Chan vs. Maceda, Jr.

A judgment of default does not automatically imply admission by the defendant of the facts and causes of action alleged by the plaintiff; the plaintiff must still adduce competent evidence in support of his claims, and the trial court must evaluate such evidence with the highest degree of objectivity and certainty before rendering judgment. Where no contract of deposit exists between the parties and the plaintiff fails to prove that the subject materials were in the defendant's possession at the time of demand, no obligation or liability arises and no damages may be awarded.

Respondent Bonifacio S. Maceda, Jr. obtained a ₱7.3 million loan from the Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City, and on September 29, 1976, entered into a building construction contract with Moreman Builders Co., Inc. Moreman deposited construction materials and equipment in the warehouse of petitioners Wilson and Lily Chan, free of charge. When Moreman failed to complete the project on time, respondent filed an action for rescission and damages against Moreman, which was eventually resolved in respondent's favor. The present dispute concerns respondent's separate action against the Chans for their alleged failure to return the construction materials deposited in their warehouse.

On July 28, 1976, respondent Bonifacio S. Maceda, Jr. obtained a ₱7.3 million loan from the Development Bank of the Philippines to finance the construction of his New Gran Hotel Project in Tacloban City. On September 29, 1976, he entered into a building construction contract with Moreman Builders Co., Inc., stipulating completion not later than December 22, 1977. Respondent purchased various construction materials and equipment in Manila, and Moreman deposited these materials in the warehouse of Wilson and Lily Chan — the petitioners — free of charge.

Moreman failed to finish the hotel construction on time. On February 1, 1978, respondent filed an action for rescission and damages against Moreman before the then Court of First Instance of Manila, docketed as Civil Case No. 113498. On November 28, 1978, the CFI rescinded the contract and awarded respondent ₱445,000.00 as actual, moral, and liquidated damages, ₱20,000.00 for the increase in construction materials, and ₱35,000.00 as attorney's fees. Moreman's appeal to the Court of Appeals was dismissed on March 7, 1989 for being dilatory, and the Supreme Court denied further review on February 21, 1990, with Entry of Judgment issued on April 23, 1990.

During the pendency of Civil Case No. 113498, respondent ordered petitioners to return the construction materials and equipment deposited in their warehouse. Petitioners responded that Moreman had already withdrawn those materials in 1977. On December 11, 1985, respondent filed an action for damages with an application for a writ of preliminary attachment against petitioners before the RTC, Branch 160, Pasig City, docketed as Civil Case No. 53044. On August 25, 1989, nearly four years after filing, the trial court dismissed the complaint for failure to prosecute and lack of interest. Five years later, on September 6, 1994, respondent filed a motion for reconsideration, which was denied on September 9, 1994 for failure of respondent and his counsel to appear at the scheduled hearing. On October 14, 1994, respondent filed a second motion for reconsideration — a prohibited pleading — which the trial court nevertheless granted, reinstating the case on January 10, 1995.

Summons and copies of the complaint were then served on petitioners. On March 2, 1995, petitioners' counsel filed a motion to dismiss on several grounds, while respondent moved to declare petitioners in default, arguing that the motion to dismiss was filed out of time and lacked a notice of hearing. On April 27, 1995, the trial court declared petitioners in default. Petitioners' petition for certiorari before the Court of Appeals to annul the order of default was dismissed on August 31, 1995, and the Supreme Court affirmed that dismissal in its Resolution dated October 25, 1995, with Entry of Judgment issued on November 29, 1995. Upon return of the records to the RTC, respondent was allowed to present evidence ex parte, including the depositions of witnesses Leonardo Conge, Alfredo Maceda, and Engr. Damiano Nadera taken in the Metropolitan Trial Court in Cities, Branch 2, Tacloban City. On December 26, 1996, the trial court rendered judgment ordering petitioners to jointly and severally pay ₱1,930,000.00 and ₱2,549,000.00 as actual damages, ₱150,000.00 as moral damages, ₱50,000.00 as exemplary damages, and ₱50,000.00 as attorney's fees, plus costs. The Court of Appeals affirmed this decision in toto on June 17, 1999.

