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1996-PCIB Vs CA PDF
1996-PCIB Vs CA PDF
Paldan, Sutton, Mendoza & Associates, Go Cojuangco Mendoza & Ligon for Private
Respondent.
SYLLABUS
2. ID.; ID.; ID.; ANY ATTEMPT TO COMPLETELY EXEMPT ONE OF THE CONTRACTING
PARTIES FROM ANY LIABILITY IN CASE OF LOSS NOTWITHSTANDING ITS BAD FAITH,
FAULT OR NEGLIGENCE, CANNOT BE SANCTIONED FOR BEING INIMICAL TO PUBLIC
INTEREST AND THEREFORE CONTRARY TO PUBLIC POLICY; CASE AT BAR. — It is
equally important to stress, though, that the Court is not precluded from ruling out blind
adherence to their terms if the attendant facts and circumstances show that they should be
ignored for being obviously too one-sided. On previous occasions, it has been declared that a
contract of adhesion may be struck down as void and unenforceable, for being subversive to
public policy, only when the weaker party is imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived
of the opportunity to bargain on equal footing. And when it has been shown that the complainant
is knowledgeable enough to have understood the terms and conditions of the contract, or one
whose stature is such that he is expected to be more prudent and cautious with respect to his
transactions, such party cannot later on be heard to complain for being ignorant or having been
forced into merely consenting to the contract. The factual backdrop of the instant case,
however, militates against applying the aforestated pronouncements. That petitioner failed to
discharge its obligation to transmit private respondent’s telegraphic transfer on time in
accordance with their agreement is already a settled matter as the same is no longer disputed
in this petition. Neither is the finding of respondent Court of Appeals that petitioner acted
fraudulently and in bad faith in the performance of its obligation, being contested by petitioner.
Perforce, we are bound by these factual considerations. Having established that petitioner
acted fraudulently and in bad faith, we find it implausible to absolve petitioner from its wrongful
acts on account of the assailed provision exempting it from any liability. In Geraldez v. Court of
Appeals, 230 SCRA 320, 331 [1994], it was unequivocally declared that notwithstanding the
enforceability of a contractual limitation, responsibility arising from a fraudulent act cannot be
exculpated because the same is contrary to public policy. Indeed, Article 21 of the Civil Code
is quite explicit in providing that" [a]ny person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for
the damage." Freedom of contract is subject to the limitation that the agreement must not be
against public policy and any agreement or contract made in violation, of this rule is not binding
and will not be enforced. The prohibition against this type of contractual stipulation is moreover
treated by law as void which may not be ratified or waived by a contracting party. Undoubtedly,
the services being offered by a banking institution like petitioner are imbued with public interest.
The use of telegraphic transfers have now become commonplace among businessmen
because it facilitates commercial transactions. Any attempt to completely exempt one of the
contracting parties from any liability in case of loss notwithstanding its bad faith, fault or
negligence, as in the instant case, cannot be sanctioned for being inimical to public interest and
therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted
fraudulently and in bad faith, the award of moral and exemplary damages were proper.
DECISION
FRANCISCO, J.:
This is a petition for review on certiorari seeking the reversal of the Decision of the Court of
Appeals in CA-G.R. No. 18843 promulgated on July 30, 1990, and the Resolution dated March
11, 1991, affirming with modification the judgment of the Regional Trial Court of Gingoog City
which held petitioner Philippine Commercial International Bank (PCIB) liable for damages
resulting from its breach of contract with private respondent Rory W. Lim.
Disputed herein is the validity of the stipulation embodied in the standard application
form/receipt furnished by petitioner for the purchase of a telegraphic transfer which relieves it
of any liability resulting from loss caused by errors or delays in the course of the discharge of
its services.
