SECOND DIVISION
[ G.R. No. 124922, June 22, 1998 ]
JIMMY CO, DOING BUSINESS UNDER THE NAME & STYLE DRAGON METAL MANUFACTURING, PETITIONER, VS. COURT OF APPEALS AND BROADWAY MOTOR SALES CORPORATION, RESPONDENTS.
D E C I S I O N
MARTINEZ, J.:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model[1] to private respondent - which is engaged in the sale, distribution and repair of motor vehicles - for the following job repair services and supply of parts:
- Bleed injection pump and all nozzles;
- Adjust valve tappet;
- Change oil and filter;
- Open up and service four wheel brakes, clean and adjust;
- Lubricate accelerator linkages;
- Replace aircon belt; and
- Replace battery[2]
Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. After petitioner paid in full the repair bill in the amount of P1,397.00,[3] private respondent issued to him a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by private respondent’s employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident was reported to the police.
Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against private respondent anchoring his claim on the latter’s alleged negligence. For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous event - the carnapping. During pre-trial, the parties agreed that:
“(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the defendant is P332,500.00 excluding accessories which were installed in the vehicle by the plaintiff consisting of four (4) brand new tires, magwheels, stereo speaker, amplifier which amount all in all to P20,000.00. It is agreed that the vehicle was lost on July 24, 1990 `approximately two (2) years and five (5) months from the date of the purchase.’ It was agreed that the plaintiff paid the defendant the cost of service and repairs as early as July 21, 1990 in the amount of P1,397.00 which amount was received and duly receipted by the defendant company. It was also agreed that the present value of a brand new vehicle of the same type at this time is P425,000.00 without accessories.”[4]
They likewise agreed that the sole issue for trial was who between the parties shall bear the loss of the vehicle which necessitates the resolution of whether private respondent was indeed negligent.[5] After trial, the court a quo found private respondent guilty of delay in the performance of its obligation and held it liable to petitioner for the value of the lost vehicle and its accessories plus interest and attorney’s fees.[6] On appeal, the Court of Appeals (CA) reversed the ruling of the lower court and ordered the dismissal of petitioner’s damage suit.[7] The CA ruled that: (1) the trial court was limited to resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on the issue of delay; and (2) the vehicle was lost due to a fortuitous event.
In a petition for review to this Court, the principal query raised is whether a repair shop can be held liable for the loss of a customer’s vehicle while the same is in its custody for repair or other job services?
The Court resolves the query in favor of the customer. First, on the technical aspect involved. Contrary to the CA’s pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other issues on appeal, except those that may involve privilege or impeaching matter,[8] is inapplicable to this case. The question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i.e. who will bear the loss and whether there was negligence. Petitioner’s imputation of negligence to private respondent is premised on delay which is the very basis of the former’s complaint. Thus, it was unavoidable for the court to resolve the case, particularly the question of negligence without considering whether private respondent was guilty of delay in the performance of its obligation.
On the merits. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another’s rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another’s property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation.[9] In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it[10]- which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to established the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties’ agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.
Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165[11] of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner’s car three (3) days before it was lost. Petitioner’s agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot be construed as waiver of petitioner’s right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it.
Assuming further that there was no delay, still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault.[12] This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent’s possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances - earthquake, flood, storm or other natural calamity - when the presumption of fault is not applicable[13] do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions, private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if “the nature of the obligation requires the assumption of risk”.[14] Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI)[15] and to secure an insurance policy for the “shop covering the property entrusted by its customer for repair, service or maintenance” as a pre-requisite for such registration/accreditation.[16] Violation of this statutory duty constitutes negligence per se.[17] Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he loses immediate control. An owner who cannot exercise the seven (7) juses or attributes of ownership – the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate and to the fruits -[18] is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent’s repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies.
One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it should be based on the fair market value that the property would command at the time it was entrusted to it or such other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other damages that a claimant is entitled under applicable laws.
WHEREFORE, premises considered, the decision of the Court Appeals is REVERSED and SET ASIDE and the decision of the court a quo is REINSTATED.
SO ORDERED.
Regalado (Chairman), Melo, Puno and Mendoza, JJ. concur.
[1] Registered in the name of petitioner with Plate No. PJK-666.
[2] Rollo, p. 81.
[3] Covered by CBC Receipt No. 691148; Rollo, p. 10.
[4] Rollo, pp. 28-29.
[5] Rollo, p. 29.
[6] The dispositive portion of the trial court’s decision reads:
“Accordingly, this Court finds the defendant liable to the plaintiff for the value of the vehicle in question. Defendant is ordered to pay plaintiff the value of the vehicle in the amount of Three Hundred Thirty Two Thousand Five Hundred Pesos representing the acquisition cost of the vehicle plus the amount of Twenty Thousand Pesos representing the cost of the four brand new tires, magwheels, pioneer stereo, speakers, air-conditioner, which were installed by the plaintiff in his vehicle after the plaintiff bought the vehicle from the defendant. While it is true that plaintiff purchased from the defendant the vehicle about two years and five months before the same was lost, and therefore the vehicle had already depreciated from its original value at the time it was lost, it is also true as agreed upon by the parties in the pre-trial, that the present value of a brand new vehicle of the same type has at this time increased to Four Hundred Thousand Pesos without accessories, so whatever is awarded by this Court to the plaintiff in this decision would not even be sufficient to purchase a brand new vehicle at the present prices. This Court believes that the amount awarded to the plaintiff above-stated represents a fair compromise, considering the depreciation of the vehicle from the time it was purchased and to the time it was lost and which is off-seated by the increase cost of a brand new vehicle at the present time. Defendant is likewise ordered to pay plaintiff legal interest in the amount above-stated from the date of the finality of this decision until full payment of the obligation. Further, defendant is ordered to pay plaintiff Ten Thousand Pesos by attorney’s fees.” (sic was not included so as not to clutter the narration); Rollo, pp. 78, 94.
[7] CA Decision promulgated August 31, 1995 penned by Justice Austria-Martinez with Justices Lantin and Salas, concurring; Rollo, pp. 26-32.
[8] Caltex v. CA, 212 SCRA 448; Bergado v. CA, 173 SCRA 497 citing Permanent Concrete Products, Inc. v. Teodoro, 26 SCRA 332. In the Bergado case (p. 501), the court reiterated the rule that the specific exceptions to the general rule to be observed in pre-trials emphasized in Gicano v. Gegato, 157 SCRA 140 is “that trial courts have authority and discretion to dismiss an action on the ground of prescription when the parties’ pleadings or other facts on record show it to be indeed time-barred; and it may do so on the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense; or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration; or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings, or where a defendant had been declared in default. What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiff’s, or otherwise established by the evidence."
[9] Lasam v. Smith, 45 Phil. 657; General Enterprises, Inc., v. Llianga Bay Logging Co., Inc., 120 Phil. 702; Tugade v. CA, 85 SCRA 226.
[10] Section 1, Rule 131, 1989 Revised Rules on Evidence provides: “Burden of proof. - Burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required by law.” (Italics supplied).
[11] Article 1165. x x x x x x x x x
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for fortuitous event until he has effected the delivery. (Italics supplied).
[12] Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of Article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (Italics supplied).
[13] New Civil Code, Article 1265.
[14] Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.”
Article 1262. x x x x x x x x x
When by law or stipulation, the obligor is liable even for fortuitous event, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (Italics supplied).
[15] P.D. 1572 (EMPOWERING THE SECRETARY OF TRADE TO REGULATE AND CONTROL THE OPERATION OF SERVICE AND REPAIR ENTERPRISES FOR MOTOR VEHICLES, HEAVY EQUIPMENT AND ENGINES AND ENGINEERING WORKS; ELECTRONICS, ELECTRICAL, AIRCONDITIONING AND REFRIGERATION; OFFICE EQUIPMENT; MEDICAL AND DENTAL EQUIPMENT; AND OTHER CONSUMER MECHANICAL AND INDUSTRIAL EQUIPMENT; APPLIANCES OR DEVICES, INCLUDING THE TECHNICAL PERSONNEL EMPLOYED THEREIN).
Section 1. Accreditation. All enterprises and technical personnel employed therein engaged in the service and repair of motor vehicles, heavy equipment, engines and engineering works; electronics, electrical, air-conditioning and refrigeration; office equipment; medical and dental equipment; and other consumer industrial electro-mechanical, chemical and gaseous equipment, machinery, appliances or devices should Apply for accreditation with the Department of Trade within ninety (90) days from the promulgation of this decree and should apply for renewal on or before the 31st day of January of every year thereafter. No such service or repair enterprises and technical personnel shall be licensed or permitted to operate in the Philippines for the first time without first being accredited by the Department of Trade.
[16] DTI Ministry Order No. 32, Rule III
“Section 1. REQUIREMENTS FOR ACCREDITATION:
(1) Enterprise applying for original accreditation shall submit the following:
1.1 List of machineries/equipment/tools in useful condition;
1.2 List of certified engineers/accredited technicians mechanics with their personal data;
1.3 Copy of Insurance Policy of the shop covering the property entrusted by its customer for repair, service or maintenance together with a copy of the official receipt covering the full payment of premium;
1.4 Copy of Bond referred to under Section 7, Rule III of this Rules and Regulations;
1.5 Written service warranty in the form prescribed by the Bureau;
1.6 Certificate issued by the Securities and Exchange Commission and Articles of Incorporation or Partnership in case of corporation or partnership;
1.7 Such other additional documents which the director may require from time to time.
Section 8. INSURANCE POLICY
The insurance policy for the following risks like theft, pilferage, fire, flood and loss should cover exclusively the machines, motor vehicles, heavy equipment, engines, electronics, electrical, airconditioners, refrigerators, office machines, and data processing equipment, medical and dental equipment, other consumer mechanical and industrial equipment stored for repair and/or in the premises of the applicant.” (Italics supplied).
[17] Cipriano v. CA, 263 SCRA 711 citing F.F. Cruz and Co., Inc. v. CA, 164 SCRA 731 and Teague v. Fernandez, 51 SCRA 181.
[18] Paras, Civil Code of the Philippines, Annotated, 1989 ed., vol. II, p. 70; De Leon, Comments and Cases on Property, 1993 ed. p. 77; See also Article 428 of the New Civil Code which states that “The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law.
“The owner has also a right of action against the holder and possessor of the thing in order to recover it.”
Source: Supreme Court E-Library | Date created: 2010-01-15 10:28:05
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SPECIAL FIRST DIVISION
[ G.R. No. 167330, September 18, 2009 ]
PHILIPPINE HEALTH CARE PROVIDERS, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
R E S O L U T I O N
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to provide free medical care to paupers.[1]
For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc.[2]
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He claimed that petitioner's health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner's health care agreement was in the nature of a non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA's decision. We held that petitioner's health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares[3] and Philamcare Health Systems, Inc. v. CA.[4] We also ruled that petitioner's contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration, asserting the following arguments:
| (a) | The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an insurance company. |
| (b) | The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA's disposition that health care services are not in the nature of an insurance business. |
| (c) | Section 185 should be strictly construed. |
| (d) | Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light of the amendments made in the DST law in 2002. |
| (e) | Assuming arguendo that petitioner's agreements are contracts of indemnity, they are not those contemplated under Section 185. |
| (f) | Assuming arguendo that petitioner's agreements are akin to health insurance, health insurance is not covered by Section 185. |
| (g) | The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185. |
| (h) | The June 12, 2008 decision should only apply prospectively. |
| (i) | Petitioner availed of the tax amnesty benefits under RA[5] 9480 for the taxable year 2005 and all prior years. Therefore, the questioned assessments on the DST are now rendered moot and academic.[6] |
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 9480[7] (also known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.[8]
We find merit in petitioner's motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987.[9] It is engaged in the dispensation of the following medical services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet, exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on the part of the enrolled member.[10]
Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis. The medical services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner, through physicians, medical and dental practitioners under contract with it. It negotiates with such health care practitioners regarding payment schemes, financing and other procedures for the delivery of health services. Except in cases of emergency, the professional services are to be provided only by petitioner's physicians, i.e. those directly employed by it[11] or whose services are contracted by it.[12] Petitioner also provides hospital services such as room and board accommodation, laboratory services, operating rooms, x-ray facilities and general nursing care.[13] If and when a member avails of the benefits under the agreement, petitioner pays the participating physicians and other health care providers for the services rendered, at pre-agreed rates.[14]
To avail of petitioner's health care programs, the individual members are required to sign and execute a standard health care agreement embodying the terms and conditions for the provision of the health care services. The same agreement contains the various health care services that can be engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect of the medical service offered, the enrolled member may actually make use of the health care services being offered by petitioner at any time.
