenged decision.

WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED. Costs against the petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

  

FIRST DIVISION

EUSEBIO GONZALES,

Petitioner,

- versus -

PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA,

Respondents.

G.R. No. 180257

Present:

CORONA, C.J., Chairperson,

VELASCO, JR.,

NACHURA,*

DEL CASTILLO, and

PEREZ, JJ.

Promulgated:

February 23, 2011

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

D E C I S I O N

VELASCO, JR., J.:

 The Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision[1] dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioners appeal from the December 10, 2001 Decision[2] in Civil Case No. 99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for respondents dishonor of petitioners check and found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they executed in favor of respondent Philippine Commercial and International Bank (PCIB).

The Facts

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15

years before he filed the instant case. His account with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda).

In October 1992, PCIB granted a credit line to Gonzales through the

execution of a Credit-On-Hand Loan Agreement[3] (COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for PhP

500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes.[4] To secure the loans, a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000.

The monthly interest dues of the loans were paid by the spouses Panlilio

through the automatic debiting of their account with PCIB. But the spouses

Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in

favor of Rene Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA).However, on October 13, 1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales.

Consequently, Gonzales had a falling out with Unson due to the dishonor of

the check. They had a heated argument in the premises of the Philippine Columbian Association (PCA) where they are both members, which caused great embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter[5] to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter[6] to Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the PhP 250,000 he owed to Unson in cash.

On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that

the check he issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check.[7] PCIB replied on March 22, 1999 and stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans.[8] On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio.[9]

PCIBs refusal to heed his demands compelled Gonzales to file the instant

case for damages with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson.

The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in favor

of PCIB. The decretal portion reads:

WHEREFORE, judgment is rendered as follows (a) on the first issue, plaintiff is liable to pay defendant Bank as

principal under the promissory notes, Exhibits A, B and C; (b) on the second issue, the Court finds that there is justification

on part of the defendant Bank to dishonor the check, Exhibit H; (c) on the third issue, plaintiff and defendants are not entitled to

damages from each other. No pronouncement as to costs.SO ORDERED.[10]

The RTC found Gonzales solidarily liable with the spouses Panlilio on the

three promissory notes relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales and in freezing the latters accounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in favor of Unson was proper considering that the credit line under the COHLA had already been terminated or revoked before the presentment of the check.

Aggrieved, Gonzales appealed the RTC Decision before the CA.The Ruling of the CA

On September 26, 2007, the appellate court rendered its Decision

dismissing Gonzales appeal and affirming in toto the RTC Decision. The fallo reads:

WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto.

SO ORDERED.[11]

In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings

that Gonzales was indeed solidarily liable with the spouses Panlilio for the three promissory notes executed for the REM loan; second, it likewise found neither fault nor negligence on the part of PCIB in dishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely exercising its rights under the contractual stipulations in the COHLA brought about by the outstanding past dues of the REM loan and interests for which Gonzales was solidarily liable with the spouses Panlilio to pay under the promissory notes.

Thus, we have this petition.

The Issues

Gonzales, as before the CA, raises again the following assignment of errors: I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY NOTES (EXHIBITS A, B AND C, PETITIONER; EXHIBITS 1, 2 AND 3, RESPONDENT) PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK). II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERS CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON ACCOUNT CLOSED, INSTEAD OF MERELY REFER TO DRAWER GIVEN THE FACT THAT EVEN AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72.

III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES.[12]

The Courts Ruling The core issues can be summarized, as follows: first, whether Gonzales is

liable for the three promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where a REM over a parcel of land covered by TCT No. 38012 was constituted as security; and second, whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank.

The petition is partly meritorious.

First Issue: Solidarily Liability on Promissory Notes

A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily liable with the spouses Panlilio for the three promissory notes.

The promissory notes covering the PhP 1,800,000 loan show the following:

(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995, for PhP 500,000 was signed by Gonzales and his wife, Jessica Gonzales;

(2) Promissory Note BD-090-2122-95,[14] dated December 26, 1995, for PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and

(3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for PhP 300,000 was signed by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the loan. Gonzales testified:

ATTY. DE JESUS:

Now in this case you filed against the bank you mentioned there was a loan also applied for by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court how this came about?

GONZALES:

Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if he secures another P1.8 Million loan the release will be longer because it has to pass to XO.

Q: After that what happened?

