Asi Corporation vs. Evangelista G.R. No.

126570

SECOND DIVISION

ASJ CORPORATION and G.R. No. 158086

ANTONIO SAN JUAN,
Petitioners, Present:

QUISUMBING, J., Chairperson,

CARPIO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

SPS. EFREN & MAURA Promulgated:

EVANGELISTA,
Respondents. February 14, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:
For review on certiorari is the Decision[1] dated April 30, 2003 of the Court of Appeals in CA-G.R.
CV No. 56082, which had affirmed the Decision[2] dated July 8, 1996 of the Regional Trial Court
(RTC) of Malolos, Bulacan, Branch 9 in Civil Case No. 745-M-93. The Court of Appeals, after
applying the doctrine of piercing the veil of corporate fiction, held petitioners ASJ Corporation
(ASJ Corp.) and Antonio San Juan solidarily liable to respondents Efren and Maura Evangelista
for the unjustified retention of the chicks and egg by-products covered by Setting Report Nos. 108
to 113.[3]

The pertinent facts, as found by the RTC and the Court of Appeals, are as follows:

Respondents, under the name and style of R.M. Sy Chicks, are engaged in the large-scale business
of buying broiler eggs, hatching them, and selling their hatchlings (chicks) and egg by-
products[4] in Bulacan and Nueva Ecija. For the incubation and hatching of these eggs,
respondents availed of the hatchery services of ASJ Corp., a corporation duly registered in the
name of San Juan and his family.

Sometime in 1991, respondents delivered to petitioners various quantities of eggs at an agreed

service fee of 80 centavos per egg, whether successfully hatched or not. Each delivery was
reflected in a Setting Report indicating the following: the number of eggs delivered; the date of
setting or the date the eggs were delivered and laid out in the incubators; the date of candling or
the date the eggs, through a lighting system, were inspected and determined if viable or capable
of being hatched into chicks; and the date of hatching, which is also the date respondents would
pick-up the chicks and by-products. Initially, the service fees were paid upon release of the eggs
and by-products to respondents. But as their business went along, respondents delays on their
payments were tolerated by San Juan, who just carried over the balance, as there may be, into the
next delivery, out of keeping goodwill with respondents.

From January 13 to February 3, 1993, respondents had delivered to San Juan a total of
101,3[50][5] eggs, detailed as follows:[6]
Date Set SR Number No. of eggs delivered Date hatched/Pick-up date
1/13/1993 SR 108 32,566 eggs February 3, 1993
1/20/1993 SR 109 21,485 eggs February 10, 1993
1/22/1993 SR 110 7,213 eggs February 12, 1993
1/28/1993 SR 111 14,495 eggs February 18, 1993
1/30/1993 SR 112 15,346 eggs February 20, 1993
2/3/1993 SR 113 10,24[5][7] eggs February 24, 1993
TOTAL 101,350 eggs

On February 3, 1993, respondent Efren went to the hatchery to pick up the chicks and by-products
covered by Setting Report No. 108, but San Juan refused to release the same due to respondents
failure to settle accrued service fees on several setting reports starting from Setting Report No.
90. Nevertheless, San Juan accepted from Efren 10,245 eggs covered by Setting Report No. 113
and P15,000.00[8] in cash as partial payment for the accrued service fees.

On February 10, 1993, Efren returned to the hatchery to pick up the chicks and by-products
covered by Setting Report No. 109, but San Juan again refused to release the same unless
respondents fully settle their accounts. In the afternoon of the same day, respondent Maura, with
her son Anselmo, tendered P15,000.00[9] to San Juan, and tried to claim the chicks and by-
products. She explained that she was unable to pay their balance because she was hospitalized for
an undisclosed ailment. San Juan accepted the P15,000.00, but insisted on the full settlement of
respondents accounts before releasing the chicks and by-products. Believing firmly that the total
value of the eggs delivered was more than sufficient to cover the outstanding balance, Maura
promised to settle their accounts only upon proper accounting by San Juan. San Juan disliked the
idea and threatened to impound their vehicle and detain them at the hatchery compound if they
should come back unprepared to fully settle their accounts with him.

On February 11, 1993, respondents directed their errand boy, Allan Blanco, to pick up the chicks
and by-products covered by Setting Report No. 110 and also to ascertain if San Juan was still
willing to settle amicably their differences. Unfortunately, San Juan was firm in his refusal and
reiterated his threats on respondents. Fearing San Juans threats, respondents never went back to
the hatchery.

The parties tried to settle amicably their differences before police authorities, but to no
avail. Thus, respondents filed with the RTC an action for damages based on petitioners retention
of the chicks and by-products covered by Setting Report Nos. 108 to 113.
 On July 8, 1996, the RTC ruled in favor of respondents and made the following findings:
(1) as of Setting Report No. 107, respondents owed petitioners P102,336.80;[10] (2) petitioners
withheld the release of the chicks and by-products covered by Setting Report Nos. 108-
113;[11] and (3) the retention of the chicks and by-products was unjustified and accompanied by
threats and intimidations on respondents.[12] The RTC disregarded the corporate fiction of ASJ
Corp.,[13] and held it and San Juan solidarily liable to respondents for P529,644.80 as actual
damages, P100,000.00 as moral damages, P50,000.00 as attorneys fees, plus interests and costs
of suit. The decretal portion of the decision reads:
WHEREFORE, based on the evidence on record and the laws/jurisprudence applicable
thereon, judgment is hereby rendered ordering the defendants to pay, jointly and severally, unto
the plaintiffs the amounts of P529,644.80, representing the value of the hatched chicks and by-
products which the plaintiffs on the average expected to derive under Setting Reports Nos. 108 to
113, inclusive, with legal interest thereon from the date of this judgment until the same shall have
been fully paid, P100,000.00 as moral damages and P50,000.00 as attorneys fees, plus the costs of
suit.

SO ORDERED.[14]

Both parties appealed to the Court of Appeals. Respondents prayed for an additional award
of P76,139.00 as actual damages for the cost of other unreturned by-products and P1,727,687.52
as unrealized profits, whilepetitioners prayed for the reversal of the trial courts entire decision.

On April 30, 2003, the Court of Appeals denied both appeals for lack of merit and affirmed the
trial courts decision, with the slight modification of including an award of exemplary damages
of P10,000.00 in favor of respondents. The Court of Appeals, applying the doctrine of piercing
the veil of corporate fiction, considered ASJ Corp. and San Juan as one entity, after finding that
there was no bona fide intention to treat the corporation as separate and distinct from San Juan
and his wife Iluminada. The fallo of the Court of Appeals decision reads:
WHEREFORE, in view of the foregoing, the Decision appealed from is hereby AFFIRMED,
with the slight modification that exemplary damages in the amount of P10,000.00 are awarded to
plaintiffs.

Costs against defendants.

SO ORDERED.[15]

Hence, the instant petition, assigning the following errors:

I.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING, AS DID
THE COURT A QUO, THAT PETITIONERS WITHHELD/OR FAILED TO RELEASE THE
CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 108 AND 109.

II.
 THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE HEARSAY
TESTIMONY OF MAURA EVANGELISTA SUPPORTIVE OF ITS FINDINGS THAT
PETITIONERS WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BY-PRODUCTS
COVERED BY SETTING REPORT NOS. 108 AND 109.

III.
THE HONORABLE COURT OF APPEALS, AS DID THE COURT A QUO, ERRED IN NOT
FINDING THAT RESPONDENTS FAILED TO RETURN TO THE PLANT TO GET THE
CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 110, 111, 112 AND
113.

IV.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING, AS DID THE COURT A
QUO, THAT THE PIERCING OF THE VEIL OF CORPORATE ENTITY IS JUSTIFIED, AND
CONSEQUENTLY HOLDING PETITIONERS JOINTLY AND SEVERALLY LIABLE TO
PAY RESPONDENTS THE SUM OF P529,644.[80].
V.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS
HAVE VIOLATED THE PRINCIPLES ENUNCIATED IN ART. 19 OF THE NEW CIVIL
CODE AND CONSEQUENTLY IN AWARDING MORAL DAMAGES, EXEMPLARY
DAMAGES AND ATTORNEYS FEES.

VI.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING PETITIONERS
COUNTERCLAIM.[16]

Plainly, the issues submitted for resolution are: First, did the Court of Appeals err when
(a) it ruled that petitioners withheld or failed to release the chicks and by-products covered by
Setting Report Nos. 108 and 109; (b) it admitted the testimony of Maura; (c) it did not find that
it was respondents who failed to return to the hatchery to pick up the chicks and by-products
covered by Setting Report Nos. 110 to 113; and (d) it pierced the veil of corporate fiction and
held ASJ Corp. and Antonio San Juan as one entity? Second, was it proper to hold petitioners
solidarily liable to respondents for the payment of P529,644.80 and other damages?

In our view, there are two sets of issues that the petitioners have raised.

The first set is factual. Petitioners seek to establish a set of facts contrary to the factual
findings of the trial and appellate courts. However, as well established in our jurisprudence, only
errors of law are reviewable by this Court in a petition for review under Rule 45.[17] The trial
court, having had the opportunity to personally observe and analyze the demeanor of the
witnesses while testifying, is in a better position to pass judgment on their credibility.[18] More
importantly, factual findings of the trial court, when amply supported by evidence on record and
affirmed by the appellate court, are binding upon this Court and will not be disturbed on
appeal.[19]While there are exceptional circumstances[20] when these findings may be set aside,
none of them is present in this case.
 Based on the records, as well as the parties own admissions, the following facts were
uncontroverted: (1) As of Setting Report No. 107, respondents were indebted to petitioners
for P102,336.80 as accrued service fees for Setting Report Nos. 90 to 107; [21] (2) Petitioners,
based on San Juans own admission,[22] did not release the chicks and by-products covered by
Setting Report Nos. 108 and 109 for failure of respondents to fully settle their previous
accounts; and (3) Due to San Juans threats, respondents never returned to the hatchery to pick up
those covered by Setting Report Nos. 110 to 113.[23]

Furthermore, although no hard and fast rule can be accurately laid down under which the juridical
personality of a corporate entity may be disregarded, the following probative factors of identity
justify the application of the doctrine of piercing the veil of corporate fiction [24] in this case: (1)
San Juan and his wife own the bulk of shares of ASJ Corp.; (2) The lot where the hatchery plant
is located is owned by the San Juan spouses; (3) ASJ Corp. had no other properties or assets,
except for the hatchery plant and the lot where it is located; (4) San Juan is in complete control
of the corporation; (5) There is no bona fide intention to treat ASJ Corp. as a different entity from
San Juan; and (6) The corporate fiction of ASJ Corp. was used by San Juan to insulate himself
from the legitimate claims of respondents, defeat public convenience, justify wrong, defend
crime, and evade a corporations subsidiary liability for damages.[25] These findings, being purely
one of fact,[26] should be respected. We need not assess and evaluate the evidence all over again
where the findings of both courts on these matters coincide.

On the second set of issues, petitioners contend that the retention was justified and did not
constitute an abuse of rights since it was respondents who failed to comply with their
obligation. Respondents, for their part, aver that all the elements on abuse of rights were
present. They further state that despite their offer to partially satisfy the accrued service fees, and
the fact that the value of the chicks and by-products was more than sufficient to cover their unpaid
obligations, petitioners still chose to withhold the delivery.

The crux of the controversy, in our considered view, is simple enough. Was petitioners
retention of the chicks and by-products on account of respondents failure to pay the corresponding
service fees unjustified? While the trial and appellate courts had the same decisions on the matter,
suffice it to say that a modification is proper. Worth stressing, petitioners act of withholding the
chicks and by-products is entirely different from petitioners unjustifiable acts of threatening
respondents. The retention had legal basis; the threats had none.

To begin with, petitioners obligation to deliver the chicks and by-products corresponds to
three dates: the date of hatching, the delivery/pick-up date and the date of respondents
payment. On several setting reports, respondents made delays on their payments, but petitioners
tolerated such delay. When respondents accounts accumulated because of their successive failure
to pay on several setting reports, petitioners opted to demand the full settlement of respondents
accounts as a condition precedent to the delivery. However, respondents were unable to fully
settle their accounts.
 Respondents offer to partially satisfy their accounts is not enough to extinguish their
obligation. Under Article 1248[27] of the Civil Code, the creditor cannot be compelled to accept
partial payments from the debtor, unless there is an express stipulation to that effect. More so,
respondents cannot substitute or apply as their payment the value of the chicks and by-products
they expect to derive because it is necessary that all the debts be for the same kind, generally of
a monetary character. Needless to say, there was no valid application of payment in this case.

Furthermore, it was respondents who violated the very essence of reciprocity in contracts,
consequently giving rise to petitioners right of retention. This case is clearly one among the
species of non-performance of a reciprocal obligation. Reciprocal obligations are those which
arise from the same cause, wherein each party is a debtor and a creditor of the other, such that the
performance of one is conditioned upon the simultaneous fulfillment of the other.[28] From the
moment one of the parties fulfills his obligation, delay by the other party begins.[29]

Since respondents are guilty of delay in the performance of their obligations, they are liable
to pay petitioners actual damages of P183,416.80, computed as follows: From respondents
outstanding balance of P102,336.80, as of Setting Report No. 107, we add the
corresponding services fees of P81,080.00[30] for Setting Report Nos. 108 to 113 which had
remain unpaid.

Nonetheless, San Juans subsequent acts of threatening respondents should not remain
among those treated with impunity. Under Article 19[31] of the Civil Code, an act constitutes an
abuse of right if the following elements are present: (a) the existence of a legal right or duty; (b)
which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.[32] Here, while petitioners had the right to withhold delivery, the high-handed and
oppressive acts of petitioners, as aptly found by the two courts below, had no legal leg to stand
on. We need not weigh the corresponding pieces of evidence all over again because factual
findings of the trial court, when adopted and confirmed by the appellate court, are binding and
conclusive and will not be disturbed on appeal.[33]

Since it was established that respondents suffered some pecuniary loss anchored on
petitioners abuse of rights, although the exact amount of actual damages cannot be ascertained,
temperate damages are recoverable.In arriving at a reasonable level of temperate damages
of P408,852.10, which is equivalent to the value of the chicks and by-products, which
respondents, on the average, are expected to derive, this Court was guided by the following
factors: (a) award of temperate damages will cover only Setting Report Nos. 109 to 113 since the
threats started only on February 10 and 11, 1993, which are the pick-up dates for Setting Report
Nos. 109 and 110; the rates of (b) 41% and (c) 17%, representing the average rates of conversion
of broiler eggs into hatched chicks and egg by-products as tabulated by the trial court based on
available statistical data which was unrebutted by petitioners; (d) 68,784 eggs,[34] or the total
number of broiler eggs under Setting Report Nos. 109 to 113; and (e) P14.00 and (f) P1.20, or the
then unit market price of the chicks and by-products, respectively.

Thus, the temperate damages of P408,852.10 is computed as follows:

 [b X (d X e) + c X (d X f)] = Temperate Damages
41% X (68,784 eggs X P14) = P394,820.16
17% X (68,784 eggs X P1.20) = P 14,031.94
[P394,820.16 + P14,031.94] = P408,852.10

At bottom, we agree that petitioners conduct flouts the norms of civil society and justifies
the award of moral and exemplary damages. As enshrined in civil law jurisprudence: Honeste
vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure others
and to give everyone his due.[35] Since exemplary damages are awarded, attorneys fees are also
proper. Article 2208 of the Civil Code provides that:
In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

xxxx

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 30,
2003 of the Court of Appeals in CA-G.R. CV No. 56082 is hereby MODIFIED as follows:

a. Respondents are ORDERED to pay petitioners P183,416.80 as actual damages,

with interest of 6% from the date of filing of the complaint until fully paid, plus
legal interest of 12% from the finality of this decision until fully paid.

b. The award of actual damages of P529,644.80 in favor of respondents is

hereby REDUCED to P408,852.10, with legal interest of 12% from the date of
finality of this judgment until fully paid.

c. The award of moral damages, exemplary damages and attorneys fees

of P100,000.00, P10,000.00, P50,000.00, respectively, in favor of respondents is
hereby AFFIRMED.

d. All other claims are hereby DENIED.

No pronouncement as to costs.

SO ORDERED.

Ramas vs. Quianco G.R. No. 146322

G.R. No. 146322 December 6, 2006

ERNESTO RAMAS UYPITCHING and RAMAS UYPITCHING SONS, INC., petitioners,

vs.
ERNESTO QUIAMCO, respondent.
 DECISION

CORONA, J.:

Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure others and to give
everyone his due. These supreme norms of justice are the underlying principles of law and order in society. We
reaffirm them in this petition for review on certiorari assailing the July 26, 2000 decision1 and October 18, 2000
resolution of the Court of Appeals (CA) in CA-G.R. CV No. 47571.

In 1982, respondent Ernesto C. Quiamco was approached by Juan Davalan,2 Josefino Gabutero and Raul
Generoso to amicably settle the civil aspect of a criminal case for robbery3 filed by Quiamco against them. They
surrendered to him a red Honda XL-100 motorcycle and a photocopy of its certificate of registration. Respondent
asked for the original certificate of registration but the three accused never came to see him again. Meanwhile, the
motorcycle was parked in an open space inside respondent’s business establishment, Avesco-AVNE Enterprises,
where it was visible and accessible to the public.

It turned out that, in October 1981, the motorcycle had been sold on installment basis to Gabutero by petitioner
Ramas Uypitching Sons, Inc., a family-owned corporation managed by petitioner Atty. Ernesto Ramas Uypitching.
To secure its payment, the motorcycle was mortgaged to petitioner corporation.4

When Gabutero could no longer pay the installments, Davalan assumed the obligation and continued the payments.
In September 1982, however, Davalan stopped paying the remaining installments and told petitioner corporation’s
collector, Wilfredo Veraño, that the motorcycle had allegedly been "taken by respondent’s men."

Nine years later, on January 26, 1991, petitioner Uypitching, accompanied by policemen,5 went to Avesco-AVNE
Enterprises to recover the motorcycle. The leader of the police team, P/Lt. Arturo Vendiola, talked to the clerk in
charge and asked for respondent. While P/Lt. Vendiola and the clerk were talking, petitioner Uypitching paced back
and forth inside the establishment uttering "Quiamco is a thief of a motorcycle."

On learning that respondent was not in Avesco-AVNE Enterprises, the policemen left to look for respondent in his
residence while petitioner Uypitching stayed in the establishment to take photographs of the motorcycle. Unable to
find respondent, the policemen went back to Avesco-AVNE Enterprises and, on petitioner Uypitching’s instruction
and over the clerk’s objection, took the motorcycle.

On February 18, 1991, petitioner Uypitching filed a criminal complaint for qualified theft and/or violation of the Anti-
Fencing Law6 against respondent in the Office of the City Prosecutor of Dumaguete City.7 Respondent moved for
dismissal because the complaint did not charge an offense as he had neither stolen nor bought the motorcycle. The
Office of the City Prosecutor dismissed the complaint8 and denied petitioner Uypitching’s subsequent motion for
reconsideration.

Respondent filed an action for damages against petitioners in the RTC of Dumaguete City, Negros Oriental, Branch
37.9 He sought to hold the petitioners liable for the following: (1) unlawful taking of the motorcycle; (2) utterance of a
defamatory remark (that respondent was a thief) and (3) precipitate filing of a baseless and malicious complaint.
These acts humiliated and embarrassed the respondent and injured his reputation and integrity.

On July 30, 1994, the trial court rendered a decision10 finding that petitioner Uypitching was motivated with malice
and ill will when he called respondent a thief, took the motorcycle in an abusive manner and filed a baseless
complaint for qualified theft and/or violation of the Anti-Fencing Law. Petitioners’ acts were found to be contrary to
Articles 1911 and 2012 of the Civil Code. Hence, the trial court held petitioners liable to respondent for P500,000
moral damages, P200,000 exemplary damages and P50,000 attorney’s fees plus costs.
Petitioners appealed the RTC decision but the CA affirmed the trial court’s decision with modification, reducing the
award of moral and exemplary damages to P300,000 and P100,000, respectively.13 Petitioners sought
reconsideration but it was denied. Thus, this petition.

In their petition and memorandum, petitioners submit that the sole (allegedly) issue to be resolved here is whether
the filing of a complaint for qualified theft and/or violation of the Anti-Fencing Law in the Office of the City Prosecutor
warranted the award of moral damages, exemplary damages, attorney’s fees and costs in favor of respondent.

Petitioners’ suggestion is misleading. They were held liable for damages not only for instituting a groundless
complaint against respondent but also for making a slanderous remark and for taking the motorcycle from
respondent’s establishment in an abusive manner.

Correctness of the Findings of the RTC and CA

As they never questioned the findings of the RTC and CA that malice and ill will attended not only the public
imputation of a crime to respondent14 but also the taking of the motorcycle, petitioners were deemed to have
accepted the correctness of such findings. This alone was sufficient to hold petitioners liable for damages to
respondent.

