Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-45637 May 31, 1985

ROBERTO JUNTILLA, petitioner, 
vs.
CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL CAMORO, respondents.

Valentin A. Zozobrado for petitioner.

Ruperto N. Alfarara for respondents.

GUTIERREZ, JR., J.:

This is a petition for review, on questions of law, of the decision of the Court of First Instance of
Cebu which reversed the decision of the City Court of Cebu and exonerated the respondents from
any liability arising from a vehicular accident.

The background facts which led to the filing of a complaint for breach of contract and damages
against the respondents are summarized by the Court of First Instance of Cebu as follows:

The facts established after trial show that the plaintiff was a passenger of the public
utility jeepney bearing plate No. PUJ-71-7 on the course of the trip from Danao City
to Cebu City. The jeepney was driven by defendant Berfol Camoro. It was registered
under the franchise of defendant Clemente Fontanar but was actually owned by
defendant Fernando Banzon. When the jeepney reached Mandaue City, the right
rear tire exploded causing the vehicle to turn turtle. In the process, the plaintiff who
was sitting at the front seat was thrown out of the vehicle. Upon landing on the
ground, the plaintiff momentarily lost consciousness. When he came to his senses,
he found that he had a lacerated wound on his right palm. Aside from this, he
suffered injuries on his left arm, right thigh and on his back. (Exh. "D"). Because of
his shock and injuries, he went back to Danao City but on the way, he discovered
that his "Omega" wrist watch was lost. Upon his arrival in Danao City, he immediately
entered the Danao City Hospital to attend to his injuries, and also requested his
father-in-law to proceed immediately to the place of the accident and look for the
watch. In spite of the efforts of his father-in-law, the wrist watch, which he bought for
P 852.70 (Exh. "B") could no longer be found.

xxx xxx xxx

Petitioner Roberto Juntilla filed Civil Case No. R-17378 for breach of contract with damages before
the City Court of Cebu City, Branch I against Clemente Fontanar, Fernando Banzon and Berfol
Camoro.
The respondents filed their answer, alleging inter alia that the accident that caused losses to the
petitioner was beyond the control of the respondents taking into account that the tire that exploded
was newly bought and was only slightly used at the time it blew up.

After trial, Judge Romulo R. Senining of the Civil Court of Cebu rendered judgment in favor of the
petitioner and against the respondents. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants and the latter are hereby ordered, jointly and severally, to pay the plaintiff
the sum of P750.00 as reimbursement for the lost Omega wrist watch, the sum of
P246.64 as unrealized salary of the plaintiff from his employer, the further sum of
P100.00 for the doctor's fees and medicine, an additional sum of P300.00 for
attorney's fees and the costs.

The respondents appealed to the Court of First Instance of Cebu, Branch XIV.

Judge Leonardo B. Canares reversed the judgment of the City Court of Cebu upon a finding that the
accident in question was due to a fortuitous event. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered exonerating the defendants from any

liability to the plaintiff without pronouncement as to costs.

A motion for reconsideration was denied by the Court of First Instance.

The petitioner raises the following alleged errors committed by the Court of First Instance of Cebu on
appeal—

a. The Honorable Court below committed grave abuse of discretion in failing to take
cognizance of the fact that defendants and/or their employee failed to exercise
"utmost and/or extraordinary diligence" required of common carriers contemplated
under Art. 1755 of the Civil Code of the Philippines.

b. The Honorable Court below committed grave abuse of discretion by deciding the
case contrary to the doctrine laid down by the Honorable Supreme Court in the case
of Necesito et al. v. Paras, et al.

We find the petition impressed with merit.

The City Court and the Court of First Instance of Cebu found that the right rear tire of the passenger
jeepney in which the petitioner was riding blew up causing the vehicle to fall on its side. The
petitioner questions the conclusion of the respondent court drawn from this finding of fact.

The Court of First Instance of Cebu erred when it absolved the carrier from any liability upon a
finding that the tire blow out is a fortuitous event. The Court of First Instance of Cebu ruled that:

After reviewing the records of the case, this Court finds that the accident in question
was due to a fortuitous event. A tire blow-out, such as what happened in the case at
bar, is an inevitable accident that exempts the carrier from liability, there being
absence of a showing that there was misconduct or negligence on the part of the
operator in the operation and maintenance of the vehicle involved. The fact that the
 right rear tire exploded, despite being brand new, constitutes a clear case of caso
fortuito which can be a proper basis for exonerating the defendants from liability. ...

