CASE NO. 2011-0072: F.A.T. KEE COMPUTER SYSTEMS, INC. VS. ONLINE NETWORKS INTERNATIONAL, INC. (G.R. NO. 171238, 2 FEBRUARY 2011, LEONARDO – DE CASTRO, J.) SUBJECTS: FAILURE TO ATTACH TSNs TO PETITION; QUESTION OF FACT VIS A VIS QUESTION OF LAW. (BRIEF TITLE: F.A.T. KEE VS. ONLINE).

Republic of the Philippines 

Supreme Court

Manila

FIRST DIVISION

x- – – – – – – – – – – – – – – – – – – – – – – – – – –  – – – – – – – – – – – – – – – – – – – – – -x

D E C I S I O N

LEONARDO – DE CASTRO, J.:

          For consideration of the Court is a Petition for Review on Certiorari^[1] under Rule 45 of the Rules of Court, which seeks to challenge the Decision^[2] dated September 26, 2005 of the Court of Appeals in CA-G.R. CV No. 71910.  The appellate court reversed and set aside the Decision^[3] dated November 7, 2000 of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 99-167, which dismissed the complaint filed by herein respondent Online Networks International, Inc. (ONLINE).

          Petitioner F.A.T. Kee Computer Systems, Inc. (FAT KEE) is a domestic corporation engaged in the business of selling computer equipment and conducting maintenance services for the units it sold.

ONLINE is also a domestic corporation principally engaged in the business of selling computer units, parts and software.

          On January 25, 1999, ONLINE filed a Complaint^[4] for Sum of Money against FAT KEE docketed as Civil Case No. 99-167.  ONLINE alleged that sometime in November 1997, it sold computer printers to FAT KEE for which the latter agreed to pay the purchase price of US$136,149.43.  The agreement was evidenced by Invoice Nos. 4680, 4838, 5090 and 5096^[5] issued by ONLINE to FAT KEE.  The invoice receipts contained a stipulation that “interest at 28% per annum is to be charged on all accounts overdue” and “an additional sum equal to 25% of the amount will be charged by vendor for attorney’s fees plus cost of collection in case of suit.”^[6]  It was further asserted in the Complaint that thereafter, FAT KEE, through its President Frederick Huang, Jr., offered to pay its US dollar obligations in Philippine pesos using the exchange rate of P40:US$1.  ONLINE claimed to have duly accepted the offer.  The amount payable was then computed at P5,445,977.20.  FAT KEE then made several payments amounting to P2,502,033.06 between the periods of March and May 1998.^[7]  As of May 12, 1998, the balance of FAT KEE purportedly amounted to P2,943,944.14.  As the obligations of FAT KEE matured in December 1997, ONLINE applied the 28% interest on the unpaid amount.  However, in view of the good business relationship of the parties, ONLINE allegedly applied the interest on the balance for a period of three months only.  Thus, the total amount due, plus interest, was P3,012,636.17.^[8]  FAT KEE subsequently made additional payments in the amount of P2,256,541.12.  A balance of P756,095.05, thus, remained according to ONLINE’s computations.  Despite repeated demands, FAT KEE failed to pay its obligations to ONLINE without any valid reason.  ONLINE was allegedly constrained to send a final demand letter for the payment of the aforementioned balance.  As FAT KEE still ignored the demand, ONLINE instituted the instant case, praying that FAT KEE be ordered to pay the principal amount of P756,095.05, plus 28% interest per annum computed from July 28, 1998 until full payment.  ONLINE likewise sought the payment of 25% of the total amount due as attorney’s fees, as well as litigation expenses and costs of suit.

          FAT KEE duly answered^[9] the complaint alleging, inter alia, that it did not reach an agreement with ONLINE for the payment of its obligations in US dollars.  FAT KEE claimed that the invoice receipts of the computer printers, which quoted the purchase price in US dollars, were unilaterally prepared by ONLINE.  While FAT KEE admitted that it offered to pay its obligations in Philippine pesos, it averred that the amount owing to ONLINE was only P5,067,925.34, as reflected in the Statement of Account (SOA) sent by ONLINE dated December 9, 1997.^[10]  FAT KEE stated that payments in Philippine pesos were tendered to ONLINE, in accordance with the SOA, and the latter accepted the same.  FAT KEE denied that it agreed to the conversion rate ofP40:US$1 and claimed that it had already fully paid its total obligations to ONLINE.  FAT KEE, thus, prayed for the dismissal of the complaint and, by way of counterclaim, sought the payment of P250,000.00 as attorney’s fees.

          The trial of the case ensued thereafter.

          ONLINE first called Peter Jeoffrey Goco to the witness stand.  Goco testified that he was the Legal Officer of ONLINE, whose duty was to monitor the outstanding or unpaid accounts of ONLINE’s clients, as well as to send demand letters and recommend the filing of cases should the clients fail to pay.^[11]  FAT KEE was one of the clients of ONLINE, which had an outstanding balance of a little over P756,000.00.^[12]  Goco stated that the invoice receipts sent to FAT KEE were denominated in US dollars as the business of ONLINE was to sell imported computer products, in wholesale and retail.  In view of the currency fluctuations during those times, ONLINE deemed that the better business policy was to bill their clients in US dollars.^[13]  FAT KEE allegedly had an outstanding balance of roughly around US$136,000.00.^[14]  When ONLINE demanded payment, FAT KEE negotiated that it be allowed to pay in Philippine pesos. Goco attested that the parties subsequently agreed to a conversion rate ofP40:US$1.  FAT KEE was able to remit partial payments to ONLINE, but as of May 1998, the amount of P756,095.05 remained unpaid.^[15]  As FAT KEE failed to settle its obligations, ONLINE included the payment of interests on the latter’s claim.^[16]  FAT KEE then sent a letter to ONLINE, insisting that there was no agreement as to the exchange rate to be used in converting the unpaid obligations of FAT KEE and that the latter could not pay because of the extraordinary currency fluctuations.^[17]  The lawyers of ONLINE eventually sent a demand letter^[18] to FAT KEE for the payment of the outstanding balance, but this too went unheeded. ONLINE, thus, filed the instant case.^[19]

          The next witness to be presented by ONLINE was James Payoyo, an Account Manager for the said company.  Payoyo testified, among others, that sometime in November 1997, FAT KEE submitted their Purchase Order^[20] for Hewlett Packard computers and printers, which was quoted in US dollars.^[21]  Prior to this, FAT KEE likewise sent ONLINE a Purchase Order^[22]dated October 23, 1997 and the same was denominated in US dollars.^[23]  Payoyo related that, on January 15, 1998, the officials of ONLINE met with Frederick Huang, Jr., the President of FAT KEE, and the latter’s lawyer.  The parties discussed the payment scheme for the outstanding balance of FAT KEE.  ONLINE proposed that the total unpaid amount of more than US$136,000.00 shall be divided in two, such that 50% of the amount was to be paid in US dollars and the other half was to be settled in Philippine pesos.  The exchange rate to be applied to the Philippine peso component was P41:US$1.^[24]  FAT KEE then offered to renegotiate the exchange rate, offering to pay P35:US$1, but ONLINE rejected the same.  According to Payoyo, the parties subsequently agreed to a P40:US$1 conversion rate.^[25]

          Lastly, ONLINE called on Sonia Magpili to likewise testify to the fact that FAT KEE renegotiated with ONLINE for the conversion rate of P40:US$1.  Magpili stated that she was then the Executive Vice President of ONLINE^[26] and was among the company officials who met with FAT KEE President Huang on January 15, 1998.^[27]  Discussed in the meeting was the proposal to split the payment to be made by FAT KEE.^[28]  Frederick Huang, Jr. subsequently called the office of ONLINE to request for the lowering of the exchange rate to P40:US$1, to which ONLINE agreed.^[29]  FAT KEE made partial payments from March 1998, but later tried to negotiate again for a lower exchange rate.  Magpili testified that ONLINE no longer agreed to this proposal as the account of FAT KEE had already fallen due as of December 1997.^[30]  On cross-examination, however, Magpili admitted that FAT KEE did not execute any written confirmation to signify its agreement to the proposal to split its outstanding balance and the conversion rate of P40:US$1.^[31]   

          FAT KEE, afterwards, presented its testimonial evidence, calling forth Frederick Huang, Jr. to the witness stand.  Pertinently, Huang testified that the exchange rate they used in order to compute their total unpaid obligation to ONLINE was P34:US$1. Huang explained that this figure was arrived at by taking into account the SOA dated December 9, 1997.  Therein, the unpaid dollar amounts in the assailed Invoice Nos. 4680 and 4838^[32] were denominated in Philippine pesos as P2,343,414.33 andP1,502,033.06, respectively.  A simple computation^[33] then revealed that the rate of exchange rate thereon was P34:US$1.^[34] FAT KEE also applied the said rate on Invoice Nos. 5090 and 5096,^[35] such that the dollar amounts stated thereon were respectively converted to P384,107.52 and P466,480.00.       