Nevertheless, to address petitioners’ concern, we also find that the trial and appellate courts correctly ruled that the
filing of the complaint was tainted with malice and bad faith. Petitioners themselves in fact described their action as
a "precipitate act."15 Petitioners were bent on portraying respondent as a thief. In this connection, we quote with
approval the following findings of the RTC, as adopted by the CA:

x x x There was malice or ill-will [in filing the complaint before the City Prosecutor’s Office] because Atty.
Ernesto Ramas Uypitching knew or ought to have known as he is a lawyer, that there was no probable
cause at all for filing a criminal complaint for qualified theft and fencing activity against [respondent]. Atty.
Uypitching had no personal knowledge that [respondent] stole the motorcycle in question. He was merely
told by his bill collector ([i.e.] the bill collector of Ramas Uypitching Sons, Inc.)[,] Wilfredo Veraño[,] that Juan
Dabalan will [no longer] pay the remaining installment(s) for the motorcycle because the motorcycle was
taken by the men of [respondent]. It must be noted that the term used by Wilfredo Veraño in informing Atty.
Ernesto Ramas Uypitching of the refusal of Juan Dabalan to pay for the remaining installment was [‘]taken[’],
not [‘]unlawfully taken[’] or ‘stolen.’ Yet, despite the double hearsay, Atty. Ernesto Ramas Uypitching not only
executed the [complaint-affidavit] wherein he named [respondent] as ‘the suspect’ of the stolen motorcycle
but also charged [respondent] of ‘qualified theft and fencing activity’ before the City [Prosecutor’s] Office of
Dumaguete. The absence of probable cause necessarily signifies the presence of malice. What is
deplorable in all these is that Juan Dabalan, the owner of the motorcycle, did not accuse [respondent] or the
latter’s men of stealing the motorcycle[,] much less bother[ed] to file a case for qualified theft before the
authorities. That Atty. Uypitching’s act in charging [respondent] with qualified theft and fencing activity is
tainted with malice is also shown by his answer to the question of Cupid Gonzaga16 [during one of their
conversations] - "why should you still file a complaint? You have already recovered the motorcycle…"[:]
"Aron motagam ang kawatan ug motor." ("To teach a lesson to the thief of motorcycle.")17

Moreover, the existence of malice, ill will or bad faith is a factual matter. As a rule, findings of fact of the trial court,
when affirmed by the appellate court, are conclusive on this Court. We see no compelling reason to reverse the
findings of the RTC and the CA.

Petitioners Abused Their Right of Recovery as Mortgagee(s)

Petitioners claim that they should not be held liable for petitioner corporation’s exercise of its right as seller-
mortgagee to recover the mortgaged vehicle preliminary to the enforcement of its right to foreclose on the mortgage
in case of default. They are clearly mistaken.

True, a mortgagee may take steps to recover the mortgaged property to enable it to enforce or protect its
foreclosure right thereon. There is, however, a well-defined procedure for the recovery of possession of mortgaged
property: if a mortgagee is unable to obtain possession of a mortgaged property for its sale on foreclosure, he must
bring a civil action either to recover such possession as a preliminary step to the sale, or to obtain judicial
foreclosure.18
Petitioner corporation failed to bring the proper civil action necessary to acquire legal possession of the motorcycle.
Instead, petitioner Uypitching descended on respondent’s establishment with his policemen and ordered the seizure
of the motorcycle without a search warrant or court order. Worse, in the course of the illegal seizure of the
motorcycle, petitioner Uypitching even mouthed a slanderous statement.

No doubt, petitioner corporation, acting through its co-petitioner Uypitching, blatantly disregarded the lawful
procedure for the enforcement of its right, to the prejudice of respondent. Petitioners’ acts violated the law as well as
public morals, and transgressed the proper norms of human relations.

The basic principle of human relations, embodied in Article 19 of the Civil Code, provides:

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

Article 19, also known as the "principle of abuse of right," prescribes that a person should not use his right unjustly
or contrary to honesty and good faith, otherwise he opens himself to liability.19 It seeks to preclude the use of, or the
tendency to use, a legal right (or duty) as a means to unjust ends.

There is an abuse of right when it is exercised solely to prejudice or injure another.20 The exercise of a right must be
in accordance with the purpose for which it was established and must not be excessive or unduly harsh; there must
be no intention to harm another.21 Otherwise, liability for damages to the injured party will attach.

In this case, the manner by which the motorcycle was taken at petitioners’ instance was not only attended by bad
faith but also contrary to the procedure laid down by law. Considered in conjunction with the defamatory statement,
petitioners’ exercise of the right to recover the mortgaged vehicle was utterly prejudicial and injurious to respondent.
On the other hand, the precipitate act of filing an unfounded complaint could not in any way be considered to be in
accordance with the purpose for which the right to prosecute a crime was established. Thus, the totality of
petitioners’ actions showed a calculated design to embarrass, humiliate and publicly ridicule respondent. Petitioners
acted in an excessively harsh fashion to the prejudice of respondent. Contrary to law, petitioners willfully caused
damage to respondent. Hence, they should indemnify him.22

WHEREFORE, the petition is hereby DENIED. The July 26, 2000 decision and October 18, 2000 resolution of the
Court of Appeals in CA-G.R. CV No. 47571 are AFFIRMED.

Triple costs against petitioners, considering that petitioner Ernesto Ramas Uypitching is a lawyer and an officer of
the court, for his improper behavior.

SO ORDERED.

Nikko Hotel Manila Garden vs. Roberto Reyes G.R. No. 154256

SECOND DIVISION

[G.R. No. 154259. February 28, 2005]

NIKKO HOTEL MANILA GARDEN and RUBY LIM, petitioners, vs. ROBERTO
REYES, a.k.a. AMAY BISAYA, respondent.

DECISION
CHICO-NAZARIO, J.:
 In this petition for review on certiorari, petitioners Nikko Hotel Manila Garden (Hotel Nikko)[1] and
Ruby Lim assail the Decision[2] of the Court of Appeals dated 26 November 2001 reversing the
Decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 104, as well as the Resolution [4] of
the Court of Appeals dated 09 July 2002 which denied petitioners motion for reconsideration.
The cause of action before the trial court was one for damages brought under the human relations
provisions of the New Civil Code. Plaintiff thereat (respondent herein) Roberto Reyes, more popularly
known by the screen name Amay Bisaya, alleged that at around 6:00 oclock in the evening of 13
October 1994, while he was having coffee at the lobby of Hotel Nikko, [5] he was spotted by his friend of
several years, Dr. Violeta Filart, who then approached him.[6]Mrs. Filart invited him to join her in a party
at the hotels penthouse in celebration of the natal day of the hotels manager, Mr. Masakazu
Tsuruoka.[7] Mr. Reyes asked if she could vouch for him for which she replied: of course. [8] Mr. Reyes
then went up with the party of Dr. Filart carrying the basket of fruits which was the latters present for
the celebrant.[9] At the penthouse, they first had their picture taken with the celebrant after which Mr.
Reyes sat with the party of Dr. Filart.[10] After a couple of hours, when the buffet dinner was ready, Mr.
Reyes lined-up at the buffet table but, to his great shock, shame and embarrassment, he was stopped
by petitioner herein, Ruby Lim, who claimed to speak for Hotel Nikko as Executive Secretary
thereof.[11] In a loud voice and within the presence and hearing of the other guests who were making a
queue at the buffet table, Ruby Lim told him to leave the party (huwag ka nang kumain, hindi ka
imbitado, bumaba ka na lang).[12] Mr. Reyes tried to explain that he was invited by Dr. Filart.[13] Dr. Filart,
who was within hearing distance, however, completely ignored him thus adding to his shame and
humiliation.[14] Not long after, while he was still recovering from the traumatic experience, a Makati
policeman approached and asked him to step out of the hotel. [15] Like a common criminal, he was
escorted out of the party by the policeman.[16] Claiming damages, Mr. Reyes asked for One Million Pesos
actual damages, One Million Pesos moral and/or exemplary damages and Two Hundred Thousand
Pesos attorneys fees.[17]
Ruby Lim, for her part, admitted having asked Mr. Reyes to leave the party but not under the
ignominious circumstance painted by the latter. Ms. Lim narrated that she was the Hotels Executive
Secretary for the past twenty (20) years.[18] One of her functions included organizing the birthday party
of the hotels former General Manager, Mr. Tsuruoka. [19] The year 1994 was no different. For Mr.
Tsuruokas party, Ms. Lim generated an exclusive guest list and extended invitations accordingly. [20] The
guest list was limited to approximately sixty (60) of Mr. Tsuruokas closest friends and some hotel
employees and that Mr. Reyes was not one of those invited. [21] At the party, Ms. Lim first noticed Mr.
Reyes at the bar counter ordering a drink.[22] Mindful of Mr. Tsuruokas wishes to keep the party intimate,
Ms. Lim approached Mr. Boy Miller, the captain waiter, to inquire as to the presence of Mr. Reyes who
was not invited.[23] Mr. Miller replied that he saw Mr. Reyes with the group of Dr. Filart. [24] As Dr. Filart
was engaged in conversation with another guest and as Ms. Lim did not want to interrupt, she inquired
instead from the sister of Dr. Filart, Ms. Zenaida Fruto, who told her that Dr. Filart did not invite Mr.
Reyes.[25] Ms. Lim then requested Ms. Fruto to tell Mr. Reyes to leave the party as he was not
invited.[26] Mr. Reyes, however, lingered prompting Ms. Lim to inquire from Ms. Fruto who said that Mr.
Reyes did not want to leave.[27] When Ms. Lim turned around, she saw Mr. Reyes conversing with a
Captain Batung whom she later approached.[28] Believing that Captain Batung and Mr. Reyes knew each
other, Ms. Lim requested from him the same favor from Ms. Fruto, i.e., for Captain Batung to tell Mr.
Reyes to leave the party as he was not invited. [29] Still, Mr. Reyes lingered. When Ms. Lim spotted Mr.
Reyes by the buffet table, she decided to speak to him herself as there were no other guests in the
immediate vicinity.[30] However, as Mr. Reyes was already helping himself to the food, she decided to
wait.[31] When Mr. Reyes went to a corner and started to eat, Ms. Lim approached him and said: alam
ninyo, hindo ho kayo dapat nandito. Pero total nakakuha na ho kayo ng pagkain, ubusin na lang ninyo
at pagkatapos kung pwede lang po umalis na kayo.[32] She then turned around trusting that Mr. Reyes
would show enough decency to leave, but to her surprise, he began screaming and making a big scene,
and even threatened to dump food on her.[33]
 Dr. Violeta Filart, the third defendant in the complaint before the lower court, also gave her version
of the story to the effect that she never invited Mr. Reyes to the party. [34] According to her, it was Mr.
Reyes who volunteered to carry the basket of fruits intended for the celebrant as he was likewise going
to take the elevator, not to the penthouse but to Altitude 49.[35] When they reached the penthouse, she
reminded Mr. Reyes to go down as he was not properly dressed and was not invited. [36] All the while,
she thought that Mr. Reyes already left the place, but she later saw him at the bar talking to Col.
Batung.[37] Then there was a commotion and she saw Mr. Reyes shouting. [38] She ignored Mr.
Reyes.[39] She was embarrassed and did not want the celebrant to think that she invited him. [40]
After trial on the merits, the court a quo dismissed the complaint,[41] giving more credence to the
testimony of Ms. Lim that she was discreet in asking Mr. Reyes to leave the party. The trial court likewise
ratiocinated that Mr. Reyes assumed the risk of being thrown out of the party as he was uninvited:

Plaintiff had no business being at the party because he was not a guest of Mr. Tsuruoka, the
birthday celebrant. He assumed the risk of being asked to leave for attending a party to which he
was not invited by the host. Damages are pecuniary consequences which the law imposes for the
breach of some duty or the violation of some right. Thus, no recovery can be had against
defendants Nikko Hotel and Ruby Lim because he himself was at fault (Garciano v. Court of
Appeals, 212 SCRA 436). He knew that it was not the party of defendant Violeta Filart even if she
allowed him to join her and took responsibility for his attendance at the party. His action against
defendants Nikko Hotel and Ruby Lim must therefore fail. [42]

On appeal, the Court of Appeals reversed the ruling of the trial court as it found more commanding
of belief the testimony of Mr. Reyes that Ms. Lim ordered him to leave in a loud voice within hearing
distance of several guests:

In putting appellant in a very embarrassing situation, telling him that he should not finish his food
and to leave the place within the hearing distance of other guests is an act which is contrary to
morals, good customs . . ., for which appellees should compensate the appellant for the damage
suffered by the latter as a consequence therefore (Art. 21, New Civil Code). The liability arises
from the acts which are in themselves legal or not prohibited, but contrary to morals or good
customs. Conversely, even in the exercise of a formal right, [one] cannot with impunity
intentionally cause damage to another in a manner contrary to morals or good customs. [43]

The Court of Appeals likewise ruled that the actuation of Ms. Lim in approaching several people to
inquire into the presence of Mr. Reyes exposed the latter to ridicule and was uncalled for as she should
have approached Dr. Filart first and both of them should have talked to Mr. Reyes in private:

Said acts of appellee Lim are uncalled for. What should have been done by appellee Lim was to
approach appellee Mrs. Filart and together they should have told appellant Reyes in private that the
latter should leave the party as the celebrant only wanted close friends around. It is necessary that
Mrs. Filart be the one to approach appellant because it was she who invited appellant in that
occasion. Were it not for Mrs. Filarts invitation, appellant could not have suffered such humiliation.
For that, appellee Filart is equally liable.

...

The acts of [appellee] Lim are causes of action which are predicated upon mere rudeness or lack of
consideration of one person, which calls not only protection of human dignity but respect of such
dignity. Under Article 20 of the Civil Code, every person who violates this duty becomes liable for
damages, especially if said acts were attended by malice or bad faith. Bad faith does not simply
connote bad judgment or simple negligence. It imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of a known duty to some motive or interest or ill-will that
partakes of the nature of fraud (Cojuangco, Jr. v. CA, et al., 309 SCRA 603). [44]

Consequently, the Court of Appeals imposed upon Hotel Nikko, Ruby Lim and Dr. Violeta Filart the
solidary obligation to pay Mr. Reyes (1) exemplary damages in the amount of Two Hundred Thousand
Pesos (P200,000); (2) moral damages in the amount of Two Hundred Thousand Pesos (P200,000);
and (3) attorneys fees in the amount of Ten Thousand Pesos (P10,000). [45] On motion for
reconsideration, the Court of Appeals affirmed its earlier decision as the argument raised in the motion
had been amply discussed and passed upon in the decision sought to be reconsidered. [46]
Thus, the instant petition for review. Hotel Nikko and Ruby Lim contend that the Court of Appeals
seriously erred in
I.

NOT APPLYING THE DOCTRINE OF VOLENTI NON FIT INJURIA CONSIDERING THAT
BY ITS OWN FINDINGS, AMAY BISAYA WAS A GATE-CRASHER

II.

HOLDING HOTEL NIKKO AND RUBY LIM JOINTLY AND SEVERALLY LIABLE WITH
DR. FILART FOR DAMAGES SINCE BY ITS OWN RULING, AMAY BISAYA COULD NOT
HAVE SUFFERED SUCH HUMILIATION, WERE IT NOT FOR DR. FILARTS INVITATION

III.

DEPARTING FROM THE FINDINGS OF FACT OF THE TRIAL COURT AS REGARDS THE
CIRCUMSTANCES THAT ALLEGEDLY CAUSED THE HUMILIATION OF AMAY BISAYA

IV.

IN CONCLUDING THAT AMAY BISAYA WAS TREATED UNJUSTLY BECAUSE OF HIS

POVERTY, CONSIDERING THAT THIS WAS NEVER AN ISSUE AND NO EVIDENCE WAS
PRESENTED IN THIS REGARD

V.

IN FAILING TO PASS UPON THE ISSUE ON THE DEFECTS OF THE APPELLANTS BRIEF,
THEREBY DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS

Petitioners Lim and Hotel Nikko contend that pursuant to the doctrine of volenti non fit injuria, they
cannot be made liable for damages as respondent Reyes assumed the risk of being asked to leave
(and being embarrassed and humiliated in the process) as he was a gate-crasher.
The doctrine of volenti non fit injuria (to which a person assents is not esteemed in law as injury[47])
refers to self-inflicted injury[48] or to the consent to injury[49] 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.[50] As formulated by petitioners, however, this doctrine does not find application to the case at bar
because even if respondent Reyes assumed the risk of being asked to leave the party, petitioners,
under Articles 19 and 21 of the New Civil Code, were still under obligation to treat him fairly in order
not to expose him to unnecessary ridicule and shame.
Thus, the threshold issue is whether or not Ruby Lim acted abusively in asking Roberto Reyes,
a.k.a. Amay Bisaya, to leave the party where he was not invited by the celebrant thereof thereby
becoming liable under Articles 19 and 21 of the Civil Code. Parenthetically, and if Ruby Lim were so
liable, whether or not Hotel Nikko, as her employer, is solidarily liable with her.
As the trial court and the appellate court reached divergent and irreconcilable conclusions
concerning the same facts and evidence of the case, this Court is left without choice but to use its latent
power to review such findings of facts. Indeed, the general rule is that we are not a trier of facts as our
jurisdiction is limited to reviewing and revising errors of law.[51] One of the exceptions to this general rule,
however, obtains herein as the findings of the Court of Appeals are contrary to those of the trial
court.[52] The lower court ruled that Ms. Lim did not abuse her right to ask Mr. Reyes to leave the party
as she talked to him politely and discreetly. The appellate court, on the other hand, held that Ms. Lim
is liable for damages as she needlessly embarrassed Mr. Reyes by telling him not to finish his food and
to leave the place within hearing distance of the other guests. Both courts, however, were in agreement
that it was Dr. Filarts invitation that brought Mr. Reyes to the party.
The consequential question then is: Which version is credible?
From an in depth review of the evidence, we find more credible the lower courts findings of fact.
First, let us put things in the proper perspective.
We are dealing with a formal party in a posh, five-star hotel,[53] for-invitation-only, thrown for the
hotels former Manager, a Japanese national. Then came a person who was clearly uninvited (by the
celebrant)[54] and who could not just disappear into the crowd as his face is known by many, being an
actor. While he was already spotted by the organizer of the party, Ms. Lim, the very person who
generated the guest list, it did not yet appear that the celebrant was aware of his presence. Ms. Lim,
mindful of the celebrants instruction to keep the party intimate, would naturally want to get rid of the
gate-crasher in the most hush-hush manner in order not to call attention to a glitch in an otherwise
seamless affair and, in the process, risk the displeasure of the celebrant, her former boss. To
unnecessarily call attention to the presence of Mr. Reyes would certainly reflect badly on Ms. Lims
ability to follow the instructions of the celebrant to invite only his close friends and some of the hotels
personnel. Mr. Reyes, upon whom the burden rests to prove that indeed Ms. Lim loudly and rudely
ordered him to leave, could not offer any satisfactory explanation why Ms. Lim would do that and risk
ruining a formal and intimate affair. On the contrary, Mr. Reyes, on cross-examination, had unwittingly
sealed his fate by admitting that when Ms. Lim talked to him, she was very close. Close enough for him
to kiss:
Q: And, Mr. Reyes, you testified that Miss Lim approached you while you were at the buffet table?
How close was she when she approached you?
A: Very close because we nearly kissed each other.
Q: And yet, she shouted for you to go down? She was that close and she shouted?
A: Yes. She said, wag kang kumain, hindi ka imbitado dito, bumaba ka na lang.
Q: So, you are testifying that she did this in a loud voice?

...

A: Yes. If it is not loud, it will not be heard by many.[55]

In the absence of any proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and expose him to
ridicule and shame, it is highly unlikely that she would shout at him from a very close distance. Ms. Lim
having been in the hotel business for twenty years wherein being polite and discreet are virtues to be
emulated, the testimony of Mr. Reyes that she acted to the contrary does not inspire belief and is indeed
incredible. Thus, the lower court was correct in observing that

Considering the closeness of defendant Lim to plaintiff when the request for the latter to leave the
party was made such that they nearly kissed each other, the request was meant to be heard by him
only and there could have been no intention on her part to cause embarrassment to him. It was
plaintiffs reaction to the request that must have made the other guests aware of what transpired
between them. . .

Had plaintiff simply left the party as requested, there was no need for the police to take him out. [56]

Moreover, another problem with Mr. Reyess version of the story is that it is unsupported. It is a
basic rule in civil cases that he who alleges proves. Mr. Reyes, however, had not presented any witness
to back his story up. All his witnesses Danny Rodinas, Pepito Guerrero and Alexander Silva - proved
only that it was Dr. Filart who invited him to the party.[57]
Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not
invited, cannot be made liable to pay for damages under Articles 19 and 21 of the Civil Code.
Necessarily, neither can her employer, Hotel Nikko, be held liable as its liability springs from that of its
employee.[58]
Article 19, known to contain what is commonly referred to as the principle of abuse of rights, [59] is
not a panacea for all human hurts and social grievances. Article 19 states:

Art. 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.

