1

NARCISO GUTIERREZ, plaintiff-appellee,

vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ,
ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants.
This is an action brought by the plaintiff in the Court of First Instance of Manila
against the five defendants, to recover damages in the amount of P10,000, for
physical injuries suffered as a result of an automobile accident. On judgment being
rendered as prayed for by the plaintiff, both sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private ownership
collided while attempting to pass each other on the Talon bridge on the Manila South
Road in the municipality of Las Pias, Province of Rizal. The truck was driven by the
chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile
was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned
by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the
collision, the father was not in the car, but the mother, together will several other
members of the Gutierrez family, seven in all, were accommodated therein. A
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San
Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted
in Narciso Gutierrez suffering a fracture right leg which required medical attendance
for a considerable period of time, and which even at the date of the trial appears not
to have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The
difference between the parties is that, while the plaintiff blames both sets of
defendants, the owner of the passenger truck blames the automobile, and the owner
of the automobile, in turn, blames the truck. We have given close attention to these
highly debatable points, and having done so, a majority of the court are of the
opinion that the findings of the trial judge on all controversial questions of fact find
sufficient support in the record, and so should be maintained. With this general

statement set down, we turn to consider the respective legal obligations of the
defendants.
In amplification of so much of the above pronouncement as concerns the Gutierrez
family, it may be explained that the youth Bonifacio was in incompetent chauffeur,
that he was driving at an excessive rate of speed, and that, on approaching the
bridge and the truck, he lost his head and so contributed by his negligence to the
accident. The guaranty given by the father at the time the son was granted a license
to operate motor vehicles made the father responsible for the acts of his son. Based
on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father
alone and not the minor or the mother, would be liable for the damages caused by
the minor.
We are dealing with the civil law liability of parties for obligations which arise from
fault or negligence. At the same time, we believe that, as has been done in other
cases, we can take cognizance of the common law rule on the same subject. In the
United States, it is uniformly held that the head of a house, the owner of an
automobile, who maintains it for the general use of his family is liable for its negligent
operation by one of his children, whom he designates or permits to run it, where the
car is occupied and being used at the time of the injury for the pleasure of other
members of the owner's family than the child driving it. The theory of the law is that
the running of the machine by a child to carry other members of the family is within
the scope of the owner's business, so that he is liable for the negligence of the child
because of the relationship of master and servant. (Huddy On Automobiles, 6th ed.,
sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the
owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis,
namely, that of contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The reason for this
conclusion reaches to the findings of the trial court concerning the position of the
truck on the bridge, the speed in operating the machine, and the lack of care
employed by the chauffeur. While these facts are not as clearly evidenced as are

those which convict the other defendant, we nevertheless hesitate to disregard the
points emphasized by the trial judge. In its broader aspects, the case is one of two
drivers approaching a narrow bridge from opposite directions, with neither being
willing to slow up and give the right of way to the other, with the inevitable result of a
collision and an accident.
The defendants Velasco and Cortez further contend that there existed contributory
negligence on the part of the plaintiff, consisting principally of his keeping his foot
outside the truck, which occasioned his injury. In this connection, it is sufficient to
state that, aside from the fact that the defense of contributory negligence was not
pleaded, the evidence bearing out this theory of the case is contradictory in the
extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award. The appellee
suggests that the amount could justly be raised to P16,517, but naturally is not
serious in asking for this sum, since no appeal was taken by him from the judgment.
The other parties unite in challenging the award of P10,000, as excessive. All facts
considered, including actual expenditures and damages for the injury to the leg of
the plaintiff, which may cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum for the plaintiff of
P5,000 would be fair and reasonable. The difficulty in approximating the damages by
monetary compensation is well elucidated by the divergence of opinion among the
members of the court, three of whom have inclined to the view that P3,000 would be
amply sufficient, while a fourth member has argued that P7,500 would be none too
much.
In consonance with the foregoing rulings, the judgment appealed from will be
modified, and the plaintiff will have judgment in his favor against the defendants
Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for
the sum of P5,000, and the costs of both instances.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-14335

January 28, 1920

MANUEL DE GUIA, plaintiff-appellant,

vs.
THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY, defendant-appellant.
Sumulong and Estrada, Crossfield and O'Brien and Francisco A. Delgado for
plaintiff-appellant.
Lawrence and Ross for defendant-appellant.
STREET, J.:
This is an appeal prosecuted both by the plaintiff and the defendant from a judgment
of the Court of First Instance of the City of Manila, whereby the plaintiff was awarded
the sum of P6,100, with interest and costs, as damages incurred by him in
consequence of physical injuries sustained while riding on one of the defendant's
car.
The accident which gave rise to the litigation occurred on September 4, 1915, near
the end of the street-car line in Caloocan, Rizal, a northern suburb of the city of
Manila. It appears that, at about 8 o'clock p.m., of the date mentioned, the plaintiff
Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the
line with the intention of coming to the city. At about 30 meters from the starting point
the car entered a switch, the plaintiff remaining on the back platform holding the
handle of the right-hand door. Upon coming out of the switch, the small wheels of the
rear truck left the track, ran for a short distance along the macadam filling, which
was flush with the rails, and struck a concrete post at the left of the tract. The post

was shattered; and as the car stopped the plaintiff was thrown against the door with
some violence, receiving bruises and possibly certain internal injuries, the extent of
which is a subject of dispute.

attentive motorman should have discovered that something was wrong and would
have stopped before he had driven the car over the entire distance from the point
where the wheels left the track to the place where the post was struck.

The trial court found that the motorman of the derailed car was negligent in having
maintained too rapid a speed. This inference appears to be based chiefly upon the
results of the shock, involving the shattering of the post and the bending of the
kingpost of the car. It is insisted for the defendant company that the derailment was
due to the presence of a stone, somewhat larger than a goose egg, which had
become accidentally lodged between the rails at the juncture of the switch and which
was unobserved by the motorman. In this view the derailment of the car is supposed
to be due to casus fortuitos and not chargeable to the negligence of the motorman.

The conclusion being accepted that there was negligence on the part of the
motorman in driving the car, it results that the company is liable for the damage
resulting to the plaintiff as a consequence of that negligence. The plaintiff had
boarded the car as a passenger for the city of Manila and the company undertook to
convey him for hire. The relation between the parties was, therefore, of a contractual
nature, and the duty of the carrier is to be determined with reference to the principles
of contract law, that is, the company was bound to convey and deliver the plaintiff
safely and securely with reference to the degree of care which, under the
circumstances, is required by law and custom applicable to the case (art. 1258, Civil
Code). Upon failure to comply with that obligation the company incurred the liability
defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad
Company, 38 Phil. Rep., 768; Manila Railroad Company vs. Compaia
Transatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep., 875.)

Even supposing that the derailment of the car was due to the accidental presence of
such a stone as suggested, we do not think that the existence of negligence is
disproved. The motorman says that upon approaching the switch he reduced the
electrical energy to the point that the car barely entered the switch under its own
momentum, and this operation was repeated as he passed out. Upon getting again
on the straight tract he put the control successively at points one, two, three and
lastly at point four. At the moment when the control was placed at point four he
perceived that the rear wheels were derailed and applied the brake; but at the same
instant the car struck the post, some 40 meters distant from the exit of the switch.
One of the defendant's witnesses stated in court that the rate of a car propelled by
electricity with the control at point "four" should be about five or 6 miles per hour.
There was some other evidence to the effect that the car was behind schedule time
and that it was being driven after leaving the switch, at a higher rate than would
ordinarily be indicated by the control at point four. This inference is rendered more
tenable by the circumstance that the car was practically empty. On the whole, we are
of the opinion that the finding of negligence in the operation of the car must be
sustained, as not being clearly contrary to the evidence; not so much because of
excessive speed as because of the distance which the car was allowed to run with
the front wheels of the rear truck derailed. It seems to us than an experienced and

From the nature of the liability thus incurred, it is clear that the defendant company
can not avail itself of the last paragraph of article 1903 of the Civil Code, since that
provision has reference to liability incurred by negligence in the absence of
contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore
irrelevant for the defendant company to prove, as it did, that the company had
exercised due care in the selection and instruction of the motorman who was in
charge of its car and that he was in fact an experienced and reliable servant.
At this point, however, it should be observed that although in case like this the
defendant must answer for the consequences of the negligence of its employee, the
court has the power to moderate liability according to the circumstances of the case
(art. 1103, Civ. Code): Furthermore, we think it obvious that an employer who has in
fact displayed due diligence in choosing and instructing his servants is entitled to be
considered a debtor in good faith, within the meaning of article 1107 of the same

Code. Construing these two provisions together, applying them to the facts of this
case, it results that the defendant's liability is limited to such damages as might, at
the time of the accident, have been reasonably foreseen as a probable consequence
of the physical injuries inflicted upon the plaintiff and which were in fact a necessary
result of those injuries. There is nothing novel in this proposition, since both the civil
and the common law are agreed upon the point that the damages ordinarily
recoverable for the breach of a contractual obligation, against a person who has
acted in good faith, are such as can reasonably be foreseen at the time the
obligation is contracted. In Daywalt vs. Corporacion de PP. Agustinos Recoletos (39
Phil., 587), we said: "The extent of the liability for the breach of a contract must be
determined in the light of the situation in existence at the time the contract is made;
and the damages ordinarily recoverable are in all events limited to such as might be
reasonably foreseen in the light of the facts then known to the contracting parties."
This brings us to consider the amount which may be awarded to the plaintiff as
damages. Upon this point the trial judge found that, as a result of the physical and
nervous derangement resulting from the accident, Dr. De Guia was unable properly
to attend to his professional labors for three months and suspended his practice for
that period. It was also proved by the testimony of the plaintiff that his customary
income, as a physician, was about P300 per month. The trial judge accordingly
allowed P900, as damages for loss of professional earnings. This allowance is
attacked upon appeal by the defendant as excessive both as to the period and rate
of allowance. Upon examining the evidence we fell disinclined to disturb this part of
the judgment, though it must be conceded that the estimate of the trial judge on this
point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is
supposed to have lost by reason of his inability to accept a position as district health
officer in Occidental Negros. It appears in this connection that Mr. Alunan,
representative from Occidental Negros, had asked Dr. Montinola, who supposedly
had the authority to make the appointment, to nominate the plaintiff to such position.
The job was supposed to be good for two years, with a salary of P1,600 per annum,

and possibility of outside practice worth P350. Accepting these suggestions as true,
it is evident that the damages thus incurred are too speculative to be the basis of
recovery in a civil action. This element of damages must therefore be eliminated. It
goes without saying that damage of this character could not, at the time of the
accident, have been foreseen by the delinquent party as a probable consequence of
the injury inflicted a circumstance which makes applicable article 1107 of the Civil
Code, as already expounded.
The last element of damages to be considered is the item of the plaintiff's doctor's
bills, a subject which we momentarily pass for discussion further on, since the
controversy on this point can be more readily understood in connection with the
question raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a result of
the injuries in question ascend to the amount of P40,000. Of this amount the sum of
P10,000 is supposed to represent the cost of medical treatment and other expenses
incident to the plaintiff's cure, while the remainder (P30,000) represents the damage
resulting from the character of his injuries, which are supposedly such as to
incapacitate him for the exercise of the medical profession in the future. In support of
these claims the plaintiff introduced evidence, consisting of his own testimony and
that of numerous medical experts, tending to show that as a result of the injuries in
question he had developed infarct of the liver and traumatic neurosis, accompanied
by nervousness, vertigo, and other disturbing symptoms of a serious and permanent
character, it being claimed that these manifestations of disorder rendered him liable
to a host of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia,
and pulmonary gangrene, and that restoration to health could only be accomplished,
if at all, after long years of complete repose. The trial judge did not take these
pretensions very seriously, and, as already stated, limited the damages to the three
items of professional earnings, expenses of medical treatment, and the loss of the
appointment as medical treatment, and the loss of the appointment as medical
inspector in Occidental Negros. As the appeal of the plaintiff opens the whole case
upon the question of damages, it is desirable to present a somewhat fuller statement

than that already given with respect to extent and character of the injuries in
question.
The plaintiff testified that, at the time the car struck against the concrete post, he
was standing on the rear platform, grasping the handle of the right-hand door. The
shock of the impact threw him forward, and the left part of his chest struck against
the door causing him to fall. In falling, the plaintiff says, his head struck one of the
seats and he became unconscious. He was presently taken to his home which was
only a short distance away, where he was seen at about 10 o'clock p. m., by a
physician in the employment of the defendant company. This physician says that the
plaintiff was then walking about and apparently suffering somewhat from bruises on
his chest. He said nothing about his head being injured and refused to go to a
hospital. Later, during the same night Dr. Carmelo Basa was called in to see the
plaintiff. This physician says that he found Doctor De Guia lying in bed and
complaining of a severe pain in the side. During the visit of Doctor Basa the plaintiff
several times spit up blood, a manifestation no doubt due to the effects of the
bruises received in his side. The next day Doctor De Guia went into Manila to
consult another physician, Doctor Miciano, and during the course of a few weeks he
called into consultation other doctors who were introduced as witnesses in his behalf
at the trial of this case. According to the testimony of these witnesses, as well as that
of the plaintiff himself, the symptoms of physical and nervous derangement in the
plaintiff speedily developed in portentous degree.
Other experts were introduced by the defendant whose testimony tended to show
that the plaintiff's injuries, considered in their physical effects, were trivial and that
the attendant nervous derangement, with its complicated train of ailments, was
merely simulated.
Upon this question the opposing medical experts ventilated a considerable mass of
professional learning with reference to the nature and effects of the baffling disease
known as traumatic neurosis, or traumatic hysteria a topic which has been the
occasion of much controversy in actions of this character in the tribunals of Europe

and America. The subject is one of considerable interest from a medico-legal point of
view, but we deem it unnecessary in this opinion to enter upon a discussion of its
voluminous literature. It is enough to say that in our opinion the plaintiff's case for
large damages in respect to his supposed incapacitation for future professional
practice is not made out. Of course in this jurisdiction damages can not be assessed
in favor of the plaintiff as compensation for the physical or mental pain which he may
have endured (Marcelo vs. Velasco, 11 Phil. Rep. 287); and the evidence relating to
the injuries, both external and internal, received by him must be examined chiefly in
its bearing upon his material welfare, that is, in its results upon his earning capacity
and the expenses incurred in restoration to the usual condition of health.
The evidence before us shows that immediately after the accident in question Doctor
De Guia, sensing in the situation a possibility of profit, devoted himself with great
assiduity to the promotion of this litigation; and with the aid of his own professional
knowledge, supplemented by suggestions obtained from his professional friends and
associates, he enveloped himself more or less unconsciously in an atmosphere of
delusion which rendered him incapable of appreciating at their true value the
symptoms of disorder which he developed. The trial court was in our opinion fully
justified in rejecting the exaggerated estimate of damages thus created.
We now pass to the consideration of the amount allowed to the plaintiff by the trial
judge as the expense incurred for medical service. In this connection Doctor Montes
testified that he was first called to see the plaintiff upon September 14, 1915, when
he found him suffering from traumatic neurosis. Three months later he was called
upon to treat the same patient for an acute catarrhal condition, involving disturbance
in the pulmonary region. The treatment for this malady was successful after two
months, but at the end of six months the same trouble recurred and required further
treatment. In October of the year 1916, or more than a year after the accident in
question occurred, Doctor Montes was called in consultation with Doctor Guerrero to
make an examination of the plaintiff. Doctor Montes says that his charges altogether
for services rendered to the plaintiff amount to P350, of which the sum of P200 had
been paid by the plaintiff upon bills rendered from time to time. This physician

speaks in the most general terms with respect to the times and extent of the services
rendered; and it is by no means clear that those services which were rendered many
months, or year, after the accident had in fact any necessary or legitimate relation to
the injuries received by the plaintiff. In view of the vagueness and uncertainty of the
testimony relating to Doctor Montes' services, we are of the opinion that the sum of
P200, or the amount actually paid to him by the plaintiff, represents the extent of the
plaintiff's obligation with respect to treatment for said injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other
physicians, we are of the opinion that they are not a proper subject of recovery in
this action; and this for more than one reason. In the first place, it does not appear
that said physicians have in fact made charges for those services with the intention
of imposing obligations on the plaintiff to pay for them. On the contrary it would seem
that said services were gratuitously rendered out of courtesy to the plaintiff as a
member of the medical profession. The suggestions made on the stand by these
physicians to the effect that their services were worth the amounts stated by them
are not sufficient to proved that the plaintiff had incurred the obligation to pay those
amounts. In the second place, we are convinced that in employing so many
physicians the plaintiff must have had in view of the successful promotion of the
issue of this lawsuit rather than the bona fide purpose of effecting the cure of his
injuries. In order to constitute a proper element of recovery in an action of this
character, the medical service for which reimbursement is claimed should not only
be such as to have created a legal obligation upon the plaintiff but such as was
reasonably necessary in view of his actual condition. It can not be permitted that a
litigant should retain an unusual and unnecessary number of professional experts
with a view to the successful promotion of a lawsuit and expect to recover against
his adversary the entire expense thus incurred. His claim for medical services must
be limited to such expenditures as were reasonably suited to the case.
The second error assigned in the brief of the defendant company presents a
question of practice which, though not vital to the solution of this case, is of sufficient
general importance to merit notice. It appears that four of the physicians examined

as witnesses for the plaintiff had made written statements at various dates certifying
the results of their respective examinations into the condition of the plaintiff. When
these witnesses were examined in court the identified their respective signatures to
these certificates and the trial judge, over the defendant's objection, admitted the
documents as primary evidence in the case. This was undoubtedly erroneous. A
document of this character is not primary evidence in any sense, since it is
fundamentally of a hearsay nature; and the only legitimate use to which one of these
certificates could be put, as evidence for the plaintiff, was to allow the physician who
issued it to refer thereto to refresh his memory upon details which he might have
forgotten. In Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action
to recover damages for personal injury, it appeared that a physician, who had been
sent by one of the parties to examine the plaintiff, had made at the time a written
memorandum of the results of the examination; and it was proposed to introduce this
document in evidence at the trial. It was excluded by the trial judge, and it was held
upon appeal that this was proper. Said the court: "There was no failure or exhaustion
of the memory, and no impeachment of the memorandum on cross-examination; and
the document was clearly incompetent as evidence in chief."
It results from the foregoing that the judgment appealed from must be modified by
reducing the amount of the recovery to eleven hundred pesos (1,100), with legal
interest from November 8, 1916. As thus modified the judgment is affirmed, without
any special pronouncement as to costs of this instance. So ordered.
Arellano, C.J., Torres, Araullo, Malcolm and Avancea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-29462

March 7, 1929

IGNACIO DEL PRADO, plaintiff-appellee,

vs.
MANILA ELECTRIC CO., defendant-appellant.
Ross, Lawrence and Selph and Antonio T. Carrascoso, jr., for appellant.
Vicente Sotto for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of Manila by Ignacio del
Prado to recover damages in the amount of P50,000 for personal injuries alleged to
have been caused by the negligence of te defendant, the Manila Electric Company,
in the operation of one of its street cars in the City of Manila. Upon hearing the
cause the trial court awarded to the plaintiff the sum of P10,000, as damages, with
costs of suit, and the defendant appealed.
The appellant, the Manila Electric Company, is engaged in operating street cars in
the City for the conveyance of passengers; and on the morning of November 18,
1925, one Teodorico Florenciano, as appellant's motorman, was in charge of car No.
74 running from east to west on R. Hidalgo Street, the scene of the accident being at
a point near the intersection of said street and Mendoza Street. After the car had
stopped at its appointed place for taking on and letting off passengers, just east of
the intersection, it resumed its course at a moderate speed under the guidance of
the motorman. The car had proceeded only a short distance, however, when the

plaintiff, Ignacio del Prado, ran across the street to catch the car, his approach being
made from the left. The car was of the kind having entrance and exist at either end,
and the movement of the plaintiff was so timed that he arrived at the front entrance
of the car at the moment when the car was passing.
The testimony of the plaintiff and of Ciriaco Guevara, one of his witnesses, tends to
shows that the plaintiff, upon approaching the car, raised his hand as an indication to
the motorman of his desire to board the car, in response to which the motorman
eased up a little, without stopping. Upon this the plaintiff seized, with his hand, the
front perpendicular handspot, at the same time placing his left foot upon the
platform. However, before the plaintiff's position had become secure, and even
before his raised right foot had reached the flatform, the motorman applied the
power, with the result that the car gave a slight lurch forward. This sudden impulse to
the car caused the plaintiff's foot to slip, and his hand was jerked loose from the
handpost, He therefore fell to the ground, and his right foot was caught and crushed
by the moving car. The next day the member had to be amputated in the hospital.
The witness, Ciriaco Guevara, also stated that, as the plaintiff started to board the
car, he grasped the handpost on either side with both right and left hand. The latter
statement may possibly be incorrect as regards the use of his right hand by the
plaintiff, but we are of the opinion that the finding of the trial court to the effect that
the motorman slowed up slightly as the plaintiff was boarding the car that the
plaintiff's fall was due in part at lease to a sudden forward movement at the moment
when the plaintiff put his foot on the platform is supported by the evidence and ought
not to be disturbed by us.
The motorman stated at the trial that he did not see the plaintiff attempting to board
the car; that he did not accelerate the speed of the car as claimed by the plaintiff's
witnesses; and that he in fact knew nothing of the incident until after the plaintiff had
been hurt and some one called to him to stop. We are not convinced of the complete
candor of this statement, for we are unable to see how a motorman operating this
car could have failed to see a person boarding the car under the circumstances
revealed in this case. It must be remembered that the front handpost which, as all
witness agree, was grasped by the plaintiff in attempting to board the car, was
immediately on the left side of the motorman.
With respect to the legal aspects of the case we may observe at the outset that there
is no obligation on the part of a street railway company to stop its cars to let on

intending passengers at other points than those appointed for stoppage. In fact it
would be impossible to operate a system of street cars if a company engage in this
business were required to stop any and everywhere to take on people who were too
indolent, or who imagine themselves to be in too great a hurry, to go to the proper
places for boarding the cars. Nevertheless, although the motorman of this car was
not bound to stop to let the plaintiff on, it was his duty to do act that would have the
effect of increasing the plaintiff's peril while he was attempting to board the car. The
premature acceleration of the car was, in our opinion, a breach of this duty.
The relation between a carrier of passengers for hire and its patrons is of a
contractual nature; and in failure on the part of the carrier to use due care in carrying
its passengers safely is a breach of duty (culpa contructual) under articles 1101,
1103 and 1104 of the Civil Code. Furthermore, the duty that the carrier of
passengers owes to its patrons extends to persons boarding the cars as well as to
those alighting therefrom. The case of Cangco vs. Manila Railroad Co. (38 Phil.,
768), supplies an instance of the violation of this duty with respect to a passenger
who was getting off of a train. In that case the plaintiff stepped off of a moving train,
while it was slowing down in a station, and at the time when it was too dark for him
to see clearly where he was putting his feet. The employees of the company had
carelessly left watermelons on the platform at the place where the plaintiff alighted,
with the result that his feet slipped and he fell under the car, where his right arm
badly injured. This court held that the railroad company was liable for breach positive
duty (culpa contractual), and the plaintiff was awarded damages in the amount of
P2,500 for the loss of his arm. In the opinion in that case the distinction is clearly
drawn between a liability for negligence arising from breach of contructual duty and
that arising articles 1902 and 1903 of the Civil Code (culpa aquiliana).
The distiction between these two sorts of negligence is important in this jurisdiction,
for the reason that where liability arises from a mere tort (culpa aquiliana), not
involving a breach of positive obligation, an employer, or master, may exculpate
himself, under the last paragraph of article 1903 of the Civil Code, by providing that
he had exercised due degligence to prevent the damage; whereas this defense is
not available if the liability of the master arises from a breach of contrauctual duty
(culpa contractual). In the case bfore us the company pleaded as a special defense
that it had used all the deligence of a good father of a family to prevent the damage
suffered by the plaintiff; and to establish this contention the company introduced
testimony showing that due care had been used in training and instructing the

motorman in charge of this car in his art. But this proof is irrelevant in view of the fact
that the liability involved was derived from a breach of obligation under article 1101
of the Civil Code and related provisions. (Manila Railroad Co. vs. Compana
Transatlantica and Atlantic, Gulf & Pacific Co., 38 Phil., 875, 887; De Guia vs. Manila
Electric Railroad & Light Co., 40 Phil., 706, 710.)
Another practical difference between liability for negligence arising under 1902 of the
Civil Code and liability arising from negligence in the performance of a positive duty,
under article 1101 and related provisions of the Civil Code, is that, in dealing with the
latter form of negligence, the court is given a discretion to mitigate liability according
to the circumstances of the case (art 1103). No such general discretion is given by
the Code in dealing with liability arising under article 1902; although possibly the
same end is reached by courts in dealing with the latter form of liability because of
the latitude of the considerations pertinent to cases arising under this article.
As to the contributory negligence of the plaintiff, we are of the opinion that it should
be treated, as in Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359), as a
mitigating circumstance under article 1103 of the Civil Code. It is obvious that the
plaintiff's negligence in attempting to board the moving car was not the proximate
cause of the injury. The direct and proximate cause of the injury was the act of
appellant's motorman in putting on the power prematurely. A person boarding a
moving car must be taken to assume the risk of injury from boarding the car under
the conditions open to his view, but he cannot fairly be held to assume the risk that
the motorman, having the situation in view, will increase his peril by accelerating the
speed of the car before he is planted safely on the platform. Again, the situation
before us is one where the negligent act of the company's servant succeeded the
negligent act of the plaintiff, and the negligence of the company must be considered
the proximate cause of the injury. The rule here applicable seems to be analogous
to, if not identical with that which is sometimes referred to as the doctrine of "the last
clear chance." In accordance with this doctrine, the contributory negligence of the
party injured will not defeat the action if it be shown that the defendant might, by the
exercise of reasonable care and prudence, have avoided the consequences of the
negligence of the injured party (20 R. C. L., p. 139; Carr vs. Interurban Ry. Co., 185
Iowa, 872; 171 N. W., 167). The negligence of the plaintiff was, however,
contributory to the accident and must be considered as a mitigating circumstance.