HEALTH MAINTENANCE ORGANIZATIONS
ARE NOT ENGAGED IN THE INSURANCE BUSINESS
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege, opportunity or facility used in the transaction of the business.[15]
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements.[16]
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders every word operative is preferred over that which makes some words idle and nugatory.[17] This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the whole of the statute - its every word.[18]
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium."[19] The payments do not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD[20] 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance business" or "transacting an insurance business:"
| a) | making or proposing to make, as insurer, any insurance contract; |
| b) | making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; |
| c) | doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; |
| d) | doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. |
In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,[21] have determined that HMOs are not in the insurance business. One test that they have applied is whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test,"[22] there is significant American case law supporting the argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the members of a group with health services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association[23] wherein the Court of Appeals of the District of Columbia Circuit held that Group Health Association should not be considered as engaged in insurance activities since it was created primarily for the distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Health's activities may be considered in one aspect as creating security against loss from illness or accident more truly they constitute the quantity purchase of well-rounded, continuous medical service by its members. xxx The functions of such an organization are not identical with those of insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the consequences of its descent, not with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is predominant. On the other hand, the cooperative is concerned principally with getting service rendered to its members and doing so at lower prices made possible by quantity purchasing and economies in operation. Its primary purpose is to reduce the cost rather than the risk of medical care; to broaden the service to the individual in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss caused by extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and unusual illness. To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing of physician and patient together, the preventive features, the regularization of service as well as payment, the substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not, except incidentally to these features, the indemnification for cost after the services is rendered. Except the last, these are not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a substantial difference between contracting in this way for the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If attention is focused only on that feature, the line between insurance or indemnity and other types of legal arrangement and economic function becomes faint, if not extinct. This is especially true when the contract is for the sale of goods or services on contingency. But obviously it was not the purpose of the insurance statutes to regulate all arrangements for assumption or distribution of risk. That view would cause them to engulf practically all contracts, particularly conditional sales and contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion of all others present or their subordination to it. The question turns, not on whether risk is involved or assumed, but on whether that or something else to which it is related in the particular plan is its principal object purpose.[24] (Emphasis supplied)
In California Physicians' Service v. Garrison,[25] the California court felt that, after scrutinizing the plan of operation as a whole of the corporation, it was service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance business. Absence or presence of assumption of risk or peril is not the sole test to be applied in determining its status. The question, more broadly, is whether, looking at the plan of operation as a whole, `service' rather than `indemnity' is its principal object and purpose. Certainly the objects and purposes of the corporation organized and maintained by the California physicians have a wide scope in the field of social service. Probably there is no more impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of small income. The medical profession unitedly is endeavoring to meet that need. Unquestionably this is `service' of a high order and not `indemnity.'[26] (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey[27] is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide prepaid medical services through participating physicians, thus relieving subscribers of any further financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service corporation's plan, not only will the subscribers be deprived of the protection which they might reasonably have expected would be provided, but the corporation will, in effect, be doing business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial requirements of the General Insurance Laws....
A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract issued by health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider.[28] (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed, with payment made directly to the provider of these services.[29] In short, even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of emergency by non-participating health providers would still be incidental to petitioner's purpose of providing and arranging for health care services and does not transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set up a system and the facilities for the delivery of such medical services. This indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioner's services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases.[30] As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent such loss or damage.[31]
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect of petitioner's business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are not saying that petitioner's operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. What we are stating is that, for the purpose of determining what "doing an insurance business" means, we have to scrutinize the operations of the business as a whole and not its mere components. This is of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American authorities who have found particular HMOs to be actually engaged in insurance activities.[32]
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not supervised by the Insurance Commission but by the Department of Health.[33] In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:[34]
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,[35] the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to the government agency officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret.[36]
A Health Care Agreement Is Not An
Insurance Contract Contemplated
Under Section 185 Of The NIRC of
1997
Section 185 states that DST is imposed on "all policies of insurance... or obligations of the nature of indemnity for loss, damage, or liability...." In our decision dated June 12, 2008, we ruled that petitioner's health care agreements are contracts of indemnity and are therefore insurance contracts:
It is ... incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical consultations, vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of the member to liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program. This is insurance.[37]
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing authority.[38] This is because taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government.[39] Hence, tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided.[40]
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly against the HMO. For this reason, we reconsider our ruling that Blue Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur:
- The insured has an insurable interest;
- The insured is subject to a risk of loss by the happening of the designed peril;
- The insurer assumes the risk;
- Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk and
- In consideration of the insurer's promise, the insured pays a premium.[41]
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an insurance contract. The primary purpose of the parties in making the contract may negate the existence of an insurance contract. For example, a law firm which enters into contracts with clients whereby in consideration of periodical payments, it promises to represent such clients in all suits for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. Unlike the lawyer's retainer contract, the essential purpose of such a contract is not to render personal services, but to indemnify against loss and damage resulting from the defense of actions for malpractice.[42] (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner's agreements. To begin with, there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined consideration in exchange for the hospital, medical and professional services rendered by the petitioner's physician or affiliated physician to him. In case of availment by a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter does not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care providers for the services rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the member to any third party-provider of medical services which might in turn necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. There is no indemnity precisely because the member merely avails of medical services to be paid or already paid in advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations, vaccine administration as well as family planning counseling, even in the absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-participating physician or hospital. However, this is only a very minor part of the list of services available. The assumption of the expense by petitioner is not confined to the happening of a contingency but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,[43] although the health care contracts called for the defendant to partially reimburse a subscriber for treatment received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined that "the primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of prepayment for such services."[44] Since indemnity of the insured was not the focal point of the agreement but the extension of medical services to the member at an affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the insured.[45]
However, assuming that petitioner's commitment to provide medical services to its members can be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an insurance contract because petitioner's objective is to provide medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner's agreements with its members leads us to conclude that it is not an insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To
Impose DST On Health Care
Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioner's health care agreements under Section 185 of the NIRC of 1997 is the provision's legislative history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements were not even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904")[46] enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates of stock and indebtedness, and other documents, instruments, matters, and things mentioned and described in this section, or for or in respect to the vellum, parchment, or paper upon which such instrument, matters, or things or any of them shall be written or printed by any person or persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and five, the several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or liability made or renewed by any person, association, company, or corporation transacting the business of accident, fidelity, employer's liability, plate glass, steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed and exclusive enumeration of items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was again increased.
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as Section 198. And under Section 23 of EO[47] 273 dated July 25, 1987, it was again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal provision was retained as the present Section 185. In 2004, amendments to the DST provisions were introduced by RA 9243[48] but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a total enrollment of more than 2 million.[49]
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various amendments to the DST law were enacted, they were already in existence in the Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of the legislature to impose DST on health care agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the business as an HMO.[50]
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health care agreements were never, at any time, recognized as insurance contracts or deemed engaged in the business of insurance within the context of the provision.
THE POWER TO TAX IS NOT
THE POWER TO DESTROY
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who is to pay it.[51] So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy."[52]
Petitioner claims that the assessed DST to date which amounts to P376 million[53] is way beyond its net worth of P259 million.[54] Respondent never disputed these assertions. Given the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of the government to throttle private business. On the contrary, the government ought to encourage private enterprise.[55] Petitioner, just like any concern organized for a lawful economic activity, has a right to maintain a legitimate business.[56] As aptly held in Roxas, et al. v. CTA, et al.:[57]
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."[58]
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a tax imposition may be an acceptable consequence but killing the business of an entity is another matter and should not be allowed. It is counter-productive and ultimately subversive of the nation's thrust towards a better economy which will ultimately benefit the majority of our people.[59]
PETITIONER'S TAX LIABILITY
WAS EXTINGUISHED UNDER
THE PROVISIONS OF RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot and academic[60] when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paid P5,127,149.08 representing 5% of its net worth as of the year ended December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.[61]
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax involved, including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioner's availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission, however, is not meant to preclude a revocation of the amnesty granted in case it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said amnesty law.[62] (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480.[63] There is no other conclusion to draw than that petitioner's liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute
Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the CA[64] in CIR v. Philippine National Bank[65] that a health care agreement of Philamcare Health Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal in Philippine National Bank (G.R. No. 148680).[66] Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the Court should apply the CA ruling there that a health care agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final.[67] When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained.[68] But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata.[69] However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,[70] the Court noted that a previous case, CIR v. Baier-Nickel[71] involving the same parties and the same issues, was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter case because the two cases involved different subject matters as they were concerned with the taxable income of different taxable years.[72]
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.[73] Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner's liability for DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is not even binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this does not detract in any way from the fact that petitioner's health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the average wage earner can afford. HMOs arrange, organize and manage health care treatment in the furtherance of the goal of providing a more efficient and inexpensive health care system made possible by quantity purchasing of services and economies of scale. They offer advantages over the pay-for-service system (wherein individuals are charged a fee each time they receive medical services), including the ability to control costs. They protect their members from exposure to the high cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they play an important role in society as partners of the State in achieving its constitutional mandate of providing its citizens with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.[74] Its imposition will elevate the cost of health care services. This will in turn necessitate an increase in the membership fees, resulting in either placing health services beyond the reach of the ordinary wage earner or driving the industry to the ground. At the end of the day, neither side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.
Puno, C.J., (Chairperson), Chico-Nazario,* Leonardo-De Castro and Bersamin, JJ., **concur.
* Per Special Order No. 698 dated September 4, 2009.
** Additional member per raffle list of 13 April 2009.
[1] 1987 Constitution.
[2] Now known as Maxicare Healthcare Corp. Rollo, p. 293.
[3] G.R. No. 169737, 12 February 2008, 544 SCRA 580.
[4] 429 Phil. 82 (2002).
[5] Republic Act.
[6] Rollo, pp. 257-258.
[7] Entitled "An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2005 and Prior Years."
[8] Rollo, p. 288.
[9] Id., p. 591.
[10] Id., pp. 592, 613.
[11] This is called the Staff Model, i.e., the HMO employs salaried health care professionals to provide health care services. (Id., pp. 268, 271.)
[12] This is referred to as the Group Practice Model wherein the HMO contracts with a private practice group to provide health services to its members. (Id., pp. 268, 271, 592.) Thus, it is both a service provider and a service contractor. It is a service provider when it directly provides the health care services through its salaried employees. It is a service contractor when it contracts with third parties for the delivery of health services to its members.
[13] Id., p. 102.
[14] Id., p. 280.
[15] Decision, p. 422.
[16] Rollo, p. 265.
[17] Allied Banking Corporation v. Court of Appeals, G.R. No. 124290, 16 January 1998, 284 SCRA 327, 367, citing Shimonek v. Tillanan, 1 P. 2d., 154.
[18] Inding v. Sandiganbayan, G.R. No. 143047, 14 July 2004, 434 SCRA 388, 403.
[19] Section 4 (o) (3) thereof. Under this law, it is one of the classes of a "health care provider."
[20] Presidential Decree.
[21] Our Insurance Code was based on California and New York laws. When a statute has been adopted from some other state or country and said statute has previously been construed by the courts of such state or country, the statute is deemed to have been adopted with the construction given. (Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc., G.R. No. 151890, 20 June 2006, 491 SCRA 411, 439; Constantino v. Asia Life Inc. Co., 87 Phil. 248, 251 [1950]; Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, 59 [1925]; Cerezo v. Atlantic, Gulf & Pacific Co., 33 Phil. 425, 428-429 [1916]).
[22] H. S. de Leon, The Insurance Code of the Philippines Annotated, p. 56 (2002 ed.).
[23] 107 F.2d 239 (D.C. App. 1939). This is a seminal case which had been reiterated in succeeding cases, e.g. Smith v. Reserve Nat'l Ins. Co., 370 So. 2d 186 ( La. Ct. App. 3d Cir. 1979); Transportation Guarantee Co. v. Jellins, 29 Cal.2d 242, 174 P.2d 625 (1946); State v. Anderson, 195 Kan. 649, 408 P.2d 864 (1966); Commissioner of Banking and Insurance v. Community Health Service, 129 N.J.L. 427, 30 A.2d 44 (1943).
[24] Id., pp. 247-248.
[25] 28 Cal. 2d 790 (1946).
[26] Id., p. 809.
[27] 345 N.J. Super. 410, 785 A.2d 457 (2001);< http://lawlibrary.rutgers.edu/courts/appellate/a1562-00.opn.html> (visited July 14, 2009).
[28] Id., citing Group Health Ins. of N.J. v. Howell, 40 N.J.436, 451 (1963).
[29] L.R. Russ and S.F. Segalla, 1 Couch on Ins. § 1:46 (3rd ed., December 2008).
[30] This involves the determination of a medical condition (such as a disease) by physical examination or by study of its symptoms (Rollo, p. 613, citing Black's Law Dictionary, p. 484 [8th ed.]).
[31] Rollo, pp. 612-613.