Elsewhere, we explained that 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 responsible.[60] The object of this article, therefore, is to set certain
standards which must be observed not only in the exercise of ones rights but also in the performance
of ones duties.[61] These standards are the following: act with justice, give everyone his due and observe
honesty and good faith.[62] Its antithesis, necessarily, is any act evincing bad faith or intent to injure. Its
elements are the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for
the sole intent of prejudicing or injuring another.[63] When Article 19 is violated, an action for damages is
proper under Articles 20 or 21 of the Civil Code. Article 20 pertains to damages arising from a violation
of law[64] which does not obtain herein as Ms. Lim was perfectly within her right to ask Mr. Reyes to
leave. Article 21, on the other hand, states:

Art. 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 21[65] refers to acts contra bonus mores and has the following elements: (1) There is an act which
is legal; (2) but which is contrary to morals, good custom, public order, or public policy; and (3) it is
done with intent to injure.[66]
A common theme runs through Articles 19 and 21,[67] and that is, the act complained of must be
intentional.[68]
 As applied to herein case and as earlier discussed, Mr. Reyes has not shown that Ms. Lim was
driven by animosity against him. These two people did not know each other personally before the
evening of 13 October 1994, thus, Mr. Reyes had nothing to offer for an explanation for Ms. Lims
alleged abusive conduct except the statement that Ms. Lim, being single at 44 years old, had a very
strong bias and prejudice against (Mr. Reyes) possibly influenced by her associates in her work at the
hotel with foreign businessmen.[69] The lameness of this argument need not be belabored. Suffice it to
say that a complaint based on Articles 19 and 21 of the Civil Code must necessarily fail if it has nothing
to recommend it but innuendos and conjectures.
Parenthetically, the manner by which Ms. Lim asked Mr. Reyes to leave was likewise acceptable
and humane under the circumstances. In this regard, we cannot put our imprimatur on the appellate
courts declaration that Ms. Lims act of personally approaching Mr. Reyes (without first verifying from
Mrs. Filart if indeed she invited Mr. Reyes) gave rise to a cause of action predicated upon mere
rudeness or lack of consideration of one person, which calls not only protection of human dignity but
respect of such dignity.[70] Without proof of any ill-motive on her part, Ms. Lims act of by-passing Mrs.
Filart cannot amount to abusive conduct especially because she did inquire from Mrs. Filarts companion
who told her that Mrs. Filart did not invite Mr. Reyes.[71] If at all, Ms. Lim is guilty only of bad judgment
which, if done with good intentions, cannot amount to bad faith.
Not being liable for both actual and moral damages, neither can petitioners Lim and Hotel Nikko be
made answerable for exemplary damages[72] especially for the reason stated by the Court of Appeals.
The Court of Appeals held

Not a few of the rich people treat the poor with contempt because of the latters lowly station in life.
This has to be limited somewhere. In a democracy, such a limit must be established. Social equality
is not sought by the legal provisions under consideration, but due regard for decency and propriety
(Code Commission, pp. 33-34). And by way of example or correction for public good and to avert
further commission of such acts, exemplary damages should be imposed upon appellees. [73]

The fundamental fallacy in the above-quoted findings is that it runs counter with the very facts of the
case and the evidence on hand. It is not disputed that at the time of the incident in question, Mr. Reyes
was an actor of long standing; a co-host of a radio program over DZRH; a Board Member of the Music
Singer Composer (MUSICO) chaired by popular singer Imelda Papin; a showbiz Coordinator of Citizen
Crime Watch; and 1992 official candidate of the KBL Party for Governor of Bohol; and an awardee of
a number of humanitarian organizations of the Philippines.[74] During his direct examination on rebuttal,
Mr. Reyes stressed that he had income[75] and nowhere did he say otherwise. On the other hand, the
records are bereft of any information as to the social and economic standing of petitioner Ruby Lim.
Consequently, the conclusion reached by the appellate court cannot withstand scrutiny as it is without
basis.
All told, and as far as Ms. Lim and Hotel Nikko are concerned, any damage which Mr. Reyes might
have suffered through Ms. Lims exercise of a legitimate right done within the bounds of propriety and
good faith, must be his to bear alone.
WHEREFORE, premises considered, the petition filed by Ruby Lim and Nikko Hotel Manila Garden
is GRANTED. The Decision of the Court of Appeals dated 26 November 2001 and its Resolution dated
09 July 2002 are hereby REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
Quezon City, Branch 104, dated 26 April 1999 is hereby AFFIRMED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
St. Mary's Academy vs. William Carpitanos et. Al G.R. No. 143363

FIRST DIVISION

[G.R. No. 143363. February 6, 2002]

ST. MARYS ACADEMY, petitioner, vs. WILLIAM CARPITANOS and LUCIA S.

CARPITANOS, GUADA DANIEL, JAMES DANIEL II, JAMES DANIEL,
SR., and VIVENCIO VILLANUEVA, respondents.

DECISION
PARDO, J.:

The Case

The case is an appeal via certiorari from the decision[1] of the Court of Appeals as well as the
resolution denying reconsideration, holding petitioner liable for damages arising from an accident that
resulted in the death of a student who had joined a campaign to visit the public schools
in Dipolog City to solicit enrollment.

The Facts

The facts, as found by the Court of Appeals, are as follows:

Claiming damages for the death of their only son, Sherwin Carpitanos, spouses William Carpitanos
and Lucia Carpitanos filed on June 9, 1995 a case against James Daniel II and his parents, James
Daniel Sr. and Guada Daniel, the vehicle owner, Vivencio Villanueva and St. Marys Academy
before the Regional Trial Court of Dipolog City.

On 20 February 1997, Branch 6 of the Regional Trial Court of Dipolog City rendered its decision
the dispositive portion of which reads as follows:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the following

manner:

1. Defendant St. Marys Academy of Dipolog City, is hereby ordered to pay plaintiffs William
Carpitanos and Luisa Carpitanos, the following sums of money:

a. FIFTY THOUSAND PESOS (P50,000.00) indemnity for the loss of life of Sherwin S.
Carpitanos;
b. FORTY THOUSAND PESOS (P40,000.00) actual damages incurred by plaintiffs for burial
and related expenses;
 c. TEN THOUSAND PESOS (P10,000.00) for attorneys fees;
d. FIVE HUNDRED THOUSAND PESOS (P500,000.00) for moral damages; and to pay
costs.

2. Their liability being only subsidiary, defendants James Daniel, Sr. and Guada Daniel are hereby
ordered to pay herein plaintiffs the amount of damages above-stated in the event of insolvency of
principal obligor St. Marys Academy of Dipolog City;

3. Defendant James Daniel II, being a minor at the time of the commission of the tort and who was
under special parental authority of defendant St. Marys Academy, is ABSOLVED from paying the
above-stated damages, same being adjudged against defendants St. Marys Academy, and
subsidiarily, against his parents;

4. Defendant Vivencio Villanueva is hereby ABSOLVED of any liability. His counterclaim not
being in order as earlier discussed in this decision, is hereby DISMISSED.

IT IS SO ORDERED. (Decision, pp. 32-33; Records, pp. 205-206).

From the records it appears that from 13 to 20 February 1995, defendant-appellant St. Marys
Academy of Dipolog City conducted an enrollment drive for the school year 1995-1996. A facet of
the enrollment campaign was the visitation of schools from where prospective enrollees were
studying. As a student of St. Marys Academy, Sherwin Carpitanos was part of the campaigning
group. Accordingly, on the fateful day, Sherwin, along with other high school students were riding
in a Mitsubishi jeep owned by defendant Vivencio Villanueva on their way to Larayan Elementary
School, Larayan, Dapitan City. The jeep was driven by James Daniel II then 15 years old and a
student of the same school. Allegedly, the latter drove the jeep in a reckless manner and as a result
the jeep turned turtle.

Sherwin Carpitanos died as a result of the injuries he sustained from the accident.[2]

In due time, petitioner St. Marys academy appealed the decision to the Court of Appeals. [3]
On February 29, 2000, the Court of Appeals promulgated a decision reducing the actual damages
to P25,000.00 but otherwise affirming the decision a quo, in toto.[4]
On February 29, 2000, petitioner St. Marys Academy filed a motion for reconsideration of the
decision. However, on May 22, 2000, the Court of Appeals denied the motion.[5]
Hence, this appeal.[6]

The Issues

1) Whether the Court of Appeals erred in holding the petitioner liable for damages for the death of
Sherwin Carpitanos.
2) Whether the Court of Appeals erred in affirming the award of moral damages against the petitioner.

The Courts Ruling

 We reverse the decision of the Court of Appeals.
The Court of Appeals held petitioner St. Marys Academy liable for the death of Sherwin Carpitanos
under Articles 218[7] and 219[8] of the Family Code, pointing out that petitioner was negligent in allowing
a minor to drive and in not having a teacher accompany the minor students in the jeep.
Under Article 218 of the Family Code, the following shall have special parental authority over a
minor child while under their supervision, instruction or custody: (1) the school, its administrators and
teachers; or (2) the individual, entity or institution engaged in child care. This special parental authority
and responsibility applies to all authorized activities, whether inside or outside the premises of the
school, entity or institution. Thus, such authority and responsibility applies to field trips, excursions and
other affairs of the pupils and students outside the school premises whenever authorized by the school
or its teachers.[9]
Under Article 219 of the Family Code, if the person under custody is a minor, those exercising
special parental authority are principally and solidarily liable for damages caused by the acts or
omissions of the unemancipated minor while under their supervision, instruction, or custody. [10]
However, for petitioner to be liable, there must be a finding that the act or omission considered as
negligent was the proximate cause of the injury caused because the negligence must have a causal
connection to the accident.[11]

In order that there may be a recovery for an injury, however, it must be shown that the injury for
which recovery is sought must be the legitimate consequence of the wrong done; the connection
between the negligence and the injury must be a direct and natural sequence of events, unbroken by
intervening efficient causes. In other words, the negligence must be the proximate cause of the
injury. For, negligence, no matter in what it consists, cannot create a right of action unless it is the
proximate cause of the injury complained of. And the proximate cause of an injury is that cause,
which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces
the injury, and without which the result would not have occurred.[12]

In this case, the respondents failed to show that the negligence of petitioner was the proximate
cause of the death of the victim.
Respondents Daniel spouses and Villanueva admitted that the immediate cause of the accident
was not the negligence of petitioner or the reckless driving of James Daniel II, but the detachment of
the steering wheel guide of the jeep.
In their comment to the petition, respondents Daniel spouses and Villanueva admitted the
documentary exhibits establishing that the cause of the accident was the detachment of the steering
wheel guide of the jeep. Hence, the cause of the accident was not the recklessness of James Daniel II
but the mechanical defect in the jeep of Vivencio Villanueva. Respondents, including the spouses
Carpitanos, parents of the deceased Sherwin Carpitanos, did not dispute the report and testimony of
the traffic investigator who stated that the cause of the accident was the detachment of the steering
wheel guide that caused the jeep to turn turtle.
Significantly, respondents did not present any evidence to show that the proximate cause of the
accident was the negligence of the school authorities, or the reckless driving of James Daniel II. Hence,
the respondents reliance on Article 219 of the Family Code that those given the authority and
responsibility under the preceding Article shall be principally and solidarily liable for damages caused
by acts or omissions of the unemancipated minor was unfounded.
Further, there was no evidence that petitioner school allowed the minor James Daniel II to drive
the jeep of respondent Vivencio Villanueva. It was Ched Villanueva, grandson of respondent Vivencio
Villanueva, who had possession and control of the jeep. He was driving the vehicle and he allowed
James Daniel II, a minor, to drive the jeep at the time of the accident.
Hence, liability for the accident, whether caused by the negligence of the minor driver or mechanical
detachment of the steering wheel guide of the jeep, must be pinned on the minors parents primarily. The
negligence of petitioner St. Marys Academy was only a remote cause of the accident. Between the
remote cause and the injury, there intervened the negligence of the minors parents or the detachment
of the steering wheel guide of the jeep.

The proximate cause of an injury is that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the result
would not have occurred.[13]

Considering that the negligence of the minor driver or the detachment of the steering wheel guide
of the jeep owned by respondent Villanueva was an event over which petitioner St. Marys Academy
had no control, and which was the proximate cause of the accident, petitioner may not be held liable
for the death resulting from such accident.
Consequently, we find that petitioner likewise cannot be held liable for moral damages in the
amount of P500,000.00 awarded by the trial court and affirmed by the Court of Appeals.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendants wrongful act or omission. [14] In this case, the proximate cause of the
accident was not attributable to petitioner.
For the reason that petitioner was not directly liable for the accident, the decision of the Court of
Appeals ordering petitioner to pay death indemnity to respondent Carpitanos must be
deleted. Moreover, the grant of attorneys fees as part of damages is the exception rather than the
rule.[15] The power of the court to award attorneys fees under Article 2208 of the Civil Code demands
factual, legal and equitable justification.[16] Thus, the grant of attorneys fees against the petitioner is
likewise deleted.
Incidentally, there was no question that the registered owner of the vehicle was respondent
Villanueva. He never denied and in fact admitted this fact. We have held that the registered owner of
any vehicle, even if not used for public service, would primarily be responsible to the public or to third
persons for injuries caused the latter while the vehicle was being driven on the highways or
streets.[17] Hence, with the overwhelming evidence presented by petitioner and the respondent Daniel
spouses that the accident occurred because of the detachment of the steering wheel guide of the jeep,
it is not the school, but the registered owner of the vehicle who shall be held responsible for damages
for the death of Sherwin Carpitanos.

The Fallo

WHEREFORE, the Court REVERSES and SETS ASIDE the decision of the Court of Appeals[18] and
that of the trial court.[19] The Court remands the case to the trial court for determination of the liability of
defendants, excluding petitioner St. Marys Academy, Dipolog City.
No costs.
SO ORDERED.
Sps. Guanio vs. Makati Shangrila Hotel G.R. No. 190601
 THIRD DIVISION

SPOUSES LUIGI M. GUANIO and G.R. No. 190601

ANNA HERNANDEZ-GUANIO,
Petitioners,
Present:

CARPIO MORALES,
- versus - Chairperson, J.,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
MAKATI SHANGRI-LA HOTEL
and RESORT, INC., also doing
business under the name of Promulgated:
SHANGRI-LA HOTEL MANILA,
Respondent. February 7, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

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.

xxxx

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]
xxxx
Q 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.
Regino vs. Pangasinan Colleges of Science and Technology G.R. No. 156109
Pilipinas Hino vs. C.A G.R. No. 126570

FIRST DIVISION

[G.R. No. 126570. August 18, 2000]

PILIPINAS HINO, INC., petitioner, vs. COURT OF APPEALS, FERNANDO V.

REYES, PONCIANO REYES, and TERESITA R. TAN, respondents.

DECISION
KAPUNAN, J.:

This petition for review on certiorari seeks to reverse and set aside the decision, dated September
26, 1996, of the Court of Appeals[1] in CA-G.R. CV NO. 48612 which affirmed in toto the decision of the
Regional Trial Court of Pasig, Branch 152 in Civil Case No. 61266.
The antecedents of the case as found by the trial court and adopted by the appellate court in its
decision, are as follows:

This is an action for Sum of Money and Damages filed by Pilipinas Hino, Inc., thereinafter
referred to as the plaintiff against Fernando V. Reyes, Ponciano V. Reyes, and Teresita R.
Tan, hereinafter referred to as the defendants.

The plaintiff is a corporation duly organized and existing under the laws of the Philippines,
with office address at PMI Building, EDSA, Mandaluyong, Metro Manila: whereas, the
defendants Fernando V. D. Reyes and Ponciano V. D. Reyes are both of legal age, with
residential or business address at 57 Xavierville Avenue, Loyola Heights, Quezon City,
Metro Manila, while defendant Teresita R. Tan is likewise of legal age, with postal address
at 39 Zalameda St., Corinthian Garden, Quezon City.

The material allegations in plaintiff's Complaint are as follows:

ON THE FIRST CAUSE OF ACTION

That on or about 15 August 1989, a contract of lease was entered into between herein
parties, under which the defendants, as lessors, leased real property located at Bigaa,
Balagtas, Bulacan, to herein plaintiff for a term of two (2) years, from 16 August 1989 to
15 August 1991.
Pursuant to the contract of lease, plaintiff-lessee deposited with the defendants-lessors
the amount of Four Hundred Thousand (P400,000.00) Pesos to answer for repairs and
damages that may be caused by the lessee on the leased premises during the period of
the lease.

After the expiration of the lease contract, the plaintiff and defendants made a joint
inspection of the premises to determine the extent of the damages thereon, both agreed
that the cost of repairs would amount to P60,000.00 and that the amount of P340,000.00
shall then be returned by the defendants to plaintiff. However, defendants returned to
plaintiff only the amount of P200,000.00, still having a balance of P140,000.00.

Notwithstanding repeated demands, defendants unjustifiably refused to return the balance

of P140,000.00 holding that the true and actual damage on the lease premises amounted
to P298,738.90.

ON THE SECOND CAUSE OF ACTION

On August 10, 1990, plaintiff and defendants entered into a contract to sell denominated
as a Memorandum of Agreement to sell whereby the latter agreed to sell to the former the
leased property subject of this suit in the amount ofP45,611,000.00.

The aforesaid Memorandum of Agreement to sell granted the owner (defendants) the
option to rescind the same upon failure of the buyer (plaintiff) to pay any of the first six (6)
installments with the corresponding obligation to return to the buyer any amount paid by
the buyer in excess of the downpayment as stated in paragraphs 7 and 9 of the
Memorandum of Agreement.

Pursuant to said Memorandum of Agreement, plaintiff remitted on August 10, 1990 to the
defendants the amount of P1,811,000.00 as downpayment. Subsequently, plaintiff paid
the first and second installments in the amount of P1,800,000.00 and P5,250,000.00,
respectively, thereby making the total amount paid by the plaintiff to the defendants, on
top of the downpayment, P7,050,000.00.

Unfortunately, plaintiff failed to pay the 3rd installment and subsequent installments: and
thereupon, defendants decided to, and in fact did, in a letter dated 20 November 1990,
rescinded and terminated the contract and promised to return to the plaintiff all the
amounts paid in excess of the downpayment after deducting the interest due from 3rd to
6th installments, inclusive.

Thus, from the amount of P7,050,000.00 due to be returned to the plaintiff, defendants
deducted P924,000.00 as interest and P220,000.00 as rent for the period from 15
February to 15 March 1991, thereby returning to the plaintiff the amount of P5,906,000.00
only, as acknowledged by plaintiff in the letter dated 4 April 1991.

xxx

In their Answer, defendants interposed the following defenses, to wit:

 ON THE FIRST CAUSE OF ACTION

There is absolutely no evidence of any agreement allegedly arrived at between plaintiff

and defendants upon which plaintiff can anchor its first cause of action.

Plaintiff avers that an estimate of P60,000.00 cost of repairs was agreed upon by the
parties after a joint inspection of the premises, to which defendant categorically asserted
that there was no such agreement arrived at, nor even an estimated amount was agreed
upon by the parties. No less than plaintiff's witness Atty. Yumang testified that there was
no such agreement.

It was Atty. Yumang who, by himself and without the approval of the Board came up with
an amount of P60,000.00, which was turned down by the defendants as they were
incompetent to determine the actual cost of the repairs.

Granting that there was an agreement entered into by Atty. Yumang with the defendants
during the first inspection and thereafter as to the amount of damages, this agreement, at
that time, would not have been binding on the plaintiff-corporation as Atty. Yumang was
never authorized by the plaintiff-corporation at that time to enter into any settlement with
the defendants.

Aside from Atty. Yumang, Mr. Rene C. Sangalang was also presented by the plaintiff. He
testified that sometime in March 1991, Plaintiff (Pilhino) was moving out and he was
requested to inspect the premises. In the same vein, there is nothing in the testimony to
show that, at the time of the inspection or anytime thereafter, he was empowered or
authorized by the plaintiff-corporation to settle any transaction with defendants. He merely
prepared the cost of estimate on the repairs to be done and he forwarded it to Mr. Arsenio
Paez, the General Manager of the plaintiff, who in turn allegedly sent it to the
defendants. Unfortunately, however, said estimate never reached the hands of the
defendants.

Plaintiff's other witness, Mr. Arsenio Paez, testified that there were two (2) inspections
made on the premises and he categorically testified that he was present only in the
second inspection. He also affirmed that the 'estimated' amount of P60,000.00 was
allegedly arrived at by the parties and that plaintiff agreed that such amount should be
allegedly retained by the defendants. However, nobody among the defendants agreed to
the amount of P60,000.00. Indeed, this non-acceptance was corroborated by Mrs.
Teresita Tan when she testified that she rejected the offer because it was not
enough. Thus, there was no such agreement to speak of.

xxx

ON THE SECOND CAUSE OF ACTION

The defendants are entitled to the retention of the amount of P924,000.00 as payment of
interest stipulated in the contract.
The second cause of action pertains to the Memorandum of Agreement to sell entered
into by the parties. It is stated in paragraph 6 that an interest equivalent to three (3%)
percent per thirty days period shall be imposed on any installment due but not paid for the
duration of the delay. Paragraph 7 of the same documents also deserves a second look.

Since plaintiff failed to pay the third and subsequent installments, defendants' right to the
3% interest, therefore, readily accrued and became demandable at the time of the non-
payment. The grace period granted to the plaintiff likewise lapsed. Consequently, the
defendants decided to, and in fact did in a letter dated 20 November 1990, terminate the
contract to sell. The defendants as agreed upon returned to the plaintiff the amount of
P5,906,000.00 representing the amount due to the plaintiff as reimbursement of the
installments for the 1st and 2nd installments. Considering that the plaintiff has failed to pay
the installments due on time, the interest in the amount of P924,000.00 was charged
against the plaintiff (which interest, in turn, represents the unproductive use of the money
which should have been made by the defendants had the payment been made on
time). The amount of P220,000.00 was likewise deducted by the defendants representing
rentals for the period. Thus, only the amount of P5,906,000.00 was rightfully returned by
the defendants.