With respect to the effect of this injury upon the plaintiff's earning power, we note
that, although he lost his foot, he is able to use an artificial member without great
inconvenience and his earning capacity has probably not been reduced by more
than 30 per centum. In view of the precedents found in our decisions with respect to
the damages that ought to be awarded for the loss of limb, and more particularly
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359); Cangco vs. Manila Railroad
Co. (38 Phil., 768); and Borromeo vs. Manila Electric Railroad and Light Co. (44
Phil., 165), and in view of all the circumstances connected with the case, we are of
the opinion that the plaintiff will be adequately compensated by an award of P2,500.

There is nothing in the record which even remotely justifies a contribution of

damages between the appellee and the appellant. The appellee should be required
to suffer the damages which he himself, through his own negligence, occasioned,
without any negligence, imprudence or malice on the part of the appellant.
Therefore, the judgment of the court a quo should be revoked, and the appellant
absolved from all liability under the comp
Republic of the Philippines
SUPREME COURT
Manila

It being understood, therefore, that the appealed judgment is modified by reducing

the recovery to the sum of P2,500, the judgment, as thus modified, is affirmed. So
ordered, with costs against the appellant.

EN BANC

Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.

G.R. No. L-6291

Separate Opinions

THE SAN PEDRO BUS LINE, PAULINO DE LA CRUZ, and TEODOLO LACDAN,
doing business under the name of "THE SAN PEDRO BUS LINE," petitioners,
vs.
NICOLAS NAVARRO, and the HON. ASSOCIATE JUSTICES OF THE FIRST
DIVISION, COURT OF APPEALS,respondents.

JOHNSON, J., dissenting:

This appeal presents a hard case, whichever way it is decided.
I read the entire record in this case before it was submitted to the second division for
decision. I was then the ponente. I was then convinced, as I am now, after a reexamination of the record, that the judgment of the lower court should be revoked for
the following reasons:
(a) That the motorman managed the car carefully and with ordinary prudence
at the moment the alleged accident occured;
(b) That the appellee acted with imprudence and lack of due care in
attempting to board a street car while the same was in motion; and
(c) That he contributed to his own injury, without any negligence or malice or
imprudence on the part of the defendant.

April 29, 1954

Estanislao R. Bayot for petitioners.

Antonio Enrile Inton and Camilo V. Pea for respondents.
PARAS, C.J.:
Nicolas Navarro filed a complaint in the court of First Instance of Rizal against the
San Pedro Bus Line, Paulino de la Cruz and Teodulo Lacdan, doing business in the
name of the San Pedro Bus Line, alleging that the plaintiff, on April 21, 1943, rode as
a passenger in Manila bound bus No. TPU-7654 owned and operated by the
defendants; that while on its way the bus collided with another vehicle, causing
serious physical injuries to the plaintiff, with subsequent post-traumatic psychosis
which might incapacitate him for life; that as a result thereof the plaintiff suffered
damages, for actual medical and hospital expenses and loss of earning power, in the
total sum of P4,500 which the plaintiff sought to recover from the defendants. In their
answer the defendants admitted the occurrence of the accident and the injuries

10

received the plaintiff, but disclaimed responsibility for the accident. After trial, the
court dismissed the complaint on the ground that there was "no proof whatsoever of
the relation of the defendants San Pedro Bus Line and Paulino de la Cruz with the
damages claimed by the plaintiff." The plaintiff appealed to the Court of Appeals
which, on part of which reads as follows: "WHEREFORE, it appearing that the trial
court erred as charged, and that the facts and the lawfully warrant a recovery by the
appellant, the judgment appealed in the total sum of P9,500, with interests thereon
from the date this action was commenced. Costs are charged against the
appellees." The defendants have elevated the case by way of a petition for certiorari.
It is contended for the herein petitioners that they cannot be held civilly liable to
respondents Nicolas Navarro, for the reason that the Court of First Instance of Rizal
had dismissed the criminal charge against petitioner Paulino de la Cruz, driver of the
bus involved in the accident, citing the case of Martinez vs. Barredo,* Off. Gaz.,
4922. In answer to this contention, it is enough to advert to the conclusion of the
Court of Appeals which is correct that the action was not based on tort or quasi
delict, but was one for breach of a carrier's contract, there being a clear distinction
between culpaas a source and creator of obligations (aquiliana) and culpa in the
performance of an already existing obligation (contractual). As already held in the
case of Castro vs. Acro Taxicab Co.** 46 Off. Gaz., 2023, "para que prosperase la
accion del demandante pidiendo indemnizacion de daos y perjuicios bastaba que
probase la existencia del contrato de pasaje esto es, que causo lesiones y daos en
el pasajero. De acuerdo con la doctrina enunciada, para el exito de la accion de
daos no era necesario que se probase la culpa, desuido a negligencia del chofer
que guiaba el taximetro No. 962." The case of Martinez vs. Barredo is not
controlling, since it referred to an action based on criminal negligence.
The other contention of the petitioners is that it was erroneous for the Court of
Appeals to award in favor of respondent Navarro damages in the amount of P9,500,
his claim in the complaint being only for P4,500. It appears, however, that the
complaint prayed for "such further relief as may be deemed just and equitable," and
this of course warranted the granting in the complaint. Indeed, under section 9, Rule
35, of the Rules of Court, "the judgment shall grant the relief to which the party in
whose favor it is rendered is entitled, even if the party has not demanded such relief
in his pleadings."

It is also urged by counsel for the petitioners that the finding of the Court of Appeals
that respondent Navarro is insane, is not supported by any evidence, and that on the
other hand, in the motion for new trial filed by the petitioners, accompanied by the
affidavits of Marcelo Legaspi and Ceferino Terello, respondent Navarro is shown not
to be insane, with the result that there is no basis for awarding the additional amount
of P5,000. However, apart from the fact that the finding of the Court of Appeals is
factual and therefore conclusive, the said sum was granted by the Court of Appeals,
not only for the resulting insanity of respondent Navarro but for his pain and suffering
in general; and we are not prepared to hold that the award is excessive as
compensation for moral damages.
Wherefore, the decision complained of is affirmed, and it is so ordered with costs
against petitioners.
Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, and Concepcion, JJ., concur.
Footnotes
*

**

81 Phil., 1.
82 Phil., 359.

11

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-28028

November 25, 1927

JUAN YSMAEL & CO., INC., plaintiff-appellee,

vs.
GABINO BARRETTO & CO., LTD., ET AL., defendants. ANDRES H.
LIMGENGCO and VICENTE JAVIER,appellants.
Gibbs and McDonough for appellants.
Felipe Ysmael and Grey & Encarnacion for appellee.
STATEMENT

cases of merchandise in question were never delivered to them, and that under the
provisions of paragraph the provisions of paragraph 7 of the printed conditions
appearing on the back of the bill of lading, plaintiff's right of action is barred for the
reason that it was not brought within sixty days from the time the cause of action
accrued. The defendant Soon did not answer the complaint, and the defendants
further alleged:
I. That under and by virtue of provision 12 of the bill of lading referred to
in plaintiff's amended complaint, the defendants are not liable in excess of
three hundred pesos (P300) for any package of silk unless the value and
contents of such packages are correctly declared in the bill of lading at the
time of shipment, etc.
The evidence was taken upon such issues, and the lower court rendered
judgment for the plaintiff for the full amount of its claim, from which the defendants
Andres H. Limgengco and Vicente Javier appeal and assign the following errors:
I. The lower court erred in finding that one hundred sixty-four cases of goods
were delivered to and loaded on the steamship Andres.
II. The lower court erred in holding that appellee was not bound by the terms
of the bills of lading of covering the shipments.

In this action plaintiff, a domestic corporation, seeks to recover from the

defendants P9,940.95 the alleged value of four cases of merchandise which it
delivered to the steamship Andres on October 25, 1922, at Manila to be shipped to
Surigao, but which were never delivered to Salomon Sharuff, the consignee, or
returned to the plaintiff. The original complaint was amended to include Gabino
Barretto and P. E. Soon as members of the limited partnership of Gabino Barretto &
Company, Limited.

JOHNS, J.:

In their amended answers defendants make a specific denial of all of the

material allegations of the complaint, and as special defense allege that the four

The only question involved in the first assignment of error is one of fact upon
which in its decision the trial court said:

III. The trial court erred in failing to take into consideration appellants' special
defense based on clause 12 of the bills of lading.
IV. The lower court erred in rendering judgment against appellants in the sum
of P9,940.95.

12

With regard to the first question, plaintiff's testimony, together with the
manifest (Exhibit D), signed by "G. Barretto, Agents," for Andres Heras
Limgengco covering the shipment of the merchandise in question, wherein
165 cases of merchandise appear as belonging to the plaintiff corporation and
the bills of lading, Exhibits I, J and K, signed by the second officer, Claro
Galleros for the shipment of the 165 cases, and Exhibits H, which is a
triplicate copy of the bill of lading No. 62, on which the first officer of the
steamer Andres, Francisco Masingsong, made a note that among the
merchandise discharged in Surigao were the four cases in question, clearly
shows that the defendants received from the plaintiff corporation 164 cases of
merchandise, and delivered at Surigao only 160 cases of such merchandise,
and that defendants failed to deliver the said four cases in Surigao when
plaintiff's representative took delivery of the cargo at that port, and that the
original figure "1" and the word "bulto" appearing on the back of Exhibit 1
were changed by Galleros to read "5" and "bultos." The said Galleros
admitted as a witness that he had Exhibit 1 in his possession from Manila
until the cargo was recounted in Surigao in the presence of the first officer,
Francisco Masingsong, Salomon Sharuff, the bodeguero and himself
(Galleros). lawphil.net
The testimony of Claro Galleros to the effect that, according to the
tallies made by him on the back of Exhibit 1 during the course of loading, only
160 cases were loaded, on board the steamer Andres stands uncorroborated,
and it is not supported by the tallies themselves, as these tallies give a total of
161 cases. Mr. Galleros, testified that he had shown the annotation on the
back of Exhibit 1 reading `5 bultos en duda de menos' to Salamon Sharuff,
and that Salomon Sharuff gave his conformity to the shortage, and that on
this occasion, among others, were present the first officer Francisco
Masingsong, and the bodeguero in Surigao. Upon this point, besides the
testimony of Salomon Sharuff, who denied emphatically the assertion of
Galleros just mentioned, we have the note made and signed by the first
officer on the face of Exhibit H that all the merchandise therein was

discharged in Surigao. The said Masingsong certainly would not have made
such annotation after the delivery in Surigao, if Salomon Sharuff had in fact
agreed to the shortage as testified by Galleros, especially when we
considered that the four cases, the value of which is claimed by plaintiff, were
included in said Exhibit H, and the fact that said Claro Galleros, in an affidavit
signed by him before the Notary Public Fernando Viola with regard to the lost
of the four cases, did not mention the conformity of Salomon Sharuff to the
said annotation of "5 bultos en duda de menos." The defendants, without
showing any legal reason therefor, did not present as witnesses the first
officer, Francisco Masingsong, and the helmsman of the steamer Andres and
the bodeguero in Surigao to corroborate the testimony of Claro Galleros.
There is ample evidence to support that finding. In fact it is sustained by a
preponderance of the evidence.
The second assignment of error upon which appellants rely is founded upon
paragraph 7 of the bill of lading, which is as follows:
All claims for shortage or damage must be made at the time of delivery
to consignee or his agent, if the packages or containers show exterior signs of
damage; otherwise to be made in writing to the carrier within twenty-four
hours from the time of delivery. Claims for nondelivery or shipment must be
presented in writing to the carrier within thirty days from the date of accrual.
Suits based upon claims arising from shortage, damage, or nondelivery of
shipment shall be instituted within sixty days from date of accrual of the right
of action. Failure to make claims or to institute judicial proceedings as herein
provided shall constitute a waiver of the claim or right of action.
The goods in question were shipped from Manila on October 25, 1922, to be
delivered to Salomon Sharuff in Surigao, Plaintiff's original complaint was filed on
April 17, 1923, or a little less than six months after the shipment was made.

13

Appellants cite and rely upon section 505 C, Corpus Juris, vol. 10, pp. 343344, which is as follows:
Contractual Limitations As to Time For Bringing Suit. 1. In General. In
the absence of any express statutory prohibition, according to the great
weight of authority, it is competent for the parties to a contract of shipment to
agree on a limitation of time shorter than the statutory limitation, within which
action for breach of the contract shall be brought, and such a limitation will be
enforced if reasonable, although there is some authority to the contrary.
Nevertheless to be effective such limitation must be reasonable; and it has
been said that the only limitations as to the validity of such contract are that
they must be reasonable, and that there must be prompt action on the part of
the carrier in denying its liability, to the end that the shipper may be duly
apprised of the fact that suit will be necessary. Stipulations of this character
are not opposed to public policy, and do not operate as a restriction on the
common-law liability of the carrier.

the right to recover, but merely requires the assertion of that right by action at
an earlier period than would be necessary to defeat it through the operation of
the ordinary statute of limitations. But the limitation must be reasonable, and if
the period of time specified is such that under the facts of the particular case
the shipper could not with reasonable diligence be enabled to bring suit
before it expired, the attempted limitation is void. Thus, a provision that suit
must be brought within thirty days after the loss or damage occurred has
been held unreasonable where it appeared that the transit might reasonably
consume the whole of that time. A period of forty days has on the other hand
been held to be a reasonable limitation.
Upon that question the trial court said:
Assuming, however, that the above quoted conditions came to the
knowledge of the plaintiff, the Supreme court of the Philippine Islands, has
held that such stipulations in the bill of lading are not reasonable, and
therefore, do not bar an action.

Also Ruling Case Law, volume 4, pp. 798-799, which reads:

And it also said:
256. Stipulations Limiting Time for Bringing Suit. Similar in character
to the stipulations just considered prescribing a certain time within which
notice of loss must be given are the provisions frequently met with in bills of
lading which require that any action to recover for loss or damage to the
article shipped should be begun within a specified period. The parties may, if
they see fit, fix by agreement a shorter time for the bringing of suit on the
contract than that provided by the statute of limitations, and if the period
therein limited is reasonable, suit must brought within that time or the
shipper's right of action will be barred. Such a provision is prohibited by no
rule of law nor by any consideration of public policy. Nor is it all affected by
the existence within the jurisdiction of a statutory or constitutional prohibition
against carriers limiting or restricting their common law liability, since it is held
that such a stipulation does not in any way defeat the complete vestiture of

Granting, without deciding, that said conditions appearing on the back

of the originals might have legal effect, the court is of the opinion that in view
of the fact that said conditions are not printed on the triplicate copies which
were delivered to the plaintiff, such conditions are not binding upon the
plaintiff.
It appears that the plaintiff made its claim of loss within seven days after
receipt of information that 160 cases only were delivered. Its second claim was
made on December 29, 1922, in which it said that, if the claim was not paid before
January 3, 1923, it would be placed in the hands of attorneys for collection. On
January 3, 1923, Gabino Barretto & Company advised the plaintiff that it would not
pay the claim, and on April seventeenth plaintiff filed its complaint.

14

In the case of Aguinaldo vs. Daza (G. R. No. 25961), 1 in which the printed
conditions on the bill of lading were identical with those in the instant case, the
action was not commenced for more than year after the delivery of the goods by the
plaintiff and the receipt of the bill of lading, and it was there held that:
We are of the opinion that, having regard to the situation involved in
this shipment, and the slowness of communication between Manila and
Catbalogan, the contractual limitation stated in this bill of lading with respect
to the time for presentation of the written claim was insufficient. The same
considerations are necessarily decisive with respect to the time required for
the institution of judicial action. It results that the stipulations relied upon by
the defendant-appellee constitute no obstacle to the maintenance of the
present action.
All things considered, we are clearly of the opinion that the action was brought
with a "reasonable time" as those words are specified and defined in the authorities
cited. It is true that both the plaintiff and the defendants are residents of the City of
Manila, but it is also true that Surigao where the goods in question were to be
delivered is one of the most distant places from Manila in the Philippine Islands. In
the very nature of things, plaintiff would not want to commence its action until such
time as it had made a full and careful investigation of all of the material facts and
even the law of the case, so as to determine whether or not defendants were liable
for its loss.
In its third assignment of error, appellants rely on clause 12 of the bill of
lading, which is as follows:
It is expressly understood that carrier shall not be liable for loss or
damage from any cause or for any reason to an amount exceeding three
hundred pesos (P300) Philippine currency for any single package of silk or
other valuable cargo, nor for an amount exceeding one hundred pesos (P100)
Philippine currency for any single package of other cargo, unless the value
and contents of such packages are correctly declared in this bill of lading at

the time of shipment and freight paid in accord with the actual measurement
or weight of the cargo shipped.
That condition is printed on the back of the bill of lading.
In disposing of that question, the lower court points out that the conditions in
question "are not printed on the triplicate copies which were delivered to the
plaintiff," and that by reason thereof they "are not binding upon the plaintiff." The
clause in question provides that the carrier shall not be liable for loss or damage
from any cause or for any reason to an amount in excess of P300 "for any single
package of silk or other valuable cargo."
The ship in question was a common carrier and, as such, must have been
operated as a public utility. It is a matter of common knowledge that large quantities
of silk are imported in the Philippine Islands, and that after being imported, they are
sold by the merchants in Manila and other large seaports, and then shipped to
different points and places in the Islands. Hence, there is nothing unusual about the
shipment of silk. In truth and in fact, it is a matter of usual and ordinary business.
There was no fraud or concealment in the shipment in question. Clause 12 above
quoted places a limit of P300 "for any single package of silk." The evidence shows
that 164 "cases" were shipped, and that the value of each case was very near
P2,500. In this situation, the limit of defendants' liability for each case of silk "for loss
or damage from any cause or for any reason" would put it in the power of the
defendants to have taken the whole cargo of 164 cases of silk at a valuation of P300
for each case, or less than one-eight of its actual value. If that rule of law should be
sustained, no silk would ever be shipped from one island to another in the
Philippines. Such a limitation of value is unconscionable and void as against public
policy.
Corpus Juris, volume 10, p. 154, says:
PAR. 194. 6. Reasonable of Limitation. The validity of stipulations
limiting the carriers liability is to be determined by their reasonableness and

15

their conformity to the sound public policy, in accordance with which the
obligations of the carrier to the public are settled. It cannot lawfully stipulate
for exemption from liability, unless such exemption is just and reasonable,
and unless the contract is freely and fairly made. No contractual limitation is
reasonable which is subversive of public policy.
PAR. 195. 7. What Limitations of Liability Permissible. a.
Negligence (1) Rule in America (a) In Absence of Organic or Statutory
Provisions Regulating Subject aa.Majority Rule. In the absence of
statute, it is settled by the weight of authority in the United States, that
whatever limitations against its common-law liability are permissible to a
carrier, it cannot limit its liability for injury to or loss of goods shipped, where
such injury or loss is caused by its own negligence. This is the common-law
doctrine and it makes no difference that there is no statutory prohibition
against contracts of this character.
PAR. 196. bb. Considerations on Which Rule Based. The rule, it is
said, rests on considerations of public policy. The undertaking is to carry the
goods, and to relieve the shipper from all liability for loss or damage arising
from negligence in performing its contract is to ignore the contract itself. The
natural effect of a limitation of liability against negligence is to induce want of
care on the part of the carrier in the performance of its duty. The shipper and
the common carrier are not on equal terms; the shipper must send his freight
by the common carrier, or not at all; he is therefore entirely at the mercy of the
carrier, unless protected by the higher power of the law against being forced
into contracts limiting the carrier's liability. Such contracts are wanting in the
element of voluntary assent.
PAR. 197. cc. Application and Extent of Rule (aa) Negligence of
Servants. The rule prohibiting limitation of liability for negligence is often
stated as a prohibition of any contract relieving the carrier from loss or
damage caused by its own negligence or misfeasance, or that of its servants;

and it has been specifically decided in many cases that no contract limitation
will relieve the carrier from responsibility for the negligence, unskillfulness, or
carelessness of its employees.
Based upon the findings of fact of the trial court which are sustained by the
evidence, the plaintiff delivered to the defendants 164 cases of silk consigned and to
be delivered by the defendants to Salomon Sharuff in Surigao. Four of such cases
were never delivered, and the evidence shows that their value is the alleged in the
complaint.
There is no merit in the appeal. The judgment of the lower court is affirmed,
with costs.
Avancea, C.J., Street, Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur.
Footnotes
1

Promulgated March 1, 1927, not reported.

16

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.

FIRST DIVISION
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [1] of the Court of Appeals dated
27 October 1998 and its Resolution dated 11 May 1999. The assailed decision
reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving
petitioner Consolidated Bank and Trust Corporation, now known as Solidbank
Corporation (Solidbank), of any liability. The questioned resolution of the appellate
court denied the motion for reconsideration of Solidbank but modified the decision by
deleting the award of exemplary damages, attorneys fees, expenses of litigation and
cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is
a professional partnership engaged in the practice of accounting.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya

(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael
Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave
Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips
and the passbook. The teller acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the
deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK
HEAD OFFICE. Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that somebody got the passbook. [3] Calapre
went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to
Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE
and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya
that someone got the passbook but she could not remember to whom she gave the
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller
No. 6 answered that someone shorter than Calapre got the passbook. Calapre was
then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC).
This PBC check of L.C. Diaz was a check that it had long closed. [4] PBC
subsequently dishonored the check because of insufficient funds and because the

17

signature in the check differed from PBCs specimen signature. Failing to get back
the passbook, Macaraya went back to her office and reported the matter to the
Personnel Manager of L.C. Diaz, Emmanuel Alvarez.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion
for reconsideration of Solidbank. The appellate court, however, modified its decision
by deleting the award of exemplary damages and attorneys fees.

The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer,
Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account. [5] On the same day, Diaz
formally wrote Solidbank to make the same request. It was also on the same day
that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August
1991, of P300,000 from its savings account. The withdrawal slip for the P300,000
bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A
certain Noel Tamayo received the P300,000.

The Ruling of the Trial Court

In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,

Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through
Falsification of Commercial Document. The Regional Trial Court of Manila dismissed
the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August
1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the
return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint [7] for Recovery of a Sum of
Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After
trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank
and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the
Court of Appeals issued its Decision reversing the decision of the trial court.

In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall raise the
presumption of ownership and any payment or payments made by the bank upon
the production of the said book and entry therein of the withdrawal shall have the
same effect as if made to the depositor personally. [9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession
of the passbook, he also presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen signatures of these persons were
in the signature cards. The teller stamped the withdrawal slip with the words Saving
Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel
(Manuel) for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared the signatures
on the withdrawal slip with the specimen on the signature cards. The trial court
concluded that Solidbank acted with care and observed the rules on savings account
when it allowed the withdrawal ofP300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to
prove that the signatures on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the withdrawal
slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must
keep the passbook under lock and key. [10] When another person presents the
passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the

18

passbook, that person is considered as the owner of the passbook. The trial court
ruled that the passbook presented during the questioned transaction was now out of
the lock and key and presumptively ready for a business transaction. [11]
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the withdrawal
of P300,000 was not the direct and proximate cause of the loss. The trial court held
that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts
establish L.C. Diazs negligence: (1) the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal
receipt by an unauthorized person; and (3) the possession by an unauthorized
person of a PBC check long closed by L.C. Diaz, which check was deposited on
the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew
significant amounts from its account. L.C. Diaz claimed that a letter must
accompany withdrawals of more than P20,000. The letter must request Solidbank to
allow the withdrawal and convert the amount to a managers check. The bearer
must also have a letter authorizing him to withdraw the same amount. Another
person driving a car must accompany the bearer so that he would not walk from
Solidbank to the office in making the withdrawal. The trial court pointed out that L.C.
Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C.
Diaz withdrew P82,554 without any separate letter of authorization or any
communication with Solidbank that the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the
case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of
the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the

complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause
of the unauthorized withdrawal of P300,000 from the savings account of L.C.
Diaz. The appellate court reached this conclusion after applying the provision of the
Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this
case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the
defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and
the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the necessary
inquiry. The appellate court stated that the teller, who was not presented by
Solidbank during trial, should have called up the depositor because the money to be
withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank

19

would have known that the withdrawal was unauthorized. The teller did not even
verify the identity of the impostor who made the withdrawal. Thus, the appellate
court found Solidbank liable for its negligence in the selection and supervision of its
employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its
deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called
up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is
more than that of a good father of a family. The business and functions of banks are
affected with public interest. Banks are obligated to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its
duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its
decision but modified the award of damages. The appellate court deleted the award
of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the Civil Code,
the appellate court ruled that exemplary damages could be granted if the defendant
acted with gross negligence. Since Solidbank was guilty of simple negligence only,
the award of exemplary damages was not justified. Consequently, the award of
attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The
expenses of litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is
affirmed with modification by deleting the award of exemplary damages and
attorneys fees, expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.

WHEREFORE, premises considered, the decision appealed from is hereby

REVERSED and a new one entered.
1.

2.

Ordering defendant-appellee Consolidated Bank and Trust

Corporation to pay plaintiff-appellant the sum of Three Hundred
Thousand Pesos (P300,000.00), with interest thereon at the rate of
12% per annum from the date of filing of the complaint until paid, the
sum of P20,000.00 as exemplary damages, and P20,000.00 as
attorneys fees and expenses of litigation as well as the cost of suit;
and
Ordering the dismissal of defendant-appellees counterclaim in the
amount of P30,000.00 as attorneys fees.

The Issues
Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:
I.

