LETTY HAHN, PETITIONER, VS. COURT OF APPEALS, JOSIE M. SANTOS AND FRANCISCO SANTOS, RESPONDENTS.

It is said that diamonds
are a girl’s best friend, but
private respondent Josie M.
Santos may have her doubts about this. 
The fact is that they have caused her not a little difficulty, and her
troubles are not yet over.  This case was
decided against her by the trial court and later by the respondent court which, however, mitigated the judgment of the
former.  The petitioner does not like
this and wants the earlier decision
reinstated.  That is why she is
now before this Court.

The basic facts as determined by the trial court^[1] and affirmed by the respondent court^[2] are no longer in issue.  It has been established that Santos received two diamond rings with a total value of P47,000.00
in 1966 from the petitioner.  She issued
separate receipts therefor in which she acknowledged
that they had been delivered by Letty Hahn to her for
sale on commission and that they would be returned upon demand if unsold.^[3] The rings were not sold nor were they
returned when demanded by Hahn.

Hahn sued for recovery of
the rings or their value.  While the
civil case was pending, she also filed a criminal action for estafa against Santos.  Santos was acquitted on reasonable doubt.^[4] In the civil action, however, where she also
pleaded that the contracts between her and Hahn were not of agency but of sale, Santos did not fare as well.

The trial court ordered
her to return the two rings or pay the plaintiff their value, which was
increased to P65,000.00, with legal interest, plus
P10,000 moral damages, P5,000 exemplary damages, and P6,000.00 attorney’s fees.^[5] The increase on the original value of the
rings was based on Article 1250 of the Civil Code calling for an adjustment of
the payment due in case of extraordinary inflation or deflation.  The moral and exemplary damages were imposed
because of the defendant’s “seeming lack of scruples and conscientiousness.”

On appeal, this decision
was modified.  The Court of Appeals found
that Article 1250 was not applicable and that the appellant had not acted in bad faith or with malice.  Accordingly, it rendered judgment:

A.  Ordering the defendants to return to the
plaintiff the two rings in question; to pay plaintiff legal interest on the
value of the ring, P47,000.00, from the time of the filing of the complaint
until restitution is made; and attorney’s fees in the amount of P6,000.00.

B.  Sentencing the defendants, in case return of
the rings is no longer feasible, to pay to the plaintiff the value thereof,
which is P47,000.00, with
interest at the legal rate from the time of the filing of the complaint until
full payment and P6,000.00 attorney’s fees.^[6]

In challenging this
decision, the petitioner contends that the respondent erred in not allowing an
upward adjustment of the original price of the two rings and
in disallowing the moral and exemplary
damages granted by the trial court. 
These are the issues in this petition.

On the first question, the petitioner cites Central Bank figures
to show that the amount of P47,000.00 in 1966, when the obligation to return it
or the rings fell due, was equivalent to about P235,000.00 in 1980 (and
necessarily to an even higher amount now in view of the continued reduction in
the purchasing power of the peso).  As
the increase ordered by the trial court (to P65,000.00
on August 7, 1971) was a
finding of fact based on official figures, the Court of Appeals was not
justified in reversing the same.

The petitioner also argues that the award of moral and exemplary
damages by the trial court was entirely justified and should not have been
disallowed by the respondent
court.  The reason is that there was
sufficient showing that the private respondent had acted with malice and in bad
faith toward the petitioner who had trusted her.

Thus, Santos
misrepresented her agreements with the petitioner as contracts of sale when the
very language of the receipts she herself
had written and signed clearly shows that she was receiving the rings in trust
from the petitioner, as later found in both the criminal and civil cases.^[7] Second, she claimed she had made installment
payments directly and personally to the petitioner during the period from August
14 to November 20, 1966, and when this lie was exposed with evidence that the
petitioner was abroad during that period, changed her testimony to make it
appear that the alleged payments had been made when Hahn was in the country.^[8] In fact, the finding of the trial court as
sustained by the respondent court was that she had made no payment at all at
any time.^[9] Third, when Santos offered to return the
solitaire ring to the petitioner, the latter readily saw that it was not the
same ring she had entrusted to the private respondent, who evidently wanted to
foist another deception upon her.^[10]

For her part, the private
respondent dismisses the claim for upward adjustment of the amount due and says
Article 1250 of the Civil Code
is not applicable, there being no inflation or deflation.  The Central Bank statistics Hahn invokes are
hearsay and immaterial.  Not in point
either is the case of Zulueta v. PanAmerican
World Airways,^[11] as cited by the petitioner, where the issue
of inflation was not even raised.  Moreover,
the delay in the payment of the amount due was imputable not to her but to the
petitioner, who had unreasonably prevented her from discharging her obligation.

As early as December of
1966, she says she had offered to return the marquisette
ring to the petitioner but the petitioner’s lawyer, acting on her instructions,
refused to accept it and demanded the return also of the P35,000.00
solitaire ring.^[12] She offered to pay for this other ring on
installment but this offer was also rejected.^[13] At the trial of the criminal case against
her, she brought the solitaire ring to prove that she had not disposed of it,
but the petitioner denied it was the ring she had delivered to the accused.^[14] Still later, she offered to pay for both
rings on installment, but the offer was also rejected without reason by the
petitioner.^[15] In sum, it is the petitioner who has delayed
payment of the amount due and not the private respondent, who was ready to
settle her obligation.

The trial court cited no
legal basis for its upward adjustment of the original amount due although the
reason was presumably Article 1250 of the Civil Code.  We agree with the respondent court that such
adjustment was erroneous for, as explained by Justice Serafin
M. Cuevas (later a member of this Court):

We, however, find the contention of appellant under her fifth
assignment of error – that the lower court erred in applying the floating rate
to the purely peso transaction – to be meritorious.