Plaintiff's request to return the amount of P924,000.00 to which defendants however

refused for reasons that the said amount represents interest due and demandable from
the plaintiff when it incurred the delay which by virtue of legal compensation, was set-off
by operation of law and the said amount was rightfully deducted from the amount of
P7,050,000.00. [2]

On 24 August 1994, the trial court rendered a decision ruling in favor of respondents Reyes, et
al. As to the first cause of action, the trial court found that petitioner was unable to prove its claim that
based on the joint ocular inspection of the leased premises, the parties jointly agreed that petitioner
would only be held liable in the amount of P60,000.00 representing damages to the leased property. As
to the second cause of action, the trial court ruled that based on the contract to sell, petitioner is liable
for interest arising from its failure to pay the third and subsequent installments, hence respondents
were correct in withholding the amount representing these interest. The dispositive portion of the trial
courts decision reads:

WHEREFORE, judgment is hereby rendered:

1. Under the first cause of action, the plaintiff has no cause of action to demand the
return of the balance of the deposits in the amount of P140,000.00 pesos:

2. Under the second cause of action, the defendants have the legal right to
demand accrued interest on the unpaid installments in the amount of P924,000.00
pesos.

Defendants counterclaim has not been substantiated.

SO ORDERED. [3]
 Not satisfied with the trial courts decision, petitioner Pilipinas Hino elevated the case to the Court
of Appeals. The appellate court, however, sustained the findings of the trial court:

WHEREFORE, the appealed decision of the lower court in Civil Case No. 61266 is hereby
AFFIRMED by this Court, with costs against plaintiff-appellant. [4]

Petitioner thus seeks recourse to this Court and raises the following assignment of errors:
I

THE LOWER COURT ERRED IN NO[T] FINDING THAT THERE IS NO EVIDENCE

ON RECORD SUFFICIENT TO SHOW ANY RIGHT FROM DEFENDANT-
APPELLANT TO REFUSE THE RETURN OF THE BALANCE OF THE DEPOSITS
AMOUNTING TO P140,000.00.
II

THE LOWER COURT ERRED IN NOT FINDING THAT THE ALLEGED DAMAGES
ON THE PREMISES WERE CAUSED BY WEAR AND TEAR AND NOT DUE TO THE
FAULT OF THE PLAINTIFF-APPELLANT.
III

THE LOWER COURT IN NOT FINDING THAT THE ESTIMATE OF REPAIRS MADE
ON THE PREMISES WERE SPECULATIVE.
IV

THE LOWER COURT ERRED IN NOT FINDING THAT THE MEMORANDUM OF

AGREEMENT (EXH. C) CLEARLY [U]NEQUIVOCABLY PROVIDES THAT
PLAINTIFF-APPELLANT IS ENTITLED TO THE RETURN OF THE AMOUNT PAID IN
EXCESS OF THE DOWNPAYMENT AFTER THE DEFENDANT-APPELLEE
EXERCISE[D] THE RIGHT TO FORFEIT THE SAID DOWNPAYMENT.
V

THE LOWER COURT ERRED IN NOT FINDING THAT THE PROVISION FOUND IN
PARAGRAPH 6 OF THE MEMORANDUM OF AGREEMENT GRANTING THE
DEFENDANT-APPELLEE THE RIGHT TO IMPOSE INTEREST IN CASE OF DELAY
APPLIES ONLY IN CASE PAYMENTS AS STIPULATED IN THE AGREEMENT ARE
CONTINUED BUT NOT WHEN THE AGREEMENT ITSELF IS RESCINDED.
VI

THE LOWER COURT ERRED IN NOT FINDING THAT INTEREST CANNOT BE

RECOVERABLE WHEN THE PRINCIPAL AMOUNT IS IN ITSELF NOT
RECOVERABLE.
VII
 THE LOWER COURT ERRED IN NOT AWARDING THE SUM CLAIMED UNDER
THE COMPLAINT INCLUDING EXEMPLARY DAMAGES AND ATTORNEYS FEES.

The petition is partly meritorious.

The issues raised in this petition may be summed as follows:

(1) Should the petitioner be held liable for alleged damages to the leased property in
an amount of more than P60,000.00?

(2) Does private respondent have the right to retain the P924,000.00 representing the
interest due for the unpaid installments, despite the fact that the respondent has
exercised his option to rescind the memorandum of agreement?

The first issue is undoubtedly a question of fact. Time and again, this Court has pronounced that
we do not review findings of fact by the Court of Appeals unless findings of the appellate court are
mistaken, absurd, speculative, conjectural, conflicting, tainted with grave abuse of discretion, or
contrary to the findings culled by the trial court of origin. [5] In the case bar, no such reason exist to
warrant a review of the appellate courts factual findings.
In support of his allegation, petitioner quotes the following portion of the decision of the trial court:

A cursory perusal of the expediente as well as the documentary evidence presented by

the parties, it appears therefrom that there was no exact figures agreed upon by the
parties. Plaintiffs claimed that the amount of P60,000.00 was agreed by them which
defendants vehemently denied as there was no such agreement.

The estimate and appraisals made by the contractors hired by the defendants entailed
major repairs and renovation which was not fair, just and equitable on the part of the
plaintiff. Some of the damages pointed to by the defendants were caused by wear and
tear and thus not chargeable against the plaintiff (par. 7 of the lease contract).

Defendants should have secured first the consent/approval of the plaintiff whether they
are amenable or not to the amount charged, before engaging the services of Eduardo
Pascual (contractor). Otherwise, such actuations will cast doubt on the part of the payor.

The reception of defendants evidence together with the testimonies of their witnesses has
indubitably proved that the amounts offered by the plaintiff was not enough to cover the
expenses of the repairs. In fact, after deducting the amount claimed by the plaintiff from
the total expenses incurred, the plaintiff is still obliged to pay the defendants the amount of
P184,732.50. However, since the defendants were also in bad faith in dealing with the
plaintiff, the difference of P184,732.50 may be dispensed with, and considering the short
span of the leased period, it is impossible that all the damages found on the premises are
attributable solely on the part of the plaintiff. [6]

Based on the underlined portions above quoted, petitioner asserts that the trial court found the
following facts: (1) that the appraisals made entailed major repairs and renovations which are not fair
to be charged to petitioner; (2) there was bad faith on the part of private respondents in presenting
appraisal for repairs; and (3) the alleged damage to the premises are not attributable to the petitioner.
 Petitioner merely highlights certain portions of the trial courts decision, which should not however
be read in isolation with the rest of the decision. As mentioned earlier, the crux of petitioners first cause
of action is whether or not the damage to the leased property amounted to more than P60,000.00. We
find that the trial court correctly ruled that petitioner failed to prove his first cause of action:
Upon consideration of all the allegations, issues and documentary [evidence] adduced by the
parties, the court, finds and so holds, that plaintiff has failed to establish by preponderance of evidence
that there is an agreement reached between the parties as to the exact amount of the repairs to be
done, so that it is barred to demand the return of the balance of the deposits.[7]
We agree with the findings of the appellate court that such matter is factual in nature, and that the
findings of the trial court as to petitioners first cause of action are ably supported by the records on
hand:

The issue on plaintiff-appellants first cause of action is evidentiary as to whether or not

defendants-appellees refusal to return the amount of P140,000.00 is valid and in
accordance with the lease agreement. It is the contention of the plaintiff-appellant that
after the joint inspection was conducted on the subject premises it had been agreed upon
by the parties that the amount of damages for the repairs of the premises shall be
P60,000.00. Thus, plaintiff-appellant claims that the amount of P340,000.00 in excess of
the cost of the repairs should have been returned by the defendants-appellees to plaintiff-
appellant. Upon the other hand, defendants-appellees vehemently denied that there was
such an agreement of P60,000.00 as having been agreed upon by them.

We find defendants-appellees contention to be in accordance with the evidence in this

case. Plaintiff-appellants witness, Atty. Mauro Yumang when asked by the lower court on
the matter, testified that plaintiff and defendants did not come to an agreement as to the
exact cost of the repairs of the subject premises (pp. 8-9 tsn, April 22, 1993). Neither was
it shown in the testimony of plaintiff-appellants other witness, Arsenio Paez that there was
an agreement between the parties on the said P60,000.00. Thus, plaintiff-appellant, failed
to prove its claim of P60,000.00 as costs of repair with solid and convincing proof. It is, of
course, a basic rule in evidence that a party must prove his own affirmative allegations. In
civil cases, the burden of proof is on the plaintiff to establish his case by a preponderance
of evidence. In affirmative averment the onus probandi falls on pleaders shoulder. [8]

In contrast, respondents were able to prove by clear and convincing evidence their counterclaim
that the damage to the leased property amounted to P384,732.50. This petitioner failed to dispute:

Upon the other hand, defendants-appellees were able to prove that the amount of
P60,000.00 offered by the plaintiff-appellant was not sufficient to answer the damages of
the subject premises. It is highly improbable to believe that the alleged amount of
P60,000.00 can cover the entire expenses of the repairs considering the actual area of the
premises to be repaired was quite big with the building having broken door knobs,
windows, jalousies, toilet bowls, walls, flooring, among the other things, not to mention the
labor. As matter of fact, defendants-appellees witness Mr. Eduardo Pascual, an
experienced contractor, categorically testified that defendants-appellees expenses for the
repairs of the subject premises amounted to not only in P60,000.00 bit
P384,732.50. Thus, plaintiff-appellees even owed defendants-appellees the amount of
P184,732.50. [9]
 We take note of petitioners assertion that the trial court found the respondent to be in bad faith in
having the damage estimated without securing the consent of the petitioner and that not all the
damages are attributable to the petitioner. However, these findings do not negate the correctness of
the award by the trial court. Recognizing these facts, the trial court did not hold the petitioner liable for
the whole amount of P384,732.50, but only for the amount of P200,000.00:

The defendants are likewise barred from demanding for the excess of the repairs as it was
due (sic) without the knowledge of the plaintiff. [10]

Anent the petitioners second cause of action, we find the same to be meritorious. In order to verify
the soundness of petitioners claim, an examination of the pertinent paragraphs of the memorandum of
agreement between the parties is in order:
6. Where the buyer fails to deliver the check(s) due under paragraph 2 thereof, an interest equivalent
to three percent (3%) per thirty (30) days period shall be imposed on the amount due for the duration
of the delay.
7. The owners shall have the right to terminate or rescind this agreement, and to forfeit the
downpayment where the buyer fails to pay any of the first six (6) installments. The buyer shall have
a grace period of sixty (60) days within which to pay the installments and the interest due for the
reason of the delay.

The owners may thereafter forfeit the downpayment and sell the property to other parties
without need of notice to the buyer, the owner shall not have other obligations to the buyer
relating to the property subject of the right of first refusal by the buyer, as contained in the
lease contract between the owner and the buyers.

xxx
9. When the owners exercise their option to forfeit the downpayment, they shall return to the buyer any
amount paid by the buyer in excess of the downpayment with no obligation to pay interest
thereon. This shall be done within a period not later than one hundred twenty days (120) days from
notice by the owner to the buyer of the forfeiture of the downpayment.[11]
In holding the petitioner liable for the amount of P924,000.00 representing interest earned for the
unpaid installments, the trial court rationalized:

For failure of the plaintiff to pay the installments on September 14, 1990, September 28,
1990, October 15, 1990 and October 30, 1990, the defendants were consequently
deprived of the productive use of the supposed money they should have received as per
contract. The Agreement of both parties leaves no room for further explanation. It
categorically states that in case of default, the defendant will charge interest for the delay.

It is worthy of note to believe that when the defendants terminated their contract to sell on
November 20, 1990, the plaintiff was already in default from the September 14, 1990 to
October 30, 1990. Thus, defendants have a valid reason to retain the amount of
P924,000.00 representing interest due of the unpaid installments.

As expressly provided for in Article 1159 of the Civil Code:

Obligation arising from contracts have the force of law between the contracting parties and
should be complied with in good faith. [12]
 The appellate court in upholding the above findings of the trial court pronounced, thus:

Clearly plaintiff-appellant should be held liable to pay for the corresponding three (3%)
percent interest on the unpaid installments in accordance with the above provisions of
paragraph 6 of the Memorandum of Agreement. Noteworthy to stress in this case that
plaintiff-appellant admits its failure to pay the installments. x x x [13]

We disagree.
In justifying the withholding of the amount of P924,000.00 representing interest due of the unpaid
installments, both the trial and the appellate court relied on paragraph 6 of the memorandum of
agreement entered into by the parties.Surprisingly, both courts failed to consider paragraph 9 contained
in the same memorandum of agreement. Said paragraph provides in very clear terms that when the
owners exercise their option to forfeit the downpayment, they shall return to the buyer any amount paid
by the buyer in excess of the downpayment with no obligation to pay interest thereon. This should
include all amounts paid, including interest. Had it been the intention of the parties to exclude interest
from the amount to be returned to the buyer in the event that the owner exercises its option to terminate
or rescind the agreement, then such should have been stated in categorical terms. We find no basis in
the conclusion reached by the lower courts that interest paid should not be returned to the buyer. It may
be conceded, as the trial court endeavored to rationalize, that for failure of the buyer to pay the
installments, private respondents were consequently deprived of the productive use of the supposed
money they should have received as per contract. However, the private respondents withholding of the
amount corresponding to the interest violated the specific and clear stipulation in paragraph 9 of the
memorandum of agreement that except for the downpayment, all amounts paid shall be returned to the
buyer with no obligation to pay interest thereon. The parties are bound by their agreement. Thus, Article
1159 of the Civil Code expressly provides:

Obligation arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.

Paragraph 9 of the memorandum of agreement between the parties, not being contrary to law,
morals, good customs, public policy, or public order has therefore the force of law between the
parties. Aside from equity considerations, the lower courts failed to provide a basis for the retention by
the respondent of the interest. Equity is applied only in the absence of, and never against, statutory law
or judicial rules of procedure.[14] The memorandum of agreement, being the law between the parties,
must therefore, govern.
Both the private respondents and trial court quote our ruling in Luzon Brokerage Company v.
Maritime Building Inc.[15] in order to justify retention of said interest:

The distinction between contracts of sale and contracts to sell with reserved title has been
recognized by this Court in repeated decisions upholding the power of promisors under
contracts to sell in case of failure of the other party to complete payment, to extrajudicially
terminate the operation of the contract, refuse conveyance and retain the sums or
installments already received, where such rights are expressly provided for, as in the case
at bar.

Sadly for private respondents, our ruling in the above case defeats rather than sustains their
claim. While this Court recognizes that in contracts to sell even if the contract is terminated the seller
can retain the sums already received or paid, such can be done only if it is expressly provided for in
the contract. Such proviso is not contained in the memorandum of agreement, as what is merely
provided for in paragraphs 7 and 9 is the retention of the downpayment.
As regards the claim of exemplary damages and attorneys fees, petitioner fails to present an iota
of evidence why they are entitled to these awards. The petition before this Court merely raises such
assignment of error but does not even discuss the basis of such claim.
WHEREFORE, the petition is hereby GIVEN DUE COURSE and the decision of the Court of
Appeals is MODIFIED in that private respondent is ordered to return to petitioner the amount of
P924,000.00 representing the accrued interest for the unpaid installments. The decision appealed from
is AFFIRMED in all other respects. However, the pronouncement as to cost is hereby deleted.
SO ORDERED.
Phil. Realty and Holding Corp. Vs. Ley Construction and Dev't Corp. G.R. No. 165548

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION

PHILIPPINE REALTY AND G. R. No. 165548

HOLDINGS CORPORATION,
Petitioner,

- versus -

LEY CONSTRUCTION AND

DEVELOPMENT
CORPORATION,
Respondent.
x-----------------------x
LEY CONSTRUCTION AND G. R. No. 167879
DEVELOPMENT
CORPORATION, Present:
Petitioner,
CARPIO MORALES, J.,
Chairperson,
- versus - BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
PHILIPPINE REALTY AND
HOLDINGS CORPORATION, Promulgated:
Respondent.
June 13, 2011

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

DECISION

SERENO, J.:
These are consolidated petitions for review under Rule 45 of the New Rules of Civil Procedure
filed by both parties from a Court of Appeals (CA) Decision in CA-GR No. 71293 dated 30
September 2004. This Decision reversed a Decision of the Regional Trial Court (RTC), National
Capital Judicial Region (NCJR), Branch 135 in Makati City dated 31 January 2001 in Civil Case
No. 96-160.

The foregoing are the facts culled from the record, and from the findings of the CA and the RTC.

Ley Construction and Development Corporation (LCDC) was the project contractor for the
construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the
project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC,
while Joselito Santos (Santos) was its general manager and vice-president for operations.

Sometime between April 1988 and October 1989, the two corporations entered into four major
construction projects, as evidenced by four duly notarized construction agreements. LCDC
committed itself to the construction of the buildings needed by PRHC, which in turn committed
itself to pay the contract price agreed upon. These were the four construction projects the parties
entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra
buildings) and a Tektite Building:

1. Construction Agreement dated 25 April 1988 Alexandra-Cluster C involving

the construction of two units of seven-storey buildings with basement at a
contract price of P 68,000,000 (Project 1);

2. Construction Agreement dated 25 July 1988 Alexandra-Cluster B involving the

construction of an eleven-storey twin-tower building with a common basement
at a contract price of P 140,500,000 (Project 2);

3. Construction Agreement dated 23 November 1988 Alexandra-Cluster E

involving the construction of an eleven-storey twin-tower building with
common basement at a contract price of P 140,500,000 (Project 3); and

4. Construction Agreement dated 10 October 1989 Tektite Towers Phase I

involving the construction of Tektite Tower Building I at Tektite Road at a
contract price of P 729,138,964 (Tektite Building).

The agreement covering the construction of the Tektite Building was signed by a Mr. Campos
under the words Phil. Realty & Holdings Corp. and by Santos as a witness. Manuel Ley, the
president of LCDC, signed under the words Ley Const. & Dev. Corp.

The terms embodied in the afore-listed construction agreements were almost identical. Each
agreement provided for a fixed price to be paid by PRHC for every project.

All the aforementioned agreements contain the following provisions:

ARTICLE IV CONTRACT PRICE

.........

The Contract Price shall not be subject to escalation except due to work addition, (approved by the
OWNER and the ARCHITECT) and to official increase in minimum wage as covered by the Labor
Adjustment Clause below. All costs and expenses over and above the Contract Price except as
provided in Article V hereof shall be for the account of the CONTRACTOR. It is understood that
there shall be no escalation on the price of materials. However, should there be any increase in
minimum daily wage level, the adjustment on labor cost only shall be considered based on
conditions as stipulated below.

.........

ARTICLE VII TIME OF COMPLETION

.........

Should the work be delayed by any act or omission of the OWNER or any other person employed
by or contracted by the OWNER in the project, including days in the delivery or (sic) materials
furnished by the OWNER or others, or by any appreciable additions or alterations in the work
ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion,
strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall
be granted time extension.

Sometime after the execution of these agreements, two more were entered into by the parties:

1. Letter-agreement dated 24 August 1989 Project 3 for the construction of the

drivers quarters in Project 3; and

2. Agreement dated 7 January 1993 Tektite Towers for the concreting works on
GL, 5, 9, & A (ground floor to the 5th floor) of the Tektite Towers.

Santos signed the letter-agreement on the construction of the drivers quarters in Project 3,[1] while
both he and Abcede signed the letter-agreement on the concreting works on GL, 5, 9, and A, and
also of Project 3.[2]

In order to jump-start the construction operations, LCDC was required to submit a performance
bond as provided for in the construction agreements. As stated in these agreements, as soon as
PRHC received the performance bond, it would deliver its initial payment to LCDC. The remaining
balance was to be paid in monthly progress payments based on actual work completed. In practice,
these monthly progress payments were used by LCDC to purchase the materials needed to continue
the construction of the remaining parts of the building.

In the course of the construction of the Tektite Building, it became evident to both parties that
LCDC would not be able to finish the project within the agreed period. Thus, through its president,
LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated
delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and
other construction materials. It claimed that, without a corresponding increase in the fixed prices
found in the agreements, it would be impossible for it to finish the construction of the Tektite
Building. In their analysis of the project plans for the building and of all the external factors
affecting the completion of the project, the parties discovered that even if LCDC were able to
collect the entire balance from the contract, the collected amount would still be insufficient to
purchase all the materials needed to complete the construction of the building.

Both parties agreed that their foremost objective should be to ensure that the Tektite Building
project would be completed. To achieve this goal, they entered into another agreement. Abcede
asked LCDC to advance the amount necessary to complete construction. Its president acceded, on
the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the
escalation and to disregard the prohibition contained in Article VII of the agreements. Abcede
replied that he would take this matter up with the board of directors of PRHC.

The board of directors turned down the request for an escalation agreement.[3] Neither PRHC nor
Abcede gave notice to LCDC of the alleged denial of the proposal. However, on 9 August 1991
Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it
infuse P36 million into the project, a contract price escalation for the same amount would be
granted in its favor by PRHC.[4]

This letter was signed by Abcede above the title Construction Manager, as well as by LCDC.[5] A
plain reading of the letter-agreement will reveal that the blank above the words PHIL. REALTY &
HOLDINGS CORP. was never signed,[6] viz:

Very truly yours,

(Signed)
DENNIS A. ABCEDE
Construction Manager

CONFORME:

(Signed) .
LEY CONST. & DEV. CORP.

APPROVED & ACCEPTED :

.
PHIL. REALTY & HOLDINGS CORP.

Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded with the
construction of the Tektite Building, expending the entire amount necessary to complete the
project. From August to December 1991, it infused amounts totaling P38,248,463.92. These
amounts were not deposited into the joint account of LCDC and PRHC, but paid directly to the
suppliers upon the instruction of Santos.[7]
LCDC religiously submitted to PRHC monthly reports[8] that contained the amounts of infusion it
made from the period August 1991 to December 1991. These monthly reports all had the following
heading:

.........
MR. JOSELITO L. SANTOS
VICE PRESIDENT OPERATION
PHIL. REALTY & HOLDINGS CORP.
4TH Floor Quad Alpha Centrum Bldg.
125 Pioneer St., Mandaluyong, M.M.

T H R U : D.A. ABCEDE & ASSOCIATES

Construction Managers

SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT

From these monthly reports, it can be gleaned that the following were the cash infusions
made by LCDC:

Month Amount Date of monthly report

August 1991 PhP 6,724,632.26 15 October 1991[9]
September 1991 PhP 7,326,230.69 7 October 1991[10]
October 1991 PhP 7,756,846.88 7 November 1991[11]
November 1991 PhP 8,553,313.50 7 December 1991[12]
December 1991 PhP 7,887,440.50 9 January 1992[13]
PhP 38,248,463.92

PRHC never replied to any of these monthly reports.

On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already complied
with its commitment as of 31 December 1991 and was requesting the release of P 2,248,463.92. It
attached a 16 January 1992 letter written by D.A. Abcede & Associates, informing PRHC of the
total cash infusion made by LCDC to the project, to wit:

in compliance with the commitment of Ley Construction and Devt Corp. to

infuse P36.00M for the above subject project x x x

x x x we would like to present the total cash infusion by LCDC for the period covering the
month of August, 1991 to December 1991 broken down as follows:

.........
 T O T A L: P 38,248,463.92

PRHC never replied to this letter.

In another letter dated 7 September 1992, there was a reconciliation of accounts between the two
corporations with respect to the balances due for Projects 1, 2, and 3. The reconciliation of accounts
resulted in PRHC owing LCDC the sum of P 20,862,546.41, broken down as follows:

Project 1 P 1,783,046.72
Project 2 P 13,550,003.93
Project 3 P 5,529,495.76
P 20,862,546.41

In a letter dated 8 September 1992,[14] when 96.43% of Tektite Building had been completed,
LCDC requested the release of the P 36 million escalation price. PRHC did not reply, but after the
construction of the building was completed, it conveyed its decision in a letter on 7 December
1992.[15] That decision was to set off, in the form of liquidated damages, its claim to the supposed
liability of LCDC, to wit:

.........

In this regard, please be advised that per owners decision; your claim of P 36,000,00.00 adjustment
will be applied to the liquidated damages for concreting works computed in the amount of Thirty
Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen & 15/100
(P39,326,817.15) as shown in the attached sheet.

Further, the net difference P 3,326,817.15 will also be considered waived as additional
consideration.

.........

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed
escalation price of P 36 million. In its reply on 16 February 1993, PRHC suddenly denied any
liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of
delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15
as liquidated damages. This claim was set forth in PRHCs earlier 7 December 1992 letter.

LCDC countered that there were many times when its requests for time extension although due to
reasonable causes sanctioned by the construction agreement such as power failures, water supply
interruption, and scarcity of construction materials were unreasonably reduced to shorter periods by
PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out
of the 618 days of extension it requested, only 256 days or not even half the number of days
originally requested were considered. It further claimed that its president inquired from Abcede and
Santos why its requests for extension of time were not granted in full. The two, however, assured
him that LCDC would not be penalized with damages for even a single day of delay, because the
fact that it was working hard on the Tektite Building project was known to PRHC.[16]

Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance
for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability.
During the course of the proceedings, both parties conducted another reconciliation of their
respective records. The reconciliation showed the following balances in favor of LCDC:

Project 1 P 1,703,955.07
Project 2 P 13,251,152.61
Project 3 P 5,529,495.76
Total: P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another
outstanding balance of P 232,367.96 in its favor for the construction of the drivers quarters in
Project 3.

It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting
works from the ground floor to the fifth floor of the Tektite Building.

Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with
Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the
RTC in Makati City docketed as Civil Case No. 96-160:

WHEREFORE, it is respectfully prayed that:

1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued
over defendant Philrealtys properties as security for any judgment which plaintiff may
recover against said defendant; and

2. After trial, judgment be rendered as follows:

2.1. On the first, second and third alternative causes of action,

(a) Ordering defendant Philrealty to pay plaintiff actual damages in the

amount of P36,000,00.00 with legal interest thereon from the filing of this
Complaint until fully paid;

(b) In the alternative, ordering defendants Abcede and Santos to jointly and
severally, in the event that they acted without necessary authority, to pay
plaintiff actual damages in the amount of P36,000,00.00 with legal interest
thereon from the filing of this Complaint until fully paid; and
 (c) Ordering defendant Philrealty or defendants Abcede and Santos to pay
plaintiff exemplary damages in the amount to be determined by the
Honorable Court but not less than P5,000,000.00

2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P7,112,738.82 with legal interest

thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in the amount to be determined by the Honorable

Court but not less than P1,000,000.00

2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P20,862,546.41 with legal interest

thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in an amount to be determined by the Honorable

Court but not less than P5,000,000.00.

2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P232,367.96 with legal interest thereon
from the filing of this Complaint until fully paid; and

(b) Exemplary damages in the amount to be determined by the Honorable

Court but not less than P100,000.00

2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants
Abcede and Santos to pay plaintiff attorneys fees in the amount of P750,000.00
and expenses of litigation in the amount of P50,000.00, plus costs.

Plaintiff prays for such other just and equitable reliefs as may be warranted by the
circumstances.

On 23 July 1999, a joint Stipulation of Facts[17] was filed by the parties. In the said stipulation, they
reconciled their respective claims on the payments made and the balances due for the construction
of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following
amounts are due and/or overpaid:

Due to LCDC Overpaid to LCDC

Tektite Building P4,646,947.35
Project 1 P1,703,955.07
Project 2 P3,251,152.61
P14,955,107.68 P4,646,947.35
Both parties agreed that the only remaining issues to be resolved by the court, with respect to the
Tektite Building project and Projects 1 to 3, were as follows:

a) The validity of Ley Constructions claim that Philrealty had granted the former a contract
price escalation for Tektite Tower I in the amount of P36,000,000.00

b) The validity of the claim of Philrealty that the following amounts should be charged to
Ley Construction:

Payments/Advances without LCDCs conformity and recommendation of the Construction

Manager, D.A. Abcede & Associates that subject items are LCDCs account:

a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00

b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant
2 P885,000.00 P2,006,000.00

c) The claim of Philrealty for liquidated damages for delay in completion of the construction
as follows:

d) Tektite Tower I - P39,326,817.15

Alexandra Cluster B - 12,785,000.00
Alexandra Cluster C - 1,100,000.00

and

e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly
infused for the Tektite Tower I project over and above the original P36,000,000.00 it had
allegedly bound itself to infuse.[18]

On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial
Reconsideration, which was granted.

It must be noted that in the Stipulation of Facts, the parties had jointly agreed that
the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be
included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still
included as an award in the trial courts 7 May 2001 amended Decision, the dispositive portion of
which provides:

WHEREFORE, premises considered, judgment is hereby rendered:

A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of

defendant JOSELITO SANTOS; and

B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to

pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION:

1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon
from date of the filing of the complaint until fully paid;

2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date
of the filing of the complaint until fully paid;
 3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date
of the filing of the complaint until fully paid;

4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I,

with legal interest thereon from the date of the filing of the complaint until
fully paid;

5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E,

with legal interest thereon from the date of the filing of the complaint until
fully paid;

6. P232,367.96 in actual damages for the construction of the drivers quarters of

Alexandra Cluster E, with legal interest thereon from the date of the filing of
the complaint until fully paid;

7. P750,000.00 for attorneys fees and expenses of litigation; and

8. Costs.

SO ORDERED.[19]

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No.
71293,[20] reversed the lower courts amended Decision on 30 September 2004 and ruled thus:

WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001
amended decision are hereby REVERSED and SET ASIDE and a new one is entered:

I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of

Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90)
PESOS detailed as follows:

[1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-
appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been
signed and confirmed by LCDC;

[2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-
appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed
and confirmed by LCDC;

[3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee
LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by
LCDC;

[4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the

Tektite Tower Phase I Project;

[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to

redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the
Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor,
Inc.;
 [6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to
redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the
Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-
appellant PRHC to contractor Ideal Marketing Inc., and

II. FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee LCDC in the amount of

Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred Seventy One 40/100 (P56,716,971.40)
detailed as follows:

[1] P36,000,000.00 as acknowledged and agreed to by PHRC as a loan by LCDC, reimbursable

when the Tektite Tower I project was 95% completed, but this was not classified by this Court as
an escalation for increase in price of materials because an escalation for price increase of cost of
materials is expressly prohibited by 10 October 1989 original contract;

[2] All expenditures for the projects are at the risk of the contractor LCDC who is to be paid,
according to the contract, a fixed contract price so that there is no such thing as overinfusion of
expenses by plaintiff-appellee LCDC guaranteed under the contract that it would pay all costs of
materials irregardless (sic) of any increase in costs;

[3] P13,251,152.61 balance yet unpaid by defendant-appellant in the Alexandra Cluster B Project;

[4] P1,703,955.07 balance yet unpaid by defendant-appellant in the Alexander Cluster C Project;

[5] Defendant-appellant PRHC is hereby held not liable for P750,000.00 attorneys fees;

[6] Plaintiff-appellee LCDC is not entitled to claim P7,112,738.82 for concreting works for Tektite
Towers Phase I which cause of action had already been dismissed by the parties in the 23 July
1999 Joint Stipulation of Facts that the contract price for the October 10, 1989 Construction
Agreement had been fully paid;

[7] P5,529,495.76 balance yet unpaid in the Alexandra Cluster E Project;

[8] P232,367.96 balance yet unpaid for construction of the drivers quarters at the Alexandra
Cluster E.

The respective liabilities of the parties as set forth above are hereby SET OFF against each other and
plaintiff-appellee LCDC is hereby DIRECTED to pay defendant-appellant PRHC the net amount due of
Three million Seven Hundred Forty Seven Thousand Seven Hundred Ninety Three 50/100
(P3,747,793.50) PESOS with legal interest from date of filing of complaint.

SO ORDERED.

PRHC came directly to this Court and filed a petition for review on certiorari docketed as SC-G.R.
No. 165548 to assail in part the appellate courts Decision. LCDC, on the other hand, filed on 25
October 2004 a Motion for Reconsideration with the Court of Appeals. In its Resolution dated 12
April 2005, the appellate court denied the motion. LCDC then filed its own Petition for Review on
certiorari, which was docketed as SC-G.R. No. 167879.

In a Resolution dated 6 August 2008, this Court consolidated G.R. Nos. 165548 and 16789.
PRHC, in its Petition for Review[21] in G.R. No. 165548, submits the following issues for
resolution:

1. Whether the finding and ruling of the Court of Appeals that the letter dated 07 December 1992
was a counter-offer on the part of LCDC and a confirmation to treat the P36,000,000.00 as a loan
deductible from liquidated damages is contrary to the allegations in the pleadings and the
evidence on record.

2. Whether the finding and ruling of the Court of Appeals that LCDC is liable to PRHC in the
amount of P5,529,495.76 representing the balance of the contract price for the construction of
Alexandra Cluster E Project is contrary to the Stipulation of Facts jointly submitted by the
parties to the Trial Court.

3. Whether the finding and ruling of the Court of Appeals that LCDC is liable to PRHC in the
amount of P232,367.96 representing the cost of the construction of the drivers quarters at
Alexandra Cluster E Project is contrary to the Stipulation of Facts jointly submitted by the
parties to the trial court. [22]

For its part, LCDC submits the following grounds in support of its Petition for Review[23] docketed
as G.R. No. 167879:

I. The Court of Appeals seriously erred in ruling that there is no P36 million escalation agreement
between LCDC and PRHC.

.........

II. The Court of Appeals seriously erred in ruling that PHRC is not obliged to pay
LCDC the sum of P2,248,463.92 representing the cash infused by LCDC over and
above the P36 million escalation price.

III. The Court of Appeals seriously erred in ruling that PRHC is not obliged to pay
LCDC the P7,112,738.82 balance for the concreting works of the ground floor to the
fifth floor of the PSE.

IV. The Court of Appeals seriously erred in awarding liquidated damages to PHRC under
the TTI Project Agreement and the Alexandra-Clusters B and C agreements.

V. The Court of Appeals seriously erred in ruling that LCDC is liable for the corrective
works in Alexandra-Cluster B.

VI. The Court of Appeals seriously erred in deleting the lower courts award of P750,000.00
attorneys fees and expenses of litigation to LCDC and holding the latter liable to pay costs.[24]

At the outset, it must be noted that PRHC does not question the following amounts granted by the
Court of Appeals:

(a) P13,251,152.61 awarded to LCDC as balance yet unpaid by PRHC for Project 2;
 (b) P1,703,955.07 awarded to LCDC as balance yet unpaid by PRHC for Project 1; and
(c) P4,646,947.75 awarded to PRHC for its overpayment to LCDC for the Tektite
Building.

No appeal having been filed from the immediately preceding rulings, they attained finality.

We reduce the issues to the following:

I
Whether or not a valid escalation agreement was entered into by the parties and, if
so, to what amount;
II
Whether or not LCDC was delayed in the performance of its obligation to construct
the buildings for PRHC and, corollary thereto, whether or not the latter is entitled to
liquidated damages for this supposed delay in the construction of the Tektite
Building and Projects 1 and 2;
III
Whether or not the CA can make an award or should have made an award for the
following causes of action not alleged in the pleadings or omitted in the stipulation
of facts:
a. The supposed remaining balance of P5,529,495.76 for Project 3,
which was awarded by the appellate court;
b. The supposed remaining balance of P232,367.96, which the
appellate court also awarded, representing the cost of the
construction of the drivers quarters in Project 3; and

c. The supposed remaining balance of P7,112,738.82, the cost of

the concreting works from the ground floor to the fifth floor of
the Tektite Building, which was not awarded by the CA but was
awarded by the lower court;

IV
Whether or not LCDC should be held liable for the amount of P2,006,000 for the
corrective works to redo or repair the defective waterproofing in Project 2; and
V
Whether or not LCDC is entitled to the appellate courts award of P750,000 for
attorneys fees and expenses of litigation and costs.
We shall review the findings of fact of the Court of Appeals in view of some inconsistencies with
those of the trial court and the evidence on record, and as a result of our analysis of the threshold
legal issues.

A subsequent escalation agreement was validly

entered into by the parties, but only to the extent
of P 36 million.

The construction agreements, including the Tektite Building agreement, expressly prohibit any
increase in the contracted price. It can be inferred from this prohibition that the parties agreed to
place all expenses over and above the contracted price for the account of the contractor.[25] PRHC
claims that since its board of directors never acceded to the proposed escalation agreement, the
provision in the main agreement prohibiting any increase in the contract price stands.

LCDC, on the other hand, claims that the fact that any increase in the contract price is prohibited
under the Tektite Building agreement does not invalidate the parties subsequent decision to
supersede or disregard this prohibition. It argues that all the documentary and testimonial evidence
it presented clearly established the existence of a P 36 million escalation agreement.[26]

LCDC now comes to this Court, asking that the escalation agreement with PRHC, as represented
by Abcede and Santos, be declared to have effectively novated the prohibition in the Tektite
Building agreement.

After examining the extensive evidence presented by both parties, we resolve to rule in favor of
LCDC.

LCDC relies in part on PRHCs 19 August 1991 letter-agreement,[27] which provides as follows:

August 09, 1991

LEY CONSTRUCTION DEV. CORP.

10th Flr., Pacific Star Bldg.
Makati Avenue, Makati
Metro Manila

Attention: Mr. Manuel Ley

Subject: TEKTITE TOWERS

Gentlemen:

Relative to your contract for subject project this will confirm agreement between your goodselves
and Philippine Realty & Holdings Corporation as follows:

1.0 Ley Construction & Development Corporation shall put in funds for Tektite project with a total
amount of THIRTY SIX MILLION PESOS (P36,000,000.00) ONLY in accordance with the
following schedule:
.........
 2.0 If Ley Construction & Dev. Corp. faithfully complies with above commitment then Philippine
Realty & Holdings Corporation shall grant a contract price escalation to Ley Const. & Dev. Corp.
in the amount of THIRTY SIX MILLION PESOS (P36,000,000.00) ONLY in view of the increase
in cost of materials during the construction period which amount shall be payable to Ley Const. &
Dev. Corp. when the LCDC contract work is at least 95% complete.

(over)

Very truly yours,

(Signed)
DENNIS A. ABCEDE
Construction Manager

CONFORME:

(Signed) .
LEY CONST. & DEV. CORP.

APPROVED & ACCEPTED :

.
PHIL. REALTY & HOLDINGS CORP.

It is apparent from its face that the letter was not signed by PRHC. This fact allegedly proves,
according to PRHC, that it never expressed its consent to the letter and, hence, cannot and should
not be bound by the contents thereof. It further claims that its internal rules require the signatures of
at least two of its officers to bind the corporation.

LCDC, for its part, submits that the fact that the letter is unsigned by PRHC is insignificant,
considering that other pieces of documentary and testimonial evidence were presented to prove the
existence of the escalation agreement.[28]

The appellate court found for PRHC and ruled that an unsigned letter does not bind the party left
out,[29] viz:

But it is patent on the face of that letter that PRHC did not sign the document. It is patent on its
face that between the words: APPROVED: and the name Philippine Realty & Holdings
Corporation, there is no signature. Apparent therefore on its face, there was no meeting of the
minds between the parties LCDC and PRHC in the P36,000,000.00 escalation for materials.[30]

The Court of Appeals further held that a simple letter cannot novate a notarized agreement. [31]

The appellate court is incorrect. The 9 August 1991 letter is not a simple letter, but rather a letter-
agreementa contractwhich because of the existence of the consent of both parties become valid and
binding. It is true that no representative of PRHC signed under its typewritten name, where a
signature should traditionally appear, to show the companys acceptance and approval of the
contents of the letter-agreement. This Court, however, finds that the signature of Abcede is
sufficient to bind PRHC. As its construction manager, his very act of signing a letter embodying
the P 36 million escalation agreement produced legal effect, even if there was a blank space for a
higher officer of PHRC to indicate approval thereof. At the very least, he indicated authority to
make such representation on behalf of PRHC.

On direct examination, Abcede admitted that, as the construction manager, he represented PRHC in
running its affairs with regard to the execution of the aforesaid projects. He testified as follows:[32]

Q. What is your profession by the way?

A. Im a Civil Engineer by profession and presently, I am engaged in the construction management.

Q. And what is your company engaged in the construction management?

A. We actually, as construction managers, we represent the owners, of the construction.[33]

All throughout the existence and execution of the construction agreements, it was the established
practice of LCDC, each time it had concerns about the projects or something to discuss with PRHC,
to approach Abcede and Santos as representatives of the latter corporation. As far as LCDC was
concerned, these two individuals were the fully authorized representatives of PRHC. Thus, when
they entered into the P 36 million escalation agreement with LCDC, PRHC effectively agreed
thereto.

In fact, correspondences to the construction manager that were addressed to or that had to be noted
by PRHC were most of the time coursed through and noted by Santos. Likewise, its
correspondences to LCDC were signed by him alone.[34]

Santos testified that, as the vice president and general manager of PRHC, he was responsible for the
implementation of the policies of the board,[35] to wit:

Q: Why do you know the defendant Philippine Realty and Holding Corporation?

A: I used to serve that company as Vice President and Director, sir.

Q: During what year did you serve as Vice President and Director of Philippine Realty.

A: I started serving that company as General Manager in 1987 and I resigned in 1993, sir.

Q: Will you state your duties and functions as General Manager and Director of the company?

A: I was responsible for the implementation of the policies approved by the board and the day to
day general management of the company from operation to administration to finance and
marketing, sir.[36]

In addition, LCDC was able to establish that Abcede and Santos had signed, on behalf of PRHC,
other documents that were almost identical to the questioned letter-agreement.[37] Santos was
actually the one who signed for PRHC in the letter-agreement for the construction of the drivers
quarters in Project 3.[38] He signed under the words Approved: Phil. Realty & Holdings
Corp.[39] While both he and Abcede signed the letter-agreement for concreting works on GL, 5, 9,
and A,[40] Santos again signed under the word Approved.[41] PRHC does not question the validity of
these agreements; it thereby effectively admits that these two individuals had actual authority to
sign on its behalf with respect to these construction projects.

We cannot fault LCDC for relying on the representation of PRHC that the authority to contract with
the former, in matters relating to the construction agreements, resided in Abcede and Santos.

Furthermore, PRHC does not question the validity of its 7 December 1992 letter to LCDC wherein
it seeks to apply LCDCs claim for the P 36 million escalation price to its counterclaim for
liquidated damages, which was signed by Santos under the words Approved: Phil. Realty &
Holdings Corp.:

07 December 1992
LEY CONST. & DEV. CORP.
23rd Floor Pacific Star Bldg.
Sen. Gil Puyat Ave. corner
Makati Avenue, Makati, Metro Manila.

Attention : MR. MANUEL T. LEY

Subject : TEKTITE TOWERS

Gentlemen :

This is in connection with your previous request for materials cost adjustment in the amount of
Thirty Six Million & 0/100 (P36,000,000.00).