THE COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS
TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT
BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL
OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS

20

THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK

TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE
ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS
ACCOUNT.
II.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE

OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER
BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD
THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO
SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE
GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY
PRESENTED, AND CONTRARIWISE RESPONDENT WAS
NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF
ITS CHECKS AND OTHER FINANCIAL DOCUMENTS.

III.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE

INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN
ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE
EMERANO ILAGAN.

IV.

THE COURT OF APPEALS ERRED IN NOT MITIGATING THE

DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE
2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT
PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.
[16]

The Ruling of the Court

The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the application
of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of
the rules on savings account, a recognition of the contractual relationship between
Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other
hand, the Court of Appeals applied the law on quasi-delict to determine who
between the two parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing contractual
relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly provides
that x x x savings x x x deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the
parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791), [18] which took effect on 13
June 2000, declares that the State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance. [19] This new provision in the
general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of Appeals,
[20]
holding that the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship.[21]

21

This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the
statutory diligence required from banks that banks must observe high standards
of integrity and performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C.
Diazs savings account, jurisprudence[23] at the time of the withdrawal already
imposed on banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert
the contract between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on
the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to earn
money for themselves. The law allows banks to offer the lowest possible interest
rate to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of
banks, then the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is demandable. For
breach of the savings deposit agreement due to negligence, or culpa contractual, the
bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time
and he had to go to Allied Bank for another transaction. The passbook was still in
the hands of the employees of Solidbank for the processing of the deposit when
Calapre left Solidbank. Solidbanks rules on savings account require that the
deposit book should be carefully guarded by the depositor and kept under lock and
key, if possible. When the passbook is in the possession of Solidbanks tellers
during withdrawals, the law imposes on Solidbank and its tellers an even higher
degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring
that they return the passbook only to the depositor or his authorized representative.
The tellers know, or should know, that the rules on savings account provide that any
person in possession of the passbook is presumptively its owner. If the tellers give
the passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that person. For
failing to return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party
authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was negligent. In
the present case, L.C. Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized representative of L.C.
Diaz. There is thus a presumption that Solidbank was at fault and its teller was

22

negligent in not returning the passbook to Calapre. The burden was on Solidbank to
prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial
court Teller No. 6, the teller with whom Calapre left the passbook and who was
supposed to return the passbook to him. The record does not indicate that Teller
No. 6 verified the identity of the person who retrieved the passbook. Solidbank also
failed to adduce in evidence its standard procedure in verifying the identity of the
person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising the
required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it
must also insure that its employees do likewise because this is the only way to
insure that the bank will comply with its fiduciary duty. Solidbank failed to present
the teller who had the duty to return to Calapre the passbook, and thus failed to
prove that this teller exercised the high standards of integrity and performance
required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed that L.C.
Diazs negligence in not securing its passbook under lock and key was the
proximate cause that allowed the impostor to withdraw the P300,000. For the
appellate court, the proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either court.

Proximate cause is that cause which, in natural and continuous sequence,

unbroken by any efficient intervening cause, produces the injury and without which
the result would not have occurred. [26] Proximate cause is determined by the facts of
each case upon mixed considerations of logic, common sense, policy and
precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the
deposit. After completion of the transaction, Solidbank had the contractual
obligation to return the passbook only to Calapre, the authorized representative of
L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of the
passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the loss
of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the passbook
to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of
the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the
withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the
withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts are
made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz

23

therefore had the burden to prove that it is the usual practice of Solidbank to call up
its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do
so.
Teller No. 5 who processed the withdrawal could not have been put on guard to
verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited
with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor
apparently deposited a large amount of money to deflect suspicion from the
withdrawal of a much bigger amount of money. The appellate court thus erred when
it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when
no law requires this from banks and when the teller had no reason to be suspicious
of the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz,
he was familiar with its teller so that there was no more need for the teller to verify
the withdrawal. Solidbank relies on the following statements in the Booking and
Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large sum of money, accused Ilagan
gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in
the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his
loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who
withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate
courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.

We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the Court of
Appeals. The tellers who processed the deposit of the P90,000 check and the
withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically state
that Ilagan presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but
the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who had
the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss.[29] Stated differently, the antecedent negligence of the plaintiff does not preclude
him from recovering damages caused by the supervening negligence of the
defendant, who had the last fair chance to prevent the impending harm by the
exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank
is liable for breach of contract due to negligence in the performance of its contractual
obligation to L.C. Diaz. This is a case of culpa contractual, where neither the
contributory negligence of the plaintiff nor his last clear chance to avoid the loss,
would exonerate the defendant from liability.[31] Such contributory negligence or last
clear chance by the plaintiff merely serves to reduce the recovery of damages by the
plaintiff but does not exculpate the defendant from his breach of contract. [32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant exercised
the proper diligence in the selection and supervision of its employee, or if the plaintiff

24

was guilty of contributory negligence, then the courts may reduce the award of
damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a
withdrawal slip signed by its authorized signatories to fall into the hands of an
impostor. Thus, the liability of Solidbank should be reduced.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

[33]

In Philippine Bank of Commerce v. Court of Appeals, where the Court held

the depositor guilty of contributory negligence, we allocated the damages between
the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case,
we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the
appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE,
the
decision
of
the
Court
of
Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay
private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages
awarded by the Court of Appeals. The remaining 40% of the actual damages shall
be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate
costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
Azcuna, J., on official leave.

G.R. No. 71049 May 29, 1987

BERNARDINO JIMENEZ, petitioner,
vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.

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

25

SO ORDERED. (p. 20, Rollo)

The findings of respondent Appellate Court are as follows:

plaintiff. For lack of sufficient evidence, the counterclaims of the

defendants are likewise dismissed. (Decision, Civil Case No. 96390,
Rollo, p. 42).

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

As above stated, on appeal, the Intermediate Appellate Court held the Asiatic
Integrated Corporation liable for damages but absolved respondent City of Manila.

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

Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave due
course to the petition and required both parties to submit simultaneous memoranda

Petitioner sued for damages the City of Manila and the Asiatic Integrated
Corporation under whose administration the Sta. Ana Public Market had been placed
by virtue of a Management and Operating Contract (Rollo, p. 47).

In the resolution of October 13, 1986, this case was transferred to the Second
Division of this Court, the same having been assigned to a member of said Division
(Rollo, p. 92).

The lower court decided in favor of respondents, the dispositive portion of the
decision reading:

The petition is impressed with merit.

WHEREFORE, judgment is hereby rendered in favor of the defendants

and against the plaintiff dismissing the complaint with costs against the

Hence this petition.

The lone assignment of error raised in this petition is on whether or not the
Intermediate Appellate Court erred in not ruling that respondent City of Manila
should be jointly and severally liable with Asiatic Integrated Corporation for the
injuries petitioner suffered.
In compliance with the resolution of July 1, 1985 of the First Division of this Court
(Rollo, p. 29) respondent City of Manila filed its comment on August 13, 1985 (Rollo,
p. 34) while petitioner filed its reply on August 21, 1985 (Reno, p. 51).

Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while respondent
filed its memorandum on October 24, 1985 (Rollo, p. 82).

As correctly found by the Intermediate Appellate Court, there is no doubt that the
plaintiff suffered injuries when he fell into a drainage opening without any cover in
the Sta. Ana Public Market. Defendants do not deny that plaintiff was in fact injured

26

although the Asiatic Integrated Corporation tries to minimize the extent of the
injuries, claiming that it was only a small puncture and that as a war veteran,
plaintiff's hospitalization at the War Veteran's Hospital was free. (Decision, AC-G.R.
CV No. 01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be held liable for the injuries
sustained by the petitioner because under the Management and Operating Contract,
Asiatic Integrated Corporation assumed all responsibility for damages which may be
suffered by third persons for any cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under Article 1,
Section 4 of Republic Act No. 409 as amended (Revised Charter of Manila) which
provides:
The City shall not be liable or held for damages or injuries to persons
or property arising from the failure of the Mayor, the Municipal Board,
or any other City Officer, to enforce the provisions of this chapter, or
any other law or ordinance, or from negligence of said Mayor,
Municipal Board, or any other officers while enforcing or attempting to
enforce said provisions.
This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA
269-272 [1968]) where the Supreme Court squarely ruled that Republic Act No. 409
establishes a general rule regulating the liability of the City of Manila for "damages or
injury to persons or property arising from the failure of city officers" to enforce the
provisions of said Act, "or any other law or ordinance or from negligence" of the City
"Mayor, Municipal Board, or other officers while enforcing or attempting to enforce
said provisions."
Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides
that:

Provinces, cities and municipalities shall be liable for damages for the
death of, or injuries suffered by any person by reason of defective
conditions of roads, streets, bridges, public buildings and other public
works under their control or supervision.
constitutes a particular prescription making "provinces, cities and municipalities ...
liable for damages for the death of, or injury suffered by any person by reason"
specifically "of the defective condition of roads, streets, bridges, public buildings,
and other public works under their control or supervision." In other words, Art. 1, sec.
4, R.A. No. 409 refers to liability arising from negligence, in general, regardless of
the object, thereof, while Article 2189 of the Civil Code governs liability due to
"defective streets, public buildings and other public works" in particular and is
therefore decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of the
Civil Code, it is not necessary for the liability therein established to attach, that the
defective public works belong to the province, city or municipality from which
responsibility is exacted. What said article requires is that the province, city or
municipality has either "control or supervision" over the public building in question.
In the case at bar, there is no question that the Sta. Ana Public Market, despite the
Management and Operating Contract between respondent City and Asiatic
Integrated Corporation remained under the control of the former.
For one thing, said contract is explicit in this regard, when it provides:
II
That immediately after the execution of this contract, the SECOND
PARTY shall start the painting, cleaning, sanitizing and repair of the
public markets and talipapas and within ninety (90) days thereof, the
SECOND PARTY shall submit a program of improvement,
development, rehabilitation and reconstruction of the city public

27

markets and talipapas subject to prior approval of the FIRST PARTY.

(Rollo, p. 44)

management, maintenance, rehabilitation and development of the

City's public markets and' Talipapas' subject to the control and
supervision of the City.

xxx xxx xxx

xxx xxx xxx
VI
That all present personnel of the City public markets and talipapas
shall be retained by the SECOND PARTY as long as their services
remain satisfactory and they shall be extended the same rights and
privileges as heretofore enjoyed by them. Provided, however, that the
SECOND PARTY shall have the right, subject to prior approval of the
FIRST PARTY to discharge any of the present employees for cause.
(Rollo, p. 45).

It is believed that there is nothing incongruous in the exercise of these

powers vis-a-vis the existence of the contract, inasmuch as the City
retains the power of supervision and control over its public markets
andtalipapas under the terms of the contract. (Exhibit "7-A") (Emphasis
supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana Public Market
whose primary duty is to take direct supervision and control of that particular market,
more specifically, to check the safety of the place for the public.

VII
That the SECOND PARTY may from time to time be required by the
FIRST PARTY, or his duly authorized representative or representatives,
to report, on the activities and operation of the City public markets and
talipapas and the facilities and conveniences installed therein,
particularly as to their cost of construction, operation and maintenance
in connection with the stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject public market was
admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar
Virata which reads:
These cases arose from the controversy over the Management and
Operating Contract entered into on December 28, 1972 by and
between the City of Manila and the Asiatic Integrated Corporation,
whereby in consideration of a fixed service fee, the City hired the
services of the said corporation to undertake the physical

Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the
City of Manila testified as follows:
Court This market master is an employee of the City of
Manila?
Mr. Ymson Yes, Your Honor.
Q What are his functions?
A Direct supervision and control over the market area
assigned to him."(T.s.n.,pp. 41-42, Hearing of May 20,
1977.)
xxx xxx xxx

28

Court As far as you know there is or is there any specific

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

As a defense against liability on the basis of a quasi-delict, one must have exercised
the diligence of a good father of a family. (Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of Manila to exercise reasonable
care to keep the public market reasonably safe for people frequenting the place for
their marketing needs.
While it may be conceded that the fulfillment of such duties is extremely difficult
during storms and floods, it must however, be admitted that ordinary precautions
could have been taken during good weather to minimize the dangers to life and limb
under those difficult circumstances.
For instance, the drainage hole could have been placed under the stalls instead of
on the passage ways. Even more important is the fact, that the City should have
seen to it that the openings were covered. Sadly, the evidence indicates that long
before petitioner fell into the opening, it was already uncovered, and five (5) months
after the incident happened, the opening was still uncovered. (Rollo, pp. 57; 59).
Moreover, while there are findings that during floods the vendors remove the iron
grills to hasten the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17),
there is no showing that such practice has ever been prohibited, much less
penalized by the City of Manila. Neither was it shown that any sign had been placed
thereabouts to warn passersby of the impending danger.
To recapitulate, it appears evident that the City of Manila is likewise liable for
damages under Article 2189 of the Civil Code, respondent City having retained
control and supervision over the Sta. Ana Public Market and as tort-feasor under
Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle of the
passageways and if any, that they were adequately covered. Had the opening been
covered, petitioner could not have fallen into it. Thus the negligence of the City of
Manila is the proximate cause of the injury suffered, the City is therefore liable for
the injury suffered by the peti- 4 petitioner.

29

Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors
are solidarily liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby
MODIFIED, making the City of Manila and the Asiatic Integrated Corporation
solidarily liable to pay the plaintiff P221.90 actual medical expenses, P900.00 for the
amount paid for the operation and management of the school bus, P20,000.00 as
moral damages due to pain, sufferings and sleepless nights and P10,000.00 as
attorney's fees.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 112160

February 28, 2000

OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner,

vs.
COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C. CONTRARES and
VICENTE MAOSCA, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
seeking to review and set aside the Decision 1 of the Court of Appeals in CA-G.R. CV
No. 25242, which reversed the Decision2 of Branch 59 of the Regional Trial Court of
Makati City in Civil Case No. M-028; the dispositive portion of which reads:

Footnotes
* Penned by Justice Jorge R. Coquia and concurred in by Justices
Mariano A. Zosa, Floreliana Castro-Bartolome, and Bienvenido C.
Ejercito.
** Written by Judge Amador T. Vallejos.

WHEREFORE, the decision appealed from is hereby REVERSED and SET

ASIDE and a new one is hereby entered DISMISSING the complaint of the
spouses Osmundo and Angelina Canlas. On the counterclaim of defendant
Asian Savings Bank, the plaintiffs Canlas spouses are hereby ordered to pay
the defendant Asian Savings Bank the amount of P50,000.00 as moral and
exemplary damages, plus P15,000.00 as and for attorney's fees.
With costs against appellees.
SO ORDERED.3
The facts that matter:
Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private
respondent, Vicente Maosca, decided to venture in business and to raise the
capital needed therefor. The former then executed a Special Power of Attorney
authorizing the latter to mortgage two parcels of land situated in San Dionisio, (BF

30

Homes) Paranaque, Metro Manila, each lot with semi-concrete residential house
existing thereon, and respectively covered by Transfer Certificate of Title No. 54366
in his (Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of
his wife Angelina Canlas.
Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente
Maosca, for and in consideration of P850,000.00, P500,000.00 of which payable
within one week, and the balance of P350,000.00 to serve as his (Osmundo's)
investment in the business. Thus, Osmundo Canlas delivered to Vicente Maosca
the transfer certificates of title of the parcels of land involved. Vicente Maosca, as
his part of the transaction, issued two postdated checks in favor of Osmundo Canlas
in the amounts of P40,000.00 and P460,000.00, respectively, but it turned out that
the check covering the bigger amount was not sufficiently funded. 4
On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of
land for P100,000.00 to a certain Attorney Manuel Magno, with the help of impostors
who misrepresented themselves as the spouses, Osmundo Canlas and Angelina
Canlas.5
On September 29, 1982, private respondent Vicente Maosca was granted a loan
by the respondent Asian Savings Bank (ASB) in the amount of P500,000.00, with the
use of subject parcels of land as security, and with the involvement of the same
impostors who again introduced themselves as the Canlas spouses. 6 When the loan
it extended was not paid, respondent bank extrajudicially foreclosed the mortgage.
On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank
that the execution of subject mortgage over the two parcels of land in question was
without their (Canlas spouses) authority, and request that steps be taken to annul
and/or revoke the questioned mortgage. On January 18, 1983, petitioner Osmundo
Canlas also wrote the office of Sheriff Maximo O. Contreras, asking that the auction
sale scheduled on February 3, 1983 be cancelled or held in abeyance. But
respondents Maximo C. Contreras and Asian Savings Bank refused to heed
petitioner Canlas' stance and proceeded with the scheduled auction sale. 7
Consequently, on February 3, 1983 the herein petitioners instituted the present case
for annulment of deed of real estate mortgage with prayer for the issuance of a writ
of preliminary injunction; and on May 23, 1983, the trial court issued an Order

restraining the respondent sheriff from issuing the corresponding Certificate of

Sheriff's Sale.8
For failure to file his answer, despite several motions for extension of time for the
filing thereof, Vicente Maosca was declared in default. 9
On June 1, 1989, the lower court a quo came out with a decision annulling subject
deed of mortgage and disposing, thus:
Premises considered, judgment is hereby rendered as follows.1wphi1.nt
1. Declaring the deed of real estate mortgage (Exhibit "L") involving the
properties of the plaintiffs as null and void;
2. Declaring the public auction sale conducted by the defendant
Sheriff, involving the same properties as illegal and without binding
effect;
3. Ordering the defendants, jointly and severally, to pay the plaintiffs
the sum of P20,000.00 representing attorney's fees;
4. On defendant ASB's crossclaim: ordering the cross-defendant
Vicente Maosca to pay the defendant ASB the sum of P350,000.00,
representing the amount which he received as proceeds of the loan
secured by the void mortgage, plus interest at the legal rate, starting
February 3, 1983, the date when the original complaint was filed, until
the amount is fully paid;
5. With costs against the defendants.
SO ORDERED.10
From such Decision below, Asian Savings Bank appealed to the Court of Appeals,
which handed down the assailed judgment of reversal, dated September 30, 1983,
in CA-G.R. CV No. 25242. Dissatisfied therewith, the petitioners found their way to
this Court via the present Petition; theorizing that:

31

I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE
MORTGAGE OF THE PROPERTIES SUBJECT OF THIS CASE WAS VALID.
II
RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS
ARE NOT ENTITLED TO RELIEF BECAUSE THEY WERE NEGLIGENT AND
THEREFORE MUST BEAR THE LOSS.
III
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT
ASB EXERCISED DUE DILIGENCE IN GRANTING THE LOAN APPLICATION OF
RESPONDENT.
IV
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT
ASB DID NOT ACT WITH BAD FAITH IN PROCEEDING WITH THE
FORECLOSURE SALE OF THE PROPERTIES.
V
RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB
MORAL DAMAGES.11
The Petition is impressed with merit.
Art. 1173 of the Civil Code, provides:
Art. 1173. The fault or negligence of the obligor consist in the omission of that
diligence which is required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104)
The degree of diligence required of banks is more than that of a good father of a
family;12 in keeping with their responsibility to exercise the necessary care and
prudence in dealing even on a registered or titled property. The business of a bank is
affected with public interest, holding in trust the money of the depositors, which bank
deposits the bank should guard against loss due to negligence or bad faith, by
reason of which the bank would be denied the protective mantle of the land
registration law, accorded only to purchasers or mortgagees for value and in good
faith.13
In the case under consideration, from the evidence on hand it can be gleaned
unerringly that respondent bank did not observe the requisite diligence in
ascertaining or verifying the real identity of the couple who introduced themselves as
the spouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not
even a single identification card was exhibited by the said impostors to show their
true identity; and yet, the bank acted on their representations simply on the basis of
the residence certificates bearing signatures which tended to match the signatures
affixed on a previous deed of mortgage to a certain Atty. Magno, covering the same
parcels of land in question. Felizado Mangubat, Assistant Vice President of Asian
Savings Bank, thus testified inter alia:
xxx

xxx

xxx

Q:
According to you, the basis for your having recommended for the
approval of MANASCO's (sic) loan particularly that one involving the property
of plaintiff in this case, the spouses OSMUNDO CANLAS and ANGELINA
CANLAS, the basis for such approval was that according to you all the
signatures and other things taken into account matches with that of the
document previously executed by the spouses CANLAS?
Q:
That is the only basis for accepting the signature on the mortgage,
the basis for the recommendation of the approval of the loan are the financial
statement of MAOSCA?

32

A:
Yes; among others the signature and TAX Account Number,
Residence Certificate appearing on the previous loan executed by the
spouses CANLAS, I am referring to EXHIBIT 5, mortgage to ATTY. MAGNO,
those were made the basis.

A:
We accepted the signature on the basis of the mortgage in favor of
ATTY. MAGNO duly notarized which I have been reiterrting (sic) entitled to full
faith considering that it is a public instrument.
ATTY. CARLOS:

A:
That is just the basis of accepting the signature, because at that time
the loan have been approved already on the basis of the financial statement
of the client the Bank Statement. Wneh (sic) it was approved we have to base
it on the Financial statement of the client, the signatures were accepted only
for the purpose of signing the mortgage not for the approval, we don't (sic)
approve loans on the signature.

What other requirement did you take into account in ascertaining the
identification of the parties particularly the mortgagor in this case.
A:

Residence Certificate.

Q:

Is that all, is that the only requirement?

ATTY. CLAROS:
Would you agree that as part of ascertaining the identify of the parties
particularly the mortgage, you don't consider also the signature, the
Residence Certificate, the particular address of the parties involved.
A:

I think the question defers (sic) from what you asked a while ago.

Q:

Among others?

A:
We have to accept the signature on the basis of the other signatures
given to us it being a public instrument.
ATTY. CARLOS:
You mean to say the criteria of ascertaining the identity of the
mortgagor does not depend so much on the signature on the residence
certificate they have presented.
A:

We have to accept that.

xxx

xxx

xxx

A:
We requested for others but they could not produce, and because
they presented to us the Residence Certificate which matches on the
signature on the Residence Certificate in favor of Atty. Magno. 14
Evidently, the efforts exerted by the bank to verify the identity of the couple posing as
Osmundo Canlas and Angelina Canlas fell short of the responsibility of the bank to
observe more than the diligence of a good father of a family. The negligence of
respondent bank was magnified by the fact that the previous deed of mortgage
(which was used as the basis for checking the genuineness of the signatures of the
supposed Canlas spouses) did not bear the tax account number of the spouses, 15 as
well as the Community Tax Certificate of Angelina Canlas. 16 But such fact
notwithstanding, the bank did not require the impostors to submit additional proof of
their true identity.
Under the doctrine of last clear chance, which is applicable here, the respondent
bank must suffer the resulting loss. In essence, the doctrine of last clear chance is to
the effect that where both parties are negligent but the negligent act of one is
appreciably later in point of time than that of the other, or where it is impossible to
determine whose fault or negligence brought about the occurrence of the incident,
the one who had the last clear opportunity to avoid the impending harm but failed to
do so, is chargeable with the consequences arising therefrom. Stated differently, the
rule is that the antecedent negligence of a person does not preclude recovery of
damages caused by the supervening negligence of the latter, who had the last fair
chance to prevent the impending harm by the exercise of due diligence. 17

33

Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the
opportunity to perpetrate the fraud, by entrusting to latter the owner's copy of the
transfer certificates of title of subject parcels of land, it cannot be denied that the
bank had the last clear chance to prevent the fraud, by the simple expedient of
faithfully complying with the requirements for banks to ascertain the identity of the
persons transacting with them.
For not observing the degree of diligence required of banking institutions, whose
business is impressed with public interest, respondent Asian Savings Bank has to
bear the loss sued upon.
In ruling for respondent bank, the Court of Appeals concluded that the petitioner
Osmundo Canlas was a party to the fraudulent scheme of Maosca and therefore,
estopped from impugning the validity of subject deed of mortgage; ratiocinating thus:
xxx

xxx

xxx

Thus, armed with the titles and the special power of attorney, Maosca went
to the defendant bank and applied for a loan. And when Maosca came over
to the bank to submit additional documents pertinent to his loan application,
Osmundo Canlas was with him, together with a certain Rogelio Viray. At that
time, Osmundo Canlas was introduced to the bank personnel as "Leonardo
Rey".
When he was introduced as "Leonardo Rey" for the first time Osmundo
should have corrected Maosca right away. But he did not. Instead, he even
allowed Maosca to avail of his (Osmundo's) membership privileges at the
Metropolitan Club when Maosca invited two officers of the defendant bank to
a luncheon meeting which Osmundo also attended. And during that meeting,
Osmundo did not say who he really is, but even let Maosca introduced him
again as "Leonardo Rey", which all the more indicates that he connived with
Maosca in deceiving the defendant bank.
Finally after the loan was finally approved, Osmundo accompanied Maosca
to the bank when the loan was released. At that time, a manger's check for
P200,000.00 was issued in the name of Oscar Motorworks, which Osmundo
admits he owns and operates.

Collectively, the foregoing circumstances cannot but conjure to a single

conclusion that Osmundo active participated in the loan application of
defendant Asian Savings Bank, which culminated in his receiving a portion of
the process thereof:18
A meticulous and painstaking scrutiny of the Records on hand, reveals, however,
that the findings arrived at by the Court of Appeals are barren of any sustainable
basis. For instance, the execution of the deeds of mortgages constituted by
Maosca on subject pieces of property of petitioners were made possible not by the
Special Power of Attorney executed by Osmundo Canlas in favor of Maosca but
through the use of impostors who misrepresented themselves as the spouses
Angelina Canlas and Osmundo Canlas. It cannot be said therefore, that the
petitioners authorized Vicente Maosca to constitute the mortgage on their parcels
of land.
What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente
Maosca, only on the occasion of the luncheon meeting at the Metropolitan
Club.19 Thereat, the failure of Osmundo Canlas to rectify Maosca's
misrepresentations could not be taken as a fraudulent act. As well explained by the
former, he just did not want to embarrass Maosca, so that he waited for the end of
the meeting to correct Maosca.20
Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they
did not talk about the security or collateral for the loan of Maosca with ASB. 21 So
also, Mrs. Josefina Rojo, who was the Account Officer of Asian Savings Bank when
Maosca applied for subject loan, corroborated the testimony of Osmundo Canlas,
she testified:
xxx

xxx

xxx

QUESTION:
Now could you please describe out the lunch conference
at the Metro Club in Makati?
ANSWER:
Mr. Mangubat, Mr. Maosca and I did not discuss with
respect to the loan application and discuss primarily his business.
xxx

xxx

xxx

34

QUESTION:
meeting?