• Excessive Actual Damages: Petitioners contended that the actual damages claimed by respondent were already awarded to him in Civil Case No. 113498 and hence cannot be recovered again. Even assuming entitlement to damages, the amount of ₱4,479,000.00 was eleven times more than the total actual damages of ₱365,000.00 awarded in Civil Case No. 113498.
• Unwarranted Moral and Exemplary Damages: Petitioners argued that the awards of moral and exemplary damages affirmed by the Court of Appeals were unwarranted by the evidence presented by respondent at the ex parte hearing and should be eliminated or at least reduced.
• Attorney's Fees Without Basis: Petitioners maintained that the award of attorney's fees should be deleted because of the trial court's failure to state the legal and factual basis for such award.
• Misapprehension of Facts: Petitioners submitted that the case fell under recognized exceptions to the general rule that the Supreme Court does not review findings of fact, since both the trial court and the Court of Appeals based their judgments on misapprehension of facts.

• Fiduciary Obligations as Depositary: Respondent maintained that petitioners, as depositaries under the law, had both fiduciary and extraordinary obligations not only to safely keep the construction materials deposited but also to return them with all their products, accessories, and accessions, pursuant to Articles 1972, 1979, 1983, and 1988 of the Civil Code.
• Current Market Price as Basis: Respondent claimed that since petitioners' duty to return the construction materials had become impossible, the prices of those materials in 1996 should be the basis of the award of actual damages, as this was the only way to fulfill the "duty to return" contemplated in the applicable laws.
• Liability for Price Increase: Respondent argued that petitioners must bear the increase in market prices from 1977 to 1996 because liability for fraud includes "all damages which may be reasonably attributed to the non-performance of the obligation."
• No Double Recovery: Respondent insisted that there could be no double recovery because in Civil Case No. 113498, the parties were respondent and Moreman and the cause of action was rescission of their building contract, whereas in the present case, the parties were respondent and petitioners and the cause of action was for recovery of damages arising from petitioners' failure to return the construction materials and equipment.

• Contract of Deposit: Whether respondent proved the existence of a contract of deposit between himself and petitioners, or between petitioners and Moreman in respondent's favor, sufficient to create an obligation on the part of petitioners to return the construction materials to respondent.
• Existence of Materials at Time of Demand: Whether respondent proved that construction materials and equipment were actually in petitioners' warehouse at the time he demanded their return.
• Award of Damages: Whether the awards of actual, moral, exemplary damages, and attorney's fees were warranted by the evidence presented during the ex parte hearing.
• Procedural Validity: Whether the trial court committed grave procedural errors in reinstating the case after dismissal for failure to prosecute through an untimely motion for reconsideration and a prohibited second motion for reconsideration.

• Contract of Deposit: No. No contract of deposit, oral or written, existed between petitioners and respondent; the only evidence presented — unsigned and unauthenticated delivery receipts — had no probative value, and respondent failed to prove that any deposit was executed in his favor.
• Existence of Materials at Time of Demand: No. Respondent failed to prove that construction materials and equipment were actually in petitioners' warehouse at the time he made a demand for their return, petitioners having stated that Moreman had already withdrawn the materials in 1977.
• Award of Damages: No. Actual or compensatory damages cannot be presumed but must be proved with a reasonable degree of certainty under Article 2199 of the Civil Code; absent proof of a contract of deposit or of the materials' presence at the time of demand, respondent had no right to claim any damages, and the awards of moral, exemplary damages, and attorney's fees were likewise without basis.
• Procedural Validity: No. The trial court committed glaring procedural errors in reinstating the case: respondent's first motion for reconsideration was filed far beyond the fifteen-day reglementary period, and his second motion for reconsideration was a prohibited pleading under the Rules of Court.