The Court of First Instance relied on the ruling of the Court of Appeals in Rodriguez v. Red Line
Transportation Co., CA G.R. No. 8136, December 29, 1954, where the Court of Appeals ruled that:

A tire blow-out does not constitute negligence unless the tire was already old and
should not have been used at all. Indeed, this would be a clear case of fortuitous
event.

The foregoing conclusions of the Court of First Instance of Cebu are based on a misapprehension of
overall facts from which a conclusion should be drawn. The reliance of the Court of First Instance on
the Rodriguez case is not in order. In La Mallorca and Pampanga Bus Co. v. De Jesus, et al. (17
SCRA 23), we held that:

Petitioner maintains that a tire blow-out is a fortuitous event and gives rise to no
liability for negligence, citing the rulings of the Court of Appeals in Rodriguez v. Red
Line Transportation Co., CA G.R. No. 8136, December 29, 1954, and People v.
Palapad, CA-G.R. No. 18480, June 27, 1958. These rulings, however, not only are
not binding on this Court but were based on considerations quite different from those
that obtain in the case at bar. The appellate court there made no findings of any
specific acts of negligence on the part of the defendants and confined itself to the
question of whether or not a tire blow-out, by itself alone and without a showing as to
the causative factors, would generate liability. ...

In the case at bar, there are specific acts of negligence on the part of the respondents. The records
show that the passenger jeepney turned turtle and jumped into a ditch immediately after its right rear
tire exploded. The evidence shows that the passenger jeepney was running at a very fast speed
before the accident. We agree with the observation of the petitioner that a public utility jeep running
at a regular and safe speed will not jump into a ditch when its right rear tire blows up. There is also
evidence to show that the passenger jeepney was overloaded at the time of the accident. The
petitioner stated that there were three (3) passengers in the front seat and fourteen (14) passengers
in the rear.

While it may be true that the tire that blew-up was still good because the grooves of the tire were still
visible, this fact alone does not make the explosion of the tire a fortuitous event. No evidence was
presented to show that the accident was due to adverse road conditions or that precautions were
taken by the jeepney driver to compensate for any conditions liable to cause accidents. The sudden
blowing-up, therefore, could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at the time of the accident.

In Lasam v. Smith (45 Phil. 657), we laid down the following essential characteristics of caso fortuito:

xxx xxx xxx

... In a legal sense and, consequently, also in relation to contracts, a caso

fortuito presents the following essential characteristics: (1) The cause of the
unforeseen and unexpected occurrence, or of the failure of the debtor to comply with
his obligation, must be independent of the human will. (2) It must be impossible to
foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must
be impossible to avoid. (3) The occurrence must be such as to render it impossible
for the debtor to fulfill his obligation in a normal manner. And (4) the obligor (debtor)
 must be free from any participation in the aggravation of the injury resulting to the
creditor. (5 Encyclopedia Juridica Espanola, 309.)

In the case at bar, the cause of the unforeseen and unexpected occurrence was not independent of
the human will. The accident was caused either through the negligence of the driver or because of
mechanical defects in the tire. Common carriers should teach their drivers not to overload their
vehicles, not to exceed safe and legal speed limits, and to know the correct measures to take when
a tire blows up thus insuring the safety of passengers at all times. Relative to the contingency of
mechanical defects, we held in Necesito, et al. v. Paras, et al. (104 Phil. 75), that:

... The preponderance of authority is in favor of the doctrine that a passenger is

entitled to recover damages from a carrier for an injury resulting from a defect in an
appliance purchased from a manufacturer, whenever it appears that the defect would
have been discovered by the carrier if it had exercised the degree of care which
under the circumstances was incumbent upon it, with regard to inspection and
application of the necessary tests. For the purposes of this doctrine, the
manufacturer is considered as being in law the agent or servant of the carrier, as far
as regards the work of constructing the appliance. According to this theory, the good
repute of the manufacturer will not relieve the carrier from liability' (10 Am. Jur. 205,
s, 1324; see also Pennsylvania R. Co. v. Roy, 102 U.S. 451; 20 L. Ed. 141; Southern
R. Co. v. Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed Note, 29 ALR 788.: Ann.
Cas. 1916E 929).

The rationale of the carrier's liability is the fact that the passenger has neither choice
nor control over the carrier in the selection and use of the equipment and appliances
in use by the carrier. Having no privity whatever with the manufacturer or vendor of
the defective equipment, the passenger has no remedy against him, while the carrier
usually has. It is but logical, therefore, that the carrier, while not an insurer of the
safety of his passengers, should nevertheless be held to answer for the flaws of his
equipment if such flaws were at all discoverable. ...

It is sufficient to reiterate that the source of a common carrier's legal liability is the contract of
carriage, and by entering into the said contract, it binds itself to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of a very cautious person, with a
due regard for all the circumstances. The records show that this obligation was not met by the
respondents.

