G.R. No.

190696 August 3, 2010

ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC.,
Petitioners,
-versusPEOPLE OF THE PHILIPPINES,
Respondent.
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by the petitioners,
Philtranco Service Enterprises, Inc. (Philtranco) and Rolito Calang, to challenge
our Resolution of February 17, 2010. Our assailed Resolution denied the petition
for review on certiorari for failure to show any reversible error sufficient to warrant
the exercise of this Courts discretionary appellate jurisdiction.

the road. In addition, he failed to slacken his speed, despite admitting that he had
already seen the jeep coming from the opposite direction when it was still half a
kilometer away. The CA further ruled that Calang demonstrated a reckless attitude
when he drove the bus, despite knowing that it was suffering from loose
compression, hence, not roadworthy.
The CA added that the RTC correctly held Philtranco jointly and severally
liable with petitioner Calang, for failing to prove that it had exercised the diligence
of a good father of the family to prevent the accident.
The petitioners filed with this Court a petition for review on certiorari.
In our Resolution dated February 17, 2010, we denied the petition for failure to
sufficiently show any reversible error in the assailed decision to warrant the
exercise of this Courts discretionary appellate jurisdiction.

Antecedent Facts

The Motion for Reconsideration

At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco
Bus No. 7001, owned by Philtranco along Daang Maharlika Highway in Barangay
Lambao, Sta. Margarita, Samar when its rear left side hit the front left portion of a
Sarao jeep coming from the opposite direction. As a result of the collision,
Cresencio Pinohermoso, the jeeps driver, lost control of the vehicle, and bumped
and killed Jose Mabansag, a bystander who was standing along the highways
shoulder. The jeep turned turtle three (3) times before finally stopping at about 25
meters from the point of impact. Two of the jeeps passengers, Armando Nablo and
an unidentified woman, were instantly killed, while the other passengers sustained
serious physical injuries.

In the present motion for reconsideration, the petitioners claim that

there was no basis to hold Philtranco jointly and severally liable with Calang
because the former was not a party in the criminal case (for multiple homicide with
multiple serious physical injuries and damage to property thru reckless imprudence)
before the RTC.

The prosecution charged Calang with multiple homicide, multiple serious

physical injuries and damage to property thru reckless imprudence before the
Regional Trial Court (RTC), Branch 31, Calbayog City. The RTC, in its decision
dated May 21, 2001, found Calang guilty beyond reasonable doubt of reckless
imprudence resulting to multiple homicide, multiple physical injuries and damage
to property, and sentenced him to suffer an indeterminate penalty of thirty days of
arresto menor, as minimum, to four years and two months of prision correccional,
as maximum. The RTC ordered Calang and Philtranco, jointly and severally, to
pay P50,000.00 as death indemnity to the heirs of Armando; P50,000.00 as death
indemnity to the heirs of Mabansag; and P90,083.93 as actual damages to the
private complainants.
The petitioners appealed the RTC decision to the Court of Appeals
(CA), docketed as CA-G.R. CR No. 25522. The CA, in its decision dated November
20, 2009, affirmed the RTC decision in toto. The CA ruled that petitioner Calang
failed to exercise due care and precaution in driving the Philtranco bus. According
to the CA, various eyewitnesses testified that the bus was traveling fast and
encroached into the opposite lane when it evaded a pushcart that was on the side of

The petitioners likewise maintain that the courts below overlooked

several relevant facts, supported by documentary exhibits, which, if considered,
would have shown that Calang was not negligent, such as the affidavit and
testimony of witness Celestina Cabriga; the testimony of witness Rodrigo
Bocaycay; the traffic accident sketch and report; and the jeepneys registration
receipt. The petitioners also insist that the jeeps driver had the last clear chance to
avoid the collision.
We partly grant the motion.
Liability of Calang
We see no reason to overturn the lower courts finding on Calangs
culpability. The finding of negligence on his part by the trial court, affirmed by the
CA, is a question of fact that we cannot pass upon without going into factual
matters touching on the finding of negligence. In petitions for review on certiorari
under Rule 45 of the Revised Rules of Court, this Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of
support by the evidence on record, or the assailed judgment is based on a
misapprehension of facts.
Liability of Philtranco

We, however, hold that the RTC and the CA both erred in holding
Philtranco jointly and severally liable with Calang. We emphasize that Calang was
charged criminally before the RTC. Undisputedly, Philtranco was not a direct party
in this case. Since the cause of action against Calang was based on delict, both the
RTC and the CA erred in holding Philtranco jointly and severally liable with
Calang, based on quasi-delict under Articles 2176[1] and 2180[2] of the Civil Code.
Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an
employer for quasi-delicts that an employee has committed. Such provision of law
does not apply to civil liability arising from delict.
If at all, Philtrancos liability may only be subsidiary. Article 102 of the
Revised Penal Code states the subsidiary civil liabilities of innkeepers,
tavernkeepers and proprietors of establishments, as follows:
In default of the persons criminally liable,
innkeepers, tavernkeepers, and any other persons or
corporations shall be civilly liable for crimes committed in
their establishments, in all cases where a violation of
municipal ordinances or some general or special police
regulations shall have been committed by them or their
employees.
Innkeepers are also subsidiary liable for the
restitution of goods taken by robbery or theft within their
houses from guests lodging therein, or for the payment of
the value thereof, provided that such guests shall have
notified in advance the innkeeper himself, or the person
representing him, of the deposit of such goods within the
inn; and shall furthermore have followed the directions
which such innkeeper or his representative may have given
them with respect to the care of and vigilance over such
goods. No liability shall attach in case of robbery with
violence against or intimidation of persons unless
committed by the innkeepers employees.
The foregoing subsidiary liability applies to employers, according to
Article 103 of the Revised Penal Code, which reads:
The subsidiary liability established in the next
preceding article shall also apply to employers, teachers,
persons, and corporations engaged in any kind of industry
for felonies committed by their servants, pupils, workmen,
apprentices, or employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability
Articles 102 and 103 are deemed written into the judgments in cases to which

they are applicable. Thus, in the dispositive portion of its decision, the trial court
need not expressly pronounce the subsidiary liability of the employer.[3]
Nonetheless, before the employers subsidiary liability is enforced, adequate
evidence must exist establishing that (1) they are indeed the employers of the
convicted employees; (2) they are engaged in some kind of industry; (3) the crime
was committed by the employees in the discharge of their duties; and (4) the
execution against the latter has not been satisfied due to insolvency. The
determination of these conditions may be done in the same criminal action in which
the employees liability, criminal and civil, has been pronounced, in a hearing set
for that precise purpose, with due notice to the employer, as part of the proceedings
for the execution of the judgment.[4]
WHEREFORE, we PARTLY GRANT the present motion. The Court
of Appeals decision that affirmed in toto the RTC decision, finding Rolito Calang
guilty beyond reasonable doubt of reckless imprudence resulting in multiple
homicide, multiple serious physical injuries and damage to property, is
AFFIRMED, with the MODIFICATION that Philtrancos liability should only be
subsidiary. No costs.
SO ORDERED.

Designated additional Member of the Third Division, in view of the retirement of

Chief Justice Reynato S. Puno, per Special Order No. 843 dated May 17, 2010.
[1] Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
[2] Art. 2180. The obligation imposed by Article 2176 is demandable not only for
ones own acts or omissions, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry.

[3] Pangonorom v. People, 495 Phil. 195 (2005).

[4] Philippine Rabbit Bus Lines, Inc. v. People, G.R. No. 147703, April 14, 2004,
427 SCRA 456.

G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner, vs. HONORABLE COURT OF
APPEALS AND ANTONIO P. SO, respondents.
CUEVAS, J.:
This is a petition to review the Resolution dated June 30, 1980 of the then
Court of Appeals (now the Intermediate Appellate Court) in CA-G.R. No.
SP-10573, entitled "Ernesto V. Ronquillo versus the Hon. Florellana CastroBartolome, etc." and the Order of said court dated August 20, 1980, denying
petitioner's motion for reconsideration of the above resolution.
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case
No. 33958 of the then Court of First Instance of Rizal (now the Regional
Trial Court), Branch XV filed by private respondent Antonio P. So, on July
23, 1979, for the collection of the sum of P17,498.98 plus attorney's fees
and costs. The other defendants were Offshore Catertrade Inc., Johnny Tan
and Pilar Tan. The amount of P117,498.98 sought to be collected
represents the value of the checks issued by said defendants in payment for
foodstuffs delivered to and received by them. The said checks were
dishonored by the drawee bank.
On December 13, 1979, the lower court rendered its Decision 1 based on
the compromise agreement submitted by the parties, the pertinent portion of
which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000
.00 and defendants agree to acknowledge the validity of such claim and
further bind themselves to initially pay out of the total indebtedness of
P10,000.00 the amount of P55,000.00 on or before December 24, 1979, the
balance of P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980, or before June 30, 1980;
(Emphasis supplied)
xxx xxx xxx
4. That both parties agree that failure on the part of either party to comply
with the foregoing terms and conditions, the innocent party will be entitled to
an execution of the decision based on this compromise agreement and the
defaulting party agrees and hold themselves to reimburse the innocent party
for attorney's fees, execution fees and other fees related with the execution.
xxx xxx xxx

On December 26, 1979, herein private respondent (then plaintiff filed a

Motion for Execution on the ground that defendants failed to make the initial
payment of P55,000.00 on or before December 24, 1979 as provided in the
Decision. Said motion for execution was opposed by herein petitioner (as
one of the defendants) contending that his inability to make the payment
was due to private respondent's own act of making himself scarce and
inaccessible on December 24, 1979. Petitioner then prayed that private
respondent be ordered to accept his payment in the amount of P13,750.00.
2

During the hearing of the Motion for Execution and the Opposition thereto
on January 16, 1980, petitioner, as one of the four defendants, tendered the
amount of P13,750.00, as his prorata share in the P55,000.00 initial
payment. Another defendant, Pilar P. Tan, offered to pay the same amount.
Because private respondent refused to accept their payments, demanding
from them the full initial installment of P 55,000.00, petitioner and Pilar Tan
instead deposited the said amount with the Clerk of Court. The amount
3
deposited was subsequently withdrawn by private respondent.
On the same day, January 16, 1980, the lower court ordered the issuance of
a writ of execution for the balance of the initial amount payable, against the
4
other two defendants, Offshore Catertrade Inc. and Johnny Tan who did
not pay their shares.
On January 22, 1980, private respondent moved for the reconsideration
and/or modification of the aforesaid Order of execution and prayed instead
for the "execution of the decision in its entirety against all defendants, jointly
5
and severally." Petitioner opposed the said motion arguing that under the
decision of the lower court being executed which has already become final,
the liability of the four (4) defendants was not expressly declared to be
solidary, consequently each defendant is obliged to pay only his own prorata or 1/4 of the amount due and payable.
On March 17, 1980, the lower court issued an Order reading as follows:
ORDER
Regardless of whatever the compromise agreement has intended the
payment whether jointly or individually, or jointly and severally, the fact is
that only P27,500.00 has been paid. There appears to be a non-payment in
accordance with the compromise agreement of the amount of P27,500.00
on or before December 24, 1979. The parties are reminded that the
payment is condition sine qua non to the lifting of the preliminary attachment
and the execution of an affidavit of desistance.

WHEREFORE, let writ of execution issue as prayed for

On March 17, 1980, petitioner moved for the reconsideration of the above
order, and the same was set for hearing on March 25,1980.
Meanwhile, or more specifically on March 19, 1980, a writ of execution was
issued for the satisfaction of the sum of P82,500.00 as against the
6
properties of the defendants (including petitioner), "singly or jointly hable."
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a
notice of sheriff's sale, for the sale of certain furnitures and appliances found
in petitioner's residence to satisfy the sum of P82,500.00. The public sale
7
was scheduled for April 2, 1980 at 10:00 a.m.
Petitioner's motion for reconsideration of the Order of Execution dated
March 17, 1980 which was set for hearing on March 25, 1980, was upon
motion of private respondent reset to April 2, 1980 at 8:30 a.m. Realizing
the actual threat to property rights poised by the re-setting of the hearing of
s motion for reconsideration for April 2, 1980 at 8:30 a.m. such that if his
motion for reconsideration would be denied he would have no more time to
obtain a writ from the appellate court to stop the scheduled public sale of his
personal properties at 10:00 a.m. of the same day, April 2, 1980, petitioner
filed on March 26, 1980 a petition for certiorari and prohibition with the then
Court of Appeals (CA-G.R. No. SP-10573), praying at the same time for the
issuance of a restraining order to stop the public sale. He raised the
question of the validity of the order of execution, the writ of execution and
the notice of public sale of his properties to satisfy fully the entire unpaid
obligation payable by all of the four (4) defendants, when the lower court's
decision based on the compromise agreement did not specifically state the
liability of the four (4) defendants to be solidary.

reconsideration, which could have been favorable to the petitioner. The fact
that the hearing of the motion for reconsideration had been reset on the
same day the public sale was to take place is of no moment since the
motion for reconsideration of the Order of March 17, 1980 having been
seasonably filed, the scheduled public sale should be suspended.
Moreover, when the defendants, including herein petitioner, defaulted in
their obligation based on the compromise agreement, private respondent
had become entitled to move for an execution of the decision based on the
said agreement.
WHEREFORE, the instant petition for certiorari and prohibition with
preliminary injunction is hereby denied due course. The restraining order
issued in our resolution dated April 9, 1980 is hereby lifted without
pronouncement as to costs.
SO ORDERED.
Petitioner moved to reconsider the aforesaid Resolution alleging that on
April 2, 1980, the lower court had already denied the motion referred to and
consequently, the legal issues being raised in the petition were already
8
"ripe" for determination. The said motion was however denied by the Court
of Appeals in its Resolution dated August 20, 1980.
Hence, this petition for review, petitioner contending that the Court of
Appeals erred in
(a) declaring as premature, and in denying due course to the petition to
restrain implementation of a writ of execution issued at variance with the
final decision of the lower court filed barely four (4) days before the
scheduled public sale of the attached movable properties;

On April 2, 1980, the lower court denied petitioner's motion for

reconsideration but the scheduled public sale in that same day did not
proceed in view of the pendency of a certiorari proceeding before the then
Court of Appeals.

(b) denying reconsideration of the Resolution of June 30, 1980, which

declared as premature the filing of the petition, although there is proof on
record that as of April 2, 1980, the motion referred to was already denied by
the lower court and there was no more motion pending therein;

On June 30, 1980, the said court issued a Resolution, the pertinent portion
of which reads as follows:

(c) failing to resolve the legal issues raised in the petition and in not
declaring the liabilities of the defendants, under the final decision of the
lower court, to be only joint;

This Court, however, finds the present petition to have been filed
prematurely. The rule is that before a petition for certiorari can be brought
against an order of a lower court, all remedies available in that court must
first be exhausted. In the case at bar, herein petitioner filed a petition
without waiting for a resolution of the Court on the motion for

(d) not holding the lower court's order of execution dated March 17, 1980,
the writ of execution and the notice of sheriff's sale, executing the lower
court's decision against "all defendants, singly and jointly", to be at variance
with the lower court's final decision which did not provide for solidary

obligation; and
(e) not declaring as invalid and unlawful the threatened execution, as
against the properties of petitioner who had paid his pro-rata share of the
adjudged obligation, of the total unpaid amount payable by his joint codefendants.
The foregoing assigned errors maybe synthesized into the more important
issues of
1. Was the filing of a petition for certiorari before the then Court of Appeals
against the Order of Execution issued by the lower court, dated March 17,
1980, proper, despite the pendency of a motion for reconsideration of the
same questioned Order?
2. What is the nature of the liability of the defendants (including petitioner),
was it merely joint, or was it several or solidary?
Anent the first issue raised, suffice it to state that while as a general rule, a
motion for reconsideration should precede recourse to certiorari in order to
give the trial court an opportunity to correct the error that it may have
9
committed, the said rule is not absolutes and may be dispensed with in
instances where the filing of a motion for reconsideration would serve no
useful purpose, such as when the motion for reconsideration would raise the
same point stated in the motion 10 or where the error is patent for the order
is void 11 or where the relief is extremely urgent, as in cases where
execution had already been ordered 12 where the issue raised is one purely
of law. 13
In the case at bar, the records show that not only was a writ of execution
issued but petitioner's properties were already scheduled to be sold at
public auction on April 2, 1980 at 10:00 a.m. The records likewise show that
petitioner's motion for reconsideration of the questioned Order of Execution
was filed on March 17, 1980 and was set for hearing on March 25, 1980 at
8:30 a.m., but upon motion of private respondent, the hearing was reset to
April 2, 1980 at 8:30 a.m., the very same clay when petitioner's properties
were to be sold at public auction. Needless to state that under the
circumstances, petitioner was faced with imminent danger of his properties
being immediately sold the moment his motion for reconsideration is denied.
Plainly, urgency prompted recourse to the Court of Appeals and the
adequate and speedy remedy for petitioner under the situation was to file a
petition for certiorari with prayer for restraining order to stop the sale. For
him to wait until after the hearing of the motion for reconsideration on April
2, 1980 before taking recourse to the appellate court may already be too

late since without a restraining order, the public sale can proceed at 10:00
that morning. In fact, the said motion was already denied by the lower court
in its order dated April 2, 1980 and were it not for the pendency of the
petition with the Court of Appeals and the restraining order issued
thereafter, the public sale scheduled that very same morning could have
proceeded.
The other issue raised refers to the nature of the liability of petitioner, as one
of the defendants in Civil Case No. 33958, that is whether or not he is liable
jointly or solidarily.
In this regard, Article 1207 and 1208 of the Civil Code provides
Art. 1207. The concurrence of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the
prestation. Then is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law,or the nature or the wording of the obligation to
which the preceding article refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many equal shares as there
are creditors and debtors, the credits or debts being considered distinct from
one another, subject to the Rules of Court governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise
agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only
P110,000.00 and defendants agree to acknowledge the validity of such
claim and further bind themselves to initially pay out of the total
indebtedness of P110,000.00, the amount of P5,000.00 on or before
December 24, 1979, the balance of P55,000.00, defendants individually and
jointly agree to pay within a period of six months from January 1980 or
before June 30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the
decision based upon it, the defendants obligated themselves to pay their
obligation "individually and jointly".
The term "individually" has the same meaning as "collectively", "separately",
"distinctively", respectively or "severally". An agreement to be "individually
liable" undoubtedly creates a several obligation, 14 and a "several obligation
is one by which one individual binds himself to perform the whole obligation.

15
In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos
or separadamente or in the promissory note is an express statement making
each of the persons who signed it individually liable for the payment of the
fun amount of the obligation contained therein." Likewise in Un Pak Leung
vs. Negorra 17 We held that "in the absence of a finding of facts that the
defendants made themselves individually hable for the debt incurred they
are each liable only for one-half of said amount
The obligation in the case at bar being described as "individually and
jointly", the same is therefore enforceable against one of the numerous
obligors.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is
hereby DISMISSED. Cost against petitioner.
SO ORDERED.

G.R. No. L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner, vs. THE HON. COURT
OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY,
SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION
CO., INC., respondents.
PADILLA, J.:
Review on certiorari of the judgment * of the respondent appellate court in
CA-G.R. No. 47319-R, dated 22 February 1973, which affirmed, with some
modifications, the decision, ** dated 27 April 1970, rendered in Civil Case
No. U-2021 of the Court of First Instance of Pangasinan.
The antecedent facts of the case are as follows:
On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in
favor of private respondent Sio Choy Private Car Comprehensive Policy No.
MRO/PV-15753, effective from 18 April 1967 to 18 April 1968, covering a
Willys jeep with Motor No. ET-03023 Serial No. 351672, and Plate No. J21536, Quezon City, 1967. The insurance coverage was for "own damage"
not to exceed P600.00 and "third-party liability" in the amount of
P20,000.00.
During the effectivity of said insurance policy, and more particularly on 19
December 1967, at about 3:30 o'clock in the afternoon, the insured jeep,
while being driven by one Juan P. Campollo an employee of the respondent
San Leon Rice Mill, Inc., collided with a passenger bus belonging to the
respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short)
at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing
damage to the insured vehicle and injuries to the driver, Juan P. Campollo,
and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep.
As a result, Martin C. Vallejos filed an action for damages against Sio Choy,
Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First
Instance of Pangasinan, which was docketed as Civil Case No. U-2021. He
prayed therein that the defendants be ordered to pay him, jointly and
severally, the amount of P15,000.00, as reimbursement for medical and
hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral
and compensatory damages; and P5,000.00, for attorney's fees.
Answering, PANTRANCO claimed that the jeep of Sio Choy was then
operated at an excessive speed and bumped the PANTRANCO bus which
had moved to, and stopped at, the shoulder of the highway in order to avoid

the jeep; and that it had observed the diligence of a good father of a family
to prevent damage, especially in the selection and supervision of its
employees and in the maintenance of its motor vehicles. It prayed that it be
absolved from any and all liability.
Defendant Sio Choy and the petitioner insurance company, in their answer,
also denied liability to the plaintiff, claiming that the fault in the accident was
solely imputable to the PANTRANCO.
Sio Choy, however, later filed a separate answer with a cross-claim against
the herein petitioner wherein he alleged that he had actually paid the
plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalization and
other expenses, and, in his cross-claim against the herein petitioner, he
alleged that the petitioner had issued in his favor a private car
comprehensive policy wherein the insurance company obligated itself to
indemnify Sio Choy, as insured, for the damage to his motor vehicle, as well
as for any liability to third persons arising out of any accident during the
effectivity of such insurance contract, which policy was in full force and
effect when the vehicular accident complained of occurred. He prayed that
he be reimbursed by the insurance company for the amount that he may be
ordered to pay.
Also later, the herein petitioner sought, and was granted, leave to file a
third-party complaint against the San Leon Rice Mill, Inc. for the reason that
the person driving the jeep of Sio Choy, at the time of the accident, was an
employee of the San Leon Rice Mill, Inc. performing his duties within the
scope of his assigned task, and not an employee of Sio Choy; and that, as
the San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P.
Campollo, it should be liable for the acts of its employee, pursuant to Art.
2180 of the Civil Code. The herein petitioner prayed that judgment be
rendered against the San Leon Rice Mill, Inc., making it liable for the
amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill,
Inc. to reimburse and indemnify the petitioner for any sum that it may be
ordered to pay the plaintiff.
After trial, judgment was rendered as follows:
WHEREFORE, in view of the foregoing findings of this Court judgment is
hereby rendered in favor of the plaintiff and against Sio Choy and Malayan
Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as
follows:
(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C.

Vallejos for the period of three (3) years;
(c) P5,000.00 as moral damages;
(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.
The above-named parties against whom this judgment is rendered are
hereby held jointly and severally liable. With respect, however, to Malayan
Insurance Co., Inc., its liability will be up to only P20,000.00.
As no satisfactory proof of cost of damage to its bus was presented by
defendant Pantranco, no award should be made in its favor. Its counter1
claim for attorney's fees is also dismissed for not being proved.
On appeal, the respondent Court of Appeals affirmed the judgment of the
trial court that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan
Insurance Co., Inc. are jointly and severally liable for the damages awarded
to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice
Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance
company for whatever amount it has been ordered to pay on its policy, since
the San Leon Rice Mill, Inc. is not a privy to the contract of insurance
2
between Sio Choy and the insurance company.
Hence, the present recourse by petitioner insurance company.
The petitioner prays for the reversal of the appellate court's judgment, or, in
the alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner
any amount, in excess of one-half (1/2) of the entire amount of damages,
petitioner may be ordered to pay jointly and severally with Sio Choy.
The Court, acting upon the petition, gave due course to the same, but "only
insofar as it concerns the alleged liability of respondent San Leon Rice Mill,
Inc. to petitioner, it being understood that no other aspect of the decision of
the Court of Appeals shall be reviewed, hence, execution may already issue
in favor of respondent Martin C. Vallejos against the respondents, without
prejudice to the determination of whether or not petitioner shall be entitled to
reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part
of whatever the former may pay on the P20,000.00 it has been adjudged to
3
pay respondent Vallejos."
However, in order to determine the alleged liability of respondent San Leon
Rice Mill, Inc. to petitioner, it is important to determine first the nature or
basis of the liability of petitioner to respondent Vallejos, as compared to that

of respondents Sio Choy and San Leon Rice Mill, Inc.