Huang also stated that FAT KEE quoted in US dollars the Purchase Order dated November 26, 1997, since the same was upon the instructions of Payoyo.  During that time, the fluctuations of the Philippine peso were rapid and the Accounting Department of ONLINE informed Huang that the computer equipment ordered by FAT KEE would not be delivered unless FAT KEE issued a Purchase Order in US dollars.  Huang also said that there was no agreement between FAT KEE and ONLINE for the payment in US dollars, nor did the parties agree to a specific exchange rate.^[36]  On January 15, 1998, the parties met, but they failed to reach any agreement regarding the exchange rate and the payment in US dollars.  The next day, ONLINE, through Payoyo, wrote a letter to FAT KEE, confirming their supposed agreement on an exchange rate of P41:US$1.^[37]  On February 23, 1998, Payoyo again wrote to Huang, informing him that the new exchange rate to be applied was P40:US$1.  On March 2, 1998, Huang communicated to Payoyo, stating that the Board of Directors of FAT KEE agreed to settle the outstanding balance of the company at the rate of P37:US$1.^[38]  Huang then testified that FAT KEE continued to pay its obligation in Philippine pesos until its obligation was fully paid.^[39]  Later, FAT KEE received demand letters from ONLINE, directing the former to pay the amount ofP756,095.05.^[40] 

          Mayumi Huang also testified for FAT KEE.  Being the Operations Manager^[41] of FAT KEE, she admitted that she was the one who issued the Purchase Order dated November 26, 1997 to ONLINE for $13,720.00.^[42]

          As rebuttal evidence, ONLINE offered the testimony of Melissa Tan to prove that the SOA dated December 9, 1997 that was purportedly issued by ONLINE was in fact unauthorized and FAT KEE was duly informed of the same.  Tan stated that she was the Credit and Collection Supervisor for ONLINE.^[43]  Sometime in December 1997, Magpili showed her a copy of the SOA dated December 9, 1997, asking Tan if she approved the said document.  Tan declared that she did not issue the SOA, nor was she even aware of its issuance.^[44]  Tan explained that the absence of her signature on the SOA meant that the same was not authorized by ONLINE.  The standard procedure was for Tan to review and approve such documents first before the same were issued.^[45]  Tan noted that the SOA was prepared by Edwin Morales, an Accountant of ONLINE.  When confronted about the SOA, Morales reasoned that he merely wanted to give FAT KEE an initial computation of the latter’s outstanding balance, but he mistakenly included the billings that were denominated in US dollars.^[46]  At the meeting between ONLINE and FAT KEE on January 15, 1998, the latter was informed that the SOA was not official and the parties negotiated the applicable conversion rate.^[47]  Upon cross-examination, Tan revealed that ONLINE did not rectify or correct the entries contained in the SOA.  No disciplinary action was likewise taken against Morales for the unauthorized issuance of the said document.^[48]

          Finally, FAT KEE presented the testimony of Frederick Huang, Jr. as surrebuttal evidence.  Huang again maintained that the parties failed to reach an agreement as regards the payment of FAT KEE’s obligations to ONLINE, as well as the proposal to apply the exchange rate of P37:US$1.^[49]     

          In a Decision dated November 7, 2000, the RTC dismissed the complaint of ONLINE, ratiocinating thus:

After assessing the evidence presented by both parties, the court is of the belief that [ONLINE] failed to establish its claim against [FAT KEE].  While indeed [FAT KEE] purchased computer printers from [ONLINE], [the latter] has not established the fact that at the time when the obligation became due and demandable, there was an agreement as to the conversion rate between [ONLINE] and [FAT KEE] as to the rate of exchange from US dollars into Philippine Peso in the payment of purchase price of printers.  When there is no agreement between [ONLINE] and [FAT KEE] as to the rate of exchange from US dollars to Philippine peso, while it is correct to say that it is the prevailing rate of exchange at the time when the obligation became due and demandable, the prevailing rate should be used that prevailing rate, is the rate pegged by [ONLINE], which was contained in the Statement of Account dated 9 December 1997.

x x x Edwin Morales in the Statement of Account he sent to [FAT KEE] dated 9 December 1997 computed the obligation of [FAT KEE] in Philippine currency and after computing the total obligation, by simple mathematical computation, it appears indeed that the exchange rate used by [ONLINE] is PHP34.00 for every US$1.00.  [ONLINE], therefore, is estopped from claiming that the rate of exchange rate should be at the rate of either PHP41.50 or PHP40.00 per US$1.00, as the rate which [ONLINE] itself used is PHP34.00 for every US$1.00 by [ONLINE’s] own computation.  [FAT KEE] even paid an excess of PHP62,539.24.

Considering that [FAT KEE] have fully paid the amount and there being really no dispute as to the exchange rate by [ONLINE’s] own admission in its Statement of Account dated 9 December 1997, it is but proper to consider that [FAT KEE] has fully paid its obligation with [ONLINE] as evidenced by various receipts presented during the trial.

x x x x

With all these, considering that [ONLINE] failed to prove through preponderance of evidence its claim against [FAT KEE] and therefore [ONLINE’s] complaint must be dismissed.

However, [FAT KEE] in its counterclaim claimed among others that [FAT KEE] is entitled to attorney’s fees in the amount ofP250,000.00.  It having been satisfactorily proven by [FAT KEE] that [it] is entitled to attorney’s fees, the court, in its discretion, awards to [FAT KEE] the amount of PHP100,000.00 for and as attorney’s fees, which [ONLINE] must pay to [FAT KEE] considering that the claim of [ONLINE] is incorrect and its complaint baseless.

WHEREFORE, premises considered, [judgment] is hereby rendered in favor of [FAT KEE] and as against [ONLINE].  As a consequence, [ONLINE’s] Complaint is dismissed, and [ONLINE] is therefore adjudged to pay [FAT KEE] the amount of P100,000.00 for and as attorney’s fees.

Costs against [ONLINE].^[50]

          On February 20, 2001, ONLINE filed a Motion for Reconsideration^[51] of the above decision.  ONLINE argued that estoppel may not be invoked against it as FAT KEE did not act or rely on the representations in the SOA dated December 9, 1997. ONLINE maintained that FAT KEE was informed that the SOA was erroneous and unauthorized and the parties subsequently met and negotiated on the exchange rate to be applied.  Likewise, ONLINE challenged the award of attorney’s fees in favor of FAT KEE.

          In an Order dated July 25, 2001, the RTC denied ONLINE’s motion for lack of merit.  Said the RTC:

The principle of Estoppel properly applies to [ONLINE] brought about by the Statement of Account dated December 9, 1997 which was sent to [FAT KEE] through [ONLINE’s] own collection clerk employee, Mr. Edwin Morales.  While, indeed, there is no exchange rate agreed upon between [ONLINE] and [FAT KEE], [the latter] actually made payments using the exchange rate of P34 for every US dollar after the Statement of Account dated December 9, 1997 was received by [FAT KEE].  Neither was there any formal action to correct the alleged unauthorized Statement of Account received by [FAT KEE] nor was the employee, Mr. Edwin Morales meted appropriate disciplinary action for the acts.  On the contrary, it was only during the rebuttal stage of the case when [ONLINE] tried to rectify the alleged mistake committed and not at the time when the same was discovered.  Moreover, [ONLINE’s] claim that [FAT KEE] did not reply on the Statement of Account aforestated is not entirely correct as the payments made by [FAT KEE] which [ONLINE] accepted were actually based on the Statement of Account using the rate of exchange of P34 for every US Dollar.

            In the matter of the award for Attorney’s fees, the same is justified and reasonable under the circumstances.  The complaint being unfounded and baseless, [FAT KEE] was forced to litigate and to engage the services of counsel for the protection of its interest.  The Court therefore finds justifiable and equitable reason for attorney’s fees to be awarded.

            WHEREFORE, premises considered, for lack of substantial merit and for reasons stated above, the Motion for Reconsideration is hereby DENIED.^[52]

          ONLINE thereafter filed a Notice of Appeal,^[53] elevating the case to the Court of Appeals.

          On September 26, 2005, the Court of Appeals rendered a Decision, reversing the judgment of the RTC in this wise:

We find the appeal meritorious.

            In the proceedings below, both parties harped on the propriety of using the exchange rate of P40:$1 as against the stated rate contained in the December SOA which the court a quo fixed at P34.00.  However, after scrutinizing the pieces of evidence submitted by the contending parties, We found the pronouncement of the court a quo wanting of bases and support.  Thus, in light of this conclusion, this Court is constrained to take exception from the findings of the trial court considering that there were pieces [of] evidence which had been misappreciated that will compel a contrary conclusion if properly taken into account.^[54]

          On the issue of estoppel on the part of ONLINE, the Court of Appeals adjudged that:

As borne by the records, ONLINE and FAT KEE had previous dealings with each other.  Out of all their transactions in the month of November 1997, six of these were transacted using the US Currency in their price quotations; two of these were actually paid in said notes.  While We agree that Invoice Nos. 4680 and 4838 were included in the December SOA, it should not however, be assumed that the same was the applicable conversion rate upon which FAT KEE relied on.

            x x x x

            Even granting that FAT KEE was of the impression that P34:$1 was the applicable rate for its obligation, this was however, immediately rectified by ONLINE when the parties met on January 1998, barely two months from FAT KEE’s receipt of the subject statement of account and before any payment for the same was advanced by FAT KEE, in order to negotiate the conversion rate of its obligation.  x x x  The fact that FAT KEE started paying its obligation under the dollar denominated invoices only on March 1998 fortifies the fact that both parties did not intend to be bound by the December SOA with respect to the subject invoices.

