Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 174154 October 17, 2008

JESUS CUENCO, petitioner,

vs.
TALISAY TOURIST SPORTS COMPLEX, INCORPORATED AND MATIAS
B. AZNAR III, respondents.

DECISION
NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the Decision dated April 18, 2005 and the
Resolution dated August 15, 2006 of the Court of Appeals (CA) in CA-G.R.
CV No. 65773.
The Facts

The antecedent facts of the case are as follows:

On May 25, 1992, petitioner leased from respondents for a period of two (2)
years, from May 8, 1992 to May 8, 1994, the Talisay Tourist Sports
Complex, to be operated as a cockpit. The lease was extended for another
four (4) years, or until May 8, 1998.
Under the Contract of Lease,1 it was stipulated that petitioner shall, like a
good father of the family, maintain in good condition the furniture, chattels
and all other equipment and shall, at all times, keep the leased premises
clean and sanitary. For this purpose, petitioner would allow the
respondent’s building supervisor or his authorized representative to make a
regular spot inspection of the leased premises to see to it that these
stipulations are strictly implemented.2 Any damage caused to the furniture,
chattels, equipment and parts of the leased premises shall be the
responsibility of petitioner to repair and compensate.3 Furthermore,
petitioner would give a deposit equivalent to six (6) months rental to answer
for whatever damages may be caused to the premises during the period of
the lease.4
Upon expiration of the contract, respondent company conducted a public
bidding for the lease of the property. Petitioner participated in the bidding.
The lease was eventually awarded to another bidder, Mr. Rex Cuaqui
Salud.5 Thereafter, petitioner wrote four (4) demand letters to respondents.

The first letter, dated June 8, 1998, reads:

Dear Mr. Aznar:
I was so disheartened that after going through with the supposed public
bidding, haggling with the terms and conditions of a new lease agreement
and after full compliance of ALL your requirements and the handshakes
signifying the clinching of the deal, the contract was awarded to another
party. Though I believe I deserve a renewal, I had to accept your decision
with a heavy heart.
It is now my desire to be released quickly from whatever liability or
responsibility under our previous contract. Repair works on some damaged
portions were already done. Based on our contract, par. 5 thereof, it is my
understanding that I am answerable to all damages caused to furnitures
(sic), chattels and other equipments and minor parts of the leased
premises. Once cleared, I want the return of my deposit of ₱500,000.00.
Kindly send your inspector to determine by actual ocular inspection if the
restoration work is to your satisfaction.
Very truly yours,
JESUS C. CUENCO [signed]6
Obviously, the letter was not answered, because on June 17, 1998
petitioner found it necessary to write respondents a second letter reiterating
his request for the return of the deposit. The second demand letter reads:
Dear Mr. Aznar:
It has been more than a week since my letter dated 8 June 1998 requesting
the return of my deposit of ₱500,000.00. I would assume your
representative had already conducted an ocular inspection and you were
satisfied on the restoration works made on the premises. As I’ve stated in
my said letter, I want to be released as soon as possible.

I need to know immediately if I still have other things to comply with as pre-
condition for the release of the deposit. As far as I know, I have already
done my part.
Very truly yours,
JESUS C. CUENCO [signed]7
With still no response from respondents, petitioner, on August 14, 1998,
sent a third demand letter which read:
Dear Mr. Aznar:
I am surprised by the unreasonable delay in the release of my deposit of
₱500,000.00 in spite of my full compliance as to repair works on minor
damage to the premises during my term as lessee. Twice I requested in
writing for the immediate release of my deposit but until now it remains
unheeded. And the so-called "inventory" which your lawyer Atty. Algoso8
promised to give has not been given. Frankly, I am doubtful of the accuracy
of said inventory, if any, considering the full blast major renovation now
being conducted on the complex by the new concessionaire. I think it’s
about time we close the last chapter of the book, in a manner of speaking,
so we can proceed in our separate distinct ways
I reiterate my request to please release right now my deposit of
₱500,000.00.
Very truly yours,

JESUS C. CUENCO [signed]9

Finally, on August 18, 1998, petitioner, thru his counsel, wrote respondents
a final demand letter as follows:

Dear Mr. Aznar:

For ignoring the two letters of my client Mr. Jesus C. Cuenco, dated June 8
and 17, 1998 regarding his request for the return of his deposit in the sum
of ₱500, 000.00, he has decided to endorse the matter to this office for
appropriate action.