[32] One such decision of the United States Supreme Court is Rush Prudential HMO, Inc. v. Moran (536 U.S. 355 [2002]). In that case, the Court recognized that HMOs provide both insurance and health care services and that Congress has understood the insurance aspects of HMOs since the passage of the HMO Act of 1973. This case is not applicable here. Firstly, this was not a tax case. Secondly, the Court stated that Congress expressly understood and viewed HMOs as insurers. It is not the same here in the Philippines. As will be discussed below, there is no showing that the Philippine Congress had demonstrated an awareness of HMOs as insurers.
[33] See Executive Order No. 119 (1987) and Administrative Order (AO) No. 34 (1994), as amended by AO No. 36 (1996).
[34] G.R. No. 86738, 13 November 1991, 203 SCRA 504.
[35] 140 Phil. 20 (1969).
[36] Supra note 34, pp. 510-511.
[37] Decision, pp. 420-421.
[38] Commissioner of Internal Revenue v. Solidbank Corporation, G.R. No. 148191, 25 November 2003, 416 SCRA 436, citing Miller v. Illinois Cent. R Co., Ill. So. 559, 28 February 1927.
[39] Paseo Realty & Development Corporation v. Court of Appeals, G.R. No. 119286, 13 October 2004, 440 SCRA 235, 251.
[40] Collector of Int. Rev. v. La Tondeña, Inc. and CTA, 115 Phil. 841, 846 (1963).
[41] Gulf Resorts, Inc. v. Philippine Charter Insurance Corporation, G.R. No. 156167, 16 May 2005, 458 SCRA 550, 566, citations omitted.
[42] M. C. L. Campos, Insurance, pp. 17-18 (1983), citing Physicians' Defense Co. v. O'Brien, 100 Minn. 490, 111 N.W. 397 (1907).
[43] 438 N.W.2d 350. (Mich. Ct. App. 1989).
[44] Id., p. 354.
[45] Rollo, p. 702, citing Phillip, Booth et al., Modern Actuarial Theory and Practice (2005).
[46] Entitled "An Act to Provide for the Support of the Insular, Provincial and Municipal Governments, by Internal Taxation."
[47] Executive Order No.
[48] An Act Rationalizing the Provisions of the DST of the NIRC of 1997, as amended, and for other purposes.
[49] Rollo, pp. 589, 591, citing
[51] MCIAA v. Marcos, 330 Phil. 392, 404 (1996).
[52] United States Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4 Wheat, 316, 4 L ed. 579, 607 (1819).
[53] Inclusive of penalties.
[54] Rollo, p. 589.
[55] Manila Railroad Company v. A. L. Ammen Transportation Co., Inc., 48 Phil. 900, 907 (1926).
[56] Constitution, Section 3, Article XIII on Social Justice and Human Rights reads as follows:
Section 3. xxx
The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable return on investments, and to expansion and growth. (Emphasis supplied)
[57] 131 Phil. 773 (1968).
[58] Id., pp. 780-781.
[59] Manatad v. Philippine Telegraph and Telephone Corporation, G.R. No. 172363, 7 March 2008, 548 SCRA 64, 80.
[60] Rollo, p. 661.
[61] Id., pp. 260-261.
[62] Id., p. 742.
[63] Philippine Banking Corporation v. CIR, G.R. No. 170574, 30 January 2009.
[64] CA-G.R. SP No. 53301, 18 June 2001.
[65] G.R. No. 148680.
[66] The dismissal was due to the failure of petitioner therein to attach a certified true copy of the assailed decision.
[67] Del Rosario v. Sandiganbayan, G.R. No. 143419, 22 June 2006, 492 SCRA 170, 177.
[68] Complaint of Mr. Aurelio Indencia Arrienda Against SC Justices Puno, Kapunan, Pardo, Ynares-Santiago, et al., A.M. No. 03-11-30-SC, 9 June 2005, 460 SCRA 1, 14, citing Tan v. Nitafan, G.R. No. 76965, 11 March 1994, 231 SCRA 129; Republic v. CA, 381 Phil. 558, 565 (2000), citing Bernarte, et al. v. Court of Appeals, et al., 331 Phil. 643, 659 (1996).
[69] See Bernarte, et al. v. Court of Appeals, et al., id., p. 567.
[70] G.R. No. 153793, 29 August 2006, 500 SCRA 87.
[71] Extended Resolution, G.R. No. 156305, 17 February 2003.
[72] Supra note 70, p. 102. G.R. No. 156305 referred to the income of Baier-Nickel for taxable year 1994 while G.R. No. 153793 pertained to Baier-Nickel's income in 1995.
[73] Section 4. xxx
(3) Cases or matters heard by a Division shall be decided or resolved with the concurrence of a majority of the members who actually took part in the deliberation on the issues in the case and voted thereon, and in no case, without the concurrence of at least three of such members. When the required number is not obtained, the case shall be decided En Banc: Provided, that no doctrine or principle of law laid down by the Court in a decision rendered En Banc or in Division may be modified or reversed except by the Court sitting En Banc. (Emphasis supplied)
[74] That is, fifty centavos (P0.50) on each four pesos (P4.00), or a fractional part thereof, of the premium charged.
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[ G.R. No. 181206, October 09, 2009 ]
MEGAWORLD GLOBUS ASIA, INC., PETITIONER, VS. MILA S. TANSECO, RESPONDENT.
D E C I S I O N
CARPIO MORALES, J.:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell[1] a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:
4. CONSTRUCTION SCHEDULE - The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances, government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending delivery of the unit.[2] Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.[3] Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld's failure to deliver the unit on time, she was demanding the return of P14,281,731.70 representing the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none of the excepted causes of delay existed.[4]
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Board's (HLURB) Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund of payment, and damages.[5]
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover.[6]
By Decision of May 28, 2003,[7] the HLURB Arbiter dismissed Tanseco's complaint for lack of cause of action, finding that Megaworld had effected delivery by the notice of turnover before Tanseco made a demand. Tanseco was thereupon ordered to pay Megaworld the balance of the purchase price, plus P25,000 as moral damages, P25,000 as exemplary damages, and P25,000 as attorney's fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28, 2003,[8] sustained the HLURB Arbiter's Decision on the ground of laches for failure to demand rescission when the right thereto accrued. It deleted the award of damages, however. Tanseco's Motion for Reconsideration having been denied,[9] she appealed to the Office of the President which dismissed the appeal by Decision of April 28, 2006[10] for failure to show that the findings of the HLURB were tainted with grave abuse of discretion. Her Motion for Reconsideration having been denied by Resolution dated August 30, 2006,[11] Tanseco filed a Petition for Review under Rule 43 with the Court of Appeals.[12]
By Decision of September 28, 2007,[13] the appellate court granted Tanseco's petition, disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003 decision of the HLURB Field Office, the November 28, 2003 decision of the HLURB Board of Commissioners in HLURB Case No. REM-A-030711-0162, the April 28, 2006 Decision and August 30, 2006 Resolution of the Office of the President in O.P. Case No. 05-I-318, are hereby REVERSED and SET ASIDE and a new one entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid totaling P14,281,731.70 with Twelve (12%) Percent interest per annum from October 31, 1998; (3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary damages; (4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorney's fees; and (5) ORDERING MEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract, as in the herein parties' contract, states the date when the obligation should be performed; that time was of the essence because Tanseco relied on Megaworld's promise of timely delivery when she agreed to part with her money; that the delay should be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as the right to choose the remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of Megaworld in forcing her to accept its long-delayed delivery; and attorney's fees, she having been compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by Resolution of January 8, 2008,[14] Megaworld filed the present Petition for Review on Certiorari, echoing its position before the HLURB, adding that Tanseco had not shown any basis for the award of damages and attorney's fees.[15]
Tanseco, on the other hand, maintained her position too, and citing Megaworld's bad faith which became evident when it insisted on making the delivery despite the long delay,[16] insisted that she deserved the award of damages and attorney's fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor.[17]
That Megaworld's sending of a notice of turnover preceded Tanseco's demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.[18]
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito.[19] Megaworld's excuse for its delay does not thus lie.
As for Megaworld's argument that Tanseco's claim is considered barred by laches on account of her belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by equitable considerations.[20] It bears noting that Tanseco religiously paid all the installments due up to January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco.
Pursuant to Section 23 of Presidential Decree No. 957[21] which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests> but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring supplied),
Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld.
While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be 6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the time this judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.[22]
The award of P200,000 attorney's fees and of costs of suit is in order too, the parties having stipulated in the Contract to Buy and Sell that these shall be borne by the losing party in a suit based thereon,[23] not to mention that Tanseco was compelled to retain the services of counsel to protect her interest. And so is the award of exemplary damages. With pre-selling ventures mushrooming in the metropolis, there is an increasing need to correct the insidious practice of real estate companies of proffering all sorts of empty promises to entice innocent buyers and ensure the profitability of their projects.
The Court finds the appellate court's award of P200,000 as exemplary damages excessive, however. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.[24] The Court finds that P100,000 is reasonable in this case.
Finally, since Article 1191[25] of the Civil Code does not apply to a contract to buy and sell, the suspensive condition of full payment of the purchase price not having occurred to trigger the obligation to convey title, cancellation, not rescission, of the contract is thus the correct remedy in the premises.[26]
WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED with MODIFICATION.
As modified, the dispositive portion of the Decision reads:
The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld Globus Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount of P14,281,731.70, to bear 6% interest per annum starting May 6, 2002 and 12% interest per annum from the time the judgment becomes final and executory; and to pay P200,000 attorney's fees, P100,000 exemplary damages, and costs of suit.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
RENATO C. CORONA
Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
ARTURO D. BRION
Associate Justice
ROBERTO A. ABAD
Associate Justice
* Additional member per Special Order No. 718 dated October 2, 2009.
** Designated Acting Chairperson per Special Order No. 690 dated September 4, 2009.
*** Additional member per Special Order No. 730 dated October 5, 2009.
[1] HLURB records, pp. 164-169.
[2] Id. at 148-163.
[3] Id. at 22.
[4] Id. at 146-147.
[5] Id. at 13-19.
[6] Id. at 24-31.
[7] Id. at 136-139.
[8] Id. at 247-250.
[9] Id. at 304-305.
[10] Rollo, pp. 260-263.
[11] Id. at 264.
[12] CA rollo, pp. 8-55.
[13] Penned by Associate Justice Vicente Q. Roxas, with the concurrence of Associate Justices Josefina Guevara-Salonga and Ramon R. Garcia; CA rollo, pp. 692-714.
[14] Id. at 816.
[15] Vide Petition, rollo, pp. 29-74.
[16] Vide Comment, id. at 432-465.
[17] Vide Leaño v. Court of Appeals, 420 Phil. 836, 848 (2001). Article 1170 of the Civil Code provides:
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.
[18] Mondragon Leisure and Resorts Corporation v. Court of Appeals, 499 Phil. 268, 279 (2005).
[19] Fil-Estate Properties, Inc., v. Go, G.R. No. 165164, August 17, 2007, 530 SCRA 621, 628.
[20] Heirs of Tranquilino Labiste v. Heirs of Jose Labiste, G.R. No. 162033, May 8, 2009.
[21] REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS THEREOF.
[22] G.R. No. 97412, July 12, 1994, 234 SCRA 78, 96-97. The Court, in this case, suggested rules on the award of interest, viz:
x x x x
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest . . . shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
x x x x
[23] HLURB records, p. 166.
[24] Bataan Seedling Association, Inc. v. Republic of the Philippines, G.R. No. 141009, July 2, 2002, 383 SCRA 590, 600-601.
[25] Article 1191. The power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become possible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
[26] Vide Sta. Lucia Realty v. Romeo Uyecio, G.R. No. 176217, August 13, 2008, 562 SCRA 226, 234-235.
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SECOND DIVISION
[ G.R. No. 147324 and G.R. No. 147334, May 25, 2004 ]
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, PETITIONER, VS. GLOBE TELECOM, INC. (FORMERLY AND GLOBE MCKAY CABLE AND RADIO CORPORATION), RESPONDENTS.
GLOBE TELECOM, INC., PETITIONER, VS. PHILIPPINE COMMUNICATION SATELLITE CORPORATION, RESPONDENT.
D E C I S I O N
TINGA, J,:
Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.[1]
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had been engaged in the coordination of the provision of various communication facilities for the military bases of the United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were installed and configured for the exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of American companies contracted by it to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such as the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA.[2] The term of the contract was for 60 months, or five (5) years.[3] In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved.[4]
At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of the use by the US of Subic Naval Base, among others. [5] The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To express its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its desire to continue friendly relations with the government and people of the United States of America.[6]
On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US Embassy, notifying it of the Philippines’ termination of the RP-US Military Bases Agreement. The Note Verbale stated that since the RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall mean circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that “we expect [Globe] to know its commitment to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of the earth station after November 08, 1992.”[7] Philcomsat referred to Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination. Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the earth station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as may be agreed upon by the parties.[8]
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorney’s fees and costs of suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non- ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
- Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate prevailing at the time of compliance or payment) representing rentals for the month of December 1992 with interest thereon at the legal rate of twelve percent (12%) per annum starting December 1992 until the amount is fully paid;
- Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300,000.00) Pesos as and for attorney’s fees;
- Ordering the DISMISSAL of defendant’s counterclaim for lack of merit; and
- With costs against the defendant.