            Clearly, no estoppel as regards the December SOA may be ascribed to ONLINE because FAT KEE was not misled by ONLINE’s actuations, and even assuming arguendo that it was in fact misled, it still cannot invoke the principle as it was clearly negligent in not fully scrutinizing the receipts issued to it, which on their face made specific reference as to where payment was to be applied.  x x x  In pegging the amount at P34:$1, a peculiar situation will result where FAT KEE will be allowed to gain from defaulting payment despite absolute knowledge of its transactions with ONLINE. x x x. 

            x x x Other than its bare assertion, there were no indications to show that [FAT KEE] sought to correct the alleged irregular transactions. Neither is there any evidence on record demonstrating that sometime after making the purchase order, it made known its intention to take exception from the currency to be used.  By and large, FAT KEE cannot now be permitted to escape liability by simply alleging that the subject transactions were made solely upon the insistence of ONLINE.

            x x x x

            In this present recourse, it is undeniable that FAT KEE had given its assent to the foreign currency-based transaction with full knowledge of its probable effects and consequences that may spring therefrom.  This is evident from its acquiescence to the varying rates of exchange that ONLINE was charging the dollar transactions and its willingness to negotiate on the conversion rate.  x x x  And while this single proof of payment may not be regarded as a customary business practice, this however, may be taken as an indicium of FAT KEE’s concurrence to enter into a transaction that involves a foreign currency.^[55] (Emphases ours.)

As regards the applicable conversion rate, the appellate court held that:

Nevertheless, despite the above findings, this Court does not agree that the rate of conversion has been pegged by the parties at P40:$1.  It is evident that when the parties met on 15 January 1999, ONLINE’s proposal to FAT KEE to use the exchange rate of P41:$1 was declined by the latter and instead, FAT KEE made a counter offer of P35:$1.  Further renegotiations then ensued with ONLINE proposing a rate of P40:$1. On the other hand, FAT KEE, in a correspondence dated 2 March 1998, offered to use the exchange rate of P37:$1 for the satisfaction of its remaining obligation.  Thereafter, no further negotiations took place.  Significantly, on 17 March 1998, FAT KEE started to make payments for its remaining obligations, which ONLINE accepted without any protest.

            In fine, if ONLINE is to be held in estoppel, it is not from the issuance of the December SOA but rather from the last offer which pegged the exchange rate at the ratio of 37:1.  To Our mind, the silence of ONLINE and its receipt of the FAT KEE’s payment fifteen (15) days after the last correspondence may be taken as an implied acquiescence to the latter’s offer to pay in Philippine currency pegging the exchange rate at P37.00 to a US dollar.

            Thereby, from its actions subsequent to FAT KEE’s last offer, ONLINE is now barred from adopting an inconsistent position that would eventually cause loss or injury to another.  x x x

            On the other hand, ONLINE’s bare denial that this last offer was refused by the company simply contradicts the course of its action and at best, self serving.  Accordingly, utilizing the ratio of 37:1, FAT KEE’s obligation under Invoice Nos. 4680, 4838, 5090 and 5096 stands in the total amount of P5,148,528.91.  Admittedly, FAT KEE had already made payments for these invoices in the total amount of P4,758,574.18 from 17 March to 19 May 1998 and thus, only the amount of P389,954.73 remains unpaid.^[56]

          Thus, the Court of Appeals resolved the case as follows:

The only issue now left for resolution is where ONLINE’s claim should be computed at the fixed rate of exchange or the rate prevailing at the time of payment of the obligation.

Under Republic Act No. 8183, repealing Republic Act No. 529, parties to a contract may now agree that the obligation or transaction shall be settled in any currency other than the Philippine Currency at the time of payment.  The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing the prohibition on the stipulation of currency other than Philippine currency, such that obligations or transactions may now be paid in the currency agreed upon by the parties.  Just like R.A. No. 529, however, the new law does not provide for the applicable rate of exchange for the conversion of foreign currency-incurred obligations in their peso equivalent.  It follows, therefore, that the jurisprudence established in R.A. No. 529 regarding the rate of conversion remains applicable.

Thus, in Asia World Recruitment, Inc. v. National Labor Relations Commission, the High Court, applying R.A. No. 8183, sustained the ruling of the NLRC that obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the time of payment.  The wisdom on which the jurisprudence interpreting R.A. No. 529 is based, equally holds true with R.A. No. 8183.  Verily, it is just and fair to preserve the real value of the foreign exchange-incurred obligation to the date of its payment.

In this present recourse, We observed that ONLINE failed to sufficiently establish that the obligation was payable in US currency.  On the other hand, its actuations of negotiating for the mode of payment and allowing FAT KEE to settle its obligation in pesos are indicia of the want of any unequivocal agreement between the parties.  With no definite agreement that the transaction shall be settled in US Currency at the time of payment and considering the agreement of the parties to peg the rate at P37:$1, it now becomes an ineluctable conclusion that FAT KEE’s unpaid obligation shall be based at the rate of P37:$1 for the reasons discussed above.  Further validating this is ONLINE’s insistence that FAT KEE was liable to pay the amount of P756,095.05 and its allegations that the remaining unsettled controversy was confined to the amount of the applicable exchange rate.  Thus, it now becomes indubitable that the obligation was payable in a fixed rate.

Prescinding from the foregoing, We find that the exchange rate to be applied on FAT KEE’s obligation is the ratio of 37:1, and after deducting the amounts already paid, FAT KEE still owes ONLINE the amount of P389,954.73 excluding interest at the rate of 28% per annum, as stated on the face of the pertinent invoices, commencing from July 1998.  In the same manner and for having been compelled to institute this suit to vindicate its rights, attorney’s fees are also awarded to the [ONLINE] but the same is reduced to 10% of the total award.

WHEREFORE, the foregoing considered, the appeal is hereby GRANTED and the decision of the court a quo REVERSED and SET ASIDE.  Accordingly, the [FAT KEE] is ordered to pay the amount of P389,954.73 to [ONLINE] with interest at the rate [of] 28% per annum from July 1998 until paid, plus 10% of the total award representing attorney’s fees.^[57]

          FAT KEE filed a Motion for Reconsideration^[58] of the above decision, but the Court of Appeals denied the same in a Resolution dated January 26, 2006.

          Hence, this petition.

          FAT KEE invokes for resolution the following legal issues, to wit:

I

THE PETITION IS COMPLETE IN FORM AND SUBSTANCE

II

F.A.T. KEE DID NOT AGREE TO ENTER INTO A FOREIGN CURRENCY TRANSACTION

III

THERE WAS NO AGREEMENT TO USE A 1:37 PESO TO DOLLAR EXCHANGE RATE

IV

ONLINE WAS ESTOPPED BY THE 9 DECEMBER 1997 STATEMENT OF ACCOUNT.

          The Court shall determine the procedural questions first.

FAT KEE contests the argument of ONLINE that the instant petition is fatally defective for the failure of the former to attach the transcript of stenographic notes (TSN) of the RTC proceedings.  FAT KEE counters that there is no need to annex the said TSN given that ONLINE does not dispute the accuracy of the quoted portions of the transcripts and the petition does not request for a reevaluation of the evidence of the parties.  Assuming arguendo that the TSN should have been attached to the petition, FAT KEE begs for the relaxation of the rules so as not to frustrate the ends of substantive justice.  FAT KEE also rejects the contention of ONLINE that the petition raises only factual issues, which are not proper in a petition for review on certiorari.  FAT KEE argues that the Court of Appeals likewise erred in re-evaluating the evidence and substituted its own interpretation of the testimonies of the witnesses.

          On this preliminary procedural issue, we rule that the non-attachment of the relevant portions of the TSN does not render the petition of FAT KEE fatally defective. 

Rule 45, Section 4 of the Rules of Court indeed requires the attachment to the petition for review on certiorari “such material portions of the record as would support the petition.”^[59]  However, such a requirement was not meant to be an ironclad rule such that the failure to follow the same would merit the outright dismissal of the petition.  In accordance with Section 7 of Rule 45, “the Supreme Court may require or allow the filing of such pleadings, briefs, memoranda or documents as it may deem necessary within such periods and under such conditions as it may consider appropriate.”^[60]  More importantly, Section 8 of Rule 45 declares that “[i]f the petition is given due course, the Supreme Court may require the elevation of the complete record of the case or specified parts thereof within fifteen (15) days from notice.”^[61]  Given that the TSN of the proceedings before the RTC forms part of the records of the instant case, the failure of FAT KEE to attach the relevant portions of the TSN was already cured by the subsequent elevation of the case records to this Court.  This pronouncement is likewise in keeping with the doctrine that procedural rules should be liberally construed in order to promote their objective and assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding.^[62]

          As to the substantive issues raised in the instant petition, the Court finds that, indeed, questions of fact are being invoked by FAT KEE.  A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts.  For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them.^[63]

Rule 45, Section 1 of the Rules of Court dictates that a petition for review on certiorari “shall raise only questions of law, which must be distinctly set forth.”^[64]  This rule is, however, subject to exceptions,^[65] one of which is when the findings of fact of the Court of Appeals and the RTC are conflicting.  Said exception applies to the instant case.