• Contract of Deposit: Under Article 1311 of the Civil Code, contracts are binding only upon the parties who execute them and their assigns and heirs. Where there is no privity of contract, there is no obligation or liability and no cause of action arises. In an action against a depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. The record was bereft of any contract of deposit between petitioners and respondent. If at all, the deposit was only between petitioners and Moreman. Even granting arguendo that a deposit existed between petitioners and Moreman, it remained incumbent upon respondent to prove that it was executed in his favor, which he failed to do. The only evidence — delivery receipts — were unsigned and not duly received or authenticated by any party or authorized representative, rendering them without probative value. Every cause of action ex-contractu must be founded upon a contract, oral or written, express or implied, and respondent's claim lacked such foundation.

• Existence of Materials at Time of Demand: A depositary is obliged to return the thing to the depositor or to the person designated in the contract, pursuant to Article 1972 of the Civil Code. However, respondent also failed to prove that there were construction materials and equipment in petitioners' warehouse at the time he made a demand for their return. Petitioners had informed respondent that Moreman withdrew the materials in 1977. Without proof that the materials were actually present when demand was made, no obligation to return could arise.

• Award of Damages: Article 2199 of the Civil Code provides that actual or compensatory damages cannot be presumed but must be proved with a reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof of the actual amount suffered. Given the absence of a contract of deposit and the lack of proof that materials remained in the warehouse at the time of demand, respondent had no right whatsoever to claim damages. The trial court merely adopted respondent's allegations and evidence without evaluating them with the highest degree of objectivity and certainty, which a judgment of default does not permit.

• Procedural Validity: The case was originally filed on December 11, 1985, and dismissed on August 25, 1989 for failure to prosecute. Respondent's motion for reconsideration filed on September 6, 1994 — five years later — was far beyond the fifteen-day reglementary period and should have been dismissed outright. Worse, respondent's second motion for reconsideration filed on October 14, 1994 was a prohibited pleading under Section 5(2), Rule 37 of the 1997 Rules of Civil Procedure, yet the trial court granted it and reinstated the case on January 10, 1995. These constituted glaring procedural errors committed by both the trial court and the Court of Appeals. The Supreme Court undertook factual review under recognized exceptions to the general rule that it is not a trier of facts, because both lower courts based their judgments on misapprehension of facts.

• Judgment of Default Does Not Imply Admission — A judgment of default does not automatically imply admission by the defendant of the facts and causes of action of the plaintiff. The Rules of Court require the plaintiff to adduce evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor. The trial judge must evaluate the allegations with the highest degree of objectivity and certainty, sustaining only those allegations for which sufficient evidence has been adduced and rejecting those that are unsupported. In this case, the trial court merely adopted respondent's allegations and evidence without proper evaluation, constituting reversible error.

• Privity of Contract — Under Article 1311 of the Civil Code, contracts are binding only upon the parties who execute them and their assigns and heirs. Where there is no privity of contract, there is no obligation or liability and no cause of action arises. The Court applied this principle to hold that no contract of deposit existed between petitioners and respondent, and respondent could not enforce any obligation against petitioners absent proof of privity.

• Burden of Proof in Deposit Actions — In an action against a depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. Respondent failed to discharge this burden, as the only evidence presented — unsigned and unauthenticated delivery receipts — had no probative value.

• Actual Damages Must Be Proved — Under Article 2199 of the Civil Code, actual or compensatory damages cannot be presumed but must be proved with a reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork but must depend upon competent proof of the actual amount of damages suffered. The Court applied this rule to strike down the damage awards, which were unsupported by competent evidence of the existence of a contract or the presence of materials at the time of demand.

• "A judgment of default does not automatically imply admission by the defendant of the facts and causes of action of the plaintiff. The Rules of Court require the latter to adduce evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor." — This is the opening pronouncement of the decision and articulates the controlling doctrine on default judgments, establishing that a defaulted defendant's non-participation does not relieve the plaintiff of the burden of proof.