A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the property I agreed initially to use my name so that the loan can be utilized immediately by Mr. Panlilio.

Q: Who is actually the borrower of this P1.8 Million Pesos?

A: Well, in paper me and Mr. Panlilio.

Q: Who received the proceeds of said loan?

A: Mr. Panlilio.

Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds of this P1.8 Million Pesos loan?

A: A check was deposited in the account of Mr. Panlilio.[16]

x x x x

Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under your name initially?

A: Well it was actually suggested by the account officer at that time Edna Ocampo.

Q: How about this Mr. Rodolfo Noceda?

A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he has been familiar with my account ever since its inception.

Q: So these two officers Ocampo and Noceda knew that this was actually the account of Mr. Panlilio and not your account?

A: Yes, sir. In fact even if there is a change of account officer they are always informing me that the account will be debited to Mr. Panlilios account.[17]

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP 1,800,000 loan despite not receiving any of the proceeds.

Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio, thus:

ATTY. DE JESUS: [on Cross-Examination]

Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8 million loan was received by Mr. Panlilio?

NOCEDA:

Yes sir.[18]

The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilio as shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly duesis beside the point. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses.

Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. In Ang v. Associated Bank,[19] quoting the definition of an accommodation party under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. [20] The Court further explained:

[A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and suretythe accommodation party being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the suretys liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom. [21]

Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes.

Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, For value received, the undersigned (the BORROWER) jointly and severally promise to pay x x x. Solidary liability cannot be presumed but must be established by law or contract. [22] Article 1207 of the Civil Code pertinently states that there is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity. This is true in the instant case where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract between the parties. Contracts have the force of law between the parties and must be complied with in good faith.[23]

Second Issue: Improper Dishonor of Check

Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now touch upon the question of whether it was proper for PCIB to dishonor the check issued by Gonzales against the credit line under the COHLA.

We answer in the negative.

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.[24] The factual findings of the trial court, especially when affirmed by the appellate court, are generally binding on us unless there was a misapprehension of facts or when the inference drawn from the facts was manifestly mistaken.[25] The instant case falls within the exception.

The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check issued by Gonzales against the credit line, because the credit line was already closed prior to the presentment of the check by Unson; and the closing of the credit line was likewise proper pursuant to the stipulations in the promissory notes on the banks right to set off or apply all moneys of the debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs right to terminate the credit line on grounds of default by Gonzales.

Gonzales argues otherwise, pointing out that he was not informed about the default of the spouses Panlilio and that the September 21, 1998 account statement of the credit line shows a balance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBs certification that he has USD 8,715.72 in his FCD account which is more than sufficient collateral to guarantee the PhP 250,000 check, dated September 30, 1998, he issued against the credit line.

A careful scrutiny of the records shows that the courts a quo committed reversible error in not finding negligence by PCIB in the dishonor of the PhP 250,000 check.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only an accommodation party and as such only lent his name and credit to the spouses Panlilio. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan precisely because he is a co-signatory of the promissory notes and of his solidary liability.

We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay the outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party and was not personally interested in the loan. Thus, a meeting was set by Gonzales with the spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in SM Megamall on October 5, 1998. Unfortunately, the meeting did not push through due to the heavy traffic Noceda and Ocampo encountered.

Such knowledge of the default by Gonzales was, however, not enough to properly apprise Gonzales about the default and the outstanding dues. Verily, it is not enough to be merely informed to pay over a hundred thousand without being formally apprised of the exact aggregate amount and the corresponding dues pertaining to specific loans and the dates they became due.

Gonzales testified that he was not duly notified about the outstanding interest dues of the loan:

ATTY. DE JESUS:

Now when Mr. Panlilios was encountering problems with the bank did the defendant bank [advise] you of any problem with the same account?

GONZALES:

They never [advised] me in writing.

Q: How did you come to know that there was a problem?

A: When my check bounced sir.[26]

On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:

ATTY. PADILLA:

Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to him at the celphone?

NEPOMUCENO:

I just told him to update the interest so that we would not have to cancel the COH Line and he could withdraw the money that was in the deposit because technically, if an account is past due we are not allowed to let the client withdraw funds because they are allowed to offset funds so, just to help him get his money, just to update the interest so that we could allow him to withdraw.

Q: Withdraw what?

A: His money on the COH, whatever deposit he has with us.

Q: Did you inform him that if he did not update the interest he would not be able to withdraw his money?