Substantially, FAT KEE primarily argues there was neither any agreement to enter into a foreign currency-based transaction, nor to use a dollar exchange rate of P37:US$1.  The invoice receipts denominated in US dollars were unilaterally prepared by ONLINE.  Similarly, the Accounting Department of ONLINE required that the Purchase Order to be submitted by FAT KEE be denominated in US dollars and Frederick Huang, Jr. merely complied with the same upon the instructions of Payoyo.  Contrary to ONLINE’s claim, it issued the SOA dated December 9, 1997 with the alleged unpaid obligation of FAT KEE quoted in Philippine pesos.  FAT KEE also takes issue with the ruling of the Court of Appeals that it assented to the payment in US dollars of the transactions covered under Invoice Nos. 4680, 4838, 5090 and 5096.  Lastly, FAT KEE reiterates the ruling of the RTC that ONLINE was estopped from seeking payment in US dollars since the outstanding obligation of FAT KEE was denominated in Philippine pesos in the SOA dated December 9, 1997.  Claiming that the SOA was its only basis for payment, FAT KEE allegedly paid its obligations in accordance therewith and ONLINE duly accepted the payments.

After a meticulous review of the records, we resolve to deny the petition.

FAT KEE subscribes to the rulings of the RTC in the Decision dated November 7, 2000 and the Order dated July 25, 2001. The trial court found that there was no agreement as to the exchange rate for the conversion of the outstanding balance of FAT KEE to Philippine pesos.  A reading of the RTC rulings reveals that the trial court principally relied on the SOA dated December 9, 1997 and the testimony of Frederick Huang, Jr. in setting the exchange rate at P34:US$1.  The RTC ruled that ONLINE was estopped from claiming otherwise since FAT KEE actually paid its outstanding balance in accordance with the SOA.  Furthermore, the RTC determined that ONLINE failed to undertake any action to correct the SOA, which the latter claimed was unauthorized.  No disciplinary action was likewise taken against Edwin Morales, the employee who allegedly issued the SOA without authority.

In British American Tobacco v. Camacho,^[66] the Court emphasized the doctrine of estoppel as follows:

Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and representations, to the prejudice of others who have relied on them.  The principle is codified in Article 1431 of the Civil Code, which provides:

Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:

Sec. 2.  Conclusive presumptions. — The following are instances of conclusive presumptions:

(a)        Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it.

The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor’s position would expect or foresee such action.^[67]

In the instant case, we find that FAT KEE cannot invoke estoppel against ONLINE for the latter’s issuance of the SOA on December 9, 1997.  The Court agrees with the Court of Appeals’ ruling that any misconception on the part of FAT KEE engendered by the issuance of the SOA should have already been rectified when the parties subsequently met on January 15, 1998. The testimonial evidence of both ONLINE and FAT KEE establish that, during the meeting, the parties tried but failed to reach an agreement as regards the payment of FAT KEE’s outstanding obligation and the exchange rate to be applied thereto.  Whether or not FAT KEE was duly informed of the fact that the SOA was unauthorized is no longer of much importance.  By their act of submitting their respective proposals and counter-proposals on the mode of payment and the exchange rate, FAT KEE and ONLINE demonstrated that it was not their intention to be further bound by the SOA, especially with respect to the exchange rate to be used.  Moreover, FAT KEE only started making payments vis-à-vis the subject invoice receipts on March 17, 1998, or two months after the aforementioned meeting. 

At this point, Mijares v. Court of Appeals^[68] is instructive in declaring that:

One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care and circumspection.  A lack of diligence by a party claiming an estoppel is generally fatal.  If the party conducts himself with careless indifference to means of information reasonably at hand, or ignores highly suspicious circumstances, he may not invoke the doctrine of estoppel.  Good faith is generally regarded as requiring the exercise of reasonable diligence to learn the truth, and accordinglyestoppel is denied where the party claiming it was put on inquiry as to the truth and had available means for ascertaining it, at least where actual fraud has not been practised on the party claiming the estoppel.^[69]

Thus, after participating in the meeting on January 15, 1998, submitting its own proposals and further renegotiating for the lowering of the exchange rate, FAT KEE cannot anymore insist that it was completely under the impression that the applicable exchange rate was P34:US$1 as purportedly indicated in the December 9, 1997 SOA.

Anent the proper exchange rate to be applied in this case, we likewise uphold the ruling of the Court of Appeals that estoppel finds application in this case as regards the implied acquiescence of ONLINE to the use of the P37:US$1 exchange rate.  On March 2, 1998, after a series of proposals on the conversion rate to be applied, FAT KEE finally offered to settle its outstanding balance at the rate of P37:US$1.  To this offer, ONLINE did not respond.  Thereafter, on March 17, 1998, FAT KEE began remitting payments continuously, which ONLINE duly accepted.  Following the dictum stated in British American Tobacco, ONLINE communicated, through its silence and acceptance of payments, that it was agreeable to the P37:US$1 rate.  Indeed, ONLINE should not be allowed to adopt a contrary position to the detriment of FAT KEE.

Premises considered, we find therefore that the applicable exchange rate to determine the outstanding balance of FAT KEE isP37:US$1.  We note, however, that the Court of Appeals inadvertently erred in computing the remaining balance to be paid by FAT KEE.  According to Invoice Nos. 4680, 4838, 5090 and 5096, the total unpaid amount is US$136,149.43.  By applying P37:US$1 rate on the unpaid amount, the resulting balance is P5,037,528.91, not P5,148,528.91 as determined by the Court of Appeals.  As FAT KEE has already paid a total amount of P4,758,574.18,^[70] the total unpaid amount owed to ONLINE is P278,954.73.    

WHEREFORE, the Petition for Review on Certiorari is DENIED.  The Decision dated September 26, 2005 of the Court of Appeals in CA-G.R. CV No. 71910 is hereby AFFIRMED with MODIFICATION that F.A.T. Kee Computer Systems, Inc. is ordered to pay the amount of P278,954.73 to Online Networks International, Inc., with interest at the rate of 28% per annumfrom July 1998 until fully paid, plus 10% of the total award as attorney’s fees.  No costs.   

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

  Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

^[1]               Rollo, pp. 11-31.

^[2]               Id. at 32-42; penned by Associate Justice Josefina Guevara-Salonga with Associate Justices Delilah Vidallon-Magtolis and Fernanda Lampas-Peralta, concurring.

^[3]               Id. at 129-135; penned by Judge Oscar B. Pimentel.

^[4]               Records, pp. 1-7.

^[5]               Id. at 100-103.

^[6]               Id.

^[7]               Id. at 3.

^[8]               The total amount due as computed by ONLINE, plus 28% interest per annum for three months, was P3,012,636.17.  However, this is inaccurate.  The said amount is the result obtained upon the application of the 28% interest on the alleged unpaid balance of P2,943,944.14 for a period of one (1) month only.  A recomputation of the figures shows that the correct total amount should have been P3,150,020.23.      

^[9]               Records, pp. 37-45.

^[10]             Id. at 175.

^[11]             TSN, July 29, 1999, p. 6.

^[12]             Id. at 9.

^[13]             Id. at 14-15.

^[14]             Id. at 18.

^[15]             Id. at 20.

^[16]             Id. at 24.

^[17]             Id. at 24-25.

^[18]             Records, pp. 118-119.

^[19]             TSN, July 29, 1999, p. 27.

^[20]             The Purchase Order was dated November 26, 1997; records, p. 120.

^[21]             TSN, August 5, 1999, p. 7.

^[22]             Records, p. 121.

^[23]             TSN, August 5, 1999, pp. 12-13.

^[24]             Id. at 20-22.

^[25]             Id. at 26.

^[26]             TSN, September 7, 1999, p. 7.

^[27]             Id. at 9-10.

^[28]             Id. at 12-13.

^[29]             Id. at 14-15.

^[30]             Id. at 17.

^[31]             Id. at 21.

^[32]             The amount stated in Invoice No. 4680 was $66,954.70, while the amount in Invoice No. 4838 was $44,177.45.

^[33]             By dividing the amounts in Philippine pesos by the amounts in US dollars.

^[34]             TSN, November 11, 1999, pp. 18-20.

^[35]             The amount stated in Invoice No. 5090 was $11,297.28, while the amount in Invoice No. 5096 was $13,720.00.

^[36]             TSN, February 23, 2000, pp. 13-14.

^[37]             Id. at 16.

^[38]             Id. at 17.

^[39]             Id. at 20-21.

^[40]             Id. at 22.

^[41]             TSN, May 11, 2000, p. 20.

^[42]             Id. at 21-22.