The respondents likewise argue that the petitioner cannot recover any amount for failure to prove
such damages during the trial. The respondents submit that if the petitioner was really injured, why
was he treated in Danao City and not in Mandaue City where the accident took place. The
respondents argue that the doctor who issued the medical certificate was not presented during the
trial, and hence not cross-examined. The respondents also claim that the petitioner was not wearing
any wrist watch during the accident.

It should be noted that the City Court of Cebu found that the petitioner had a lacerated wound on his
right palm aside from injuries on his left arm, right thigh and on his back, and that on his way back to
Danao City, he discovered that his "Omega" wrist watch was lost. These are findings of facts of the
City Court of Cebu which we find no reason to disturb. More so when we consider the fact that the
Court of First Instance of Cebu impliedly concurred in these matters when it confined itself to the
question of whether or not the tire blow out was a fortuitous event.
WHEREFORE, the decision of the Court of First Instance of Cebu, Branch IV appealed from is
hereby REVERSED and SET ASIDE, and the decision of the City Court of Cebu, Branch I is
REINSTATED, with the modification that the damages shall earn interest at 12% per annum and the
attorney's fees are increased to SIX HUNDRED PESOS (P600.00). Damages shall earn interests
from January 27, 1975.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

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.

Raymundo A. Armovit for private respondent in L-47379.

The Solicitor General for petitioner.

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, L-47379, 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). It
<äre||anº•1àw> 

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 (Nuñez 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.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

 THIRD DIVISION

[G.R. No. 138123. March 12, 2002]

MINDEX RESOURCES DEVELOPMENT, petitioner, vs. EPHRAIM

MORILLO, respondent.

DECISION
PANGANIBAN, J.:

Attorneys fees cannot be granted simply because one was compelled to sue to
protect and enforce ones right. The grant must be proven by facts; it cannot depend on
mere speculation or conjecture -- its basis must be stated in the text of the decision.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing
the March 26, 1999 Decision [1] of the Court of Appeals (CA) in CA-GR CV No.
46967. The dispositive portion of the challenged Decision reads as follows:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION that the

legal interest to be paid on the rentals of P76,000.00 and costs of repair in the amount
of P132,750.00 is six (6%) percent per annum from June 22, 1994, the date of the
decision of the court a quo to the date of its finality. Thereafter, if the amounts
adjudged remain unpaid, the interest rate shall be twelve (12%) percent per
annum from the date of finality of the decision until fully paid. [2]

The Facts

The factual antecedents of the case are summarized by the CA in this wise:

On February 1991, a verbal agreement was entered into between Ephraim Morillo and
Mindex Resources Corporation (MINDEX for brevity) for the lease of the formers 6 x
6 ten-wheeler cargo truck for use in MINDEXs mining operations in Binaybay,
Bigaan, San Teodoro, Oriental Mindoro, at the stipulated rental of P300.00 per hour
for a minimum of eight hours a day or a total of P2,400.00 daily. MINDEX had been
paying the rentals until April 10, 1991.

Unknown to Morillo, on April 11, 1991, the truck was burned by unidentified persons
while it was parked unattended at Sitio Aras, Bigaan, San Teodoro, Oriental Mindoro,
due to mechanical trouble. The findings of the Mindoro Oriental Integrated National
Police in their investigation report read:

3. On 121005H April 1991, Mr Alexander Roxas, project coordinator of MINDEX

MINING CORP. reported to this office that on the morning of 12 April 1991 while he
was supposed to report for his Work at their office at Sitio Tibonbon, Bigaan, San
Teodoro, Oriental Mindoro, he x x x noticed that their hired 6 x 6 Ten wheeler Cargo
Truck temporarily parked at Sitio Aras, Bigaan, San Teodoro, Oriental Mindoro for
aplha Engine Trouble was burned on the night of April 11, 1991 by still unidentified
person.

x x x x x x x x x

5. x x x Based also on the facts gathered and incident scene searched it was also found
out that said 6 x 6 Ten Wheeler Cargo Truck was burned by means of using coconut
leaves and as a result of which said 6 x 6 was totally burned excluding the engine
which was partially damaged by still undetermined amount.

Upon learning of the burning incident, Morillo offered to sell the truck to MINDEX
but the latter refused. Instead, it replaced the vehicles burned tires and had it towed to
a shop for repair and overhauling.

On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the Finance Manager of
MINDEX, thru Mr. Ramoncito Gozar, Project Manager, proposing the following:

x x x x x x x x x

I have written to let you know that I am entrusting to you the said vehicle in the
amount of P275,000.00 which is its cost price. I will not charge your company for the
encumbrance of P76,800+ since you used it as my friendly gesture on account of the
unforeseen adversity.