In this regard, Article 1250 of the Civil Code provides –

In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation should be the basis of payment, unless there is
an agreement to the contrary.

By extraordinary inflation or deflation of currency is understood
to be any uncommon decrease or increase in the purchasing power of currency
which the parties could not have reasonably foreseen and which has been due to
war and the effects thereof, or any unusual force majeure
or fortuitous event.  (Civil
Code of the Philippines, Dean Capistrano, Vol. III, p. 186.)

Under the circumstances, we
do not find any legal justification in applying the so-called
“floating rate,” since there has been no “extraordinary
inflation” of currency within the meaning of the aforequoted
Art. 1250 of the Civil
Code.^[16]

The Court holds that, in
determining the accountability of the private respondent, the trial judge should have applied the following provisions
of the Civil Code, as the respondent court apparently did:

Art. 2209.  If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum.

Art. 2210.  Interest may, in
the discretion of the court, be allowed upon damages awarded for breach of contract.

Art. 2212.  Interest due shall
earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.

The Court notes, however,
that the respondent court should also have imposed interest on the interest due
on the principal amount of P47,000.00, conformably to
Article 2212.  The interest due started
to earn interest from the date it was judicially demanded with the filing of
the complaint on January 6, 1967.

As to the delay in the
performance of the private respondent’s obligation, our ruling is that it was caused by the private respondent herself and
not the petitioner who had the right to demand performance in full of the former’s obligation she had assumed under their written
agreement.

The receipts composed and
signed by Santos, which were offered as Exhibits A and B,
read as follows:

June
2, 1966

Received from Mrs. Letter Hahn 1 ring
marquise dia, worth P12,000
to be sold on commission or to be return upon demand.

Josie M. Santos

266 A. del Mundo

Grace Park

Tel. No. 3-57-87

June
7, 1966

Received from Mrs. Letty
Hahn 1 ring solo diamond worth P35,000 to be sold on
commission basis or to be return upon demand.

Josie M. Santos

266 A. del Mundo

Grace Park

Tels. 2-28-21 & 2-57-87

From the moment demand was made upon Santos
and she did not or could not comply, she had already incurred in delay.  The meaning of the receipts is
unmistakable.  Her contention that it was
the private respondent who had prevented her from fulfilling her obligation is
simply untenable and unacceptable.

There is no doubt that the petitioner could validly reject the
private respondent’s offer to pay for the rings on installment because Hahn was
entitled to payment in full.  If such
payment could not be made, Santos was obligated to return both of the rings –
and not one or the other only at her option – “upon demand,” under the separate receipts she had
signed.  According to Article 1233 of the
Civil Code, “a debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered
or rendered as the case may be.”

As for the private respondent’s offer to return the solitaire
ring, which was also refused, the pertinent rule is Article 1244, providing
that “the debtor of a thing cannot compel the creditor to receive a different one, although the latter
may be of the same value as, or
more valuable than that which is due.” More so then in the case at bar if,
as averred by the petitioner, the ring offered was less valuable than the one
that was due.^[17]

We cannot sustain the respondent court, however, on the moral and
exemplary damages which it disallowed on the ground that “there was no
clear showing of malice and bad faith on the part of the defendant.” The
Court thinks otherwise.  We hold that the
moral and exemplary damages should be restored in light of her dubious conduct
as recounted in the petitioner’s brief and the following findings of the trial
court which we have no reason to disturb:

The Court cannot but take note of the relative ease with which
Josie M. Santos says one thing
at one given time and another altogether different version subsequently
afterwards, even if the statements are both under the sanction of an oath.  This seeming lack of scruples and
conscientiousness on her part do not place her in a favorable light under the painstaking scrutiny of the
Court.  There is so much deviousness and
complexity in her testimony that
does not invite the confidence of the Court.^[18]

WHEREFORE,
the petition is partly GRANTED.  The
decision of the respondent court dated August 29, 1980, is MODIFIED as follows:  a) the award of moral damages in the sum of
P10,000.00 and exemplary damages in the sum of P5,000.00 is added to the other
amounts to be paid by the private respondent to the petitioner in accordance
with the said decision; and b) interest on the principal amount of P47,000.00
shall earn interest, also at the legal rate, from January 6, 1967, and until
full payment is made.  Costs against the private
respondent.

SO ORDERED.

Narvasa, (Chairman), Gancayco, and Medialdea, JJ., concur.

Griño-Aquino, J., no part.

^[1]
Presided by Judge Amador E. Gomez.

^[2]
Cuevas, J., ponente, Pascual
& Griño-Aquino, JJ.,
concurring.

^[3]
Exhibit A, p. 1, Exhibit B, p. 2,
Original Exhibits.

^[4]
Record on Appeal, p. 52.

^[5]
Ibid., p. 69.

^[6]
Rollo, pp. 33-34.

^[7]
Record on Appeal, p. 42, 64.

^[8]
Ibid., pp. 61-62.

^[9]
Id., p. 66, Rollo, p. 32.

^[10]
TSN, December 17, 1968,
Criminal Case No. 86498, p. 91.

^[11]
49 SCRA 1.

^[12]
TSN, May 11, 1970, Civil
Case No. 68057, pp. 11-14.

^[13]
TSN, February 25, 1970, Civil Case No. 68057, pp. 41-43.

^[14]
TSN, December 17, 1968, Criminal Case No. 86498, p. 91.

^[15]
Record on Appeal, p. 63.

^[16]
Rollo, pp. 32-33.

^[17]
TSN, December 17, 1968,
Criminal Case No. 86498, pp. 101,102.

^[18]
Record on Appeal, p. 68.