^[43]             TSN, June 15, 2000, p. 5.

^[44]             Id. at 7-9.

^[45]             Id. at 9-10.

^[46]             Id. at 13-14.

^[47]             Id. at 15-16.

^[48]             Id. at 18-20.

^[49]             Id. at 29.

^[50]             Rollo, pp. 132-134.

^[51]             Records, pp. 265-287.

^[52]             Id. at 311-312.

^[53]             Id. at 313-316.

^[54]             Rollo, p. 36.

^[55]             Id. at 36-39.

^[56]             Id. at 39-40.

^[57]             Id. at 40-42.

^[58]             CA rollo, pp. 201-208.

^[59]             SEC. 4. Contents of petition. – The petition shall be filed in eighteen (18) copies, with the original copy intended for the court being indicated as such by the petitioner, and shall (a) state the full name of the appealing party as the petitioner and the adverse party as respondent, without impleading the lower courts or judges thereof either as petitioners or respondents; (b) indicate the material dates showing when notice of the judgment or final order or resolution subject thereof was received, when a motion for new trial or reconsideration, if any, was filed and when notice of the denial thereof was received; (c) set forth concisely a statement of the matters involved, and the reasons or arguments relied on for the allowance of the petition; (d) be accompanied by a clearly legible duplicate original, or a certified true copy of the judgment or final order or resolution certified by the clerk of court of the court a quo and the requisite number of plain copies thereof, and such material portions of the record as would support the petition; and (e) contain a sworn certification against forum shopping as provided in the last paragraph of section 2, Rule 42. (Emphasis ours.)

^[60]             SEC. 7. Pleadings and documents that may be required; sanctions. – For purposes of determining whether the petition should be dismissed or denied pursuant to section 5 of this Rule, or where the petition is given due course under section 8 hereof, the Supreme Court may require or allow the filing of such pleadings, briefs, memoranda or documents as it may deem necessary within such periods and under such conditions as it may consider appropriate, and impose the corresponding sanctions in case of non-filing or unauthorized filing of such pleadings and documents or non-compliance with the conditions therefor.

^[61]             See Grand Boulevard Hotel v. Genuine Labor Organization of Workers in Hotel, Restaurant and Allied Industries (GLOWHRAIN), 454 Phil. 463 (2003).

^[62]             Rules of Court, Rule 1, Section 6.

^[63]             Tirazona v. Court of Appeals, G.R. No. 169712, March 14, 2008, 548 SCRA 560, 581.

^[64]             SEC. 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts, whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition may include an application for a writ of preliminary injunction or other provisional remedies and shall raise only questions of law, which must be distinctly set forth. The petitioner may seek the same provisional remedies by verified motion filed in the same action or proceeding at any time during its pendency. (As amended by A.M. No. 07-7-12-SC.)

^[65]             The exceptions are: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. (Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 85-86.)

^[66]             G.R. No. 163583, August 20, 2008, 562 SCRA 511.

^[67]             Id. at 536-537.

^[68]             338 Phil. 274 (1997).

^[69]             Id. at 286-287.

^[70]             Records, pp. 104-111.

CASE NO. 2011-0071: OCEANEERING CONTRACTORS (PHILS), INC.  VS. NESTOR N. BARRETTO, DOING BUSINESS AS N.N.B. LIGHTERAGE (G.R. NO. 184215, 9 FEBRUARY 2011, PEREZ, J.) SUBJECTS: MARITIME CASE; NEGLIGENCE OF COMMON CARRIER; COMPENSATORY DAMAGES DEPENDS ON PLEADING AND PROOF; ATTORNEYS FEES NOT AUTOMATIC FOR WINNING CASES. (BRIEF TITLE: OCEANEERING CONTRACTORS VS. BARRETO).

FIRST DIVISION

x  – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

DECISION

PEREZ, J.:

          The requirements for an award of actual damages are central to this petition for review filed under Rule 45 of the 1997 Rules of Civil Procedure, primarily assailing the Decision dated 12 December 2007 rendered by the then Special Third Division of the Court of Appeals (CA) in CA-G.R. CV No. 87168,^[1] the dispositive portion of which states:

            WHEREFORE, premises considered, the instant appeal is PARTIALLY GRANTED.  The decision dated 27 December 2005 and order dated 28 April 2006 of the Regional Trial Court of Las Piñas, City, Branch 255, to the extent that it dismissed the counterclaims of defendant-appellant, are hereby reversed and set aside.  Plaintiff-appellee is ordered to pay defendant-appellant the amount of P306,000.00 as actual damages and P30,000.00 as attorney’s fees.

            SO ORDERED. ^[2]

The Facts

          Doing business under the name and style of N.N. B. Lighterage, respondent Nestor N. Barretto (Barretto) is the owner of the Barge “Antonieta”^[3] which was last licensed and permitted to engage in coastwise trading for a period of one year expiring on 21 August 1998.^[4]  On 27 November 1997, Barretto and petitioner Oceaneering Contractors (Phils.), Inc. (Oceaneering) entered into a Time Charter Agreement whereby, for the contract price of P306,000.00,^[5] the latter hired the aforesaid barge for a renewable period of thirty calendar days, for the purpose of transporting construction materials from Manila to Ayungon, Negros Oriental.^[6] Brokered by freelance ship broker Manuel Velasco,^[7] the agreement included Oceaneering’s acknowledgment of the seaworthiness of the barge as well as the following stipulations, to wit:

“a)       [Barreto] shall be responsible for the salaries, subsistence, SSS premium, medical, workmen’s compensation contribution and other legal expenses of the crew;

b)         [Oceaneering] shall be responsible for all port charges, insurance of all equipments, cargo loaded to the above mentioned deck barge against all risks (Total or Partial), or theft, security and stevedoring during loading and unloading operations and all other expenses pertinent to the assessment, fines and forfeiture for any violation that may be imposed in relation to the operation of the barge;

            x x x x

(f)        Delivery and re-delivery be made in Pasig River, Metro Manila;

(g)        Damage to deck barge caused by carelessness or negligence of stevedores hired by [Oceaneering] will be [Oceaneering’s] liability.  Upon clear findings by owners or barge patron of any damages to the barge that will endanger its seaworth(i)ness and stability, such damage/s shall be repaired first before loading and leaving port.  Under such conditions, the Barge Patron has the right to refuse loading and/or leaving port;

            x x x x

(i)                 [Barreto] reserves the right to stop, abort and deviate any voyage in case of imminent danger to the crew and/or  vessel that may be occasioned by any storm, typhoon, tidal wave or any similar events.”^[8]

In accordance with the agreement, Oceaneering’s hired stevedores who loaded the barge with pipe piles, steel bollards, concrete mixers, gravel, sand, cement and other construction materials in the presence of and under the direct supervision of the broker Manuel Velasco and Barretto’s Bargemen.^[9]   In addition to the polythene ropes with which they were lashed, the cargoes were secured by steel stanchions which Oceaneering caused to be welded on the port and starboard sides of the barge.^[10]   On 3 December 1997, the barge eventually left Manila for Negros Oriental, towed by the tug-boat “Ayalit” which, for said purpose, was likewise chartered by Oceaneering from Lea Mer Industries, Inc.^[11]   On 5 December 1997, however, Barretto’s Bargeman, Eddie La Chica, executed a Marine Protest,^[12] reporting the following circumstances under which the barge reportedly capsized in the vicinity of Cape Santiago, Batangas, viz.:

That on or about 1635 December 3, 1997, Barge ‘Antonieta’ departed Pico de Loro, Pasig River and towed by Tug-Boat ‘Ayalit’ bound for Ayungon, Negros Oriental with cargo onboard steel pipes and various construction materials.  While underway on or about 0245 December 4, 1997 encountered rough sea at the vicinity of Cape Santiago, Batangas and ma(d)e the barge x x x roll and pitch which caused the steel pipes and various construction materials to shift on the starboardside causing the breakdown of the steel stanch(i)ons welded on the deck of the barge leaving holes on the deck that cause(d) water to enter the hold.

That on or about 1529 December 5, 199[7], with the continuous entrance of sea water on the hold, the barge totally capsized touch(ed) bottom.