In this regard, please be advised that per owners decision; your claim of P36,000,00.00 adjustment
will be applied to the liquidated damages for concreting works computed in the amount of Thirty
Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen & 15/100
(P39,326,817.15) as shown in the attached sheet.

Further, the net difference P3,326,817.15 will also be considered waived as additional
consideration.

We trust you will find the above fair and equitable.

Very truly yours,

(Signed)
DENNIS A. ABCEDE
Construction Manager

Approved:

(Signed by Santos)
 PHIL. REALTY & HOLDINGS CORP.

This letter was signed by Abcede, again as the construction manager, while Santos signed above
PHIL. REALTY & HOLDINGS CORP., which was notably the unsigned part in the 9 August 1991
letter. PRHC claims that neither one of them had the authority to sign on behalf of the corporation;
yet, it is not questioning the validity of the above-quoted letter.

We consider this letter as additional evidence that PRHC had given Abcede and Santos the
authority to act on its behalf in making such a decision or entering into such agreements with
LCDC.

LCDC additionally argues that a subsequent escalation agreement was validly entered into, even on
the following assumptions: (a) that Abcede and Santos had no authority to agree to the escalation of
the contract price without the approval of the board of directors; and (b) that the 7 December 1992
letter cannot be construed as an acknowledgment by PRHC that it owed LCDC P36 million. It
posits that the actions of Abcede and Santos, assuming they were beyond the authority given to
them by PRHC which they were representing, still bound PRHC under the doctrine of apparent
authority. [42] Thus, the lack of authority on their part should not be used to prejudice it, considering
that the two were clothed with apparent authority to execute such agreements. In addition, PRHC is
allegedly barred by promissory estoppel from denying the claims of the other corporation.

We agree with LCDC.

In Yao Ka Sin Trading v. Court of Appeals, et al,.[43] this Court discussed the applicable rules on the
doctrine of apparent authority, to wit:

The rule is of course settled that [a]lthough an officer or agent acts without, or in excess of, his
actual authority if he acts within the scope of an apparent authority with which the corporation has
clothed him by holding him out or permitting him to appear as having such authority, the
corporation is bound thereby in favor of a person who deals with him in good faith in reliance on
such apparent authority, as where an officer is allowed to exercise a particular authority with
respect to the business, or a particular branch of it, continuously and publicly, for a considerable
time. Also, if a private corporation intentionally or negligently clothes its officers or agents with
apparent power to perform acts for it, the corporation will be estopped to deny that such apparent
authority is real, as to innocent third persons dealing in good faith with such officers or agents. [44]

In Peoples Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al.,[45] we held that apparent
authority is derived not merely from practice:

Its existence may be ascertained through (1) the general manner in which the corporation holds
out an officer or agent as having the power to act or, in other words, the apparent authority to act
in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary
powers.

We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate
and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the
height of incongruity to now allow PRHC to deny the extent of the authority with which it had
clothed both individuals. We find that Abcedes role as construction manager, with regard to the
construction projects, was akin to that of a general manager with regard to the general operations of
the corporation he or she is representing.

Consequently, the escalation agreement entered into by LCDC and Abcede is a valid agreement
that PRHC is obligated to comply with. This escalation agreement whether written or verbal has
lifted, through novation, the prohibition contained in the Tektite Building Agreement.

In order for novation to take place, the concurrence of the following requisites is indispensable:

1. There must be a previous valid obligation.

2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.[46]

All the aforementioned requisites are present in this case. The obligation of both parties not to
increase the contract price in the Tektite Building Agreement was extinguished, and a new
obligation increasing the old contract price by P 36 million was created by the parties to take its
place.

What makes this Court believe that it is incorrect to allow PRHC to escape liability for the
escalation price is the fact that LCDC was never informed of the board of directors supposed non-
approval of the escalation agreement until it was too late. Instead, PRHC, for its own benefit,
waited for the former to finish infusing the entire amount into the construction of the building
before informing it that the said agreement had never been approved by the board of directors.
LCDC diligently informed PRHC each month of the partial amounts the former infused into the
project. PRHC must be deemed estopped from denying the existence of the escalation agreement
for having allowed LCDC to continue infusing additional money spending for its own project,
when it could have promptly notified LCDC of the alleged disapproval of the proposed escalation
price by its board of directors.

Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons from
going back on their own acts and representations, to the prejudice of others who have relied on
them.[47] Article 1431 of the Civil Code provides:

Through estoppel an admission or representation is rendered conclusive upon the person

making it, and cannot be denied or disproved as against the person relying thereon.

Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.:
Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately
led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission be permitted to falsify it.
 This Court has identified the elements of estoppel as:
[F]irst, the actor who usually must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either by words, conduct or silence;
second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third,
the other would be harmed materially if the actor is later permitted to assert any claim inconsistent
with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act
upon the information given or that a reasonable person in the actor's position would expect or
foresee such action.[48]

This liability of PRHC, however, has a ceiling. The escalation agreement entered into was
for P 36 millionthe maximum amount that LCDC contracted itself to infuse and that PRHC agreed
to reimburse. Thus, the Court of Appeals was correct in ruling that the P 2,248,463.92 infused by
LCDC over and above the P 36 million should be for its account, since PRHC never agreed to
pay anything beyond the latter amount. While PRHC benefited from this excess infusion, this did
not result in its unjust enrichment, as defined by law.

Unjust enrichment exists when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity
and good conscience.[49] Under Art. 22 of the Civil Code, there is unjust enrichment when (1) a
person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another.[50] The term is further defined thus:

Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or
for property or benefits received under circumstances that give rise to legal or equitable obligation
to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud,
coercion, or request.[51]

In order for an unjust enrichment claim to prosper, one must not only prove that the other party
benefited from ones efforts or the obligations of others; it must also be shown that the other party
was unjustly enriched in the sense that the term unjustly could mean illegally or
unlawfully.[52] LCDC was aware that the escalation agreement was limited to P36 million. It is not
entitled to remuneration of the excess, since it did not confer this benefit by mistake, fraud,
coercion, or request. Rather, it voluntarily infused the excess amount with full knowledge that
PRHC had no obligation to reimburse it.

Parenthetically, we note that the CA had ruled that the 7 December 1992 letter demonstrates that
PRHC treated the P 36 million as a loan deductible from the liquidated damages for which LCDC
is supposedly liable.[53] It ruled that when PRHC informed LCDC that it would apply the P 36
million to the liquidated damages, PRHC, in effect, acknowledged that it was in debt to LCDC in
the amount of P 36 million, and that forms the basis for PRHCs liability to LCDC for the said
amount.

We disagree with this analysis.

In a contract of loan, ownership of the money is transferred from the lender to the borrower.[54] In
this case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned,
such amount was paid directly to the suppliers.[55] We find that arrangement between PRHC and
LCDC cannot be construed as a loan agreement but rather, it was an agreement to advance the costs
of construction. In Liwanag v. Court of Appeals et al., we state:
Neither can the transaction be considered a loan, since in a contract of loan once the money is
received by the debtor, ownership over the same is transferred. Being the owner, the borrower
can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is
evident that Liwanag could not dispose of the money as she pleased because it was only
delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was not
possible then to return the money to Rosales.

LCDC is not liable for liquidated damages for

delay in the construction of the buildings for
PRHC.

There is no question that LCDC was not able to fully construct the Tektite Building and Projects
1, 2, and 3 on time. It reasons that it should not be made liable for liquidated damages, because
its rightful and reasonable requests for time extension were denied by PRHC.[56]

It is important to note that PRHC does not question the veracity of the factual representations of
LCDC to justify the latters requests for extension of time. It insists, however, that in any event
LCDC agreed to the limits of the time extensions it granted.[57]

The practice of the parties is that each time LCDC requests for more time, an extension agreement
is executed and signed by both parties to indicate their joint approval of the number of days of
extension agreed upon.

The applicable provision in the parties agreements is as follows:

ARTICLE VII TIME OF COMPLETION

.........

Should the work be delayed by any act or omission of the OWNER or any other person employed
by or contracted by the OWNER in the project, including days in the delivery or (sic) materials
furnished by the OWNER or others, or by any appreciable additions or alterations in the work
ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion,
strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall
be granted time extension.

In case the CONTRACTOR encounters any justifiable cause or reason for delay, the
CONTRACTOR shall within ten (10) days, after encountering such cause of delay submit to the
OWNER in writing a written request for time extension indicating therein the requested contract
time extension. Failure by the CONTRACTOR to comply with this requirements (sic) will be
adequate reason for the OWNER not to grant the time extension.
 The following table shows the dates of LCDCs letter-requests, the supposed causes
justifying them, the number of days requested, and the number of days granted by PRHC and
supposedly conformed to by LCDC:

Cause # of days # of days

requested granted
1 Mar Due to additional works and shortage of 30 11
1990 supplies and cement
14 Apr Shortage of cement supply 18 6
1990
10 May Frequent power failures 10 2
1990
9 Jul 1990 Bad weather which endangered the lives 10 2
of the construction workers (heavy
winds)
4 Sep Inclement weather that endangered the 10 3
1990 lives of the construction workers
28 Feb Architectural and structural revisions of 20 8
1991 R.C. beams at the 8th floor level
28 Aug For change order work and revisions in 271 136
1991 the plans initiated by the architect and
Abcedes delay in giving the revised
plans to contractor
2 Sep Inclement weather and scarcity of 25 17
1991 cement
13 Oct Water supply interruption and power 15 6
1991 failures preventing the mixing of cement
5 Dec Typhoon Uring and water supply 15 2
1991 interruption (typhoon Uring alone
caused a delay for more than 10 days
due to strong and continuous rains)
2 Apr Inadequate supply of Portland cement 15 12
1992 and frequent power failures
5 May Inadequate supply of cement and 17 12
1992 frequent power failures
456 217
additions and alterations in the work 108 20
ordered by the owner and architect
564 237

As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a period
of over two years, only 256 out of the 618 days of extension requested were considered. We
disregard these numbers presented by LCDC because of its failure to present evidence to prove its
allegation. The tally that we will acceptas reflected by the evidence submitted to the lower courtis
as follows: out of the 564 days requested, only 237 were considered.

Essentially the same aforementioned reasons or causes are presented by LCDC as defense against
liability for both Projects 1 and 2.[58] In this regard, the CA ruled:

Plaintiff-appellees allegation that determination by PHRC of extensions of time were unreasonable

or arbitrary is untenable in the light of express provisions of the Construction Agreements which
prescribed precise procedures for extensions of time. In fact the procedure is fool-proof because
both OWNER and CONTRACTOR sign to indicate approval of the number of days of extension.
Computation of the penalty becomes mechanical after that. Each extension as signed by the parties
is a contract by itself and has the force of law between them.
In fact, the parties followed that prescribed procedure strictly the CONTRACTOR first requested
the OWNER to approve the number of days applied for as extension of time to finish the particular
project and the OWNER will counter-offer by approving only a lower number of days extension
of time for CONTRACTOR to finish the contract as recommended by the CONSTRUCTION
MANAGER ABCEDE, and in the end, both CONTRACTOR and OWNER sign jointly the
approved number of days agreed upon. That signed extension of time is taken to be the contract
between the parties.[59]

The appellate court further ruled that each signed extension is a separate contract that becomes
the law between the parties:[60]
there is nothing arbitrary or unreasonable about the number of days extension of time because each
extension is a meeting of the minds between the parties, each under joint signature OWNER and
CONTRACTOR witnessed by the CONSTRUCTION MANAGER.[61]

Inasmuch as LCDCs claimed exemption from liability are beyond the approved time extensions,
LCDC, according to the majority of the CA, is liable therefor.

Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by LCDC
fell under the definition of force majeure.[62] This specific point was not refuted by the majority.

We agree with Justice Enriquez on this point and thereby disagree with the majority ruling of the
CA.

Article 1174 of the Civil Code provides: Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen, or which
though foreseen, were inevitable. A perusal of the construction agreements shows that the parties
never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption
of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen
were inevitable, neither party should be held responsible.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an act of God or force majeure, the following must concur:
 (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the
event must be either unforseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury to the creditor.[63]

The shortage in supplies and cement may be characterized as force majeure.[64] In the present
case, hardware stores did not have enough cement available in their supplies or stocks at the time
of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water
supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing
the building under the circumstances prevailing, it cannot be held liable for any delay that resulted
from the causes aforementioned.

Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and
even promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also
promised that the latter corporation would not be held liable for liquidated damages even for a
single day of delay despite the non-approval of the requests for extension.[65] Mr. Ley testified to
this fact as follows:

Q: So, Mr. Witness in all those requests for extension and whenever the D.A. Abcede & Associates
did not grant you the actual number of days stated in your requests for extension, what did Ley
construction and Development do, if any?
A: We talked to Dennis Abcede and Mr. Santos, Maam.
Q: And what did you tell them?
A: I will tell them why did you not grant the extension for us, Maam.
Q: What was the response of Mr. Abcede and Mr. Santos?
A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont worry, you will not be liquidated of any
single day for this because we can see that you worked so hard for this project, Maam.
Q: And what did you do after you were given that response of Mr. Abcede and Mr. Santos?
A: They told me you just relax and finish the project, and we will pay you up to the last centavos,
Maam.
Q: What did you do after taking that statement or assurance?
A: As gentlemans agreement I just continued working without complaining anymore, Maam.[66]

The above testimony is uncontradicted. Even assuming that all the reasons LCDC presented do not
qualify as fortuitous events, as contemplated by law, this Court finds that PRHC is estopped from
denying that it had granted a waiver of the liquidated damages the latter corporation may collect
from the former due to a delay in the construction of any of the buildings.
Courts may rule on causes of action not included
in the Complaint, as long as these have been
proven during trial without the objection of the
opposing party.

PRHC argues that since the parties had already limited the issues to those reflected in their joint
stipulation of facts, neither the trial court nor the appellate court has the authority to rule upon
issues not included therein. Thus it was wrong for the trial court and the CA to have awarded the
amounts of P 5,529,495.76 representing the remaining balance for Project 3 as well as for
the P 232,367.96 representing the balance for the construction of the drivers quarters in Project
3. PRHC claims that in the Stipulation of Facts, all the issues regarding Project 3 were already
made part of the computation of the balances for the other projects. It thus argues that the
computation for the Tektite Building showed that the overpayment for Project 3 in the amount
of P 9,531,181.80 was credited as payment for the Tektite Tower Project.[67] It reasons that,
considering that it actually made an overpayment for Project 3, it should not be made liable for
the remaining balances for Project 3 and the drivers quarters in Project 3.[68] It is LCDCs position,
however, that the Stipulation of Facts covers the balances due only for the Tektite Tower Project,
Project 1, and Project 2.[69] Since Project 3 was not included in the reconciliation contained in the
said stipulation, it maintains that the balance for Project 3 remains at P 5,529,495.76,[70]and that
the balance for the construction of the drivers quarters in Project 3 remains at P 232,367.96.

On its part, LCDC disputes the deletion by the CA of the lower courts grant of the
alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite Building. The CA
had ruled that this cause of action was withdrawn by the parties when they did not include it in their
Joint Stipulation of Facts. LCDC argues that to the contrary, the silence of the Stipulation of Facts
on this matter proves that the claim still stands.[71]

Considering that the unpaid balances for Project 3, its drivers quarters, and the concreting works in
the Tektite Building were not covered by the Stipulation of Facts entered into by the parties, we
rule that no judicial admission could have been made by LCDC regarding any issue involving the
unpaid balances for those pieces of work.

We affirm in this case the doctrine that courts may rule or decide on matters that, although not
submitted as issues, were proven during trial. The admission of evidence, presented to support an
allegation not submitted as an issue, should be objected to at the time of its presentation by the
party to be affected thereby; otherwise, the court may admit the evidence, and the fact that such
evidence seeks to prove a matter not included or presented as an issue in the pleadings submitted
becomes irrelevant, because of the failure of the appropriate party to object to the presentation.

No objection was raised when LCDC presented evidence to prove the outstanding balances for
Project 3, its drivers quarters, and the concreting works in the Tektite Building.

In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et al.,[72] this Court
held:
 It is settled that even if the complaint be defective, but the parties go to trial thereon, and the
plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of
action which it intended to allege in the original complaint, and the defendant voluntarily produces
witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively
as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings.

Considering the absence of timely and appropriate objections, the trial court did not err in
admitting evidence of the unpaid balances for Project 3, its drivers quarters, and the concreting
works in the Tektite Building. Furthermore, both the lower and the appellate courts found that the
supporting evidence presented by LCDC were sufficient to prove that the claimed amounts were
due, but that they remained unpaid.
LCDC should be held liable for the corrective
works to redo or repair the defective
waterproofing in Project 2.

The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem Corporation
(Vulchem), which was recommended by Santos and Abcede, was hired for that task. Vulchems
waterproofing turned out to be defective. In order to correct or repair the defective waterproofing,
PRHC had to contract the services of another corporation, which charged it P2,006,000.

Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for the
waterproofing works in Project 2, LCDC argues that under Article 1892, an agent is responsible for
the acts of the substitute if he was given the power to appoint a substitute. Conversely, if it is the
principal and not the agent who appointed the substitute, the agent bears no responsibility for the
acts of the sub-agent.[73] The provision reads:

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing
so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the person appointed
was notoriously incompetent or insolvent.

LCDC argues that because PRHC, as the principal, had designated Vulchem as sub-agent, LCDC,
as the agent, should not be made responsible for the acts of the substitute, even in the instance
where the latter were notoriously incompetent.[74]

LCDCs reliance on Art. 1892 is misplaced. The principles of agency are not to be applied to this
case, since the legal relationship between PRHC and LCDC was not one of agency, but was rather
that between the owner of the project and an independent contractor under a contract of service.
Thus, it is the agreement between the parties and not the Civil Code provisions on agency that
should be applied to resolve this issue.
Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any part of the
agreement to a third party, who in effect becomes a sub-contractor, the losses or expenses that
result from the acts/inactions of the sub-contractor should be for the contractors account, to wit:

ARTICLE XIV ASSIGNMENT

This Agreement, and/or any of the payments to be due hereunder shall not be assigned in whole
or in part by the CONTRACTOR nor shall any part of the works be sublet by CONTRACTOR
without the prior written consent of OWNER, and such consent shall not relieve the
CONTRACTOR from full responsibility and liability for the works hereunder shall not be granted
in any event until CONTRACTOR has furnished OWNER with satisfactory evidence that the Sub-
Contractor is carrying ample insurance to the same extent and in the same manner as herein
provided to be furnished by CONTRACTOR. If the agreement is assigned or any part thereof is
sublet, CONTRACTOR shall exonerate, indemnify and save harmless the OWNER from and
against any and all losses or expenses caused thereby.[75]

LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work of Project 2
but it did not do so and proceeded to hire the latter. It is not unusual for project owners to
recommend sub-contractors, and such recommendations do not diminish the liability of contractors
in the presence of an Article XIV-type clause in the construction agreement. The failure of LCDC
to ensure that the work of its sub-contractor is satisfactory makes it liable for the expenses PRHC
incurred in order to correct the defective works of the sub-contractor. The CA did not err in ruling
that the contract itself gave PRHC the authority to recover the expenses for the re-do works arising
from the defective work of Vulchem.[76]

LCDC is entitled to attorneys fees and the expenses

of litigation and costs.

According to the CA, LCDC was not entitled to attorneys fees, because it was not the aggrieved
party, but was the one that violated the terms of the construction agreements and should thus be
made to pay costs.[77] LCDC claims, on the other hand, that the CA seriously erred in deleting the
lower courts award of P750,000 attorneys fees and the expenses of litigation in its favor, since
this award is justified under the law.[78] To support its claim, LCDC cites Article 2208(5), which
provides:

ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
.........
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim;
.........
Attorney's fees may be awarded when the act or omission of the defendant compelled the plaintiff
to incur expenses to protect the latters interest.[79] In ABS-CBN Broadcasting Corp. v. CA,[80] we
held thus:

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy
that no premium should be placed on the right to litigate. They are not to be awarded every time a
party wins a suit. The power of the court to award attorney's fees under Article 2208 demands
factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where
no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an
erroneous conviction of the righteousness of his cause.

LCDC has failed to establish bad faith on the part of PRHC so as to sustain its position that it is
entitled to attorneys fees. Nevertheless, the CA erred in reversing the lower courts Decision
granting LCDCs claim for attorneys fees considering that the construction agreements contain a
penal clause that deals with the award of attorneys fees, as follows:

In the event the OWNER/CONTRACTOR institutes a judicial proceeding in order to enforce any
terms or conditions of this Agreement, the CONTRACTOR/OWNER should it be adjudged liable
in whole or in part, shall pay the OWNER/CONTRACTOR reasonable attorneys fees in the
amount equivalent to Twenty Percent (20%) of the total amount claimed in addition to all expenses
of litigation and costs of the suit.
Equivalent to at least Twenty Percent (20%) of the total amount claimed in addition to all expenses
of litigation and costs of the suit.

As long as a stipulation does not contravene the law, morals, and public order, it is binding upon
the obligor.[81] Thus, LCDC is entitled to recover attorneys fees. Nevertheless, this Court deems
it proper to equitably reduce the stipulated amount. Courts have the power to reduce the amount
of attorneys fees when found to be excessive,[82] viz:

We affirm the equitable reduction in attorneys fees. These are not an integral part of the cost of
borrowing, but arise only when collecting upon the Notes becomes necessary. The purpose of
these fees is not to give respondent a larger compensation for the loan than the law already allows,
but to protect it against any future loss or damage by being compelled to retain counsel in-house
or notto institute judicial proceedings for the collection of its credit. Courts have has the power to
determine their reasonableness based on quantum meruit and to reduce the amount thereof if
excessive.[83]

We reverse the appellate courts Decision and reinstate the lower courts award of attorneys fees, but
reduce the amount from P750,000 to P200,000.

WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as follows:

I. We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley

Construction Development Corporation (LCDC) in the amount of P 64,029,710.22,
detailed as follows:
 1. P 13,251,152.61 as balance yet unpaid by PRHC for Project 2;
2. P 1,703,955.07 as balance yet unpaid by PRHC for Project 1;
3. P 5,529,495.76 as balance yet unpaid by PRHC for Project 3;
4. P 232,367.96 as balance yet unpaid by PRHC for the drivers quarters for Project 3;
5. P 36,000,000.00 as agreed upon in the escalation agreement entered into by PRHCs
representatives and LCDC for the Tektite Building;
6. P 7,112,738.82 as balance yet unpaid by PRHC for the concreting works from the
ground floor to the fifth floor of the Tektite Building;
7. P 200,000.00 as LCDCs reduced attorneys fees.

II. Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75 detailed as
follows:
1. P 4,646,947.75 for the overpayment made by PRHC for the Tektite Building;
2. P 2,006,000.00 for the expenses incurred by PRHC for corrective works to redo/repair
the allegedly defective waterproofing construction work done by LCDC in Project 2.

The respective liabilities of the parties as enumerated above are hereby SET OFF against each
other, and PRHC is hereby DIRECTED to pay LCDC the net amount due, which
is P 57,376,762.47, with legal interest from the date of the filing of Complaint.

SO ORDERED.
Titan-Ikeda vs. Primetown G.R. No. 158768

FIRST DIVISION

TITAN-IKEDA CONSTRUCTION G.R. No. 158768

& DEVELOPMENT
CORPORATION,
Petitioner, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,
-v e r s u s- CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
PRIMETOWN PROPERTY
GROUP, INC.,
Respondent. Promulgated:

February 12, 2008

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

DECISION

CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision of the Court of Appeals
(CA) in CA-G.R. CV No. 61353[2] and its resolution[3] denying reconsideration.

In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural
works[4] of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and
Development Corporation.[5] The parties formalized their agreement in a construction
contract[6] dated February 4, 1993.[7]

Upon the completion of MPT's structural works, respondent awarded the P130,000,000
contract for the tower's architectural works[8] (project) to petitioner. Thus, on January 31, 1994,
the parties executed a supplemental agreement.[9] The salient portions thereof were:

1. the [project] shall cover the scope of work of the detailed construction bid plans and
specifications and bid documents dated 28 September 1993, attached and forming an integral
part hereof as Annex A.

2. the contract price for the said works shall be P130 million.

3. the payment terms shall be full swapping or full payment in condominium units. The
condominium units earmarked for the [petitioner] are shown in the attached Annex B.

4. the [respondent] shall transfer and surrender to [petitioner] the condominium units abovestated
in accordance with the following schedule:

(a) 80% of units upon posting and acceptance by [respondent] of the performance bond
[and]

(b) 20% or remaining balance upon completion of the project as provided in the construction
contract and simultaneous with the posting by [petitioner] of the reglementary guarantee
bond.
 5. the contract period shall be fifteen (15) months reckoned from the release of the condominium
certificates of title (CCTs) covering eighty percent (80%) of the units transferable to [petitioner]
as aforesaid[.]

Significantly, the supplemental agreement adopted those provisions of the construction contract
which it did not specifically discuss or provide for.[10] Among those carried over was the
designation of GEMM Construction Corporation (GEMM) as the project's construction
manager.[11]

Petitioner started working on the project in February 1994.

On June 30, 1994, respondent executed a deed of sale[12] (covering 114 condominium units and
20 parking slots of the MPT collectively valued by the parties at P112,416,716.88)[13] in favor of
petitioner pursuant to the full-swapping payment provision of the supplemental agreement.

Shortly thereafter, petitioner sold some of its units to third persons.[14]

In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering
consultancy firm, to evaluate the progress of the project.[15] In its September 7, 1995
report,[16] ITI informed respondent that petitioner, at that point, had only accomplished 31.89%
of the project (or was 11 months and six days behind schedule).[17]

Meanwhile, petitioner and respondent were discussing the possibility of the latters take over of
the projects supervision. Despite ongoing negotiations, respondent did not obtain petitioners
consent in hiring ITI as the projects construction manager. Neither did it inform petitioner of ITIs
September 7, 1995 report.
On October 12, 1995, petitioner sought to confirm respondent's plan to take over the
project.[18] Its letter stated:

The mutual agreement arrived at sometime in the last week of August 1995 for [respondent] to take over
the construction supervision of the balance of the [project] from [petitioner's] [e]ngineering staff and
complete [the] same by December 31, 1995 as promised by [petitioner's] engineer.

The [petitioner's] accomplished works as of this date of [t]ake over is of acceptable quality in materials
and workmanship.

This mutual agreement on the take over should not be misconstrued in any other way except that the
take over is part of the long range plan of [respondent] that [petitioner], in the spirit of cooperation,
agreed to hand over the construction supervision to [respondent] as requested. (emphasis supplied)[19]

Engineers Antonio Co, general construction manager of respondent, and Luzon Y. Tablante,
project manager of petitioner, signed the letter.

INTEGRATECHS (ITIS) REPORT

In its September 7, 1995 report, ITI estimated that petitioner should have accomplished
48.71% of the project as of the October 12, 1995 takeover date.[20] Petitioner repudiated this
figure[21] but qualifiedly admitted that it did not finish the project.[22] Records showed that
respondent did not merely take over the supervision of the project but took full control
thereof.[23]

Petitioner consequently conducted an inventory.[24] On the basis thereof, petitioner demanded

from respondent the payment of its balance amounting to P1,779,744.85.[25]
On February 19, 1996, petitioner sent a second letter to respondent demanding P2,023,876.25.
This new figure included the cost of materials (P244,331.40) petitioner advanced from
December 5, 1995 to January 26, 1996.[26]

On November 22, 1996, petitioner demanded from respondent the delivery of MPT's
management certificate[27] and the keys to the condominium units and the payment of its
(respondent's) balance.[28]

Because respondent ignored petitioner's demand, petitioner, on December 9, 1996, filed a

complaint for specific performance[29] in the Housing and Land Use Regulatory Board (HLURB).

While the complaint for specific performance was pending in the HLURB, respondent sent a
demand letter to petitioner asking it to reimburse the actual costs incurred in finishing the
project (or P69,785,923.47).[30] In view of the pendency of the HLURB case, petitioner did not
heed respondent's demands.

On April 29, 1997, the HLURB rendered a decision in favor of petitioner.[31] It ruled that the
instrument executed on June 30, 1994 was a deed of absolute sale because the conveyance of
the condominium units and parking slots was not subject to any condition.[32] Thus, it ordered
respondent to issue MPTs management certificate and to deliver the keys to the condominium
units to petitioner.[33] Respondent did not appeal this decision. Consequently, a writ of
execution was issued upon its finality.[34]

Undaunted by the finality of the HLURB decision, respondent filed a complaint for
collection of sum of money[35] against petitioner in the Regional Trial Court (RTC) of Makati City,
Branch 58 on July 2, 1997. It prayed for the reimbursement of the value of the projects
unfinished portion amounting to P66,677,000.[36]
During trial, the RTC found that because respondent modified the MPT's architectural design,
petitioner had to adjust the scope of work.[37] Moreover, respondent belatedly informed
petitioner of those modifications. It also failed to deliver the concrete mix and rebars according
to schedule. For this reason, petitioner was not responsible for the project's delay.[38] The trial
court thus allowed petitioner to set-off respondent's other outstanding liabilities with
respondents excess payment in the project.[39] It concluded that respondent owed
petitioner P2,023,876.25.[40] In addition, because respondent refused to deliver the keys to the
condominium units and the management certificate to petitioner, the RTC found that petitioner
lost rental income amounting to US$1,665,260.[41] The dispositive portion of the RTC decision
stated:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered dismissing [respondent's] [c]omplaint

for lack of merit. On the other hand, finding preponderance of evidence to sustain [petitioner's]
counterclaim, judgment is hereby rendered in favor of [petitioner] ordering [respondent] to pay the
former:

1. The unpaid balance of the consideration for [petitioner's] services in [the project] in the amount
of P2,023,867.25 with legal interest from the date of demand until fully paid;

2. Compensatory damages in the amount of US$1,665,260 or its peso equivalent at the current
foreign exchange rate representing lost rental income due only as of July 1997 and the accrued
lost earnings from then on until the date of actual payment, with legal interest from the date of
demand until fully paid; and

3. Attorney's fees in the amount of P100,000 as acceptance fee, P1,000 appearance fee per hearing
and 25% of the total amount awarded to [petitioner].

With costs against the [respondent].

SO ORDERED.[42]

Respondent appealed the RTC decision to the CA.[43] The appellate court found that respondent
fully performed its obligation when it executed the June 30, 1994 deed of absolute sale in favor
of petitioner.[44] Moreover, ITI's report clearly established that petitioner had completed only
48.71% of the project as of October 12, 1995, the takeover date. Not only did it incur delay in
the performance of its obligation but petitioner also failed to finish the project. The CA ruled
that respondent was entitled to recover the value of the unfinished portion of the project under
the principle of unjust enrichment.[45] Thus:
WHEREFORE, the appealed decision is REVERSED and a new one entered dismissing [petitioner's]
counterclaims of P2,023,867.25 representing unpaid balance for [its] services in [the project];
US$1,665,260 as accrued lost earnings, and attorney's fees. [Petitioner] is hereby ordered to return to
[respondent] the amount of P66,677,000 representing the value of unfinished [portion of the project],
plus legal interest thereon until fully paid. Upon payment by [petitioner] of the aforementioned amount,
[respondent] is hereby ordered to deliver the keys and [m]anagement [c]ertificate of the [Makati Prime
Tower] paid to [petitioner] as consideration for the [project].[46]

Petitioner moved for reconsideration but it was denied. Hence, this petition.

Petitioner contends that the CA erred in giving weight to ITI's report because the project
evaluation was commissioned only by respondent,[47] in disregard of industry practice. Project
evaluations are agreed upon by the parties and conducted by a disinterested third party.[48]

We grant the petition.

REVIEW OF CONFLICTING FACTUAL FINDINGS

As a general rule, only questions of law may be raised in a petition for review on certiorari.
Factual issues are entertained only in exceptional cases such as where the findings of fact of the
CA and the trial court are conflicting.[49]
Here, a glaring contradiction exists between the factual findings of the RTC and the CA. The trial
court found that respondent contributed to the project's delay because it belatedly
communicated the modifications and failed to deliver the necessary materials on time. The CA,
however, found that petitioner incurred delay in the performance of its obligation. It relied on
ITI's report which stated that petitioner had accomplished only 48.71% of the project as of
October 12, 1995.

JANUARY 31, 1994 SUPPLEMENTAL AGREEMENT WAS

EXTINGUISHED

A contract is a meeting of the minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.[50] This case involved two
contracts entered into by the parties with regard to the project.

The parties first entered into a contract for a piece of work[51] when they executed the
supplemental agreement. Petitioner as contractor bound itself to execute the project for
respondent, the owner/developer, in consideration of a price certain (P130,000,000). The
supplemental agreement was reciprocal in nature because the obligation of respondent to pay
the entire contract price depended on the obligation of petitioner to complete the project
(and vice versa).

Thereafter, the parties entered into a second contract. They agreed to extinguish the
supplemental agreement as evidenced by the October 12, 1995 letter-agreement which was
duly acknowledged by their respective representatives.[52]
While the October 12, 1995 letter-agreement stated that respondent was to take over merely
the supervision of the project, it actually took over the whole project itself. In fact, respondent
subsequently hired two contractors in petitioner's stead.[53] Moreover, petitioner's project
engineer at site only monitored the progress of architectural works undertaken in its
condominium units.[54] Petitioner never objected to this arrangement; hence, it voluntarily
surrendered its participation in the project. Moreover, it judicially admitted in its answer that
respondent took over the entire project, not merely its supervision, pursuant to its
(respondents) long-range plans.[55]

Because the parties agreed to extinguish the supplemental agreement, they were no longer
required to fully perform their respective obligations. Petitioner was relieved of its obligation to
complete the project while respondent was freed of its obligation to pay the entire contract
price. However, respondent, by executing the June 30, 1994 deed of absolute sale, was deemed
to have paid P112,416,716.88. Nevertheless, because petitioner applied part of what it received
to respondents outstanding liabilities,[56] it admitted overpayment.

Because petitioner acknowledged that it had been overpaid, it was obliged to return the excess
to respondent. Embodying the principle of solutio indebiti, Article 2154 of the Civil Code
provides:

Article 2154. If something is received when there is no right to demand it and it was unduly delivered
through mistake, the obligation to return it arises.

For the extra-contractual obligation of solutio indebiti to arise, the following requisites
must be proven:

1. the absence of a right to collect the excess sums and

 2. the payment was made by mistake.[57]

With regard to the first requisite, because the supplemental agreement had been extinguished
by the mutual agreement of the parties, petitioner became entitled only to the cost of services
it actually rendered (i.e., that fraction of the project cost in proportion to the percentage of its
actual accomplishment in the project). It was not entitled to the excess (or extent of
overpayment).

On the second requisite, Article 2163 of the Civil Code provides:

Article 2163. It is presumed that there was a mistake in the payment if something which had
never been due or had already been paid was delivered; but, he from whom the return is claimed
may prove that the delivery was made out of liberality or for any other just cause. (emphasis
supplied)
In this instance, respondent paid part of the contract price under the assumption that
petitioner would complete the project within the stipulated period. However, after the
supplemental agreement was extinguished, petitioner ceased working on the project.
Therefore, the compensation petitioner received in excess of the cost of its actual
accomplishment as of October 12, 1995 was never due. The condominium units and parking
slots corresponding to the said excess were mistakenly delivered by respondent and were
therefore not due to petitioner.

Stated simply, respondent erroneously delivered excess units to petitioner and the latter,
pursuant to Article 2154, was obliged to the return them to respondent.[58] Article 2160 of the
Civil Code provides:
Article 2160. He who in good faith accepts an undue payment of a thing certain and determinate
shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar
as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to
collect the sum.
 One who receives payment by mistake in good faith is, as a general rule, only liable to
return the thing delivered.[59] If he benefited therefrom, he is also liable for the impairment or
loss of the thing delivered and its accessories and accessions.[60] If he sold the thing delivered,
he should either deliver the proceeds of the sale or assign the action to collect to the other
party.[61]

The situation is, however, complicated by the following facts:

a) the basis of the valuation (P112,416,716.99) of the condominium units and parking
slots covered by the June 30, 1994 deed of sale is unknown;

b) the percentage of petitioner's actual accomplishment in the project has not been
determined and

c) the records of this case do not show the actual number of condominium units and
parking slots sold by petitioners.

Because this Court is not a trier of facts, the determination of these matters should be
remanded to the RTC for reception of further evidence.

The RTC must first determine the percentage of the project petitioner actually completed and
its proportionate cost.[62] This will be the amount due to petitioner. Thereafter, based on the
stipulated valuation in the June 30, 1994 deed of sale, the RTC shall determine how many
condominium units and parking slots correspond to the amount due to petitioner. It
will only be the management certificate and the keys to these units that petitioner will
be entitled to. The remaining units, having been mistakenly delivered by
respondent, will therefore be the subject of solutio indebiti.
What exactly must petitioner give back to respondent? Under Article 2160 in relation to Article
2154, it should return to respondent the condominium units and parking slots in excess of the
value of its actual accomplishment (i.e., the amount due to it) as of October 12, 1995. If
these properties include units and/or slots already sold to third persons, petitioner shall
deliver the proceeds of the sale thereof or assign the actions for collection to respondent as
required by Article 2160.
DELAY IN THE COMPLETION OF THE PROJECT

Mora or delay is the failure to perform the obligation in due time because of dolo (malice)
or culpa (negligence).[63] A debtor is deemed to have violated his obligation to the creditor from
the time the latter makes a demand. Once the creditor makes a demand, the debtor
incurs mora or delay.[64]

The construction contract[65] provided a procedure for protesting delay:

Article XIV

DELAYS AND ABANDONMENT

15.1. If at any time during the effectivity of this contract, [PETITIONER] shall incur unreasonable delay
or slippages of more than fifteen percent (15%) of the scheduled work program,
[RESPONDENT] should notify[PETITIONER] in writing to accelerate the work and reduce, if not erase,
slippage. If after the lapse of sixty (60) days from receipt of such notice, [PETITIONER] fails to rectify the
delay or slippage, [RESPONDENT] shall have the right to terminate this contract except in cases where
the same was caused by force majeure. FORCE MAJEURE as contemplated herein, and in determination
of delay includes, but is not limited to, typhoon, flood, earthquake, coup d'etat, rebellion, sedition,
transport strike, stoppage of work, mass public action that prevents workers from reporting for work,
and such other causes beyond [PETITIONER'S] control.[66] (emphasis supplied)

xxx xxx xxx

Respondent never sent petitioner a written demand asking it to accelerate work on the project
and reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took
over the project, it would have sent a written demand as required by the construction contract.
Moreover, according to the October 12, 1995 letter-agreement, respondent took over the
project for the sole reason that such move was part of its (respondent's) long-term plan.

Respondent, on the other hand, relied on ITI's September 7, 1995 report. The construction
contract named GEMM, not ITI, as construction manager.[67] Because petitioner did not consent
to the change of the designated construction manager, ITI's September 7, 1995 report could not
bind it.

In view of the foregoing, we hold that petitioner did not incur delay in the performance of its
obligation.
RECOVERY OF ADDITIONAL COSTS RESULTING FROM CHANGES

The supplemental agreement was a contract for a stipulated price.[68] In such contracts, the
recovery of additional costs (incurred due to changes in plans or specifications) is governed by
Article 1724 of the Civil Code.

Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price,
in conformity with plans and specifications agreed upon with the landowner, can neither withdraw from
the contract nor demand an increase in the price on account of higher cost of labor or materials, save
when there has been a change in plans and specifications, provided:

1. such change has been authorized by the proprietor in writing; and

2. the additional price to be paid to the contractor has been determined in writing by both parties.

In Powton Conglomerate, Inc. v. Agcolicol,[69] we reiterated that a claim for the cost of additional
work arising from changes in the scope of work can only be allowed upon the:
 1. written authority from the developer/owner ordering/allowing the changes in work; and

2. written agreement of parties with regard to the increase in cost (or price) due to the change in work
or design modification. [70]

Furthermore:

Compliance with the two requisites of Article 1724, a specific provision governing additional works, is
a condition precedent of the recovery. The absence of one or the other bars the recovery of additional
costs. Neither the authority for the changes made nor the additional price to be paid therefor may be
proved by any other evidence for purposes of recovery.[71] (emphasis supplied)

Petitioner submitted neither one. In addition, petitioners project coordinator Estellita Garcia
testified that respondent never approved any change order.[72] Thus, under Article 1724 and
pursuant to our ruling in Powton Conglomerate, Inc., petitioner cannot recover the cost it
incurred in effecting the design modifications. A contractor who fails to secure the owner or
developer's written authority to changes in the work or written assent to the additional cost to
be incurred cannot invoke the principle of unjust enrichment.[73]
RECOVERY OF COMPENSATORY DAMAGES

Indemnification for damages comprehends not only the loss suffered (actual damages
or damnum emergens) but also the claimant's lost profits (compensatory damages or lucrum
cessans). For compensatory damages to be awarded, it is necessary to prove the actual amount
of the alleged loss by preponderance of evidence.[74]

The RTC awarded compensatory damages based on the rental pool rates submitted by
petitioner[75] and on the premise that all those units would have been leased had respondent
only finished the project by December 31, 1995.[76] However, other than bare assertions,
petitioner submitted no proof that the rental pool was in fact able to lease out the units. We
thus hold that the losses sustained by petitioner were merely speculative and there was no basis
for the award.

REMAND OF OTHER CLAIMS

Since respondent did not repudiate petitioner's other claims stated in the inventory [77] in the
RTC and CA, it is estopped from questioning the validity thereof.[78] However, because some of
petitioner's claims have been disallowed, we remand the records of this case to the RTC for the
computation of respondent's liability.[79]

WHEREFORE, the petition is hereby GRANTED.

The March 15, 2002 decision and May 29, 2003 resolution of the Court of Appeals in CA-G.R. CV
No. 61353 and the August 5, 1998 decision of the Regional Trial Court, Branch 58, Makati City in
Civil Case No. 97-1501 are hereby SET ASIDE. New judgment is entered:

1. ordering petitioner Titan-Ikeda Construction and Development Corporation to return to

respondent Primetown Property Group, Inc. the condominium units and parking slots
corresponding to the payment made in excess of the proportionate (project) cost of its
actual accomplishment as of October 12, 1995, subject to its (petitioners) allowable
claims as stated in the inventory and

2. dismissing petitioner Titan-Ikeda Construction and Development Corporations claims for

the cost of additional work (or change order) and damages.
The records of this case are remanded to the Regional Trial Court of Makati City, Branch 58 for:

1. the reception of additional evidence to determine

(a) the percentage of the architectural work actually completed by petitioner Titan-
Ikeda Construction and Development Corporation as of October 12, 1995 on
the Makati Prime Tower and

(b) the number of condominium units and parking slots sold by petitioner Titan-
Ikeda Construction and Development Corporation to third persons;

2. the computation of petitioner Titan-Ikeda Construction and Development

Corporation's actual liability to respondent Primetown Property Group, Inc. or vice-
versa, and the determination of imposable interests and/or penalties, if any.