It appears that when Mr. Cuenco leased the cockpit complex he was
required to put up a deposit to answer for damages that may be caused to
furnitures (sic), chattels and other equipments and minor repairs on the
leased premises. When the lease expired and he failed to get a renewal,
Mr. Cuenco in fulfillment of his obligation under the contract caused the
repair of minor damage to the premises after which your attention was
invited to get your reaction to the restoration work. And since he did not
receive any objection, it can be safely premised that the restoration was to
the lessor’s satisfaction.
Mr. Cuenco informed me that the new concessionaire has undertaken a full
blast major renovation of the complex. Under this condition and in the
absence of an accurate inventory conducted in the presence of both
parties, it would be doubly difficult, if not impossible, to charge Mr. Cuenco
of any violation of his undertaking especially as to deficiency in the
furnitures (sic), chattels and other equipments in the premises.

In view of all the foregoing, it is consequently demanded that you return to

Mr. Cuenco the aforesaid sum of ₱500,000.00 within THREE (3) DAYS
from notice hereof; otherwise, he may be constrained to seek judicial relief
for the return of the deposit plus interest, damages and attorney’s fees.
Your compliance is enjoined.

Very truly yours, At my instance:

FEDERICO C. CABILAO (signed) JESUS C. CUENCO (signed)

Counsel for Mr. Jesus C. Cuenco10
As all of his demand letters remained unheeded, on October 21, 1998,
petitioner filed a Complaint11 for sum of money, damages and attorney’s
fees. He maintained that respondents acted in bad faith in withholding the
amount of the deposit without any justifiable reason.12
In their Answer,13 respondents countered that petitioner caused physical
damage to some portions of the leased premises and the cost of repair and
replacement of materials amounted to more than ₱500,000.00.14 They
also averred that respondent Matias B. Aznar III (Aznar) cannot be sued
personally under the contract of lease since a corporation has a separate
and distinct personality from its officers and stockholders, and there was no
allegation that Aznar, who is the President of the corporation, signed the
contract in his personal capacity.15

On March 8, 1999, the RTC issued a Pre-trial Order,16 the pertinent

portions of which reads:

The following facts were admitted by the [respondents]:

1. There is no inventory of damages up to this time;
2. [Petitioner] deposited the amount of ₱500,000.00;
3. [Petitioner] sends (sic) several letters of demand to [respondents] but
said letters were not answered.
4. There was a renovation of the Talisay Tourist Sports Complex with a
qualification that the renovation is only 10% of the whole amount.
The main issues in this case are as follows:
1. Whether or not [petitioner] is entitled to the return of the deposit of
₱500,000.00, with interest;
2. Whether or not some portions of the complex sustained physical damage
during the operation of the same by the [petitioner].17
On May 24, 1999, the RTC issued an Order18 admitting the exhibits of
petitioner, consisting of the contract of lease dated May 4, 1994 and the
four (4) demand letters.
On July 29, 1999, an Order19 was issued by the same court formally
admitting the respondents’ following exhibits: the lease contract, inventory
of the leased property as of June 4, 1998, inventory of the sports complex
dated June 24, 1995, ocular inspection report dated January 15, 1998 and
various receipts mostly in the name of Southwestern University incurred in
different months of 1998.
On August 11, 1999, the RTC rendered a Decision20 in favor of petitioner,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of [petitioner] and
against the [respondents], directing the latter jointly and severally to return
to [petitioner] the sum of ₱500,000.00, representing the deposit mentioned
in the Complaint, plus 3% interest per month from August 18, 1998 until full
payment thereof.
The latter are, likewise, directed to pay [petitioner] the sum of ₱15,000.00
as and for litigation expenses.

With costs against the [respondents].

SO ORDERED.21
The RTC ratiocinated that respondents’ failure to reply to the letters of
petitioner raises a presumption that petitioner has complied with his end of
the contract. The lower court gave credence to the testimony of
respondents’ witness, Ateniso Coronado (Coronado), the property
custodian of the respondents, that the sports complex was repaired and
renovated by the new lessee. The court also considered the admission of
respondents’ counsel during the pre-trial that no inventory of the property
was conducted on the leased premises. The RTC debunked the inventory
presented by the respondents during trial as a mere afterthought to bolster
their claim against petitioner.22
Respondents appealed. On April 18, 2005, the CA rendered a Decision23
reversing and setting aside the decision of the RTC. The fallo of the CA
decision reads:
WHEREFORE, with the foregoing, the Decision of the Regional Trial Court,
Branch 13, Cebu City, dated August 11, 1999, is REVERSED and SET
ASIDE, and a new one entered finding this case in favor of defendants-
appellants Talisay Tourists Sports Complex and Matias Aznar III.
Consequently, Civil Case No. CEB-22847 for sum of money, damages, and
attorney’s fees involving herein parties, as well as all other claims and
counterclaims are hereby DISMISSED for lack of factual and legal basis.