  On 9 December 1997, Barretto apprised Oceaneering of the supposed fact that the mishap was caused by the incompetence and negligence of the latter’s personnel in loading the cargo and that it was going to proceed with the salvage, refloating and repair of the barge.^[13]  In turn contending that the barge tilted because of the water which seeped through a hole in its hull, Oceaneering caused its counsel to serve Barretto a letter dated 12 March 1998, demanding the return of the unused portion of the charter payment amounting to P224,400.00 as well as the expenses in the sum of P125,000.00 it purportedly incurred in salvaging its construction materials.^[14]  In a letter dated 25 March 1998, however, Barretto’s counsel informed Oceaneering that its unused charter payment was withheld by his client who was likewise seeking reimbursement for the P836,425.00 he expended in salvaging, refloating and repairing the barge.^[15]  In response to Barretto’s 29 June 1998 formal demand for the payment of the same expenses,^[16] Oceaneering reiterated its demand for the return of the unused charter payment and the reimbursement of its salvaging expenses as aforesaid.^[17]

          On 6 October 1998, Barretto commenced the instant suit with the filing of his complaint for damages against Oceaneering, which was docketed as Civil Case No. LP-98-0244 before Branch 255 of the Regional Trial Court (RTC) of Las Piñas City. Contending that the accident was attributable to the incompetence and negligence which attended the loading of the cargo by Oceaneering’s hired employees, Barretto sought indemnities for expenses incurred and lost income in the aggregate sum ofP2,750,792.50 and attorney’s fees equivalent to 25% of said sum.^[18]  Specifically denying the material allegations of the foregoing complaint in its 26 January 1999 answer, Oceaneering, on the other hand, averred that the accident was caused by the negligence of Barretto’s employees and the dilapidated hull of the barge which rendered it unseaworthy. As a consequence, Oceaneering prayed for the grant of its counterclaims for the value of its cargo in the sum of P4,055,700.00, salvaging expenses in the sum ofP125,000.00, exemplary damages, attorney’s fees and litigation expenses.^[19]

          The issues thus joined and the mandatory pre-trial conference subsequently terminated upon the agreement of the parties,^[20]the RTC proceeded to try the case on the merits.  In support of his complaint, Barretto took the witness stand to prove the seaworthiness of the barge as well as the alleged negligent loading of the cargo by Oceaneering’s employees.^[21]  Barretto also presented the following witnesses: (a) Toribio Barretto II, Vice President for Operations of N.B.B. Lighterage, who primarily testified on the effort exerted to salvage the barge;^[22] and, (b) Manuel Velasco, who testified on his participation in the execution of the Time Charter Agreement as well as the circumstances before and after the sinking of the barge.^[23]  By way of defense evidence, Oceaneering in turn presented the testimonies of the following witnesses: (a) Engr. Wenifredo Oracion, its Operation’s Manager, to prove, among other matters, the value of the cargo and the salvage operation it conducted in the premises;^[24] and, (b) Maria Flores Escaño, Accounting Staff at Castillo Laman Tan Pantaleon and San Jose Law Offices, to prove its claim for attorney’s fees and litigation expenses.^[25]

To disprove the rough sea supposedly encountered by the barge as well as the negligence imputed against its employees, Oceaneering further adduced the testimonies of the following witnesses: (a) Rosa Barba, a Senior Weather Specialist at the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA);^[26] (b) Cmdr. Herbert Catapang, Officer-in-Charge of the Hydrographic Division at the National Mapping Resource Information Authority (NAMRIA);^[27] and, (c) Engr. Carlos Gigante, a freelance marine surveyor and licensed naval architect.^[28]   Recalled as a rebuttal witness, Toribio Barretto II, in turn, asserted that the hull of the barge was not damaged and that the sinking of said vessel was attributable to the improper loading of Oceaneering’s construction materials.^[29]  Upon the formal offer respectively made by the parties, the pieces of documentary evidence identified and marked in the course of the testimonies of the above named witnesses^[30] were, accordingly, admitted by the RTC.^[31]

On 27 December 2005, the RTC rendered a decision, dismissing both Barretto’s complaint and Oceaneering’s counterclaims for lack of merit.  While finding that Barretto failed to adduce sufficient and convincing evidence to prove that the accident was due to the negligence of Oceaneering’s employees, the RTC nevertheless brushed aside the latter’s claim that the barge was not seaworthy as acknowledged in the Time Charter Agreement.  Alongside its claim for reimbursement of the sums expended for the salvage operation it conducted which was denied for lack of evidence to prove the same, Oceaneering’s claim for the value of its cargo was likewise denied on the ground, among other matters, that the same was not included in the demand letters it served Barretto; and, that it has no one but itself to blame for failing to insure its cargo against all risks, as provided in the parties’ agreement.  With its claims for exemplary damages and attorney’s fees further denied for lack of showing of bad faith on the part of Barretto,^[32] Oceaneering filed the motion for partial reconsideration of the foregoing decision^[33] which was denied for lack of merit in the RTC’s 28 April 2006 order.^[34]

Dissatisfied, Oceaneering perfected its appeal from the aforesaid 27 December 2005 decision on the ground that the RTC reversibly erred in not finding that the accident was caused by the unseaworthy condition of the barge and in denying its counterclaims for actual and exemplary damages as well as attorney’s fees and litigation expenses. Docketed before the CA as CA-G.R. CV No. 87168,^[35] the appeal was partially granted in the herein assailed 12 December 2007 decision upon the finding, among others, that the agreement executed by the parties, by its express terms, was a time charter where the possession and control of the barge was retained by Barretto; that the latter is, therefore, a common carrier legally charged with extraordinary diligence in the vigilance over the goods transported by him; and, that the sinking of the vessel created a presumption of negligence and/or unseaworthiness which Barretto failed to overcome and gave rise to his liability for Oceaneering’s lost cargo despite the latter’s failure to insure the same.  Applying the rule, however, that actual damages should be proved with a reasonable degree of certainty, the CA denied Oceaneering’s claim for the value of its lost cargo and merely ordered the refund of the P306,000.00 it paid for the time charter, with indemnity for attorney’s fees in the sum of P30,000.^[36]

Alongside that interposed by Barretto, the motion for reconsideration of the foregoing decision filed by Oceaneering’s^[37]was denied for lack of merit in the CA’s resolution dated 11 August 2008,^[38] hence, this petition. 

The Issues

Oceaneering urges the reversal of the assailed 12 December 2007 decision and 11 August 2008 resolution on the ground that the CA erred in the following wise:

I.       IN HOLDING THAT THERE WERE NO VALID DOCUMENTS SHOWING THE REAL VALUE OF THE MATERIALS LOST AND THOSE ACTUALLY RECOVERED.

II.      IN DENYING OCEANEERING’S COUNTERCLAIMS FOR ACTUAL DAMAGES AMOUNTING TO (A) P3,704,700.00 REPRESENTING THE VALUE OF THE MATERIALS IT LOST DUE TO THE SINKING OF [BARRETO’S] BARGE; AND (b) P125,000.00 REPRESENTING THE EXPENSES IT INCURRED FOR SALVAGING ITS CARGO.

III.    IN AWARDING OCEANEERING’S COUNTERCLAIM FOR ATTORNEY’S FEES IN THE REDUCED AMOUNT OF P30,000.00 ONLY.^[39]

The Court’s Ruling

          We find the modification of the assailed decision in order.

          Oceaneering argues that, having determined Barretto’s liability for presumed negligence as a common carrier, the CA erred in disallowing its counterclaims for the value of the construction materials which were lost as a consequence of the sinking of the barge.  Alongside the testimony elicited from its Operation’s Manager, Engr. Winifredo Oracion, Oceaneering calls attention to the same witness’ inventory which pegged the value of said construction materials at P4,055,700.00, as well as the various sales receipts, order slips, cash vouchers and invoices which were formally offered before and admitted in evidence by the RTC. Considering that it was able to salvage only nine steel pipes amounting to P351,000.00, Oceaneering insists that it should be indemnified the sum of P3,703,700.00 for the value of the lost cargo, with legal interest at 12% per annum, from the date of demand until fully paid.  In addition, Oceaneering maintains that Barretto should be held liable to refund the P306,000.00 it paid as consideration for the Time Charter Agreement and to pay the P125,000.00 it incurred by way of salvaging expenses as well as its claim for attorney’s fees in the sum of P750,000.00.

In finding Oceaneering’s petition impressed with partial merit, uppermost in our mind is the fact that actual or compensatory damages are those damages which the injured party is entitled to recover for the wrong done and injuries received when none were intended.^[40]  Pertaining as they do to such injuries or losses that are actually sustained and susceptible of measurement,^[41] they are intended to put the injured party in the position in which he was before he was injured.^[42]   Insofar as actual or compensatory damages are concerned, Article 2199 of the Civil Code of the Philippines provides as follows:

“Art. 2199.  Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved.  Such compensation is referred to as actual or compensatory damages.”