So, what is the main topic of your discussion during the

ANSWER:
The main topic war then, about his business although, Mr.
Leonardo Rey, who actually turned out as Mr. Canlas, supplier of Mr.
Maosca.
QUESTION:
I see . . . other than the business of Mr. Maosca, were
there any other topic discussed?
ANSWER:
QUESTION:
ANSWER:

YES.
And what was the topic:
General Economy then.
xxx

xxx

x x x22

Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining
thus why he (Osmundo) did not bother to correct what Maosca misrepresented and
to assert ownership over the two parcels of land in question.
Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when
the latter submitted the documents needed for his loan application, and when the
check of P200,000.00 was released, the former did not know that the collateral used
by Maosca for the said loan were their (Canlas spouses') properties. Osmundo
happened to be with Maosca at the time because he wanted to make sure that
Maosca would make good his promise to pay the balance of the purchase price of
the said lots out of the proceeds of the loan. 23
The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not
estop him from assailing the validity of the mortgage because the said amount was
in payment of the parcels of land he sold to Maosca. 24
What is decisively clear on record is that Maosca managed to keep Osmundo
Canlas uninformed of his (Maosca's) intention to use the parcels of land of the
Canlas spouses as security for the loan obtained from Asian Savings Bank. Since

Vicente Maosca showed Osmundo Canlas several certificates of title of lots which,
according to Maosca were the collaterals, Osmundo Canlas was confident that
their (Canlases') parcels of land were not involved in the loan transactions with the
Asian Savings Bank.25 Under the attendant facts and circumstances, Osmundo
Canlas was undoubtedly negligent, which negligence made them (petitioners)
undeserving of an award of attorney's fees.
Settled is the rule that a contract of mortgage must be constituted only by the
absolute owner on the property mortgaged;26a mortgage, constituted by an impostor
is void.27 Considering that it was established indubitably that the contract of
mortgage sued upon was entered into and signed by impostors who misrepresented
themselves as the spouses Osmundo Canlas and Angelina Canlas, the Court is of
the ineluctible conclusion and finding that subject contract of mortgage is a complete
nullity.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals,
dated September 30, 1993, in CA-G.R. CV No. 25242 SET ASIDE. The Decision of
Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028 is
hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.1wphi1.nt
Melo, Vitug and Gonzaga-Reyes, JJ., concur.
Panganiban, J., in the result.

35

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 119602

watch), and a helmsman when the vessel left the port 4 at 1:40 a.m. on February 12,
1988.5 Captain Colon left the bridge when the vessel was under way.6
The Philippine Roxas experienced some vibrations when it entered the San Roque
Channel at mile 172.7 The vessel proceeded on its way, with the pilot assuring the
watch officer that the vibration was a result of the shallowness of the channel. 8

October 6, 2000

WILDVALLEY SHIPPING CO., LTD. petitioner,

vs.
COURT OF APPEALS and PHILIPPINE PRESIDENT LINES INC., respondents.
DECISION
BUENA, J.:
This is a petition for review on certiorari seeking to set aside the decision of the
Court of Appeals which reversed the decision of the lower court in CA-G.R. CV No.
36821, entitled "Wildvalley Shipping Co., Ltd., plaintiff-appellant, versus Philippine
President Lines, Inc., defendant-appellant."
The antecedent facts of the case are as follows:
Sometime in February 1988, the Philippine Roxas, a vessel owned by Philippine
President Lines, Inc., private respondent herein, arrived in Puerto Ordaz, Venezuela,
to load iron ore. Upon the completion of the loading and when the vessel was ready
to leave port, Mr. Ezzar del Valle Solarzano Vasquez, an official pilot of Venezuela,
was designated by the harbour authorities in Puerto Ordaz to navigate the Philippine
Roxas through the Orinoco River.1 He was asked to pilot the said vessel on February
11, 19882 boarding it that night at 11:00 p.m.3
The master (captain) of the Philippine Roxas, Captain Nicandro Colon, was at the
bridge together with the pilot (Vasquez), the vessel's third mate (then the officer on

Between mile 158 and 157, the vessel again experienced some vibrations. 9 These
occurred at 4:12 a.m.10 It was then that the watch officer called the master to the
bridge.11
The master (captain) checked the position of the vessel 12 and verified that it was in
the centre of the channel.13 He then went to confirm, or set down, the position of the
vessel on the chart.14 He ordered Simplicio A. Monis, Chief Officer of the President
Roxas, to check all the double bottom tanks.15
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco River,16 thus
obstructing the ingress and egress of vessels.
As a result of the blockage, the Malandrinon, a vessel owned by herein petitioner
Wildvalley Shipping Company, Ltd., was unable to sail out of Puerto Ordaz on that
day.
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the Regional Trial
Court of Manila, Branch III against Philippine President Lines, Inc. and Pioneer
Insurance Company (the underwriter/insurer of Philippine Roxas) for damages in the
form of unearned profits, and interest thereon amounting to US $400,000.00 plus
attorney's fees, costs, and expenses of litigation. The complaint against Pioneer
Insurance Company was dismissed in an Order dated November 7, 1988. 17
At the pre-trial conference, the parties agreed on the following facts:
"1. The jurisdictional facts, as specified in their respective pleadings;

36

"2. That defendant PPL was the owner of the vessel Philippine Roxas at the
time of the incident;

"12. That a letter of guarantee, dated 12-May-88 was issued by the

Steamship Mutual Underwriters Ltd."18

"3. That defendant Pioneer Insurance was the insurance underwriter for
defendant PPL;

The trial court rendered its decision on October 16, 1991 in favor of the petitioner,
Wildvalley Shipping Co., Ltd. The dispositive portion thereof reads as follows:

"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel
Malandrinon, whose passage was obstructed by the vessel Philippine Roxas
at Puerto Ordaz, Venezuela, as specified in par. 4, page 2 of the complaint;

"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine

President Lines, Inc. to pay to the plaintiff the sum of U.S. $259,243.43, as actual
and compensatory damages, and U.S. $162,031.53, as expenses incurred abroad
for its foreign lawyers, plus additional sum of U.S. $22,000.00, as and for attorney's
fees of plaintiff's local lawyer, and to pay the cost of this suit.

"5. That on February 12, 1988, while the Philippine Roxas was navigating the
channel at Puerto Ordaz, the said vessel grounded and as a result,
obstructed navigation at the channel;

"Defendant's counterclaim is dismissed for lack of merit.

"6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;

"SO ORDERED."19

"7. That at the time of the incident, the vessel, Philippine Roxas, was under
the command of the pilot Ezzar Solarzano, assigned by the government
thereat, but plaintiff claims that it is under the command of the master;

Both parties appealed: the petitioner appealing the non-award of interest with the
private respondent questioning the decision on the merits of the case.

"8. The plaintiff filed a case in Middleburg, Holland which is related to the
present case;
"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by
the defendant PPL;
"10. The Orinoco River is 150 miles long and it takes approximately 12 hours
to navigate out of the said river;
"11. That no security for the plaintiff's claim was given until after the Philippine
Collier was arrested; and

After the requisite pleadings had been filed, the Court of Appeals came out with its
questioned decision dated June 14, 1994,20 the dispositive portion of which reads as
follows:
"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is
hereby rendered reversing the Decision of the lower court. Plaintiff-appellant's
Complaint is dismissed and it is ordered to pay defendant-appellant the amount of
Three Hundred Twenty-three Thousand, Forty-two Pesos and Fifty-three Centavos
(P323,042.53) as and for attorney's fees plus cost of suit. Plaintiff-appellant's appeal
is DISMISSED.
"SO ORDERED."21

37

Petitioner filed a motion for reconsideration 22 but the same was denied for lack of
merit in the resolution dated March 29, 1995.23

PETITIONER SHOULD BE ENTITLED TO ATTORNEY'S FEES, COSTS AND

INTEREST.

Hence, this petition.

The petition is without merit.

The petitioner assigns the following errors to the court a quo:

The primary issue to be determined is whether or not Venezuelan law is applicable

to the case at bar.

1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING

THAT UNDER PHILIPPINE LAW NO FAULT OR NEGLIGENCE CAN BE
ATTRIBUTED TO THE MASTER NOR THE OWNER OF THE "PHILIPPINE
ROXAS" FOR THE GROUNDING OF SAID VESSEL RESULTING IN THE
BLOCKAGE OF THE RIO ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN
REVERSING THE FINDINGS OF FACTS OF THE TRIAL COURT
CONTRARY TO EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING
THAT THE "PHILIPPINE ROXAS" IS SEAWORTHY;

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our
courts are not authorized to take judicial notice of them. Like any other fact, they
must be alleged and proved.24
A distinction is to be made as to the manner of proving a written and an unwritten
law. The former falls under Section 24, Rule 132 of the Rules of Court, as amended,
the entire provision of which is quoted hereunder. Where the foreign law sought to
be proved is "unwritten," the oral testimony of expert witnesses is admissible, as are
printed and published books of reports of decisions of the courts of the country
concerned if proved to be commonly admitted in such courts. 25
Section 24 of Rule 132 of the Rules of Court, as amended, provides:

4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN

DISREGARDING VENEZUELAN LAW DESPITE THE FACT THAT THE
SAME HAS BEEN SUBSTANTIALLY PROVED IN THE TRIAL COURT
WITHOUT ANY OBJECTION FROM PRIVATE RESPONDENT, AND WHOSE
OBJECTION WAS INTERPOSED BELATEDLY ON APPEAL;
5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN
AWARDING ATTORNEY'S FEES AND COSTS TO PRIVATE RESPONDENT
WITHOUT ANY FAIR OR REASONABLE BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT
FINDING THAT PETITIONER'S CAUSE IS MERITORIOUS HENCE,

"Sec. 24. Proof of official record. -- The record of public documents referred to in
paragraph (a) of Section 19, when admissible for any purpose, may be evidenced by
an official publication thereof or by a copy attested by the officer having the legal
custody of the record, or by his deputy, and accompanied, if the record is not kept in
the Philippines, with a certificate that such officer has the custody. If the office in
which the record is kept is in a foreign country, the certificate may be made by a
secretary of the embassy or legation, consul general, consul, vice consul, or
consular agent or by any officer in the foreign service of the Philippines stationed in
the foreign country in which the record is kept, and authenticated by the seal of his
office." (Underscoring supplied)

38

The court has interpreted Section 25 (now Section 24) to include competent
evidence like the testimony of a witness to prove the existence of a written foreign
law.26
27

In the noted case of Willamette Iron & Steel Works vs. Muzzal, it was held that:
" Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the
year 1918 under oath, quoted verbatim section 322 of the California Civil Code and
stated that said section was in force at the time the obligations of defendant to the
plaintiff were incurred, i.e. on November 5, 1928 and December 22, 1928. This
evidence sufficiently established the fact that the section in question was the law of
the State of California on the above dates. A reading of sections 300 and 301 of our
Code of Civil Procedure will convince one that these sections do not exclude the
presentation of other competent evidence to prove the existence of a foreign law.

Nevertheless, we take note that these written laws were not proven in the manner
provided by Section 24 of Rule 132 of the Rules of Court.
The Reglamento General de la Ley de Pilotaje was published in the Gaceta
Oficial32 of the Republic of Venezuela. A photocopy of the Gaceta Oficial was
presented in evidence as an official publication of the Republic of Venezuela.
The Reglamento Para la Zona de Pilotaje No 1 del Orinoco is published in a book
issued by the Ministerio de Comunicaciones of Venezuela.33 Only a photocopy of the
said rules was likewise presented as evidence.
Both of these documents are considered in Philippine jurisprudence to be public
documents for they are the written official acts, or records of the official acts of the
sovereign authority, official bodies and tribunals, and public officers of Venezuela. 34

"`The foreign law is a matter of fact You ask the witness what the law is; he may,
from his recollection, or on producing and referring to books, say what it is.' (Lord
Campbell concurring in an opinion of Lord Chief Justice Denman in a well-known
English case where a witness was called upon to prove the Roman laws of marriage
and was permitted to testify, though he referred to a book containing the decrees of
the Council of Trent as controlling, Jones on Evidence, Second Edition, Volume 4,
pages 3148-3152.) x x x."

For a copy of a foreign public document to be admissible, the following requisites are
mandatory: (1) It must be attested by the officer having legal custody of the records
or by his deputy; and (2) It must be accompanied by a certificate by a secretary of
the embassy or legation, consul general, consul, vice consular or consular agent or
foreign service officer, and with the seal of his office.35 The latter requirement is not a
mere technicality but is intended to justify the giving of full faith and credit to the
genuineness of a document in a foreign country.36

We do not dispute the competency of Capt. Oscar Leon Monzon, the Assistant
Harbor Master and Chief of Pilots at Puerto Ordaz, Venezuela, 28 to testify on the
existence of the Reglamento General de la Ley de Pilotaje (pilotage law of
Venezuela)29 and the Reglamento Para la Zona de Pilotaje No 1 del Orinoco (rules
governing the navigation of the Orinoco River). Captain Monzon has held the
aforementioned posts for eight years.30 As such he is in charge of designating the
pilots for maneuvering and navigating the Orinoco River. He is also in charge of the
documents that come into the office of the harbour masters. 31

It is not enough that the Gaceta Oficial, or a book published by the Ministerio de
Comunicaciones of Venezuela, was presented as evidence with Captain Monzon
attesting it. It is also required by Section 24 of Rule 132 of the Rules of Court that a
certificate that Captain Monzon, who attested the documents, is the officer who had
legal custody of those records made by a secretary of the embassy or legation,
consul general, consul, vice consul or consular agent or by any officer in the foreign
service of the Philippines stationed in Venezuela, and authenticated by the seal of
his office accompanying the copy of the public document. No such certificate could
be found in the records of the case.

39

With respect to proof of written laws, parol proof is objectionable, for the written law
itself is the best evidence. According to the weight of authority, when a foreign
statute is involved, the best evidence rule requires that it be proved by a duly
authenticated copy of the statute.37
At this juncture, we have to point out that the Venezuelan law was not pleaded
before the lower court.
A foreign law is considered to be pleaded if there is an allegation in the pleading
about the existence of the foreign law, its import and legal consequence on the event
or transaction in issue.38
A review of the Complaint39 revealed that it was never alleged or invoked despite the
fact that the grounding of the M/V Philippine Roxas occurred within the territorial
jurisdiction of Venezuela.

circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
"If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required."
The diligence of a good father of a family requires only that diligence which an
ordinary prudent man would exercise with regard to his own property. This we have
found private respondent to have exercised when the vessel sailed only after the
"main engine, machineries, and other auxiliaries" were checked and found to be in
good running condition;41 when the master left a competent officer, the officer on
watch on the bridge with a pilot who is experienced in navigating the Orinoco River;
when the master ordered the inspection of the vessel's double bottom tanks when
the vibrations occurred anew.42

We reiterate that under the rules of private international law, a foreign law must be
properly pleaded and proved as a fact. In the absence of pleading and proof, the
laws of a foreign country, or state, will be presumed to be the same as our own local
or domestic law and this is known as processual presumption. 40

The Philippine rules on pilotage, embodied in Philippine Ports Authority

Administrative Order No. 03-85, otherwise known as the Rules and Regulations
Governing Pilotage Services, the Conduct of Pilots and Pilotage Fees in Philippine
Ports enunciate the duties and responsibilities of a master of a vessel and its pilot,
among other things.

Having cleared this point, we now proceed to a thorough study of the errors
assigned by the petitioner.

The pertinent provisions of the said administrative order governing these persons
are quoted hereunder:

Petitioner alleges that there was negligence on the part of the private respondent
that would warrant the award of damages.
There being no contractual obligation, the private respondent is obliged to give only
the diligence required of a good father of a family in accordance with the provisions
of Article 1173 of the New Civil Code, thus:

"Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage
grounds, the Harbor Pilot providing the service to a vessel shall be responsible for
the damage caused to a vessel or to life and property at ports due to his negligence
or fault. He can be absolved from liability if the accident is caused by force majeure
or natural calamities provided he has exercised prudence and extra diligence to
prevent or minimize the damage.

"Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the

"The Master shall retain overall command of the vessel even on pilotage grounds
whereby he can countermand or overrule the order or command of the Harbor Pilot

40

on board. In such event, any damage caused to a vessel or to life and property at
ports by reason of the fault or negligence of the Master shall be the responsibility
and liability of the registered owner of the vessel concerned without prejudice to
recourse against said Master.
"Such liability of the owner or Master of the vessel or its pilots shall be determined by
competent authority in appropriate proceedings in the light of the facts and
circumstances of each particular case.
"x x x
"Sec. 32. Duties and Responsibilities of the Pilots or Pilots Association. -- The duties
and responsibilities of the Harbor Pilot shall be as follows:

The law is very explicit. The master remains the overall commander of the vessel
even when there is a pilot on board. He remains in control of the ship as he can still
perform the duties conferred upon him by law43 despite the presence of a pilot who is
temporarily in charge of the vessel. It is not required of him to be on the bridge while
the vessel is being navigated by a pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:
"Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat,
or passing through rivers or straits within a pilotage district, as well as docking and
undocking at any pier/wharf, or shifting from one berth or another, every vessel
engaged in coastwise and foreign trade shall be under compulsory pilotage.
"xxx."

"x x x
"f) A pilot shall be held responsible for the direction of a vessel from the time he
assumes his work as a pilot thereof until he leaves it anchored or berthed safely;
Provided, however, that his responsibility shall cease at the moment the Master
neglects or refuses to carry out his order."
The Code of Commerce likewise provides for the obligations expected of a captain
of a vessel, to wit:
"Art. 612. The following obligations shall be inherent in the office of captain:
"x x x
"7. To be on deck on reaching land and to take command on entering and leaving
ports, canals, roadsteads, and rivers, unless there is a pilot on board discharging his
duties. x x x."

The Orinoco River being a compulsory pilotage channel necessitated the engaging
of a pilot who was presumed to be knowledgeable of every shoal, bank, deep and
shallow ends of the river. In his deposition, pilot Ezzar Solarzano Vasquez testified
that he is an official pilot in the Harbour at Port Ordaz, Venezuela, 44 and that he had
been a pilot for twelve (12) years.45 He also had experience in navigating the waters
of the Orinoco River.46
The law does provide that the master can countermand or overrule the order or
command of the harbor pilot on board. The master of the Philippine Roxas deemed it
best not to order him (the pilot) to stop the vessel, 47 mayhap, because the latter had
assured him that they were navigating normally before the grounding of the
vessel.48 Moreover, the pilot had admitted that on account of his experience he was
very familiar with the configuration of the river as well as the course headings, and
that he does not even refer to river charts when navigating the Orinoco River.49
Based on these declarations, it comes as no surprise to us that the master chose not
to regain control of the ship. Admitting his limited knowledge of the Orinoco River,

41

Captain Colon relied on the knowledge and experience of pilot Vasquez to guide the
vessel safely.
"Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different
class from ordinary employees, for they assume to have a skill and a knowledge of
navigation in the particular waters over which their licenses extend superior to that of
the master; pilots are bound to use due diligence and reasonable care and skill. A
pilot's ordinary skill is in proportion to the pilot's responsibilities, and implies a
knowledge and observance of the usual rules of navigation, acquaintance with the
waters piloted in their ordinary condition, and nautical skill in avoiding all known
obstructions. The character of the skill and knowledge required of a pilot in charge of
a vessel on the rivers of a country is very different from that which enables a
navigator to carry a vessel safely in the ocean. On the ocean, a knowledge of the
rules of navigation, with charts that disclose the places of hidden rocks, dangerous
shores, or other dangers of the way, are the main elements of a pilot's knowledge
and skill. But the pilot of a river vessel, like the harbor pilot, is selected for the
individual's personal knowledge of the topography through which the vessel is
steered."50
We find that the grounding of the vessel is attributable to the pilot. When the
vibrations were first felt the watch officer asked him what was going on, and pilot
Vasquez replied that "(they) were in the middle of the channel and that the vibration
was as (sic) a result of the shallowness of the channel." 51
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine Roxas as
well as other vessels on the Orinoco River due to his knowledge of the same. In his
experience as a pilot, he should have been aware of the portions which are shallow
and which are not. His failure to determine the depth of the said river and his
decision to plod on his set course, in all probability, caused damage to the vessel.
Thus, we hold him as negligent and liable for its grounding.
In the case of Homer Ramsdell Transportation Company vs. La Compagnie
Generale Transatlantique, 182 U.S. 406, it was held that:

"x x x The master of a ship, and the owner also, is liable for any injury done by the
negligence of the crew employed in the ship. The same doctrine will apply to the
case of a pilot employed by the master or owner, by whose negligence any injury
happens to a third person or his property: as, for example, by a collision with another
ship, occasioned by his negligence. And it will make no difference in the case that
the pilot, if any is employed, is required to be a licensed pilot; provided the master is
at liberty to take a pilot, or not, at his pleasure, for in such a case the master acts
voluntarily, although he is necessarily required to select from a particular class. On
the other hand, if it is compulsive upon the master to take a pilot, and, a fortiori,
if he is bound to do so under penalty, then, and in such case, neither he nor
the owner will be liable for injuries occasioned by the negligence of the pilot;
for in such a case the pilot cannot be deemed properly the servant of the master or
the owner, but is forced upon them, and the maxim Qui facit per alium facit per
sedoes not apply." (Underscoring supplied)
Anent the river passage plan, we find that, while there was none, 52 the voyage has
been sufficiently planned and monitored as shown by the following actions
undertaken by the pilot, Ezzar Solarzano Vasquez, to wit: contacting the radio
marina via VHF for information regarding the channel, river traffic, 53 soundings of the
river, depth of the river, bulletin on the buoys. 54The officer on watch also monitored
the voyage.55
We, therefore, do not find the absence of a river passage plan to be the cause for
the grounding of the vessel.
The doctrine of res ipsa loquitur does not apply to the case at bar because the
circumstances surrounding the injury do not clearly indicate negligence on the part
of the private respondent. For the said doctrine to apply, the following conditions
must be met: (1) the accident was of such character as to warrant an inference that
it would not have happened except for defendant's negligence; (2) the accident must
have been caused by an agency or instrumentality within the exclusive management
or control of the person charged with the negligence complained of; and (3) the

42

accident must not have been due to any voluntary action or contribution on the part
of the person injured.56
As has already been held above, there was a temporary shift of control over the ship
from the master of the vessel to the pilot on a compulsory pilotage channel. Thus,
two of the requisites necessary for the doctrine to apply, i.e., negligence and control,
to render the respondent liable, are absent.
As to the claim that the ship was unseaworthy, we hold that it is not.
The Lloyds Register of Shipping confirmed the vessels seaworthiness in a
Confirmation of Class issued on February 16, 1988 by finding that "the above named
ship (Philippine Roxas) maintained the class "+100A1 Strengthened for Ore
Cargoes, Nos. 2 and 8 Holds may be empty (CC) and +LMC" from 31/12/87 up until
the time of casualty on or about 12/2/88." 57 The same would not have been issued
had not the vessel been built according to the standards set by Lloyd's.

"A Yes, your Honor. Because the class society which register (sic) is the third party
looking into the condition of the vessel and as far as their record states, the vessel
was class or maintained, and she is fit to travel during that voyage."
"x x x
"ATTY. MISA
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class
+100A1 Strengthened for Ore Cargoes', mean?
"WITNESS
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is
capable of carrying ore bulk cargoes, but she is particularly capable of carrying Ore
Cargoes with No. 2 and No. 8 holds empty.
"x x x

Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified thus:

"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to
the seaworthiness of the vessel?
"A Well, judging on this particular vessel, and also basing on the class record of the
vessel, wherein recommendations were made on the top side tank, and it was given
sufficient time to be repaired, it means that the vessel is fit to travel even with those
defects on the ship.

"COURT
The vessel is classed, meaning?
"A Meaning she is fit to travel, your Honor, or seaworthy." 58

"COURT

It is not required that the vessel must be perfect. To be seaworthy, a ship must be
reasonably fit to perform the services, and to encounter the ordinary perils of the
voyage, contemplated by the parties to the policy.59

What do you mean by that? You explain. The vessel is fit to travel even with defects?
Is that what you mean? Explain.

As further evidence that the vessel was seaworthy, we quote the deposition of pilot
Vasquez:

"WITNESS

43

"Q Was there any instance when your orders or directions were not complied with
because of the inability of the vessel to do so?

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED and the

decision of the Court of Appeals in CA G.R. CV No. 36821 is AFFIRMED.

"A No.

SO ORDERED.

"Q. Was the vessel able to respond to all your commands and orders?

Bellosillo, (Chairman), Mendoza, Quisumbing, and De leon, Jr., JJ., concur.

"A. The vessel was navigating normally." 60

Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an accident
report wherein he stated that on February 11, 1988, he checked and prepared the
main engine, machineries and all other auxiliaries and found them all to be in good
running condition and ready for maneuvering. That same day the main engine,
bridge and engine telegraph and steering gear motor were also tested. 61 Engineer
Mata also prepared the fuel for consumption for maneuvering and checked the
engine generators.62
Finally, we find the award of attorneys fee justified.1wphi1
Article 2208 of the New Civil Code provides that:
"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
"x x x
"(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered.
"x x x"
Due to the unfounded filing of this case, the private respondent was unjustifiably
forced to litigate, thus the award of attorneys fees was proper.