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB
Check No. JJJ 24212467 in the amount of P200,000.00 for the purpose of obtaining a
telegraphic transfer from petitioner PCIB in the same amount. The money was to be transferred
to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private
respondent’s account at the said bank. Upon purchase of the telegraphic transfer, petitioner
issued the corresponding receipt dated March 13, 1986 [T/T No. 284] 1 which contained the
assailed provision, to wit:
"A G R E E M E N T
x x x
In case of fund transfer, the undersigned hereby agrees that such transfer will be made without
any responsibility on the part of the BANK, or its correspondents, for any loss occasioned by
errors, or delays in the transmission of message by telegraph or cable companies or by the
correspondents or agencies, necessarily employed by this BANK in the transfer of this money,
all risks for which are assumed by the undersigned."
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered
eight (8) Equitable Bank checks 2 to his suppliers in different amounts as payment for the
merchandise that he obtained from them. When the checks were presented for payment, five
of them bounced for insufficiency of funds, 3 while the remaining three were held overnight for
lack of funds upon presentment. 4 Consequent to the dishonor of these checks, Equitable Bank
charged and collected the total amount of P1,100.00 from private Respondent. The dishonor of
the checks came to private respondent’s attention only on April 2, 1986, when Equitable Bank
notified him of the penalty charges and after receiving letters from his suppliers that his credit
was being cut-off due to the dishonor of the checks he issued.
Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it
was confirmed that his telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not
yet been remitted to Equitable Bank, Cagayan de Oro branch. In fact, petitioner PCIB made the
corresponding transfer of funds only on April 3, 1986, twenty one (21) days after the purchase
of the telegraphic transfer on March 13, 1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the
resulting damage that he suffered due to petitioners failure to make the timely transfer of funds
which led to the dishonor of his checks. !n a letter dated April 23, 1986, PCIB’s Branch Manager
Rodolfo Villarmia acknowledged their failure to transmit the telegraphic transfer on time as a
result of their mistake in using the control number twice and the petitioner bank’s failure to
request confirmation and act positively on the disposition of the said telegraphic transfer. 5
Nevertheless, petitioner refused to heed private respondent’s demand prompting the latter to
file a complaint for damages with the Regional Trial Court of Gingoog City 6 on January 16,
1987. In his complaint, private respondent alleged that as a result of petitioners total disregard
and gross violation of its contractual obligation to remit and deliver the sum of Two Hundred
Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable Banking Corporation,
Cagayan de Oro Branch, private respondent’s checks were dishonored for insufficient funds
thereby causing his business and credit standing to suffer considerably for which f petitioner
should be ordered to pay damages. 7
Answering the complaint, petitioner denied any liability to private respondent and interposed as
special and affirmative defense the lack of privity between it and private respondent as it was
not private respondent himself who purchased the telegraphic transfer from petitioner.
Additionally, petitioner pointed out that private respondent is nevertheless bound by the
stipulation in the telegraphic transfer application/form receipt 8 which provides:
". . . In case of fund transfer, the undersigned hereby agrees that such transfer will be made
without any responsibility on the part of the BANK, or its correspondents, for any loss
occasioned by errors or delays in the transmission of message by telegraph or cable companies
or by correspondents or agencies, necessarily employed by this BANK in the transfer of this
money, all risks for which are assumed by the undersigned."
According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the message
regarding private respondent’s telegraphic transfer because their telex machine was out of
order at that time. But as it turned out, it was only on April 3, 1986 that petitioner’s Cagayan de
Oro Branch had received information about the said telegraphic transfer. 9
In its decision dated July 27, 1988 10 the Regional Trial Court of Gingoog City held petitioner
liable for breach of contract and struck down the aforecited provision found in petitioner’s
telegraphic transfer application form/receipt exempting it from any liability and declared the
same to be invalid and unenforceable. As found by the trial court, the provision amounted. to a
contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in
all its application forms without giving any opportunity to the applicants to question the same
and express their conformity thereto. 11 Thus, the trial court adjudged petitioner liable to private
respondent for the following amounts:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant,
ordering the latter to pay the former as follows:
the Equitable Banking Corporation, plus costs, all with legal interest of 6% per annum from
the date of this judgment until the same shall have been paid in full." 12
Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with
modifications the judgment of the trial court and ordered as follows:jgc:chanrobles.com.ph
4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and
SO ORDERED." 13
A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied
the same. 14
Still unconvinced, petitioner elevated the case to this Court through the instant petition for
review on certiorari invoking the validity of the assailed provision found in the application
form/receipt exempting it from any liability in case of loss resulting from errors or delays in the
transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is a contract of
adhesion, such fact alone does not make it invalid because this type of contract is not absolutely
prohibited. Moreover, the terms thereof are expressed clearly, leaving no room for doubt, and
both contracting parties understood and had full knowledge of the same.