Therefore, the two (2) principal issues to be resolved are (1) whether the
trial court, as upheld by the Court of Appeals, was correct in holding
petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. "solidarily
liable" to respondent Vallejos; and (2) whether petitioner is entitled to be
reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount
petitioner has been adjudged to pay respondent Vallejos on its insurance
policy.
As to the first issue, it is noted that the trial court found, as affirmed by the
appellate court, that petitioner and respondents Sio Choy and San Leon
Rice Mill, Inc. are jointly and severally liable to respondent Vallejos.
We do not agree with the aforesaid ruling. We hold instead that it is only
respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the
petitioner) that are solidarily liable to respondent Vallejos for the damages
awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff
as owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil
Code which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could have, by the use of due
diligence, prevented the misfortune it is disputably presumed that a driver
was negligent, if he had been found guilty of reckless driving or violating
traffic regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent San
Leon Rice Mill, Inc. to plaintiff Vallejos, the former being the employer of the
driver of the Willys jeep at the time of the motor vehicle mishap, is Article
2180 of the Civil Code which reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and

household helpers acting within the scope of their assigned tasks, even
though the former are not engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a
family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are
the principal tortfeasors who are primarily liable to respondent Vallejos. The
law states that the responsibility of two or more persons who are liable for a
4
quasi-delict is solidarily.
On the other hand, the basis of petitioner's liability is its insurance contract
with respondent Sio Choy. If petitioner is adjudged to pay respondent
Vallejos in the amount of not more than P20,000.00, this is on account of its
being the insurer of respondent Sio Choy under the third party liability
clause included in the private car comprehensive policy existing between
petitioner and respondent Sio Choy at the time of the complained vehicular
accident.
5

In Guingon vs. Del Monte, a passenger of a jeepney had just alighted

therefrom, when he was bumped by another passenger jeepney. He died as
a result thereof. In the damage suit filed by the heirs of said passenger
against the driver and owner of the jeepney at fault as well as against the
insurance company which insured the latter jeepney against third party
liability, the trial court, affirmed by this Court, adjudged the owner and the
driver of the jeepney at fault jointly and severally liable to the heirs of the
victim in the total amount of P9,572.95 as damages and attorney's fees;
while the insurance company was sentenced to pay the heirs the amount of
P5,500.00 which was to be applied as partial satisfaction of the judgment
rendered against said owner and driver of the jeepney. Thus, in said
Guingon case, it was only the owner and the driver of the jeepney at fault,
not including the insurance company, who were held solidarily liable to the
heirs of the victim.
While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
6
insurer,
however, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be
held solidarily liable with the insured and/or the other parties found at fault.
The liability of the insurer is based on contract; that of the insured is based
on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent

Vallejos, but it cannot, as incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors namely respondents Sio
Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily
liable with said two (2) respondents by reason of the indemnity contract
against third party liability-under which an insurer can be directly sued by a
third party this will result in a violation of the principles underlying solidary
obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against
7
one of the solidary debtors. On the other hand, insurance is defined as "a
contract whereby one undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an unknown or contingent
8
event."
In the case at bar, the trial court held petitioner together with respondents
Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent
Vallejos for a total amount of P29,103.00, with the qualification that
petitioner's liability is only up to P20,000.00. In the context of a solidary
obligation, petitioner may be compelled by respondent Vallejos to pay the
entire obligation of P29,013.00, notwithstanding the qualification made by
the trial court. But, how can petitioner be obliged to pay the entire obligation
when the amount stated in its insurance policy with respondent Sio Choy for
indemnity against third party liability is only P20,000.00? Moreover, the
qualification made in the decision of the trial court to the effect that petitioner
is sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary, is an evident breach of the concept of a
solidary obligation. Thus, We hold that the trial court, as upheld by the Court
of Appeals, erred in holding petitioner, solidarily liable with respondents Sio
Choy and San Leon Rice Mill, Inc. to respondent Vallejos.
As to the second issue, the Court of Appeals, in affirming the decision of the
trial court, ruled that petitioner is not entitled to be reimbursed by
respondent San Leon Rice Mill, Inc. on the ground that said respondent is
not privy to the contract of insurance existing between petitioner and
respondent Sio Choy. We disagree.
The appellate court overlooked the principle of subrogation in insurance
contracts. Thus
... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co.
vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the
insurer is entitled to be subrogated pro tanto to any right of action which the
insured may have against the third person whose negligence or wrongful act
caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs.

Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first instance
is that of the insured but after reimbursement or compensation, it becomes
the loss of the insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs.
Cincinnati Ins. Co., 22 Ohio St. 382).
Although many policies including policies in the standard form, now provide
for subrogation, and thus determine the rights of the insurer in this respect,
the equitable right of subrogation as the legal effect of payment inures to the
insurer without any formal assignment or any express stipulation to that
effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the
insurance company pays for the loss, such payment operates as an
equitable assignment to the insurer of the property and all remedies which
the insured may have for the recovery thereof. That right is not dependent
upon , nor does it grow out of any privity of contract (emphasis supplied) or
upon written assignment of claim, and payment to the insured makes the
insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing and
9
Heating Co., 264 N.C. 456, 142 SE 2d 18).
It follows, therefore, that petitioner, upon paying respondent Vallejos the
amount of riot exceeding P20,000.00, shall become the subrogee of the
insured, the respondent Sio Choy; as such, it is subrogated to whatever
rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217
of the Civil Code gives to a solidary debtor who has paid the entire
obligation the right to be reimbursed by his co-debtors for the share which
corresponds to each.
Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made.
If the payment is made before the debt is due, no interest for the intervening
period may be demanded.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to respondent
Vallejos and thereby becoming the subrogee of solidary debtor Sio Choy, is
entitled to reimbursement from respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon

Rice Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the
amount of P29,103.00. Vallejos may enforce the entire obligation on only
one of said solidary debtors. If Sio Choy as solidary debtor is made to pay
for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy,
is compelled to pay P20,000.00 of said entire obligation, petitioner would be
entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be
reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of
P29,103.00 )
WHEREFORE, the petition is GRANTED. The decision of the trial court, as
affirmed by the Court of Appeals, is hereby AFFIRMED, with the
modification above-mentioned. Without pronouncement as to costs.
SO ORDERED.

G.R. No. L-28046 May 16, 1983

PHILIPPINE NATIONAL BANK, plaintiff-appellant, vs. INDEPENDENT
PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA, DELFIN
FAJARDO, CEFERINO VALENCIA, MOISES CARANDANG, LUCIANO
CASTILLO, AURELIO VALENCIA, LAURO LEVISTE, GAVINO
GONZALES, LOPE GEVANA and BONIFACIO LAUREANA, defendantsappellees.
PLANA, J.:
Appeal by the Philippine National Bank (PNB) from the Order of the defunct
Court of First Instance of Manila (Branch XX) in its Civil Case No. 46741
dismissing PNB's complaint against several solidary debtors for the
collection of a sum of money on the ground that one of the defendants
(Ceferino Valencia) died during the pendency of the case (i.e., after the
plaintiff had presented its evidence) and therefore the complaint, being a
money claim based on contract, should be prosecuted in the testate or
intestate proceeding for the settlement of the estate of the deceased
defendant pursuant to Section 6 of Rule 86 of the Rules of Court which
reads:
SEC. 6. Solidary obligation of decedent. the obligation of the decedent is
solidary with another debtor, the claim shall be filed against the decedent as
if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. In a joint obligation of the
decedent, the claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse
against one, some or all of its solidary debtors under Article 1216 of the Civil
Code
ART. 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully collected.
The sole issue thus raised is whether in an action for collection of a sum of
money based on contract against all the solidary debtors, the death of one
defendant deprives the court of jurisdiction to proceed with the case against
the surviving defendants.
It is now settled that the quoted Article 1216 grants the creditor the
substantive right to seek satisfaction of his credit from one, some or all of

his solidary debtors, as he deems fit or convenient for the protection of his
interests; and if, after instituting a collection suit based on contract against
some or all of them and, during its pendency, one of the defendants dies,
the court retains jurisdiction to continue the proceedings and decide the
case in respect of the surviving defendants. Thus in Manila Surety & Fidelity
Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that
where two persons are bound in solidum for the same debt and one of them
dies, the whole indebtedness can be proved against the estate of the latter,
the decedent's liability being absolute and primary; and if the claim is not
presented within the time provided by the rules, the same will be barred as
against the estate. It is evident from the foregoing that Section 6 of Rule 87
(now Rule 86) provides the procedure should the creditor desire to go
against the deceased debtor, but there is certainly nothing in the said
provision making compliance with such procedure a condition precedent
before an ordinary action against the surviving solidary debtors, should the
creditor choose to demand payment from the latter, could be entertained to
the extent that failure to observe the same would deprive the court
jurisdiction to take cognizance of the action against the surviving debtors.
Upon the other hand, the Civil Code expressly allows the creditor to proceed
against any one of the solidary debtors or some or all of them
simultaneously. There is, therefore, nothing improper in the creditor's filing
of an action against the surviving solidary debtors alone, instead of
instituting a proceeding for the settlement of the estate of the deceased
debtor wherein his claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court,
speaking thru Mr. Justice Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court
reveals that nothing therein prevents a creditor from proceeding against the
surviving solidary debtors. Said provision merely sets up the procedure in
enforcing collection in case a creditor chooses to pursue his claim against
the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable
provision in this matter. Said provision gives the creditor the right to
'proceed against anyone of the solidary debtors or some or all of them
simultaneously.' The choice is undoubtedly left to the solidary, creditor to
determine against whom he will enforce collection. In case of the death of
one of the solidary debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors without necessity of filing a claim in
the estate of the deceased debtors. It is not mandatory for him to have the

case dismissed against the surviving debtors and file its claim in the estate
of the deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules
of Court were applied literally, Article 1216 of the New Civil Code would, in
effect, be repealed since under the Rules of Court, petitioner has no choice
but to proceed against the estate of Manuel Barredo only. Obviously, this
provision diminishes the Bank's right under the New Civil, Code to proceed
against any one, some or all of the solidary debtors. Such a construction is
not sanctioned by the principle, which is too well settled to require citation,
that a substantive law cannot be amended by a procedural rule. Otherwise
stared, Section 6, Rule 86 of the Revised Rules of Court cannot be made to
prevail over Article 1216 of the New Civil Code, the former being merely
procedural, while the latter, substantive.
WHEREFORE the appealed order of dismissal of the court a quo in its Civil
Case No. 46741 is hereby set aside in respect of the surviving defendants;
and the case is remanded to the corresponding Regional Trial Court for
proceedings. proceedings. No costs.
SO ORDERED.

G.R. No. L-28497

November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. FAUSTINO

ESPIRITU, defendant-appellant.
-----------------------------G.R. No. L-28498

November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. FAUSTINO

ESPIRITU, defendant-appellant, and ROSARIO ESPIRITU, intervenorappellant.
AVANCEA, C. J.:
These two cases, Nos. 28497 and 28948, were tried together.
It appears, in connection with case 28497; that on July 28, 1925 the
defendant Faustino Espiritu purchased of the plaintiff corporation a two-ton
White truck for P11,983.50, paying P1,000 down to apply on account of this
price, and obligating himself to pay the remaining P10,983.50 within the
periods agreed upon. To secure the payment of this sum, the defendants
mortgaged the said truck purchased and, besides, three others, two of
which are numbered 77197 and 92744 respectively, and all of the White
make (Exhibit A). These two trucks had been purchased from the same
plaintiff and were fully paid for by the defendant and his brother Rosario
Espiritu. The defendant failed to pay P10,477.82 of the price secured by this
mortgage.
In connection with case 28498, it appears that on February 18, 1925 the
defendant bought a one-ton White truck of the plaintiff corporation for the
sum of P7,136.50, and after having deducted the P500 cash payment and
the 12 per cent annual interest on the unpaid principal, obligated himself to
make payment of this sum within the periods agreed upon. To secure this
payment the defendant mortgaged to the plaintiff corporation the said truck
purchased and two others, numbered 77197 and 92744, respectively, the
same that were mortgaged in the purchase of the other truck referred to in
the other case. The defendant failed to pay P4,208.28 of this sum.
In both sales it was agreed that 12 per cent interest would be paid upon the
unpaid portion of the price at the executon of the contracts, and in case of
non-payment of the total debt upon its maturity, 25 per cent thereon, as
penalty.

In addition to the mortagage deeds referred to, which the defendant

executed in favor of the plaintiff, the defendant at the same time also signed
a promissory note solidarily with his brother Rosario Espiritu for the several
sums secured by the two mortgages (Exhibits B and D).
Rosario Espiritu appeared in these two cases as intervenor, alleging to be
the exclusive owner of the two White trucks Nos. 77197 and 92744, which
appear to have been mortgaged by the defendants to the plaintiff.
lawphi1.net
While these two cases were pending in the lower court the mortgaged
trucks were sold by virtue of the mortgage, all of them together bringing in,
after deducting the sheriff's fees and transportation charges to Manila, the
net sum of P3,269.58.
The judgment appealed from ordered the defendants and the intervenor to
pay plaintiff in case 28497 the sum of P7,732.09 with interest at the rate of
12 per cent per annum from May 1, 1926 until fully paid, and 25 per cent
thereof in addition as penalty. In case 28498, the trial court ordered the
defendant and the intervenor to pay plaintiff the sum of P4,208.28 with
interest at 12 per cent per annum from December 1, 1925 until fully paid,
and 25 per cent thereon as penalty.
The appellants contend that trucks 77197 and 92744 were not mortgaged,
because, when the defendant signed the mortgage deeds these trucks were
not included in those documents, and were only put in later, without
defendant's knowledge. But there is positive proof that they were included at
the time the defendant signed these documents. Besides, there were
presented two of defendant's letters to Hidalgo, an employee of the
plaintiff's written a few days before the transaction, acquiescing in the
inclusion of all his White trucks already paid for, in the mortgage (Exhibit HI).
Appellants also alleged that on February 4, 1925, the defendant sold his
rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the
latter did not sign the mortgage deeds, such trucks cannot be considered as
mortgaged. But the evidence shows that while the intervenor Rosario
Espiritu did not sign the two mortgage deeds (Exhibits A and C), yet,
together with the defendants Faustino Espiritu, he signed the two
promissory notes (Exhibits B and D) secured by these two mortgages. All
these instruments were executed at the same time, and when the trucks
77197 and 92744 were included in the mortgages, the intervenor Rosario
Espiritu was aware of it and consented to such inclusion. These facts are
supported by the testimony of Bachrach, manager of the plaintiff
corporation, of Agustin Ramirez, who witnessed the execution of all these

documents, and of Angel Hidalgo, who witnessed the execution of Exhibits

B and D.
We do not find the statement of the intervenor Rosario Espiritu that he did
not sign promissory notes Exhibits B and C to be sufficient to overthrow this
evidence. A comparison of his genuine signature on Exhibit AA with those
appearing on promissory notes B and C, convinces us that the latter are his
signatures. And such is our conclusion, notwithstanding the evidence
presented to establish that on the date when Exhibits B appears to have
been signed, that is July 25, 1925, the intervenor was in Batac, Ilocos Norte,
many miles away from Manila. And the fact that on the 24th of said month of
July, the plaintiff sent some truck accessory parts by rail to Ilocos for the
intervenor does not necessarily prove that the latter could not have been in
Manila on the 25th of that month.
In view of his conclusion that the intervenor signed the promissory notes
secured by trucks 77197 and 92744 and consented to the mortgage of the
same, it is immaterial whether he was or was not the exclusive owner
thereof.
It is finally contended that the 25 per cent penalty upon the debt, in addition
to the interest of 12 per cent per annum, makes the contract usurious. Such
a contention is not well founded. Article 1152 of the Civil Code permits the
agreement upon a penalty apart from the interest. Should there be such an
agreemnet, the penalty, as was held in the case of Lopez vs. Hernaez (32
Phil., 631), does not include the interest, and which may be demamded
separetely. According to this, the penalty is not to be added to the interest
for the determination of whether the interest exceeds the rate fixed by the
law, since said rate was fixed only for the interest. But considering that the
obligation was partly performed, and making use of the power given to the
court by article 1154 of the Civil Code, this penalty is reduced to 10 per cent
of the unpaid debt.
With the sole modification that instead of 25 per cent upon the sum owed,
the defendants need pay only 10 per cent thereon as penalty, the judgment
appealed from is affired in all other respects without special pronouncement
as to costs. So ordered.

G.R. No. L-41093 October 30, 1978

Franville Subdivision.

ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION,

petitioner, vs. COURT OF FIRST INSTANCE OF RIZAL (BRANCH
XXXIV), and LOLITA MILLAN, respondents.

Millan complied with her obligation under the contract and paid the
installments stipulated therein, the final payment having been made on
December 22, 1971. The vendee made a total payment of P5,193.63
3
including interests and expenses for registration of title.

MUOZ PALMA, J.:

This is a direct appeal on questions of law from a decision of the Court of
First Instance of Rizal, Branch XXXIV, presided by the Honorable Bernardo
P. Pardo, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered commanding the defendant to
register the deed of absolute sale it had executed in favor of plaintiff with the
Register of Deeds of Caloocan City and secure the corresponding title in the
name of plaintiff within ten (10) days after finality of this decision; if, for any
reason, this not possible, defendant is hereby sentenced to pay plaintiff the
sum of P5,193.63 with interest at 4% per annum from June 22, 1972 until
fully paid.
In either case, defendant is sentenced to pay plaintiff nominal damages in
the amount of P20,000.00 plus attorney's fee in the amount of P5,000.00
and costs.
SO ORDERED.
Caloocan City, February 11, 1975. (rollo, p. 21)
Petitioner corporation questions the award for nominal damages of
P20,000.00 and attorney's fee of P5,000.00 which are allegedly excessive
and unjustified.
In the Court's resolution of October 20, 1975, We gave due course to the
Petition only as regards the portion of the decision awarding nominal
1
damages.
The following incidents are not in dispute:
In May 1962 Robes-Francisco Realty & Development Corporation, now
petitioner, agreed to sell to private respondent Lolita Millan for and in
consideration of the sum of P3,864.00, payable in installments, a parcel of
land containing an area of approximately 276 square meters, situated in
Barrio Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its

Thereafter, Lolita Millan made repeated demands upon the corporation for
the execution of the final deed of sale and the issuance to her of the transfer
certificate of title over the lot. On March 2, 1973, the parties executed a
deed of absolute sale of the aforementioned parcel of land. The deed of
absolute sale contained, among others, this particular provision:
That the VENDOR further warrants that the transfer certificate of title of the
above-described parcel of land shall be transferred in the name of the
VENDEE within the period of six (6) months from the date of full payment
and in case the VENDOR fails to issue said transfer certificate of title, it
shall bear the obligation to refund to the VENDEE the total amount already
paid for, plus an interest at the rate of 4% per annum. (record on appeal, p.
9)
Notwithstanding the lapse of the above-mentioned stipulated period of six
(6) months, the corporation failed to cause the issuance of the
corresponding transfer certificate of title over the lot sold to Millan, hence,
the latter filed on August 14, 1974 a complaint for specific performance and
damages against Robes-Francisco Realty & Development Corporation in
the Court of First Instance of Rizal, Branch XXXIV, Caloocan City, docketed
4
therein as Civil Case No. C-3268.
The complaint prayed for judgment (1) ordering the reformation of the deed
of absolute sale; (2) ordering the defendant to deliver to plaintiff the
certificate of title over the lot free from any lien or encumbrance; or, should
this be not possible, to pay plaintiff the value of the lot which should not be
less than P27,600.00 (allegedly the present estimated value of the lot); and
(3) ordering the defendant to pay plaintiff damages, corrective and actual in
5
the sum of P15 000.00.
The corporation in its answer prayed that the complaint be dismissed
alleging that the deed of absolute sale was voluntarily executed between the
parties and the interest of the plaintiff was amply protected by the provision
in said contract for payment of interest at 4% per annum of the total amount
6
paid, for the delay in the issuance of the title.
At the pretrial conference the parties agreed to submit the case for decision

on the pleadings after defendant further made certain admissions of facts

7
not contained in its answer.

Millan. In fact the clause is so worded as to work to the advantage of

petitioner corporation.

Finding that the realty corporation failed to cause the issuance of the
corresponding transfer certificate of title because the parcel of land
conveyed to Millan was included among other properties of the corporation
mortgaged to the GSIS to secure an obligation of P10 million and that the
owner's duplicate certificate of title of the subdivision was in the possession
of the Government Service Insurance System (GSIS), the trial court, on
February 11, 1975, rendered judgment the dispositive portion of which is
quoted in pages 1 and 2 of this Decision. We hold that the trial court did not
err in awarding nominal damages; however, the circumstances of the case
warrant a reduction of the amount of P20,000.00 granted to private
respondent Millan.

Unfortunately, the vendee, now private respondent, submitted her case

below without presenting evidence on the actual damages suffered by her
as a result of the nonperformance of petitioner's obligation under the deed
of sale. Nonetheless, the facts show that the right of the vendee to acquire
title to the lot bought by her was violated by petitioner and this entitles her at
the very least to nominal damages.

There can be no dispute in this case under the pleadings and the admitted
facts that petitioner corporation was guilty of delay, amounting to
nonperformance of its obligation, in issuing the transfer certificate of title to
vendee Millan who had fully paid up her installments on the lot bought by
her. Article 170 of the Civil Code expressly provides that 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.
Petitioner contends that the deed of absolute sale executed between the
parties stipulates that should the vendor fail to issue the transfer certificate
of title within six months from the date of full payment, it shall refund to the
vendee the total amount paid for with interest at the rate of 4% per annum,
hence, the vendee is bound by the terms of the provision and cannot
recover more than what is agreed upon. Presumably, petitioner in invoking
Article 1226 of the Civil Code which provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is no stipulation to
the contrary.
The foregoing argument of petitioner is totally devoid of merit. We would
agree with petitioner if the clause in question were to be considered as a
penal clause. Nevertheless, for very obvious reasons, said clause does not
convey any penalty, for even without it, pursuant to Article 2209 of the Civil
Code, the vendee would be entitled to recover the amount paid by her with
legal rate of interest which is even more than the 4% provided for in the
7
clause. -A
It is therefore inconceivable that the aforecited provision in the deed of sale
is a penal clause which will preclude an award of damages to the vendee

The pertinent provisions of our Civil Code follow:

Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Art. 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.
Under the foregoing provisions nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a
right violated or invaded. They are recoverable where some injury has been
done the amount of which the evidence fails to show, the assessment of
damages being left to the discretion of the court according to the
8
circumstances of the case.
It is true as petitioner claims that under American jurisprudence nominal
damages by their very nature are small sums fixed by the court without
regard to the extent of the harm done to the injured party.
It is generally held that a nominal damage is a substantial claim, if based
upon the violation of a legal right; in such case, the law presumes a
damage, although actual or compensatory damages are not proven; in truth
nominal damages are damages in name only and not in fact, and are
allowed, not as an equivalent of a wrong inflicted, but simply in recogniton of
the existence of a technical injury. (Fouraker v. Kidd Springs Boating and
Fishing Club, 65 S. W. 2d 796-797, citing 17 C.J. 720, and a number of
9
authorities).
In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al. 1956, which
was an action for damages arising out of a vehicular accident, this Court
had occasion to eliminate an award of P10,000.00 imposed by way of

nominal damages, the Court stating inter alia that the amount cannot, in
10
common sense, be demeed "nominal".

injured party has shown that he is entitled to recover moral, temperate or

compensatory damages."

In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca,

1965, this Court, however, through then Justice Roberto Concepcion who
later became Chief Justice of this Court, sustained an award of P20,000.00
as nominal damages in favor of respnodent Cuenca. The Court there found
special reasons for considering P20,000.00 as "nominal". Cuenca who was
the holder of a first class ticket from Manila to Tokyo was rudely compelled
by an agent of petitioner Airlines to move to the tourist class notwithstanding
its knowledge that Cuenca as Commissioner of Public Highways of the
Republic of the Philippines was travelling in his official capacity as a
11
delegate of the country to a conference in Tokyo."

Here, respondent Millan did not submit below any evidence to prove that
14
she suffered actual or compensatory damages.

Actually, as explained in the Court's decision in Northwest Airlines, there is

no conflict between that case and Medina, for in the latter, the P10,000.00
award for nominal damages was eliminated principally because the
aggrieved party had already been awarded P6,000.00 as compensatory
damages, P30,000.00 as moral damages and P10,000.00 as exemplary
damages, and "nominal damages cannot coexist with compensatory
damages," while in the case of Commissioner Cuenca, no such
12
compensatory, moral, or exemplary damages were granted to the latter.
At any rate, the circumstances of a particular case will determine whether or
not the amount assessed as nominal damages is within the scope or intent
of the law, more particularly, Article 2221 of the Civil Code.
In the situation now before Us, We are of the view that the amount of
P20,000.00 is excessive. The admitted fact that petitioner corporation failed
to convey a transfer certificate of title to respondent Millan because the
subdivision property was mortgaged to the GSIS does not in itself show that
there was bad faith or fraud. Bad faith is not to be presumed. Moreover,
there was the expectation of the vendor that arrangements were possible for
the GSIS to make partial releases of the subdivision lots from the overall
real estate mortgage. It was simply unfortunate that petitioner did not
succeed in that regard.
For that reason We cannot agree with respondent Millan Chat the
P20,000.00 award may be considered in the nature of exemplary damages.
In case of breach of contract, exemplary damages may be awarded if the
guilty party acted in wanton, fraudulent, reckless, oppressive or malevolent
13
manner.
Furthermore, exemplary or corrective damages are to be
imposed by way of example or correction for the public good, only if the

To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by

way of nominal damages is fair and just under the following circumstances,
viz: respondent Millan bought the lot from petitioner in May, 1962, and paid
in full her installments on December 22, 1971, but it was only on March 2,
1973, that a deed of absolute sale was executed in her favor, and
notwithstanding the lapse of almost three years since she made her last
payment, petitioner still failed to convey the corresponding transfer
certificate of title to Millan who accordingly was compelled to file the instant
complaint in August of 1974.
PREMISES CONSIDERED, We modify the decision of the trial court and
reduce the nominal damages to Ten Thousand Pesos (P10,000.00). In all
other respects the aforesaid decision stands.
Without pronouncement as to costs.
SO ORDERED.