In view of the tragic happening, I am asking you to pay us, in a way which will not be
hard for you to settle to pay us in four installment monthly as follows:

First payment - April 25/91 P[1]50,000.00

Second payment - May 15/91 50,000.00
 Third payme(n)t - June 15/91 50,000.00
Fourth payme(n)t - July 15/91 25,000.00
TOTAL P275,000.00

I promise to relinquish all the necessary documents upon full payment of said account.

x x x x x x x x x

Through Mr. Gozar, MINDEX responded by a handwritten letter to his cousin Malou
(wife of Ephraim Morillo), expressing their reservations on the above demands due to
their tight financial situation. However, he made the following counter offers:

a) Pay the rental of the 6 x 6 truck (actual) in the amount of P76,000.00.

b) Repair and overhaul the truck on our own expenses and;

c) Return it to you on (A1) good running condition after repair.

Morillo replied on April 18, 1991, (1) that he will relinquish to MINDEX the
damaged truck; (2) that he is amenable to receive the rental in the amount
of P76,000.00; and (3) that MINDEX will pay fifty thousand pesos (P50,000.00)
monthly until the balance of P275,000.00 is fully paid. It is noteworthy that except for
his acceptance of the proffered P76,000.00 unpaid rentals, Morillos stand has virtually
not been changed as he merely lowered the first payment on the P275,000.00
valuation of the truck from P150,000.00 to P50,000.00.

The parties had since remained intransigent and so on August 1991, Morillo pulled
out the truck from the repair shop of MINDEX and had it repaired elsewhere for
which he spent the total amount of P132,750.00.[3] (Citations omitted)

Ruling of the Trial Court

After evaluating the evidence adduced by both parties, the Regional Trial Court
(RTC) found petitioner responsible for the destruction or loss of the leased 6 x 6 truck
and ordered it to pay respondent (1) P76,000 as balance of the unpaid rental for the 6
x 6 truck with interest of 12 percent from June 22, 1994 (the rendition of the
judgment) up to the payment of the amount; (2) P132,750 representing the costs of
repair and overhaul of the said truck, with interest rate of 12 percent until fully paid;
and (3) P20,000 as attorneys fees for compelling respondent to secure the services of
counsel in filing his Complaint.
 Ruling of the Court of Appeals

The appellate court sustained the RTCs finding that petitioner was not without
fault for the loss and destruction of the truck and, thus, liable therefor. The CA said:

The burning of the subject truck was impossible to foresee, but not impossible to
avoid. MINDEX could have prevented the incident by immediately towing the truck
to a motor shop for the needed repair or by having it guarded day and night. Instead,
the appellant just left the vehicle where its transfer case broke down. The place was
about twelve (12) kilometers away from the camp site of the appellant corporation and
was sparsely populated. It was guarded only during daytime. It stayed in that place for
two (2) weeks until it was burned on April 11, 1991 while its transfer case was being
repaired elsewhere. It was only after it had been burned that the appellant had it towed
to a repair shop.

The appellant [respondent] was thus not free from fault for the burning of the truck. It
miserably failed to overcome the presumption of negligence against it. Neither did it
rescind the lease over the truck upon its burning. On the contrary, it offered to
pay P76,000.00 as rentals. It did not also complete the needed repair. Hence, the
appellee was forced to pull out the truck and had it repaired at his own expense. Since
under the law, the lessee shall return the thing leased, upon the termination of the
lease, just as he receive it, the appellant stands liable for the expenses incurred for the
repair in the aggregate amount of P132,750.00.[4]

Nevertheless, the appellate court modified the Decision of the trial court. The 12
percent interest rate on the P76,000 rentals and the P132,750 repair costs, imposed by
the RTC, was changed by the CA to 6 percent per annum from June 22, 1994 to the
date of finality of the said Decision; and 12 percent per annum thereafter, if the
amounts adjudged would remain unpaid from such date of finality until the rentals and
the repair costs were fully paid. It affirmed the award of attorneys fees.
Hence, this Petition.[5]

Issues

In its Memorandum, petitioner raises the following issues for the Courts
consideration:
4.1. Whether or not the Court of Appeals gravely erred in finding that petitioner failed
to overcome the presumption of negligence against it considering that the facts show,
as admitted by the respondent, that the burning of the truck was a fortuitous event.

4.2. Whether or not the Court of Appeals gravely erred in affirming the decision of the
trial court finding petitioner liable to pay unpaid rentals and cost of repairs.