No pronouncement as to costs.
SO ORDERED.24

The CA ruled in favor of respondents on the basis of: (1) Coronado’s

testimony that petitioner continued to hold cockfights two months after the
expiration of the lease contract which was not refuted by petitioner; (2) the
summary of repairs made on the property showing that respondents spent
the amount of ₱573,710.17 immediately prior to the expiration of the lease
contract and shortly thereafter; and (3) the new lessor incurred expenses
amounting to over ₱3 million when he shouldered the rest of the repair and
renovation of the subject property.25
Hence, the instant petition.
The Issues
Petitioner raised the following issues for resolution of the Court: (1) whether
a judicial admission is conclusive and binding upon a party making the
admission; and (2) whether such judicial admission was properly rejected
by the CA.26

On the other hand, respondents posed the following: (1) whether the
findings of the CA that the cockpit sustained damage during the period of
the lease was rendered not in accord with law or with the applicable
decisions of the Court; (2) whether the CA committed an error of law in
ruling that petitioner is not entitled for the return of the deposit.27
The ultimate question we must resolve is whether petitioner is entitled to
the return of the amount deposited.
The Ruling of the Court
We rule in the affirmative. Respondents failed to present sufficient proof to
warrant the retention of the full amount of the deposit given by petitioner.
The Supreme Court is not a trier of facts, and as a rule, does not weigh
anew the evidence presented by the parties. However, the instant case is
one of the exceptions to the rule because of the conflicting decisions of the
RTC and the CA based on contradictory factual findings. Thus, we have
reviewed the records in order to arrive at a judicious resolution of the case
at bench.
Petitioner questions the CA’s finding that there was damage caused the
premises while the lease was still in force. Such finding could only have
been based on alleged inventory of the property conducted by the
respondents. Petitioner takes exception to this evidence because of the
earlier judicial admission made by respondents’ counsel that no inventory
was conducted and, accordingly, any evidence adduced by the
respondents contrary to or inconsistent with the judicial admission should
be rejected.
Indeed, at the pre-trial conference, respondents’ counsel made an
admission that no inventory was made on the leased premises, at least up
to that time. This admission was confirmed in the Pre-Trial Order issued by
the trial court on March 8, 1999 after the lease expired on May 8, 1998.
Yet, on July 1, 1999, respondents’ witness Coronado testified, as follows:

ATTY. VASQUEZ:

Q Why do you know the defendants?

A Because Talisay Sports Complex is owned by Aznar Brothers Realty
Corporation of which I am employed as (sic) in charge of the realty
department.
Q How about Matias Aznar III, the defendant here?

A He is the Chairman of the Board.

Q Board of what?

A Of the Aznar Brothers Realty Corporation.

Q Is he the Chairman of Talisay Tourist Sports Complex?

A Yes, sir.

Q You said that you are in charge of the realty department, what is your
function with respect to the properties of Talisay Tourist and Sports
Complex?

A I am the in-charge of the administration and overseeing of the complex

owned by Talisay Sports Complex.
Q When you said that you are in charge of the administration and
overseeing of the complex, what does it includes (sic)?

A It includes collection of rentals of complex and routine inspection to

determine that there are missing or damage of (sic) the properties.

Q How long have you been employed with the Aznar Brothers Realty
Company?

A 25 years.

xxxx
Q In your earlier testimony, you said that part of your function is to conduct
routine inspection of the complex. Now, was there a routine inspection
conducted during the period of the lease contract between plaintiff and the
defendant?

A Yes, we conducted inspection sometime in January 1998.

Q For what purpose was that inspection?
A The purpose is to determine if there are damage sustained by the
complex.
Q And what was the result of the inspection.
A There were missing and destroyed fixtures and physical damage
sustained by the complex.

xxxx

COURT
xxxx

Q W[h]y did you not take photographs of the damage sustained by the
complex?

A We did not take pictures, Your Honor, because in fact their personnel
were in our presence (sic) during the inspection, they were accompanied
by us, because we can not conduct inspection without the presence of the
personnel of Jesus Cuenco, Your Honor, the lessee.
Q Did the personnel of Jesus Cuenco sign any paper acknowledging
receipt of any report
A There was no refusal, but we did not initiate to let them sign and confirm.