• "The trial judge has to evaluate the allegations with the highest degree of objectivity and certainty. He may sustain an allegation for which the plaintiff has adduced sufficient evidence, otherwise, he has to reject it." — This passage defines the standard of evaluation required of trial courts in default proceedings, emphasizing that judicial scrutiny cannot be dispensed with even when the defendant fails to appear.

• "Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises." — This statement applies the privity of contract principle to defeat respondent's claim, establishing that no liability can be imposed on a party who is not a party to the contract relied upon.

• "Considering our findings that there was no contract of deposit between petitioners and respondent or Moreman and that actually there were no more construction materials or equipment in petitioners' warehouse when respondent made a demand for their return, we hold that he has no right whatsoever to claim for damages." — This is the dispositive reasoning on the damages issue, tying the absence of both contractual privity and factual basis to the denial of all damage claims.

• Monarch Insurance Co., Inc. vs. Court of Appeals, 333 SCRA 71 (2000) — Cited in footnote 1 as authority for the doctrine that a judgment of default does not automatically imply admission of the plaintiff's facts and causes of action, and that the plaintiff must still adduce evidence.
• People vs. Dupali, 230 SCRA 62 — Cited by the Court of Appeals for the rule that factual conclusions reached by the trial court are not to be disturbed absent proper reason; the Supreme Court implicitly departed from this rule by finding that the case fell under recognized exceptions.
• People vs. Jain, 254 SCRA 686 — Cited by the Court of Appeals for the proposition that the trial judge's assessment of witness credibility is accorded great weight; the Supreme Court found this inapplicable given the misapprehension of facts by both lower courts.
• Development Bank of the Philippines vs. Court of Appeals, G.R. No. 118342, January 5, 1998 — Cited as authority for the rule that actual damages must be proved with reasonable certainty and that courts cannot rely on speculation or conjecture as to the fact and amount of damages.
• Fule vs. Court of Appeals, G.R. No. 112212, March 2, 1998 — Cited for the enumerated exceptions to the general rule that the Supreme Court does not review findings of fact in a petition for review on certiorari under Rule 45.

• Article 1311, Civil Code — Provides that contracts are binding only upon the parties who execute them and their assigns and heirs. Applied to hold that no obligation or liability could arise against petitioners absent a contract of deposit between them and respondent.
• Article 1972, Civil Code — Obliges the depositary to keep the thing safely and return it when required to the depositor or his heirs or successors, or to the person designated in the contract. Cited by respondent but found inapplicable because no contract of deposit was proven.
• Articles 1979, 1983, and 1988, Civil Code — Provisions on the depositary's liability for loss, the obligation to return the thing with its products and accessions, and the obligation to return upon demand. Cited by respondent but held inapplicable for the same reason.
• Article 2199, Civil Code — Provides that actual or compensatory damages cannot be presumed but must be duly proved. Applied to strike down the award of actual damages for lack of competent proof.
• Articles 20 and 21, Civil Code — Cited by the trial court as basis for awarding damages; the Supreme Court implicitly rejected their application absent proof of the factual predicates required.
• Section 1, Rule 45, 1997 Rules of Civil Procedure — Limits the Supreme Court's jurisdiction in a petition for review on certiorari to reviewing only errors of law, not of fact, subject to recognized exceptions.
• Section 3, Rule 41 in relation to Section 1, Rule 37, 1997 Rules of Civil Procedure — Governs the reglementary period for filing a motion for reconsideration; respondent's motion filed five years after dismissal was far beyond the fifteen-day period.
• Section 5(2), Rule 37, 1997 Rules of Civil Procedure — Prohibits the filing of a second motion for reconsideration; the trial court erred in granting respondent's prohibited second motion and reinstating the case.

Puno, Panganiban, Corona, and Carpio Morales, JJ., concurred.