SO ORDERED.[9]
Both parties appealed the trial court’s Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements constitutes force majeure which exempts Globe from complying with its obligations under the Agreement; (2) Globe is not liable to pay the rentals for the remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for December 1992 and of attorney’s fees. It explained that it terminated Philcomsat’s services on 08 November 1992; hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that certain events constituting force majeure under Section 8 the Agreement occurred and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security, and its Supplementary Agreements, and the termination by the Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated in the Philippine Government’s Note Verbale to the US Government, are acts, directions, or requests of the Government of the Philippines which constitute force majeure. In addition, there were circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US military forces and personnel from Cubi Point, which prevented further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992.[10]
Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.
In G.R. No. 147324,[11] petitioner Philcomsat raises the following assignments of error:
- THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
- THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.
- THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURT’S AWARD OF ATTORNEY’S FEES IN FAVOR OF PHILCOMSAT.
- THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.[12]
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event because the happening thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section 8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the validity of the parties’ definition of force majeure in Section 8 of the Agreement as “circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God,” should be deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen, or which, though foreseen, were inevitable.[13]
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is inconsistent with the appellate court’s pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated Philcomsat’s services effective 08 November 1992, because the US military and personnel completely withdrew from Cubi Point only in December 1992. Philcomsat points out that it was Globe which proposed the five-year term of the Agreement, and that the other provisions of the Agreement, such as Section 4.1 [14] thereof, evince the intent of Globe to be bound to pay rentals for the entire five-year term.[15]
Philcomsat also maintains that contrary to the appellate court’s findings, it is entitled to attorney’s fees and exemplary damages.[16]
In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a contract from providing for other instances when they would be exempt from fulfilling their contractual obligations. Globe also claims that the termination of the RP- US Military Bases Agreement constitutes force majeure and exempts it from complying with its obligations under the Agreement.[17] On the issue of the propriety of awarding attorney’s fees and exemplary damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the term of the Agreement, Globe only acted in accordance with its rights.[18]
In G.R. No. 147334,[19] Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the amount of US$92,238.00, representing rentals for December 1992, since Philcomsat’s services were actually terminated on 08 November 1992.[20]
In its Comment, Philcomsat claims that Globe’s petition should be dismissed as it raises a factual issue which is not cognizable by the Court in a petition for review on certiorari. [21]
On 15 August 2001, the Court issued a Resolution giving due course to Philcomsat’s Petition in G.R. No. 147324 and required the parties to submit their respective memoranda.[22]
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by Globe in G.R. No. 147334 and required both parties to submit their memoranda.[23]
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorney’s fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsat’s argument that Section 8 of the Agreement cannot be given effect because the enumeration of events constituting force majeure therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities known to it and Globe at the time they entered into the Agreement, such events cannot exempt Globe from performing its obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an “act of God,” or natural occurrences such as floods or typhoons,[24] or an “act of man,” such as riots, strikes or wars.[25]
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure:
- Any law, order, regulation, direction or request of the Philippine Government;
- Strikes or other labor difficulties;
- Insurrection;
- Riots;
- National emergencies;
- War;
- Acts of public enemies;
- Fire, floods, typhoons or other catastrophies or acts of God;
- Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 1306[26] of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public order or public policy.[27]
Article 1159 of the Civil Code also provides that “[o]bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.”[28] Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto.[29]
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has the force of law between them.[30]
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor.[31]
The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental Agreements) under its Resolution No. 141. (Exhibit “2”) on September 16, 1991 is beyond the control of the parties. This resolution was followed by the sending on December 31, 1991 o[f] a “Note Verbale” (Exhibit “3”) by the Philippine Government to the US Government notifying the latter of the former’s termination of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all U.S. military forces from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe] received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification from ATT dated July 29, 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts, direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute “force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement.
…
From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to render the service it was obligated under the Agreement. To put it blantly (sic), since the US military forces and personnel left or withdrew from Cubi Point in the year end December 1992, there was no longer any necessity for the plaintiff to continue maintaining the IBS facility…. [32] (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSAT’s position. PHILCOMSAT would like to charge GLOBE rentals for the balance of the lease term without there being any corresponding telecommunications service subject of the lease. It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act of the government which was clearly beyond GLOBE’s control. The binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other party free therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357)….[33]
With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the Court likewise affirms the appellate court’s ruling that Globe should pay the same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject of the Agreement was not established during the trial.[34] However, the trial court found that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992.[35] Thus, until that date, the USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time. Hence, the Court of Appeals did not err when it affirmed the trial court’s ruling that Globe is liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorney’s fees and exemplary damages.
The award of attorney’s fees is the exception rather than the rule, and must be supported by factual, legal and equitable justifications.[36] In previously decided cases, the Court awarded attorney’s fees where a party acted in gross and evident bad faith in refusing to satisfy the other party’s claims and compelled the former to litigate to protect his rights;[37] when the action filed is clearly unfounded,[38] or where moral or exemplary damages are awarded. [39] However, in cases where both parties have legitimate claims against each other and no party actually prevailed, such as in the present case where the claims of both parties were sustained in part, an award of attorney’s fees would not be warranted.[40]
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. [41] In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsat’s demands for payment of rentals. It was established during the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.
Puno, J., (Chairman), on official leave.
[1] Philippine Communications Satellite Corporation v. Globe Telecom, Inc. [formerly Globe Mackay Cable and Radio Corporation]. Penned by J. Candido V. Rivera and concurred in by J. Jose L. Sabio, Jr. and J. Rebecca de Guia-Salvador.
[2] Agreement, G.R. No. 147324, Rollo, p. 65; G.R. No. 147334, Rollo, p. 79.
[3] Section 11, Agreement, Id. at 73; Id. at 87.
[4] Section 4, Agreement, Id. at 67-69; Id. at 82-83.
[5] Resolution No. 141, G.R. No. 147324, Rollo, pp. 75-78; G.R. No. 147334, Rollo, pp. 98-101.
[6] Id. at 78; Id. at 101.
[7] CA Decision, Id. at 28-29; Id. at 48-49.
[8] Id. at 71-72; Id. at 94-95.
[9] Id. at 100; Id. at 123.
[10] Id. at 25-38; Id. at 45-58.
[11] Philippine Communications Satellite Corporation, Petitioner, v. Globe Telecom (formerly Globe Mackay Cable and Radio Corporation), Respondent.
[12] G.R. No. 147324, Rollo, p. 8.
[13] Id. at 9-16.
[14] Said Section provides:
In consideration of the use of facilities and after taking into account the tax and duty free provisions under the U.S. and R.P. Military Base Agreement, GMCR [now Globe] shall pay PHILCOMSAT the following rates exclusive of space segment charges:
a) First two (2) t-1 circuits at US$ 46,119 per circuit per month;
b) Third and fourth T-1 circuits at US$ 30,333.00 per circuit per month;
c) Extension of the first two (2) T-1 circuits in (a) above, starting on the 61st month, at US$ 40,406.00 per circuit per month;
d) Extension of the third and fourth circuits in (b) above, starting on the 61st month, at US$ 22, 200.00 per circuit per month;
The above-mentioned monthly lease of circuits become due and payable within fifteen (15) days from service establishment date or availment of the service whichever comes earlier and within the fifteenth day of each month thereafter.
[15] Id. at 16-20.
[16] Id. at 20.
[17] Id. at 53-61.
[18] Id. at 61.
[19] Globe Telecom, Inc., Petitioner v. Philippine Communications Satellite Corporation, Respondent.
[20] G.R. No. 147334, Rollo, pp.36-37.
[21] Id. at 167-176.
[22] Rollo, G.R. No. 147324, pp. 116-117.
[23] Rollo, G.R. No. 147334, pp. 183-184.
[24] Black’s Law Dictionary, Seventh Edition, p. 657.
[25] Ibid.
[26] The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
[27] See Development Bank of the Philippines v. Court of Appeals, G.R. No. 137557, 30 October 2000, 344 SCRA 492; Roman Catholic Archbishop of Manila v. Court of Appeals, G.R. Nos. 77425 and 77450, 19 June 1991, 198 SCRA 300; De Luna v. Abrigo, G.R. No. 57455, 18 January 1990, 181 SCRA 150; Rocamora, et al. v. RTC- Cebu (Branch VIII), et al., G.R. No. L-65037, 23 November 1988, 167 SCRA 615; Community Savings & Loan Association, G.R. No. 75786, 31 August 1987, 153 SCRA 564.
[28] See National Sugar Trading and/or the Sugar Regulatory Administration v. Philippine National Bank, G.R. No. 151218, 28 January 2003; Pilipinas Hino, Inc. v. Court of Appeals, G.R. No. 126570, 18 August 2000, 338 SCRA 355.
[29] Heirs of Juan San Andres v. Rodriguez, G.R. No. 135634, 31 May 2000, 332 SCRA 769.
[30] Ibid.
[31] Bacolod-Murcia Milling Co., Inc. v. Hon. Court of Appeals and Gatuslao, G.R. Nos. 81100-01, 07 February 1990, 182 SCRA 24; Juan F. Nakpil & Sons v. Court of Appeals, G.R. Nos. L-47851, 47863 and 47896, 03 October 1986, 144 SCRA 596; Vasquez v. Court of Appeals, G.R. No. L-42926, 13 September 1985, 138 SCRA 553; Servando, et al. v. Philippine Steam Navigation, Co., G.R. Nos. L-36481-2, 23 October 1982, 117 SCRA 832; Austria v. Court of Appeals, G.R. No. L-29640, 10 June 1971, 39 SCRA 527; Lasam v. Smith, 45 Phil. 657 (1924).
[32] CA Decision citing RTC Decision, G.R. No. 147324, Rollo, pp. 32-33; G.R. No. 147334, Rollo, pp. 16-17.
[33] Id. at 36.
[34] See Id., at 37.
[35] RTC Decision, Id. at 99.
[36] GSIS v. Labung-Deang, G.R. No. 135644, 17 September 2001, 365 SCRA 341; SCC Chemicals Corporation v. Court of Appeals, et al., G.R. No. 128538, 28 February 2001, 353 SCRA 70; Philippine National Bank v. Court of Appeals, G.R. No. 107508, 25 April 1996, 256 SCRA 491; Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, G.R. No. 112916, 16 March 1995, 242 SCRA 393.
[37] Industrial Insurance Company, Inc. v. Bondad, G.R. No. 136722, 12 April 2000, 330 SCRA 706; Sulpicio Lines, Inc. v. Court of Appeals, G.R. No. 93291, 29 March 1999, 305 SCRA 478; Brahm Industries, Inc. v. National Labor Relations Commission, G.R. No. 118853, 16 October 1997, 280 SCRA 828.
[38] Union Motor Corporation v. Court of Appeals, G.R. No. 117187, 20 July 2001, 361 SCRA 506; Lim v. Court of Appeals, G.R. No. 118347, 24 October 1996, 263 SCRA 569.
[39] Estanislao, Jr. v. Court of Appeals, G.R. No. 143687, 30 July 2001, 362 SCRA 229.
[40] Sarmiento v. Court of Appeals, G.R. No. 110871, 02 July 1998, 291 SCRA 656.
[41] Article 2232, Civil Code.
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THIRD DIVISION
[ G.R. No. 106795, November 16, 1999 ]
STATE INVESTMENT HOUSE, INC. PETITIONER, VS. COURT OF APPEALS AND ALLIED BANKING CORPORATION, RESPONDENTS.
D E C I S I O N
GONZAGA_REYES, J.:
Petitioner State Investment House, Inc. (“SIHI”) appeals from the Decision dated June 11, 1992 and the Resolution dated August 21, 1992 rendered by the Court of Appeals in CA-G.R. SP No. 27142 entitled “Allied Banking Corp. vs. Hon. Martin S. Villarama, Jr., et al.”
SIHI is the plaintiff in Civil Case No. 59449 entitled “State Investment House, Inc. vs. Cheng Ban Yek Co., Inc. et al.”, an action for foreclosure of mortgage.
The antecedents are recited in the questioned decision as follows:
“(1) Defendant CBY is a domestic corporation engaged in the business of manufacturing edible oil bearing the brand “Baguio Oil”, and in the conduct of its business, it has incurred millions of pesos of obligations with plaintiff SIHI and many other creditors, including defendant Allied Banking Corporation (ALLIED for short) who is the creditor of SIHI in the principal amount of P10 million, exclusive of interests, service charges, penalties, and attorney’s fees.