          Conformably with the foregoing provision, the rule is long and well settled that there must be pleading and proof of actual damages suffered for the same to be recovered.^[43]  In addition to the fact that the amount of loss must be capable of proof, it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.^[44]  The burden of proof of the damage suffered is, consequently, imposed on the party claiming the same^[45] who should adduce the best evidence available in support thereof, like sales and delivery receipts, cash and check vouchers and other pieces of documentary evidence of the same nature.  In the absence of corroborative evidence, it has been held that self-serving statements of account are not sufficient basis for an award of actual damages.^[46]  Corollary to the principle that a claim for actual damages cannot be predicated on flimsy, remote, speculative, and insubstantial proof,^[47] courts are, likewise, required to state the factual bases of the award.^[48]

          Applying the just discussed principles to the case at bench, we find that Oceaneering correctly fault the CA for not granting its claim for actual damages or, more specifically, the portions thereof which were duly pleaded and adequately proved before the RTC.  While concededly not included in the demand letters dated 12 March 1998^[49] and 13 July 1998^[50] Oceaneering served Barretto, the former’s counterclaims for the value of its lost cargo in the sum of P4,055,700.00 and salvaging expenses in the sum of P125,000.00 were distinctly pleaded and prayed for in the 26 January 1999 answer it filed a quo.^[51]  Rather than the entireP4,055,700.00 worth of construction materials reflected in the inventory^[52] which Engr. Oracion claims to have prepared on 29 November 1997, based on the delivery and official receipts from Oceaneering’s suppliers,^[53] we are, however, inclined to grant only the following items which were duly proved by the vouchers and receipts on record, viz.:  (a) P1,720,850.00 worth of spiral welded pipes with coal tar epoxy procured on 22 November 1997;^[54] (b) P629,640.00 worth of spiral welded steel pipes procured on 28 October 1997;^[55] (c) P155,500.00 worth of various stainless steel materials procured on 27 November 1997;^[56]  (d)P66,750.00 worth of gaskets and shackles procured on 20 November 1997;^[57] and, (e) P4,880.00 worth of anchor bolt procured on 27 November 1997.^[58]

          The foregoing sums all add up to of P2,577,620.00 from which should be deducted the sum of P351,000.00 representing the value of the nine steel pipes salvaged by Oceaneering, or a total of  P2,226,620.00 in actual damages representing the value of the latter’s lost cargo.  Excluded from the computation are the following items which, on account of the dates of their procurement, could not have possibly been included in the 29 November 1997 inventory prepared by Engr. Oracion, to wit: (a) P1,129,640.00 worth of WO#1995 and PO#OCPI-060-97 procured on 9 December 1997;^[59] and, (b) P128,000.00 worth of bollard procured on 16 December 1997.^[60]  Likewise excluded are the anchor bolt with nut Oceaneering claims to have procured for an unspecified amount on 3 November 1997^[61] and the P109,018.50 worth of Petron oil it procured on 28 November 1997^[62] which does not fit into the categories of lost cargo and/or salvaging expenses for which it interposed counterclaims a quo.  Although included in its demand letters as aforesaid and pleaded in its answer, Oceaneering’s claim for salvaging expenses in the sum of P125,000.00 cannot, likewise, be granted for lack of credible evidence to support the same.

Tested alongside the twin requirements of pleading and proof for the grant of actual damages, on the other hand, we find that the CA also erred in awarding the full amount of P306,000.00 in favor of Oceaneering, as and by way of refund of the consideration it paid Barretto for the Time Charter Agreement.  Aside from not being clearly pleaded in the answer it filed a quo, said refund was claimed in Oceaneering’s demand letters only to the extent of the unused charter payment in the reduced sum of P224,400.00^[63]which, to our mind, should be the correct measure of the award.  Having breached an obligation which did not constitute a loan or forbearance of money, moreover, Barretto can only be held liable for interest at the rate of 6% per annum on said amount as well as the P2,226,620.00 value of the lost cargo instead of the 12% urged by Oceaneering.   Although the lost cargo was not included in the demand letters the latter served the former, said interest rate of 6% per annum shall be imposed from the time of the filing of the complaint which is equivalent to a judicial demand.^[64]  Upon the finality of this decision, said sums shall earn a further interest of 12% per annum until full payment in accordance with the following pronouncements handed down in Eastern Shipping Lines, Inc. vs. Court of Appeals,^[65] to wit:

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

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

          For lack of sufficient showing of bad faith on the part of Barretto, we find that the CA, finally, erred in granting Oceaneering’s claim for attorney’s fees, albeit in the much reduced sum of P30,000.00.  In the absence of stipulation, after all, the rule is settled that there can be no recovery of attorney’s fees and expenses of litigation other than judicial costs except in the instances enumerated under Article 2208 of the Civil Code.^[66] Being the exception rather than the rule,^[67] attorney’s fees are not awarded every time a party prevails in a suit,^[68] in view of the policy that no premium should be placed on the right to litigate.^[69]Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney’s fees may not be awarded where, as here, no sufficient showing of bad faith can be reflected in the party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.^[70]

          WHEREFORE, premises considered, the petition is PARTIALLY GRANTED and the assailed 12 December 2007 Decision is, accordingly, MODIFIED: (a) to GRANT Oceaneering’s claim for the value of its lost cargo in the sum ofP2,226,620.00 with 6% interest per annum computed from the filing of the complaint and to earn further interest at the rate of 12% per annum from finality of the decision until full payment; (b) to REDUCE the refund of the consideration for the Time Charter Agreement from P306,000.00 to P224,400.00, with 6% interest per annum computed from 12 March 1998,  likewise to earn further interest at the rate of 12% per annum from finality of this decision; and, (c) to DELETE the CA’s award of salvaging expenses and attorney’s fees, for lack of factual and legal basis.  The rest is AFFIRMED in toto.

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                      RENATO C. CORONA

                                                                                Chief Justice

^[1]               CA rollo, CV No. 87168, pp. 165-183.

^[2]               Id. at 183.

^[3]               Exhibit “A,” Records, Civil Case No. 87168, p. 199.

^[4]               Exhibit “C”, id. at 201.

^[5]               Exhibit “2”, id. at 448.

^[6]               Exhibits “E” to “E-2”, id. at 203-205.

^[7]               TSN, 20 April 2001, pp. 5-6.

^[8]               Records, pp. 204-205.

^[9]               TSN, 27 March 2003, pp. 18-24.

^[10]             Id. at 19-20.

^[11]             Exhibit “3,” Records, Civil Case No. 87168, p. 449.

^[12]             Exhibit “F”, id. at 206.

^[13]             Exhibit “21”, id. at 465.

^[14]             Exhibit “23”, id. at 468-469.

^[15]             Exhibit “22”, id. at 466-467.

^[16]             Exhibit “M”, id. at 215.

^[17]             Exhibit “25”, id. at 471.

^[18]             Id. at 1-26.

^[19]             Id. at 51-59.

^[20]             Id. at 104.

^[21]             TSN, 10 December 1999; 12 January, 2001; 4 April 2000; 1 September 2000.

^[22]             TSN, 8 December 2000.

^[23]             TSN, 20 April 2001.

^[24]             TSN, 24 October 2002; 27 March 2003; 8 May 2003.

^[25]             TSN, 15 May 2003.

^[26]             TSN, 3 July 2003.

^[27]             TSN, 14 August 2003.

^[28]             TSN, 28 August 2003.

^[29]             TSN, 4 December 2003.

^[30]             Records, Civil Case No. 87168, pp. 195-217; 434-506; 539-543.

^[31]             Id. at 229; 512; 553; 560-561.

^[32]             Id. at 635-663.

^[33]             Id. at 668-679.

^[34]             Id. at 686-689.

^[35]             CA rollo, CV No.  87168, pp. 40-82.

^[36]             Id. at 165-183.

^[37]             Id. at 185-203.

^[38]             Id. at 227-230.

^[39]             Rollo, p. 18.

^[40]             Empire East Land Holdings, Inc. vs. Capitol Industrial Construction Groups, Inc., 566 SCRA 473, 485.

^[41]             Spouses Ong vs. Court of Appeals, 361 Phil. 338, 353 (1999).

^[42]             Filipinas (Pre-Fab Bldg.) Systems, Inc. vs. MRT Development Corporation, G.R. No. 167829-30, 13 November 2007, 537 SCRA 609, 640, citing Development Bank of the Philippines v. Court of Appeals, G.R. No. 11053, 16 October 1996, 249 SCRA 331.

^[43]             Canada vs. All Commodities Marketing Corporation, G.R. No. 146141, 17 October 2008, 569 SCRA 321, 329.

^[44]             Manila Electric Corporation vs. T.E.A.M. Electronics Corporation, G.R. No. 131723, 13 December 2007, 540 SCRA 62, 79.

^[45]             Luxuria Homes, Inc. vs. Court of Appeals, 361 Phil. 989, 1001-1002, (1999).

^[46]             MCC Industrial Sales Corporation vs. Ssangayong Corporation, G.R. No. 153051, 18 October 2007, 536 SCRA 408, 467-468.

^[47]             Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic Planners and Construction Corp., G.R. Nos. 169408 & 170144, 30 April 2008, 553 SCRA 541, 567 .

^[48]             Santiago vs. Court of Appeals, G.R. No. 127440, 26 January 2007, 513 SCRA 69, 86.

^[49]             Exhibit “23”, Records, Civil Case No. 87168, pp. 468-469.

^[50]             Exhibit “25”, id. at 471.

^[51]             Id. at 56-57.

^[52]             Exhibit “5”, id. at 451.

^[53]             TSN, 27 March 2003, pp. 7-8.

^[54]             Exhibits “5” and “6”, Records, Civil Case No. 87168, pp. 451-452.

^[55]             Exhibit “10”, id. at 454.

^[56]             Exhibits “11” and “12”, id. at 455-456.

^[57]             Exhibit “15”, id. at 458.

^[58]             Exhibits “16” and “17”, id. at 459.

^[59]             Exhibits “8” and “9”, id. at 453.

^[60]             Exhibits “13” and “14”, id. at 457, Exhibit “27”; id. at 472.

^[61]             Exhibit “28”, id. at 473.