A: Yes sir, we will be forced to hold on to any assets that he has with us so thats why we suggested just to update the interest because at the end of everything, he would be able to withdraw more funds than the interest that the money he would be needed to update the interest.[27]

From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB that Gonzales was properly apprised, we find for Gonzales. We find the testimonies of the former PCIB employees to be self-serving and tenuous at best, for there was no proper written notice given by the bank. The record is bereft of any document showing that, indeed, Gonzales was formally informed by PCIB about the past due periodic interests.

PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It also acted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilio and likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio, through their account[28] with PCIB, were paying the periodic interest dues and were the ones periodically informed by the bank of the debiting of the amounts for the periodic interest payments. Gonzales never paid any of the periodic interest dues. PCIBs Noceda admitted as much in his cross-examination:

ATTY. DE JESUS: [on Cross-Examination]

And there was no instance that Mr. Gonzales ever made even interest for this loan, is it not, its always Mr. Panlilio who was paying the interest for this loan?

NOCEDA:

Yes sir.[29]

Indeed, no evidence was presented tending to show that Gonzales was periodically sent notices or notified of the various periodic interest dues covering the three promissory notes. Neither do the records show that Gonzales was aware of amounts for the periodic interests and the payment for them. Such were serviced by the spouses Panlilio.

Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the interest dues that were not paid starting July 1998. And such notification must be formal or in written form considering that the outstanding periodic interests became due at various dates, i.e., on July 8, 17, and 28, 1998, and the various amounts have to be certain so that Gonzales is not only properly apprised but is given the opportunity to pay them being solidarily liable for the loans covered by the promissory notes.

It is the bank which computes these periodic interests and such dues must be put into writing and formally served to Gonzales if he were asked to pay them, more so when the payments by the spouses Panlilio were charged through the account of the spouses Panlilio where the interest dues were simply debited. Such arrangement did not cover Gonzales bank account with PCIB, since he is only an accommodation party who has no personal interest in the PhP 1,800,000 loan.Without a clear and determinate demand through a formal written notice for the exact periodic interest dues for the loans, Gonzales cannot be expected to pay for them.

In business, more so for banks, the amounts demanded from the debtor or borrower have to be definite, clear, and without ambiguity. It is not sufficient simply to be informed that one must pay over a hundred thousand aggregate outstanding interest dues without clear and certain figures. Thus, We find PCIB negligent in not properly informing Gonzales, who is an accommodation party, about the default and the exact outstanding periodic interest dues. Without being properly apprised, Gonzales was not given the opportunity to properly act on them.

It was only through a letter[30] sent by PCIB dated October 2, 1998 but incongruously showing the delinquencies of the PhP 1,800,000 loan at a much later date,i.e., as of October 31, 1998, when Gonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP 171,383.37. But it

is not certain and the records do not show when the letter was sent and when Gonzales received it.What is clear is that such letter was belatedly sent by PCIB and received by Gonzales after the fact that the latters FCD was already frozen, his credit line under the COHLA was terminated or suspended, and his PhP 250,000 check in favor of Unson was dishonored.

And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent to Gonzales demanding payment of the PhP 1,800,000 loan.Obviously, these formal written notices sent to Gonzales were too late in the day for Gonzales to act properly on the delinquency and he already suffered the humiliation and embarrassment from the dishonor of his check drawn against the credit line.

To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan covered by the three promissory notes was required to apprise Gonzales, an accommodation party. PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding obligations, more so when PCIB was invoking the solidary liability of Gonzales. This PCIB failed to do.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in the COHLA.

The COHLA, in its effectivity clause, clearly provides:

4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencing from the receipt by the CLIENT of the COH checkbook issued by the BANK, subject to automatic renewals for same periods unless terminated by the BANK upon prior notice served on CLIENT.[31] (Emphasis ours.)

It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA without giving Gonzales prior notice as required by the above stipulation in the COHLA. Noceda testified on cross-examination on the Offering Ticket[32] recommending the termination of the credit line, thus:

ATTY. DE JESUS: [on Cross-Examination]

This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is it not?

NOCEDA:

No sir but verbally it was relayed to him.

Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?

A: It was relayed to him verbally.

Q: But there is no written proof?

A: No sir.

Q: And it is only now that you claim that it was verbally relayed to him, its only now when you testified in Court?

A: Before . . .

Q: To whom did you relay this information?