G.R. No. L-19670

June 24, 1965

PEDRO D. PAMINTUAN, petitioner, vs. HON. COURT OF APPEALS

(Third Division), respondent.
CONCEPCION, J.:
Appeal by certiorari from a decision of the Court of Appeals.
On May 12, 1959, Jose Valeriano commenced in the Municipal Court of
Manila Civil Case No. 67399 thereof, against Pedro D. Pamintuan, to eject
him from a property of Valerians. In due course, said court rendered
judgment on August 3, 1959 sentencing Pamintuan to vacate said property
and to pay a sum of money for its use, plus attorney's fees and costs. On
September 16, 1960, the Sheriff of Manila ejected Pamintuan from the
property and turned it over to Valeriano. Soon later, however, Pamintuan
reoccupied the property, allegedly by force. After appropriate proceedings,
Pamintuan was, accordingly, adjudged guilty of contempt of court, and
sentenced accordingly. Subsequently, on motion of Valeriano, the Municipal
Judge ordered the issuance of an alias writ of execution directing the Sheriff
to eject Pamintuan once more and to collect from him the amount of the
money judgment. Before this writ could be executed, Pamintuan instituted
Civil Case No. 44410 of the Court of First Instance of Manila, against
Valeriano, as well as the Municipal Judge and the Sheriff.
In Pamintuan's complaint, he prayed that judgment be rendered
1. Immediately enjoining the defendants from proceeding with the said order
of the Municipal Court ordering the herein plaintiff to vacate within four (4)
days from October 1, 1960 the premises in question;
2. After trial making the injunction above-mentioned permanent and ordering
the defendant not to eject the herein plaintiff without first filing a suit for
ejectment based on the new contract created into between the herein
plaintiff and the herein defendant; and
3. Plaintiff further prays for any other relief that may be found just and
equitable under the premises.
upon the ground that Pamintuan had paid a sum of money to Valeriano; that
the balance of the money judgment in his favor was covered by several
pieces of jewelry delivered by Pamintuan to Valeriano; and that Pamintuan
had retaken possession of the aforementioned property in pursuance of a
contract with Valeriano, who had agreed, not only to re-et the property, but,

also, to sell it to Pamintuan. Sometime after the filing of said complaint and
of the answer thereto, the lower court issued, after due hearing, the writ of
preliminary injunction prayed for by Pamintuan.
In due course, subsequently, or on April 17, 1961, the court, then presided
over by Hon. Juan P. Enriquez, Judge, rendered judgment dismissing
Pamintuan's complaint and sentencing him to pay P500 to Valeriano as
attorney's fees and costs, and dissolving the writ of preliminary injunction
aforementioned, as well as sentencing Pamintuan and his surety to pay
Valeriano P500, as damages for the issuance of said writ. Copy of this
decision was served upon Pamintuan on April 22, 1961. Thirty (30) days
later, or on May 22, 1961, Pamintuan filed his notice of appeal, record on
appeal, and appeal bond, but the lower court, then presided by another
Judge, respondent, Hon. Manuel P. Barcelona, disapproved the record on
appeal, upon the ground that the decision sought to be appealed from had
become final and executory fifteen (15) days after notice of said decision,
the case being one of certiorari, not injunction, as contended by Pamintuan
and declared by Judge Enriquez.
Judge Barcelona having refused to reconsider its aforementioned view,
Pamintuan thereupon filed with the Court of Appeals a petition docketed
as CA-G.R. No. 30156-R for a writ of certiorari and mandamus against
Judge Barcelona as well as the Sheriff of Manila and Valeriano, to compel
approval of the aforementioned record on appeal, upon the ground that Civil
Case No. 44410 is an injunction case, not one for certiorari, and that
Pamintuan had, accordingly, thirty (30) days from notice, within which to
appeal from the decision therein rendered. However, on December 29,
1961, the Court of Appeals rendered a decision sustaining the view of
Judge Barcelona and, consequently, dismissing Pamintuan's petition for
certiorari and mandamus. A reconsideration of this decision of the Court of
Appeals having been denied, Pamintuan now seeks a review thereof by
certiorari.
The only question we are called upon to resolve is the nature of the cause
of action set forth in Pamintuan's complaint in said case No. 44410.
Respondent Judge and the Court of Appeals held that it was one for
certiorari because Pamintuan impugned therein the jurisdiction of the
municipal court of issue the aforementioned alias writ of execution. it is well
settled, however, that the nature of an action is determined by the
allegations of the pleadings therein. Pamintuan's complaint in case No.
44410 contained, however, no allegation, either express or implied,
assailing the jurisdiction of the municipal court to issue said alias writ of
execution. There are in the complaint none of the allegations required in
petitions for certiorari, namely, an act performed without jurisdiction or in
excess of jurisdiction or with the grave abuse of discretion, amounting to

want of jurisdiction, and absence of a plain, speedy and adequate remedy in

the ordinary course of law (Rule 65, Section 1, Rules of Court).
Pamintuan merely relied in his complaint, upon a contract he allegedly had
with Valeriano, after the rendition of the decision of the municipal court and
the partial execution thereof, whereby Valeriano had agreed to re-let and to
sell the property in question to Pamintuan. What is more he made in his
complaint the allegations peculiar to petitions for injunction, such as, for
instance, that the alias writ of execution "would not only cause great and
irreparable injury, but will, also, work injustice" to him (see Rule 58, Sections
3 and 5, Rules of Court). In fact, the complaint stated that it was "for
injunction" and the decision of Judge Enriquez so characterized it. In other
words, the cause of action set forth in Pamintuan's complaint was actually
one for injunction, and so was the prayer in said pleading, regardless of
whether or not the relief he should have applied for was certiorari, so that he
had thirty (30) days from notice to appeal from said decision.
The least that can be said, from a strictly technical viewpoint, is that the
complaint could be considered as one either of injunction or of certiorari.
Since, from the filing of said pleading up to the rendition of the decision on
the merits the parties and the court had considered the case as one of
injunction, and the Rules of Court shall be "liberally construed in order to
promote their object and to assist the parties in obtaining just, speedy, and
inexpensive determination of every action and proceeding" (Rule 1, Section
2, Rules of Court), the spirit of the Rules and the interest of justice and fair
play would be served by allowing Pamintuan to perfect his appeal within the
period prescribed for injunction cases (Alonzo vs. Villamor, 16 Phil. 315;
Case vs. Jugo, 77 Phil. 517; International Tobacco Co. vs. Yatco, 55 Off.
Gaz. 811).
WHEREFORE, the decision of the Court of Appeals is hereby reversed and
respondent Judge is, accordingly, directed to approve the record on appeal
filed by petitioner herein in said Civil Case No. 44410 of the Court of First
Instance of Manila and to certify it to the appellate court, with costs against
herein respondent Jose Valeriano. It is so ordered.

G.R. NO. 159617 August 8, 2007

ROBERTO C. SICAM and AGENCIA
de R.C. SICAM, INC., Petitioners,
-versusLULU V. JORGE and CESAR
JORGE, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam,
Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation)
seeking to annul the Decision[1] of the Court of Appeals dated March 31, 2003, and
its Resolution[2] dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V.
Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C.
Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to
secure a loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. The incident was
entered in the police blotter of the Southern Police District, Paraaque Police
Station as follows:
Investigation shows that at above TDPO, while victims
were inside the office, two (2) male unidentified persons
entered into the said office with guns drawn.
Suspects(sic) (1) went straight inside and poked his gun
toward Romeo Sicam and thereby tied him with an electric
wire while suspects (sic) (2) poked his gun toward Divina
Mata and Isabelita Rodriguez and ordered them to lay (sic)
face flat on the floor. Suspects asked forcibly the case and
assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on
board a Marson Toyota unidentified plate number.[3]

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987
informing her of the loss of her jewelry due to the robbery incident in the
pawnshop. On November 2, 1987, respondent Lulu then wrote a letter[4] to
petitioner Sicam expressing disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the pawnshop since it had
been the practice that before they could withdraw, advance notice must be given to

the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu
then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar

Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of
Makati seeking indemnification for the loss of pawned jewelry and payment of
actual, moral and exemplary damages as well as attorney's fees. The case was
docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-ininterest as the pawnshop was incorporated on April 20, 1987 and known as Agencia
de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence
in the safekeeping of the articles pledged with it and could not be made liable for an
event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner
corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is
concerned considering that he is not the real party-in-interest. Respondents opposed
the same. The RTC denied the motion in an Order dated November 8, 1989.[5]
After trial on the merits, the RTC rendered its Decision[6] dated
January 12, 1993, dismissing respondents complaint as well as petitioners
counterclaim. The RTC held that petitioner Sicam could not be made personally
liable for a claim arising out of a corporate transaction; that in the Amended
Complaint of respondents, they asserted that plaintiff pawned assorted jewelries in
defendants' pawnshop; and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of a
stockholder.
The RTC further ruled that petitioner corporation could not be held liable for
the loss of the pawned jewelry since it had not been rebutted by respondents that the
loss of the pledged pieces of jewelry in the possession of the corporation was
occasioned by armed robbery; that robbery is a fortuitous event which exempts the
victim from liability for the loss, citing the case of Austria v. Court of Appeals;[7]
and that the parties transaction was that of a pledgor and pledgee and under Art.
1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those
events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated
March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads
as follows:

WHEREFORE, premises considered, the instant

Appeal is GRANTED, and the Decision dated January 12,
1993,of the Regional Trial Court of Makati, Branch 62, is
hereby REVERSED and SET ASIDE, ordering the appellees
to pay appellants the actual value of the lost jewelry
amounting to P272,000.00, and attorney' fees of
P27,200.00.[8]

In finding petitioner Sicam liable together with petitioner corporation, the

CA applied the doctrine of piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were dealing with the pawnshop
owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words Agencia de R.C. Sicam; and that there was no indication on the pawnshop
tickets that it was the petitioner corporation that owned the pawnshop which
explained why respondents had to amend their complaint impleading petitioner
corporation.
The CA further held that the corresponding diligence required of a pawnshop
is that it should take steps to secure and protect the pledged items and should take
steps to insure itself against the loss of articles which are entrusted to its custody as
it derives earnings from the pawnshop trade which petitioners failed to do; that
Austria is not applicable to this case since the robbery incident happened in 1961
when the criminality had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory negligence and should be held
liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks
in that those engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held
liable to respondents for the loss of the pawned jewelry.
Petitioners motion for reconsideration was denied in a Resolution dated
August 8, 2003.
Hence, the instant petition for review with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND WHEN
IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT
ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED
AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS
ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN

IT DID, IT OPENED ITSELF TO REVERSAL BY THIS

HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING
IT) THE SUBMISSIONS OF THE RESPONDENTS IN
THEIR BRIEF WITHOUT ADDING ANYTHING MORE
THERETO DESPITE THE FACT THAT THE SAID
ARGUMENT OF THE RESPONDENTS COULD NOT
HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.[9]
Anent the first assigned error, petitioners point out that the CAs finding that
petitioner Sicam is personally liable for the loss of the pawned jewelries is a virtual
and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants
brief.[10]
Petitioners argue that the reproduced arguments of respondents in their
Appellants Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph
2 of their Amended Complaint that Agencia de R.C. Sicam,
Inc. is the present owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was
not among those raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error
for the CA to have pierced the corporate veil since a
corporation has a personality distinct and separate from its
individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their
negligence is likewise an unedited reproduction of respondents brief which had the
following defects:
(1)
There were unrebutted evidence on record
that petitioners had observed the diligence required
of them, i.e, they wanted to open a vault with a nearby
bank for purposes of safekeeping the pawned articles but
was discouraged by the Central Bank (CB) since CB rules
provide that they can only store the pawned articles in a
vault inside the pawnshop premises and no other place;

(2)
Petitioners were adjudged negligent as they
did not take insurance against the loss of the pledged
jelweries, but it is judicial notice that due to high incidence
of crimes, insurance companies refused to cover
pawnshops and banks because of high probability of losses
due to robberies;
(3)
In Hernandez v. Chairman, Commission on
Audit (179 SCRA 39, 45-46), the victim of robbery was
exonerated from liability for the sum of money belonging to
others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply

thereto. The parties subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents (appellants) brief filed with
the CA, we find the same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the facts and the law on
which it is based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as long as these are
legally tenable and supported by law and the facts on records.[11]
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review
of errors of law committed by the appellate court. Generally, the findings of fact of
the appellate court are deemed conclusive and we are not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the court a quo.[12]
This rule, however, is not without exceptions, such as where the factual findings of
the Court of Appeals and the trial court are conflicting or contradictory[13] as is
obtaining in the instant case.
However, after a careful examination of the records, we find no justification to
absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged
petitioner Sicam liable together with petitioner corporation. The rule is that the veil
of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues. [14] The theory of corporate entity was not meant to
promote unfair objectives or otherwise to shield them.[15]
Notably, the evidence on record shows that at the time respondent Lulu
pawned her jewelry, the pawnshop was owned by petitioner Sicam himself. As

correctly observed by the CA, in all the pawnshop receipts issued to respondent
Lulu in September 1987, all bear the words Agencia de R. C. Sicam,
notwithstanding that the pawnshop was allegedly incorporated in April 1987. The
receipts issued after such alleged incorporation were still in the name of Agencia
de R. C. Sicam, thus inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the pawnshop was owned
solely by petitioner Sicam and not by a corporation.
Even petitioners counsel, Atty. Marcial T. Balgos, in his letter[16] dated
October 15, 1987 addressed to the Central Bank, expressly referred to petitioner
Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation
in April 1987.

We also find no merit in petitioners' argument that since respondents had

alleged in their Amended Complaint that petitioner corporation is the present owner
of the pawnshop, the CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that 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 showing that it was made
through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party
making it and does not require proof, admits of two exceptions, to wit: (1) when it
is shown that such admission was made through palpable mistake, and (2) when it is
shown that no such admission was in fact made. The latter exception allows one
to contradict an admission by denying that he made such an admission.[17]
The Committee on the Revision of the Rules of Court explained the second
exception in this wise:
x x x if a party invokes an admission by an adverse party,
but cites the admission out of context, then the one
making the admission may show that he made no such
admission, or that his admission was taken out of
context.
x x x that the party can also show that he made no such
admission, i.e., not in the sense in which the admission
is made to appear.
That is the reason for the modifier such because if the
rule simply states that the admission may be contradicted by
showing that no admission was made, the rule would not
really be providing for a contradiction of the admission but
just a denial.[18] (Emphasis supplied).

While it is true that respondents alleged in their Amended Complaint that

petitioner corporation is the present owner of the pawnshop, they did so only
because petitioner Sicam alleged in his Answer to the original complaint filed
against him that he was not the real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the Amended Complaint in its
entirety shows that respondents referred to both petitioner Sicam and petitioner
corporation where they (respondents) pawned their assorted pieces of jewelry and
ascribed to both the failure to observe due diligence commensurate with the
business which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners Motion to Dismiss
Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the
original complaint because the pawnshop tickets involved in
this case did not show that the R.C. Sicam Pawnshop was a
corporation. In paragraph 1 of his Answer, he admitted the
allegations in paragraph 1 and 2 of the Complaint. He
merely added that defendant is not now the real party in
interest in this case.
It was defendant Sicam's omission to correct the
pawnshop tickets used in the subject transactions in this case
which was the cause of the instant action. He cannot now
ask for the dismissal of the complaint against him simply on
the mere allegation that his pawnshop business is now
incorporated. It is a matter of defense, the merit of which
can only be reached after consideration of the evidence to be
presented in due course.[19]

Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as he
was concerned, the basic issue was whether he is the real party in interest against
whom the complaint should be directed.[20] In fact, he subsequently moved for the
dismissal of the complaint as to him but was not favorably acted upon by the trial
court. Moreover, the issue was squarely passed upon, although erroneously, by the
trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise
denies liability as far as he is concerned for the reason that
he cannot be made personally liable for a claim arising
from a corporate transaction.
This Court sustains the contention of the defendant
Roberto C. Sicam, Jr. The amended complaint itself asserts
that plaintiff pawned assorted jewelries in defendant's
pawnshop. It has been held that as a consequence of the
separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder,
nor is the stockholder's debt or credit that of a
corporation.[21]
Clearly, in view of the alleged incorporation of the pawnshop, the issue of
whether petitioner Sicam is personally liable is inextricably connected with the
determination of the question whether the doctrine of piercing the corporate veil
should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the
pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and
they are not negligent at all.
We are not persuaded.

Unmistakably, the alleged admission made in respondents' Amended

Complaint was taken out of context by petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts
under his name and not under the corporation's name militates for the piercing of
the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in
piercing the veil of corporate fiction of petitioner corporation, as it was not an
issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he
was not the real party-in-interest because since April 20, 1987, the pawnshop
business initiated by him was incorporated and known as Agencia de R.C.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk,
no person shall be responsible for those events which could
not be foreseen or which, though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or

avoidable. It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to foresee or

to avoid. The mere difficulty to foresee the happening is not impossibility to foresee
the same. [22]
To constitute a fortuitous event, the following elements must concur: (a) the
cause of the unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner; and, (d)
the obligor must be free from any participation in the aggravation of the injury or
loss. [23]
The burden of proving that the loss was due to a fortuitous event rests on him
who invokes it.[24] And, in order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no negligence or misconduct that
may have occasioned the loss. [25]
It has been held that an act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of
the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person's participation -- whether
by active intervention, neglect or failure to act -- the whole occurrence is humanized
and removed from the rules applicable to acts of God. [26]
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he started the
pawnshop business in 1983, he thought of opening a vault with the nearby bank for
the purpose of safekeeping the valuables but was discouraged by the Central Bank
since pawned articles should only be stored in a vault inside the pawnshop. The
very measures which petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but actually foreseen and
anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense
of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence
by which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. In Co v.
Court of Appeals,[27] the Court held:
It is not a defense for a repair shop of motor
vehicles to escape liability simply because the damage or
loss of a thing lawfully placed in its possession was due to

carnapping. Carnapping per se cannot be considered as a

fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful
possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the
mere forceful taking of another's property. It must be
proved and established that the event was an act of
God or was done solely by third parties and that
neither the claimant nor the person alleged to be
negligent has any participation. In accordance with the
Rules of Evidence, the burden of proving that the loss
was due to a fortuitous event rests on him who invokes
it which in this case is the private respondent.
However, other than the police report of the alleged
carnapping incident, no other evidence was presented by
private respondent to the effect that the incident was not
due to its fault. A police report of an alleged crime, to
which only private respondent is privy, does not suffice to
establish the carnapping. Neither does it prove that there
was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that
the car was carnapped. Carnapping does not foreclose the
possibility of fault or negligence on the part of private
respondent.[28]
Just like in Co, petitioners merely presented the police report of the
Paraaque Police Station on the robbery committed based on the report
of petitioners' employees which is not sufficient to establish robbery. Such report
also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in
finding that petitioners are guilty of concurrent or contributory negligence as
provided in Article 1170 of the Civil Code, to wit:
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.[29]

Article 2123 of the Civil Code provides that with regard to pawnshops and
other establishments which are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall be observed, and subsidiarily,
the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides

that the creditor shall take care of the thing pledged with the diligence of a good
father of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property.

Q. Did you come to know how the vault was opened?

A. When the pawnshop is official (sic) open your honor the
pawnshop is partly open. The combination is off.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the
obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds
with the circumstances of the persons, of time and of the
place. When negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence
which is to be observed in the performance, that which is
expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan[30] that negligence is the omission
to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not do.[31] It is want of care
required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would have used in
the same situation. Petitioners were guilty of negligence in the operation of their
pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the
premises when according to you there was a security
guard?
A. Sir, if these robbers can rob a bank, how much more a
pawnshop.
Q. I am asking you how were the robbers able to enter
despite the fact that
there was a security guard?
A. At the time of the incident which happened about 1:00
and 2:00 o'clock in the afternoon and it happened on a
Saturday and everything was quiet in the area BF
Homes Paraaque they pretended to pawn an article in
the pawnshop, so one of my employees allowed him to
come in and it was only when it was announced that it
was a hold up.

Q. No one open (sic) the vault for the robbers?

A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was
open the reason why the robbers were able to get all the
items pawned to you inside the vault.
A. Yes sir.[32]

revealing that there were no security measures adopted by petitioners in the

operation of the pawnshop. Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from unlawful intrusion. There was
no clear showing that there was any security guard at all. Or if there was one, that
he had sufficient training in securing a pawnshop. Further, there is no showing that
the alleged security guard exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were allowed to enter the
premises. In fact, it is even doubtful that there was a security guard, since it is quite
impossible that he would not have noticed that the robbers were armed with caliber
.45 pistols each, which were allegedly poked at the employees.[33] Significantly,
the alleged security guard was not presented at all to corroborate petitioner Sicam's
claim; not one of petitioners' employees who were present during the robbery
incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time
of robbery is clearly a proof of petitioners' failure to observe the care, precaution
and vigilance that the circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place on a Saturday afternoon
and the area in BF Homes Paraaque at that time was quiet, there was more reason
for petitioners to have exercised reasonable foresight and diligence in protecting the
pawned jewelries. Instead of taking the precaution to protect them, they let open the
vault, providing no difficulty for the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent
for not taking steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations
for Pawnshops, which took effect on July 13, 1973,
and which was issued
pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided
that pawns pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and PawnsThe place of business of a pawnshop and the pawns pledged
to it must be insured against fire and against burglary as
well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No. 764

which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns
The office building/premises and pawns of a pawnshop
must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the
Central Bank considered it not feasible to require insurance of pawned articles
against burglary.
The robbery in the pawnshop happened in 1987, and considering the abovequoted amendment, there is no statutory duty imposed on petitioners to insure the
pawned jewelry in which case it was error for the CA to consider it as a factor in
concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to
exercise the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern
his conduct varies with the nature of the situation in which he is placed and the
importance of the act which he is to perform.[34] Thus, the cases of Austria v.
Court of Appeals,[35] Hernandez v. Chairman, Commission on Audit[36] and Cruz
v. Gangan[37] cited by petitioners in their pleadings, where the victims of robbery
were exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with
diamonds to be sold on commission basis, but which Abad failed to subsequently
return because of a robbery committed upon her in 1961. The incident became the
subject of a criminal case filed against several persons. Austria filed an action
against Abad and her husband (Abads) for recovery of the pendant or its value, but
the Abads set up the defense that the robbery extinguished their obligation. The
RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of negligence. The CA, however, reversed
the RTC decision holding that the fact of robbery was duly established and declared
the Abads not responsible for the loss of the jewelry on account of a fortuitous
event. We held that for the Abads to be relieved from the civil liability of returning
the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the

unforeseen event, the robbery, took place without any concurrent fault on the
debtors part, and this can be done by preponderance of evidence; that to be free
from liability for reason of fortuitous event, the debtor must, in addition to the casus
itself, be free of any concurrent or contributory fault or negligence.[38]
We found in Austria that under the circumstances prevailing at the time the
Decision was promulgated in 1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that rendered travel after nightfall
a matter to be sedulously avoided without suitable precaution and protection; that
the conduct of Maria Abad in returning alone to her house in the evening carrying
jewelry of considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did not hold
Abad liable for negligence since, the robbery happened ten years previously; i.e.,
1961, when criminality had not reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was
already prevalent and petitioners in fact had already foreseen it as they wanted to
deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria,
where no negligence was committed, we found petitioners negligent in securing
their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer
of the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of
July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages
of the employees and the operating expenses of the project. However for some
reason, the processing of the check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the project employees would
be waiting for their pay the following day; otherwise, the workers would have to
wait until July 5, the earliest time, when the main office would open. At that
time, he had two choices: (1) return to Ternate, Cavite that same afternoon and
arrive early evening; or (2) take the money with him to his house in Marilao,
Bulacan, spend the night there, and leave for Ternate the following day. He chose
the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a
passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos
Avenue, the jeep was held up and the money kept by Hernandez was taken, and the
robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught
up with one robber who was subsequently charged with robbery and pleaded guilty.
The other robber who held the stolen money escaped. The Commission on Audit
found Hernandez negligent because he had not brought the cash proceeds of the
checks to his office in Ternate, Cavite for safekeeping, which is the normal
procedure in the handling of funds. We held that Hernandez was not negligent in
deciding to encash the check and bringing it home to Marilao, Bulacan instead of
Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was
moved by unselfish motive for his co-employees to collect their wages and salaries
the following day, a Saturday, a non-working, because to encash the check on July
5, the next working day after July 1, would have caused discomfort to laborers who

were dependent on their wages for sustenance; and (2) that choosing Marilao as a
safer destination, being nearer, and in view of the comparative hazards in the trips
to the two places, said decision seemed logical at that time. We further held that the
fact that two robbers attacked him in broad daylight in the jeep while it was on a
busy highway and in the presence of other passengers could not be said to be a
result of his imprudence and negligence.

WHEREFORE, except for the insurance aspect, the Decision of the

Court of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003,
are AFFIRMED.
Costs against petitioners.
SO ORDERED.

Unlike in Hernandez where the robbery happened in a public utility, the

robbery in this case took place in the pawnshop which is under the control of
petitioners. Petitioners had the means to screen the persons who were allowed
entrance to the premises and to protect itself from unlawful intrusion. Petitioners
had failed to exercise precautionary measures in ensuring that the robbers were
prevented from entering the pawnshop and for keeping the vault open for the day,
which paved the way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological
Education and Skills Development Authority (TESDA), boarded the Light Rail
Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was
slashed and the contents were stolen by an unidentified person. Among those stolen
were her wallet and the government-issued cellular phone. She then reported the
incident to the police authorities; however, the thief was not located, and the
cellphone was not recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability for the cellphone.
The Resident Auditor denied her request on the ground that she lacked the diligence
required in the custody of government property and was ordered to pay the purchase
value in the total amount of P4,238.00. The COA found no sufficient justification to
grant the request for relief from accountability. We reversed the ruling and found
that riding the LRT cannot per se be denounced as a negligent act more so because
Cruzs mode of transit was influenced by time and money considerations; that she
boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that
any prudent and rational person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone should not hinder one from
boarding the LRT coach as Cruz did considering that whether she rode a jeep or
bus, the risk of theft would have also been present; that because of her relatively
low position and pay, she was not expected to have her own vehicle or to ride a
taxicab; she did not have a government assigned vehicle; that placing the cellphone
in a bag away from covetous eyes and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the LRT; that the records did
not show any specific act of negligence on her part and negligence can never be
presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners'
pawnshop and they were negligent in not exercising the precautions justly
demanded of a pawnshop.