COURT

Q So, we have to rely on your testimony?

A Yes, sir.28

Obviously, it was on Coronado’s testimony, as well as on the documentary

evidence29 of an alleged property inventory conducted on June 4, 1998,
that the CA based its conclusion that the amount of damage sustained by
the leased premises while in the possession of petitioner exceeded the
amount of petitioner’s deposit. This contradicts the judicial admission made
by respondents’ counsel which should have been binding on the
respondents.
Section 4, Rule 129 of the Rules of Court provides
SEC. 4. Judicial admissions. – An admission, verbal or written, made by a
party in the course of the proceedings in the same case, does not require
proof. The admission may be contradicted only by a showing that it was
made through palpable mistake or that no such admission was made.
A party may make judicial admissions in (1) the pleadings, (2) during the
trial, by verbal or written manifestations or stipulations, or (3) in other
stages of the judicial proceeding.30 The stipulation of facts at the pre-trial
of a case constitutes judicial admissions. The veracity of judicial
admissions require no further proof and may be controverted only upon a
clear showing that the admissions were made through palpable mistake or
that no admissions were made. Thus, the admissions of parties during the
pre-trial, as embodied in the pre-trial order, are binding and conclusive
upon them.
Respondents did not deny the admission made by their counsel, neither did
they claim that the same was made through palpable mistake. As such, the
stipulation of facts is incontrovertible and may be relied upon by the courts.
The pre-trial forms part of the proceedings and matters dealt therein may
not be brushed aside in the process of decision-making. Otherwise, the real
essence of compulsory pre-trial would be rendered inconsequential and
worthless.31 Furthermore, an act performed by counsel within the scope of
a "general or implied authority" is regarded as an act of the client which
renders respondents in estoppel. By estoppel is meant that an admission or
representation is conclusive upon the person making it and cannot be
denied or disproved as against the person relying thereon.
Thus, respondents are bound by the admissions made by their counsel at
the pre-trial. Accordingly, the CA committed an error when it gave ample
evidentiary weight to respondents’ evidence contradictory to the judicial
admission.
The appellate court’s findings that the damage in the premises exceeded
the amount of the deposit is further sought to be justified, thus:
Verily, a perusal of the summary of repairs amounting to ₱573,710.17
claimed to have been made by appellants over the property at about that
time immediately prior to the expiration of the lease contract and shortly
thereafter, would show that the repairs pertained to repairs on the drainage,
sewage, immediate premises and structure of the complex. We find the
same highly credible and meritorious considering that as earlier admitted
by appellee, the repairs he made were minor and were confined only to
certain portions of the complex, although substantial repairs were done on
the cockhouses only, and that said repairs were done because of a coming
big time derby and not to satisfy the provisions of the lease contract. Also,
by implication, appellee is stating that the new lessor incurred expenses
amounting to over ₱3 million when he shouldered the rest of the repair and
renovation of the complex after the term of lease of appellee.33
Yet, upon perusal of the receipts presented by respondents, we found that
majority of the receipts are under the name of Southwestern University. In
their Memorandum,34 respondents aver that Southwestern University and
respondent corporation are sister companies.35 Even if true, this matter is
of no consequence because respondent company and Southwestern
University have distinct and separate legal personalities, and Southwestern
University is not a party to this case. Thus, we cannot just accept
respondents’ argument that the receipts paid in the name of Southwestern
University should be credited to respondent company. In any event, they
were not able to prove that those receipts were in fact used for the repair or
maintenance of the respondents’ complex.
Furthermore, respondents are not entitled the full amount of the deposit
because the repair and renovation of the sports complex after the
expiration of petitioner’s lease were undertaken not by respondents but by
the new lessee. This can be gleaned from Coronado’s testimony on cross-
examination, viz.:
Q You do not know. Mr. Witness, is it not a fact that the new lessee was
Wacky Salud?

A Yes, sir.
Q And that was sometime of July or August of 1998?
A They were about to conduct three months repair of the complex?
Q So, Mr. Wacky Salud conducted, did you say repair or renovation? Is it
renovation or repair?
A There was a renovation and repair.
Q Renovation including repair?
A Yes, sir.
COURT
Q In other words, after the expiration of the contract of Mr. Cuenco, Wacky
Salud took over?
A Yes, he took over that repair and renovation were no longer included in
this presentation, that is at his own expense.