Republic of the Philippines

SUPREME COURT
Manila

44

FIRST DIVISION
G.R. No. 164601

September 27, 2006

SPOUSES ERLINDA BATAL AND FRANK BATAL, petitioners,

vs.
SPOUSES LUZ SAN PEDRO AND KENICHIRO TOMINAGA, respondents.

property, they again procured the services of Frank for an additional fee
of P1,500.00 in order to determine the exact boundaries of the same by which
they will base the construction of their perimeter fence.
Consequently, Frank placed concrete monuments marked P.S. on all corners
of the lot which were used as guides by Luz and Kenichiro in erecting a
concrete fence measuring about eight (8) feet in height and cost
themP250,000.00 to build.

DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court questioning the Decision1 dated September 29, 2003 promulgated by the
Court of Appeals (CA) in CA-G.R. CV No. 71758, which affirmed the Decision dated
May 31, 2004 of the Regional Trial Court, Branch 7, Malolos, Bulacan (RTC); and
the CA Resolution2 dated July 19, 2004.
This case originated from an action for damages filed with the RTC by Spouses Luz
San Pedro and Kenichiro Tominaga (respondents) against Spouses Erlinda Batal
and Frank Batal (petitioners) for failure to exercise due care and diligence by the
latter in the preparation of a survey which formed the basis for the construction of a
perimeter fence that was later discovered to have encroached on a right of way.
The facts of the case, as found by the RTC and summarized by the CA, are as
follows:
The spouses Luz San Pedro (Luz) and Kenichiro Tominaga (Kenichiro) are
the owners of a parcel of land, on which their house was erected, described
as Lot 1509-C-3 with an area of 700 square meters situated in Barangay
Malis, Guiguinto, Bulacan. Said property was acquired by them from one
Guillermo Narciso as evidenced by a "Bilihan ng Bahagi ng Lupa" dated
March 18, 1992.
The spouses Luz and Kenichiro then contracted the services of Frank Batal
(Frank) who represented himself as a surveyor to conduct a survey of their lot
for the sum of P6,500.00. As Luz and Kenichiro wanted to enclose their

Sometime in 1996, a complaint was lodged against Luz and Kenichiro before
the barangay on the ground that the northern portion of their fence allegedly
encroached upon a designated right-of-way known as Lot 1509-D. Upon
verification with another surveyor, Luz and Kenichiro found that their wall
indeed overlapped the adjoining lot. They also discovered that it was not
Frank but his wife Erlinda Batal (Erlinda), who is a licensed geodetic engineer.
During their confrontations before the barangay, Frank admitted that he made
a mistake and offered to share in the expenses for the demolition and
reconstruction of the questioned portion of Luz and Kenichiro's fence. He
however failed to deliver on his word, thus the filing of the instant suit.
In their defense, the defendants-spouses Frank and Erlinda Batal submitted
that Frank never represented himself to be a licensed geodetic engineer. It
was Erlinda who supervised her husband's work [and t]hat the house and lot
of plaintiffs, Luz and Kenichiro, were already fenced even before they were
contracted to do a resurvey of the same and the laying out of the concrete
monuments. The spouses Frank and Erlinda also refuted the spouses Luz's
and Kenichiro's allegation of negligence and averred that the subject
complaint was instituted to harass them.3
On May 31, 2001, the RTC rendered its Decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against
defendants, as follows:

45

1. Ordering the defendants [petitioners] to pay to plaintiffs [respondents] the

sum of P6,500.00 as refund for their professional fees by reason of the
erroneous relocation survey of the property in question;

of [respondent] Erlinda Batal, the one truly qualified to supervise the same. x
xxx
x x x x5

2. Ordering the defendants to pay to plaintiffs the sum of Three Hundred

Thousand Pesos (P300,000.00) as actual damages;
3. Ordering the defendants to pay to plaintiffs the sum of P50,000.00 as
attorney's fees; and
4. Ordering the defendants to pay to plaintiffs the costs of this suit.
SO ORDERED.4
Regarding the issue whether the petitioners failed to exercise due care and diligence
in the conduct of the resurvey which eventually caused damage to the respondents,
the RTC held:
As against the bare and self-serving denials of the [petitioners], the testimony
of [respondent] Luz San Pedro that she constructed the encroaching
perimeter fence in question using as guide the cyclone concrete monuments
marked P.S. that were installed by [petitioner] Frank Batal and his survey
team, is more credible. As testified to by [respondent] Luz San Pedro, she
proceeded with the construction of the perimeter fence in question upon
assurance given by [petitioner] Frank Batal that she could already do so as
there were already concrete monuments placed on the boundaries of her
property x x x.

The RTC found that indeed the perimeter fence constructed by the respondents
encroached on the right-of-way in question; that the preponderance of evidence
supports the finding that the encroachment was caused by the negligence of the
petitioners; that, in particular, respondents constructed the fence based on the
concrete cyclone monuments that were installed by petitioner Frank Batal and after
he gave his assurance that they can proceed accordingly; that the negligence in the
installation of the monuments was due to the fact that petitioner Erlinda Batal, the
one truly qualified, did not provide the needed supervision over the work; and, lastly,
that the testimonies of the petitioners on the whole were not credible.
The petitioners appealed to the CA. On September 29, 2003, the CA rendered its
Decision affirming the RTC decision in its entirety.6
In concurring with the findings of the RTC, the CA in addition held that the petitioners
cannot claim that the error of the construction of the fence was due to the unilateral
act of respondents in building the same without their consent, since the former gave
their word that the arrangement of the monuments of title accurately reflected the
boundaries of the lot; and that, as a result, the northern portion of the fence had to
be demolished and rebuilt in order to correct the error.
Hence, the instant Petition assigning the following errors:
I.

xxxx
It does not matter that the location plan dated May 3, 1992 (Exhibit "B") was
later approved by the DENR, as it is quite apparent that the mistake
committed by [petitioner] Frank Batal pertains to the wrong locations of the
concrete monuments that he placed on the subject property and which were
used or relied upon by the [respondents] in putting up the fence in question.
Such mistake or negligence happened because quite obviously the
installation of said concrete monuments was without the needed supervision

The Court of Appeals erred in ruling for the Respondents and basing its
decision [o]n the following jurisprudence:
(a) "[A] party, having performed affirmative acts upon which another person
based his subsequent actions, cannot thereafter refute his acts or renege on
the effects of the same, to the prejudice of the latter. (Pureza vs. Court of
Appeals, 290 SCRA 110)"; and

46

(b) "Findings of fact made by the trial court [are] entitled to great weight and
respect. (Lopez vs. Court of Appeals, 322 SCRA 686).
II.
The Court of Appeals erred in ruling in favor of Respondents by premising its
Decision on [a] misapprehension of facts amounting to grave abuse of
discretion . . . which is also a ground for a Petition for Review.7

a vinculum juris and gives rise to an obligation between two persons not formally
bound by any other obligation, or as culpa contractual, which is the fault or
negligence incident in the performance of an obligation which already existed, and
which increases the liability from such already existing obligation. 13 Culpa
aquiliana is governed by Article 2176 of the Civil Code and the immediately following
Articles; while culpa contractual is governed by Articles 1170 to 1174 of the same
Code.14
Articles 1170 and 1173 provide:

The petition must fail.

The petitioners insist that there had been no error in their resurvey, but rather, the
error occurred in respondents' fencing; that the proximate cause of the damage had
been respondents' own negligence such that the fencing was done unilaterally and
solely by them without the prior approval and supervision of the petitioners. And to
justify their case, the petitioners argue that the courts a quo misapprehended the
facts. Accordingly, they ask this Court to review findings of fact.
A review of the factual findings of the CA and the RTC are matters not ordinarily
reviewable in a petition for review oncertiorari.8 Well-established is the rule that
factual findings of the trial court and the CA are entitled to great weight and
respect9 and will not be disturbed on appeal save in exceptional
circumstances,10 none of which obtains in the present case. This Court must stress
that the findings of fact of the CA are conclusive on the parties and carry even more
weight when these coincide with the factual findings of the trial court, 11 as in this
case.
The Court will not weigh the evidence all over again unless there is a showing that
the findings of the lower court are totally devoid of support or are clearly erroneous
so as to constitute serious abuse of discretion.12 The petitioners failed to
demonstrate this point. On the contrary, the finding of the courts a quo that the
damage caused to the respondents was due to petitioners' negligence is sufficiently
supported by the evidence on record. For these reasons, the petitioner's contentions
bear no import.
Culpa, or negligence, may be understood in two different senses: either as culpa
aquiliana, which is the wrongful or negligent act or omission which creates

ART. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of articles 1171 and
2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required.
In the present case, it is clear that the petitioners, in carrying out their contractual
obligations, failed to exercise the requisite diligence in the placement of the
markings for the concrete perimeter fence that was later constructed. The placement
of the markings had been done solely by petitioner Frank Batal who is not a geodetic
engineer. It was later discovered that it was not he but his wife, petitioner Erlinda
Batal, who is the licensed geodetic engineer and who is, therefore, the one qualified
to do the work. Petitioner Frank Batal's installation of the concrete cyclone
monuments had been done without the adequate supervision of his wife, Erlinda. As
a result, the placement of the monuments did not accurately reflect the dimensions
of the lot. The respondents, upon assurance given by petitioner Frank Batal that they
could proceed with the construction of the perimeter fence by relying on the
purported accuracy of the placement of the monuments, erected their fence which
turned out to encroach on an adjacent easement. Because of the encroachment, the

47

respondents had to demolish and reconstruct the fence and, thus, suffered
damages.
The Court affirms and adopts the findings of the CA, to wit:
Records show that the services of the [petitioners] Frank and Erlinda were
initially contracted to segregate Luz and Kenichiro's property from its
adjoining lots. When the [respondent] spouses Luz and Kenichiro planned to
fence the segregated lot, they again commissioned [petitioners] Frank and
Erlinda to conduct a resurvey in order to determine the precise boundaries of
their property upon which they will base the construction of their fence. It was
also shown that in the course of the resurvey, Frank caused the installation of
monuments of title on the four (4) corners of Luz and Kenichiro's property and
that he instructed them to just follow the same in building their fence.
[Petitioners] Frank and Erlinda cannot thus validly claim that the error in the
construction of the northern portion of the fence was due to the spouses Luz
and Kenichiro's act of building the same without their consent. This is
considering that the former led the latter to believe the purported accuracy of
the resurvey and exactness of the lot's boundaries based on the monuments
of title which they installed.
It has been ruled that "[A] party, having performed affirmative acts upon which
another person based his subsequent actions, cannot thereafter refute his
acts or renege on the effects of the same, to the prejudice of the
latter." (Pureza v. Court of Appeals, 290 SCRA 110)
The foregoing clearly supports the findings of the RTC that the spouses Batal
committed a mistake in the conduct of their business that led to the
encroachment of plaintiffs-appellees' fence on the adjoining alley-lot. As a
result, the northern portion ha[d] to be torn down and rebuilt in order to correct
the error in its original construction. The defendants-appellants cannot be
excused from the effects of their actions in the survey of plaintiffs-appellees'
lot.
We therefore concur with the findings of the RTC holding defendantsappellants liable for damages in the case at bar. "Findings of fact made by the

trial court is entitled to great weight and respect." (Lopez v. Court of Appeals,
322 SCRA 686)15
Being guilty of a breach of their contract, petitioners are liable for damages suffered
by the respondents in accordance with Articles 1170 and 2201 of the Civil
Code,16 which state:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay and those who in any manner contravene the
tenor thereof are liable for damages
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties
have foreseen or could have reasonably foreseen at the time the obligation
was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation.
Thus, the Court agrees with the CA's affirmance of the findings of the RTC on the
matter of damages, to wit:
Going now to the claims for damages, Engr. Arnold Martin testified on his
computation and estimate (Exhibits "G" and "G-1) that the total cost for the
demolition and reconstruction of the perimeter fence in question would be in
the total amount of P428,163.90, and this was not at all disputed by the
defendants, whose counsel waived cross-examination. This estimate is
practically double the amount of the cost of constructing said fence as
testified to by plaintiff Luz San Pedro as she was told that it is much costlier to
demolish and reconstruct a fence than to simply erect one because of the
added expense involved in tearing it down and hauling its debris. On the other
hand, said plaintiff stated that the iron decorative grills of the fence, which is
re-usable, cost her P50,000.00, and it is only proper to deduct said amount
from the total cost of reconstructing the fence in question. At the same time,
some figures in the said estimate appear to be quite excessive, such as the

48

estimated cost for demolition which was quoted at P25,000.00 in addition to

the amount of excavation priced at P30,000.00 and the cost of hauling of
scrap materials at P10,000.00. The court believes that the sum
of P300,000.00 for the demolition and reconstruction of the fence in question
would be reasonable considering that the original cost for its construction was
only aboutP200,000.00, and considering further that its iron grills are reusable.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 165622

October 17, 2008

The plaintiffs are likewise entitled to recover attorney's fees considering that
they were compelled by the defendants to resort to court action in order to
protect their rights and interest, as defendants, particularly defendant Frank
Batal, failed and refused repeatedly to even attend the confrontation of
conciliation meetings arranged between him and the plaintiffs by
the barangay authorities concerned, and to honor his promise to help in
shouldering the cost of reconstructing the fence in question.

MERCURY DRUG CORPORATION and AURMELA GANZON, petitioners,

vs.
RAUL DE LEON, respondents.

On the other hand, there is no legal or factual bases for the claim of the
plaintiffs for moral or exemplary damages as there was no showing at all that
defendants acted with malice or in bad faith.

IN REALITY, for the druggist, mistake is negligence and care is no defense. 1 Sa

isang parmasyutika, ang pagkakamali ay kapabayaan at ang pagkalinga ay
hindi angkop na dipensa.

In a long line of cases, we have consistently ruled that in the absence

of a wrongful act or omission or of fraud or bad faith, moral damages
cannot be awarded. (R & B Surety Insurance Co. v. Intermediate Court
of Appeals, 129 SCRA 736; Guita v. Court of Appeals, 139 SCRA
576).17
WHEREFORE, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals areAFFIRMED.
Costs against petitioners.
SO ORDERED.
Panganiban, C.J., Chairperson, Ynares-Santiago, Callejo, Sr., Chico-Nazario,
J.J., concur.

DECISION
REYES, R.T., J.:

This is a petition for review on certiorari2 of two Resolutions3 of the Court of Appeals
(CA). The first Resolution granted respondents motion to dismiss while the second
denied petitioners motion for reconsideration.
The Facts
Respondent Raul T. De Leon was the presiding judge of Branch 258, Regional Trial
Court (RTC) in Paraaque.4 On October 17, 1999, he noticed that his left eye was
reddish. He also had difficulty reading.5 On the same evening, he met a friend for
dinner at the Foohyui Restaurant. The same friend happened to be a doctor, Dr.
Charles Milla, and had just arrived from abroad. 6
Aside from exchanging pleasantries, De Leon consulted Dr. Milla about his irritated
left eye.7 The latter prescribed the drugs "Cortisporin Opthalmic" and "Ceftin" to
relieve his eye problems.8 Before heading to work the following morning, De Leon
went to the Betterliving, Paraaque, branch of Mercury Drug Store Corporation to
buy the prescribed medicines.9 He showed his prescription to petitioner Aurmela

49

Ganzon, a pharmacist assistant.10 Subsequently, he paid for and took the medicine
handed over by Ganzon.11
At his chambers, De Leon requested his sheriff to assist him in using the eye
drops.12 As instructed, the sheriff applied 2-3 drops on respondents left
eye.13 Instead of relieving his irritation, respondent felt searing pain. 14 He
immediately rinsed the affected eye with water, but the pain did not subside. 15 Only
then did he discover that he was given the wrong medicine, "Cortisporin Otic
Solution."16
De Leon returned to the same Mercury Drug branch, with his left eye still red and
teary.17 When he confronted Ganzon why he was given ear drops, instead of the
prescribed eye drops,18 she did not apologize and instead brazenly replied that she
was unable to fully read the prescription.19 In fact, it was her supervisor who
apologized and informed De Leon that they do not have stock of the needed
Cortisporin Opthalmic.20
De Leon wrote Mercury Drug, through its president, Ms. Vivian K. Askuna, about the
days incident.21 It did not merit any response.22 Instead, two sales persons went to
his office and informed him that their supervisor was busy with other
matters.23 Having been denied his simple desire for a written apology and
explanation,24 De Leon filed a complaint for damages against Mercury Drug. 25
Mercury Drug denied that it was negligent and therefore liable for damages. 26 It
pointed out that the proximate cause of De Leons unfortunate experience was his
own negligence.27 He should have first read and checked to see if he had the right
eye solution before he used any on his eye.28 He could have also requested his
sheriff to do the same before the latter applied the medicine on such a delicate part
of his body.29
Also, Mercury Drug explained that there is no available medicine known as
"Cortisporin Opthalmic" in the Philippine market. 30 Furthermore, what was written on
the piece of paper De Leon presented to Ganzon was "Cortisporin
Solution."31 Accordingly, she gave him the only available "Cortisporin Solution" in the
market.

Moreover, even the piece of paper De Leon presented upon buying the medicine
can not be considered as proper prescription. 32 It lacked the required information
concerning the attending doctors name and license number.33 According to Ganzon,
she entertained De Leons purchase request only because he was a regular
customer of their branch.34
RTC Disposition
On April 30, 2003, the RTC rendered judgment in favor of respondent, the
dispositive portion of which reads:
WHEREFORE, the court finds for the plaintiff.
For pecuniary loss suffered, Mercury Drug Store is to pay ONE HUNDRED FIFTYTHREE PESOS AND TWENTY-FIVE CENTAVOS (Php 153.25), the value of the
medicine.
As moral damages defendants is (sic) ordered to pay ONE HUNDRED THOUSAND
PESOS (Php 100,000.00).
To serve as a warning to those in the field of dispensing medicinal drugs discretion
of the highest degree is expected of them, Mercury Drug Store and defendant
Aurmila (sic) Ganzon are ordered to pay plaintiff the amount of THREE HUNDRED
THOUSAND PESOS (Php 300,000.00) as exemplary damages.
Due to defendants callous reaction to the mistake done by their employee which
forced plaintiff to litigate, Defendant (sic) Mercury Drug Store is to pay plaintiff
attorneys fees of P50,000.00 plus litigation expenses.
SO ORDERED.35
In ruling in favor of De Leon, the RTC ratiocinated:
The proximate cause of the ill fate of plaintiff was defendant Aurmila (sic) Ganzons
negligent exercise of said discretion. She gave a prescription drug to a customer
who did not have the proper form of prescription, she did not take a good look at
said prescription, she merely presumed plaintiff was looking for Cortisporin Otic

50

Solution because it was the only one available in the market and she further
presumed that by merely putting the drug by the counter wherein plaintiff looked at it,
paid and took the drug without any objection meant he understood what he was
buying.36
The RTC ruled that although De Leon may have been negligent by failing to read the
medicines label or to instruct his sheriff to do so, Mercury Drug was first to be
negligent.37 Ganzon dispensed a drug without the requisite prescription. 38Moreover,
she did so without fully reading what medicine was exactly being bought. 39 In fact,
she presumed that since what was available was the drug Cortisporin Otic Solution,
it was what De Leon was attempting to buy.40 Said the court:
When the injury is caused by the negligence of a servant or employee, there
instantly arises a presumption of law that there was negligence on the part of the
employer or employer either in the selection of the servant or employee, or in the
supervision over him after the selection or both.
xxxx
The theory bases the responsibility of the master ultimately on his own negligence
and not on that of his servant.41
Dissatisfied with the RTC ruling, Mercury Drug and Ganzon elevated the matter to
the CA. Accordingly, they filed their respective briefs. Raising technical grounds, De
Leon moved for the appeals dismissal.
CA Disposition
On July 4, 2008, the CA issued a resolution which granted De Leons motion and
dismissed the appeal. Said the appellate court:
As pointed out by the plaintiff-appellee, the Statement of Facts, Statement of the
Case, Assignment of Errors/issues, Arguments/ Discussions in the Brief make no
references to the pages of the records. We find this procedural lapse justify the
dismissal of the appeal, pursuant to Section 1(f), Rule 50 of the 1997 Rules of Civil
Procedure x x x.42

xxxx
"The premise that underlies all appeals is that they are merely rights which arise
form a statute; therefore, they must be exercised in the manner prescribed by law. It
is to this end that rules governing pleadings and practice before the appellate court
were imposed. These rules were designed to assist the appellate court in the
accomplishment of its tasks, and overall, to enhance the orderly administration of
justice."
xxxx
x x x If the statement of fact is unaccompanied by a page reference to the record, it
may be stricken or disregarded all together.43
On October 5, 2004, the CA denied Mercury Drugs and Ganzons joint motion for
reconsideration. Although mindful that litigation is not a game of technicalities, 44 the
CA found no persuasive reasons to relax procedural rules in favor of Mercury Drug
and Ganzon.45 The CA opined:
In the case under consideration, We find no faithful compliance on the part of the
movants that will call for the liberal application of the Rules. Section 1(f) of Rule 50
of the 1997 Rules of Civil Procedure explicitly provides that an appeal may be
dismissed by the Court of Appeals, on its own motion or on that of the appellee, for
want of page references to the records as required in Section 13 of Rule 44 of the
same rules46
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following
errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS
APPEAL BASED ON THE CASES OF DE LIANA VS. CA (370 SCRA 349)
AND HEIRS OF PALOMINIQUE VS. CA (134 SCRA 331).

51

II
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION IN DISMISSING PETITIONERS APPEAL DESPITE SUBSTANTIAL
COMPLIANCE WITH SECTION 1(F), RULE 60 AND SECTION 13, RULE 44 OF
THE RULES OF COURT.
III
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAVORED MERE
TECHNICALITY OVER SUBSTANTIAL JUSTICE WHICH WILL CERTAINLY CAUSE
GRAVE INJUSTICE AND GREAT PREJUDICE TO PETITIONER CONSIDERING
THAT THE ASSAILED DECISION ON APPEAL IS CLUSTERED WITH ERRORS
AND IN CONTRAST with the DECISIONS OF THIS HONORABLE SUPREME
COURT.47(Underscoring supplied)
Our Ruling
The appeal succeeds in part.
Dismissal of an appeal under Rule 50 is discretionary.
In several cases,48 this Court stressed that the grounds for dismissal of an appeal
under Section 1 of Rule 5049 are discretionary upon the appellate court. The very
wording of the rule uses the word "may" instead of "shall." This indicates that it is
only directory and not mandatory.50 Sound discretion must be exercised in
consonance with the tenets of justice and fair play, keeping in mind the
circumstances obtaining in each case.51
The importance of an appellants brief cannot be gainsaid. Its purpose is two-fold: (1)
to present to the court in coherent and concise form the point and questions in
controversy; and (2) to assist the court in arriving at a just and proper conclusion. 52 It
is considered a vehicle of counsel to convey to the court the essential facts of a
clients case, a statement of the questions of law involved, the law to be applied, and
the application one desires of it by the court. 53

The absence of page reference to the record is a ground for dismissal. It is a

requirement intended to ultimately aid the appellate court in arriving at a just and
proper conclusion of the case.54 However, as earlier discussed, such dismissal is not
mandatory, but discretionary on the part of the appellate court.
This Court has held that the failure to properly cite reference to the original
records is not a fatal procedural lapse.55 When citations found in the
appellants brief enable the court to expeditiously locate the portions of the
record referred to, there is substantial compliance with the requirements of
Section 13(c), (d), and (f) of Rule 44.56
In De Leon v. CA,57 this Court ruled that the citations contained in the appellants
brief sufficiently enabled the appellate court to expeditiously locate the portions of
the record referred to. They were in substantial compliance with the rules. The Court
said:
Nothing in the records indicate that it was exercised capriciously, whimsically, or with
a view of permitting injury upon a party litigant. For the same reasons, we hold that
the respondent Court of Appeals did not err when it did not dismiss the appeal based
on the allegation that appellants brief failed to comply with the internal rules of said
court.58
Similar to the instant case, the appellants brief in Yuchengco v. Court of
Appeals59 contained references to Exhibits and Transcript of Stenographic Notes
and attachments. These were found to have substantially complied with the
requirements of Section 13(c) and (d) of Rule 44.
x x x The Appellants brief may not have referred to the exact pages of the records,
however, the same is not fatal to their cause since the references they made
enabled the appellate court to expeditiously locate the portions referred to. x x x 60
It is true that in De Liano v. Court of Appeals,61 this Court held that a statement of
facts unaccompanied by a page reference to the record may be presumed to be
without support in the record and may be stricken or disregarded altogether.
However, the instant case is not on all fours with De Liano.