G.R. No. 158911

March 4, 2008

MANILA ELECTRIC COMPANY, Petitioner, vs. MATILDE

MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOYRAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE
PANADO, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the
1
Rules of Court, praying that the Decision of the Court of Appeals (CA)
dated December 16, 2002, ordering petitioner Manila Electric Company
2
(MERALCO) to pay Leoncio Ramoy moral and exemplary damages and
3
attorney's fees, and the CA Resolution dated July 1, 2003, denying
petitioner's motion for reconsideration, be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately
summarized the facts as culled from the records, thus:
The evidence on record has established that in the year 1987 the National
Power Corporation (NPC) filed with the MTC Quezon City a case for
ejectment against several persons allegedly illegally occupying its properties
in Baesa, Quezon City. Among the defendants in the ejectment case was
Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989
after the defendants failed to file an answer in spite of summons duly
served, the MTC Branch 36, Quezon City rendered judgment for the plaintiff
[MERALCO] and "ordering the defendants to demolish or remove the
building and structures they built on the land of the plaintiff and to vacate the
premises." In the case of Leoncio Ramoy, the Court found that he was
occupying a portion of Lot No. 72-B-2-B with the exact location of his
apartments indicated and encircled in the location map as No. 7. A copy of
the decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp.
128-131, Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the "immediate
disconnection of electric power supply to all residential and commercial
establishments beneath the NPC transmission lines along Baesa, Quezon
City (Exh. 7, p. 143, Record). Attached to the letter was a list of
establishments affected which included plaintiffs Leoncio and Matilde
Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After
deliberating on NPC's letter, Meralco decided to comply with NPC's request
(Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection

to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3A to 3-C), Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E),
Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3H) and Cyrene S. Panado (Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a joint survey
to determine all the establishments which are considered under NPC
property in view of the fact that "the houses in the area are very close to
each other" (Exh. 12). Shortly thereafter, a joint survey was conducted and
the NPC personnel pointed out the electric meters to be disconnected (Exh.
13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein
respondents] was disconnected (Exhibits D to G, with submarkings, pp. 8687, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the registered
owners of a parcel of land covered by TCT No. 326346, a portion of which
was occupied by plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza
and Cyrene S. Panado as lessees. When the Meralco employees were
disconnecting plaintiffs' power connection, plaintiff Leoncio Ramoy objected
by informing the Meralco foreman that his property was outside the NPC
property and pointing out the monuments showing the boundaries of his
property. However, he was threatened and told not to interfere by the armed
men who accompanied the Meralco employees. After the electric power in
Ramoy's apartment was cut off, the plaintiffs-lessees left the premises.
During the ocular inspection ordered by the Court and attended by the
parties, it was found out that the residence of plaintiffs-spouses Leoncio and
Matilde Ramoy was indeed outside the NPC property. This was confirmed
by defendant's witness R.P. Monsale III on cross-examination (TSN,
October 13, 1993, pp. 10 and 11). Monsale also admitted that he did not
inform his supervisor about this fact nor did he recommend re-connection of
plaintiffs' power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco reconnected the electric service of four customers previously disconnected
4
none of whom was any of the plaintiffs (Exh. 14).
The RTC decided in favor of MERALCO by dismissing herein respondents'
claim for moral damages, exemplary damages and attorney's fees.
However, the RTC ordered MERALCO to restore the electric power supply
of respondents.

Respondents then appealed to the CA. In its Decision dated December 16,
2002, the CA faulted MERALCO for not requiring from National Power
Corporation (NPC) a writ of execution or demolition and in not coordinating
with the court sheriff or other proper officer before complying with the NPC's
request. Thus, the CA held MERALCO liable for moral and exemplary
damages and attorney's fees. MERALCO's motion for reconsideration of the
Decision was denied per Resolution dated July 1, 2003.
Hence, herein petition for review on certiorari on the following grounds:
I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND
MERALCO NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT
ELECTRIC SERVICE OF RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE
LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE
5
ELECTRIC SERVICES OF THE RESPONDENTS.
The petition is partly meritorious.

tenor thereof, are liable for damages.

8

In Radio Communications of the Philippines, Inc. v. Verchez, the Court

expounded on the nature of culpa contractual, thus:
"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
9
attendance of fortuitous event, to excuse him from his ensuing liability.
(Emphasis supplied)

MERALCO admits that respondents are its customers under a Service

Contract whereby it is obliged to supply respondents with electricity.
Nevertheless, upon request of the NPC, MERALCO disconnected its power
supply to respondents on the ground that they were illegally occupying the
NPC's right of way. Under the Service Contract, "[a] customer of electric
service must show his right or proper interest over the property in order that
7
he will be provided with and assured a continuous electric service."
MERALCO argues that since there is a Decision of the Metropolitan Trial
Court (MTC) of Quezon City ruling that herein respondents were among the
illegal occupants of the NPC's right of way, MERALCO was justified in
cutting off service to respondents.

Article 1173 also provides that the fault or negligence of the obligor consists
in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the
time and of the place. The Court emphasized in Ridjo Tape & Chemical
10
Corporation v. Court of Appeals that "as a public utility, MERALCO has the
11
obligation to discharge its functions with utmost care and diligence."

Clearly, respondents' cause of action against MERALCO is anchored on

culpa contractual or breach of contract for the latter's discontinuance of its
service to respondents under Article 1170 of the Civil Code which provides:

The Court agrees with the CA that under the factual milieu of the present
case, MERALCO failed to exercise the utmost degree of care and diligence
required of it. To repeat, it was not enough for MERALCO to merely rely on
the Decision of the MTC without ascertaining whether it had become final
and executory. Verily, only upon finality of said Decision can it be said with
conclusiveness that respondents have no right or proper interest over the
subject property, thus, are not entitled to the services of MERALCO.

Article 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the

Although MERALCO insists that the MTC Decision is final and executory, it
never showed any documentary evidence to support this allegation.

Moreover, if it were true that the decision was final and executory, the most
prudent thing for MERALCO to have done was to coordinate with the proper
court officials in determining which structures are covered by said court
order. Likewise, there is no evidence on record to show that this was done
by MERALCO.
The utmost care and diligence required of MERALCO necessitates such
great degree of prudence on its part, and failure to exercise the diligence
required means that MERALCO was at fault and negligent in the
12
performance of its obligation. In Ridjo Tape, the Court explained:
[B]eing a public utility vested with vital public interest, MERALCO is
impressed with certain obligations towards its customers and any omission
on its part to perform such duties would be prejudicial to its interest. For in
the final analysis, the bottom line is that those who do not exercise such
prudence in the discharge of their duties shall be made to bear the
13
consequences of such oversight.
This being so, MERALCO is liable for damages under Article 1170 of the
Civil Code.
The next question is: Are respondents entitled to moral and exemplary
damages and attorney's fees?
Article 2220 of the Civil Code provides:
Article 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.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by
withholding from him and his tenants the supply of electricity to which they
were entitled under the Service Contract. This is contrary to public policy
because, as discussed above, MERALCO, being a vital public utility, is
expected to exercise utmost care and diligence in the performance of its
obligation. It was incumbent upon MERALCO to do everything within its
power to ensure that the improvements built by respondents are within the
NPCs right of way before disconnecting their power supply. The Court
14
emphasized in Samar II Electric Cooperative, Inc. v. Quijano that:
Electricity is a basic necessity the generation and distribution of which is
imbued with public interest, and its provider is a public utility subject to
strict regulation by the State in the exercise of police power. Failure to

comply with these regulations will give rise to the presumption of bad
15
faith or abuse of right. (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence
in the performance of its obligation to Leoncio Ramoy, its customer, is
tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded
16
feelings because of MERALCO's actions. Furthermore, due to the lack of
power supply, the lessees of his four apartments on subject lot left the
17
premises. Clearly, therefore, Leoncio Ramoy is entitled to moral damages
in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one who
testified regarding the effects on him of MERALCO's electric service
disconnection. His co-respondents Matilde Ramoy, Rosemarie Ramoy,
Ofelia Durian and Cyrene Panado did not present any evidence of damages
they suffered.
It is a hornbook principle that damages may be awarded only if proven. In
18
Mahinay v. Velasquez, Jr., the Court held thus:
In order that moral damages may be awarded, there must be pleading
and proof of moral suffering, mental anguish, fright and the like. While
respondent alleged in his complaint that he suffered mental anguish, serious
anxiety, wounded feelings and moral shock, he failed to prove them during
the trial. Indeed, respondent should have taken the witness stand and
should have testified on the mental anguish, serious anxiety, wounded
feelings and other emotional and mental suffering he purportedly suffered to
sustain his claim for moral damages. Mere allegations do not suffice; they
must be substantiated by clear and convincing proof. No other person
could have proven such damages except the respondent himself as
they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral damages
may be awarded, the amount of indemnity being left to the discretion of the
court, it is nevertheless essential that the claimant should satisfactorily show
the existence of the factual basis of damages and its causal connection to
defendants acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer. In Francisco vs. GSIS, the Court held that there
must be clear testimony on the anguish and other forms of mental
suffering. Thus, if the plaintiff fails to take the witness stand and testify as

to his/her social humiliation, wounded feelings and anxiety, moral damages

cannot be awarded. In Cocoland Development Corporation vs. National
Labor Relations Commission, the Court held that "additional facts must be
pleaded and proven to warrant the grant of moral damages under the Civil
Code, these being, x x x social humiliation, wounded feelings, grave anxiety,
etc. that resulted therefrom."
x x x The award of moral damages must be anchored to a clear showing
that respondent actually experienced mental anguish, besmirched
reputation, sleepless nights, wounded feelings or similar injury. There was
no better witness to this experience than respondent himself. Since
respondent failed to testify on the witness stand, the trial court did not
19
have any factual basis to award moral damages to him. (Emphasis
supplied)

(1) When exemplary damages are awarded;

(2) When the defendants act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;

Thus, only respondent Leoncio Ramoy, who testified as to his wounded

20
feelings, may be awarded moral damages.
With regard to exemplary damages, Article 2232 of the Civil Code provides
that in contracts and quasi-contracts, the court may award exemplary
damages if the defendant, in this case MERALCO, acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner, while Article 2233
of the same Code provides that such damages cannot be recovered as a
matter of right and the adjudication of the same is within the discretion of
the court.1avvphi1

(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;
(8) In actions for indemnity under workmens compensation and employers
liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;

The Court finds that MERALCO fell short of exercising the due diligence
required, but its actions cannot be considered wanton, fraudulent, reckless,
oppressive or malevolent. Records show that MERALCO did take some
measures, i.e., coordinating with NPC officials and conducting a joint survey
of the subject area, to verify which electric meters should be disconnected
although these measures are not sufficient, considering the degree of
diligence required of it. Thus, in this case, exemplary damages should not
be awarded.

(11) In any other case where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered.

Since the Court does not deem it proper to award exemplary damages in
this case, then the CA's award for attorney's fees should likewise be
deleted, as Article 2208 of the Civil Code states that in the absence of
stipulation, attorney's fees cannot be recovered except in cases
provided for in said Article, to wit:

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the

Court of Appeals is AFFIRMED with MODIFICATION. The award for
exemplary damages and attorney's fees is DELETED.

Article 2208. In the absence of stipulation, attorneys fees and expenses of

litigation, other than judicial costs, cannot be recovered, except:

SO ORDERED.

In all cases, the attorneys fees and expenses of litigation must be

reasonable.
None of the grounds for recovery of attorney's fees are present.

No costs.

[G.R. No. 176868 : July 26, 2010]

SOLAR HARVEST, INC., PETITIONER, VS. DAVAO
CORRUGATED CARTON CORPORATION, RESPONDENT.
DECISION
NACHURA, J.:

Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated

September 21, 2006 and Resolution[2] dated February 23, 2007, which denied
petitioners motion for reconsideration. The assailed Decision denied petitioners
claim for reimbursement for the amount it paid to respondent for the manufacture of
corrugated carton boxes.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an
agreement with respondent, Davao Corrugated Carton Corporation, for the purchase
of corrugated carton boxes, specifically designed for petitioners business of
exporting fresh bananas, at US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner deposited, on March 31, 1998,
US$40,150.00 in respondents US Dollar Savings Account with Westmont Bank, as
full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent.
On January 3, 2001, petitioner wrote a demand letter for reimbursement of the
amount paid.[3] On February 19, 2001, respondent replied that the boxes had been
completed as early as April 3, 1998 and that petitioner failed to pick them up from
the formers warehouse 30 days from completion, as agreed upon. Respondent
mentioned that petitioner even placed an additional order of 24,000 boxes, out of
which, 14,000 had been manufactured without any advanced payment from
petitioner. Respondent then demanded petitioner to remove the boxes from the
factory and to pay the balance of US$15,400.00 for the additional boxes and
P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and
damages against respondent. The Complaint averred that the parties agreed that the
boxes will be delivered within 30 days from payment but respondent failed to
manufacture and deliver the boxes within such time. It further alleged
6. That repeated follow-up was made by the plaintiff
for the immediate production of the ordered boxes, but
every time, defendant [would] only show samples of boxes

and ma[k]e repeated promises to deliver the said ordered

boxes.
7. That because of the failure of the defendant to
deliver the ordered boxes, plaintiff ha[d] to cancel the same
and demand payment and/or refund from the defendant but
the latter refused to pay and/or refund the US$40,150.00
payment made by the former for the ordered boxes.[4]
In its Answer with Counterclaim,[5] respondent insisted that, as early as April
3, 1998, it had already completed production of the 36,500 boxes, contrary to
petitioners allegation. According to respondent, petitioner, in fact, made an
additional order of 24,000 boxes, out of which, 14,000 had been completed without
waiting for petitioners payment. Respondent stated that petitioner was to pick up
the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent
averred that, on October 8, 1998, petitioners representative, Bobby Que (Que),
went to the factory and saw that the boxes were ready for pick up. On February 20,
1999, Que visited the factory again and supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioners
transaction to ship bananas to China did not materialize. Respondent claimed that
the boxes were occupying warehouse space and that petitioner should be made to
pay storage fee at P60.00 per square meter for every month from April 1998. As
counterclaim, respondent prayed that judgment be rendered ordering petitioner to
pay $15,400.00, plus interest, moral and exemplary damages, attorneys fees, and
costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and
that respondent already completed the initial order of 36,500
boxes and 14,000 boxes out of the second order. It maintained that
respondent only manufactured a sample of the ordered boxes and that respondent
could not have produced 14,000 boxes without the required pre-payments.[6]
During trial, petitioner presented Que as its sole witness. Que testified that he
ordered the boxes from respondent and deposited the money in respondents
account.[7] He specifically stated that, when he visited respondents factory, he saw
that the boxes had no print of petitioners logo.[8] A few months later, he followedup the order and was told that the company had full production, and thus, was
promised that production of the order would be rushed. He told respondent that it
should indeed rush production because the need for the boxes was urgent.
Thereafter, he asked his partner, Alfred Ong, to cancel the order because it was
already late for them to meet their commitment to ship the bananas to China.[9] On
cross-examination, Que further testified that China Zero Food, the Chinese
company that ordered the bananas, was sending a ship to Davao to get the bananas,
but since there were no cartons, the ship could not proceed. He said that, at that
time, bananas from Tagum Agricultural Development Corporation (TADECO)

were already there. He denied that petitioner made an additional order of 24,000
boxes. He explained that it took three years to refer the matter to counsel because
respondent promised to pay.[10]
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que
in Davao in October 1998 to inspect the boxes and that the latter got samples of
them. In February 2000, they inspected the boxes again and Que got more
samples. Estanislao said that petitioner did not pick up the boxes because the ship
did not arrive.[11] Jaime Tan (Tan), president of respondent, also testified that his
company finished production of the 36,500 boxes on April 3, 1998 and that
petitioner made a second order of 24,000 boxes. He said that the agreement was for
respondent to produce the boxes and for petitioner to pick them up from the
warehouse.[12] He also said that the reason why petitioner did not pick up the
boxes was that the ship that was to carry the bananas did not arrive.[13] According
to him, during the last visit of Que and Estanislao, he asked them to withdraw the
boxes immediately because they were occupying a big space in his plant, but they,
instead, told him to sell the cartons as rejects. He was able to sell 5,000 boxes at
P20.00 each for a total of P100,000.00. They then told him to apply the said amount
to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that
respondent did not commit any breach of faith that would justify rescission of the
contract and the consequent reimbursement of the amount paid by petitioner. The
RTC said that respondent was able to produce the ordered boxes but petitioner
failed to obtain possession thereof because its ship did not arrive. It thus dismissed
the complaint and respondents counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of defendant and against the
plaintiff and, accordingly, plaintiffs complaint is hereby
ordered DISMISSED without pronouncement as to cost.
Defendants counterclaims are similarly dismissed for lack
of merit.
SO ORDERED.[14]

Petitioner moved for reconsideration,[17] but the motion was denied by the
CA in its Resolution of February 23, 2007.[18]
In this petition, petitioner insists that respondent did not completely
manufacture the boxes and that it was respondent which was obliged to deliver the
boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the
grant of this petition.
Petitioners claim for reimbursement is actually one for rescission (or
resolution) of contract under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage
Law.

The right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the same law, which provides:

Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of merit.[15] The
appellate court held that petitioner failed to discharge its burden of proving what it
claimed to be the parties agreement with respect to the delivery of the boxes.
According to the CA, it was unthinkable that, over a period of more than two years,
petitioner did not even demand for the delivery of the boxes. The CA added that
even assuming that the agreement was for respondent to deliver the boxes,
respondent would not be liable for breach of contract as petitioner had not yet
demanded from it the delivery of the boxes.[16]

Art. 1169. Those obliged to deliver or to do

something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1)

When the obligation or the law

expressly so declares; or
(2)
When from the nature and the
circumstances of the obligation it appears that
the designation of the time when the thing is to
be delivered or the service is to be rendered was
a controlling motive for the establishment of the
contract; or
(3)
When demand would be useless, as
when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay
if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by
the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties respective obligations should be simultaneous. Hence, no
demand is generally necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs in delay. But when
different dates for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first paragraph of the
present article,[19] that is, the other party would incur in delay only from the
moment the other party demands fulfillment of the formers obligation. Thus, even
in reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the obligor can be considered in
default and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was
the lack of demand by petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint only alleged that petitioner made
a follow-up upon respondent, which, however, would not qualify as a demand for
the fulfillment of the obligation. Petitioners witness also testified that they made a
follow-up of the boxes, but not a demand. Note is taken of the fact that, with
respect to their claim for reimbursement, the Complaint alleged and the witness
testified that a demand letter was sent to respondent. Without a previous demand
for the fulfillment of the obligation, petitioner would not have a cause of action for
rescission against respondent as the latter would not yet be considered in breach of
its contractual obligation.
Even assuming that a demand had been previously made before filing the
present case, petitioners claim for reimbursement would still fail, as the
circumstances would show that respondent was not guilty of breach of contract.

The existence of a breach of contract is a factual matter not usually reviewed

in a petition for review under Rule 45.[20] The Court, in petitions for review, limits
its inquiry only to questions of law. After all, it is not a trier of facts, and findings
of fact made by the trial court, especially when reiterated by the CA, must be given
great respect if not considered as final.[21] In dealing with this petition, we will not
veer away from this doctrine and will thus sustain the factual findings of the CA,
which we find to be adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished
boxes and the production report thereof, there is ample showing that the boxes had
already been manufactured by respondent. There is the testimony of Estanislao who
accompanied Que to the factory, attesting that, during their first visit to the
company, they saw the pile of petitioners boxes and Que took samples
thereof. Que, petitioners witness, himself confirmed this incident. He testified that
Tan pointed the boxes to him and that he got a sample and saw that it was
blank. Ques absolute assertion that the boxes were not manufactured is, therefore,
implausible and suspicious.
In fact, we note that respondents counsel manifested in court, during trial,
that his client was willing to shoulder expenses for a representative of the court to
visit the plant and see the boxes.[22] Had it been true that the boxes were not yet
completed, respondent would not have been so bold as to challenge the court to
conduct an ocular inspection of their warehouse. Even in its Comment to this
petition, respondent prays that petitioner be ordered to remove the boxes from its
factory site,[23] which could only mean that the boxes are, up to the present, still in
respondents premises.
We also believe that the agreement between the parties was for petitioner to
pick up the boxes from respondents warehouse, contrary to petitioners allegation.
Thus, it was due to petitioners fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for
respondent to deliver the boxes within 30 days from payment, as alleged in the
Complaint. Its sole witness, Que, was not even competent to testify on the terms of
the agreement and, therefore, we cannot give much credence to his testimony. It
appeared from the testimony of Que that he did not personally place the order with
Tan, thus:
Q.
A.
Q.
A.

No, my question is, you went to Davao City and

placed your order there?
I made a phone call.
You made a phone call to Mr. Tan?
The first time, the first call to Mr. Alf[re]d Ong.
Alfred Ong has a contact with Mr. Tan.

Q.
A.

Q.

So, your first statement that you were the one who
placed the order is not true?
Thats true. The Solar Harvest made a contact with
Mr. Tan and I deposited the money in the bank.

A.

You said a while ago [t]hat you were the one who
called Mr. Tan and placed the order for 36,500
boxes, isnt it?
First time it was Mr. Alfred Ong.

Q.
A.

It was Mr. Ong who placed the order[,] not you?

Yes, sir.[24]

Q.

Is it not a fact that the cartons were ordered through

Mr. Bienvenido Estanislao?
Yes, sir.[25]

A.

In sum, the Court finds that petitioner failed to establish a cause of action for
rescission, the evidence having shown that respondent did not commit any breach of
its contractual obligation. As previously stated, the subject boxes are still within
respondents premises. To put a rest to this dispute, we therefore relieve respondent
from the burden of having to keep the boxes within its premises and, consequently,
give it the right to dispose of them, after petitioner is given a period of time within
which to remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of
Appeals Decision dated September 21, 2006 and Resolution dated February 23,
2007 are AFFIRMED. In addition, petitioner is given a period
of 30 days from notice within which to cause the removal of the 36,500
boxes from respondents warehouse. After the lapse of said period and petitioner
fails to effect such removal, respondent shall have the right to dispose of the boxes
in any manner it may deem fit.
SO ORDERED.

Moreover, assuming that respondent was obliged to deliver the boxes, it

could not have complied with such obligation. Que, insisting that the boxes had not
been manufactured, admitted that he did not give respondent the authority to deliver
the boxes to TADECO:
Q.
A.

Q.

A.

Q.

Did you give authority to Mr. Tan to deliver these

boxes to TADECO?
No, sir. As I have said, before the delivery, we must
have to check the carton, the quantity and
quality. But I have not seen a single carton.
Are you trying to impress upon the [c]ourt that it is
only after the boxes are completed, will you
give authority to Mr. Tan to deliver the boxes to
TADECO[?]
Sir, because when I checked the plant, I have not
seen any carton. I asked Mr. Tan to rush the
carton but not[26]

A.

Did you give any authority for Mr. Tan to deliver

these boxes to TADECO?
Because I have not seen any of my carton.

Q.
A.

You dont have any authority yet given to Mr. Tan?

None, your Honor.[27]

Surely, without such authority, TADECO would not have allowed respondent to
deposit the boxes within its premises.

G.R. No. 162467

May 8, 2009

Del Monte Produce; the latter then issued a subrogation receipt to Phoenix
and McGee.