A: It was during the time that we were going to Megamall, it was relayed by Liza that he has to pay his obligations or else it will adversely affect the status of the account.[33]

On the other hand, the testimony of Corazon Nepomuceno shows:

ATTY. DE JESUS: [on Cross-Examination]

Now we go to the other credit facility which is the credit on hand extended solely of course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on hand facility. Did I gather from you as per your Exhibit 7 as of October 2, 1998 you were the one who recommended the cancellation of this credit on hand facility?

NEPOMUCENO:

It was recommended by the account officer and I supported it.

Q: And you approved it?

A: Yes sir.

Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility?

A: As far as I know, it is the account officer who will inform him.

Q: But you have no record that he was informed?

A: I dont recall and we have to look at the folder to determine if they were informed.

Q: If you will notice, this letter . . . what do you call this letter of yours?

A: That is our letter advising them or reminding them of their unpaid interest and that if he is able to update his interest he can extend the promissory note or restructure the outstanding.

Q: Now, I call your attention madam witness, there is nothing in this letter to the clients advising them or Mr. Gonzales that his credit on hand facility was already cancelled?

A: I dont know if there are other letters aside from this.

Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on hand facility was already cancelled?

A: No actually he can understand it from the last sentence. If you will be able to update your outstanding interest, we can apply the extention of your promissory note so in other words we are saying that if you dont, you cannot extend the promissory note.

Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of 1.8 million is it not, as you can see from the letter? Okay?

A: Ah . . .

Q: Okay. There is nothing there that will show that that also refers to the credit on hand facility which was being utilized by Mr. Gonzales is it not?

A: But I dont know if there are other letters that are not presented to me now. [34]

The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the process of termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called cross default provisions, it may not with impunity ignore the rights of Gonzales under the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance is made on the banks sworn profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is imbued

with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors.[35] In this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring the rights of its clients.

Art. 19 of the New Civil Code clearly provides that [e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. This is the basis of the principle of abuse of right which, in turn, is based upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).[36]

In order for Art. 19 to be actionable, the following elements must be present: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. [37] We find that such elements are present in the instant case. The effectivity clause of the COHLA is crystal clear that termination of the COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIBto inform Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales.

Malice or bad faith is at the core of Art. 19. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.[38] In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans[39] but failed to mention anything about the termination of the COHLA. More significantly, no letter was ever sent to him about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already prima facie evidence of bad faith.[40] Therefore, it is abundantly clear that this case falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19.

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the cross default provisions of both the promissory notes and the COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific circumstances, like in the instant case of an accommodation party.

The promissory notes uniformly provide:

The lender is hereby authorized, at its option and without notice, to set off or apply to the payment of this Note any and all moneys which may be in its hands on deposit or otherwise belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on demand/at maturity or upon the happening of any of the events of default, but without any obligation on the Lenders part should it choose not to perform this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property of the Borrower, which may be in the Lenders possession by public or private sale, and to apply the proceeds thereof to the payment of this Note; the Borrower, however, shall remain liable for any deficiency.[41] (Emphasis ours.)

The above provisos are indeed qualified with the specific circumstance of an accommodation party who, as such, has not been servicing the payment of the dues of the loans, and must first be properly apprised in writing of the outstanding dues in order to answer for his solidary obligation.

The same is true for the COHLA, which in its default clause provides:

16. DEFAULT The CLIENT shall be considered in default under the COH if any of the following events shall occur:

1. x x x

2. Violation of the terms and conditions of this Agreement or any contract of the CLIENT with the BANK or any bank, persons, corporations or entities for the payment of borrowed money, or any other event of default in such contracts.[42]

The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior notice. The rationale is simple: in cases where the bank has the right to terminate, revoke, or suspend the credit line, the client must be notified of such intent in order for the latter to act accordinglywhether to correct any ground giving rise to the right of the bank to terminate the credit line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue any check drawn from the credit line or to replace any checks that had been issued. This, the bankwith gross negligencefailed to accord Gonzales, a valued client for more than 15 years.

Fourth. We find the testimony[43] of Ocampo incredible on the point that the principal borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which the bank officers had special instructions to grant and that it was through the instructions of Gonzales that the payment of the periodic interest dues were debited from the account of the spouses Panlilio.

For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as the principal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996 evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the spouses Panlilio through the debiting of their bank account. It is incredulous that the payment arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact that the spouses Panlilio not only received the

proceeds of the loan but were servicing the periodic interest dues reinforces the fact that Gonzales was only an accommodation party.

Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper notice relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the unjust termination, revocation, or suspension of the credit line under the COHLA from PCIBs gross negligence in not honoring its obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of such termination, treating Gonzales account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for money to pay Unson.

With banks, the degree of diligence required is more than that of a good father of the family considering that the business of banking is imbued with public interest due to the nature of their function. The law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking.[44] Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the process of terminating his credit line under the COHLA, he could have acted accordingly and the dishonor of the check would have been avoided.

Third Issue: Award of Damages

The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized societybanks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.[45]

In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the testimonies of Gonzales witnesses, particularly those of Dominador Santos[46] and Freddy Gomez,[47] the embarrassment and humiliation Gonzales has to endure not only before his former close friend Unson but more from the members and families of his friends and associates in the PCA, which he continues to experience considering the confrontation he had with Unson and the consequent loss of standing and credibility among them from the fact of the apparent bouncing check he issued. Credit is very important to businessmen and its loss or impairment needs to be recognized and compensated.[48]

The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code refers to such acts when it says, Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for damage.

Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of nominal damages. Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind x x x. [49] We further explained the nature of nominal damages in Almeda v. Cario:

x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of the existence of a technical injury. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of nominal damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award of nominal damages is proper.[50] (Emphasis Ours.)

In the present case, Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant

circumstances.[51] In this case, the Court finds that the grant of PhP 50,000 as nominal damages is proper.

Moreover, as We held in MERALCO v. CA,[52] failure to give prior notice when required, such as in the instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides that moral damages may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that [w]illful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Similarly, every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.[53] Evidently, Gonzales is entitled to recover moral damages.

Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, and humiliation.[54] Although incapable of pecuniary estimation, moral damages are certainly recoverable if they are the proximate result of the defendants wrongful act or omission. The factual antecedents bolstered by undisputed testimonies likewise show the mental anguish and anxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in PCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant suit.

The award of moral damages is aimed at a restoration within the limits of the possible, of the spiritual status quo anteit must always reasonably approximate the extent of injury and be proportional to the wrong committed.[55] Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of the PhP 250,000 which was the proximate cause of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of credibility among his friends, colleagues and peers.

Furthermore, the initial carelessness of the banks omission in not properly informing Gonzales of the outstanding interest duesaggravated by its gross neglect in omitting to give prior notice as stipulated under the COHLA and in not giving actual notice of the termination of the credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of example or correction for the public good.

Finally, an award for attorneys fees is likewise called for from PCIBs negligence which compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorneys fees may be recovered when exemplary damages are awarded. We find that the amount of PhP 50,000 as attorneys fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is herebyREVERSED and SET ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees.

No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION 

SPOUSES LUIGI M. GUANIO andANNA HERNANDEZ-GUANIO,

Petitioners,

G.R. No. 190601

- versus -

Present:

CARPIO MORALES,Chairperson, J.,BRION,BERSAMIN,VILLARAMA, JR., andSERENO, JJ.

MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doingbusiness under the name of Promulgated:SHANGRI-LA HOTEL MANILA,Respondent. February 7, 2011

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D E C I S I O N  

CARPIO MORALES, J.  

For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati (the hotel). Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food tasting. Petitioners claim that they requested the hotel to prepare for seven persons ─ the two of them, their respective parents, and the wedding coordinator. At the scheduled food tasting, however, respondent prepared for only six. 

Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with wild mushroom sauce for the main course which cost P1,000.00 per person. They were, however, given an option in which salmon, instead of king prawns, would be in the menu at P950.00 per person. They in fact partook of the salmon. Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was half the size of what they were served during the initial food tasting; and when queried about it, the hotel quoted a much higher price (P1,200.00) for the size that was initially served to them. The parties eventually agreed on a final price ─ P1,150 per person. A day before the event or on July 27, 2001, the parties finalized and forged their contract.[1]

 Petitioners claim that during the reception, respondents representatives,

Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they would; their guests complained of the delay in the service of the dinner; certain items listed in the published menu were unavailable; the hotels waiters were rude and unapologetic when confronted about the delay; and despite Alvarezs promise that there would be no charge for the extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the event up to 4:00 A.M. the next day. Petitioners further claim that they brought wine and liquor in accordance with their open bar arrangement, but these were not served to the guests who were forced to pay for their drinks. Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and received an apologetic reply from Krister Svensson, the hotels Executive Assistant Manager in charge of Food and Beverage. They nevertheless filed a complaint for breach of contract and damages before the Regional Trial Court (RTC) of Makati City. 