52

In De Liano, the appellants brief lacked a Subject Index and a Table of Cases and
Authorities.62 Moreover, the Statement of the Case, Statements of Facts, and
Statements of Arguments had no page references to the record. 63 When notified of
such defects, defendants-appellants failed to amend their brief to conform to the
rules.64 Instead, they continued to argue that their errors were harmless. 65 All these
omissions and non-compliance justified the dismissal of the appeal by the CA. 66
In the case under review, although there were no page references to the records,
Mercury Drug and Ganzon referred to the exhibits, TSN, and attachments of the
case. Despite its deficiencies, the brief is sufficient in form and substance as to
apprise the appellate court of the essential facts, nature of the case, the issues
raised, and the laws necessary for the disposition of the same.
Reliance on Heirs of Palomique v. Court of Appeals67 is likewise misplaced. In Heirs
of Palomique, the appellants brief did not at all contain a separate statement of
facts.68 This critical omission, together with the failure to make page references to
the record to support the factual allegations, justified the dismissal of the appeal. 69
Rules of procedure are intended to promote, not to defeat, substantial justice. They
should not be applied in a very rigid and technical sense. 70 For reasons of justice
and equity, this Court has allowed exceptions to the stringent rules governing
appeals.71 It has, in the past, refused to sacrifice justice for technicality.72
However, brushing aside technicalities, petitioners are still liable. Mercury
Drug and Ganzon failed to exercise the highest degree of diligence expected
of them.
Denying that they were negligent, Mercury Drug and Ganzon pointed out that De
Leons own negligence was the proximate cause of his injury. They argued that any
injury would have been averted had De Leon exercised due diligence before
applying the medicine on his eye. Had he cautiously read the medicine bottle label,
he would have known that he had the wrong medicine.
Mercury Drug and Ganzon can not exculpate themselves from any liability. As active
players in the field of dispensing medicines to the public, the highest degree of care
and diligence is expected of them.73 Likewise, numerous decisions, both here and
abroad, have laid salutary rules for the protection of human life and human

health.74 In the United States case of Tombari v. Conners,75 it was ruled that the
profession of pharmacy demands care and skill, and druggists must exercise care of
a specially high degree, the highest degree of care known to practical men. In other
words, druggists must exercise the highest practicable degree of prudence and
vigilance, and the most exact and reliable safeguards consistent with the reasonable
conduct of the business, so that human life may not constantly be exposed to the
danger flowing from the substitution of deadly poisons for harmless medicines. 76
In Fleet v. Hollenkemp,77 the US Supreme Court ruled that a druggist that sells to a
purchaser or sends to a patient one drug for another or even one innocent drug,
calculated to produce a certain effect, in place of another sent for and designed to
produce a different effect, cannot escape responsibility, upon the alleged pretext that
it was an accidental or innocent mistake. His mistake, under the most favorable
aspect for himself, is negligence. And such mistake cannot be countenanced or
tolerated, as it is a mistake of the gravest kind and of the most disastrous effect. 78
Smiths Admrx v. Middelton79 teaches Us that one holding himself out as competent
to handle drugs, having rightful access to them, and relied upon by those dealing
with him to exercise that high degree of caution and care called for by the peculiarly
dangerous nature of the business, cannot be heard to say that his mistake by which
he furnishes a customer the most deadly of drugs for those comparatively harmless,
is not in itself gross negligence.80
In our own jurisdiction, United States v. Pineda81 and Mercury Drug Corporation v.
Baking are illustrative.82 In Pineda, the potassium chlorate demanded by
complainant had been intended for his race horses. When complainant mixed with
water what he thought and believed was potassium chlorate, but which turned out to
be the potently deadly barium chlorate, his race horses died of poisoning only a few
hours after.
The wisdom of such a decision is unquestionable. If the victims had been human
beings instead of horses, the damage and loss would have been irreparable. 83
In the more recent Mercury Drug, involving no less than the same petitioner
corporation, Sebastian Baking went to the Alabang branch of Mercury Drug 84 and
presented his prescription for Diamicron, which the pharmacist misread as
Dormicum.85 Baking was given a potent sleeping tablet, instead of medicines to

53

stabilize his blood sugar.86 On the third day of taking the wrong medicine, Baking
figured in a vehicular accident.87 He fell asleep while driving.88
This Court held that the proximate cause of the accident was the gross negligence of
the pharmacist who gave the wrong medicine to Baking. The Court said:
x x x Considering that a fatal mistake could be a matter of life and death for a buying
patient, the said employee should have been very cautious in dispensing medicines.
She should have verified whether the medicine she gave respondent was indeed the
one prescribed by his physician. The care required must be commensurate with the
danger involved, and the skill employed must correspond with the superior
knowledge of the business which the law demands. 89
This Court once more reiterated that the profession of pharmacy demands great
care and skill. It reminded druggists to exercise the highest degree of care known to
practical men.
In cases where an injury is caused by the negligence of an employee, there
instantly arises a presumption of law that there has been negligence on the
part of the employer, either in the selection or supervision of ones employees.
This presumption may be rebutted by a clear showing that the employer has
exercised the care and diligence of a good father of the family.90 Mercury Drug
failed to overcome such presumption.91
Petitioners Mercury Drug and Ganzon have similarly failed to live up to high
standard of diligence expected of them as pharmacy professionals. They were
grossly negligent in dispensing ear drops instead of the prescribed eye drops to De
Leon. Worse, they have once again attempted to shift the blame to their victim by
underscoring his own failure to read the label.
As a buyer, De Leon relied on the expertise and experience of Mercury Drug and its
employees in dispensing to him the right medicine. 92 This Court has ruled that in the
purchase and sale of drugs, the buyer and seller do not stand at arms
length.93 There exists an imperative duty on the seller or the druggist to take
precaution to prevent death or injury to any person who relies on ones absolute
honesty and peculiar learning.94 The Court emphasized:

x x x The nature of drugs is such that examination would not avail the purchaser
anything. It would be idle mockery for the customer to make an examination of a
compound of which he can know nothing. Consequently, it must be that the druggist
warrants that he will deliver the drug called for.95
Mercury Drug and Ganzons defense that the latter gave the only available
Cortisporin solution in the market deserves scant consideration. Ganzon could have
easily verified whether the medicine she gave De Leon was, indeed, the prescribed
one or, at the very least, consulted her supervisor. Absent the required certainty in
the dispensation of the medicine, she could have refused De Leons purchase of the
drug.
The award of damages is proper and shall only be reduced considering the
peculiar facts of the case. Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate result of
defendants wrongful act or omission.96
Moral damages are not intended to impose a penalty to the wrongdoer or to enrich
the claimant at the expense of defendant.97 There is no hard and fast rule in
determining what would be a fair and reasonable amount of moral damages since
each case must be governed by its peculiar circumstances. 98 However, the award of
damages must be commensurate to the loss or injury suffered. 99
Taking into consideration the attending facts of the case under review, We find the
amount awarded by the trial court to be excessive. Following the precedent case
of Mercury Drug, We reduce the amount from P100,000.00 to P50,000.00 only.100 In
addition, We also deem it necessary to reduce the award of exemplary damages
from the exorbitant amount ofP300,000.00 to P25,000.00 only.
This Court explained the propriety of awarding exemplary damages in the
earlier Mercury Drug case:
x x x Article 2229 allows the grant of exemplary damages by way of example or
correction for the public good. As mentioned earlier, the drugstore business is
affected by public interest. Petitioner should have exerted utmost diligence in the

54

selection and supervision of its employees. On the part of the employee concerned,
she should have been extremely cautious in dispensing pharmaceutical
products. Due to the sensitive nature of its business, petitioner must at all times
maintain a high level of meticulousness. Therefore, an award of exemplary damages
in the amount of P25,000.00 is in order.101 (Emphasis supplied)
It is generally recognized that the drugstore business is imbued with public interest.
This can not be more real for Mercury Drug, the countrys biggest drugstore chain.
This Court can not tolerate any form of negligence which can jeopardize the health
and safety of its loyal patrons. Moreover, this Court will not countenance the cavalier
manner it treated De Leon. Not only does a pharmacy owe a customer the duty of
reasonable care, but it is also duty-bound to accord one with respect.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decisions of the CA and
the RTC in Paraaque City areAFFIRMED WITH MODIFICATION, in that the award
of moral and exemplary damages is reduced to P50,000.00 andP25,000.00,
respectively.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 148582

January 16, 2002

FAR EAST BANK AND TRUST COMPANY, petitioner,

vs.
ESTRELLA O. QUERIMIT, respondent.
MENDOZA, J.:
This is a petition for review on certiorari seeking review of the decision, dated March
6, 2001, and resolution, dated June 19, 2001, of the Court of Appeals 1 in CA-G.R.
CV No. 67147, entitled "Estrella O. Querimit v. Far East Bank and Trust Company,"
which affirmed with modification the decision of the Regional Trial Court, Branch 38,
Manila,2 ordering petitioner Far East Bank and Trust Co. (FEBTC) to allow
respondent Estrella O. Querimit to withdraw her time deposit with the FEBTC.
The facts are as follows:

CONSUELO YNARES-SANTIAGO
Associate Justice<brchairperson< p="">
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

MINITA V. CHICONAZARIOADOLFO S. AZCUNA

Associate Justice

</brchairperson<>
ANTONIO EDUARDO B. NACHURA
Associate Justice

Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings

Bank (PSB) for 19 years, from 1963 to 1992.3 On November 24, 1986, she opened a
dollar savings account in petitioner's Harrison Plaza branch, 4 for which she was
issued four (4) Certificates of Deposit (Nos. 79028, 79029, 79030, and 79031), each
certificate representing the amount of $15,000.00, or a total amount of $60,000.00.
The certificates were to mature in 60 days, on January 23, 1987, and were payable
to bearer at 4.5% interest per annum. The certificates bore the word "accrued,"
which meant that if they were not presented for encashment or pre-terminated prior
to maturity, the money deposited with accrued interest would be "rolled over" by the
bank and annual interest would accumulate automatically.5 The petitioner bank's

55

manager assured respondent that her deposit would be renewed and earn interest
upon maturity even without the surrender of the certificates if these were not
indorsed and withdrawn.6 Respondent kept her dollars in the bank so that they would
earn interest and so that she could use the fund after she retired. 7
In 1989, respondent accompanied her husband Dominador Querimit to the United
States for medical treatment. She used her savings in the Bank of the Philippine
Islands (BPI) to pay for the trip and for her husband's medical expenses. 8 In January
1993, her husband died and Estrella returned to the Philippines. She went to
petitioner FEBTC to withdraw her deposit but, to her dismay, she was told that her
husband had withdrawn the money in deposit.9 Through counsel, respondent sent a
demand letter to petitioner FEBTC. In another letter, respondent reiterated her
request for updating and payment of the certificates of deposit, including interest
earned.10 As petitioner FEBTC refused respondent's demands, the latter filed a
complaint, joining in the action Edgardo F. Blanco, Branch Manager of FEBTC
Harrison Plaza Branch, and Octavio Espiritu, FEBTC President. 11
Petitioner FEBTC alleged that it had given respondent's late husband Dominador an
"accommodation" to allow him to withdraw Estrella's deposit. 12 Petitioner presented
certified true copies of documents showing that payment had been made, to wit:
1. Four FEBTC Harrison Plaza Branch Dollar Demand Drafts Nos. 886694903,
886694904, 886694905 and 886694906 for US$15,110.96 each, allegedly issued by
petitioner to respondent's husband Dominador after payment on the certificates of
deposit;13
2. A letter of Alicia de Bustos, branch cashier of FEBTC at Harrison Plaza, dated
January 23, 1987, which was sent to Citibank, N.A., Citibank Center, Paseo de
Roxas, Makati, Metro Manila, informing the latter that FEBTC had issued the four
drafts and requesting Citibank New York to debit from petitioner's account
$60,443.84, the aggregate value of the four drafts; 14

3. "Citicorp Remittance Service: Daily Summary and Payment Report" dated

January 23, 1987;15
4. Debit Ticket dated January 23, 1987, showing the debit of US$60,443.84 or its
equivalent at the time of P1,240,912.04 from the FEBTC Harrison Plaza
Branch;16 and
5. An Interbranch Transaction Ticket Register or Credit Ticket dated January 23,
1987 showing that US$60,443.84 orP1,240,912.04 was credited to petitioner's
International Operation Division (IOD). 17
On May 6, 2000, the trial court rendered judgment for respondent. The dispositive
portion of the decision stated:
WHEREFORE, judgment is hereby rendered in favor of plaintiff [Estrella O.
Querimit] and against defendants [FEBTC et al.]:
1. ORDERING defendants to allow plaintiff to withdraw her U.S.$ Time
Deposit of $60,000.00 plus accrued interests;
2. ORDERING defendants to pay moral damages in the amount
of P50,000.00;
3. ORDERING defendants to pay exemplary damages in the amount
of P50,000.00;
4. ORDERING defendants to pay attorney's fees in the amount
of P100,000.00 plus P10,000.00 per appearance of counsel; and
5. ORDERING defendants to pay the costs of the suit.
SO ORDERED.18

56

On May 15, 2000, petitioner appealed to the Court of Appeals which, on March 6,
2001, affirmed through its Fourteenth Division the decision of the trial court, with the
modification that FEBTC was declared solely liable for the amounts adjudged in the
decision of the trial court. The appeals court stated that petitioner FEBTC failed to
prove that the certificates of deposit had been paid out of its funds, since "the
evidence by the [respondent] stands unrebutted that the subject certificates of
deposit until now remain unindorsed, undelivered and unwithdrawn by [her]." 19 But
the Court of Appeals held that the individual defendants, Edgardo F. Blanco, FEBTCHarrison Plaza Branch Manager, and Octavio Espiritu, FEBTC President, could not
be held solidarily liable with the FEBTC because the latter has a personality
separate from its officers and stockholders.20

After reviewing the records, we find the petition to be without merit.

Hence this appeal.

A certificate of deposit is defined as a written acknowledgment by a bank or banker

of the receipt of a sum of money on deposit which the bank or banker promises to
pay to the depositor, to the order of the depositor, or to some other person or his
order, whereby the relation of debtor and creditor between the bank and the
depositor is created. The principles governing other types of bank deposits are
applicable to certificates of deposit,25 as are the rules governing promissory notes
when they contain an unconditional promise to pay a sum certain of money
absolutely.26 The principle that payment, in order to discharge a debt, must be made
to someone authorized to receive it is applicable to the payment of certificates of
deposit. Thus, a bank will be protected in making payment to the holder of a
certificate indorsed by the payee, unless it has notice of the invalidity of the
indorsement or the holder's want of title. 27 A bank acts at its peril when it pays
deposits evidenced by a certificate of deposit, without its production and surrender
after proper indorsement.28 As a rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general rule is that
the burden rests on the defendant to prove payment, rather than on the plaintiff to
prove payment. The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment. 29

As stated by the Court of Appeals, the main issue in this case is whether the subject
certificates of deposit have already been paid by petitioner.21 Petitioner contends
thatI. Petitioner is not liable to respondent for the value of the four (4) Certificates
of Deposit, including the interest thereon as well as moral and exemplary
damages, attorney's and appearance fees.
II. The aggregate value - both principal and interest earned at maturity - of the
four (4) certificates of deposit was already paid to or withdrawn at maturity by
the late Dominador Querimit who was the respondent's deceased husband.
III. Respondent is guilty of laches since the four (4) certificates of deposit
were all issued on 24 November 1986 but she attempted to withdraw their
aggregate value on 29 July 1996 only on or after the lapse of more than nine
(9) years and eight (8) months.
IV. Respondent is not liable to petitioner for attorney's fees. 22

First. Petitioner bank failed to prove that it had already paid Estrella Querimit, the
bearer and lawful holder of the subject certificates of deposit. The finding of the trial
court on this point, as affirmed by the Court of Appeals, is that petitioner did not pay
either respondent Estrella or her husband the amounts evidenced by the subject
certificates of deposit. This Court is not a trier of facts and generally does not weigh
anew the evidence already passed upon by the Court of Appeals. 23 The finding of
respondent court which shows that the subject certificates of deposit are still in the
possession of Estrella Querimit and have not been indorsed or delivered to petitioner
FEBTC is substantiated by the record and should therefore stand. 24

57

In this case, the certificates of deposit were clearly marked payable to "bearer,"
which means, to "[t]he person in possession of an instrument, document of title or
security payable to bearer or indorsed in blank." 30 Petitioner should not have paid
respondent's husband or any third party without requiring the surrender of the
certificates of deposit.
Petitioner claims that it did not demand the surrender of the subject certificates of
deposit since respondent's husband, Dominador Querimit, was one of the bank's
senior managers. But even long after respondent's husband had allegedly been paid
respondent's deposit and before his retirement from service, the FEBTC never
required him to deliver the certificates of deposit in question. 31 Moreover, the
accommodation given to respondent's husband was made in violation of the bank's
policies and procedures.32
Petitioner FEBTC thus failed to exercise that degree of diligence required by the
nature of its business.33 Because the business of banks is impressed with public
interest, the degree of diligence required of banks is more than that of a good father
of the family or of an ordinary business firm. The fiduciary nature of their relationship
with their depositors requires them to treat the accounts of their clients with the
highest degree of care.34 A bank is under obligation to treat the accounts of its
depositors with meticulous care whether such accounts consist only of a few
hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. 35 Petitioner failed to prove
payment of the subject certificates of deposit issued to the respondent and,
therefore, remains liable for the value of the dollar deposits indicated thereon with
accrued interest.
Second. The equitable principle of laches is not sufficient to defeat the rights of
respondent over the subject certificates of deposit.
Laches is the failure or neglect, for an unreasonable length of time, to do that which,
by exercising due diligence, could or should have been done earlier. It is negligence

or omission to assert a right within a reasonable time, warranting a presumption that

the party entitled to assert it either has abandoned it or declined to assert it. 36
There is no absolute rule as to what constitutes laches or staleness of demand; each
case is to be determined according to its particular circumstances. The question of
laches is addressed to the sound discretion of the court and, being an equitable
doctrine, its application is controlled by equitable considerations. It cannot be used
to defeat justice or perpetrate fraud and injustice. Courts will not be guided or bound
strictly by the statute of limitations or the doctrine of laches when to do so, manifest
wrong or injustice would result.37
In this case, it would be unjust to allow the doctrine of laches to defeat the right of
respondent to recover her savings which she deposited with the petitioner. She did
not withdraw her deposit even after the maturity date of the certificates of deposit
precisely because she wanted to set it aside for her retirement. She relied on the
bank's assurance, as reflected on the face of the instruments themselves, that
interest would "accrue" or accumulate annually even after their maturity.38
Third. Respondent is entitled to moral damages because of the mental anguish and
humiliation she suffered as a result of the wrongful refusal of the FEBTC to pay her
even after she had delivered the certificates of deposit. 39 In addition, petitioner
FEBTC should pay respondent exemplary damages, which the trial court imposed
by way of example or correction for the public good. 40 Finally, respondent is entitled
to attorney's fees since petitioner's act or omission compelled her to incur expenses
to protect her interest, making such award just and equitable. 41 However, we find the
award of attorney's fees to be excessive and accordingly reduce it to P20,000.00.42
WHEREFORE, premises considered, the present petition is hereby DENIED and the
Decision in CA-G.R. CV No. 67147 AFFIRMED, with the modification that the award
of attorney's fees is reduced to P20,000.00.
SO ORDERED.

58

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

FILONILA O. CRUZ, petitioner,

vs.
HON. CELSO D. GANGAN, DIR. MARCELINO HANOPOL, AUDITOR GLENDA
MANLAPAZ, AND THE COMMISSION ON AUDIT, respondents.
PANGANIBAN, J.:
While we commend the Commission on Audit for its diligence in safeguarding State
properties, we nonetheless rule that a government employee who has not been
proven to be culpable or negligent should not be held accountable for the loss of a
cellular phone stolen from her while she was riding the Light Railway Transit (LRT).
On the other hand, the dogged persistence of petitioner in fighting for her rights,
honor, respect and dignity has not been lost on this Court. She has been true to her
calling as an educator and a role model for our young people.
The Case
For review on certiorari under Rule 64 is Decision No. 2000-104 1 dated March 28,
2000, issued by the Commission on Audit (COA), requiring Dr. Filonila O. Cruz to
pay the book value of a lost government-issued Nokia 909 analog cellular phone.
The decretal portion of the Decision reads as follows:

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 143403

January 22, 2003

"Premises considered, and conformably to the adverse recommendations of

the Director, NGAO II and the Auditor, TESDA-NCR in the letter and 2nd
Indorsement dated July 13, 1999 and February 26, 1999, respectively, it is
regretted that the instant request for relief is DENIED for want of merit. This
being so, the herein petitioner should be required to pay the book value of the
lost government-issued cellular phone." 2
The Facts
On Friday afternoon of January 15, 1999, petitioner went to the Regional Office of
the Technological Education and Skills Development Authority (TESDA) in Taguig,

59

Metro Manila for consultation with the regional director.3 After the meeting, petitioner
went back to her official station in Caloocan City, where she was the then Camanava
district director of the TESDA, by boarding the Light Railway Transit (LRT) from Sen.
Gil Puyat Avenue to Monumento. On board the LRT, her handbag was slashed and
its contents stolen by an unidentified person. Among the items taken from her were
her wallet and the government-issued cellular phone, which is the subject of the
instant case. That same day, she reported the incident to police authorities who
immediately conducted an investigation. However, all efforts to locate the thief and to
recover the phone proved futile.
Three days after, on January 18, 1999, petitioner reported the theft to the regional
director of TESDA-NCR. She did so through a Memorandum, in which she
requested relief from accountability of the subject property. In a 1st Indorsement
dated January 19, 1999, the regional director, in turn, indorsed the request to the
resident auditor.
Under a 2nd Indorsement dated February 26, 1999, the resident auditor 4 denied the
request of petitioner on the ground that the latter lacked the diligence required in the
custody of government properties. Thus, petitioner was ordered to pay the purchase
value of the cell phone (P3,988) and that of its case (P250), a total of P4,238. The
auditors action was sustained by the director of the National Government Audit
Office II (NGAO II). The matter was then elevated to the Commission on Audit.
Ruling of the Commission on Audit
On appeal, the COA found no sufficient justification to grant the request for relief
from accountability. It explained as follows:
"x x x While it may be true that the loss of the cellular phone in question was
due to robbery (bag slashing), this however, cannot be made as the basis in
granting the herein request for relief from accountability since the accountable
officer, Dr. Cruz, failed to exercise that degree of diligence required under the
circumstances to prevent/avoid the loss. When Dr. Cruz opted to take the LRT

which undeniably, was almost always packed and overcrowded and

considering further the day and time she boarded said train which was at
about 2:00 to 2:30 P.M. of Friday, she exposed herself to the danger and the
possibility of losing things such as the subject cellular phone to pickpockets.
As an accountable officer, she was under obligation to exercise proper degree
of care and diligence in safeguarding the property, taking into account what a
reasonable and prudent man would have done under the circumstances. Dr.
Cruz could have reasonably foreseen the danger that would befall her and
took precautions against its mischievous result. Therefore, having been
remiss in her obligation in the keeping or use of the subject government
issued cellular phone, she has to answer for its loss as required under
Section 105 of PD 1445. Additionally, to be exempt from liability because of
fortuitous event as invoked by petitioner Dr. Cruz has no bearing to the case
at bar considering that Article 1174 of the New Civil Code which supports said
contention applies only if the actor is free from any negligence or misconduct
by which the loss/damage may have been occasioned. Further, in Nakpil vs.
CA, 144 SCRA 596, one who creates a dangerous condition cannot escape
liability although an act of God may have intervened. Thus, there being a
positive showing of negligence on the part of the petitioner in the keeping of
the subject cellular phone, then, such negligence militates against the grant of
herein request for relief."5
Hence, this Petition.6
Issues
In her Memorandum, petitioner faults the COA with the following alleged errors:
I.
"The Commission Proper committed grave abuse of discretion amounting to
excess of jurisdiction in finding that petitioner failed to exercise that degree of
diligence required to prevent the loss of the government-issued cellular phone

60

when she opted to take the light railway transit (LRT) in going to her official
station in CAMANAVA District, Caloocan City Hall, Caloocan City[; and]
II.
"The Commission Proper committed grave abuse of discretion when it applied
the case of Nakpil vs. CA, 144 SCRA 596 and disregarded Article 1174 of the
New Civil Code in denying petitioners request for relief from accountability[.]" 7
In the main, the issues in this case are: (1) whether petitioner was negligent in the
care of the government-issued cellular phone, and (2) whether she should be held
accountable for its loss.
We note that in its Manifestation and Motion dated October 24, 2000, reiterated in a
similar pleading dated March 28, 2001, the Office of the Solicitor General (OSG)
sided with petitioner and prayed for the granting of the Petition. Hence, the COA was
herein represented by its general counsel, Atty. Santos M. Alquisalas.
The Courts Ruling
The Petition is meritorious.
First Issue:
Required Degree of Diligence
The crucial question to ask is whether petitioner should be deemed negligent when,
on that fateful afternoon, she opted to board the LRT where the cellular phone was
stolen.
We answer in the negative. Riding the LRT cannot per se be denounced as a
negligent act; more so under the circumstances in this case, in which petitioners
mode of transit was influenced by time and money considerations.

Petitioner boarded the LRT to be able to arrive in Caloocan in time for her 3:00 p.m.
meeting. Any prudent or rational person under similar circumstances can reasonably
be expected to do the same. Possession of a cellular phone would not and should
not hinder one from boarding an LRT coach as petitioner did. After all, whether she
took a bus or a jeepney, the risk of theft would have also been present. Because of
her relatively low position and pay, she was not expected to have her own vehicle or
to ride a taxicab. Neither had the government granted her the use of any vehicle.
"Negligence is the omission to do something which a reasonable man, guided
upon those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a prudent man and
reasonable man would not do.8
"Negligence is want of care required by the circumstances.9
"The diligence with which the law requires the individual at all times to govern
his conduct varies with the nature of the situation in which he is placed, and
the importance of the act which he is to perform."10 (Emphasis supplied)
The Rules11 provide that property for official use and purpose shall be utilized with
the diligence of a good father of a family. Extra-ordinary measures are not called for
in taking care of a cellular phone while in transit. Placing it in a bag away from
covetous eyes and holding on to that bag, as done by petitioner, is ordinarily
sufficient care of a cellular phone while travelling on board the LRT. The records do
not show any specific act of negligence on her part. It is a settled rule that
negligence cannot be presumed;12 it has to be proven. In the absence of any shred
of evidence thereof, respondents gravely abused their discretion in finding petitioner
negligent.
Granting that the presence or the absence of negligence is a factual matter, the
consistent ruling of this Court is that findings of fact of an administrative agency must
be respected, so long as they are supported by substantial evidence.13But lacking

61

support, the factual finding of the COA on the existence of negligence cannot stand
on its own and is therefore not binding on the Court.
While we commend the Commission on Audit for its diligence in safeguarding State
properties, we nonetheless hold that a government employee who has not been
proven to be culpable or negligent should not be held accountable for the loss of a
cellular phone, which was stolen from her while she was riding on the LRT.
Second Issue:
Accountability
The assailed COA Decision directly attributed the loss of the cellular phone to a
"robbery (bag slashing)." However, it denies the request of petitioner for relief from
accountability, because it found her to be negligent. Earlier, we have already ruled
that the finding of negligence had no factual or legal basis and was therefore invalid.
What now remains to be resolved is whether petitioner observed the proper
procedure for notifying the government of the loss.
Within thirty days of the loss,14 petitioner applied for relief from accountability. We
hold that such application be deemed as the notification of the loss of the subject
cellular phone. She has also done her part in proving that the loss was due to theft
or robbery. The resident auditor15 concerned and the COA itself have accepted that
the robbery or theft had actually taken place. Necessarily, in the absence of
evidence showing negligence on her part, credit for the loss of the cellular phone is
proper under the law.16 It also stands to reason that P4,238 should now be refunded
to her. That was the amount she had to pay on June 3, 1999, upon her retirement
from government service at age 65.
Her dogged persistence in pursuing this appeal has not been lost on this Court. We
agree that, in fighting for her rights, she must have spent more than the value of the
lost cellular phone. Hence, we can only applaud her for being true to her calling as
an educator and a role model for our young people. Honor, respect and dignity are
the values she has pursued. May her tribe increase!