(2) On December 28, 1982, defendant CBY , plaintiff SIHI, and other creditors of CBY entered into an Agreement for the restructuring of CBY’s existing obligations to its creditors, but excluding defendant ALLIED and several other creditors who did not sign said Agreement (pp. 72-72, Rollo).
(3) To secure the prompt and full payment of all amounts owed by CBY to its creditors who participated in said Agreement and as required thereunder, the parties thereto executed a Mortgage Indenture dated December 28, 1982 with CBY and FOUR SEAS as Mortgagors and SIHI and 15 other creditors of CBY as mortgagees involving 23 parcels of registered lands and the improvements therein (pp. 17-19, id.), which Mortagage Indenture was subsequently modified several times (pp. 19-20, id.). Moreover, as additional security to said Agreement, the parties also agreed that the Existing Comprehensive Surety Agreement previously executed by defendant Alfredo Ching would continue to subsist and that he would remain jointly and severally liable with CBY for the payment of the amounts owed by the latter to the creditors who were parties to the aforesaid Agreement (p. 20, id.).
(4) On June 28, 1986, CBY defaulted in the payment of its obligations, and in a letter dated August 8, 1988, the CBY Creditors’ Committee, pursuant to the aforesaid Agreement and Mortgage Indenture, declared all of CBY’s obligations due and payable (p. 24, id.). This letter was followed by a letter dated August 9, 1989 of plaintiff SIHI likewise declaring all of CBY’s particular obligations to it immediately due and payable (id.). Then on April 16, 1990, SIHI notified the Creditors’ Committee of CBY that it would institute proceedings for the enforcement of the remedies granted under the Mortgage Indenture earlier mentioned, and in a resolution dated April 20, 1990, said Creditors’ Committee authorized SIHI to institute the appropriate foreclosure proceedings provided that the proceeds of the foreclosure sale would be distributed and applied to all of CBY’s obligations under the terms of the Agreement previously mentioned (p. 25, id.).
(5) Hence, plaintiff SIHI filed on May 10, 1990, C.C. No. 59559 with the respondent court against CBY, FOUR SEAS, and Alfredo Ching, and impleading twenty-two (22) other creditors of CBY including herein petitioner ALLIED, allegedly because they hold inferior or subordinate mortgage rights to the properties sought to be foreclosed (pp. 8-28, id.).
(6) On January 31, 1991, defendant ALLIED filed its Answer to the complaint, denying that its interests in the mortgaged properties in question are subordinate in right to that of plaintiff SIHI; alleging that it was not a party to the Agreement attached to the complaint as Annex “B” and, therefore, not bound by its provisions; likewise denying that it was a party to the Fourth Amendatory Agreement also attached to the complaint as its Annex “S” which it claimed “was never valid, binding and effective for lack of consent on the part of the other creditors as shown by the fact that they did not sign the same”; claiming that defendant CBY owes it the principal amount P10 million, exclusive of interest, service charges, penalties, and attorney’s fees; alleging that as defendant CBY’s biggest, single, creditor, plaintiff SIHI “was able to work its way and secure for its representatives/nominees/designees key positions in defendant CBY, including but not limited to seats with full voting rights in defendant CBY’s Board of Directors, Executive Committee, and Creditors’ Committee, and that in taking control and management of CBY’s operations, it “committed irregularities, abuses, excesses, and other acts inimical to defendant CBY draining its resources and driving the latter to the financial quagmire it now faces, to the prejudice of herein defendant creditors”, as a consequence of which acts, CBY allegedly suffered losses of not less than P50 million or such amount as may be proved at the trial, which losses it claims represent assets of CBY answerable to its creditors other than plaintiff SIHI; and that plaintiff should be held liable for such losses, as well as for defendant ALLIED’s moral damages and attorney’s fees which it alleged in its counterclaim (pp. 29-33, id.). Defendant ALLIED thus prayed for the dismissal of the complaint or, in the alternative, for plaintiff to be ordered to pay CBY’s creditors including ALLIED the amount of P50 million to be deducted from the proceeds of the foreclosure sale of the mortgaged properties in question to be distributed among CBY’s creditors, and that plaintiff be also ordered to pay ALLIED moral damages and attorney’s fees (29-34, id.).
(7) However, on January 31, 1991, plaintiff SIHI, for the consideration of P33 million, entered into a Deed of Assignment with FIL-NIPPON transferring to the latter all its rights, interests, claims, and causes of action arising out of the Agreement mentioned in and annexed to its complaint in C. C. No. 59449 and certain promissory notes and mortgages contracts upon which said civil case was brought, and in which Deed of Assignment FIL-NIPPON also agreed to assume all the obligations of SIHI as party-plaintiff in said civil case (pp. 40-44, 64, id.).
(8) Thereafter, FIL-NIPPON filed in C. C. No. 59449 on April 16, 1991 a “Motion for Substitution of Party Plaintiff” in lieu of plaintiff SIHI (pp. 35-39, id.), which motion was opposed by defendant ALLIED on the grounds that it has a counterclaim against SIHI arising from irregularities, excesses, abuses and inimical acts committed by it in managing defendant CBY; that as long as said counterclaim has not been finally resolved, the substitution of plaintiff SIHI would be improper; and that if at all, FIL-NIPPON can intervene and be a co-plaintiff in C. C. No. 59449 (pp.45-46, id.).
(9) On July 4,1991, the respondent court, finding no legal basis for the objections of ALLIED and another defendant, Producers Bank of the Philippines, to the motion for substitution of movant Fil-NIPPON for plaintiff SIHI, granted the motion for substitution (p. 8, id.) and when defendant ALLIED moved for a reconsideration of said order, it denied the motion for reconsideration on August 22, 1991 (p. 9, id.).”[1]
Allied Banking Corp. (“Allied”) filed a petition for certiorari in the Court of Appeals assailing the above mentioned orders of the Regional Trial Court granting Fil-Nippon’s motion for substitution of SIHI as plaintiff in Civil Case No. 59449.
The Court of Appeals granted the petition and ordered SIHI to continue as plaintiff. The dispositive portion of the decision, now assailed in the instant petition, reads:
“WHEREFORE, the instant petition is GRANTED; the respondent court’s orders of July 4, 1991 and August 22, 1991 are hereby SET ASIDE; and herein private respondent State Investment House, Inc. (SIHI) shall continue to be the plaintiff in C. C. No. 59449 before the respondent court, with the other private respondent herein Fil-Nippon Holdings, Inc. (FIL-NIPPON) ordered impleaded therein as co-plaintiff.”[2]
In this petition for review on certiorari, SIHI submits the following grounds:
(1)
THE CA ERRED IN FINDING THAT ALLIED’S PERMISSIVE COUNTERCLAIMS CREATE A DEBTOR-CREDITOR RELATIONSHIP BETWEEN SIHI AND ALLIED; ALLIED IS NOT SIHI’S CREDITOR.
(2)
THE CA ERRED IN FINDING THAT A WITNESS WHO MAY BE CALLED TO TESTIFY HAS A MATERIAL INTEREST IN CASE AS TO MAKE HIM A PARTY-LITIGANT.
(3)
THE CA ERRED IN NOT FINDING THAT SUBSTITUTION OF A PARTY-PLAINTIFF PENDENTE LITE IS ALLOWED AND IS LARGELY A MATTER OF DISCRETION; THE LOWER COURT DID NOT COMMIT ARBITRARINESS OR GRAVE ABUSE OF DISCRETION IN ALLOWING THE SUBSTITUTION.[3]
We find no merit in the petition.
The issue is whether respondent court erred in ruling that the substitution of SIHI by its assignee Fil-Nippon in C. C. No. 59449 is improper.
Respondent court ruled that even without substitution Fil-Nippon, as assignee of all of SIHI’s rights, interests claims and causes of action arising out of the Agreement, would be bound by any judgment for or against SIHI. Moreover, Allied had a counterclaim for damages against SIHI of not less than P50 million allegedly caused by SIHI’s taking over the control and management of defendant CBY (Cheng Ban Yek Co. Inc.) through its men which it had put in key positions in the latter’s Board of Directors, Executive Committee and Creditors Committee, and who allegedly committed gross mismanagement, nepotism, irregularities, abuses, excesses and other acts inimical to CBY which drained the latter’s resources and drove it to the financial quagmire that now faces it to the prejudice of all its creditors. Such acts of SIHI do not arise out of the foreclosure of mortgage which is the subject of C. C. No. 59449 but constitute a permissive counterclaim. Moreover, SIHI had no choice but to actively participate in C. C. No. 59449 in order to defend its assignee Fil-Nippon against Allied’s permissive counterclaim. Finally, Fil-Nippon cannot be substituted as debtor under said counterclaim without its consent in view of Article 1293 of the Civil Code which provides that novation which consists in substituting a new debtor in the place of the original one cannot be made without the consent of the creditor.
It is petitioner’s position, in defending the substitution of parties ordered by the trial court, that Allied is not SIHI’s creditor; what Allied admitted is that it is a creditor of CBY for P10 million. Equally important is that Allied’s permissive counterclaim for damages does not make SIHI a debtor/obligor of Allied, as a counterclaim is not a source of obligation until a judgment is issued upholding it. Petitioner also submits that even assuming that SIHI, or its officers or employees, can be compelled to be witnesses regarding Allied’s permissive counterclaim, the same does not justify the retention of SIHI as party plaintiff below. In fine, petitioner SIHI contends that the trial court did not commit grave abuse of discretion in allowing the substitution of parties that should be corrected by certiorari.
On the other hand, respondent Allied submits that the substitution was improper; for as long as the counterclaim is not finally resolved, the substitution of party plaintiff despite the objection of private respondent and which may result in the discharge of the petitioner as original plaintiff, would be improper. If at all, Fil-Nippon can intervene in the case below and be co-plaintiff with SIHI. Allied also points out that the counterclaim for damages is based on quasi-delict, which is a legal source of obligation.
The rule on substitution of parties in case of transfer of interest is found in Section 19, Rule 3, which states:
"Sec. 19. Transfer of Interest - In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.”
It has been held that a transferee pendente lite does not have to be included or impleaded by name in order to be bound by the judgment because the action or suit may be continued for or against the original party or the transferor and still be binding on the transferee.[4]
More specifically , this Court has ruled that a transferee pendente lite is a proper party in the case but it is not an indispensable party.[5]
Respondent court did not err in ruling that SIHI should continue to be the plaintiff, and Fil-Nippon should be impleaded as co-plaintiff. The order of the trial court authorizing the substitution of parties failed to take into account the fact that there is a counterclaim for damages contained in Allied Bank’s Answer arising from the alleged inimical acts committed by SIHI in manipulating the operations of CBY that drained the latter’s resources to the prejudice of its creditors. The counterclaim for damages is severable and independent of SIHI’s cause of action under the Agreement dated December 28, 1982 entered into by SIHI, CBY and other creditors of CBY for the restructuring of CBY’s existing obligations. As aptly ruled by the Court of Appeals, the alleged acts of SIHI that gave rise to the complaint (counterclaim) for damages do not arise out of the foreclosure of mortgage which is the subject of C. C. No. 59449. Thus—
“Upon the other hand, if the substitution of party-plaintiff sought by FIL-NIPPON is granted, what would happen to petitioner ALLIED’s claim for damages of not less than P50 million in its answer allegedly caused by plaintiff SIHI’s taking over the control and management of defendant CBY’s through its men which it had put in key positions in the latter’s Board of Directors, Executive Committee, and Creditors’ Committee, and who allegedly committed gross mismanagement, nepotism, irregularities, abuses, excesses and other acts inimical to defendant CBY which drained its resources and drove it to the financial quagmire that its faces at present, to the prejudice of all its creditors? Can petitioner ALLIED still prove and recover these damages against FIL-NIPPON if the latter is substituted as party-plaintiff in C. C. No. 59449? We do not think so, for the subject-matter of the Deed of Assignment between plaintiff SIHI and FIL-NIPPON (see pp. 40-44, 64, Rollo) are certain credits, rights, claims and interests which SIHI has against the principal defendants CBY, FOUR SEAS, and Alfredo Ching in C. C. No. 59449, and its SIHI’s right to foreclose certain mortgages in favor of SIHI and other creditors of CBY arising out of the agreement between CBY and its creditors, including SIHI, attached to the complaint in C. C. No. 59449. True that SIHI’s assignee FIL-NIPPON also assumed all the risks attendant to said civil case and agreed not to have any recourse or claim against SIHI regardless of the outcome of said case or if it is prevented for any reason from foreclosing the properties subject-matter of the case, but such assumption of risk clearly does not include liability for the purely personal acts of abuses, irregularities, nepotism, etc. which petitioner ALLIED charged plaintiff SIHI to have committed while managing and taking over the control of the business of defendant CBY which acts do not arise out of the foreclosure of mortgage which is the subject-matter of C. C. No. 59449, but which constitute, as even private respondent FIL-NIPPON admitted in its Comment to the instant petition, a permissive counterclaim in said civil case (p. 61, Rollo). Respondent FIL-NIPPON, impliedly recognizing that it cannot be liable for said alleged acts of SIHI, even suggests that after plaintiff SIHI is dropped from C. C. No. 59449, petitioner ALLIED can bring original plaintiff SIHI back into said case by filing a third-party complaint against the latter. But why should petitioner ALLIED resort to such a run-about process to hold SIHI liable for the aforementioned alleged personal acts of mismanagement and abuses while in the control of defendant CBY, when it has already claimed the damages supposedly arising from said acts in a permissive counterclaim in its answer to SIHI’s complaint and the Rules allow it to do so?”[6]
Thus, although Fil-Nippon became an assignee of all of SIHI’s rights, interests, claims, and causes of action arising out of the Agreement, the counterclaim for actual and moral damages and attorney’s fees filed by Allied Bank was in no way contemplated in the assignment. It was accordingly error to discharge SIHI as original plaintiff from the case.