Q Precisely. In other words, some repairs were made by Mr. Salud and not
by Aznar Brothers Realty?
A Yes, sir.36
Finally, the Court observes that the inventories presented by respondents
were not countersigned by petitioner or were they presented to the latter
prior to the filing of the case in the RTC. Thus, we are more inclined to
agree with the trial court that the "inventory was made as an
afterthought,"37 in a vain attempt of the respondents to establish their
case.

However, Coronado’s testimony that petitioner extended the operation of

the sports complex for a period of two months after the expiration of the
lease without the respondents’ authority and without the payment of
rentals, remains unrebutted. Enlightening is the following testimony:
Q I observed here in No. 16 of your summary, two months arrears rentals,
June to July, how come? The contract was supposed to expire May 1998?
A Yes, because it had happened on this extension of the lease because
they are still occupying until July after the expiration of the contract.
COURT
Q You mean to say that they still use the complex for the purpose for which
it was intended, which is for cockfighting?
WITNESS
A Yes, they are still doing their usual operation.
ATTY. VASQUEZ
Q You mean to say that there were still cockfighting held in the complex
even after May 1998?
A Yes, sir.3
This two (2) months over-stay of petitioner in the leased premises should
be charged against the deposit. Because there was no renewal of the lease
contract, it is understood that the continued use of the premises is on a
monthly basis with the rental in the amount previously agreed upon by the
parties, in accordance with Articles 167039 and 168740 of the Civil Code.

In the Contract of Lease of petitioner and respondent company, it was

agreed that the rental to be paid shall be the following:

WHEREAS, the FIRST PARTY is the owner of the Talisay Tourist Sports
Complex, Inc. located at Tabunok, Talisay, Cebu;

WHEREAS, the SECOND PARTY has expressed his desire to lease said
complex (cockpit) and the FIRST PARTY have agreed to lease/let the
same to the SECOND PARTY subject to the following term and condition,
to wit:

1. In consideration of this lease, the SECOND PARTY agrees to pay the

FIRST PARTY a lump sum of ONE MILLION PESOS (₱1,000,000.00)
representing advance rental for the first year, the same to be paid on May
8, 1994. Thereafter, the rental shall be as follows:
Second year
₱1,050,000.00 or ₱87,500.00/month

Third year
1,100,000.00 or ₱91,666.67/month
Fourth year

1,175,000.00 or ₱97,916.67/month41

Thus, by way of rental for the two-month overstay, the amount of

₱195,833.34 should be deducted from the amount of deposit paid by
petitioner to respondent compan
As to petitioner’s claim of interest of three percent (3%) per month on the
amount due him, the same is without legal basis. We note that no amount
of interest was previously agreed upon by the parties in the contract of
lease.
Under Article 2213 of the Civil Code, "interest cannot be recovered upon
unliquidated claims or damages, except when the demand can be
established with reasonable certainty." In the instant case, the claim of
petitioner is unliquidated or cannot be established with reasonable certainty
upon his filing of the case in the RTC. This is because of the contending
claims of the parties, specifically, the claim of petitioner for the return of the
₱500,000.00 deposit vis-a-vis the claim of respondents on the arrears in
rentals and on the damage to the premises. It is only now that the amount
that should be returned is ascertained, i.e., ₱500,000.00 less the two-
months arrears in rentals amounting to ₱195,833.34, the sum of which will
earn

interest at the legal rate of six percent (6%) per annum42 from the time the
case was filed in the RTC on October 21, 1998.43 Upon finality of this
decision, the rate of interest shall be twelve percent (12%) per annum from
such finality until full satisfaction. The foregoing interest rate is based on
the guidelines set by the Court in Eastern Shipping Lines v. CA, viz.:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
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.44

Concerning the solidary liability of respondents, we hold that respondent

Matias Aznar III is not solidarily liable with respondent company. His
function as the President of the company does not make him personally
liable for the obligations of the latter. A corporation, being a juridical entity,
may act only through its directors, officers and employees. Obligations
incurred by them while acting as corporate agents, are not their personal
liability but the direct accountability of the corporation they represent.45
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the
Court of Appeals is hereby REVERSED AND SET ASIDE. The Decision of
the RTC in Civil Case No. CEB-22847 is hereby REINSTATED with the
following modifications:
(1) Talisay Sports Complex, Inc. is solely liable to return the amount of the
deposit after deducting the amount of the two-months arrears in rentals;
and
(2) The rate of legal interest to be paid is SIX PERCENT (6%) on the
amount due computed from October 21, 1998, and TWELVE PERCENT
(12%) interest, thereon upon finality of this decision until full payment
thereof.
SO ORDERED.