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs. PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE &
CO., INC., Respondent.
DECISION
TINGA, J.:
1

Before us is a petition for review on certiorari under Rule 45 of the 1997

2
Rules of Civil Procedure of the 29 October 2003 Decision of the Court of
3
Appeals and the 26 February 2004 Resolution of the same court denying
petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao
Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green
Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo
hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea
in favor of consignee Taegu Industries, Inc. Del Monte Produce insured the
shipment under an "open cargo policy" with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance company,
and private respondent McGee & Co. Inc. (McGee), the underwriting
4
manager/agent of Phoenix.
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau.
The vessel set sail from the port of Davao City and arrived at the port of
Inchon, Korea. It was then discovered upon discharge that some of the
cargo was in bad condition. The Marine Cargo Damage Surveyor of Incok
Loss and Average Adjuster of Korea, through its representative Byeong
Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In
a survey report, it was stated that 16,069 cartons of the banana shipment
and 2,185 cartons of the pineapple shipment were so damaged that they no
5
longer had commercial value.
Del Monte Produce filed a claim under the open cargo policy for the
damages to its shipment. McGees Marine Claims Insurance Adjuster
evaluated the claim and recommended that payment in the amount of
$210,266.43 be made. A check for the recommended amount was sent to

Phoenix and McGee instituted an action for damages against Mindanao

Terminal in the Regional Trial Court (RTC) of Davao City, Branch 12. After
8
trial, the RTC, in a decision dated 20 October 1999, held that the only
participation of Mindanao Terminal was to load the cargoes on board the
M/V Mistrau under the direction and supervision of the ships officers, who
would not have accepted the cargoes on board the vessel and signed the
foremans report unless they were properly arranged and tightly secured to
withstand voyage across the open seas. Accordingly, Mindanao Terminal
cannot be held liable for whatever happened to the cargoes after it had
loaded and stowed them. Moreover, citing the survey report, it was found by
the RTC that the cargoes were damaged on account of a typhoon which
M/V Mistrau had encountered during the voyage. It was further held that
Phoenix and McGee had no cause of action against Mindanao Terminal
because the latter, whose services were contracted by Del Monte, a distinct
corporation from Del Monte Produce, had no contract with the assured Del
Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual
9
damages and P100,000.00 as attorneys fees. The actual damages were
awarded as reimbursement for the expenses incurred by Mindanao
Terminals lawyer in attending the hearings in the case wherein he had to
travel all the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court
10
reversed and set aside the decision of the RTC in its 29 October 2003
decision. The same court ordered Mindanao Terminal to pay Phoenix and
McGee "the total amount of $210,265.45 plus legal interest from the filing of
11
the complaint until fully paid and attorneys fees of 20% of the claim." It
sustained Phoenixs and McGees argument that the damage in the cargoes
was the result of improper stowage by Mindanao Terminal. It imposed on
Mindanao Terminal, as the stevedore of the cargo, the duty to exercise
extraordinary diligence in loading and stowing the cargoes. It further held
that even with the absence of a contractual relationship between Mindanao
Terminal and Del Monte Produce, the cause of action of Phoenix and
McGee could be based on quasi-delict under Article 2176 of the Civil
12
Code.
13

Mindanao Terminal filed a motion for reconsideration, which the Court of

14
Appeals denied in its 26 February 2004 resolution. Hence, the present
petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it
was careless and negligent in the loading and stowage of the cargoes

onboard M/V Mistrau making it liable for damages; and, whether Phoenix
and McGee has a cause of action against Mindanao Terminal under Article
2176 of the Civil Code on quasi-delict. To resolve the petition, three
questions have to be answered: first, whether Phoenix and McGee have a
cause of action against Mindanao Terminal; second, whether Mindanao
Terminal, as a stevedoring company, is under obligation to observe the
same extraordinary degree of diligence in the conduct of its business as
15
16
required by law for common carriers and warehousemen; and third,
whether Mindanao Terminal observed the degree of diligence required by
law of a stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and
McGee against Mindanao Terminal, from which the present case has
arisen, states a cause of action. The present action is based on quasi-delict,
arising from the negligent and careless loading and stowing of the cargoes
belonging to Del Monte Produce. Even assuming that both Phoenix and
McGee have only been subrogated in the rights of Del Monte Produce, who
is not a party to the contract of service between Mindanao Terminal and Del
Monte, still the insurance carriers may have a cause of action in light of the
Courts consistent ruling that the act that breaks the contract may be also a
17
tort. In fine, a liability for tort may arise even under a contract, where tort is
18
that which breaches the contract . In the present case, Phoenix and
McGee are not suing for damages for injuries arising from the breach of the
contract of service but from the alleged negligent manner by which
Mindanao Terminal handled the cargoes belonging to Del Monte Produce.
Despite the absence of contractual relationship between Del Monte Produce
and Mindanao Terminal, the allegation of negligence on the part of the
defendant should be sufficient to establish a cause of action arising from
19
quasi-delict.
The resolution of the two remaining issues is determinative of the ultimate
result of this case.

family. We therefore conclude that following Article 1173, Mindanao

Terminal was required to observe ordinary diligence only in loading and
stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
21

imposing a higher degree of diligence, on Mindanao Terminal in loading

and stowing the cargoes. The case of Summa Insurance Corporation v. CA,
which involved the issue of whether an arrastre operator is legally liable for
the loss of a shipment in its custody and the extent of its liability, is
inapplicable to the factual circumstances of the case at bar. Therein, a
vessel owned by the National Galleon Shipping Corporation (NGSC) arrived
at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order
of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party." The shipment, including a bundle of PC 8 U blades, was
discharged from the vessel to the custody of the private respondent, the
exclusive arrastre operator at the South Harbor. Accordingly, three goodorder cargo receipts were issued by NGSC, duly signed by the ship's
checker and a representative of private respondent. When Semirara
inspected the shipment at house, it discovered that the bundle of PC8U
blades was missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that existing
between the consignee or owner of shipped goods and the common carrier,
[22 ]
or that between a depositor and a warehouseman . In the performance of
its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman
as enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good
care of the goods and to turn them over to the party entitled to their
23
possession. (Emphasis supplied)
24

Article 1173 of the Civil Code is very clear that if the law or contract does
not state the degree of diligence which is to be observed in the performance
of an obligation then that which is expected of a good father of a family or
ordinary diligence shall be required. Mindanao Terminal, a stevedoring
company which was charged with the loading and stowing the cargoes of
Del Monte Produce aboard M/V Mistrau, had acted merely as a labor
provider in the case at bar. There is no specific provision of law that
imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and
stowing of cargoes. It was neither alleged nor proven by Phoenix and
McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a

There is a distinction between an arrastre and a stevedore. Arrastre, a

Spanish word which refers to hauling of cargo, comprehends the handling of
cargo on the wharf or between the establishment of the consignee or
shipper and the ship's tackle. The responsibility of the arrastre operator lasts
until the delivery of the cargo to the consignee. The service is usually
performed by longshoremen. On the other hand, stevedoring refers to the
handling of the cargo in the holds of the vessel or between the ship's tackle
and the holds of the vessel. The responsibility of the stevedore ends upon
the loading and stowing of the cargo in the vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring
function while the private respondent in the Summa case was performing
arrastre function. In the present case, Mindanao Terminal, as a stevedore,

was only charged with the loading and stowing of the cargoes from the pier
to the ships cargo hold; it was never the custodian of the shipment of Del
Monte Produce. A stevedore is not a common carrier for it does not
transport goods or passengers; it is not akin to a warehouseman for it does
not store goods for profit. The loading and stowing of cargoes would not
have a far reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract
and on quasi-delict. The public policy considerations in legally imposing
upon a common carrier or a warehouseman a higher degree of diligence is
not present in a stevedoring outfit which mainly provides labor in loading
and stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of
25
evidence that Mindanao Terminal had acted negligently. Where the
evidence on an issue of fact is in equipoise or there is any doubt on which
side the evidence preponderates the party having the burden of proof fails
upon that issue. That is to say, if the evidence touching a disputed fact is
equally balanced, or if it does not produce a just, rational belief of its
existence, or if it leaves the mind in a state of perplexity, the party holding
26
the affirmative as to such fact must fail. 1avvphi1
27

28

We adopt the findings of the RTC, which are not disputed by Phoenix
and McGee. The Court of Appeals did not make any new findings of fact
when it reversed the decision of the trial court. The only participation of
29
Mindanao Terminal was to load the cargoes on board M/V Mistrau. It was
not disputed by Phoenix and McGee that the materials, such as ropes,
pallets, and cardboards, used in lashing and rigging the cargoes were all
30
provided by M/V Mistrau and these materials meets industry standard.
It was further established that Mindanao Terminal loaded and stowed the
cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with
the stowage plan, a guide for the area assignments of the goods in the
vessels hold, prepared by Del Monte Produce and the officers of M/V
31
Mistrau. The loading and stowing was done under the direction and
supervision of the ship officers. The vessels officer would order the closing
of the hatches only if the loading was done correctly after a final
32
inspection. The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to
withstand the voyage in open seas. They would order the stevedore to
rectify any error in its loading and stowing. A foremans report, as proof of
work done on board the vessel, was prepared by the checkers of Mindanao
Terminal and concurred in by the Chief Officer of M/V Mistrau after they
33
were satisfied that the cargoes were properly loaded.
34

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn

35

and on the survey report of the damage to the cargoes. Byeong, whose
36
testimony was refreshed by the survey report, found that the cause of the
37
damage was improper stowage due to the manner the cargoes were
arranged such that there were no spaces between cartons, the use of
cardboards as support system, and the use of small rope to tie the cartons
together but not by the negligent conduct of Mindanao Terminal in loading
and stowing the cargoes. As admitted by Phoenix and McGee in their
38
Comment before us, the latter is merely a stevedoring company which was
tasked by Del Monte to load and stow the shipments of fresh banana and
pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it
should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. In other words, the work of the
stevedore was under the supervision of the shipper and officers of the
vessel. Even the materials used for stowage, such as ropes, pallets, and
cardboards, are provided for by the vessel. Even the survey report found
that it was because of the boisterous stormy weather due to the typhoon
Seth, as encountered by M/V Mistrau during its voyage, which caused the
shipments in the cargo hold to collapse, shift and bruise in extensive
39
extent. Even the deposition of Byeong was not supported by the
conclusion in the survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that
damage occurred aboard the carrying vessel during sea transit, being
caused by ships heavy rolling and pitching under boisterous weather while
proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
40
1994 as described in the sea protest.
As it is clear that Mindanao Terminal had duly exercised the required
degree of diligence in loading and stowing the cargoes, which is the
ordinary diligence of a good father of a family, the grant of the petition is in
order.
However, the Court finds no basis for the award of attorneys fees in favor of
petitioner.lawphil.net None of the circumstances enumerated in Article 2208
of the Civil Code exists. The present case is clearly not an unfounded civil
action against the plaintiff as there is no showing that it was instituted for the
mere purpose of vexation or injury. It is not sound public policy to set a
premium to the right to litigate where such right is exercised in good faith,
41
even if erroneously. Likewise, the RTC erred in awarding P83,945.80
actual damages to Mindanao Terminal. Although actual expenses were
incurred by Mindanao Terminal in relation to the trial of this case in Davao

City, the lawyer of Mindanao Terminal incurred expenses for plane fare,
hotel accommodations and food, as well as other miscellaneous expenses,
as he attended the trials coming all the way from Manila. But there is no
showing that Phoenix and McGee made a false claim against Mindanao
Terminal resulting in the protracted trial of the case necessitating the
42
incurrence of expenditures.
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the decision of the
Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is
hereby REINSTATED MINUS the awards of P100,000.00 as attorneys fees
and P83,945.80 as actual damages.
SO ORDERED.

G.R. No. L-30056 August 30, 1988

MARCELO AGCAOILI, plaintiff-appellee vs. GOVERNMENT SERVICE
INSURANCE SYSTEM, defendant-appellant.
NARVASA, J.:
The appellant Government Service Insurance System, (GSIS, for short)
having approved the application of the appellee Agcaoili for the purchase of
a house and lot in the GSIS Housing Project at Nangka Marikina, Rizal,
subject to the condition that the latter should forthwith occupy the house, a
condition that Agacoili tried to fulfill but could not for the reason that the
house was absolutely uninhabitable; Agcaoili, after paying the first
installment and other fees, having thereafter refused to make further
payment of other stipulated installments until GSIS had made the house
habitable; and appellant having refused to do so, opting instead to cancel
the award and demand the vacation by Agcaoili of the premises; and
Agcaoili having sued the GSIS in the Court of First Instance of Manila for
specific performance with damages and having obtained a favorable
judgment, the case was appealled to this Court by the GSIS. Its appeal
must fail.
The essential facts are not in dispute. Approval of Agcaoili's aforementioned
1
2
application for purchase was contained in a letter addressed to Agcaoili
and signed by GSIS Manager Archimedes Villanueva in behalf of the
Chairman-General Manager, reading as follows:
Please be informed that your application to purchase a house and lot in our
GSIS Housing Project at Nangka, Marikina, Rizal, has been approved by
this Office. Lot No. 26, Block No. (48) 2, together with the housing unit
constructed thereon, has been allocated to you.
You are, therefore, advised to occupy the said house immediately.
If you fail to occupy the same within three (3) days from receipt of this
notice, your application shall be considered automatically disapproved and
the said house and lot will be awarded to another applicant.
Agcaoili lost no time in occupying the house. He could not stay in it,
however, and had to leave the very next day, because the house was
nothing more than a shell, in such a state of incompleteness that civilized
occupation was not possible: ceiling, stairs, double walling, lighting facilities,
water connection, bathroom, toilet kitchen, drainage, were inexistent.
Agcaoili did however ask a homeless friend, a certain Villanueva, to stay in

the premises as some sort of watchman, pending completion of the

construction of the house. Agcaoili thereafter complained to the GSIS, to no
avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees.
3
Agcaoili paid the first monthly installment and the incidental fees, but
refused to make further payments until and unless the GSIS completed the
housing unit. What the GSIS did was to cancel the award and require
4
Agcaoili to vacate the premises. Agcaoili reacted by instituting suit in the
5
Court of First Instance of Manila for specific performance and damages.
Pending the action, a written protest was lodged by other awardees of
housing units in the same subdivision, regarding the failure of the System to
6
complete construction of their own houses. Judgment was in due course
7
rendered , on the basis of the evidence adduced by Agcaoili only, the
GSIS having opted to dispense with presentation of its own proofs. The
8
judgment was in Agcaoili's favor and contained the following dispositions,
to wit:
1) Declaring the cancellation of the award (of a house and lot) in favor of
plaintiff (Mariano Agcaoili) illegal and void;
2) Ordering the defendant (GSIS) to respect and enforce the aforesaid
award to the plaintiff relative to Lot No. 26, Block No. (48) 2 of the
Government Service Insurance System (GSIS) low cost housing project at
Nangka Marikina, Rizal;
3) Ordering the defendant to complete the house in question so as to make
the same habitable and authorizing it (defendant) to collect the monthly
amortization thereon only after said house shall have been completed under
the terms and conditions mentioned in Exhibit A ;and
4) Ordering the defendant to pay P100.00 as damages and P300.00 as and
for attorney's fees, and costs.
Appellant GSIS would have this Court reverse this judgment on the
argument that
1) Agcaoili had no right to suspend payment of amortizations on account of
the incompleteness of his housing unit, since said unit had been sold "in the
condition and state of completion then existing ... (and) he is deemed to
have accepted the same in the condition he found it when he accepted the
award;" and assuming indefiniteness of the contract in this regard, such
9
circumstance precludes a judgment for specific performance.

2) Perfection of the contract of sale between it and Agcaoili being

conditioned upon the latter's immediate occupancy of the house subject
thereof, and the latter having failed to comply with the condition, no contract
10
ever came into existence between them ;
3) Agcaoili's act of placing his homeless friend, Villanueva,
"without the prior or subsequent knowledge or consent of
(GSIS)" operated as a repudiation by Agcaoili of the
deprivation of the GSIS at the same time of the reasonable
11
the property.

in possession,
the defendant
award and a
rental value of

Agcaoili's offer to buy from GSIS was contained in a printed form drawn up
by the latter, entitled "Application to Purchase a House and/or Lot." Agcaoili
12
filled up the form, signed it, and submitted it.
The acceptance of the
application was also set out in a form (mimeographed) also prepared by the
GSIS. As already mentioned, this form sent to Agcaoili, duly filled up,
advised him of the approval of his "application to purchase a house and lot
in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL," and that "Lot
No. 26, Block No. (48) 2, together with the housing unit constructed thereon,
has been allocated to you." Neither the application form nor the acceptance
or approval form of the GSIS nor the notice to commence payment of a
monthly amortizations, which again refers to "the house and lot awarded"
contained any hint that the house was incomplete, and was being sold "as
is," i.e., in whatever state of completion it might be at the time. On the other
hand, the condition explicitly imposed on Agcaoili "to occupy the said
house immediately," or in any case within three (3) days from notice,
otherwise his "application shall be considered automatically disapproved
and the said house and lot will be awarded to another applicant" would
imply that construction of the house was more or less complete, and it was
by reasonable standards, habitable, and that indeed, the awardee should
stay and live in it; it could not be interpreted as meaning that the awardee
would occupy it in the sense of a pioneer or settler in a rude wilderness,
making do with whatever he found available in the envirornment.
There was then a perfected contract of sale between the parties; there had
been a meeting of the minds upon the purchase by Agcaoili of a
determinate house and lot in the GSIS Housing Project at Nangka Marikina,
Rizal at a definite price payable in amortizations at P31.56 per month, and
from that moment the parties acquired the right to reciprocally demand
13
performance. It was, to be sure, the duty of the GSIS, as seller, to deliver
the thing sold in a condition suitable for its enjoyment by the buyer for the
14
purpose contemplated , in other words, to deliver the house subject of the
contract in a reasonably livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under

pain of cancellation of the sale. Under the circumstances there can hardly
be any doubt that the house contemplated was one that could be occupied
for purposes of residence in reasonable comfort and convenience. There
would be no sense to require the awardee to immediately occupy and live in
a shell of a house, a structure consisting only of four walls with openings,
and a roof, and to theorize, as the GSIS does, that this was what was
intended by the parties, since the contract did not clearly impose upon it the
obligation to deliver a habitable house, is to advocate an absurdity, the
creation of an unfair situation. By any objective interpretation of its terms,
the contract can only be understood as imposing on the GSIS an obligation
to deliver to Agcaoili a reasonably habitable dwelling in return for his
undertaking to pay the stipulated price. Since GSIS did not fulfill that
obligation, and was not willing to put the house in habitable state, it cannot
invoke Agcaoili's suspension of payment of amortizations as cause to
cancel the contract between them. It is axiomatic that "(i)n reciprocal
obligations, neither party incurs in delay if the other does not comply or is
15
not ready to comply in a proper manner with what is incumbent upon him."
Nor may the GSIS succeed in justifying its cancellation of the award to
Agcaoili by the claim that the latter had not complied with the condition of
occupying the house within three (3) days. The record shows that Agcaoili
did try to fulfill the condition; he did try to occupy the house but found it to be
so uninhabitable that he had to leave it the following day. He did however
leave a friend in the structure, who being homeless and hence willing to
accept shelter even of the most rudimentary sort, agreed to stay therein and
look after it. Thus the argument that Agcaoili breached the agreement by
failing to occupy the house, and by allowing another person to stay in it
without the consent of the GSIS, must be rejected as devoid of merit.
Finally, the GSIS should not be heard to say that the agreement between it
and Agcaoili is silent, or imprecise as to its exact prestation Blame for the
imprecision cannot be imputed to Agcaoili; it was after all the GSIS which
caused the contract to come into being by its written acceptance of
Agcaoili's offer to purchase, that offer being contained in a printed form
supplied by the GSIS. Said appellant having caused the ambiguity of which
it would now make capital, the question of interpretation arising therefrom,
should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring that
the contract between the parties had not been validly cancelled and was
therefore still in force, and that Agcaoili could not be compelled by the GSIS
to pay the stipulated price of the house and lot subject of the contract until
and unless it had first completed construction of the house. This would
leave the contract hanging or in suspended animation, as it were, Agcaoili
unwilling to pay unless the house were first completed, and the GSIS averse

to completing construction, which is precisely what has been the state of

affairs between the parties for more than twenty (20) years now. On the
other hand, assuming it to be feasible to still finish the construction of the
house at this time, to compel the GSIS to do so so that Agcaoili's prestation
to pay the price might in turn be demanded, without modifying the price
therefor, would not be quite fair. The cost to the GSIS of completion of
construction at present prices would make the stipulated price
disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction, to
the end that it may render complete justice to both parties.
As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83
SCRA 579, 589 [1978]). "(E)quity as the complement of legal jurisdiction
seeks to reach and do complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their judgments to the
special circumstances of cases, are incompetent so to do. Equity regards
the spirit of and not the letter, the intent and not the form, the substance
rather than the circumstance, as it is variously expressed by different
16
courts... "
In this case, the Court can not require specific performance of the contract
in question according to its literal terms, as this would result in inequity. The
17
prevailing rule is that in decreeing specific performance equity requires
... not only that the contract be just and equitable in its provisions, but that
the consequences of specific performance likewise be equitable and just.
The general rule is that this equitable relief will not be granted if, under the
circumstances of the case, the result of the specific enforcement of the
contract would be harsh, inequitable, oppressive, or result in an
unconscionable advantage to the plaintiff . .
In the exercise of its equity jurisdiction, the Court may adjust the rights of
parties in accordance with the circumstances obtaining at the time of
rendition of judgment, when these are significantly different from those
existing at the time of generation of those rights.
The Court is not restricted to an adjustment of the rights of the parties as
they existed when suit was brought, but will give relief appropriate to events
18
occuring ending the suit.
While equitable jurisdiction is generally to be determined with reference to
the situation existing at the time the suit is filed, the relief to be accorded by
the decree is governed by the conditions which are shown to exist at the

time of making thereof, and not by the circumstances attending the

inception of the litigation. In making up the final decree in an equity suit the
judge may rightly consider matters arising after suit was brought. Therefore,
as a general rule, equity will administer such relief as the nature, rights,
facts and exigencies of the case demand at the close of the trial or at the
19
time of the making of the decree.
That adjustment is entirely consistent with the Civil Law principle that in the
exercise of rights a person must act with justice, give everyone his due, and
20
observe honesty and good faith. Adjustment of rights has been held to be
particularly applicable when there has been a depreciation of currency.
Depreciation of the currency or other medium of payment contracted for has
frequently been held to justify the court in withholding specific performance
or at least conditioning it upon payment of the actual value of the property
contracted for. Thus, in an action for the specific performance of a real
estate contract, it has been held that where the currency in which the
plaintiff had contracted to pay had greatly depreciated before enforcement
was sought, the relief would be denied unless the complaint would
undertake to pay the equitable value of the land. (Willard & Tayloe [U.S.] 8
21
Wall 557,19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424)
In determining the precise relief to give, the Court will "balance the equities"
or the respective interests of the parties, and take account of the relative
hardship that one relief or another may occasion to them .22
The completion of the unfinished house so that it may be put into habitable
condition, as one form of relief to the plaintiff Agcaoili, no longer appears to
be a feasible option in view of the not inconsiderable time that has already
elapsed. That would require an adjustment of the price of the subject of the
sale to conform to present prices of construction materials and labor. It is
more in keeping with the realities of the situation, and with equitable norms,
to simply require payment for the land on which the house stands, and for
the house itself, in its unfinished state, as of the time of the contract. In fact,
this is an alternative relief proposed by Agcaoili himself, i.e., "that judgment
issue . . (o)rdering the defendant (GSIS) to execute a deed of sale that
would embody and provide for a reasonable amortization of payment on the
basis of the present actual unfinished and uncompleted condition, worth and
23
value of the said house.
WHEREFORE, the judgment of the Court a quo insofar as it invalidates and
sets aside the cancellation by respondent GSIS of the award in favor of
petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost
housing project at Nangka, Marikina, Rizal, and orders the former to respect
the aforesaid award and to pay damages in the amounts specified, is

AFFIRMED as being in accord with the facts and the law. Said judgments is
however modified by deleting the requirement for respondent GSIS "to
complete the house in question so as to make the same habitable," and
instead it is hereby ORDERED that the contract between the parties relative
to the property above described be modified by adding to the cost of the
land, as of the time of perfection of the contract, the cost of the house in its
unfinished state also as of the time of perfection of the contract, and
correspondingly adjusting the amortizations to be paid by petitioner Agcaoili,
the modification to be effected after determination by the Court a quo of the
value of said house on the basis of the agreement of the parties, or if this is
not possible by such commissioner or commissioners as the Court may
appoint. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-15645

January 31, 1964

PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,

vs. NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.

be considered special case.

We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to
meet which is August 4, 1952, and in order to comply therewith, it is
imperative that the L/C be opened prior to that date. We would therefore
request your full cooperation on this matter.

REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of the
trial court dated February 20, 1958, awarding to the plaintiffs-appellees the
amount of $286,000.00 as damages for breach of contract and dismissing
the counterclaim and third party complaint of the defendant-appellant
NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice
and Corn Administration (NARIC) is hereby abolished and all its assets,
liabilities, functions, powers which are not inconsistent with the provisions of
this Act, and all personnel are transferred "to the Rice and Corn
Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly be
adjusted and read as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called
by the NARIC for the supply of 20,000 metric tons of Burmese rice. As her
bid of $203.00 per metric ton was the lowest, she was awarded the contract
for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta
and the appellant corporation entered into a Contract of Sale of Rice, under
the terms of which the former obligated herself to deliver to the latter 20,000
metric tons of Burmess Rice at $203.00 per metric ton, CIF Manila. In turn,
the defendant corporation committed itself to pay for the imported rice "by
means of an irrevocable, confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or supplier in Burma,
immediately." Despite the commitment to pay immediately "by means of an
irrevocable, confirmed and assignable Letter of Credit," however, it was only
on July 30, 1952, or a full month from the execution of the contract, that the
defendant corporation, thru its general manager, took the first to open a
letter of credit by forwarding to the Philippine National Bank its Application
for Commercial Letter Credit. The application was accompanied by a
transmittal letter, the relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with your institution
with which to cover the amount required to be deposited as a condition for
the opening of letters of credit, we will appreciate it if this application could

On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised
the appellant corporation of the extreme necessity for the immediate
opening of the letter credit since she had by then made a tender to her
supplier in Rangoon, Burma, "equivalent to 5% of the F.O.B. price of 20,000
tons at $180.70 and in compliance with the regulations in Rangoon this 5%
will be confiscated if the required letter of credit is not received by them
before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant
corporation that its application, "for a letter of credit for $3,614,000.00 in
favor of Thiri Setkya has been approved by the Board of Directors with the
condition that marginal cash deposit be paid and that drafts are to be paid
upon presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits).
Furthermore, the Bank represented that it "will hold your application in
abeyance pending compliance with the above stated requirement."
As it turned out, however, the appellant corporation not in any financial
position to meet the condition. As matter of fact, in a letter dated August 2,
1952, the NARIC bluntly confessed to the appellee its dilemma: "In this
connection, please be advised that our application for opening of the letter
of credit has been presented to the bank since July 30th but the latter
requires that we first deposit 50% of the value of the letter amounting to
aproximately $3,614,000.00 which we are not in a position to meet."
(Emphasis supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or
assignee for $3,614,000.00," (which is more than two months from the
execution of the contract) the party named by the appellee as beneficiary of
the letter of credit.1wph1.t
As a result of the delay, the allocation of appellee's supplier in Rangoon was
cancelled and the 5% deposit, amounting to 524,000 kyats or approximately
P200,000.00 was forfeited. In this connection, it must be made of record
that although the Burmese authorities had set August 4, 1952, as the
deadline for the remittance of the required letter of credit, the cancellation of
the allocation and the confiscation of the 5% deposit were not effected until

August 20, 1952, or, a full half month after the expiration of the deadline.
And yet, even with the 15-day grace, appellant corporation was unable to
make good its commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice
allocation. When the futility of reinstating the same became apparent, she
offered to substitute Thailand rice instead to the defendant NARIC,
communicating at the same time that the offer was "a solution which should
be beneficial to the NARIC and to us at the same time." (Exh. X-Pe., Exh.
25Def., p. 38, Folder of Exhibits). This offer for substitution, however, was
rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding
compensation for the damages caused her in the sum of $286,000.00, U.S.
currency, representing unrealized profit. The demand having been rejected
she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila
Underwriters Insurance Company was brought to the suit as a third party
defendant to hold it liable on the performance bond it executed in favor of
the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by the appellee herein in Rangoon,
Burma, was the failure of the letter of credit to be opened with the
contemplated period. This failure must, therefore, be taken as the
immediate cause for the consequent damage which resulted. As it is then,
the disposition of this case depends on a determination of who was
responsible for such failure. Stated differently, the issue is whether
appellant's failure to open immediately the letter of credit in dispute
amounted to a breach of the contract of July 1, 1952 for which it may be
held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of
the letter of credit. On the contrary, it insists that the fault lies with the
appellee. Appellant contends that the disputed negotiable instrument was
not promptly secured because the appellee , failed to seasonably furnish
data necessary and required for opening the same, namely, "(1) the amount
of the letter of credit, (2) the person, company or corporation in whose favor
it is to be opened, and (3) the place and bank where it may be negotiated."
Appellant would have this Court believe, therefore, that had these
informations been forthwith furnished it, there would have been no delay in

securing the instrument.