In its Answer, respondent claimed that petitioners requested a combination of king prawns and salmon, hence, the price was increased to P1,200.00 per person, but discounted at P1,150.00; that contrary to petitioners claim, Marquez and Alvarez were present during the event, albeit they were not permanently stationed thereat as there were three other hotel functions; that while there was a delay in the service of the meals, the same was occasioned by the sudden increase

of guests to 470 from the guaranteed expected minimum number of guests of 350 to a maximum of 380, as stated in the Banquet Event Order (BEO);[2] and that Isaac Albacea, Banquet Service Director, in fact relayed the delay in the service of the meals to petitioner Luigis father, Gil Guanio. Respecting the belated service of meals to some guests, respondent attributed it to the insistence of petitioners wedding coordinator that certain guests be served first. On Svenssons letter, respondent, denying it as an admission of liability, claimed that it was meant to maintain goodwill to its customers.   By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of petitioners, disposing as follows: 

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant ordering the defendants to pay the plaintiff the following: 

1)      The amount of P350,000.00 by way of actual damages;2)      The amount of P250,000.00 for and as moral damages;3)      The amount of P100,000.00 as exemplary damages;4)      The amount of P100,000.00 for and as attorneys fees.

 With costs against the defendant. SO ORDERED.[3]

  In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted below: 

Upon receiving your comments on our service rendered during your reception here with us, we are in fact, very distressed. Right from minor issues pappadums served in the soup instead of the creutons, lack of valet parkers, hard rolls being too hard till a major one slow service, rude and arrogant waiters, we have disappointed you in all means. Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely not up to our standards. We understand

that it is our job to provide excellent service and in this instance,  we have fallen short of your expectations. We ask you please to accept our profound apologies for causing such discomfort and annoyance. [4] (underscoring supplied)   

The trial court observed that from the tenor of the letter . . . the defendant[-herein respondent] admits that the services the plaintiff[-herein petitioners] received were unacceptable and definitely not up to their standards.[5]

 On appeal, the Court of Appeals, by Decision of July 27, 2009,[6] reversed the trial courts decision, it holding that the proximate cause of petitioners injury was an unexpected increase in their guests: 

x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray during the wedding reception may not be attributed to defendant-appellant Shangri-la. We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the chain of events which resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the circumstances that obtained, only the Sps. Guanio may bear whatever consequential damages that they may have allegedly suffered.[7] (underscoring supplied)

 Petitioners motion for reconsideration having been denied by Resolution of November 18, 2009, the present petition for review was filed. The Court finds that since petitioners complaint arose from a contract, the doctrine of proximate cause finds no application to it:

The doctrine of   proximate cause is applicable only in   actions for quasi-delicts , not in actions involving   breach of contract . x x x The doctrine is a device for imputing liability to a person where there is no relation between him and another party. In such a case, the obligation is created by law itself. But, where there is a pre-existing contractual relation between the parties, it is the parties themselves who create the obligation, and the function of the law is merely to regulate the relation thus created.[8] (emphasis and underscoring supplied)

 What applies in the present case is Article 1170 of the Civil Code which

reads: 

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.

  

RCPI v. Verchez, et al. [9] enlightens:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify,   prima facie , a corresponding right of relief.  The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof.  A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered.  The remedy serves to preserve the interests of the promissee that may include his   expectation interest , which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his reliance interest , which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution interest, which is his interest in having restored to him any benefit that he has conferred on the other party.  Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action.  The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like   proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and underscoring in the original; capitalization supplied)

 The pertinent provisions of the Banquet and Meeting Services

Contract between the parties read:

 4.3 The ENGAGER shall be billed in accordance with the

prescribed rate for the minimum guaranteed number of persons contracted for, regardless of under attendance or non-appearance of the expected number of guests, except where the ENGAGER cancels the Function in accordance with its Letter of Confirmation with the HOTEL. Should the attendance exceed the minimum guaranteed attendance, the ENGAGER shall also be billed at the actual rate per cover in excess of the minimum guaranteed attendance.