SO ORDERED.

BPI vs. Benjamin Pineda G.R. No. L-62441

G.R. No. L-62441 December 14, 1987

BANK OF THE PHILIPPINE ISLANDS, as Successor to Peoples Bank and Trust Company, petitioner,
vs.
BENJAMIN PINEDA, doing business under the name and style of PIONEER IRON WORKS, respondent.

BIDIN, J.:

This is a Petition for Review on certiorari, seeking the reversal of the Decision of the First Division 1 of the Court of Appeals
in CA- G.R. No. 66365-R entitled "Benjamin Pineda, etc., plaintiff-appellee vs. Southern Industrial Projects Inc., Bacong Shipping Company, S.A. Gacet Inc.,
Interocean Shipping Corporation and Peoples Bank and Trust Co., defendant-appellant, " affirming the decision of the trial court, the dispositive portion of which
reads:

Wherefore, the appealed decision being in accordance with the law and the evidence, the same is
hereby affirmed, with proportionate cost against appellant.

The facts of this case as found by the Court of Appeals are as follows:
Southern Industrial Project, Inc. (SIP for short) is a corporation the majority stockholder of which is
the Concon Family. Bacong Shipping Company, S.A. (Bacong, for short) is a Panamanian
corporation organized to operate vessels purchased by SIP under Panamanian Flag and its
president is Gregorio A. Concon.

SIP and/or Bacong purchased the vessels SS "Southern Comet," SS "Southern Express" and SS
"Southern Hope," thru financing furnished by defendant Peoples Bank and Trust Company, now the
Bank of the Philippine Islands. To secure the payment of whatever amounts maybe disbursed for the
aforesaid purpose, the said vessels were mortgaged to Peoples Bank and Trust Company. For the
operation of the said vessels, these were placed under the booking agency of defendant Interocean
Shipping Corporation, with the undertaking that the freight revenues from their charter and operation
shall be deposited with the Trust Department of Peoples Bank and Trust Company and that
disbursements made therefrom shall be covered by vouchers bearing the approval of SIP.

As Peoples Bank and Trust Company and SIP were not satisfied with the amount of revenues being
deposited with the said Bank, it being suggested that diversions thereof were being made, Gregorio
A. Concon of SIP and/or Bacong and Roman Azanza of Peoples Bank and Trust Company,
organized S.A. Gacet, Inc. to manage and supervise the operation of the vessels with Ezekiel P.
Toeg as the manager thereof. Accordingly, on August 15, 1966, a Management Contract (Exh. A.,
Exh. 1-SIP and Exh. 3-Peoples Bank) was entered into between SIP and GACET, Inc., placing the
supervision and management of the aforementioned vessels in the hands of GACET, Inc., which
was to run for a period of six (6) months, renewable at the will of the parties, without however,
terminating the booking agency of interocean Shipping Corporation.

The said Management Contract stipulates, among others, that —

The agent GACET may not borrow money for the husbanding of vessels "without
special authority" from the appellant bank (5 [f])

All office records required as well as books of accounts" shall "be available for
inspection" by the appellant bank and "may at any time temporarily take possession
of such records and books to make a complete audit" (5 [h])

The appellant bank may-obtain copies of documents from any or all of GACET's
booking agents pertaining to transactions entered into by said booking agents" (5 (h))
[1]);

The appellant bank has the right "(t)o inquire and obtain information, by telephone, or
otherwise such data as the name of the shippers, nature of cargo, destination of
cargo, freight rates, etc. " (5 (h)) [2]); and,

The appellant bank has the right "(t)o check on remittances made by shipper to the
booking agent" etc. (5)[3]).

Likewise, under the terms of said Management Contract, the Peoples Bank and Trust Company was
designated as depository of all revenues coming from the operation of the subject vessels thereby
enabling it to control all expenses of GACET, Inc., since they win all be drawn against said deposit.

During the period comprising March 16, 1967 and August 25, 1967, GACET and Interocean in
performing their obligations under said Management Contract, contracted the services of herein
plaintiff-appellee, Benjamin Pineda doing business under the name and style "Pioneer Iron Works,"
to carry out repairs, fabrication and installation of necessary parts in said vessels in order to make
them seaworthy and in good working operation. Accordingly, repairs on the vessels were made.
Labor and materials supplied in connection therewith, amounted to P 84,522.70, P 18,141.75 of
which was advanced by Interocean, thereby leaving a balance of P 62,095.95. For this balance,
Interocean issued three checks (Exhibit I) and the third one for P 17,377.57 (Exh. J). When these
checks were however presented to the drawee, Peoples Bank and Trust Company, they were
dishonored as defendant Interocean stopped payment thereon (Exhs. H-2,I-2 & J-2).
Meanwhile and by reason of the inability of SIP and/or Bacong to pay their mortgage indebtedness
which was past due since 1964, the mortgagee Peoples Bank and Trust Company threatened to
foreclose the mortgage on said vessels. In order to avoid the inconvenience and expense of
imminent foreclosure proceedings, SIP and/or Bacong sold said vessels to Peoples Bank by way
of dacion en pago. The sale is evidenced by three (3) deeds of sale all dated January 19, 1968
(Exhs. C, D, & E). Immediately preceding the execution of said deeds of sale, SIP, Bacong and
Peoples Bank executed a "Confirmation of Obligation" (Exh. "B") whereby SIP and Bacong (1)
acknowledged being indebted to defendant bank, the payment of which indebtedness was secured
by chattel mortgages on said vessels, (2) agreed to sell and convey to defendant bank the
aforementioned vessels by separate deed of sale for the total purchase price of P 3,038,000.00 to
be applied as partial payment on account of their mortgage indebtedness; and (3) expressly
recognized that after such application, a substantial balance will still remain unpaid and owing by
SIP and Bacong which remaining balance they have agreed to confirm and pay to the bank on
demand with 12% interest per annum. Likewise, listed in the "Confirmation of Obligation" were some
of the accounts acknowledged and confirmed by the parties to be outstanding at the time, in
connection with the subject vessels as follows-

a) Accrued Salaries and allotments........................ P180,687.04

b) National Shipyard ......................................................31,068.57

c) Pioneer Iron Works : ..................................................82,877.57

d) Pacific Engineering Corporation .............................152,094.85

e) Esso Standard Eastern Account ..........................1,693,913.25

f) Cost of bailing out of the vessels

in Japan crews, salaries, etc.................................... 328,692.50

TOTAL.................................................................. P 2,954 833,34

The Deed of "Confirmation of Obligation" also provides

That Southern and/or Bacong acknowledge that the total purchase price of "TSS
Southern Comet,

That Southern Hope" and "SS Southern Express" in the sum of THREE MILLION
THIRTY EIGHT THOUSAND PESOS (P 3,038,000.00), Philippine currency shall be
applied on account of their mortgage obligations, as they appear on the books of the
BANK, and whatever amount remains outstanding after application (or set off) is
hereby acknowledged to be owed to the BANK and shall be payable with interest at
the rate of 12170 per annum." That part (sic) from the foregoing SOUTHERN and/or
BACONG have authorized the BANK to pay certain expenses, accounts of charges
in connection with the sold vessels, the principal items being those listed below."
(These are the accounts listed above). "It is agreed that this is not a final or complete
listing and the above expenses shall be subject to final adjustment after verification
of the amounts actually paid or advanced by the BANK under the said authority from
SOUTHERN and/or BACONG. It is further agreed that these expenses shall also be
subject to the terms of condition No. 1 above." (Those enclosed in parenthesis are
supplied).

On October 1, 1968, plaintiff instituted the present action (Civil Case No. 74379) before the Court of
First Instance of Manila, seeking to recover from SIP, GACET, Interocean and the Peoples Bank and
'Trust Company the principal sum of P62,095.92 with interests thereon from the respective dates of
each repair order until the same is fully paid, which amount was allegedly the total unpaid balance of
 the cost of repairs, fabrication and installation of necessary parts carried out by the said plaintiff on
the aforenamed vessels.

Answering the complaint, defendants Peoples Bank and Trust Co., now Bank of P.I. and Southern
Industrial Projects, Inc. (SIP) alleged that the abovementioned claim is the personal responsibility of
Interocean Shipping Corporation and/or Gacet, Inc. and deny liability thereof Defendant Bacong
Shipping Company, S.A. (Bacong on its part denies knowledge of the obligation claiming it did not
have any transaction whatsoever with the plaintiff while defendant Interocean Shipping Corporation
and GACET, Inc. also deny liability contending that the obligation being lien on the vessels upon
which services and repairs were made by the plaintiff, defendant Peoples Bank & Trust Co., now
Bank of P.I., being the ultimate owners thereof should be the one liable therefor.

After trial, the court a quo rendered judgment the dispositive portion of which reads as follows —

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering

defendants Southern Industrial Projects, Inc. and Peoples Bank and Trust Company,
now Bank of P.I., to pay plaintiff Benjamin Pineda doing business under the name
and style of Pioneer Iron Works, jointly and severally, the amount of P62,095.92, with
legal rate of interest thereon from the date of the filing of the complaint, attorney's
fees in the amount of P10,000.00, and the costs of the suit. The complaint is
dismissed against defendants Interocean Shipping Corporation and Gacet, Inc.

SO ORDERED.

From the foregoing decision, defendants Bank of P.I. and Southern Industrial Projects, Inc. appealed to the Court of
Appeals but the latter, finding the aforequoted decision to be in accordance with law and the evidence, affirmed the
same, Hence, this petition.

Petitioner raised the following assignment of errors:

I. The Intermediate Appellate Court erred in affirming the findings of the lower court that petitioner, in purchasing the
vessels, assumed the obligations of Southern Industrial Projects, Inc. and/or Bacong Shipping Company.

II. The Intermediate Appellate Court erred in affirming the ruling of the lower court that petitioner is liable to private
respondent when the same was based on an erroneous interpretation of the "confirmation of obligation" in relation to
the deeds of sale of the vessels.

III. The findings of the lower court as affirmed by the Intermediate Appellate Court that private respondent had a
valid and subsisting repairer's lien is contrary to law as well as the rulings set forth by this Honorable Court.

IV. The Intermediate Appellate Court erred in not holding that the lower court has no jurisdiction over the subject
matter of the action or suit which seeks to enforce a statutory lien under paragraph 5 of Article 2241 of the Civil
Code of the Philippines.

As correctly pointed out by the Court of Appeals in its decision, the various assigned errors boil down to the issue of
who should be liable for the cost of repairs undertaken on the subject vessels.

Petitioner raised the following questions: (1) whether the findings of the lower court are supported by facts and
evidence; and (2) whether or not petitioner is liable to respondent on the basis of the "Confirmation of Obligation. "

The general rule is that findings of facts of the Court of Appeals are not subject to review by the Supreme Court.
(Alaras vs. Court of Appeals, 64 SCRA 671; Perido vs. Perido, 13 SCRA 97: Mendoza vs. Court of Appeals, 84
SCRA 67; Manlapaz vs. Court of Appeals, 147 SCRA 236 [1987]; Baniqued vs. Court of Appeals, 127 SCRA 50
[1984]; Moran vs. Court of Appeals, 133 SCRA 88 [1984]; Collector of Customs vs. Court of Appeals, 137 SCRA 3
[1985]; Espiritu vs. Court of Appeals, 137 SCRA 50 [1985]; Premier Insurance & Surety Corp. vs. Intermediate
Appellate Court, et al., 141 SCRA 423 [1986]: Director of Lands vs. Funtillar, 142 SCRA 57 [1986]; Republic vs.
Intermediate Appellate Court, 144 SCRA 705 [1986]: subject to the following exceptions; (1) when the conclusion is
a finding grounded entirely on speculation, surmises or conjectures (Joaquin vs. Navarro, 93 Phil. 257); (2) when the
inference made is manifestly mistaken, absurd or impossible (Luna vs. Linatok 74 Phil. 15); (3) where there is a
grave abuse of discretion (Buyco vs. People, 51 O.G. 2927); (4) when the judgment is based on a misapprehension
of facts (Cruz vs. Sosing, L-4875, November 27, 1953; (5) when the findings of fact are conflicting (Casica vs.
Villaseca, L-9590, April 30, 1957); and (6) when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admissions of both appellant and appellee (Evangelista vs. Alto Surety &
Ins. Co., L-11139, April 23, 1958; Ramos vs. Pepsi Cola, L-22533, February 9, 1967, 19 SCRA 289)." (cited in
Manlapaz vs. Court of Appeals, 147 SCRA 236 [1987]; Tolentino vs. de Jesus, 56 SCRA 167 [1974]; Carolina
Industries, Inc. vs. CMS Stock Brokerage, Inc., et al., 97 SCRA 734 [1980]; Manero vs. Court of Appeals, 102 SCRA
317 [1981]; Moran, Jr. vs. Court of Appeals, supra Sacay vs. Sandiganbayan, 142 SCRA 593 [1983]; Director of
Lands vs. Funtillar, et al., supra)

The petitioner argued that the findings of the lower court are contrary to, and are not supported by the evidence.

There is no question that at the time subject obligation was incurred, the vessels were owned by defendant
Southern industrial Projects, Inc. although mortgaged to People's Bank and Trust Company. Hence, the former as
owner is liable for the costs of repairs made on the vessels. On the other hand, Interocean Shipping Corporation
and S.A. Gacet undeniably mere agents of the owner, a disclosed principal, cannot be held liable for repairs made
on the vessels to keep them in good running condition in order to earn revenue, there being no showing that said
agents exceeded their authority.

Ultimately therefore, the issue which remains is, whether or not People's Bank, now Bank of P.I. being the
purchaser of said vessels, is jointly and severally liable for the outstanding balance of said repairs, admittedly a lien
on the properties in question.

It appears that Bank of P.I. seeks shelter in a deed of "Confirmation of Obligation" entered into between buyer and
seller before the execution of a deed of sale between them. Buyer, Bank of P.I., maintains that it has the option of
whether or not to pay the obligations listed thereunder, one of which is the repairs undertaken by private
respondent, as inferred from the phrase that the owner of the vessels merely authorized petitioner bank to pay
certain expenses and charges in connection with said vessels. The latter stressed the fact that nowhere in said deed
was the bank placed under obligation to pay any of the listed indebtedness of the owner.

The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting parties should
always prevail because their will has the force of law between them (Kasilag vs. Rodriguez, et al., 69 Phil. 217
[1939]; Sec. 10, Rule 130 of the New Rules of Court). Thus, in order to judge the intention of the contracting parties,
regard must be had principally to their acts both contemporaneous and subsequent to the contract (Atlantic Gulf Co.
vs. Insular Government, 10 Phil. 166 [1908]), "the circumstances under which it was made, including the situation of
the subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those
whose language he is to interpret." (Sec. 11, Rule 130 of the New Rules of Court). It has been held that once this
intention of the parties has been ascertained, it becomes an integral part of the contract as though it has been
originally expressed therein in unequivocal terms (Nielson & Co., Inc. vs. Lepanto Consolidated Mining Co., 18
SCRA 1040 [19661). Likewise, well settled is the fact that in construing a writing particularly a written agreement,
the reason behind the circumstances surrounding its execution are of paramount importance to place the interpreter
in the situation of the parties concerned at the time the writing was executed (Vicente Gotamco Hermanos vs.
Shotwell 38 SCRA 107 [1971]),

It is undisputed that S.A. Gacet, Inc., the managing corporation, is only a creation of Gregorio A. Concon of
Southern Industrial Projects, Inc. and of Roman Azanza of People's Bank and Trust Company obviously for the
protection of their respective interests on the properties in question, after both expressed dissatisfaction with the
amount of revenue being deposited with the said bank which suggests that diversions thereof were being made.
Thus, although it was SIP and GACET which entered into the Management Contract, it was expressly stipulated
thereunder, among others, that GACET may not borrow money for the husbanding of vessels without special
authority from the petitioner bank. In addition, all office records were required to be subject to inspection and
complete audit by the latter, including all remittances made by the Shipper to the booking agent. Otherwise stated,
petitioner was already in control of the vessels as early as August 15, 1966, the date the Management Contract was
signed (Decision, CA G.R No. 66365-R), (Rollo, p. 28). In fact, the contract itself for the repairs of the vessels which
is now the bone of contention, was entered into by GACET and INTEROCEAN with private respondent Benjamin
Pineda with the approval of petitioner Bank. This lends credence to the claim of Pineda that he was led to believe
that he will be paid the corresponding amount for the repairs, as in fact he was paid with checks which were later
dishonored.

The records show that SIP incurred debts by reason of these vessels not only here in the Philippines but also in
Japan, notably ESSO Standard Eastern which attached said vessels in Japan. As admitted by Gregorio A. Concon,
fourteen banks were after the assets of the corporation. Under this distressed financial condition and with People's
Bank also threatening to foreclose the mortgages on these vessels, SIP decided to sell the vessels to People's Bank
(Record on Appeal, pp. 55-56). But a deed of "Confirmation of Obligation" was first entered into between SIP and/or
Bacong Shipping and People's Bank, confirming and acknowledging the obligations outstanding at the time, among
which is the obligation to private respondent in the amount corresponding to the repairs in question.

Petitioner however insists on its theory based on a separate interpretation of the deed of "Confirmation of
Obligation" that on the authority granted thereunder by the seller (the previous owner), responsibility to pay the
listed obligation was not compulsory or mandatory (Record on Appeal, pp. 59- 60).

Other fundamental rules in the interpretation of contracts no less important than those already indicated are to the
effect that where the terms are doubtful, the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, Civil Code), and
if some stipulation of any contract should admit of several meanings, it shall be understood as having that import
which is most adequate to render it effectual (Art. 1373, Civil Code) and the words which may have different
significations shall be understood in that which is most in keeping with the nature and object of the contract (Art.
1375, Civil Code). The reason for these rules is that it must be presumed that the parties had intended an effective
act and not one that is impracticable or illusory (Caguioa Comments and Cases on Civil Law, p. 592,1983 Ed.).

It will be observed that the deed of "Confirmation of Obligation" is but a part or a corollary to the deeds of sale of the
three vessels. In fact, specific reference thereto was made by said deeds of sale as to the settlement of obligations,
among which are the repairs in question. Said provision in the deeds of sale reads:

Any amount or amounts that the Bank has voluntarily paid and/or has been compelled to pay, or
hereafter will voluntarily and/or will be compelled to pay for any encumbrance, claim, lien or
particular average in order to save the vessel from any legal seizure or suits by third parties, and for
any repair, supplies, provisions, accrued salaries and allotment of crew, cost of bailing out of the
vessel, and any other expenses or accounts of the said vessel, shall be for the account of Southern
and/or Bacong in accordance with their agreement preceding this conveyance executed on January
19, 1968 ...

It will be observed that the above stipulation interpreted together with the deed of "Confirmation of Obligation"
leaves no room for doubt that while the bank may indeed pay certain obligations voluntarily or by choice, there are
those that the Bank will be compelled to pay to save the vessel from any legal seizure or suits by third parties. In
other words, the primary purpose of the contracts is the protection of the vessels. Among them are liens on the
same under which the obligation to private respondent properly belongs.

However, petitioner contends that assuming that such obligations are liens on said vessels, they are deemed to
have been waived and discharged when respondent released and delivered said vessels to GACET and/or
Interocean which ordered said repairs prior to their sale and conveyance to petitioner (Rollo, p. 117).

Such contention is untenable.

It will be recalled that private respondent was paid the sum of P18,141.75 and for the balance of P62,095.95
Interocean issued three checks. Under the circumstances, private respondent has no basis or necessity at that time
to exercise his right of retention under Art. 1731 of the Civil Code. The fact that later said checks were dishonored,
as correctly argued by private respondent, cannot give validity to petitioner's argument that the former has waived or
abandoned his liens on the vessels. To pursue such view would put a premium on an act of deception which led
private respondent to believe that he will be fully paid. Furthermore, when the checks were dishonored, it was
impossible for private respondent to enforce his lien because the vessels were already in Japan, outside the
territorial jurisdiction of the Philippine courts (Brief for Plaintiff-Appellee, p. 19, Rollo, p. 128).
In view of the foregoing facts, it was aptly stated by the trial court and affirmed by the Court of Appeals that when
the parties executed the deed of "Confirmation of Obligation" they really intended to confirm and acknowledge the
existing obligations for the purpose of the buyer assuming liability therefor and charging them to the seller after
proper accounting, verification and set offs have been made. Indeed, there is merit in the trial court's view that if
there was no intention on the part of People's Bank (now Bank of P.I., to assume responsibility y for these
obligations at the time of the sale of the si it vessels, there is no sense in executing said Deed of Confirmation
together with the deeds of sale and the stipulations thereunder would be pointless (Record on Appeal, pp. 61-62,
Annex "C", Rollo, P. 33).

Finally, it is indisputable that the repairs made on the vessels ultimately redounded to the benefit of the new owner
for without said repairs, those vessels would not be seaworthy. Under Art. 2142 of the Civil Code, such acts "give
rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another."

WHEREFORE, the petition is Denied and the decision appealed from is hereby AFFIRMED.

SO ORDERED.