The Court of Appeals also correctly pointed out that Fil-Nippon could not be substituted as debtor of Allied with respect to the counterclaim for damages without the latter’s consent; thus:
"But there is yet still another reason why the respondent court should not have allowed the substitution of plaintiff SIHI’s assignee Fil-Nippon as party-plaintiff in C. C. No. 59449, and it is petitioner ALLIED’s contention, which we find valid and tenable, that plaintiff SIHI is its debtor/obligor as far as its permissive counterclaim for damages in its answer is concerned, and that FIL-NIPPON cannot be substituted as its debtor under said counterclaim without its consent, in view of Art. 1293 of the Civil Code of the Philippines providing that-
“Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. xxx” (Emphasis ours)
Private respondent SIHI answers this argument in its Comment to the instant petition by saying that the above-quoted article finds no application to this case because Sec. 17.7 of the Agreement which it and its creditors had executed expressly allows the assignment which it had made in favor of FIL-NIPPON (p. 67, Rollo). But as pointed out by petitioner ALLIED in its Reply to SIHI’s aforesaid Comment, it was not a party to the Agreement in question as shown by the fact that it never signed the same (see p. 82, Rollo); hence, it is not bound by said Agreement including the provision therein allowing the parties to assign their respective rights thereunder.[7]
As stated earlier, Fil-Nippon, as transferee of SIHI’s interests pendente lite, is not even an indispensable party in the case.
It bears emphasis that Allied claims to be not a party to the Agreement dated December 28, 1982 and therefore not bound by it. Even assuming that Fil-Nippon agreed to assume all the obligations of SIHI in the case and not only those arising under the said Agreement, the assignment cannot bind or prejudice Allied who did not consent to the assignment. It was improvident for the trial court to discharge SIHI on the basis alone of the transfer of its interests under the Agreement to Fil-Nippon. The counterclaim for actual, moral and other damages should be pursued and enforced against the real party-in-interest, which is SIHI, which cannot be discharged from the case over the opposition of Allied.
WHEREFORE, there being no reversible error in the decision and resolution appealed from, the instant petition is denied.
No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.
[1] Rollo, p. 20-23.
[2] Rollo, p. 29.
[3] Rollo p. 7.
[4] Asociacion de Agricultores de Talisay-Silay, Inc. vs. Talisay-Silay Milling Co., Inc., 88 SCRA 462.
[5] Heirs of Francisco Guballa, Sr. vs. Court of Appeals, 168 SCRA 518; Jose vs. Blue, 42 SCRA 351; Tanchoco vs. Aquino, 154 SCRA 1.
[6] Rollo, pp. 26-27.
[7] Rollo, p. 28.
Source: Supreme Court E-Library | Date created: 2010-01-15 14:58:01
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THIRD DIVISION
[ G.R. No. 102970, May 13, 1993 ]
LUZAN SIA, PETITIONER, VS. COURT OF APPEALS AND SECURITY BANK AND TRUST COMPANY, RESPONDENTS.
D E C I S I O N
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August 1991,[1] reversing and setting aside the Decision, dated 19 February 1990,[2] of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil Case No. 8742601, entitled “LUZAN SIA vs. SECURITY BANK and TRUST CO.,” is challenged in this petition for review on certiorari under Rule 45 of the Rules of Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant pursuant to a contract denominated as a Lease Agreement.[3] Judgment therein was rendered in favor of the plaintiff, the dispositive portion of which reads:
“WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of -‑
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney’s fees and legal expenses.
The counterclaim[s] set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED.”[4]
The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows:
“The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank’s premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff’s claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the ‘Rules and Regulations Governing the Lease of Safe Deposit Boxes’ (Exhs. “A-1”, “1-A”), particularly paragraphs 9 and 13, which reads (sic):
‘9. The liability of the Bank, by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any person other than the Renter, his authorized agent or legal representative;
x x x
13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith.’
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not of deposit and, therefore, governed by the lease agreement (Exhs. “A”, “L”) which should be the applicable law; that the destruction of the plaintiff’s stamps collection was due to a calamity beyond its control; and that there was no obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted, which was done on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon was then submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing on the same date (Ibid, p.102) stating:
‘That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the presence of the undersigned, plaintiff’s and defendant’s counsel. Said Safety Box when opened contains two albums of different sizes and thickness, length and width and a tin box with printed word ‘Tai Ping Shiang Roast Pork in pieces with Chinese designs and character.’
Condition of the above-stated Items --
‘Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the album are attached to every page and cannot be lifted without destroying it, hence the stamps contained therein are no longer visible.
2. The second album measures 12½ inches in length, 9¼ in width and 1 inch thick. Some of its pages can still be lifted. The stamps therein can still be distinguished but beyond restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of the box. The condition of the album is the same as described in the second above-mentioned album.’”[5]
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court’s decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the required diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney’s fees and legal expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the public respondent promulgated its decision the dispositive portion of which reads:
“WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee’s complaint is hereby DISMISSED. The appellant bank’s counterclaim is likewise DISMISSED. No costs.”[6]
In reversing the trial court’s decision and absolving SBTC from liability, the public respondent found and ruled that:
a) the fine print in the “Lease Agreement” (Exhibits “A” and “1”) constitutes the terms and conditions of the contract of lease which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC’s liability:
“9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any person other than the Renter, his authorized agent or legal representative;
x x x
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith,”
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must then bear the loss under the principle of “res perit domino.”
Unsuccessful in his bid to have the above decision reconsidered by the public respondent,[7] petitioner filed the instant petition wherein he contends that:
“I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. “A” AND “A-1”).
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY’S FEES AND LEGAL EXPENSES, IN FAVOR OF THE PETITIONER.”[8]
We subsequently gave due course to the petition and required both parties to submit their respective memoranda, which they complied with.[9]
Petitioner insists that the trial court correctly ruled that SBTC had failed “to exercise the required diligence expected of a bank maintaining such safety deposit box ... in the light of the environmental circumstances of said safety deposit box after the floods of 1985 and 1986.” He argues that such a conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the exact location of the safety deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a day, it is safe to conclude that it was also aware of the inundation of the premises where the safety deposit box was located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate measures to insure the safety and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of fact of the Court of Appeals, when supported by substantial evidence, are not reviewable on appeal by certiorari.[10]
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual findings and conclusions of the Court of Appeals and the trial court.[11] Such a disparity obtains in the present case.
As We see it, SBTC’s theory, which was upheld by the public respondent, is that the “Lease Agreement” covering Safe Deposit Box No. 54 (Exhibits “A” and “1”) is just that -- a contract of lease -- and not a contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank’s liability as follows:
“9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any person other than the Renter, his authorized agent or legal representative;
x x x
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith,”[12]
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even without such a limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous event and that the respondent bank was free from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.
In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals,[13] this Court explicitly rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit;[14] it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence -- that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit[15] -- has been adopted in this jurisdiction, thus:
“In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides:
‘SEC. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.
x x x
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. x x x’ (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing [Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary’s responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:
‘13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely no liability in connection therewith.’
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank’s responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
‘8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it.’
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:
‘With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation.’ [10 AM JUR 2d., 446].” (citations omitted)[16]
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-Industrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the “Lease Agreement” covering the safety deposit box in question (Exhibits “A” and “1”) must be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents’ fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection because the flooding was a fortuitous event and there was no showing of SBTC’s participation in the aggravation of the loss or injury. It states:
“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.’
In its dissertation of the phrase ‘caso fortuito’ the Enciclopedia Juridicada Española[17] says: ‘In a legal sense and, consequently, also in relation to contracts, a ‘caso fortuito’ prevents (sic)[18] the following essential characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the ‘caso fortuito,’ or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.’ (cited in Servando vs. Phil. Steam Navigation Co., supra).[19]
Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter was not shown to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the appellant bank offered its services to secure the assistance of an expert to save most of the then good stamps but the appellee refused and let (sic) these recoverable stamps inside the safety deposit box until they were ruined.”[20]
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition and have been summarized in this ponencia. SBTC’s negligence aggravated the injury or damage to the petitioner which resulted from the loss or destruction of the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent and Article 1170 of the Civil Code, which reads:
“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,”
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of the trial court, the “product of 27 years of patience and diligence”[21] caused the petitioner pecuniary loss; hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court’s award of moral damages. Since the relationship between the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof only if said party had acted fraudulently or in bad faith.[22] There is here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.
Feliciano, (Chairman), Bidin, Romero, and Melo, JJ., concur.
[1] Rollo, 34-41. Per Associate Justice Lucio L. Victor, concurred in by Associate Justices Santiago M. Kapunan and Segundino G. Chua.
[2] Id., 52-55.
[3] Exhibit “A” and “1”, Original Records of Civil Case No. 87-42601, 87.
[4] Rollo, 55.
[5] Rollo, 34-36.
[6] Rollo, 41.
[7] Rollo, 43-49.
[8] Id., 17.
[9] Id., 63.
[10] Rollo, 61, citing Gonzales vs. Court of Appeals, 90 SCRA 183 [1979].
[11] Sacay vs. Sandiganbayan, 142 SCRA 593 [1986]; Remalante vs. Tibe, 158 SCRA 138 [1988]; Medina vs. Asistio, 191 SCRA 218 [1990].
[12] Exhibit “A-1”, Original Records, dorsal side of page 87.
[13] G.R. No. 90027, 3 March 1993.
[14] Title XII, Book IV, Civil Code.
[15] 10 Am Jur 2d, 440-441.
[16] Entries in brackets appear as footnotes in the decision.
[17] 5 Enciclopedia Juridicada Española.
[18] Should be presents.
[19] 117 SCRA 832 [1982].
[20] Rollo, 40.
[21] Rollo, 54.
[22] Article 2220, Civil Code.
Source: Supreme Court E-Library | Date created: January 14, 2010
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THIRD DIVISION
[ G.R. NO. 159617, August 08, 2007 ]
ROBERTO C. SICAM AND AGENCIA DE R.C. SICAM, INC., PETITIONERS, VS. LULU V. JORGE AND CESAR JORGE, RESPONDENTS.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision[1] of the Court of Appeals dated March 31, 2003, and its Resolution[2] dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number.[3]
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter[4] to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.[5]
After trial on the merits, the RTC rendered its Decision[6] dated January 12, 1993, dismissing respondents' complaint as well as petitioners' counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;[7] and that the parties' transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.[8]
In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry.
Petitioners' motion for reconsideration was denied in a Resolution dated August 8, 2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.[9]
Anent the first assigned error, petitioners point out that the CA's finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants' brief."[10]
Petitioners argue that the reproduced arguments of respondents in their Appellants' Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents' brief which had the following defects:
(1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents' (appellants') brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties, as long as these are legally tenable and supported by law and the facts on records.[11]
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. Generally, the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo.[12] This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory[13] as is obtaining in the instant case.
However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. [14] The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them.[15]
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation.
Even petitioners' counsel, Atty. Marcial T. Balgos, in his letter[16] dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying that he made such an admission.[17]
The Committee on the Revision of the Rules of Court explained the second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the "admission" may show that he made no "such" admission, or that his admission was taken out of context.
x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made," the rule would not really be providing for a contradiction of the admission but just a denial.[18] (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners' Motion to Dismiss Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit of which can only be reached after consideration of the evidence to be presented in due course.[19]
Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be directed.[20] In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of a corporation.[21]
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. [22]
To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. [23]
The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.[24] And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. [25]
It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. [26]
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicam's testimony, in effect, contradicts petitioners' defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. In Co v. Court of Appeals,[27] the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it - which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.[28]
Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.[29]
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan[30] that negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do.[31] It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque they pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.[32]
revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees.[33] Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Parañaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns - The office building/premises and pawns of a pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform.[34] Thus, the cases of Austria v. Court of Appeals,[35] Hernandez v. Chairman, Commission on Audit[36] and Cruz v. Gangan[37] cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault on the debtor's part, and this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence.[38]
We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of the employees and the operating expenses of the project. However for some reason, the processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the next working day after July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then reported the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient justification to grant the request for relief from accountability. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruz's mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Ynares-Santiago, (Chairperson), Chico-Nazario, and Nachura, JJ., concur.