 x x x x

 4.5. The ENGAGER must inform the HOTEL at least forty eight

(48) hours before the scheduled date and time of the Function of any change in the minimum guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in the event of under attendance. In case the actual number of attendees exceed the minimum guaranteed number by ten percent (10%), the HOTEL shall not   in any way be held liable for any   damage or inconvenience  which may be caused thereby. The ENGAGER shall also undertake to advise the guests of the situation and take positive steps to remedy the same.[10] (emphasis, italics and underscoring supplied)  Breach of contract is defined as the failure without legal reason to comply

with the terms of a contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract.[11]

  The appellate court, and even the trial court, observed that petitioners were

remiss in their obligation to inform respondent of the change in the expected number of guests. The observation is reflected in the records of the case. Petitioners failure to discharge such obligation thus excused, as the above-quoted paragraph 4.5 of the parties contract provide, respondent from liability for any damage or inconvenience occasioned thereby. 

As for petitioners claim that respondent departed from its verbal agreement with petitioners, the same fails, given that the written contract which the parties entered into the day before the event, being the law between them.

 

Respecting the letter of Svensson on which the trial court heavily relied as admission of respondents liability but which the appellate court brushed aside, the Court finds the appellate courts stance in order. It is not uncommon in the hotel industry to receive comments, criticisms or feedback on the service it delivers. It is also customary for hotel management to try to smooth ruffled feathers to preserve goodwill among its clientele.

    Kalalo v. Luz holds:[12]

 Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent whose admissions have been offered against him may offer any evidence which serves as an explanation for his former assertion of what he now denies as a fact.  Respondents Catering Director, Bea Marquez, explained the hotels

procedure on receiving and processing complaints, viz: ATTY. CALMA:Q You mentioned that the letter indicates an acknowledgement of the

concern and that there was-the first letter there was an acknowledgment of the concern and an apology, not necessarily indicating that such or admitting fault?

A Yes.Q Is this the letter that you are referring to?If I may, Your Honor, that was the letter dated August 4, 2001,

previously marked as plaintiffs exhibits, Your Honor. What is the procedure of the hotel with respect to customer concern?

A Upon receipt of the concern from the guest or client, we acknowledge receipt of such concern, and as part of procedure in service industry particularly Makati Shangri-la we apologize for whatever inconvenience but at the same time saying, that of course, we would go through certain investigation and get back to them for the feedback with whatever concern they may have.

Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated August 4, 2001 identified by the witness, Your Honor, to be marked as Exhibit 14 and the signature of Mr. Krister Svensson be marked as Exhibit 14-A.[13]

x x x xQ In your opinion, you just mentioned that there is a procedure that the

hotel follows with respect to the complaint, in your opinion was this procedure followed in this particular concern?

A Yes, maam.Q What makes you say that this procedure was followed?A As I mentioned earlier, we proved that we did acknowledge the

concern of the client in this case and we did emphatize from the client and apologized, and at the same time got back to them in whatever investigation we have.

Q You said that you apologized, what did you apologize for?A Well, first of all it is a standard that we apologize, right? Being in the

service industry, it is a practice that we apologize if there is any inconvenience, so the purpose for apologizing is mainly to show empathy and to ensure the client that we are hearing them out and that we will do a better investigation and it is not in any way that we are admitting any fault.[14] (underscoring supplied)

 

To the Court, the foregoing explanation of the hotels Banquet Director overcomes any presumption of admission of breach which Svenssons letter might have conveyed.

The exculpatory clause notwithstanding, the Court notes that respondent could have managed the situation better, it being held in high esteem in the hotel and service industry. Given respondents vast experience, it is safe to presume that this is not its first encounter with booked events exceeding the guaranteed cover. It is not audacious to expect that certain measures have been placed in case this predicament crops up. That regardless of these measures, respondent still received complaints as in the present case, does not amuse.

Respondent admitted that three hotel functions coincided with petitioners reception. To the Court, the delay in service might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than

quality service should be delivered especially in events which possibility of repetition is close to nil. Petitioners are not expected to get married twice in their lifetimes.

In the present petition, under considerations of equity, the Court deems it just to award the amount of P50,000.00 by way of nominal damages to petitioners, for the discomfiture that they were subjected to during to the event. [15] The Court recognizes that every person is entitled to respect of his dignity, personality, privacy and peace of mind.[16] Respondents lack of prudence is an affront to this right. 

WHEREFORE, the Court of Appeals Decision dated July 27, 2009 is PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal damages.

 SO ORDERED.