Private respondent however contends that the agreement providing non-liability on petitioner’s
part in case of loss caused by errors or delays despite its recklessness and negligence is void
for being contrary to public policy and interest. 15
A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot modify.
16 One party prepares the stipulation in the contract, while the other party merely affixes his
signature or his "adhesion" thereto, 17 giving no room for negotiation and depriving the latter
of the opportunity to bargain on equal footing. 18 Nevertheless, these types of contracts have
been declared as binding as ordinary contracts, the reason being that the party who adheres
to the contract is free to reject it entirely. 19 It is equally important to stress, though, that the
Court is not precluded from ruling out blind adherence to their terms if the attendant facts and
circumstances show that they should be ignored for being obviously too one-sided. 20
On previous occasions, it has been declared that a contract of adhesion may be struck down
as void and unenforceable, for being subversive to public policy, only when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative
of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 21
And when it has been shown that the complainant is knowledgeable enough to have understood
the terms and conditions of the contract, or one whose stature is such that he is expected to be
more prudent and cautious with respect to his transactions, such party cannot later on be heard
to complain for being ignorant or having been forced into merely consenting to the contract. 22
The factual backdrop of the instant case, however, militates against applying the aforestated
pronouncements. That petitioner failed to discharge its obligation to transmit private
respondent’s telegraphic transfer on time in accordance with their agreement is already a
settled matter as the same is no longer disputed in this petition. Neither is the finding of
respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the
performance of its obligation, being contested by petitioner. Perforce, we are bound by these
factual considerations.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible to
absolve petitioner from its wrongful acts on account of the assailed provision exempting it from
any liability. In Geraldez v. Court of Appeals, 23 it was unequivocally declared that
notwithstanding the enforceability of a contractual limitation, responsibility arising from a
fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed,
Article 21 of the Civil Code is quite explicit in providing that ‘’[a]ny person who willfully causes
loss or Injury to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage." Freedom of contract is subject to the limitation that
the agreement must not be against public policy and any agreement or contract made in
violation of this rule is not binding and will not be enforced. 24
The prohibition against this type of contractual stipulation is moreover treated by law as void
which may not be ratified or waived by a contracting party. Article 1409 of the Civil Code
states:jgc:chanrobles.com.ph
"ART. 1409. The following contracts are inexistent and void from the beginning:chanrob1es
virtual 1aw library
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;
x x x
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived."cralaw virtua1aw library
Undoubtedly, the services being offered by a banking institution like petitioner are imbued with
public interest. 25 The use of telegraphic transfers have now become commonplace among
businessmen because it facilitates commercial transactions. Any attempt to completely exempt
one of the contracting parties from any liability in case of loss notwithstanding its bad faith, fault
or negligence, as in the instant case, cannot be sanctioned for being inimical to public interest
and therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted
fraudulently and in bad faith, the award of moral 26 and exemplary damages were proper.
But notwithstanding petitioner’s liability for the resulting loss and damage to private respondent,
we find the amount of moral damages adjudged by respondent court in the sum of P400,000.00
exorbitant. Bearing in mind that moral damages are awarded, not to penalize the wrongdoer,
but rather to compensate the claimant for the injuries that he may have suffered, 27 we believe
that an award of Two Hundred Thousand Pesos (P200,000.00) is reasonable under the
circumstances.
WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral
damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision
is hereby AFFIRMED.
SO ORDERED.
Endnotes:
26. ART. 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.