Appellant's explanation has neither force nor merit. In the first place, the
explanation reaches into an area of the proceedings into which We are not
at liberty to encroach. The explanation refers to a question of fact. Nothing
in the record suggests any arbitrary or abusive conduct on the part of the
trial judge in the formulation of the ruling. His conclusion on the matter is
sufficiently borne out by the evidence presented. We are denied, therefore,
the prerogative to disturb that finding, consonant to the time-honored
tradition of this Tribunal to hold trial judges better situated to make
conclusions on questions of fact. For the record, We quote hereunder the
lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to
the failure of plaintiff to name the supplier, the amount and the bank is not
tenable. Plaintiff stated in Court that these facts were known to defendant
even before the contract was executed because these facts were
necessarily revealed to the defendant before she could qualify as a bidder.
She stated too that she had given the necessary data immediately after the
execution of Exh. "A" (the contract of July 1, 1952) to Mr. GABRIEL
BELMONTE, General Manager of the NARIC, both orally and in writing and
that she also pressed for the opening of the letter of credit on these
occasions. These statements have not been controverted and defendant
NARIC, notwithstanding its previous intention to do so, failed to present Mr.
Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part of
the record of this case, it is clear that what singularly delayed the opening of
the stipulated letter of credit and which, in turn, caused the cancellation of
the allocation in Burma, was the inability of the appellant corporation to
meet the condition importation by the Bank for granting the same. We do
not think the appellant corporation can refute the fact that had it been able
to put up the 50% marginal cash deposit demanded by the bank, then the
letter of credit would have been approved, opened and released as early as
August 4, 1952. The letter of the Philippine National Bank to the NARIC was
plain and explicit that as of the said date, appellant's "application for a letter
of credit ... has been approved by the Board of Directors with the condition
that 50% marginal cash deposit be paid and that drafts are to be paid upon
presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or
inability to satisfy the requirements of the bank. Its culpability arises from its
willful and deliberate assumption of contractual obligations even as it was
well aware of its financial incapacity to undertake the prestation. We base
this judgment upon the letter which accompanied the application filed by the

appellant with the bank, a part of which letter was quoted earlier in this
decision. In the said accompanying correspondence, appellant admitted and
owned that it did "not have sufficient deposit with your institution (the PNB)
with which to cover the amount required to be deposited as a condition for
the opening of letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned
admission. First, that the appellant knew the bank requirements for opening
letters of credit; second, that appellant also knew it could not meet those
requirement. When, therefore, despite this awareness that was financially
incompetent to open a letter of credit immediately, appellant agreed in
paragraph 8 of the contract to pay immediately "by means of an irrevocable,
confirm and assignable letter of credit," it must be similarly held to have
bound itself to answer for all and every consequences that would result from
the representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving millions,
$4,260,000.00 to be exact, it should have a certained its ability and capacity
to comply with the inevitably requirements in cash to pay for such
importation. Having announced the bid, it must be deemed to have impliedly
assured suppliers of its capacity and facility to finance the importation within
the required period, especially since it had imposed the supplier the 90-day
period within which the shipment of the rice must be brought into the
Philippines. Having entered in the contract, it should have taken steps
immediately to arrange for the letter of credit for the large amount involved
and inquired into the possibility of its issuance.
In relation to the aforequoted observation of the trial court, We would like to
make reference also to Article 11 of the Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or default in
the performance of obligations a decreed liable; in general, every debtor
who fails in performance of his obligations is bound to indemnify for the
losses and damages caused thereby (De la Cruz Seminary of Manila, 18
Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada
v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v.
Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v.
Theaters Supply, 63 Phil. 657). The phrase "any manner contravene the
tenor" of the obligation includes any illicit act which impairs the strict and
faithful fulfillment of the obligation or every kind or defective performance.
(IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103.)

The NARIC would also have this Court hold that the subsequent offer to
substitute Thailand rice for the originally contracted Burmese rice amounted
to a waiver by the appellee of whatever rights she might have derived from
the breach of the contract. We disagree. Waivers are not presumed, but
must be clearly and convincingly shown, either by express stipulation or
acts admitting no other reasonable explanation. (Ramirez v. Court of
Appeals, 52 O.G. 779.) In the case at bar, no such intent to waive has been
established.
We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court based its
award. Under the contract, the NARIC bound itself to buy 20,000 metric tons
of Burmese rice at "$203.00 U.S. Dollars per metric ton, all net shipped
weight, and all in U.S. currency, C.I.F. Manila ..." On the other hand,
documentary and other evidence establish with equal certainty that the
plaintiff-appellee was able to secure the contracted commodity at the cost
price of $180.70 per metric ton from her supplier in Burma. Considering
freights, insurance and charges incident to its shipment here and the
forfeiture of the 5% deposit, the award granted by the lower court is fair and
equitable. For a clearer view of the equity of the damages awarded, We
reproduce below the testimony of the appellee, adequately supported by the
evidence and record:
Q. Will you please tell the court, how much is the damage you suffered?
A. Because the selling price of my rice is $203.00 per metric ton, and the
cost price of my rice is $180.00 We had to pay also $6.25 for shipping and
about $164 for insurance. So adding the cost of the rice, the freight, the
insurance, the total would be about $187.99 that would be $15.01 gross
profit per metric ton, multiply by 20,000 equals $300,200, that is my
supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of the
actual figures involved in the transaction. A precise and more exact
demonstration of the equity of the award herein is provided by Exhibit HH of
the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as
germane.
It is equally of record now that as shown in her request dated July 29, 1959,
and other communications subsequent thereto for the opening by your
corporation of the required letter of credit, Mrs. Arrieta was supposed to pay
her supplier in Burma at the rate of One Hundred Eighty Dollars and
Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight Dollars
($8.00) in the same currency per ton for shipping and other handling
expenses, so that she is already assured of a net profit of Fourteen Dollars

and Thirty Cents ($14.30), U.S., Currency, per ton or a total of Two Hundred
and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in the
aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered,
likewise by way of unrealized profit damages in the total sum of
$406,000.00 from the failure of the projected contract to materialize. This
counterclaim was supported by a cost study made and submitted by the
appellant itself and wherein it was illustrated how indeed had the importation
pushed thru, NARIC would have realized in profit the amount asserted in the
counterclaim. And yet, the said amount of P406,000.00 was realizable by
appellant despite a number of expenses which the appellee under the
contract, did not have to incur. Thus, under the cost study submitted by the
appellant, banking and unloading charges were to be shouldered by it,
including an Import License Fee of 2% and superintendence fee of $0.25
per metric ton. If the NARIC stood to profit over P400 000.00 from the
disputed transaction inspite of the extra expenditures from which the herein
appellee was exempt, we are convicted of the fairness of the judgment
presently under appeal.
In the premises, however, a minor modification must be effected in the
dispositive portion of the decision appeal from insofar as it expresses the
amount of damages in U.S. currency and not in Philippine Peso. Republic
Act 529 specifically requires the discharge of obligations only "in any coin or
currency which at the time of payment is legal tender for public and private
debts." In view of that law, therefore, the award should be converted into
and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in
the conversion here decreed. Should it be at the time of the breach, at the
time the obligation was incurred or at the rate of exchange prevailing on the
promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an
action for recovery of damages for breach of contract, even if the obligation
assumed by the defendant was to pay the plaintiff a sum of money
expressed in American currency, the indemnity to be allowed should be
expressed in Philippine currency at the rate of exchange at the time of the
judgment rather than at the rate of exchange prevailing on the date of
defendant's breach. This ruling, however, can neither be applied nor
extended to the case at bar for the same was laid down when there was no
law against stipulating foreign currencies in Philippine contracts. But now we
have Republic Act No. 529 which expressly declares such stipulations as
contrary to public policy, void and of no effect. And, as We already
pronounced in the case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co.,

Inc., G.R. No. L-9090, September 10, 1957, if there is any agreement to pay
an obligation in a currency other than Philippine legal tender, the same is
null and void as contrary to public policy (Republic Act 529), and the most
that could be demanded is to pay said obligation in Philippine currency "to
be measured in the prevailing rate of exchange at the time the obligation
was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby
affirmed, with the sole modification that the award should be converted into
the Philippine peso at the rate of exchange prevailing at the time the
obligation was incurred or on July 1, 1952 when the contract was executed.
The appellee insurance company, in the light of this judgment, is relieved of
any liability under this suit. No pronouncement as to costs.

G.R. No. 73867 February 29, 1988

TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,
vs. IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO
JR., AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO,
CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO,
ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO, and
HONORABLE INTERMEDIATE APPELLATE COURT, respondents.
PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate
Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-70245,
entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast
Communication/Philippine Wireless, Inc., Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio
Castro, Sr. and mother of the other plaintiffs, passed away in Lingayen,
Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then
vacationing in the Philippines, addressed a telegram to plaintiff Ignacio
Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing
Consolacion's death. The telegram was accepted by the defendant in its
Dagupan office, for transmission, after payment of the required fees or
charges.
The telegram never reached its addressee. Consolacion was interred with
only her daughter Sofia in attendance. Neither the husband nor any of the
other children of the deceased, then all residing in the United States,
returned for the burial.
When Sofia returned to the United States, she discovered that the wire she
had caused the defendant to send, had not been received. She and the
other plaintiffs thereupon brought action for damages arising from
defendant's breach of contract. The case was filed in the Court of First
Instance of Pangasinan and docketed therein as Civil Case No. 15356. The
only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its control."
1
No evidence appears on record that defendant ever made any attempt to
advise the plaintiff Sofia C. Crouch as to why it could not transmit the
telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant

(now petitioner) to pay the plaintiffs (now private respondents) damages, as

follows, with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and
P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary
2
damages in the amount of P1,000.00 to each of the plaintiffs and costs.
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial
court's decision but eliminated the award of P16,000.00 as compensatory
damages to Sofia C. Crouch and the award of P1,000.00 to each of the
private respondents as exemplary damages. The award of P20,000.00 as
moral damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and
3
Esmeralda C. Floro was also reduced to P120,000. 00 for each.
Petitioner appeals from the judgment of the appellate court, contending that
the award of moral damages should be eliminated as defendant's negligent
act was not motivated by "fraud, malice or recklessness."

In other words, under petitioner's theory, it can only be held liable for P
31.92, the fee or charges paid by Sofia C. Crouch for the telegram that was
never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "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." Art. 2176
also provides that "whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to send said
private respondent's message overseas by telegram. This, petitioner did not
do, despite performance by said private respondent of her obligation by
paying the required charges. Petitioner was therefore guilty of contravening
its obligation to said private respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain
petitioner's contrary position in this regard would result in an inequitous
situation where petitioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states:
"Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate results of the
defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was
precisely the cause of the suffering private respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the sorrow
that the overseas children must have suffered upon learning of the death of
their mother after she had already been interred, without being given the
opportunity to even make a choice on whether they wanted to pay her their
last respects? There is no doubt that these emotional sufferings were
proximately caused by appellant's omission and substantive law provides for
4
the justification for the award of moral damages.

We also sustain the trial court's award of P16,000.00 as compensatory

damages to Sofia C. Crouch representing the expenses she incurred when
she came to the Philippines from the United States to testify before the trial
court. Had petitioner not been remiss in performing its obligation, there
would have been no need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and,
therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due
diligence in transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is
modified so that petitioner is held liable to private respondents in the
following amounts:
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private respondents;
(3) P16,000.00 as compensatory damages, to private respondent Sofia C.
Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.

G.R. No. L-47379 May 16, 1988

NATIONAL POWER CORPORATION, petitioner, vs. HONORABLE
COURT OF APPEALS and ENGINEERING CONSTRUCTION, INC.,
respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner, vs. COUTRT OF
APPEALS and NATIONAL POWER CORPORATION, respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of the
respondent Court of Appeals which adjudged the National Power
Corporation liable for damages against Engineering Construction, Inc. The
appellate court, however, reduced the amount of damages awarded by the
trial court. Hence, both parties filed their respective petitions: the National
Power Corporation (NPC) in G.R. No. 47379, questioning the decision of the
Court of Appeals for holding it liable for damages and the Engineering
Construction, Inc. (ECI) in G.R. No. 47481, questioning the same decision
for reducing the consequential damages and attorney's fees and for
eliminating the exemplary damages.
The facts are succinctly summarized by the respondent Court of Appeals,
as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a
successful bidder, executed a contract in Manila with the National
Waterworks and Sewerage Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, equipment, and materials (not furnished
by Owner), and to construct the proposed 2nd lpo-Bicti Tunnel, Intake and
Outlet Structures, and Appurtenant Structures, and Appurtenant Features,
at Norzagaray, Bulacan, and to complete said works within eight hundred
(800) calendar days from the date the Contractor receives the formal notice
to proceed (Exh. A).
The project involved two (2) major phases: the first phase comprising, the
tunnel work covering a distance of seven (7) kilometers, passing through the
mountain, from the Ipo river, a part of Norzagaray, Bulacan, where the Ipo
Dam of the defendant National Power Corporation is located, to Bicti; the
other phase consisting of the outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed the first

major phase of the work, namely, the tunnel excavation work. Some
portions of the outworks at the Bicti site were still under construction. As
soon as the plaintiff corporation had finished the tunnel excavation work at
the Bicti site, all the equipment no longer needed there were transferred to
the Ipo site where some projects were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit Central
Luzon, passing through defendant's Angat Hydro-electric Project and Dam
at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and
heavy rains intermittently fell. Due to the heavy downpour, the water in the
reservoir of the Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the dam, since
the water level had reached the danger height of 212 meters above sea
level, the defendant corporation caused the opening of the spillway gates."
(pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the evidence
preponlderantly established the fact that due to the negligent manner with
which the spillway gates of the Angat Dam were opened, an extraordinary
large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at the lpo site with terrific impact, as a result of
which the latter's stockpile of materials and supplies, camp facilities and
permanent structures and accessories either washed away, lost or
destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the appellant
exercised extraordinary care in the opening of the spillway gates of the
Angat Dam. Maintainers of the dam knew very well that it was far more safe
to open them gradually. But the spillway gates were opened only when
typhoon Welming was already at its height, in a vain effort to race against
time and prevent the overflow of water from the dam as it 'was rising
dangerously at the rate of sixty centimeters per hour. 'Action could have
been taken as early as November 3, 1967, when the water in the reservoir
was still low. At that time, the gates of the dam could have been opened in a
regulated manner. Let it be stressed that the appellant knew of the coming
of the typhoon four days before it actually hit the project area. (p. 53, L47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a list of
estimated losses and damages to the tunnel project (Ipo side) caused by

the instant flooding of the Angat River (Exh. J-1). The damages were
itemized in four categories, to wit: Camp Facilities P55,700.00; Equipment,
Parts and Plant P375,659.51; Materials P107,175.80; and Permanent
Structures and accessories P137,250.00, with an aggregate total amount
of P675,785.31. The list is supported by several vouchers which were all
submitted as Exhibits K to M-38 a, N to O, P to U-2 and V to X- 60-a (Vide:
Folders Nos. 1 to 4). The appellant did not submit proofs to traverse the
aforementioned documentary evidence. We hold that the lower court did not
commit any error in awarding P 675,785.31 as actual or compensatory
damages.
However, We cannot sustain the award of P333,200.00 as consequential
damages. This amount is broken down as follows: P213,200.00 as and for
the rentals of a crane to temporarily replace the one "destroyed beyond
repair," and P120,000.00 as one month bonus which the appellee failed to
realize in accordance with the contract which the appellee had with
NAWASA. Said rental of the crane allegedly covered the period of one year
at the rate of P40.00 an hour for 16 hours a day. The evidence, however,
shows that the appellee bought a crane also a crawler type, on November
10, 1967, six (6) days after the incident in question (Exh N) And according
to the lower court, which finding was never assailed, the appellee resumed
its normal construction work on the Ipo- Bicti Project after a stoppage of only
one month. There is no evidence when the appellee received the crane from
the seller, Asian Enterprise Limited. But there was an agreement that the
shipment of the goods would be effected within 60 days from the opening of
the letter of credit (Exh. N).<re||an1w> It appearing that the contract of
sale was consummated, We must conclude or at least assume that the
crane was delivered to the appellee within 60 days as stipulated. The
appellee then could have availed of the services of another crane for a
period of only one month (after a work stoppage of one month) at the rate of
P 40.00 an hour for 16 hours a day or a total of P 19,200.00 as rental.
But the value of the new crane cannot be included as part of actual
damages because the old was reactivated after it was repaired. The cost of
the repair was P 77,000.00 as shown in item No. 1 under the Equipment,
Parts and Plants category (Exh. J-1), which amount of repair was already
included in the actual or compensatory damages. (pp. 54-56, L-47379,
Rollo)
The appellate court likewise rejected the award of unrealized bonus from
NAWASA in the amount of P120,000.00 (computed at P4,000.00 a day in
case construction is finished before the specified time, i.e., within 800
calendar days), considering that the incident occurred after more than three
(3) years or one thousand one hundred seventy (1,170) days. The court
also eliminated the award of exemplary damages as there was no gross

negligence on the part of NPC and reduced the amount of attorney's fees
from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision
as being erroneous on the ground that the destruction and loss of the ECI's
equipment and facilities were due to force majeure. It argues that the rapid
rise of the water level in the reservoir of its Angat Dam due to heavy rains
brought about by the typhoon was an extraordinary occurrence that could
not have been foreseen, and thus, the subsequent release of water through
the spillway gates and its resultant effect, if any, on ECI's equipment and
facilities may rightly be attributed to force majeure.
On the other hand, ECI assails the reduction of the consequential damages
from P333,200.00 to P19,000.00 on the grounds that the appellate court
had no basis in concluding that ECI acquired a new Crawler-type crane and
therefore, it only can claim rentals for the temporary use of the leased crane
for a period of one month; and that the award of P4,000.00 a day or
P120,000.00 a month bonus is justified since the period limitation on ECI's
contract with NAWASA had dual effects, i.e., bonus for earlier completion
and liquidated damages for delayed performance; and in either case at the
rate of P4,000.00 daily. Thus, since NPC's negligence compelled work
stoppage for a period of one month, the said award of P120,000.00 is
justified. ECI further assailes the reduction of attorney's fees and the total
elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of fact
and that of the trial court's, petitioner NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height of
typhoon "Welming" when it knew very well that it was safer to have opened
the same gradually and earlier, as it was also undeniable that NPC knew of
the coming typhoon at least four days before it actually struck. And even
though the typhoon was an act of God or what we may call force majeure,
NPC cannot escape liability because its negligence was the proximate
cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons
v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or damage, the obligor
cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and
human agencies are to be excluded from creating or entering into the cause
of the mischief. When the effect, the cause of which is to be considered, is
found to be in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole occurrence is
thereby humanized, as it was, and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with an
act of God in producing a loss, such person is not exempt from liability by
showing that the immediate cause of the damage was the act of God. To be
exempt from liability for loss because of an act of God, he must be free from
any previous negligence or misconduct by which the loss or damage may
have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129;
Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship
Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was negligence on the
part of NPC is a question of fact which properly falls within the jurisdiction of
the Court of Appeals and will not be disturbed by this Court unless the same
is clearly unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA 26,
36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally final and
conclusive upon the Supreme Court (Leonardo v. Court of Appeals, 120
SCRA 890 [1983]. In fact it is settled that the Supreme Court is not
supposed to weigh evidence but only to determine its substantially (Nuez
v. Sandiganbayan, 100 SCRA 433 [1982] and will generally not disturb said
findings of fact when supported by substantial evidence (Aytona v. Court of
Appeals, 113 SCRA 575 [1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other hand
substantial evidence is defined as such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion (Philippine Metal
Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police
Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA
302 [1985])
Therefore, the respondent Court of Appeals did not err in holding the NPC
liable for damages.
Likewise, it did not err in reducing the consequential damages from
P333,200.00 to P19,000.00. As shown by the records, while there was no
categorical statement or admission on the part of ECI that it bought a new
crane to replace the damaged one, a sales contract was presented to the

effect that the new crane would be delivered to it by Asian Enterprises within
60 days from the opening of the letter of credit at the cost of P106,336.75.
The offer was made by Asian Enterprises a few days after the flood. As
compared to the amount of P106,336.75 for a brand new crane and paying
the alleged amount of P4,000.00 a day as rental for the use of a temporary
crane, which use petitioner ECI alleged to have lasted for a period of one
year, thus, totalling P120,000.00, plus the fact that there was already a
sales contract between it and Asian Enterprises, there is no reason why ECI
should opt to rent a temporary crane for a period of one year. The appellate
court also found that the damaged crane was subsequently repaired and
reactivated and the cost of repair was P77,000.00. Therefore, it included the
said amount in the award of of compensatory damages, but not the value of
the new crane. We do not find anything erroneous in the decision of the
appellate court that the consequential damages should represent only the
service of the temporary crane for one month. A contrary ruling would result
in the unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the same was
granted by the trial court on the premise that it represented ECI's lost
opportunity "to earn the one month bonus from NAWASA ... ." As stated
earlier, the loss or damage to ECI's equipment and facilities occurred long
after the stipulated deadline to finish the construction. No bonus, therefore,
could have been possibly earned by ECI at that point in time. The supposed
liquidated damages for failure to finish the project within the stipulated
period or the opposite of the claim for bonus is not clearly presented in the
records of these petitions. It is not shown that NAWASA imposed them.
As to the question of exemplary damages, we sustain the appellate court in
eliminating the same since it found that there was no bad faith on the part of
NPC and that neither can the latter's negligence be considered gross. In
Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719)
we ruled:
Neither may private respondent recover exemplary damages since he is not
entitled to moral or compensatory damages, and again because the
petitioner is not shown to have acted in a wanton, fraudulent, reckless or
oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2
SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA
577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA
155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v.
Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from P50,000.00 to
P30,000.00. There are no compelling reasons why we should set aside the
appellate court's finding that the latter amount suffices for the services

rendered by ECI's counsel.

WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are
both DISMISSED for LACK OF MERIT. The decision appealed from is
AFFIRMED.
SO ORDERED.

G.R. No. 71049 May 29, 1987

days due to high fever and severe pain.

BERNARDINO JIMENEZ, petitioner, vs. CITY OF MANILA and

INTERMEDIATE APPELLATE COURT, respondents.

Upon his discharge from the hospital, he had to walk around with crutches
for fifteen (15) days. His injury prevented him from attending to the school
buses he is operating. As a result, he had to engage the services of one
Bienvenido Valdez to supervise his business for an aggregate
compensation of nine hundred pesos (P900.00). (Decision, AC-G.R. CV No.
01387, Rollo, pp. 13-20).

PARAS, J.:
This is a petition for review on certiorari of: (1) the decision * of the
Intermediate Appellate Court in AC-G.R. No. 013887-CV Bernardino
Jimenez v. Asiatic Integrated Corporation and City of Manila, reversing the
decision ** of the Court of First Instance of Manila, Branch XXII in Civil Case
No. 96390 between the same parties, but only insofar as holding Asiatic
Integrated Corporation solely liable for damages and attorney's fees instead
of making the City of Manila jointly and solidarily liable with it as prayed for
by the petitioner and (2) the resolution of the same Appellate Court denying
his Partial Motion for Reconsideration (Rollo, p. 2).
The dispositive portion of the Intermediate Appellate Court's decision is as
follows:
WHEREFORE, the decision appealed from is hereby REVERSED. A new
one is hereby entered ordering the defendant Asiatic Integrated Corporation
to pay the plaintiff P221.90 actual medical expenses, P900.00 for the
amount paid for the operation and management of a school bus,
P20,000.00 as moral damages due to pains, sufferings and sleepless nights
and P l0,000.00 as attorney's fees.

Petitioner sued for damages the City of Manila and the Asiatic Integrated
Corporation under whose administration the Sta. Ana Public Market had
been placed by virtue of a Management and Operating Contract (Rollo, p.
47).
The lower court decided in favor of respondents, the dispositive portion of
the decision reading:
WHEREFORE, judgment is hereby rendered in favor of the defendants and
against the plaintiff dismissing the complaint with costs against the plaintiff.
For lack of sufficient evidence, the counterclaims of the defendants are
likewise dismissed. (Decision, Civil Case No. 96390, Rollo, p. 42).
As above stated, on appeal, the Intermediate Appellate Court held the
Asiatic Integrated Corporation liable for damages but absolved respondent
City of Manila.
Hence this petition.

SO ORDERED. (p. 20, Rollo)

The findings of respondent Appellate Court are as follows:
The evidence of the plaintiff (petitioner herein) shows that in the morning of
August 15, 1974 he, together with his neighbors, went to Sta. Ana public
market to buy "bagoong" at the time when the public market was flooded
with ankle deep rainwater. After purchasing the "bagoong" he turned around
to return home but he stepped on an uncovered opening which could not be
seen because of the dirty rainwater, causing a dirty and rusty four- inch nail,
stuck inside the uncovered opening, to pierce the left leg of plaintiffpetitioner penetrating to a depth of about one and a half inches. After
administering first aid treatment at a nearby drugstore, his companions
helped him hobble home. He felt ill and developed fever and he had to be
carried to Dr. Juanita Mascardo. Despite the medicine administered to him
by the latter, his left leg swelled with great pain. He was then rushed to the
Veterans Memorial Hospital where he had to be confined for twenty (20)

The lone assignment of error raised in this petition is on whether or not the
Intermediate Appellate Court erred in not ruling that respondent City of
Manila should be jointly and severally liable with Asiatic Integrated
Corporation for the injuries petitioner suffered.
In compliance with the resolution of July 1, 1985 of the First Division of this
Court (Rollo, p. 29) respondent City of Manila filed its comment on August
13, 1985 (Rollo, p. 34) while petitioner filed its reply on August 21, 1985
(Reno, p. 51).
Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62)
gave due course to the petition and required both parties to submit
simultaneous memoranda
Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while
respondent filed its memorandum on October 24, 1985 (Rollo, p. 82).