4.3. Whether or not the Court of Appeals also erred in affirming the decision of the
trial court finding petitioner liable to pay attorneys fees. [6]

This Courts Ruling

The Petition is partly meritorious; the award of attorneys fees should be deleted.

First Issue:
Petitioners Negligence

Petitioner claims that the burning of the truck was a fortuitous event, for which it
should not be held liable pursuant to Article 1174 [7] of the Civil Code. Moreover, the
letter of respondent dated April 15, 1991, stating that the burning of the truck was an
unforeseen adversity, was an admission that should exculpate the former from
liability.
We are not convinced. Both the RTC and the CA found petitioner negligent and
thus liable for the loss or destruction of the leased truck. True, both parties may have
suffered from the burning of the truck; however, as found by both lower courts, the
negligence of petitioner makes it responsible for the loss. Well-settled is the rule that
factual findings of the trial court, particularly when affirmed by the Court of Appeals,
are binding on the Supreme Court. Contrary to its allegations, petitioner has not
adequately shown that the RTC and the CA overlooked or disregarded significant
facts and circumstances that, when considered, would alter the outcome of the
disposition.[8] Article 1667 of the Civil Code [9] holds lessees responsible for the
deterioration or loss of the thing leased, unless they prove that it took place without
their fault.

Fortuitous Event
 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. [10] 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. Ones 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 persons 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.[11]
This often-invoked doctrine of fortuitous event or caso fortuito has become a
convenient and easy defense to exculpate an obligor from liability. 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. [12]
Article 1174 of the Civil Code states that no person shall be responsible for a
fortuitous event that could not be foreseen or, though foreseen, was inevitable. In
other words, there must be an exclusion of human intervention from the cause of
injury or loss.[13]
A review of the records clearly shows that petitioner failed to exercise reasonable
care and caution that an ordinarily prudent person would have used in the same
situation. Witness Alexander Roxas testified how petitioner fell short of ordinary
diligence in safeguarding the leased truck against the accident, which could have been
avoided in the first place. Pertinent portions of his testimony are reproduced
hereunder:
ATTY. ACERON
Q Now, this Barangay Aras where the 6 x 6 truck had transmission trouble, how far is it from the
camp site of the defendant corporation?
ALEXANDER ROXAS
A Twelve (12) kilometers, more or less, sir.
Q Is this Barangay Aras populated?
A Not so many, sir.
Q The place where the 6 x 6 truck had transmission trouble, how far is the nearest house from it?
A Perhaps three hundred meters, sir.
 Q And how many houses are within the three hundred meter radius from the place where the truck had
engine trouble?
A Ten, more or less, in scattered.
Q You said that after hauling several sand to be used in the camp site the 6 x 6 truck had transmission
trouble, what did the company do after the truck had that engine trouble?
A For at least two weeks the truck was installed in the place where the said truck had engine trouble.
Q Meaning in Barangay Aras?
A Yes, sir.
Q Was there any guard in that place by the company during the time that the truck was in that place?
A Yes, sir, during daytime but at nighttime, there was no guard.
Q What happened to that 6 x 6 truck?
A In the month of March, 1991, the company dismissed thirteen (13) to seventeen (17) employees and
these employees came from Barangays Aras, Botolan, Calsapa, Camatis and Tibonbon and on
Aril 11, 1991, the 6 x 6 truck was burned.
Q How did you come to know that the 6 x 6 truck was burned on April 11, 1991?
A I together with my daughter, I met the service of the company near the ORMECO and I was
informed by the Project Engineer that the 6 x 6 truck was burned, so, we returned to San Teodoro
and have the incident blottered at the police station.
Q Aside from that, what other action did you undertake in connection with the burning of the 6 x 6
truck?
A When we were at the police station, the Project Manager of the company arrived and from the
police station we proceeded to the place where the 6 x 6 truck was burned and the Project
Manager took pictures of the 6 x 6 truck.
Q Now, did you come to know who was responsible or who were responsible for the burning of the 6
x 6 truck?
A The responsible is the Mindex Resources Development Corporation, and as far as I know, the
persons who actually burned the said 6 x 6 truck were the dismissed employees of the Mindex
Resources Development Corporation.
Q These dismissed employees of the corporation, why were they employed by the corporation?
A Because we have to make a road going to the mining site and in the process of opening the road
these dismissed employees happened to be the owners of the land where the road will pass, so, we
paid the land. The corporation likewise gave jobs to the owners of the land. [14]