WHEREFORE, the Petition is GRANTED. The assailed Decision of the Commission

on Audit is REVERSED and SET ASIDE. The request of Petitioner Filonila O. Cruz
for relief from accountability for the lost Nokia 909 analog cellular phone
is GRANTED, and the amount of P4,238 paid under Official Receipt No. 6606743 is
ordered to be REFUNDED to her upon finality of this Decision. No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Vitug, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez,
Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., and Azcuna,
JJ., concur.
Bellosillo, J., on leave.
Mendoza, J., in the result.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21486

May 14, 1966

LA MALLORCA and PAMPANGA BUS COMPANY, petitioner,

vs.
VALENTIN DE JESUS, MANOLO TOLENTINO and COURT OF
APPEALS, respondents.
Manuel O. Chan for petitioners.
Sixto T. Antonio for respondents.
MAKALINTAL, J.:

62

La Mallorca and Pampanga Bus Company, Inc., commonly known as La MallorcaPambusco, filed this appeal by certiorarifrom the decision of the Court of Appeals
which affirmed that rendered by the Court of First Instance of Bulacan in its civil case
No. 2100, entitled "Valentin de Jesus and Manolo Tolentino vs. La MallorcaPambusco." The court a quo sentenced the defendant, now petitioner, "to pay to
plaintiffs the amount of P2,132.50 for actual damages; P14,400.00 as compensatory
damages; P10,000.00 to each plaintiff by way of moral damages; and P3,000.00 as
counsel fees."
Two errors are attributed to the appellate Court: (1) "in sustaining the decision (of the
court a quo) holding that the petitioners were liable for the accident which was
caused by a blow-out of one of the tires of the bus and in not considering the same
as caso fortuito," and (2) in holding petitioners liable for moral damages.
The suit arose by reason of the death of Lolita de Jesus, 20-year old daughter of
Valentin de Jesus and wife of Manolo Tolentino, in a head-on collision between
petitioner's bus, on which she was a passenger, and a freight truck traveling in the
opposite direction, in a barrio in Marilao Bulacan, in the morning of October 8, 1959.
The immediate cause of the collision was the fact that the driver of the bus lost
control of the wheel when its left front tire suddenly exploded.
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 vs. Red
Line Transportation Co., CA-G.R. No. 8136, December 29, 1954, and People vs.
Palapad, CA-G.R. No. 18480, June 27, 1958. These rulings, however, not only are
not not binding on this Court but were based on considerations quite different from
those that obtain in the at bar. The appellate Court there made no findings of any
specified 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 present case, the cause of the
blow-out was known. The inner tube of the left front tire, according to petitioner's
own evidence and as found by the Court of Appeals "was pressed between the inner

circle of the left wheel and the rim which had slipped out of the wheel." This was,
said Court correctly held, a mechanical defect of the conveyance or a fault in its
equipment which was easily discoverable if the bus had been subjected to a more
thorough, or rigid check-up before it took to the road that morning.
Then again both the trial court and the Court of Appeals found as a fact that the bus
was running quite fast immediately before the accident. Considering that the tire
which exploded was not new petitioner describes it as "hindi masyadong kalbo,"
or not so very worn out the plea of caso fortuito cannot be
entertained.1wph1.t
The second issue raised by petitioner is already a settled one. In this jurisdiction
moral damages are recoverable by reason of the death of a passenger caused by
the breach of contract of a common carrier, as provided in Article 1764, in relation to
Article 2206, of the Civil Code. These articles have been applied by this Court in a
number of cases, among them Necesito, etc. vs. Paras, et al., L-10605-06, June 30,
1958; Mercado vs. Lira, L-13328-29, Sept. 29, 1961; Villa-Rey Transit vs. Bello, L18957, April 23, 1963.
Wherefore, the judgment appealed from is affirmed, with costs against petitioners.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala,
Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47851 April 15, 1988

63

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.

THE UNITED CONSTRUCTION CO., INC. and JUAN J. CARLOS, petitioners,

vs.
THE COURT OF APPEALS, THE PHILIPPINE BAR ASSOCIATION, JUAN F.
NAKPIL & SONS, and JUAN F. NAKPIL, respondents.

(with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code,
Supra, p. 10) indemnity in favor of the Philippine Bar Association of
FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the
exception of attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's
fees, the total sum being payable upon the finality of this decision.
Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon aforementioned amounts from finality
until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).

G.R. No. L-47896 April 15, 1988

SO ORDERED. (G.R. No. 47851, Rollo, p. 635)

G.R. No. L-47863 April 15, 1988

PHILIPPINE BAR ASSOCIATION, petitioner,

vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., and
JUAN J. CARLOS, and JUAN F. NAKPIL & SONS and JUAN F.
NAKPIL, respondents.
RESOLUTION

PARAS, J.:
This is a motion for reconsideration of the October 3, 1986 decision of this Court,
filed by the United Construction Co., Inc., the decretal portion of which reads:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case,
we deem it reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party defendants

Plaintiff-appellant Philippine Bar Association (PBA for short) decided to construct an

office building on its 840 square meters lot located at the corner of Aduana and
Arzobispo Streets, Intramuros, Manila. For the plans, specifications and design, PBA
contracted the services of third-party defendants-appellants Juan F. Nakpil & Sons
and Juan F. Nakpil (NAKPILS for short). For the construction of the building, PBA
contracted the services of United Construction Company, Inc. (UNITED for short) on
an administration basis. The building was completed in June 1966.
On August 2, 1968, an unusually strong earthquake hit Manila and its environs and
the building in question sustained major damage. The front columns of the building
buckled causing the building to tilt forward dangerously. As a temporary remedial
measure, the building was shored up by UCCI at the expense of P13,661.28.
On November 29, 1968, PBA commenced this action for recovery of damages
against UCCI and its President and General Manager Juan J. Carlos, claiming that
the collapse of the building was caused by defects in the construction. UNITED, in
turn, filed a third-party complaint against the NAKPILS, alleging in essence that the
collapse of the building was due to the defects in the architects" plans, specifications
and design. Roman Ozaeta, the then President of PBA, was included as a third-

64

party defendant for damages for having included Juan J. Carlos, President of
UNITED as party defendant.
At the pre-trial, the parties agreed to refer the technical issues in the case to a
commissioner. Andres O. Hizon, a lawyer and structural engineer, was appointed by
the Court as commissioner.

(a) Ordering defendant United Construction Co., Inc. and third-party

defendants (except Roman Ozaeta), the sum of P989,335.68 with
interest at the legal rate from November 29, 1968, the date of the filing
of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

Meanwhile, PBA moved twice for the demolition of the building on the ground that it
might topple down in case of a strong earthquake. The motions were opposed by the
defendants and the matter was referred to the Commissioner. Finally, on April 30,
1979, the building was authorized to be demolished at the expense of PBA, but not
before another earthquake of high intensity on April 7, 1970 followed by other strong
earthquakes on April 9 and 12, 1970, caused further damage to the property. The
actual demolition was undertaken by the buyer of the damaged buiding.

(c) Dismissing the third-party complaint;

After the protracted hearings, the Commissioner eventually submitted his report on
September 25, 1970 with the findings that while the damage sustained by the PBA
building was caused directly by the August 2, 1968 earthquake, they were also
caused by the defects in the plans and specifications prepared by the NAKPILS;
UNITED"s deviations from said plans and specifications and its failure to observe the
requisite workmanship in the construction of the building; and failure of PBA to
exercise the requisite degree of supervision in the construction of the building.

SO ORDERED.

All the parties registered their objections to aforesaid findings which in turn were
answered by the Commissioner.
The court agreed with the findings of the Commissioner except as to the holding that
the owner is charged with full time supervision of the construction. The court saw no
legal or contractual basis for such conclusion. Thus, on September 21, 1971, the
lower court rendered a decision, the decretal portion of which, reads:
WHEREFORE, judgment is hereby rendered:

(d) Dismissing the defendants" and third-party defendants"

counterclaim for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the cost in equal shares.

On appeal, the Court of Appeals modified the abovesaid decision of the lower court.
The dispositive portion of the decision of the Court of Appeals, reads:
WHEREFORE, the judgment appealed from is modified to include an
award of P200,000.00 in favor of plaintiff-appellant Philippine Bar
Association, with interest at the legal rate from November 29, 1968
until full payment to be paid jointly and severally by defendant United
Construction Co., Inc. and third-party defendants (except Roman
Ozaeta). In all other respects, the judgment dated September 21,1971
as modified in the December 8, 1971 Order of the lower court is hereby
dated with COSTS to be paid by the defendant and third Patty
defendant (except Roman Ozaeta) in equal shares.
SO ORDERED.
All the parties herein appealed the aforestated decision of the Court of Appeals.

65

This Court promulgated on October 3, 1986 a decision in favor of the Philippine Bar
Association which modified the appealed decision of the Court of Appeals, as
abovequoted (Rollo of G.R. No. L-47851, pp. 634-662).

COURT NEGATE THE PREMISE THAT, THE SUBJECT BUILDING COLLAPSED;

HENCE, ARTICLE 1723 DOES NOT APPLY.
II

On December 24,1986, UNITED filed a Motion for Reconsideration (Rollo of L47863, pp. 683-707). On the other hand, on January 15,1987, the NAKPILS filed a
Motion to Refer Case to Supreme Court En Banc and for Reconsideration of
aforesaid decision (Rollo of L-47851, pp. 717-751).
On February 11, 1987, UNITED filed a Manifestation (Rollo of L-47863, pp. 796-797)
that it is joining the NAKPILS in regard to their prayer to refer the present case to the
Court En Banc.
The Second Division of this Court, in a Resolution dated April 1, 1987 (Rollo of L47851, p. 788) denied the NAKPILS" Motion for Reconsideration.
On April 15, 1987, PBA filed its Comment to UNITED's Motion for Reconsideration
(Rollo of L-47896, pp. 828-835) while on April 24, 1987, the NAKPILS filed a Motion
For Leave To File Second Motion For Reconsideratio (En Banc) (Rollo of L-47851,
pp. 791-797). On May 7, 1987, PBA filed its Comment to the NAKPILS" Motion for
Leave To File Second Motion For Reconsideration (En Banc) (Rollo of L-47851, pp.
790-795). On May 14,1987, UNITED filed a Reply to PBA's comment (Rollo of L47863, pp. 844-853), while the NAKPILS filed a Reply to the same comment on May
22,1987 (Rollo of L-47851, pp. 798-801).
The issues raised in subject motion for reconsideration of UCCI of the decision of
this Court of October 3, 1986, are as follows:
I
THE FINDINGS OF THE COMMISSIONER, AS ADOPTED BY THE TRIAL COURT,
AND AFFIRMED BOTH BY THE COURT OF APPEALS AND THIS HONORABLE

THE LEGAL DUTY OF PBA TO PROVIDE FULLTIME AND ACTIVE SUPERVISION

IN THE CONSTRUCTION OF THE SUBJECT BUILDING IS IMIPOSED BY PUBLIC
INTTEREST USAGE AND CUSTOM; FAILING IN THAT DUTY, PBA MUST BEAR
AND/OR SHARE IN ANY LIABILITY FOR DAMAGES IN THE PREMISES.
III
LIABILITY, IF ANY, FOR THE DAMAGE OF THE SUBJECT BUILDING MUST BE
BORNE BY ALL THE PARTIES IN ACCORDANCE WITH THE COMMISSIONER'S
FINDINGS AND WITH DUE REGARD TO THE CONDITION OF THE BUILDING
PRIOR TO PBA'S DEMOLITION THEREOF.
IV
THE FINDING OF BAD FAITH IS NOT WARRANTED IN FACT AND IS WITHOUT
BASIS IN LAW.
V
THE AWARD OF DAMAGES COUCHED IN GENERAL TERMS IS DEFECTIVE;
MOREOVER IT IS UNWARRANTED BY THE FACTS AND THE LAW.
VI
THE AWARD OF ATTORNEYS FEES IN THE AMOUNT OF P100,000.00 IS
UWARRANTED.
VII

66

THE INTEREST OF TWELVE PER CENT (12%) PER ANNUM IMPOSED ON THE
TOTAL AMOUNT OF THE MONETARY AWARD IS IN CONTRAVENTION OF LAW.

Citing the case of Tucker v. Milan (49 O.G. 4379, 4380) as the case in point, the
pertinent portion of the decision reads:

It will be noted that not unlike the motion for reconsideration filed by petitioner Juan
F. Nakpil and Sons, which was denied in the resolution of April 1, 1987, there is
nothing in the motion for reconsideration filed by the United Construction Co., Inc.
that was not fully discussed in the assailed decision of October 3, 1986.

One who negligently creates a dangerous condition cannot escape

hability for the natural and probable consequences thereof, although
the act of a third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss.

II

United Construction Co., Inc. (UNITED for short), gave considerable emphasis on
the fact that the PBA building did not collapse as found by the trial court and affirmed
by the Court of Appeals. Otherwise stated, UNITED wishes to stress that subject
building did not disintegrate completely as the term "collapse" is supposed to
connote.

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

Be that as it may, it will be observed that in the assasiled decision, this Court is in
complete accord with the findings of the trial court and affirmed by the Court of
Appeals, that after the April 2, 1968 earthquake the building in question was not
totally lost, the collapse was only partial and the building could still be restored at the
expense of P900,000.00. But after the subsequent earthquake on April 7, 9, and 12,
1970 there was no question that further damage was caused to the property
resulting in an eventual and unavoidable collapse or demolition (compete collapse).
In fact, on April 30, 1970 the building was authorized by the trial court to be
demolished at the expense of the plaintiff. Note that a needed demolition is in fact a
form of "collapse".
The bone of contention is therefore, not on the fact of collapse but on who should
shoulder the damages resulting from the partial and eventual collapse. As ruled by
this Court in said decision, there should be no question that the NAKPILS and
UNITED are liable for the damage.

III
UNITED points out that bad faith is a question of fact which was not established. The
Commissioner, the trial court and the Court of Appeals, all of which are triers of fact,
allegedly concede that there was negligence but not bad faith.
A careful study of the decision will show that there is no contradiction between the
above finding of negligence by the trial court which was formed by the Court of

67

Appeals and the ruling of this Court. On the contrary, on the basis of such finding, it
was held that such wanton negligence of both the defendant and the third-party
defendants in effecting the plans, designs, specifications, and construction of the
PBA building is equivalent to bad faith in the performance of their respective tasks
(Decision, p. 28).

court (Magbanua v. IAC, 137 SCRA 332 [1985]). Earlier, this Court has ruled that an
award of 10% of the amount of total recovery, for attomey's fees, is reasonable.
(Central Bank of the Phil. v. Court of Appeals, 63 SCRA 435 (1975]).

IV & V

There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 (passed pursuant to the authority granted to the Central Bank
by P.D. No. 116 which amended Act No. 2655, otherwise known as the Usury Law) is
applicable only in the following: (1) loans; (2) forbearance of any money, goods or
credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits). (Philippine Rabbit
Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139
SCRA 260 (1985)). It is true that in the instant case, there is neither a loan or a
forbearance, but then no interest is actually being imposed provided the sums
referred to in the judgment are paid upon the finality of the judgment. It is delay in
the payment of such final judgment, that will cause the imposition of the interest.

UNITED takes exception to the five (5) fold increase in the award of damages from
P1,189,335.00 to P5 million pesos. It is claimed that the report of the Commissioner
speaks of only P1,100,000.00 so that there is no basis for such award. It will be
recalled that the estimate of the Commissioner was limited to P1,100,000.00 for cost
of repairs after the partial collapse of the building on April 2, 1968 but not after its
total collapse reswting from the subsequent earthquakes. It is therefore evident that
the actual cost of total reconstruction of the building him question was not
considered by the commissioner in the computation. Considering further the present
cost of reconstruction, the new amount (arrived at almost 20 years later) is far from
being excessive. It is indeed a very conservative estimate.
Any allegation that PBA could have mitigated its loss by executing an offer to
purchase the building prior to its complete demolition loses sight of the fact, that the
offer was very low, considering the combined value of the building and the lot.
In addition, there is merit in the PBA claim that the unrealized rental income awarded
to it should not be limited to a period of one-half year but should be computed on a
continuing basis at the rate of P178,671.76 a year until judgment for the principal
amount shag have been satisfied. Thus, this Court awarded an "indemnity in favor of
the Philippine Bar Assodation of FIVE MILLION (P5,000,000.00) Pesos to cover
damages (with the exception of attorney's fees) occasioned by the loss of the
building (including interest charges and lost rentals) ...
As for the award of attorney's fees, there is no question that the size of attorney's
fees as well as the amount of damages, is subject to the sound discretion of the

VI

It will be noted that in the cases already adverted to, the rate of interest is imposed
on the total sum from the filing of the complaint until paid; in other words, as part of
the judgment for damages. Clearly they are not applicable to the instant case.
PREMISES CONSIDERED, UNITED's motion for reconsideration is hereby
DENIED; the NAKPILS" motion for leave to file second motion for reconsideration is
also DENIED, the latters" first motion on the same grounds having been already
denied with finality in the resolution of April 3, 1987. Needless to say, the Motion to
Refer this case to the Court En Banc is DENIED, in view of all the things stated in
this Resolution.
SO ORDERED.
Fernan (Chairman), Padilla, Bidin and Cortes, JJ., concur.

68

Gutierrez, J., took no part.

G.R. No. 168151

September 4, 2009

REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING

AGENCY, Petitioners,
vs.
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.
DECISION
BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional
Container Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to
annul and set aside the decision1 and resolution2 of the Court of Appeals (CA) dated
May 26, 2004 and May 10, 2005, respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines
through its agent, EDSA Shipping, a domestic corporation organized and existing
under Philippine laws. Respondent Netherlands Insurance Company (Philippines),
Inc. (Netherlands Insurance) is likewise a domestic corporation engaged in the
marine underwriting business.
FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to
be shipped from Singapore to Manila for Temic Telefunken Microelectronics
Philippines (Temic). U-Freight Singapore PTE Ltd.3 (U-Freight Singapore), a
forwarding agent based in Singapore, contracted the services of Pacific Eagle Lines
PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The cargo was packed,
stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660 with
Seal No. 13223. As the cargo was highly perishable, the inside of the container had
to be kept at a temperature of 0 Celsius. Pacific Eagle then loaded the refrigerated
container on board the M/V Piya Bhum, a vessel owned by RCL, with which Pacific
Eagle had a slot charter agreement. RCL duly issued its own Bill of Lading in favor of
Pacific Eagle.

69

To insure the cargo against loss and damage, Netherlands Insurance issued a
Marine Open Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine
Risk Note MRN-21 14022, to cover all losses/damages to the shipment.
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the
refrigerated container, it was plugged to the power terminal of the pier to keep its
temperature constant. Fidel Rocha (Rocha), Vice-President for Operations of
Marines Adjustment Corporation, accompanied by two surveyors, conducted a
protective survey of the cargo. They found that based on the temperature chart, the
temperature reading was constant from October 18, 1995 to October 25, 1995 at 0
Celsius. However, at midnight of October 25, 1995 when the cargo had already
been unloaded from the ship the temperature fluctuated with a reading of 33
Celsius. Rocha believed the fluctuation was caused by the burnt condenser fan
motor of the refrigerated container.
On November 9, 1995, Temic received the shipment. It found the cargo completely
damaged. Temic filed a claim for cargo loss against Netherlands Insurance, with
supporting claims documents. The Netherlands Insurance paid Temic the sum
ofP1,036,497.00 under the terms of the Marine Open Policy. Temic then executed a
loss and subrogation receipt in favor of Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance
filed a complaint for subrogation of insurance settlement with the Regional Trial
Court, Branch 5, Manila, against "the unknown owner of M/V Piya Bhum" and TMS
Ship Agencies (TMS), the latter thought to be the local agent of M/V Piya Bhums
unknown owner.4 The complaint was docketed as Civil Case No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead
EDSA Shipping, RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and UOcean (Phils.), Inc. (U-Ocean), as additional defendants. A third amended complaint
was later made, impleading Pacific Eagle in substitution of Eagle Liner Shipping
Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their
answers with cross-claim and compulsory counterclaim to the second amended
complaint. U-Ocean likewise filed an answer with compulsory counterclaim and
cross-claim. During the pendency of the case, U-Ocean, jointly with U-Freight

Singapore, filed another answer with compulsory counterclaim. Only Pacific Eagle
and TMS filed their answers to the third amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo, citing
several reasons why Netherland Insurances claims must be rejected. Specifically,
RCL and EDSA Shipping denied negligence in the transport of the cargo; they
attributed any negligence that may have caused the loss of the shipment to their codefendants. They likewise asserted that no valid subrogation exists, as the payment
made by Netherlands Insurance to the consignee was invalid. By way of affirmative
defenses, RCL and EDSA Shipping averred that the Netherlands Insurance has no
cause of action, and is not the real party-in-interest, and that the claim is barred by
laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the defendants
including RCL and EDSA Shipping sought leave of court to file their respective
motions to dismiss based on demurrer to evidence.
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had
(1) failed to prove any valid subrogation, and (2) failed to establish that any
negligence on their part or that the loss was sustained while the cargo was in their
custody.
On May 22, 2002, the trial court handed down an Order dismissing Civil Case No.
96-78612 on demurrer to evidence. The trial court ruled that while there was valid
subrogation, the defendants could not be held liable for the loss or damage, as their
respective liabilities ended at the time of the discharge of the cargo from the ship at
the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the CA.
On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint against
defendants Regional Container Lines and Its local agent, EDSA Shipping Agency, is
REVERSED and SET ASIDE. The dismissal of the complaint against the other
defendants is AFFIRMED. Pursuant to Section 1, Rule 33 of the 1997 Rules of Civil

70

Procedure, defendants Regional Container Lines and EDSA Shipping Agency are
deemed to have waived the right to present evidence.

1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

2) Act of the public enemy in war, whether international or civil;

As such, defendants Regional Container Lines and EDSA Shipping Agency are
ordered to reimburse plaintiff in the sum ofP1,036,497.00 with interest from date
hereof until fully paid.

3) Act of omission of the shipper or owner of the goods;

4) The character of the goods or defects in the packing or in the containers;

No costs.
5) Order or act of competent public authority.
SO ORDERED. [Emphasis supplied.]
The CA dismissed Netherland Insurances complaint against the other defendants
after finding that the claim had already been barred by prescription. 5
Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed
a motion for reconsideration, but the CA maintained its original conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and EDSA
Shipping liable as common carriers under the theory of presumption of negligence.

ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed, or deteriorated, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the sane are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them,
without prejudice to the provisions of articles 1738.

THE COURTS RULING

The present case is governed by the following provisions of the Civil Code:
ART. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in articles1755 and 1756.
ART. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
only:

ART. 1738. The extraordinary liability of the common carrier continues to be

operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be
caused by the character of the goods, or the faulty nature of the packing or of the
containers, the common carrier must exercise due diligence to forestall or lessen the
loss.
In Central Shipping Company, Inc. v. Insurance Company of North America, 6 we
reiterated the rules for the liability of a common carrier for lost or damaged cargo as
follows:

71

(1) Common carriers are bound to observe extraordinary diligence over the
goods they transport, according to all the circumstances of each case;

more than merely show that some other party could be responsible for the
damage.10

(2) In the event of loss, destruction, or deterioration of the insured goods,

common carriers are responsible, unless they can prove that such loss,
destruction, or deterioration was brought about by, among others, "flood,
storm, earthquake, lightning, or other natural disaster or calamity"; and

In the present case, RCL and EDSA Shipping failed to prove that they did exercise
that degree of diligence required by law over the goods they transported. Indeed,
there is sufficient evidence showing that the fluctuation of the temperature in the
refrigerated container van, as recorded in the temperature chart, occurred after the
cargo had been discharged from the vessel and was already under the custody of
the arrastre operator, ICTSI. This evidence, however, does not disprove that the
condenser fan which caused the fluctuation of the temperature in the refrigerated
container was not damaged while the cargo was being unloaded from the ship. It is
settled in maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier;11 RCL and EDSA Shipping failed to dispute
this.1avvphi1

(3) In all other cases not specified under Article 1734 of the Civil Code,
common carriers are presumed to have been at fault or to have acted
negligently, unless they observed extraordinary diligence. 7
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss
or damage to the goods in question. They contend that the cause of the damage to
the cargo was the "fluctuation of the temperature in the reefer van," which fluctuation
occurred after the cargo had already been discharged from the vessel; no
fluctuation, they point out, arose when the cargo was still on board M/V Piya Bhum.
As the cause of the damage to the cargo occurred after the same was already
discharged from the vessel and was under the custody of the arrastre operator
(International Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping
posit that the presumption of negligence provided in Article 1735 of the Civil Code
should not apply. What applies in this case is Article 1734, particularly paragraphs 3
and 4 thereof, which exempts the carrier from liability for loss or damage to the
cargo when it is caused either by an act or omission of the shipper or by the
character of the goods or defects in the packing or in the containers. Thus, RCL and
EDSA Shipping seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. 8 When the goods
shipped are either lost or arrived in damaged condition, a presumption arises against
the carrier of its failure to observe that diligence, and there need not be an express
finding of negligence to hold it liable.91avvphi1
To overcome the presumption of negligence, the common carrier must establish by
adequate proof that it exercised extraordinary diligence over the goods. It must do

RCL and EDSA Shipping could have offered evidence before the trial court to show
that the damage to the condenser fan did not occur: (1) while the cargo was in
transit; (2) while they were in the act of discharging it from the vessel; or (3) while
they were delivering it actually or constructively to the consignee. They could have
presented proof to show that they exercised extraordinary care and diligence in the
handling of the goods, but they opted to file a demurrer to evidence. As the order
granting their demurrer was reversed on appeal, the CA correctly ruled that they are
deemed to have waived their right to present evidence, 12 and the presumption of
negligence must stand.
It is for this reason as well that we find RCL and EDSA Shippings claim that the loss
or damage to the cargo was caused by a defect in the packing or in the containers.
To exculpate itself from liability for the loss/damage to the cargo under any of the
causes, the common carrier is burdened to prove any of the causes in Article 1734
of the Civil Code claimed by it by a preponderance of evidence. If the carrier
succeeds, the burden of evidence is shifted to the shipper to prove that the carrier is
negligent.13 RCL and EDSA Shipping, however, failed to satisfy this standard of
evidence and in fact offered no evidence at all on this point; a reversal of a dismissal
based on a demurrer to evidence bars the defendant from presenting evidence
supporting its allegations.