^[62]             Exhibit “29” and submarkings, id. at 474-475.

^[63]             Exhibit “25”, id. at 471.

^[64]             Philippine Airlines vs. Court of Appeals, G.R. No. L-46558, 31 July 1981, 106 SCRA, 391, 412.

^[65]             G.R. No. 97412, 12 July 1994, 234 SCRA 78, 96-97.

^[66]             Scott Consultants & Resource Development Corporation, Inc. vs. CA, 312 Phil. 466, 480 (1995).

^[67]             Philippine National Bank vs. Court of Appeals, 326 Phil. 504, 518-519 (1996).

^[68]             Philippine Phosphate Fertilizer Corporation vs. Kamalig Resources, Inc., G.R. No. 165608, 13 December 2007, 540 SCRA 139, 159.    

^[69]             Frias vs. San Diego-Sison, G.R. No. 155223, 3 April 2007, 520 SCRA 244, 259-260.

^[70]             Felsan Realty & Development Corporation vs. Commonwealth of Australia, G.R. No. 169656, 11 October 2007, 535 SCRA 618, 632.

CASE  2011-0070: SPOUSES LUIGI M. GUANIO AND ANNA HERNANDEZ-GUANIO VS. MAKATI SHANGRI-LA HOTEL AND RESORT, INC., ALSO DOING BUSINESS UNDER THE NAME OF SHANGRI-LA MANILA (G.R. NO. 190601, 7 FEBRUARY 2011, CARPIO MORALES, J.) SUBJECTS: BREACH OF CONTRACT; PROXIMATE CAUSE; NOMINAL DAMAGES. (BRIEF TITLE: SPOUSES GUANIO VS. MAKATI SHANGRI-LA).

THIRD DIVISION

x- – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

CARPIO MORALES, J.

For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati (the hotel).

          Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food tasting.  Petitioners claim that they requested the hotel to prepare for seven persons ─ the two of them, their respective parents, and the wedding coordinator. At the scheduled food tasting, however, respondent prepared for only six.  

          Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with wild mushroom sauce for the main course which cost P1,000.00 per person. They were, however, given an option in which salmon, instead of king prawns, would be in the menu at P950.00 per person. They in fact partook of the salmon.   

          Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was half the size of what they were served during the initial food tasting; and when queried about it, the hotel quoted a much higher price (P1,200.00) for the size that was initially served to them.   The parties eventually agreed on a final price ─ P1,150 per person.

           A day before the event or on July 27, 2001, the parties finalized and forged their contract.^[1] 

Petitioners claim that during the reception, respondent’s representatives, Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they would;  their guests complained of the delay in the service of the dinner;  certain items listed in the published menu were unavailable; the hotel’s waiters were rude and unapologetic when confronted about the delay; and despite Alvarez’s promise that there would be no charge for the extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the event up to 4:00 A.M. the next day.  

          Petitioners further claim that they brought wine and liquor in accordance with their open bar arrangement, but these were not served to the guests who were forced to pay for their drinks.

          Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and received an apologetic reply from Krister Svensson, the hotel’s Executive Assistant Manager in charge of Food and Beverage.  They nevertheless filed a complaint for breach of contract and damages before the Regional Trial Court (RTC) of Makati City.

In its Answer, respondent claimed that petitioners requested a combination of king prawns and salmon, hence, the price was increased to P1,200.00 per person, but discounted at P1,150.00; that contrary to petitioners’ claim, Marquez and Alvarez were present during the event, albeit they were not permanently stationed thereat as there were three other hotel functions; that while there was a delay in the service of the meals, the same was occasioned by the sudden increase of guests to 470 from the guaranteed expected minimum number of guests of 350 to a maximum of 380, as stated in the Banquet Event Order (BEO);^[2] and that Isaac Albacea, Banquet Service Director, in fact relayed the delay in the service of the meals to petitioner Luigi’s father, Gil Guanio.

          Respecting the belated service of meals to some guests, respondent attributed it to the insistence of petitioners’ wedding coordinator that certain guests be served first.

          On Svensson’s letter, respondent, denying it as an admission of liability, claimed that it was meant to maintain goodwill to its customers.

          By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of petitioners, disposing as follows:

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

1)      The amount of P350,000.00 by way of actual damages;

2)      The amount of P250,000.00 for and as moral damages;

3)      The amount of P100,000.00 as exemplary damages;

4)      The amount of P100,000.00 for and as attorney’s fees.

With costs against the defendant.

SO ORDERED.^[3]

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

Upon receiving your comments on our service rendered during your reception here with us, we are in fact, very distressed. Right from minor issues pappadums served in the soup instead of the creutons, lack of valet parkers, hard rolls being too hard till a major one – slow service, rude and arrogant waiters, we have disappointed you in all means.

Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely not up to our standards. We understand that it is our job to provide excellent service and in this instance, we have fallen short of your expectations. We ask you please to accept our profound apologies for causing such discomfort and annoyance. ^[4]  (underscoring supplied)

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

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

x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray during the wedding reception may not be attributed to defendant-appellant Shangri-la.

            We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the chain of events which resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the circumstances that obtained, only the Sps. Guanio may bear whatever consequential damages that they may have allegedly suffered.^[7]  (underscoring supplied)

          Petitioners’ motion for reconsideration having been denied by Resolution of November 19, 2009, the present petition for review was filed.

          The Court finds that since petitioners’ complaint arose from a contract, the doctrine of proximate cause finds no application to it:

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

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

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

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

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

The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:

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

x x x x

4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled date and time of the Function of any change in the minimum guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in the event of under attendance. In case the actual  number  of attendees exceed the minimum guaranteed number

by ten percent (10%), the HOTEL shall not in any way be held liable for any damage or inconvenience which may be caused thereby. The ENGAGER shall also undertake to advise the guests of the situation and take positive steps to remedy the same.^[10]  (emphasis, italics and underscoring supplied)

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

The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform respondent of the change in the expected number of guests.  The observation is reflected in the records of the case.  Petitioners’ failure to discharge such obligation thus excused, as the above-quoted paragraph 4.5 of the parties’ contract provide, respondent from liability for “any damage or inconvenience” occasioned thereby. 

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

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

Kalalo v. Luz holds:^[12]

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

Respondent’s Catering Director, Bea Marquez, explained the hotel’s procedure on receiving and processing complaints, viz:

ATTY. CALMA:

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

A         Yes.

Q         Is this the letter that you are referring to?

            If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as plaintiff’s exhibits, Your Honor.  What is the procedure of the hotel with respect to customer concern?

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

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

x x x x

Q         In your opinion, you just mentioned that there is a procedure that the hotel follows with respect to the complaint, in your opinion was this procedure followed in this particular concern?

A         Yes, ma’am.

Q         What makes you say that this procedure was followed?

A         As I mentioned earlier, we proved that we did acknowledge the concern of the client in this case and we did emphatize from the client and apologized, and at the same time got back to them in whatever investigation we have.

Q         You said that you apologized, what did you apologize for?

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

To the Court, the foregoing explanation of the hotel’s Banquet Director overcomes any presumption of admission of breach which Svensson’s letter might have conveyed.

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

Respondent admitted that three hotel functions coincided with petitioners’ reception. To the Court, the delay in service might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than quality service should be delivered especially in events which possibility of repetition is close to nil. Petitioners are not expected to get married twice in their lifetimes.

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

WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal damages.

SO ORDERED.

                                                CONCHITA CARPIO MORALES

                                                                Associate Justice

WE CONCUR:

ATTESTATION

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                  CONCHITA CARPIO MORALES

                                      Associate Justice

                                   Chairperson

CERTIFICATION

          Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                     RENATO C. CORONA

                                                                Chief Justice

^[1]               The Banquet and Meeting Services Contract dated July 26, 2001 was faxed to petitioners, while the Banquet Event Order was signed on July 25, 2001.  As per RTC Decision, the final price for the menu was only finalized on July 27, 2001.

^[2]               Rollo, pp. 159-161.

^[3]               Id. at 407.

^[4]               Id. at 141.

^[5]               Id. at 405.

^[6]               Penned by Associate Justice Apolinario D. Bruselas, Jr., with the concurrence of Associate Justices Andres B. Reyes, Jr. and Pampio A. Abarintos, id. at 8-26.

^[7]               Id. at 20-21.

^[8]               Calalas v. Court of Appeals, G.R. No. 122039, May 31, 2000, 332 SCRA 356, 357.

^[9]               G.R. No. 164349, January 31, 2006, citing FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation, 435 Phil. 333, 341-342 (2002).

^[10]             Vide Banquet and Meeting Services Contract, rollo, pp. 138-141, 140.

^[11]           Cathay Pacific Airways Ltd. v. Spouses Vazquez, G.R. No. 150843. March 14, 2003.

^[12]        L-27782, July 31, 1970, 34 SCRA 337, 348.

^[13]        TSN, March 16, 2005, pp. 21-23.

^[14]             TSN, March 16, 2005, pp. 24-26.

^[15]             CIVIL CODE, Article 2222. The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has been invaded.

^[16]             Id. at Article 26.