In the resolution of October 13, 1986, this case was transferred to the
Second Division of this Court, the same having been assigned to a member
of said Division (Rollo, p. 92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court, there is no doubt
that the plaintiff suffered injuries when he fell into a drainage opening
without any cover in the Sta. Ana Public Market. Defendants do not deny
that plaintiff was in fact injured although the Asiatic Integrated Corporation
tries to minimize the extent of the injuries, claiming that it was only a small
puncture and that as a war veteran, plaintiff's hospitalization at the War
Veteran's Hospital was free. (Decision, AC-G.R. CV No. 01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be held liable for the
injuries sustained by the petitioner because under the Management and
Operating Contract, Asiatic Integrated Corporation assumed all
responsibility for damages which may be suffered by third persons for any
cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under
Article 1, Section 4 of Republic Act No. 409 as amended (Revised Charter
of Manila) which provides:

control or supervision.
constitutes a particular prescription making "provinces, cities and
municipalities ... liable for damages for the death of, or injury suffered by
any person by reason" specifically "of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control
or supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability
arising from negligence, in general, regardless of the object, thereof, while
Article 2189 of the Civil Code governs liability due to "defective streets,
public buildings and other public works" in particular and is therefore
decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189
of the Civil Code, it is not necessary for the liability therein established to
attach, that the defective public works belong to the province, city or
municipality from which responsibility is exacted. What said article requires
is that the province, city or municipality has either "control or supervision"
over the public building in question.
In the case at bar, there is no question that the Sta. Ana Public Market,
despite the Management and Operating Contract between respondent City
and Asiatic Integrated Corporation remained under the control of the former.
For one thing, said contract is explicit in this regard, when it provides:

The City shall not be liable or held for damages or injuries to persons or
property arising from the failure of the Mayor, the Municipal Board, or any
other City Officer, to enforce the provisions of this chapter, or any other law
or ordinance, or from negligence of said Mayor, Municipal Board, or any
other officers while enforcing or attempting to enforce said provisions.
This issue has been laid to rest in the case of City of Manila v. Teotico (22
SCRA 269-272 [1968]) where the Supreme Court squarely ruled that
Republic Act No. 409 establishes a general rule regulating the liability of the
City of Manila for "damages or injury to persons or property arising from the
failure of city officers" to enforce the provisions of said Act, "or any other law
or ordinance or from negligence" of the City "Mayor, Municipal Board, or
other officers while enforcing or attempting to enforce said provisions."
Upon the other hand, Article 2189 of the Civil Code of the Philippines which
provides that:
Provinces, cities and municipalities shall be liable for damages for the death
of, or injuries suffered by any person by reason of defective conditions of
roads, streets, bridges, public buildings and other public works under their

II
That immediately after the execution of this contract, the SECOND PARTY
shall start the painting, cleaning, sanitizing and repair of the public markets
and talipapas and within ninety (90) days thereof, the SECOND PARTY
shall submit a program of improvement, development, rehabilitation and
reconstruction of the city public markets and talipapas subject to prior
approval of the FIRST PARTY. (Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and talipapas shall be
retained by the SECOND PARTY as long as their services remain
satisfactory and they shall be extended the same rights and privileges as
heretofore enjoyed by them. Provided, however, that the SECOND PARTY
shall have the right, subject to prior approval of the FIRST PARTY to
discharge any of the present employees for cause. (Rollo, p. 45).

VII
That the SECOND PARTY may from time to time be required by the FIRST
PARTY, or his duly authorized representative or representatives, to report,
on the activities and operation of the City public markets and talipapas and
the facilities and conveniences installed therein, particularly as to their cost
of construction, operation and maintenance in connection with the
stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject public market
was admitted by Mayor Ramon Bagatsing in his letter to Secretary of
Finance Cesar Virata which reads:
These cases arose from the controversy over the Management and
Operating Contract entered into on December 28, 1972 by and between the
City of Manila and the Asiatic Integrated Corporation, whereby in
consideration of a fixed service fee, the City hired the services of the said
corporation to undertake the physical management, maintenance,
rehabilitation and development of the City's public markets and' Talipapas'
subject to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise of these
powers vis-a-vis the existence of the contract, inasmuch as the City retains
the power of supervision and control over its public markets and talipapas
under the terms of the contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo,
p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana Public
Market whose primary duty is to take direct supervision and control of that
particular market, more specifically, to check the safety of the place for the
public.
Thus the Asst. Chief of the Market Division and Deputy Market
Administrator of the City of Manila testified as follows:
Court This market master is an employee of the City of Manila?
Mr. Ymson Yes, Your Honor.
Q What are his functions?

A Direct supervision and control over the market area assigned to

him."(T.s.n.,pp. 41-42, Hearing of May 20, 1977.)
xxx xxx xxx
Court As far as you know there is or is there any specific employee
assigned with the task of seeing to it that the Sta. Ana Market is safe for the
public?
Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has its own
market master. The primary duty of that market master is to make the direct
supervision and control of that particular market, the check or verifying
whether the place is safe for public safety is vested in the market master.
(T.s.n., pp. 2425, Hearing of July 27, 1977.) (Emphasis supplied.) (Rollo, p.
76).
Finally, Section 30 (g) of the Local Tax Code as amended, provides:
The treasurer shall exercise direct and immediate supervision administration
and control over public markets and the personnel thereof, including those
whose duties concern the maintenance and upkeep of the market and
ordinances and other pertinent rules and regulations. (Emphasis supplied.)
(Rollo, p. 76)
The contention of respondent City of Manila that petitioner should not have
ventured to go to Sta. Ana Public Market during a stormy weather is indeed
untenable. As observed by respondent Court of Appeals, it is an error for
the trial court to attribute the negligence to herein petitioner. More
specifically stated, the findings of appellate court are as follows:
... The trial court even chastised the plaintiff for going to market on a rainy
day just to buy bagoong. A customer in a store has the right to assume that
the owner will comply with his duty to keep the premises safe for customers.
If he ventures to the store on the basis of such assumption and is injured
because the owner did not comply with his duty, no negligence can be
imputed to the customer. (Decision, AC-G. R. CV No. 01387, Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one must have
exercised the diligence of a good father of a family. (Art. 1173 of the Civil
Code).
There is no argument that it is the duty of the City of Manila to exercise
reasonable care to keep the public market reasonably safe for people
frequenting the place for their marketing needs.

While it may be conceded that the fulfillment of such duties is extremely

difficult during storms and floods, it must however, be admitted that ordinary
precautions could have been taken during good weather to minimize the
dangers to life and limb under those difficult circumstances.
For instance, the drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is the fact, that the
City should have seen to it that the openings were covered. Sadly, the
evidence indicates that long before petitioner fell into the opening, it was
already uncovered, and five (5) months after the incident happened, the
opening was still uncovered. (Rollo, pp. 57; 59). Moreover, while there are
findings that during floods the vendors remove the iron grills to hasten the
flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17), there is no
showing that such practice has ever been prohibited, much less penalized
by the City of Manila. Neither was it shown that any sign had been placed
thereabouts to warn passersby of the impending danger.
To recapitulate, it appears evident that the City of Manila is likewise liable
for damages under Article 2189 of the Civil Code, respondent City having
retained control and supervision over the Sta. Ana Public Market and as
tort-feasor under Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle
of the passageways and if any, that they were adequately covered. Had the
opening been covered, petitioner could not have fallen into it. Thus the
negligence of the City of Manila is the proximate cause of the injury
suffered, the City is therefore liable for the injury suffered by the peti- 4
petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint
tort-feasors are solidarily liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby
MODIFIED, making the City of Manila and the Asiatic Integrated
Corporation solidarily liable to pay the plaintiff P221.90 actual medical
expenses, P900.00 for the amount paid for the operation and management
of the school bus, P20,000.00 as moral damages due to pain, sufferings
and sleepless nights and P10,000.00 as attorney's fees.

G.R. No. L-47851 October 3, 1986

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners, vs. THE
COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION,
respondents.

(d) Dismissing the defendant's and third-party defendants' counterclaims for

lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

G.R. No. L-47863 October 3, 1986

The dispositive portion of the decision of the Court of Appeals reads:
THE UNITED CONSTRUCTION CO., INC., petitioner, vs. COURT OF
APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, vs. COURT OF
APPEALS, ET AL., respondents.

PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977
decision of the Court of Appeals in CA-G.R. No. 51771-R modifying the
decision of the Court of First Instance of Manila, Branch V, in Civil Case No.
74958 dated September 21, 1971 as modified by the Order of the lower
court dated December 8, 1971. The Court of Appeals in modifying the
decision of the lower court included an award of an additional amount of
P200,000.00 to the Philippine Bar Association to be paid jointly and
severally by the defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the plaintiff, jointly and severally,
the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;

WHEREFORE, the judgment appealed from is modified to include an award

of P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with
interest at the legal rate from November 29, 1968 until full payment to be
paid jointly and severally by defendant United Construction Co., Inc. and
third party defendants (except Roman Ozaeta). In all other respects, the
judgment dated September 21, 1971 as modified in the December 8, 1971
Order of the lower court is hereby affirmed with COSTS to be paid by the
defendant and third party defendant (except Roman Ozaeta) in equal
shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co.,
Inc. and Juan J. Carlos in L-47863 seek the reversal of the decision of the
Court of Appeals, among other things, for exoneration from liability while
petitioner Philippine Bar Association in L-47896 seeks the modification of
aforesaid decision to obtain an award of P1,830,000.00 for the loss of the
PBA building plus four (4) times such amount as damages resulting in
increased cost of the building, P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First
Instance of Manila were consolidated by this Court in the resolution of May
10, 1978 requiring the respective respondents to comment. (Rollo, L-47851,
p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on
Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by
the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association,
incorporated under the Corporation Law, decided to construct an office
building on its 840 square meters lot located at the comer of Aduana and
Arzobispo Streets, Intramuros, Manila. The construction was undertaken by

the United Construction, Inc. on an "administration" basis, on the suggestion

of Juan J. Carlos, the president and general manager of said corporation.
The proposal was approved by plaintiff's board of directors and signed by its
president Roman Ozaeta, a third-party defendant in this case. The plans
and specifications for the building were prepared by the other third-party
defendants Juan F. Nakpil & Sons. The building was completed in June,
1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit
Manila and its environs and the building in question sustained major
damage. The front columns of the building buckled, causing the building to
tilt forward dangerously. The tenants vacated the building in view of its
precarious condition. As a temporary remedial measure, the building was
shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery
of damages arising from the partial collapse of the building against United
Construction, Inc. and its President and General Manager Juan J. Carlos as
defendants. Plaintiff alleges that the collapse of the building was accused by
defects in the construction, the failure of the contractors to follow plans and
specifications and violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who
prepared the plans and specifications, alleging in essence that the collapse
of the building was due to the defects in the said plans and specifications.
Roman Ozaeta, the then president of the plaintiff Bar Association was
included as a third-party defendant for damages for having included Juan J.
Carlos, President of the United Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil &
Sons and Juan F. Nakpil presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and third- party
complaints and the third-party defendants Nakpil & Sons' answer thereto,
the plaintiff need not amend its complaint by including the said Juan F.
Nakpil & Sons and Juan F. Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the Court should
find after the trial that the above-named defendants Juan J. Carlos and
United Construction Co., Inc. are free from any blame and liability for the
collapse of the PBA Building, and should further find that the collapse of
said building was due to defects and/or inadequacy of the plans, designs,
and specifications p by the third-party defendants, or in the event that the
Court may find Juan F. Nakpil and Sons and/or Juan F. Nakpil contributorily

negligent or in any way jointly and solidarily liable with the defendants,
judgment may be rendered in whole or in part. as the case may be, against
Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the plaintiff to all
intents and purposes as if plaintiff's complaint has been duly amended by
including the said Juan F. Nakpil & Sons and Juan F. Nakpil as parties
defendant and by alleging causes of action against them including, among
others, the defects or inadequacy of the plans, designs, and specifications
prepared by them and/or failure in the performance of their contract with
plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this
stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969,
during which among others, the parties agreed to refer the technical issues
involved in the case to a Commissioner. Mr. Andres O. Hizon, who was
ultimately appointed by the trial court, assumed his office as Commissioner,
charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building during the August 2,
1968 earthquake had been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and specifications prepared by
third-party defendants;
(b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage sustained;
(c) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision
expected of the architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a
combination of the above-enumerated factors, the degree or proportion in
which each individual factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be completely

demolished or whether it may still be repaired and restored to a tenantable

condition. In the latter case, the determination of the cost of such restoration
or repair, and the value of any remaining construction, such as the
foundation, which may still be utilized or availed of (Record on Appeal, pp.
275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and nontechnical issues. As aforestated the technical issues were referred to the
Commissioner. The non-technical issues were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the
ground that it may topple down in case of a strong earthquake. The motions
were opposed by the defendants and the matter was referred to the
Commissioner. Finally, on April 30, 1979 the building was authorized to be
demolished at the expense of the plaintiff, but not another earthquake of
high intensity on April 7, 1970 followed by other strong earthquakes on April
9, and 12, 1970, caused further damage to the property. The actual
demolition was undertaken by the buyer of the damaged building. (Record
on Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted his
report on September 25, 1970 with the findings that while the damage
sustained by the PBA building was caused directly by the August 2, 1968
earthquake whose magnitude was estimated at 7.3 they were also caused
by the defects in the plans and specifications prepared by the third-party
defendants' architects, deviations from said plans and specifications by the
defendant contractors and failure of the latter to observe the requisite
workmanship in the construction of the building and of the contractors,
architects and even the owners to exercise the requisite degree of
supervision in the construction of subject building.
All the parties registered their objections to aforesaid findings which in turn
were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner except as to the
holding that the owner is charged with full nine supervision of the
construction. The Court sees no legal or contractual basis for such
conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed
decision which was modified by the Intermediate Appellate Court on
November 28, 1977.
All the parties herein appealed from the decision of the Intermediate

Appellate Court. Hence, these petitions.

On May 11, 1978, the United Architects of the Philippines, the Association
of Civil Engineers, and the Philippine Institute of Architects filed with the
Court a motion to intervene as amicus curiae. They proposed to present a
position paper on the liability of architects when a building collapses and to
submit likewise a critical analysis with computations on the divergent views
on the design and plans as submitted by the experts procured by the
parties. The motion having been granted, the amicus curiae were granted a
period of 60 days within which to submit their position.
After the parties had all filed their comments, We gave due course to the
petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24, 1978)
were duly noted.
The amicus curiae gave the opinion that the plans and specifications of the
Nakpils were not defective. But the Commissioner, when asked by Us to
comment, reiterated his conclusion that the defects in the plans and
specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the
Manila Code (Ord. No. 4131) and the 1966 Asep Code, the Commissioner
added that even if it can be proved that the defects in the construction alone
(and not in the plans and design) caused the damage to the building, still
the deficiency in the original design and jack of specific provisions against
torsion in the original plans and the overload on the ground floor columns
(found by an the experts including the original designer) certainly
contributed to the damage which occurred. (Ibid, p. 174).
In their respective briefs petitioners, among others, raised the following
assignments of errors: Philippine Bar Association claimed that the measure
of damages should not be limited to P1,100,000.00 as estimated cost of
repairs or to the period of six (6) months for loss of rentals while United
Construction Co., Inc. and the Nakpils claimed that it was an act of God that
caused the failure of the building which should exempt them from
responsibility and not the defective construction, poor workmanship,
deviations from plans and specifications and other imperfections in the case
of United Construction Co., Inc. or the deficiencies in the design, plans and
specifications prepared by petitioners in the case of the Nakpils. Both UCCI
and the Nakpils object to the payment of the additional amount of
P200,000.00 imposed by the Court of Appeals. UCCI also claimed that it
should be reimbursed the expenses of shoring the building in the amount of

P13,661.28 while the Nakpils opposed the payment of damages jointly and
solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually
strong earthquake-which caused the failure of the building, exempts from
liability, parties who are otherwise liable because of their negligence.
The applicable law governing the rights and liabilities of the parties herein is
Article 1723 of the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years from
the completion of the structure the same should collapse by reason of a
defect in those plans and specifications, or due to the defects in the ground.
The contractor is likewise responsible for the damage if the edifice fags
within the same period on account of defects in the construction or the use
of materials of inferior quality furnished by him, or due to any violation of the
terms of the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of
the causes of action by reason of any defect mentioned in the preceding
paragraph.
The action must be brought within ten years following the collapse of the
building.
On the other hand, the general rule is that no person shall be responsible
for events which could not be foreseen or which though foreseen, were
inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and exclusively
to natural causes without human intervention, which by no amount of
foresight, pains or care, reasonably to have been expected, could have
been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous
event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for
a breach of an obligation due to an "act of God," the following must concur:
(a) the cause of the breach of the obligation must be independent of the will
of the debtor; (b) the event must be either unforseeable or unavoidable; (c)
the event must be such as to render it impossible for the debtor to fulfill his

obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor. (Vasquez v.
Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;
Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon
Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or damage, the obligor
cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and all
human agencies are to be excluded from creating or entering into the cause
of the mischief. When the effect, the cause of which is to be considered, is
found to be in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole occurrence is
thereby humanized, as it were, and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an
act of God in producing a loss, such person is not exempt from liability by
showing that the immediate cause of the damage was the act of God. To be
exempt from liability for loss because of an act of God, he must be free from
any previous negligence or misconduct by which that loss or damage may
have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129;
Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship
Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants petitioners
was established beyond dispute both in the lower court and in the
Intermediate Appellate Court. Defendant United Construction Co., Inc. was
found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in
the construction as well as to exercise the requisite degree of supervision;
while the third-party defendants were found to have inadequacies or defects
in the plans and specifications prepared by them. As correctly assessed by
both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this reason the
defendant and third-party defendants cannot claim exemption from liability.
(Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are

conclusive on the parties and on this court (cases cited in Tolentino vs. de
Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134
SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) the inference made is manifestly
mistaken; (3) there is grave abuse of discretion; (4) the judgment is based
on misapprehension of facts; (5) the findings of fact are conflicting , (6) the
Court of Appeals went beyond the issues of the case and its findings are
contrary to the admissions of both appellant and appellees (Ramos vs.
Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque
vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the
Court of Appeals are contrary to those of the trial court; (8) said findings of
facts are conclusions without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondents (Garcia vs. CA, June
30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92
SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised
on the supposed absence of evidence and is contradicted by evidence on
record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in
G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the exceptions
above-mentioned. On the contrary, the records show that the lower court
spared no effort in arriving at the correct appreciation of facts by the referral
of technical issues to a Commissioner chosen by the parties whose findings
and
conclusions
remained
convincingly
unrebutted
by
the
intervenors/amicus curiae who were allowed to intervene in the Supreme
Court.
In any event, the relevant and logical observations of the trial court as
affirmed by the Court of Appeals that "while it is not possible to state with
certainty that the building would not have collapsed were those defects not
present, the fact remains that several buildings in the same area withstood
the earthquake to which the building of the plaintiff was similarly subjected,"
cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to
the PBA for the partial collapse (and eventual complete collapse) of its
building.
The Court of Appeals affirmed the finding of the trial court based on the
report of the Commissioner that the total amount required to repair the PBA
building and to restore it to tenantable condition was P900,000.00 inasmuch
as it was not initially a total loss. However, while the trial court awarded the
PBA said amount as damages, plus unrealized rental income for one-half
year, the Court of Appeals modified the amount by awarding in favor of PBA

an additional sum of P200,000.00 representing the damage suffered by the

PBA building as a result of another earthquake that occurred on April 7,
1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00
representing the total value of the building (L-47896, PBA's No. 1
Assignment of Error, p. 19), while both the NAKPILS and UNITED question
the additional award of P200,000.00 in favor of the PBA (L- 47851,
NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The
PBA further urges that the unrealized rental income awarded to it should not
be limited to a period of one-half year but should be computed on a
continuing basis at the rate of P178,671.76 a year until the judgment for the
principal amount shall have been satisfied L- 47896, PBA's No. 11
Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968
earthquake was only partial and it is undisputed that the building could then
still be repaired and restored to its tenantable condition. The PBA, however,
in view of its lack of needed funding, was unable, thru no fault of its own, to
have the building repaired. UNITED, on the other hand, spent P13,661.28 to
shore up the building after the August 2, 1968 earthquake (L-47896, CA
Decision, p. 46). Because of the earthquake on April 7, 1970, the trial court
after the needed consultations, authorized the total demolition of the
building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for
the damage resulting from the partial and eventual collapse of the PBA
building as a result of the earthquakes.
We quote with approval the following from the erudite decision penned by
Justice Hugo E. Gutierrez (now an Associate Justice of the Supreme Court)
while still an Associate Justice of the Court of Appeals:
There is no question that an earthquake and other forces of nature such as
cyclones, drought, floods, lightning, and perils of the sea are acts of God. It
does not necessarily follow, however, that specific losses and suffering
resulting from the occurrence of these natural force are also acts of God.
We are not convinced on the basis of the evidence on record that from the
thousands of structures in Manila, God singled out the blameless PBA
building in Intramuros and around six or seven other buildings in various
parts of the city for collapse or severe damage and that God alone was
responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the

designs and plans, defective construction, poor workmanship, deviation

from plans and specifications and other imperfections. These deficiencies
are attributable to negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party
defendants-appellants presented in their briefs are premised on legal
generalizations or speculations and on theological fatalism both of which
ignore the plain facts. The lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the
August 2, 1968 earthquake was of such an overwhelming and destructive
character that by its own force and independent of the particular negligence
alleged, the injury would have been produced. If we follow this line of
speculative reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of Manila would
have toppled down. Following the same line of reasoning, Nakpil and Sons
alleges that the designs were adequate in accordance with pre-August 2,
1968 knowledge and appear inadequate only in the light of engineering
information acquired after the earthquake. If this were so, hundreds of
ancient buildings which survived the earthquake better than the two-year old
PBA building must have been designed and constructed by architects and
contractors whose knowledge and foresight were unexplainably auspicious
and prophetic. Fortunately, the facts on record allow a more down to earth
explanation of the collapse. The failure of the PBA building, as a unique and
distinct construction with no reference or comparison to other buildings, to
weather the severe earthquake forces was traced to design deficiencies and
defective construction, factors which are neither mysterious nor esoteric.
The theological allusion of appellant United that God acts in mysterious
ways His wonders to perform impresses us to be inappropriate. The
evidence reveals defects and deficiencies in design and construction. There
is no mystery about these acts of negligence. The collapse of the PBA
building was no wonder performed by God. It was a result of the
imperfections in the work of the architects and the people in the construction
company. More relevant to our mind is the lesson from the parable of the
wise man in the Sermon on the Mount "which built his house upon a rock;
and the rain descended and the floods came and the winds blew and beat
upon that house; and it fen not; for it was founded upon a rock" and of the
"foolish upon the sand. And the rain descended and man which built his
house the floods came, and the winds blew, and beat upon that house; and
it fell and great was the fall of it. (St. Matthew 7: 24-27)." The requirement
that a building should withstand rains, floods, winds, earthquakes, and
natural forces is precisely the reason why we have professional experts like
architects, and engineers. Designs and constructions vary under varying
circumstances and conditions but the requirement to design and build well
does not change.

The findings of the lower Court on the cause of the collapse are more
rational and accurate. Instead of laying the blame solely on the motions and
forces generated by the earthquake, it also examined the ability of the PBA
building, as designed and constructed, to withstand and successfully
weather those forces.
The evidence sufficiently supports a conclusion that the negligence and fault
of both United and Nakpil and Sons, not a mysterious act of an inscrutable
God, were responsible for the damages. The Report of the Commissioner,
Plaintiff's Objections to the Report, Third Party Defendants' Objections to
the Report, Defendants' Objections to the Report, Commissioner's Answer
to the various Objections, Plaintiffs' Reply to the Commissioner's Answer,
Defendants' Reply to the Commissioner's Answer, Counter-Reply to
Defendants' Reply, and Third-Party Defendants' Reply to the
Commissioner's Report not to mention the exhibits and the testimonies
show that the main arguments raised on appeal were already raised during
the trial and fully considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should reverse or disturb
the lower Court's factual findings and its conclusions drawn from the facts,
among them:
The Commissioner also found merit in the allegations of the defendants as
to the physical evidence before and after the earthquake showing the
inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of
design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the
Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior columns
reduces the cross-sectional area of each of the columns and the strength
thereof.
4. Two front corners, A7 and D7 columns were very much less reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;

1. Column A7 suffered the severest fracture and maximum sagging. Also

D7.
2. There are more damages in the front part of the building than towards the
rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front
corner parts of the building.
5. There was a lateral displacement of the building of about 8", Maximum
sagging occurs at the column A7 where the floor is lower by 80 cm. than the
highest slab level.

during the hearing that the resort to engineering references posterior to the
date of the preparation of the plans was induced by the third-party
defendants themselves who submitted computations of the third-party
defendants are erroneous.
The issue presently considered is admittedly a technical one of the highest
degree. It involves questions not within the ordinary competence of the
bench and the bar to resolve by themselves. Counsel for the third-party
defendants has aptly remarked that "engineering, although dealing in
mathematics, is not an exact science and that the present knowledge as to
the nature of earthquakes and the behaviour of forces generated by them
still leaves much to be desired; so much so "that the experts of the different
parties, who are all engineers, cannot agree on what equation to use, as to
what earthquake co-efficients are, on the codes to be used and even as to
the type of structure that the PBA building (is) was (p. 29, Memo, of thirdparty defendants before the Commissioner).