As can be gleaned from the foregoing testimony, petitioner failed to employ

reasonable foresight, diligence and care that would have exempted it from liability
resulting from the burning of the truck. Negligence, as commonly understood, is that
conduct that naturally or reasonably creates undue risk or harm to others. It may be a
failure to observe that degree of care, precaution or vigilance that the circumstances
justly demand;[15] or to do any other act that would be done by a prudent and
reasonable person, who is guided by considerations that ordinarily regulate the
conduct of human affairs.[16]

Second Issue:
Unpaid Rentals and Cost of Repairs

Petitioner proceeds to argue that it should be deemed to have already paid the
unpaid rentals in the amount of P76,000.00, and that it should not be made to pay
the P132,750 repair and overhaul costs. Nothing in the records, not even in the
documentary evidence it presented, would show that it already paid the aforesaid
amounts. In fact, it seeks to avoid payment of the rental by alleging that respondent
already condoned it in his letter dated April 15, 1991. However, a perusal of the letter
would show that his offer not to charge petitioner for the P76,000 rental was premised
on the condition that it would buy the truck. [17]
Moreover, the RTC based the P76,000 rental and the costs of repair and overhaul
on Exhibit B, wherein Chito Gozar, the Project Manager of Mindex Resources
Development Corporation, proposed through a letter dated April 17, 1991, the
following: (1) to pay the P76,000 rental, (2) to repair the truck at the expense of
petitioner, and (3) to return the truck in good running condition after the repair.
Likewise, the nonpayment of the said amount was corroborated by Roxas thus:
Q During that time when the 6 x 6 truck was already burned and when you went to the Petron
Gasoline Station to inform plaintiff about the burning, was the plaintiff paid any amount for the
rental of the 6 x 6 truck?
A :Before the burning of the 6 x 6 truck, the plaintiff Morillo was already paid partially and there was
a balance of P76,000.00.[18]

The P132,750 repair and overhaul costs was correctly granted by the lower courts.
Article 1667 of the Civil Code holds the lessee responsible for the deterioration or loss
of the thing leased. In addition, Article 1665 of the same Code provides that the lessee
shall return the thing leased, upon the termination of the lease, just as he received it,
save what has been lost or impaired by the lapse of time, or by ordinary wear and tear,
or from an inevitable cause.
Courts begin with the assumption that compensatory damages are for pecuniary
losses that result from an act or omission of the defendant. Having been found to be
negligent in safeguarding the leased truck, petitioner must shoulder its repair and
overhaul costs to make it serviceable again. Such expenses are duly supported by
receipts; thus, the award of P132,750 is definitely in order.
 Third Issue:
Attorneys Fees

We find the award of attorneys fees to be improper. The reason which the RTC
gave -- because petitioner had compelled respondent to file an action against it -- falls
short of our requirement in Scott Consultants and Resource Development v. CA,
[19]
 from which we quote:

It is settled that the award of attorneys fees is the exception rather than the rule and
counsels fees are not to be awarded every time a party wins suit. The power of the
court to award attorneys fees under Article 2208 of the Civil Code demands factual,
legal, and equitable justification; its basis cannot be left to speculation or conjecture.
Where granted, the court must explicitly state in the body of the decision, and not only
in the dispositive portion thereof, the legal reason for the award of attorneys fees.

Moreover, a recent case[20] ruled that in the absence of stipulation, a winning party

may be awarded attorneys fees only in case plaintiffs action or defendants stand is so
untenable as to amount to gross and evident bad faith.
Indeed, respondent was compelled to file this suit to vindicate his rights.
However, such fact by itself will not justify an award of attorneys fees, when there is
no sufficient showing of petitioners bad faith in refusing to pay the said rentals as well
as the repair and overhaul costs.[21]
WHEREFORE, the Petition is DENIED, but the assailed CA Decision
is MODIFIED by DELETING the award of attorneys fees. Costs against petitioner.
SO ORDERED.
Melo, (Chairman), Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177921               December 4, 2013

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN,
SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO, Petitioners, 
vs.
ALLIED BANK CORPORATION, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari  are the Decision  dated February 12, 2007 and the
1 2

Resolution dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896 which
3

reversed and set aside the Decision  dated January 17, 2006 of the Regional Trial Court of Makati,
4

Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering petitioners Metro Concast Steel
Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo and
Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual petitioners) to solidarily
pay respondent Allied Bank Corporation (Allied Bank) the aggregate amount of ₱51,064,094.28, with
applicable interests and penalty charges.