[1] CA rollo, pp. 63-73; Penned by Justice Bernardo P. Abesamis (ret.) and concurred in by Justices Sergio L. Pestaño and Noel G. Tijam.
[2] Id. at p. 114.
[3] Id. at 121; Exhibit "1."
[4] Id. at 107-108; Exhibit "I."
[5] Id. at 63-65; Per Judge Salvador P. de Guzman, Jr.
[6] Id. at 146-147; Penned by Judge Roberto C. Diokno of Branch 62 as the case was unloaded to him.
[7] 148-A Phil. 462 (1971).
[8] CA rollo, p. 72.
[9] Rollo, pp. 5-6.
[10] Rollo, p. 7.
[11] Nuez v. National Labor Relations Commission, G.R. No. 107574, December 28, 1994, 239 SCRA 518, 526.
[12] Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489 citing Roble v. Arbasa, 414 Phil. 343 (2001).
[13] Fuentes v. Court of Appeals, 335 Phil. 1163, 1168 (1997).
[14] See Jacinto v. Court of Appeals, G.R. No. 80043, June 6, 1991, 198 SCRA 211, 216.
[15] See Sibagat Timber Corporation v. Garcia, G.R. No. 98185, December 11, 1992, 216 SCRA 470, 474.
[16] Id. at 124-125; Exhibit "4".
[17] Atillo III v. Court of Appeals, 334 Phil. 546, 552 (1997).
[18] Minutes of the meeting held on October 22, 1986, p. 9.
[19] Records, p. 67.
[20] Id. at 38.
[21] Id. at 147.
[22] Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 (1967).
[23] Mindex Resources Development Corporation v. Morillo, 428 Phil. 934, 944 (2002).
[24] Co v. Court of Appeals, 353 Phil. 305, 313 (1998).
[25] Mindex Resources Development Corporation v. Morillo, supra citing Tolentino, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 126, citing Sian v. Inchausti & Co., 22 Phil. 152 (1912); Juan F. Nakpil & Sons v. Court of Appeals, 228 Phil. 564, 578 (1986). Cf. Metal Forming Corporation v. Office of the President, 317 Phil. 853, 859 (1995).
[26] Id. citing Nakpil and Sons v. Court of Appeals, supra note 25, at 578.
[27] Supra note 24.
[28] Id. at 312-313.
[29] CIVIL CODE, Art. 1170.
[30] 443 Phil. 856, 863 (2003) citing McKee v. Intermediate Appellate Court, 211 SCRA 517 (1992).
[31] Cruz v. Gangan, supra note 30, at 863.
[32] TSN, January 21, 1992, pp.17-18.
[33] Exhibit "1," Excerpt from the Police Blotter dated October 17, 1987 of the Parañaque Police Station, p. 121.
[34] Cruz v. Gangan, supra note 30, at 863 citing SANGCO, TORTS AND DAMAGES, Vol. 1, 1993 rev. ed. p. 5.
[35] Supra note 7.
[36] G.R. No. 71871, November 6, 1989, 179 SCRA 39.
[37] Supra note 30.
[38] Austria v. Court of Appeals, supra note 7, at 466-467.
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SECOND DIVISION
[ G.R. No. 122039, May 31, 2000 ]
VICENTE CALALAS, PETITIONER, VS. COURT OF APPEALS, ELIZA JUJEURCHE SUNGA AND FRANCISCO SALVA, RESPONDENTS.
D E C I S I O N
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated March 31, 1991, reversing the contrary decision of the Regional Trial Court, Branch 36, Dumaguete City, and awarding damages instead to private respondent Eliza Jujeurche Sunga as plaintiff in an action for breach of contract of carriage.
The facts, as found by the Court of Appeals, are as follows:
At 10 o’clock in the morning of August 23, 1989, private respondent Eliza Jujeurche G. Sunga, then a college freshman majoring in Physical Education at the Siliman University, took a passenger jeepney owned and operated by petitioner Vicente Calalas. As the jeepney was filled to capacity of about 24 passengers, Sunga was given by the conductor an "extension seat," a wooden stool at the back of the door at the rear end of the vehicle.
On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to let a passenger off. As she was seated at the rear of the vehicle, Sunga gave way to the outgoing passenger. Just as she was doing so, an Isuzu truck driven by Iglecerio Verena and owned by Francisco Salva bumped the left rear portion of the jeepney. As a result, Sunga was injured. She sustained a fracture of the "distal third of the left tibia-fibula with severe necrosis of the underlying skin." Closed reduction of the fracture, long leg circular casting, and case wedging were done under sedation. Her confinement in the hospital lasted from August 23 to September 7, 1989. Her attending physician, Dr. Danilo V. Oligario, an orthopedic surgeon, certified she would remain on a cast for a period of three months and would have to ambulate in crutches during said period.
On October 9, 1989, Sunga filed a complaint for damages against Calalas, alleging violation of the contract of carriage by the former in failing to exercise the diligence required of him as a common carrier. Calalas, on the other hand, filed a third-party complaint against Francisco Salva, the owner of the Isuzu truck.
The lower court rendered judgment against Salva as third-party defendant and absolved Calalas of liability, holding that it was the driver of the Isuzu truck who was responsible for the accident. It took cognizance of another case (Civil Case No. 3490), filed by Calalas against Salva and Verena, for quasi-delict, in which Branch 37 of the same court held Salva and his driver Verena jointly liable to Calalas for the damage to his jeepney.
On appeal to the Court of Appeals, the ruling of the lower court was reversed on the ground that Sunga’s cause of action was based on a contract of carriage, not quasi-delict, and that the common carrier failed to exercise the diligence required under the Civil Code. The appellate court dismissed the third-party complaint against Salva and adjudged Calalas liable for damages to Sunga. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is entered ordering defendant-appellee Vicente Calalas to pay plaintiff-appellant:
| (1) | P50,000.00 as actual and compensatory damages; |
| (2) | P50,000.00 as moral damages; |
| (3) | P10,000.00 as attorney’s fees; and |
| (4) | P1,000.00 as expenses of litigation; and |
| (5) | to pay the costs. |
SO ORDERED.
Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490 that the negligence of Verena was the proximate cause of the accident negates his liability and that to rule otherwise would be to make the common carrier an insurer of the safety of its passengers. He contends that the bumping of the jeepney by the truck owned by Salva was a caso fortuito. Petitioner further assails the award of moral damages to Sunga on the ground that it is not supported by evidence.
The petition has no merit.
The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding the driver and the owner of the truck liable for quasi-delict ignores the fact that she was never a party to that case and, therefore, the principle of res judicata does not apply.
Nor are the issues in Civil Case No. 3490 and in the present case the same. The issue in Civil Case No. 3490 was whether Salva and his driver Verena were liable for quasi-delict for the damage caused to petitioner’s jeepney. On the other hand, the issue in this case is whether petitioner is liable on his contract of carriage. The first, quasi-delict, also known as culpa aquiliana or culpa extra contractual, has as its source the negligence of the tortfeasor. The second, breach of contract or culpa contractual, is premised upon the negligence in the performance of a contractual obligation.
Consequently, in quasi-delict, the negligence or fault should be clearly established because it is the basis of the action, whereas in breach of contract, the action can be prosecuted merely by proving the existence of the contract and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his destination.[2] In case of death or injuries to passengers, Art. 1756 of the Civil Code provides that common carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the burden of proof.
There is, thus, no basis for the contention that the ruling in Civil Case No. 3490, finding Salva and his driver Verena liable for the damage to petitioner’s jeepney, should be binding on Sunga. It is immaterial that the proximate cause of the collision between the jeepney and the truck was the negligence of the truck driver. The doctrine of proximate cause is applicable only in actions for quasi-delict, not in actions involving breach of contract. 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. Insofar as contracts of carriage are concerned, some aspects regulated by the Civil Code are those respecting the diligence required of common carriers with regard to the safety of passengers as well as the presumption of negligence in cases of death or injury to passengers. It provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1746, Nos. 5,6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756.
Art. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed by articles 1733 and 1755.
In the case at bar, upon the happening of the accident, the presumption of negligence at once arose, and it became the duty of petitioner to prove that he had to observe extraordinary diligence in the care of his passengers.
Now, did the driver of jeepney carry Sunga "safely as far as human care and foresight could provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances" as required by Art. 1755? We do not think so. Several factors militate against petitioner’s contention.
First, as found by the Court of Appeals, the jeepney was not properly parked, its rear portion being exposed about two meters from the broad shoulders of the highway, and facing the middle of the highway in a diagonal angle. This is a violation of the R.A. No. 4136, as amended, or the Land Transportation and Traffic Code, which provides:
Sec. 54. Obstruction of Traffic. - No person shall drive his motor vehicle in such a manner as to obstruct or impede the passage of any vehicle, nor, while discharging or taking on passengers or loading or unloading freight, obstruct the free passage of other vehicles on the highway.
Second, it is undisputed that petitioner’s driver took in more passengers than the allowed seating capacity of the jeepney, a violation of §32(a) of the same law. It provides:
Exceeding registered capacity. - No person operating any motor vehicle shall allow more passengers or more freight or cargo in his vehicle than its registered capacity.
The fact that Sunga was seated in an "extension seat" placed her in a peril greater than that to which the other passengers were exposed. Therefore, not only was petitioner unable to overcome the presumption of negligence imposed on him for the injury sustained by Sunga, but also, the evidence shows he was actually negligent in transporting passengers.
We find it hard to give serious thought to petitioner’s contention that Sunga’s taking an "extension seat" amounted to an implied assumption of risk. It is akin to arguing that the injuries to the many victims of the tragedies in our seas should not be compensated merely because those passengers assumed a greater risk of drowning by boarding an overloaded ferry. This is also true of petitioner’s contention that the jeepney being bumped while it was improperly parked constitutes caso fortuito. A caso fortuito is an event which could not be foreseen, or which, though foreseen, was inevitable.[3] This requires that the following requirements be present: (a) the cause of the breach is independent of the debtor’s will; (b) the event is unforeseeable or unavoidable; (c) the event is such as to render it impossible for the debtor to fulfill his obligation in a normal manner, and (d) the debtor did not take part in causing the injury to the creditor.[4] Petitioner should have foreseen the danger of parking his jeepney with its body protruding two meters into the highway.
Finally, petitioner challenges the award of moral damages alleging that it is excessive and without basis in law. We find this contention well taken.
In awarding moral damages, the Court of Appeals stated:
Plaintiff-appellant at the time of the accident was a first-year college student in that school year 1989-1990 at the Silliman University, majoring in Physical Education. Because of the injury, she was not able to enroll in the second semester of that school year. She testified that she had no more intention of continuing with her schooling, because she could not walk and decided not to pursue her degree, major in Physical Education "because of my leg which has a defect already."
Plaintiff-appellant likewise testified that even while she was under confinement, she cried in pain because of her injured left foot. As a result of her injury, the Orthopedic Surgeon also certified that she has "residual bowing of the fracture side." She likewise decided not to further pursue Physical Education as her major subject, because "my left leg x x x has a defect already."
Those are her physical pains and moral sufferings, the inevitable bedfellows of the injuries that she suffered. Under Article 2219 of the Civil Code, she is entitled to recover moral damages in the sum of P50,000.00, which is fair, just and reasonable.
As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Art. 2219 of the Civil Code.[5] As an exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in Art. 2220.[6]
In this case, there is no legal basis for awarding moral damages since there was no factual finding by the appellate court that petitioner acted in bad faith in the performance of the contract of carriage. Sunga’s contention that petitioner’s admission in open court that the driver of the jeepney failed to assist her in going to a nearby hospital cannot be construed as an admission of bad faith. The fact that it was the driver of the Isuzu truck who took her to the hospital does not imply that petitioner was utterly indifferent to the plight of his injured passenger. If at all, it is merely implied recognition by Verena that he was the one at fault for the accident.
WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995, and its resolution, dated September 11, 1995, are AFFIRMED, with the MODIFICATION that the award of moral damages is DELETED.
SO ORDERED.
Bellosillo, (Chairman), and Buena, JJ., concur.
Quisumbing, and De Leon, Jr., JJ., on leave.
[1] Per Justice Artemon D. Luna and concurred in by Justices Hector L. Hofilena and B.A. Adefuin-dela Cruz.
[2] See B. Balderrama, The Philippine Law on Torts And Damages 20 (1953).
[3] CIVIL CODE, Art. 1174.
[4] Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 (1986); Vasquez v. Court of Appeals, 138 SCRA 553 (1985); Republic v. Luzon Stevedoring Corp., 128 Phil. 313 (1967).