6. Slab at the corner column D7 sagged by 38 cm.

The Commissioner concluded that there were deficiencies or defects in the
design, plans and specifications of the PBA building which involved
appreciable risks with respect to the accidental forces which may result from
earthquake shocks. He conceded, however, that the fact that those
deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for
earthquake forces mitigates in a large measure the responsibility or liability
of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion of
the Commissioner's report, voiced opposition to the same on the grounds
that (a) the finding is based on a basic erroneous conception as to the
design concept of the building, to wit, that the design is essentially that of a
heavy rectangular box on stilts with shear wan at one end; (b) the finding
that there were defects and a deficiency in the design of the building would
at best be based on an approximation and, therefore, rightly belonged to the
realm of speculation, rather than of certainty and could very possibly be
outright error; (c) the Commissioner has failed to back up or support his
finding with extensive, complex and highly specialized computations and
analyzes which he himself emphasizes are necessary in the determination
of such a highly technical question; and (d) the Commissioner has analyzed
the design of the PBA building not in the light of existing and available
earthquake engineering knowledge at the time of the preparation of the
design, but in the light of recent and current standards.
The Commissioner answered the said objections alleging that third-party
defendants' objections were based on estimates or exhibits not presented

The difficulty expected by the Court if tills technical matter were to be tried
and inquired into by the Court itself, coupled with the intrinsic nature of the
questions involved therein, constituted the reason for the reference of the
said issues to a Commissioner whose qualifications and experience have
eminently qualified him for the task, and whose competence had not been
questioned by the parties until he submitted his report. Within the
pardonable limit of the Court's ability to comprehend the meaning of the
Commissioner's report on this issue, and the objections voiced to the same,
the Court sees no compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in the design, plans
and specifications prepared by third-party defendants, and that said defects
and deficiencies involved appreciable risks with respect to the accidental
forces which may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans and
specifications, and how said deviations contributed to the damage sustained
by the building.
(b) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building.
These two issues, being interrelated with each other, will be discussed
together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the alleged

deficiencies or defects in the construction and violations or deviations from

the plans and specifications. All these may be summarized as follows:

(1) Column D4 Spacing of spiral is changed from 2" to 5" on centers,

(2) Column D5 No spiral up to a height of 22" from the ground floor,

a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.

(3) Column D6 Spacing of spiral over 4 l/2,
(1) Wrongful and defective placing of reinforcing bars.
(4) Column D7 Lack of lateral ties,
(2) Absence of effective and desirable integration of the 3 bars in the
cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification
requires no larger than 1 inch.

(5) Column C7 Absence of spiral to a height of 20" from the ground level,
Spirals are at 2" from the exterior column face and 6" from the inner column
face,
(6) Column B6 Lack of spiral on 2 feet below the floor beams,

(4) Reinforcement assembly is not concentric with the column, eccentricity

being 3" off when on one face the main bars are only 1 1/2' from the
surface.

(7) Column B5 Lack of spirals at a distance of 26' below the beam,

(5) Prevalence of honeycombs,

(8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals are
uneven 2" to 4",

(6) Contraband construction joints,

(9) Column A3 Lack of lateral ties,

(7) Absence, or omission, or over spacing of spiral hoops,

(10) Column A4 Spirals cut off and welded to two separate clustered
vertical bars,

(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5,

ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground
floor,

(11) Column A4 (second floor Column is completely hollow to a height of

30"
(12) Column A5 Spirals were cut from the floor level to the bottom of the
spandrel beam to a height of 6 feet,

(10) Undergraduate concrete is evident,

(11) Big cavity in core of Column 2A-4, second floor,

(13) Column A6 No spirals up to a height of 30' above the ground floor

level,

(12) Columns buckled at different planes. Columns buckled worst where

there are no spirals or where spirals are cut. Columns suffered worst
displacement where the eccentricity of the columnar reinforcement
assembly is more acute.

(14) Column A7 Lack of lateralties or spirals,

b. Summary of alleged defects as reported by Engr. Antonio Avecilla.

Ground floor columns.

Columns are first (or ground) floor, unless otherwise stated.

(1) Column A4 Spirals are cut,

c. Summary of alleged defects as reported by the experts of the Third-Party

defendants.

(2) Column A5 Spirals are cut,

(3) Column A6 At lower 18" spirals are absent,
(4) Column A7 Ties are too far apart,
(5) Column B5 At upper fourth of column spirals are either absent or
improperly spliced,
(6) Column B6 At upper 2 feet spirals are absent,
(7) Column B7 At upper fourth of column spirals missing or improperly
spliced.

and ties in the columns were in many cases greater than those called for in
the plans and specifications resulting again in loss of earthquake-resistant
strength. The assertion of the engineering experts for the defendants that
the improper spacings and the cutting of the spirals did not result in loss of
strength in the column cannot be maintained and is certainly contrary to the
general principles of column design and construction. And even granting
that there be no loss in strength at the yield point (an assumption which is
very doubtful) the cutting or improper spacings of spirals will certainly result
in the loss of the plastic range or ductility in the column and it is precisely
this plastic range or ductility which is desirable and needed for earthquakeresistant strength.
There is no excuse for the cavity or hollow portion in the column A4, second
floor, and although this column did not fail, this is certainly an evidence on
the part of the contractor of poor construction.

(8) Column C7 Spirals are absent at lowest 18"

(9) Column D5 At lowest 2 feet spirals are absent,
(10) Column D6 Spirals are too far apart and apparently improperly
spliced,
(11) Column D7 Lateral ties are too far apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations given by the
engineering experts for the defendants are either contrary to general
principles of engineering design for reinforced concrete or not applicable to
the requirements for ductility and strength of reinforced concrete in
earthquake-resistant design and construction.
We shall first classify and consider defects which may have appreciable
bearing or relation to' the earthquake-resistant property of the building.
As heretofore mentioned, details which insure ductility at or near the
connections between columns and girders are desirable in earthquake
resistant design and construction. The omission of spirals and ties or hoops
at the bottom and/or tops of columns contributed greatly to the loss of
earthquake-resistant strength. The plans and specifications required that
these spirals and ties be carried from the floor level to the bottom
reinforcement of the deeper beam (p. 1, Specifications, p. 970, Reference
11). There were several clear evidences where this was not done especially
in some of the ground floor columns which failed.
There were also unmistakable evidences that the spacings of the spirals

The effect of eccentricities in the columns which were measured at about 2

1/2 inches maximum may be approximated in relation to column loads and
column and beam moments. The main effect of eccentricity is to change the
beam or girder span. The effect on the measured eccentricity of 2 inches,
therefore, is to increase or diminish the column load by a maximum of about
1% and to increase or diminish the column or beam movements by about a
maximum of 2%. While these can certainly be absorbed within the factor of
safety, they nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is the subject of great
contention between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5,
ground floor, is the responsibility of the general contractor which is the
UCCI. The burden of proof, therefore, that this cutting was done by others is
upon the defendants. Other than a strong allegation and assertion that it is
the plumber or his men who may have done the cutting (and this was flatly
denied by the plumber) no conclusive proof was presented. The engineering
experts for the defendants asserted that they could have no motivation for
cutting the bar because they can simply replace the spirals by wrapping
around a new set of spirals. This is not quite correct. There is evidence to
show that the pouring of concrete for columns was sometimes done through
the beam and girder reinforcements which were already in place as in the
case of column A4 second floor. If the reinforcement for the girder and
column is to subsequently wrap around the spirals, this would not do for the
elasticity of steel would prevent the making of tight column spirals and loose
or improper spirals would result. The proper way is to produce correct
spirals down from the top of the main column bars, a procedure which can
not be done if either the beam or girder reinforcement is already in place.

The engineering experts for the defendants strongly assert and apparently
believe that the cutting of the spirals did not materially diminish the strength
of the column. This belief together with the difficulty of slipping the spirals on
the top of the column once the beam reinforcement is in place may be a
sufficient motivation for the cutting of the spirals themselves. The
defendants, therefore, should be held responsible for the consequences
arising from the loss of strength or ductility in column A5 which may have
contributed to the damages sustained by the building.
The lack of proper length of splicing of spirals was also proven in the visible
spirals of the columns where spalling of the concrete cover had taken place.
This lack of proper splicing contributed in a small measure to the loss of
strength.
The effects of all the other proven and visible defects although nor can
certainly be accumulated so that they can contribute to an appreciable loss
in earthquake-resistant strength. The engineering experts for the defendants
submitted an estimate on some of these defects in the amount of a few
percent. If accumulated, therefore, including the effect of eccentricity in the
column the loss in strength due to these minor defects may run to as much
as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom and/or
at the top of some of the ground floor columns contributed greatly to the
collapse of the PBA building since it is at these points where the greater part
of the failure occurred. The liability for the cutting of the spirals in column
A5, ground floor, in the considered opinion of the Commissioner rests on the
shoulders of the defendants and the loss of strength in this column
contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects, deficiencies
and violations of the plans and specifications of the PBA building
contributed to the damages which resulted during the earthquake of August
2, 1968 and the vice of these defects and deficiencies is that they not only
increase but also aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not only tend to
add but also to multiply the effects of the shortcomings in the design of the
building. We may say, therefore, that the defects and deficiencies in the
construction contributed greatly to the damage which occurred.
Since the execution and supervision of the construction work in the hands of
the contractor is direct and positive, the presence of existence of all the
major defects and deficiencies noted and proven manifests an element of
negligence which may amount to imprudence in the construction work. (pp.
42-49, Commissioners Report).

As the parties most directly concerned with this portion of the

Commissioner's report, the defendants voiced their objections to the same
on the grounds that the Commissioner should have specified the defects
found by him to be "meritorious"; that the Commissioner failed to indicate
the number of cases where the spirals and ties were not carried from the
floor level to the bottom reinforcement of the deeper beam, or where the
spacing of the spirals and ties in the columns were greater than that called
for in the specifications; that the hollow in column A4, second floor, the
eccentricities in the columns, the lack of proper length of splicing of spirals,
and the cut in the spirals in column A5, ground floor, did not aggravate or
contribute to the damage suffered by the building; that the defects in the
construction were within the tolerable margin of safety; and that the cutting
of the spirals in column A5, ground floor, was done by the plumber or his
men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many of
the defects were minor only the totality of the defects was considered. As
regards the objection as to failure to state the number of cases where the
spirals and ties were not carried from the floor level to the bottom
reinforcement, the Commissioner specified groundfloor columns B-6 and C5 the first one without spirals for 03 inches at the top, and in the latter, there
were no spirals for 10 inches at the bottom. The Commissioner likewise
specified the first storey columns where the spacings were greater than that
called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5
and B-7. The objection to the failure of the Commissioner to specify the
number of columns where there was lack of proper length of splicing of
spirals, the Commissioner mentioned groundfloor columns B-6 and B-5
where all the splices were less than 1-1/2 turns and were not welded,
resulting in some loss of strength which could be critical near the ends of
the columns. He answered the supposition of the defendants that the spirals
and the ties must have been looted, by calling attention to the fact that the
missing spirals and ties were only in two out of the 25 columns, which
rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor,
did not aggravate or contribute to the damage, but averred that it is
"evidence of poor construction." On the claim that the eccentricity could be
absorbed within the factor of safety, the Commissioner answered that, while
the same may be true, it also contributed to or aggravated the damage
suffered by the building.
The objection regarding the cutting of the spirals in Column A-5,
groundfloor, was answered by the Commissioner by reiterating the
observation in his report that irrespective of who did the cutting of the
spirals, the defendants should be held liable for the same as the general

contractor of the building. The Commissioner further stated that the loss of
strength of the cut spirals and inelastic deflections of the supposed lattice
work defeated the purpose of the spiral containment in the column and
resulted in the loss of strength, as evidenced by the actual failure of this
column.

cent interest per annum shall be imposed upon afore-mentioned amounts

from finality until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).

Again, the Court concurs in the findings of the Commissioner on these

issues and fails to find any sufficient cause to disregard or modify the same.
As found by the Commissioner, the "deviations made by the defendants
from the plans and specifications caused indirectly the damage sustained
and that those deviations not only added but also aggravated the damage
caused by the defects in the plans and specifications prepared by third-party
defendants. (Rollo, Vol. I, pp. 128-142)

G.R. No. L-47851 April 15, 1988

The afore-mentioned facts clearly indicate the wanton negligence of both

the defendant and the third-party defendants in effecting the plans, designs,
specifications, and construction of the PBA building and We hold such
negligence as equivalent to bad faith in the performance of their respective
tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G.
4379, 4380) which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability
for the natural and probable consequences thereof, although the act of a
third person, or an act of God for which he is not responsible, intervenes to
precipitate the loss.

SO ORDERED.

JUAN F. NAKPIL & SONS and JUAN F. NAKPIL, petitioners, vs. THE
COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION,
respondents.
G.R. No. L-47863 April 15, 1988
THE UNITED CONSTRUCTION CO., INC. and JUAN J. CARLOS,
petitioners, vs. THE COURT OF APPEALS, THE PHILIPPINE BAR
ASSOCIATION, JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL,
respondents.
G.R. No. L-47896 April 15, 1988
PHILIPPINE BAR ASSOCIATION, petitioner, vs. THE COURT OF
APPEALS, UNITED CONSTRUCTION COMPANY, INC., and JUAN J.
CARLOS, and JUAN F. NAKPIL & SONS and JUAN F. NAKPIL,
respondents.
RESOLUTION

As already discussed, the destruction was not purely an act of God. Truth to
tell hundreds of ancient buildings in the vicinity were hardly affected by the
earthquake. Only one thing spells out the fatal difference; gross negligence
and evident bad faith, without which the damage would not have occurred.
PARAS, J.:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, We
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in
favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)
Pesos to cover all damages (with the exception of attorney's fees)
occasioned by the loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve (12%) per

This is a motion for reconsideration of the October 3, 1986 decision of this

Court, filed by the United Construction Co., Inc., the decretal portion of
which reads:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in
favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)

Pesos to cover all damages (with the exception of attorney's fees)

occasioned by the loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve (12%) per
cent interest per annum shall be imposed upon aforementioned amounts
from finality until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).
SO ORDERED. (G.R. No. 47851, Rollo, p. 635)
Plaintiff-appellant Philippine Bar Association (PBA for short) decided to
construct an office building on its 840 square meters lot located at the
corner of Aduana and Arzobispo Streets, Intramuros, Manila. For the plans,
specifications and design, PBA contracted the services of third-party
defendants-appellants Juan F. Nakpil & Sons and Juan F. Nakpil (NAKPILS
for short). For the construction of the building, PBA contracted the services
of United Construction Company, Inc. (UNITED for short) on an
administration basis. The building was completed in June 1966.
On August 2, 1968, an unusually strong earthquake hit Manila and its
environs and the building in question sustained major damage. The front
columns of the building buckled causing the building to tilt forward
dangerously. As a temporary remedial measure, the building was shored up
by UCCI at the expense of P13,661.28.
On November 29, 1968, PBA commenced this action for recovery of
damages against UCCI and its President and General Manager Juan J.
Carlos, claiming that the collapse of the building was caused by defects in
the construction. UNITED, in turn, filed a third-party complaint against the
NAKPILS, alleging in essence that the collapse of the building was due to
the defects in the architects" plans, specifications and design. Roman
Ozaeta, the then President of PBA, was included as a third-party defendant
for damages for having included Juan J. Carlos, President of UNITED as
party defendant.
At the pre-trial, the parties agreed to refer the technical issues in the case to
a commissioner. Andres O. Hizon, a lawyer and structural engineer, was
appointed by the Court as commissioner.
Meanwhile, PBA moved twice for the demolition of the building on the
ground that it might topple down in case of a strong earthquake. The
motions were opposed by the defendants and the matter was referred to the
Commissioner. Finally, on April 30, 1979, the building was authorized to be

demolished at the expense of PBA, but not before another earthquake of

high intensity on April 7, 1970 followed by other strong earthquakes on April
9 and 12, 1970, caused further damage to the property. The actual
demolition was undertaken by the buyer of the damaged buiding.
After the protracted hearings, the Commissioner eventually submitted his
report on September 25, 1970 with the findings that while the damage
sustained by the PBA building was caused directly by the August 2, 1968
earthquake, they were also caused by the defects in the plans and
specifications prepared by the NAKPILS; UNITED"s deviations from said
plans and specifications and its failure to observe the requisite workmanship
in the construction of the building; and failure of PBA to exercise the
requisite degree of supervision in the construction of the building.
All the parties registered their objections to aforesaid findings which in turn
were answered by the Commissioner.
The court agreed with the findings of the Commissioner except as to the
holding that the owner is charged with full time supervision of the
construction. The court saw no legal or contractual basis for such
conclusion. Thus, on September 21, 1971, the lower court rendered a
decision, the decretal portion of which, reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta), the sum of P989,335.68 with interest at
the legal rate from November 29, 1968, the date of the filing of the complaint
until full payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendants" and third-party defendants" counterclaim for
lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the cost in equal shares.
SO ORDERED.
On appeal, the Court of Appeals modified the abovesaid decision of the

lower court. The dispositive portion of the decision of the Court of Appeals,
reads:

The issues raised in subject motion for reconsideration of UCCI of the

decision of this Court of October 3, 1986, are as follows:

WHEREFORE, the judgment appealed from is modified to include an award

of P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with
interest at the legal rate from November 29, 1968 until full payment to be
paid jointly and severally by defendant United Construction Co., Inc. and
third-party defendants (except Roman Ozaeta). In all other respects, the
judgment dated September 21,1971 as modified in the December 8, 1971
Order of the lower court is hereby dated with COSTS to be paid by the
defendant and third Patty defendant (except Roman Ozaeta) in equal
shares.

SO ORDERED.

THE FINDINGS OF THE COMMISSIONER, AS ADOPTED BY THE TRIAL

COURT, AND AFFIRMED BOTH BY THE COURT OF APPEALS AND
THIS HONORABLE COURT NEGATE THE PREMISE THAT, THE
SUBJECT BUILDING COLLAPSED; HENCE, ARTICLE 1723 DOES NOT
APPLY.
II

All the parties herein appealed the aforestated decision of the Court of
Appeals.

THE LEGAL DUTY OF PBA TO PROVIDE FULLTIME AND ACTIVE

SUPERVISION IN THE CONSTRUCTION OF THE SUBJECT BUILDING IS
IMIPOSED BY PUBLIC INTTEREST USAGE AND CUSTOM; FAILING IN
THAT DUTY, PBA MUST BEAR AND/OR SHARE IN ANY LIABILITY FOR
DAMAGES IN THE PREMISES.

This Court promulgated on October 3, 1986 a decision in favor of the

Philippine Bar Association which modified the appealed decision of the
Court of Appeals, as abovequoted (Rollo of G.R. No. L-47851, pp. 634-662).

III

On December 24,1986, UNITED filed a Motion for Reconsideration (Rollo of

L-47863, pp. 683-707). On the other hand, on January 15,1987, the
NAKPILS filed a Motion to Refer Case to Supreme Court En Banc and for
Reconsideration of aforesaid decision (Rollo of L-47851, pp. 717-751).

LIABILITY, IF ANY, FOR THE DAMAGE OF

MUST BE BORNE BY ALL THE PARTIES IN
COMMISSIONER'S FINDINGS AND WITH
CONDITION OF THE BUILDING PRIOR
THEREOF.

On February 11, 1987, UNITED filed a Manifestation (Rollo of L-47863, pp.

796-797) that it is joining the NAKPILS in regard to their prayer to refer the
present case to the Court En Banc.
The Second Division of this Court, in a Resolution dated April 1, 1987 (Rollo
of L-47851, p. 788) denied the NAKPILS" Motion for Reconsideration.
On April 15, 1987, PBA filed its Comment to UNITED's Motion for
Reconsideration (Rollo of L-47896, pp. 828-835) while on April 24, 1987, the
NAKPILS filed a Motion For Leave To File Second Motion For
Reconsideratio (En Banc) (Rollo of L-47851, pp. 791-797). On May 7, 1987,
PBA filed its Comment to the NAKPILS" Motion for Leave To File Second
Motion For Reconsideration (En Banc) (Rollo of L-47851, pp. 790-795). On
May 14,1987, UNITED filed a Reply to PBA's comment (Rollo of L-47863,
pp. 844-853), while the NAKPILS filed a Reply to the same comment on
May 22,1987 (Rollo of L-47851, pp. 798-801).

THE SUBJECT BUILDING

ACCORDANCE WITH THE
DUE REGARD TO THE
TO PBA'S DEMOLITION

IV
THE FINDING OF BAD FAITH IS NOT WARRANTED IN FACT AND IS
WITHOUT BASIS IN LAW.
V
THE AWARD OF DAMAGES COUCHED IN GENERAL TERMS IS
DEFECTIVE; MOREOVER IT IS UNWARRANTED BY THE FACTS AND
THE LAW.
VI
THE AWARD OF ATTORNEYS FEES IN THE AMOUNT OF P100,000.00
IS UWARRANTED.

VII

II

THE INTEREST OF TWELVE PER CENT (12%) PER ANNUM IMPOSED

ON THE TOTAL AMOUNT OF THE MONETARY AWARD IS IN
CONTRAVENTION OF LAW.

UNITED argues that it is the legal duty of PBA to provide full-time and active
supervision in the co on of subject building. Failing to cite any provision of
law to support its arguments, UNITED insists on the inherent legal duty of
the owner, reinforced by practice, usage and custom, to exercise such
supervision. Apart from the fact that UNITED seems to have completely
contradicted its own view that this construction involves highly technical
matters and therefore beyond the ambit of ordinary understanding and
experience, the contrary appears to be more in accord with ordinary
practice, which is to avail oneself of the services of architects and engineers
whose training and expertise make them more qualified to provide effective
supervision of the construction. In fact, it was on the suggestion of Juan F.
Nakpil, one of the petitioners herein, that the construction was undertaken
on an administration basis (Decision, p. 3). Thus, the trial court did not err in
holding that charging the owner with fun time supervision of the construction
has no legal or contractual basis (Decision, p. 7).

It will be noted that not unlike the motion for reconsideration filed by
petitioner Juan F. Nakpil and Sons, which was denied in the resolution of
April 1, 1987, there is nothing in the motion for reconsideration filed by the
United Construction Co., Inc. that was not fully discussed in the assailed
decision of October 3, 1986.
I
United Construction Co., Inc. (UNITED for short), gave considerable
emphasis on the fact that the PBA building did not collapse as found by the
trial court and affirmed by the Court of Appeals. Otherwise stated, UNITED
wishes to stress that subject building did not disintegrate completely as the
term "collapse" is supposed to connote.
Be that as it may, it will be observed that in the assasiled decision, this
Court is in complete accord with the findings of the trial court and affirmed
by the Court of Appeals, that after the April 2, 1968 earthquake the building
in question was not totally lost, the collapse was only partial and the building
could still be restored at the expense of P900,000.00. But after the
subsequent earthquake on April 7, 9, and 12, 1970 there was no question
that further damage was caused to the property resulting in an eventual and
unavoidable collapse or demolition (compete collapse). In fact, on April 30,
1970 the building was authorized by the trial court to be demolished at the
expense of the plaintiff. Note that a needed demolition is in fact a form of
"collapse".
The bone of contention is therefore, not on the fact of collapse but on who
should shoulder the damages resulting from the partial and eventual
collapse. As ruled by this Court in said decision, there should be no
question that the NAKPILS and UNITED are liable for the damage.
Citing the case of Tucker v. Milan (49 O.G. 4379, 4380) as the case in point,
the pertinent portion of the decision reads:
One who negligently creates a dangerous condition cannot escape hability
for the natural and probable consequences thereof, although the act of a
third person, or an act of God for which he is not responsible, intervenes to
precipitate the loss.

III
UNITED points out that bad faith is a question of fact which was not
established. The Commissioner, the trial court and the Court of Appeals, all
of which are triers of fact, allegedly concede that there was negligence but
not bad faith.
A careful study of the decision will show that there is no contradiction
between the above finding of negligence by the trial court which was formed
by the Court of Appeals and the ruling of this Court. On the contrary, on the
basis of such finding, it was held that such wanton negligence of both the
defendant and the third-party defendants in effecting the plans, designs,
specifications, and construction of the PBA building is equivalent to bad faith
in the performance of their respective tasks (Decision, p. 28).
IV & V
UNITED takes exception to the five (5) fold increase in the award of
damages from P1,189,335.00 to P5 million pesos. It is claimed that the
report of the Commissioner speaks of only P1,100,000.00 so that there is no
basis for such award. It will be recalled that the estimate of the
Commissioner was limited to P1,100,000.00 for cost of repairs after the
partial collapse of the building on April 2, 1968 but not after its total collapse
reswting from the subsequent earthquakes. It is therefore evident that the
actual cost of total reconstruction of the building him question was not
considered by the commissioner in the computation. Considering further the

present cost of reconstruction, the new amount (arrived at almost 20 years

later) is far from being excessive. It is indeed a very conservative estimate.
Any allegation that PBA could have mitigated its loss by executing an offer
to purchase the building prior to its complete demolition loses sight of the
fact, that the offer was very low, considering the combined value of the
building and the lot.

PREMISES CONSIDERED, UNITED's motion for reconsideration is hereby

DENIED; the NAKPILS" motion for leave to file second motion for
reconsideration is also DENIED, the latters" first motion on the same
grounds having been already denied with finality in the resolution of April 3,
1987. Needless to say, the Motion to Refer this case to the Court En Banc is
DENIED, in view of all the things stated in this Resolution.
SO ORDERED.

In addition, there is merit in the PBA claim that the unrealized rental income
awarded to it should not be limited to a period of one-half year but should be
computed on a continuing basis at the rate of P178,671.76 a year until
judgment for the principal amount shag have been satisfied. Thus, this
Court awarded an "indemnity in favor of the Philippine Bar Assodation of
FIVE MILLION (P5,000,000.00) Pesos to cover damages (with the
exception of attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) ...
As for the award of attorney's fees, there is no question that the size of
attorney's fees as well as the amount of damages, is subject to the sound
discretion of the court (Magbanua v. IAC, 137 SCRA 332 [1985]). Earlier,
this Court has ruled that an award of 10% of the amount of total recovery,
for attomey's fees, is reasonable. (Central Bank of the Phil. v. Court of
Appeals, 63 SCRA 435 (1975]).
VI
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 (passed pursuant to the authority granted to
the Central Bank by P.D. No. 116 which amended Act No. 2655, otherwise
known as the Usury Law) is applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and (3) rate allowed in
judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits). (Philippine Rabbit Bus Lines
Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA
260 (1985)). It is true that in the instant case, there is neither a loan or a
forbearance, but then no interest is actually being imposed provided the
sums referred to in the judgment are paid upon the finality of the judgment.
It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum from the filing of the complaint until paid; in other
words, as part of the judgment for damages. Clearly they are not applicable
to the instant case.