The Facts

On various dates and for different amounts, Metro Concast, a corporation duly organized and
existing under and by virtue of Philippine laws and engaged in the business of manufacturing
steel,  through its officers, herein individual petitioners, obtained several loans from Allied Bank.
5

These loan transactions were covered by a promissory note and separate letters of credit/trust
receipts, the details of which are as follows:

Date Document Amount

December 13, 1996 Promissory Note No. 96-21301 6
₱2,000,000.00
November 7, 1995 Trust Receipt No. 96-202365 7
₱608,603.04
May 13, 1996 Trust Receipt No. 96-960522 8
₱3,753,777.40
May 24, 1996 Trust Receipt No. 96-960524 9
₱4,602,648.08
March 21, 1997 Trust Receipt No. 97-204724 10
₱7,289,757.79
June 7, 1996 Trust Receipt No. 96-203280 11
₱17,340,360.73
July 26, 1995 Trust Receipt No. 95-201943 12
₱670,709.24
August 31, 1995 Trust Receipt No. 95-202053 13
₱313,797.41
 November 16, 1995 Trust Receipt No. 96-202439 14
₱13,015,109.87
July 3, 1996 Trust Receipt No. 96-203552 15
₱401,608.89
June 20, 1995 Trust Receipt No. 95-201710 16
₱750,089.25
December 13, 1995 Trust Receipt No. 96-379089 17
₱92,919.00
December 13, 1995 Trust Receipt No. 96/202581 18
₱224,713.58

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.),
with penalty charge of 3% per month in case of default; while the twelve (12) trust receipts uniformly
provided for an interest rate of 14% p.a. and 1% penalty charge. By way of security, the individual
petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements  in favor of 19

Allied Bank. Petitioners failed to settle their obligations under the aforementioned promissory note
and trust receipts, hence, Allied Bank, through counsel, sent them demand letters,  all dated
20

December 10, 1998, seeking payment of the total amount of ₱51,064,093.62, but to no avail. Thus,
Allied Bank was prompted to file a complaint for collection of sum of money  (subject complaint)
21

against petitioners before the RTC, docketed as Civil Case No. 00-1563. In their second  Amended 22

Answer, petitioners admitted their indebtedness to Allied Bank but denied liability for the interests
23

and penalties charged, claiming to have paid the total sum of ₱65,073,055.73 by way of interest
charges for the period covering 1992 to 1997. 24

They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as
the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro Concast and eventually leading to its cessation.
Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s
remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter,
however, refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds
of the sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale,
but since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the
years. In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap metal. During the negotiations with Peakstar,
petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal department,
acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw,
a Memorandum of Agreement  dated November 8, 2002 (MoA) was drawn between Metro Concast,
25

represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar
obligated itself to purchase the scrap metal for a total consideration of ₱34,000,000.00, payable as
follows:

(a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be paid in cash and the
other ₱2,000,000.00 to be paid in two (2) post-dated checks of ₱1,000,000.00 each;  and 26

(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly installments of

₱3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the form of
separate post-dated checks. 27

Unfortunately, Peakstar reneged on all its obligations under the MoA.  In this regard, petitioners
1âwphi1

asseverated that:

(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as
force majeure ; and
 (b) since Allied Bank was the party that accepted the terms and conditions of payment
proposed by Peakstar, petitioners must therefore be deemed to have settled their obligations
to Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose Dychiao)
testified  during trial that it was Atty. Saw himself who drafted the MoA and subsequently
28

received  the ₱2,000,000.00 cash and the two (2) Bankwise post-dated checks worth
29

₱1,000,000.00 each from Camiling. However, Atty. Saw turned over only the two (2) checks
and ₱1,500,000.00 in cash to the wife of Jose Dychiao. 30

Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award
of moral damages in the amount of ₱20,000,000.00 in favor of Metro Concast and at least
₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as exemplary damages,
₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other litigation expenses, including costs of suit.

The RTC Ruling

After trial on the merits, the RTC, in a Decision  dated January 17, 2006, dismissed the subject
31

complaint, holding that the "causes of action sued upon had been paid or otherwise extinguished." It
ruled that since Allied Bank was duly represented by its agent, Atty. Saw, in all the negotiations and
transactions with Peakstar – considering that Atty. Saw

(a) drafted the MoA,

(b) accepted the bank guarantee issued by Bankwise, and

(c) was apprised of developments regarding the sale and disposition of the scrap metal –
then it stands to reason that the MoA between Metro Concast and Peakstar was binding
upon said bank.