[5] Fores v. Miranda, 67 105 Phil. 267 (1959); Mercado v. Lira, 3 SCRA 124 (1961).
[6] Philippine Rabbit Bus Lines, Inc. v. Esguerra, 117 SCRA 741 (1982); Sabena Belgian World Airlines v. Court of Appeals, 171 SCRA 620 (1989); China Airlines, Ltd. v. Intermediate Appellate Court, 169 SCRA 226 (1989).
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THIRD DIVISION
[ G.R. No. 126389, July 10, 1998 ]
SOUTHEASTERN COLLEGE, INC., PETITIONER, VS. COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO AND MILAGROS DIMAANO, RESPONDENTS.
D E C I S I O N
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision[1] promulgated on July 31, 1996, and Resolution[2] dated September 12, 1996 of the Court of Appeals[3] in CA-G.R. No. 41422, entitled “Juanita de Jesus vda. de Dimaano, et al. vs. Southeastern College, Inc.”, which reduced the moral damages awarded below from P1,000,000.00 to P200,000.00.[4] The Resolution under attack denied petitioner’s motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a four-storey school building along the same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful typhoon “Saling” hit Metro Manila. Buffeted by very strong winds, the roof of petitioner’s building was partly ripped off and blown away, landing on and destroying portions of the roofing of private respondents’ house. After the typhoon had passed, an ocular inspection of the destroyed buildings was conducted by a team of engineers headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter’s Report[5] dated October 18, 1989 stated, as follows:
“5. One of the factors that may have led to this calamitous event is the formation of the buildings in the area and the general direction of the wind. Situated in the peripheral lot is an almost U-shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction, the general formation of the buildings becomes a big funnel-like structure, the one situated along College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of the roofing, those located on both ends of the building, which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging of the roofings structural trusses is the improper anchorage of the said trusses to the roof beams. The 1/2” diameter steel bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses, thus, those trusses are not anchored at all to the roof beams.”
It then recommended that “to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity,” the fourth floor of subject school building be declared as a “structural hazard.”
In their Complaint[6] before the Regional Trial Court of Pasay City, Branch 117, for damages based on culpa aquiliana, private respondents alleged that the damage to their house rendered the same uninhabitable, forcing them to stay temporarily in others’ houses. And so they sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary damages and P100,000.00, for and as attorney’s fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several devastating typhoons and other calamities in the past, without its roofing or any portion thereof giving way; that it has not been remiss in its responsibility to see to it that said school building, which houses school children, faculty members, and employees, is “in tip-top condition”; and furthermore, typhoon “Saling” was “an act of God and therefore beyond human control” such that petitioner cannot be answerable for the damages wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that subject school building had a “defective roofing structure,” found that, while typhoon “Saling” was accompanied by strong winds, the damage to private respondents’ house “could have been avoided if the construction of the roof of [petitioner’s] building was not faulty.” The dispositive portion of the lower court’s decision[7] reads thus:
“WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff (sic) and against the defendants, (sic) ordering the latter to pay jointly and severally the former as follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney’s fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the defendants (sic) did not act in a wanton fraudulent, reckless, oppressive or malevolent manner.”
In its appeal to the Court of Appeals, petitioner assigned as errors,[8] that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON “SALING”, AS AN ACT OF GOD, IS NOT “THE SOLE AND ABSOLUTE REASON” FOR THE RIPPING-OFF OF THE SMALL PORTION OF THE ROOF OF SOUTHEASTERN’S FOUR (4) STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT “THE CONSTRUCTION OF THE ROOF OF DEFENDANT’S SCHOOL BUILDING WAS FAULTY” NOTWITHSTANDING THE ADMISSION THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON “SALING” WHICH IS THE DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL AS ATTORNEY’S FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERN’S APPEAL WHEN THERE IS NO COMPELLING REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court’s disposition by reducing the award of moral damages from P1,000,000.00 to P200,000.00. Hence, petitioner’s resort to this Court, raising for resolution the issues of:
“1. Whether or not the award of actual damage [sic] to respondent Dimaanos on the basis of speculation or conjecture, without proof or receipts of actual damage, [sic] legally feasible or justified.
2. Whether or not the award of moral damages to respondent Dimaanos, without the latter having suffered, actual damage has legal basis.
3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject matter of the case, during its pendency, has the right to pursue their complaint against petitioner when the case was already rendered moot and academic by the sale of the property to third party.
4. Whether or not the award of attorney’s fees when the case was already moot and academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to others by typhoon “Saling” being an act of God.
6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without hearing, has support in law.”
The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof of the building of private respondents resulting from the impact of the falling portions of the school building’s roof ripped off by the strong winds of typhoon “Saling”, was, within legal contemplation, due to fortuitous event? If so, petitioner cannot be held liable for the damages suffered by the private respondents. This conclusion finds support in Article 1174 of the Civil Code, which provides:
“Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.”
The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as “an event which takes place by accident and could not have been foreseen.”[9] Escriche elaborates it as “an unexpected event or act of God which could neither be foreseen nor resisted.”[10] Civilist Arturo M. Tolentino adds that “[f]ortuitous events may be produced by two general causes: (1) by nature, such as earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc.”[11]
In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or misconduct by reason of which the loss may have been occasioned.[12] An act of God cannot be invoked for the protection of a person who has been guilty of gross negligence in not trying to forestall its possible adverse consequences. When a person’s negligence concurs with an act of God in producing damage or injury to another, such person is not exempt from liability by showing that the immediate or proximate cause of the damage or injury was a fortuitous event. When the effect is found to be partly the result of the participation of man – whether it be from active intervention, or neglect, or failure to act – the whole occurrence is hereby humanized, and removed from the rules applicable to acts of God.[13]
In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school building’s roofing had “no sufficient anchorage to hold it in position especially when battered by strong winds.” Based on such finding, the trial court imputed negligence to petitioner and adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the general rule that factual findings by the trial court, especially when affirmed by the appellate court, are binding and conclusive upon this Court.[14] After a careful scrutiny of the records and the pleadings submitted by the parties, we find exception to this rule and hold that the lower courts misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable despite any amount of foresight, diligence or care.[15] In order to be exempt from liability arising from any adverse consequence engendered thereby, there should have been no human participation amounting to a negligent act.[16] In other words, the person seeking exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance which the circumstances justly demand,[17] or the omission to do something which a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human affairs, would do.[18] From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused to private respondents’ house could have been avoided?
At the outset, it bears emphasizing that a person claiming damages for the negligence of another has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts constitutive of negligence must be affirmatively established by competent evidence,[19] not merely by presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of petitioner, merely relied on the aforementioned report submitted by a team which made an ocular inspection of petitioner’s school building after the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or viewing.[20] What is visual to the eye though, is not always reflective of the real cause behind. For instance, one who hears a gunshot and then sees a wounded person, cannot always definitely conclude that a third person shot the victim. It could have been self-inflicted or caused accidentally by a stray bullet. The relationship of cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial unroofing of petitioner’s school building. Private respondents did not even show that the plans, specifications and design of said school building were deficient and defective. Neither did they prove any substantial deviation from the approved plans and specifications. Nor did they conclusively establish that the construction of such building was basically flawed.[21]
On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the original plans and design of petitioner’s school building were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement before the construction of any building to obtain a permit from the city building official (city engineer, prior to the passage of the Building Act of 1977). In like manner, after construction of the building, a certification must be secured from the same official attesting to the readiness for occupancy of the edifice. Having obtained both building permit and certificate of occupancy, these are, at the very least, prima facie evidence of the regular and proper construction of subject school building.[22]
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon “Saling”, the same city official gave the go-signal for such repairs – without any deviation from the original design – and subsequently, authorized the use of the entire fourth floor of the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its ”U-shaped” form was “structurally defective.” Having given his unqualified imprimatur, the city building official is presumed to have properly performed his duties[23] in connection therewith.
In addition, petitioner presented its vice president for finance and administration who testified that an annual maintenance inspection and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it would be corroborative of the vice president’s narration.
Moreover, the city building official, who has been in the city government service since 1974, admitted in open court that no complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench. It is a matter of judicial notice that typhoons are common occurrences in this country. If subject school building’s roofing was not firmly anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than “Saling.”
In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We thus hold that petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school building in question and that typhoon “Saling” was the proximate cause of the damage suffered by private respondents’ house.
With this disposition on the pivotal issue, private respondents’ claim for actual and moral damages as well as attorney’s fees must fail.[24] Petitioner cannot be made to answer for a purely fortuitous event.[25] More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred.[26] It is not enough that the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts that afford a basis for measuring whatever compensatory damages are borne.[27] Private respondents merely submitted an estimated amount needed for the repair of the roof of their subject building. What is more, whether the “necessary repairs” were caused ONLY by petitioner’s alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is hereby nullified and set aside. Private respondents are ordered to reimburse any amount or return to petitioner any property which they may have received by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The complaint of private respondents in Civil Case No. 7314 before the trial court a quo is ordered DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET ASIDE. Accordingly, private respondents are ORDERED to return to petitioner any amount or property received by them by virtue of said writ. Costs against the private respondents.
SO ORDERED.
Narvasa, C.J., (Chairman), Romero, and Kapunan, JJ., concur.
[1] Rollo, pp. 28-41.
[2] Ibid., p. 42.
[3] Seventh Division, composed of J. Jose de la Rama, ponente; with JJ. Emeterio C. Cui (chairman) and Eduardo G. Montenegro, concurring.
[4] CA Decision, p. 13; Rollo, p. 40.
[5] Records, pp. 127-128.
[6] Ibid., pp. 1-3.
[7] CA Rollo, pp. 63-69.
[8] Rollo, pp. 20-21.
[9] Tolentino, Civil Code of the Philippines, 1991 ed., Col IV, p. 126.
[10] Ibid.
[11] Ibid.
[12] Ibid., p. 130, citing Tan Chiong vs. Inchausti, 22 Phil 152, 1912. Nakpil & Sons vs. Court of Appeals, 144 SCRA 596, 607, October 3, 1986. See also Metal Forming Corporation vs. Office of the President, 247 SCRA 731, 738-739, August 28, 1995.
[13] Nakpil & Sons, vs. Court of Appeals, Ibid., pp. 606-607. See also Ilocos Norte Electric Co. vs. Court of Appeals, 179 SCRA 5, 15, November 6, 1989.
[14] Fuentes vs. Court of Appeals, 268 SCRA 703, February 26, 1997; Atlantic Gulf & Pacific Company of Manila, Inc. vs. Court of Appeals, 247 SCRA 606, August 23, 1995; Acebedo Optical Co., Inc. vs. Court of Appeals, 250 SCRA 409, November 29, 1995.
[15] Nakpil & sons, vs. Court of Appeals, supra, p. 606, citing 1 CJS 1174.
[16] Batangas Laguna Tayabas Bus Co. vs. Intermediate Appellate Court, 167 SCRA 379, 386, November 14, 1988.
[17] Valenzuela vs. Court of Appeals, 253 SCRA 303, February 7, 1996. cf. Quibal vs. Sandiganbayan, 244 SCRA 224, May 22, 1995; Citibank, NA vs. Gatchalian, 240 SCRA 212, January 18, 1995.
[18] Layugan vs. Intermediate Appellate Court, 167 SCRA 363, 372-273, November 14, 1988; Philippine Bank of Commerce vs. court of Appeals, GR No. 97626, March 14, 1997.
[19] Philippine Long Distance Telephone Co., Inc. vs. Court of Appeals, 178 SCRA 94, 106, September 29, 1989, citing Barcelo vs. Manila Electric Railroad & Light Co., 29 Phil 351, January 28, 1915.
[20] Webster’s Third New International Dictionary, 1971 ed.; Moreno, Philippine Law Dictionary, 2nd ed.
[21] CF. Nakpil & Sons vs. court of Appeals, supra. See also Quisumbing Sr. vs. Court of Appeals, 189 SCRA 605, September 14, 1990.
[22] cf. Yap Kim Chuan vs. Tiaoqui, 31 Phil 433, September 18, 1915.
[23] Tatad vs, Garcia Jr., 243 SCRA 436, April 6, 1995; People vs. Figueroa, 248 SCRA 679, October 2, 1995.
[24] Toyota Shaw, Inc. vs. Court of Appeals, 244 SCRA 320, May 23, 1995; Custodio vs. Court of Appeals, 253 SCRA 483, February 9, 1996; Syquia vs. Court of Appeals, 217 SCRA 624, January 27, 1993.
[25] Itan Chiong vs. Inchausti, supra.
[26] Baliwag Transit, Inc. vs. Court of Appeals, 256 SCRA 746, May 15, 1996.
[27] Del Mundo vs. Court of Appeals, 240 SCRA 348, January 20, 1995.
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