The CA Ruling

Allied Bank appealed to the CA which, in a Decision  dated February 12, 2007, reversed and set
32

aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law to declare
that when Bankwise reneged its guarantee under the [MoA], herein [petitioners] should be deemed
to be discharged from their obligations lawfully incurred in favor of [Allied Bank]."
33

The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and
Peakstar, as the buyer thereof, and found that the same did not indicate that Allied Bank intervened
or was a party thereto. It also pointed out the fact that the post-dated checks pursuant to the MoA
were issued in favor of Jose Dychiao. Likewise, the CA found no sufficient evidence on record
showing that Atty. Saw was duly and legally authorized to act for and on behalf of Allied Bank,
opining that the RTC was "indulging in hypothesis and speculation"  when it made a contrary
34

pronouncement. While Atty. Saw received the earnest money from Peakstar, the receipt was signed
by him on behalf of Jose Dychiao. 35

It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by [Atty.]
Saw either as representative of [petitioners] or as partner of the latter’s legal counsel, and not in
anyway as representative of [Allied Bank]." 36

Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank their
corresponding obligations under the aforementioned promissory note and trust receipts, plus
interests, penalty charges and attorney’s fees. Petitioners sought reconsideration  which was,
37

however, denied in a Resolution  dated May 10, 2007. Hence, this petition.
38

The Issue Before the Court

At the core of the present controversy is the sole issue of whether or not the loan obligations
incurred by the petitioners under the subject promissory note and various trust receipts have already
been extinguished.

The Court’s Ruling

Article 1231 of the Civil Code states that obligations are extinguished either by payment or
performance, the loss of the thing due, the condonation or remission of the debt, the confusion or
merger of the rights of creditor and debtor, compensation or novation.

In the present case, petitioners essentially argue that their loan obligations to Allied Bank had
already been extinguished due to Peakstar’s failure to perform its own obligations to Metro Concast
pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force majeure in the sense
that they have, beyond their control, lost the funds they expected to have received from the Peakstar
(due to the MoA) which they would, in turn, use to pay their own loan obligations to Allied Bank.
They further state that Allied Bank was equally bound by Metro Concast’s MoA with Peakstar since
its agent, Atty. Saw, actively represented it during the negotiations and execution of the said
agreement. Petitioners’ arguments are untenable. At the outset, the Court must dispel the notion that
the MoA would have any relevance to the performance of petitioners’ obligations to Allied Bank. The
MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various loan
transactions. Absent any showing that the terms and conditions of the latter transactions have been,
in any way, modified or novated by the terms and conditions in the MoA, said contracts should be
treated separately and distinctly from each other, such that the existence, performance or breach of
one would not depend on the existence, performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale
transaction between Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to
the issues related to petitioners’ loan obligations to the bank. Besides, as the CA pointed out, the
fact of Allied Bank’s representation has not been proven in this case and hence, cannot be deemed
as a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank. Now,
anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its
obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event under
jurisprudential formulation. As discussed in Sicam v. Jorge: 39

Fortuitous events by definition are extraordinary events not foreseeable or avoidable.  It is therefore,
1âwphi1

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. 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. (Emphases supplied)
40

While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the same
us clearly not "impossible"to foresee or even an event which is independent of human will." Neither
has it been shown that said occurrence rendered it impossible for petitioners to pay their loan
obligations to Allied Bank and thus, negates the former’s force majeure theory altogether. In any
case, as earlier stated, the performance or breach of the MoA bears no relation to the performance
or breach of the subject loan transactions, they being separate and distinct sources of obligations.
The fact of the matter is that petitioners’ loan obligations to Allied Bank remain subsisting for the
basic reason that the former has not been able to prove that the same had already been paid  or, in
41

any way, extinguished. In this regard, petitioners’ liability, as adjudged by the CA, must perforce
stand. Considering, however, that Allied Bank’s extra-judicial demand on petitioners appears to have
been made only on December 10, 1998, the computation of the applicable interests and penalty
charges should be reckoned only from such date.

WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated
May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with
MODIFICATION reckoning the applicable interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of the appellate court’s dispositions stand.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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.

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

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;

 (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).

The dispositive portion of the decision of the Court of Appeals reads:

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 non-technical 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 constructionalone (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.

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
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 third- party defendants before the
Commissioner).

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:

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

(1) Wrongful and defective placing of reinforcing bars.

(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.

(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.

(5) Prevalence of honeycombs,

(6) Contraband construction joints,

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

(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,

(10) Undergraduate concrete is evident,

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

(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.

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

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

(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,

(3) Column D6 — Spacing of spiral over 4 l/2,

(4) Column D7 — Lack of lateral ties,

(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,

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

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

(9) Column A3 — Lack of lateral ties,

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

(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,

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

(14) Column A7— Lack of lateralties or spirals,

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

defendants.

Ground floor columns.

(1) Column A4 — Spirals are cut,

(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.

(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 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 earthquake-
resistant 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.

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 C-5 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.

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)

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.

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.

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

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.