72

WHEREFORE, we DENY the petition for review on certiorari filed by the Regional
Container Lines of Singapore and EDSA Shipping Agency. The decision of the Court
of Appeals dated May 26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO.
Costs against the petitioners.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO-MORALES
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

73

Republic of the Philippines

SUPREME COURT
Manila

PREMISES CONSIDERED, the decision appealed from is hereby

affirmed in toto.
The uncontroverted facts of the case 1 are as follows:

SECOND DIVISION
1. xxx xxx xxx
G.R. Nos. 81100-01 February 7, 1990
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS AND ALONSO GATUSLAO, respondents.
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, ALONSO GATUSLAO, AGRO-INDUSTRIAL
DEVELOPMENT OF SILAY-SARAVIA (AIDSISA) AND BACOLOD-MURCIA
AGRICULTURAL COOPERATIVE MARKETING ASSOCIATION (BM-ACMA),
respondents.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.
Taada, Vico & Tan for respondent AIDSISA.
San Juan, Gonzalez, San Agustin & Sinense for respondents Alfonso Gatuslao
and BM-ACMA.
PARAS, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. CV Nos. 59716-59717 promulgated on September 11, 1987
affirming in toto the decision of the Court of First Instance of Negros
Occidental in two consolidated civil cases, the dispositive portion of which
reads as follows:

2. BMMC is the owner and operator of the sugar central in

Bacolod City, Philippines;
3. ALONSO GATUSLAO is a registered planter of the BacolodMurcia Mill District with Plantation Audit No. 3-79, being a
registered owner of Lot Nos. 310, 140, 141 and 101-A of the
Cadastral Survey of Murcia, Negros Occidental, otherwise known
as Hda. San Roque;
4. On May 24, 1957 BMMC and Alonso Gatuslao executed an
'Extension and Modification of Milling Contract (Annex 'A' of the
complaint in both cases) which was registered on September 17,
1962 in the Office of the Register of Deeds of Negros Occidental,
and annotated on Transfer Certificates of Title Nos. T-24207, RT2252, RT-12035, and RT-12036 covering said Lot Nos. 310, 140,
141 and 101-A;
5. That since the crop year 1957-1958 up to crop year 1967-1968,
inclusive, Alonso Gatuslao has been milling all the sugarcane
grown and produced on said Lot Nos. 310, 140, 141 and 101-A
with the Mill of BMMC;.
6. Since the crop year 1920-21 to crop year 1967-1968, inclusive,
the canes of planters adhered to the mill of BMMC were
transported from the plantation to the mill by means of cane cars
and through railway system operated by BMMC;

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7. The loading points at which planters Alonso Gatuslao was and

should deliver and load all his canes produced in his plantation,
Hda. San Roque, were at the Arimas Line, Switch 2, and from
which loading stations, BMMC had been hauling planter
Gatuslao's sugar cane to its mill or factory continuously until the
crop year 1967-68;
8. BMMC had not been able to use its cane cars and railway
system for the cargo crop year 1968-1969;
9. Planter Alonso Gatuslao on various dates requested
transportation facilities of BMMC to be sent to his loading
stations or switches for purposes of hauling and milling his
sugarcane crops of crop year 1968-1969;
10. The estimated gross production of Hda. San Roque for the
crop year 1968-1969 is 4,500 piculs.
The records show that since the crop year 1920-1921 to the crop year 19671968, the canes of the adhered planters were transported from the plantation
to the mill of BMMC by means of cane cars and through a railway system
operated by BMMC which traversed the land of the adherent planters,
corresponding to the rights of way on their lands granted by the planters to
the Central for the duration of the milling contracts which is for "un periodo de
cuarenta y cinco anos o cosechas a contar desde la cosecha de 19201921" 2 (a period of 45 years or harvests, beginning with a harvest of 19201921).
BMMC constructed the railroad tracks in 1920 and the adherent planters
granted the BMMC a right of way over their lands as provided for in the milling
contracts. The owners of the hacienda Helvetia were among the signatories of
the milling contracts. When their milling contracts with petitioner BMMC

expired at the end of the 1964-1965 crop year, the corresponding right of way
of the owners of the hacienda Helvetia granted to the Central also expired.
Thus, the BMMC was unable to use its railroad facilities during the crop year
1968-1969 due to the closure in 1968 of the portion of the railway traversing
the hacienda Helvetia as per decision of the Court in Angela Estate, Inc.
and Fernando F. Gonzaga, Inc. v. Court of First Instance of Negros
Occidental, G.R. No. L-27084, (24 SCRA 500 [1968]). In the same case the Court
ruled that the Central's conventional right of way over the hacienda Helvetia
ceased with the expiration of its amended milling contracts with the
landowners of the hacienda at the end of the 1964-1965 crop year and that in
the absence of a renewal contract or the establishment of a compulsory
servitude of right of way on the same spot and route which must be predicated
on the satisfaction of the preconditions required by law, there subsists no
right of way to be protected.
Consequently, the owners of the hacienda Helvetia required the Central to
remove the railway tracks in the hacienda occupying at least 3,245 lineal
meters with a width of 7 meters or a total of 22,715 square meters, more or
less. That was the natural consequence of the expiration of the milling
contracts with the landowners of the hacienda Helvetia (Angela Estate, Inc.
and Fernando Gonzaga, Inc. v. Court of First Instance of Negros
Occidental, ibid). BMMC filed a complaint for legal easement against the
owners of the hacienda, with the Court of First Instance of Negros Occidental
which issued on October 4, 1965 an ex parte writ of preliminary injunction
restraining the landowners from reversing and/or destroying the railroad
tracks in question and from impeding, obstructing or in any way preventing
the passage and operation of plaintiffs locomotives and cane cars over
defendants' property during the pendency of the litigation and maintained the
same in its subsequent orders of May 31, and November 26, 1966. The
outcome of the case, however, was not favorable to the plaintiff BMMC. In the
same case the landowners asked this Court to restrain the lower court from

75

enforcing the writ of preliminary injunction it issued, praying that after the
hearing on the merits, the restraining order be made permanent and the orders
complained of be annulled and set aside. The Court gave due course to the
landowner's petition and on August 10, 1967 issued the writ of preliminary
injunction enjoining the lower court from enforcing the writ of preliminary
injunction issued by the latter on October 4, 1965.
The writ of preliminary injunction issued by the Court was lifted temporarily on
motion that through the mediation of the President of the Philippines the
Angela Estate and the Gonzaga Estate agreed with the Central to allow the use
of the railroad tracks passing through the hacienda Helvetia during the 19671968 milling season only, for the same purpose for which they had been
previously used, but it was understood that the lifting of the writ was without
prejudice to the respective rights and positions of the parties in the case and
not deemed a waiver of any of their respective claims and allegations in G.R.
No. L-27084 or in any other case between the same parties, future or pending.
The Court resolved to approve the motion only up to and including June 30,
1968 to give effect to the agreement but to be deemed automatically reinstated
beginning July 1, 1968 (Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v.
Court of First Instance of Negros Occidental,ibid.).
The temporary lifting of the writ of preliminary injunction assured the milling
of the 1967-1968 crop but not the produce of the succeeding crop years which
situation was duly communicated by the President and General Manager of
the BMMC to the President of Bacolod-Murcia Sugar Farmers Corporation
(BMSFC) on January 2, 1968. 3
On October 30, 1968, Alonso Gatuslao, one of private respondents herein, and
his wife, Maria H. Gatuslao, filed Civil Case No. 8719 in the Court of First
Instance of Negros Occidental, against petitioner herein, Bacolod-Murcia
Milling Co., Inc. (BMMC), for breach of contract, praying among others, for the
issuance of a writ of preliminary mandatory injunction ordering defendant to

immediately send transportation facilities and haul the already cut sugarcane
to the mill site and principally praying after hearing, that judgment be rendered
declaring the rescission of the milling contract executed by plaintiffs and
defendant in 1957 for seventeen (17) years or up to crop year 1973-74,
invoking as ground the alleged failure and/or inability of defendant to comply
with its specific obligation of providing the necessary transportation facilities
to haul the sugarcane of Gatuslao from plaintiffs plantation specifically for the
crop year 1967-1968. Plaintiffs further prayed for the recovery of actual and
compensatory damages as well as moral and exemplary damages and
attorney's fees. 4
In answer, defendant BMMC claimed that despite its inability to use its
railways system for its locomotives and cane cars to haul the sugarcanes of
all its adhered planters including plaintiffs for the 1968-69 crop year allegedly
due to force majeure, in order to comply with its obligation, defendant hired at
tremendous expense, private trucks as prime movers for its trailers to be used
for hauling of the canes, especially for those who applied for and requested
transportation facilities. Plaintiffs, being one of said planters, instead of
loading their cut canes for the 1968-69 crop on the cargo trucks of defendant,
loaded their cut canes on trucks provided by the Bacolod-Murcia Agricultural
Cooperative Marketing Association, Inc. (B-M ACMA) which transported
plaintiffs' canes of the 1968-69 sugarcanes crop. Defendant prayed in its
counterclaim for the dismissal of Civil Case No. 8719 for the recovery of actual
damages, moral and exemplary damages and for attorney's fees. 5
On November 21, 1968, BMMC filed in the same court Civil Case No. 8745
against Alonso Gatuslao, the Agro-Industrial Development of Silay-Saravia
(AIDSISA) and the Bacolod-Murcia Agricultural Cooperative Marketing
Associations, Inc. (B-M ACMA), seeking specific performance under the
mining contract executed on May 24, 1957 between plaintiff and defendant
Alonso Gatuslao praying for the issuance of writs of preliminary mandatory
injunction to stop the alleged violation of the contract by defendant Alonso

76

Gatuslao in confederation, collaboration and connivance with defendant BMACMA, AIDSISA, and for the recovery of actual, moral and exemplary damages
and attorney's fees. 6
Defendant Alonso Gatuslao and the Bacolod-Murcia Agricultural Cooperative
Marketing Association, Inc. filed their answer on January 27, 1969 with
compulsory counter-claims, stating by way of special and affirmative defense,
among others, that the case is barred by another action pending between the
same parties for the same cause of action. 7
Defendant Agro-Industrial Development Corporation of Silay-Saravia, Inc. filed
its answer on February 8, 1969, alleging among others by way of affirmative
defense that before it agreed to mill the sugarcane of its co-defendant Alonso
Gatuslao, it carefully ascertained and believed in good faith that: (a) plaintiff
was incapable of the sugarcane of AIDSISA's co-defendant planters as well as
the sugarcane of other planters formerly adherent to plaintiff, (b) plaintiff had
in effect agreed to a rescission of its milling contracts with its adhered
planters, including the defendant planter, because of inadequate means of
transportation. and had warned and advised them to mill their sugarcane
elsewhere, and had thus induced them to believe and act on the belief, that it
could not mill their sugarcane and that it would not object to their milling with
other centrals; and (c) up to now plaintiff is incapable of hauling the
sugarcane of AIDSISA's co-defendants to plaintiffs mill site for milling
purposes.
The two cases, Civil Cases Nos. 8719 and 8745 were consolidated for joint trial
before Branch II of the Court of First Instance of Negros Occidental. 8 On
September 8, 1969, the parties in both civil cases filed their partial stipulation
of facts which included a statement of the issues raised by the parties. 9
On February 6, 1976, the lower court rendered judgment declaring the milling
contract dated May 24, 1957 rescinded. The dispositive portion of the
decision 10 reads:

WHEREFORE, judgment is hereby rendered as follows:

(1) In Civil Case No. 8719 the milling contract (Exh. "121") dated
May 24, 1957 is hereby declared rescinded or resolved and the
defendant Bacolod-Murcia Company, Inc. is hereby ordered to pay
plaintiffs Alonso Gatuslao and Maria H. Gatuslao the amount of
P2,625.00 with legal interest from the time of the filing of the
complaint by way of actual damages; P5,000.00 as attorney's fees
and the costs of the suit; defendant's counterclaim is dismissed;
and
(2) The complaint in Civil Case No. 8745 as well as the
counterclaims therein are ordered dismissed, without costs.
Bacolod-Murcia Milling Co., Inc. defendant in Civil Case No. 8719 and plaintiff
in Civil Case No. 8745 appealed the case to respondent Court of Appeals
which affirmed in toto (Rollo, p. 81) the decision of the lower court. The motion
for reconsideration filed by defendant-appellant Bacolod-Murcia Milling
Company, petitioner herein, was denied by the appellate court for lack of
merit. 11 Hence, this petition.
The issues 12 raised by petitioner are as follows:
I
WHETHER OR NOT THE CLOSURE OF PETITIONER'S RAIL ROAD
LINES CONSTITUTE FORCE MAJEURE.
II
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO HAS THE
RIGHT TO RESCIND THE MILLING CONTRACT WITH PETITIONER
UNDER ARTICLE 1191 OF THE CIVIL CODE.

77

III
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO WAS
JUSTIFIED IN VIOLATING HIS MILLING CONTRACT WITH
PETITIONER.
IV
WHETHER OR NOT PRIVATE RESPONDENTS GATUSLAO AND BM ACMA ARE GUILTY OF BAD FAITH IN THE EXERCISE OF THEIR
DUTIES AND ARE IN ESTOPPEL TO QUESTION THE ADEQUACY
OF THE TRANSPORTATION FACILITIES OF PETITIONER AND ITS
CAPACITY TO MILL AND HAUL THE CANES OF ITS ADHERENT
PLANTERS.
The crux of the issue is whether or not the termination of petitioner's right of
way over the hacienda Helvetia caused by the expiration of its amended
milling contracts with the landowners of the lands in question is a fortuitous
event or force majeure which will exempt petitioner BMMC from fulfillment of
its contractual obligations.
It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) that the
closure of its railroad lines constitute force majeure, citing Article 1174 of the
Civil Code, exempting a person from liability for events which could not be
foreseen or which though foreseen were inevitable.
This Court has consistently ruled that when an obligor is exempted from
liability under the aforecited provision of the Civil Code for a breach of an
obligation due to an act of God, the following elements must concur: (a) the
cause of the breach of the obligation must be independent of the wig 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; (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 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596
[1986]). Applying the criteria to the instant case, there can be no other
conclusion than that the closure of the railroad tracks does not
constitute force majeure.
The terms of the milling contracts were clear and undoubtedly there was no
reason for BAMC to expect otherwise. The closure of any portion of the
railroad track, not necessarily in the hacienda Helvetia but in any of the
properties whose owners decided not to renew their milling contracts with the
Central upon their expiration, was forseeable and inevitable.
Petitioner Central should have anticipated and should have provided for the
eventuality before committing itself. Under the circumstances it has no one to
blame but itself and cannot now claim exemption from liability.
In the language of the law, the event must have been impossible to foresee, or
if it could be foreseen, must have been impossible to avoid. There must be an
entire exclusion of human agency from the cause of the injury or loss
(Vasquez v. Court of Appeals, supra). In the case at bar, despite its awareness
that the conventional contract of lease would expire in Crop Year 1964-1965
and that refusal on the part of any one of the landowners to renew their milling
contracts and the corresponding use of the right of way on their lands would
render impossible compliance of its commitments, petitioner took a calculated
risk that all the landowners would renew their contracts. Unfortunately, the
sugar plantation of Angela Estate, Inc. which is located at the entrance of the
mill was the one which refused to renew its milling contract. As a result, the
closure of the railway located inside said plantation paralyzed the entire
transportation system. Thus, the closure of the railway lines was not an act of
God nor does it constitute force majeure. It was due to the termination of the
contractual relationships of the parties, for which petitioner is charged with
knowledge. Verily, the lower court found that the Angela Estate, Inc. notified

78

BMMC as far back as August or September 1965 of its intention not to allow
the passage of the railway system thru its land after the aforesaid crop year.
Adequate measures should have been adopted by BMMC to forestall such
paralyzation but the records show none. All its efforts were geared toward the
outcome of the court litigation but provided no solutions to the transport
problem early enough in case of an adverse decision.
The last three issues being inter-related will be treated as one. Private
respondent Gatuslao filed an action for rescission while BMMC filed in the
same court an action against Gatuslao, the Agro Industrial Development Silay
Saravia (AIDSISA) and the Bacolod-Murcia Agricultural Cooperative Marketing
Associations, Inc. (B-M ACMA) for specific performance under the milling
contract.
There is no question that the contract in question involves reciprocal
obligations; as such party is a debtor and creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be
performed simultaneously so that the performance of one is conditioned upon
the simultaneous fulfillment of the other (Boysaw v. Interphil Promotions, Inc.,
148 SCRA 643 [1987]).
Under Article 1191 of the Civil Code, the power to rescind obligations is
implied in reciprocal ones in case one of the obligors should not comply with
what is incumbent upon him. In fact, it is well established that the party who
deems the contract violated may consider it revoked or rescinded pursuant to
their agreement and act accordingly, even without previous court action (U.P.
v. de los Angeles, 35 SCRA 102 [1970]; Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 43 SCRA 94 [1972]).
It is the general rule, however, that rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in making
the agreement. The question of whether a breach of a contract is substantial

depends upon the attendant circumstances (Universal Food Corporation v.

Court of Appeals, et al., 33 SCRA 1 [1970]).
The issue therefore, hinges on who is guilty of the breach of the milling
contract.
Both parties are agreed that time is of the essence in the sugar industry; so
that the sugarcanes have to be milled at the right time, not too early or too
late, if the quantity and quality of the juice are to be assured. As found by the
trial court, upon the execution of the amended milling contract on May 24,
1957 for a period of 17 crop years, BMMC undertook expressly among its
principal prestations not only to mill Gatuslao's canes but to haul them by
railway from the loading stations to the mill. Atty. Solidum, Chief Legal
Counsel and in Charge of the Legal-Crop Loan Department of the BMMC
Bacolod City admits that the mode of transportation of canes from the fields to
the mill is a vital factor in the sugar industry; precisely for this reason the
mode of transportation or hauling the canes is embodied in the milling
contract. 13 But BMMC is now unable to haul the canes by railways as
stipulated because of the closure of the railway lines; so that resolution of this
issue ultimately rests on whether or not BMMC was able to provide adequate
and efficient transportation facilities of the canes of Gatuslao and the other
planters milling with BMMC during the crop year 1968-1969. As found by both
the trial court and the Court of Appeals, the answer is in the negative.
Armando Guanzon, Dispatcher of the Transportation Department of BMMC
testified that when the Central was still using the railway lines, it had between
900 to 1,000 cane cars and 10 locomotives, each locomotive pulling from 30 to
50 cane cars with maximum capacity of 8 tons each. 14 This testimony was
corroborated by Rodolfo Javelosa, Assistant Crop Loan Inspector in the Crop
Loan Department of petitioner. 15 After the closure of the railway lines,
petitioner on February 5, 1968 through its President and General Manager,
informed the National Committee of the National Federation of Sugarcane

79

Planters that the trucking requirement for hauling adherent planters produce
with a milling average of 3,500 tons of canes daily at an average load of 5 tons
per truck is not less than 700 trucks daily plus another 700 empty trucks to be
shuttled back to the plantations to be available for loading the same
day. 16 Guanzon, however, testified that petitioner had only 280 units of trailers,
20 tractors and 3 trucks plus 20 trucks more or less hired by the Central and
given as repartos (allotments) to the different planters. 17 The 180 trailers that
the Central initially had were permanently leased to some planters who had
their own cargo trucks while out of the 250 BMMC trailers existing during the
entire milling season only 70 were left available to the rest of the planters
pulled by 3 trucks. 18
It is true that BMMC purchased 20 units John Deere Tractors (prime movers)
and 230 units, Vanguard Trailers with land capacity of 3 tons each but that was
only on October 1968 as registered in the Land Transportation Commission,
Bacolod City. 19
The evidence shows that great efforts had been exerted by the planters to
enter into some concrete understanding with BMMC with a view of obtaining a
reasonable assurance that the latter would be able to haul and mill their canes
for the 1968-1969 crop year, but to no avail. 20
As admitted by BMMC itself, in its communications with the planters, it is not
in a position to provide adequate transportation for the canes in compliance
with its commitment under the milling contract. Said communications 21 were
quoted by the Court of Appeals as follows:
We are sorry to inform you that unless we can work out a fair and
equitable solution to this problem of closure of our railroad lines,
the milling of your canes for the crop year 1968-69 would be
greatly hampered to the great detriment of our economy and the
near elimination of the means of livelihood of most planters and

the possible starvation of thousands of laborers working in the

sugar District of Bacolod-Murcia Milling Co.
and
We are fully conscious of our contractual obligations to our
existing Milling Contract. But, if prevented by judicial order we
will find ourselves unable to serve you in the hauling of the canes
through our railroad lines. It is for this reason that we suggest
you explore other solutions to the problem in the face of such an
eventuality so that you may be able to proceed with the planting
of your canes with absolute peace of mind and the certainty that
the same will be properly milled and not left to rot in the fields.
also,
In the meantime, and before July 1, 1968, the end of the temporary
arrangement we have with Fernando Gonzaga, Inc. and the
Angela Estate, Inc. for the use of the rights of ways, our lawyers
are studying the possibility of getting a new injunction from the
Supreme Court or the Court of First Instance of Negros
Occidental based on the new grounds interposed in said
memorandum not heretofore raised previously nor in the Capitol
Subdivision case. And if we are doing this, it is principally to
prevent any injury to your crops or foreclosure of your property,
which is just in line with the object of your plans.
On March 26, 1968 the President of the Bacolod-Murcia Sugar Farmer's
Corporation writing on behalf of its planter-members demanded to know the
plans of the Central for the crop year 1968-1969, stating that if they fail to hear
from the Central on or before the 15th of April they will feel free to make their
own plans in order to save their crops and the possibility of foreclosure of
their properties. 22

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In its letter dated April 1, 1968, the president of BMMC simply informed the
Bacolod-Murcia Sugar Farmer's Corporation that they were studying the
possibility of getting a new injunction from the court before expiration of their
temporary arrangement with Fernando Gonzaga, Inc. and the Angela Estate,
Inc. 23
Pressing for a more definite commitment (not a mere hope or expectation), on
May 30, 1968 the Bacolod-Murcia Sugar Farmer's Corporation requested the
Central to put up a performance bond in the amount of P13 million within a 5day period to allay the fears of the planters that their sugar canes can not be
milled at the Central in the coming milling season. 24
BMMC's reply was only to express optimism over the final outcome of its
pending cases in court.
Hence, what actually happened afterwards is that petitioner failed to provide
adequate transportation facilities to Gatuslao and other adherent planters.
As found by the trial court, the experience of Alfonso Gatuslao at the start of
the 1968-1969 milling season is reflective of the inadequacies of the reparto or
trailer allotment as well as the state of unpreparedness on the part of BMMC to
meet the problem posed by the closure of the railway lines.
It was established that after Gatuslao had cut his sugarcanes for hauling, no
trailers arrived and when two trailers finally arrived on October 20, 1968 after
several unheeded requests, they were left on the national highway about one
(1) kilometer away from the loading station. Such fact was confirmed by
Carlos Butog the driver of the truck that hauled the trailers. 25
Still further, Javelosa, Assistant Crop Loan Inspector, testified that the
estimated production of Gatuslao for the crop year 1968-1969 was 4,400 piculs
hauled by 10 cane cars a week with a maximum capacity of 8 tons. 26Compared
with his later schedule of only one trailer a week with a maximum capacity of

only 3 to 4 tons, 27 there appears to be no question that the means of

transportation provided by BMMC is very inadequate to answer the needs of
Gatuslao.
Undoubtedly, BMMC is guilty of breach of the conditions of the milling
contract and that Gatuslao is the injured party. Under the same Article 1191 of
the Civil Code, the injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. In
fact, he may also seek rescission even after he had chosen fulfillment if the
latter should become impossible.
Under the foregoing, Gatuslao has the right to rescind the milling contract and
neither the court a quo erred in decreeing the rescission claimed nor the Court
of Appeals in affirming the same.
Conversely, BMMC cannot claim enforcement of the contract. As ruled by this
Court, by virtue of the violations of the terms of the contract, the offending
party has forfeited any right to its enforcement (Boysaw v. Interphil
Promotions, Inc., 148 SCRA 645 [1987]).
Likewise, the Bacolod-Murcia Agricultural Cooperative Marketing Association,
Inc. (B-M ACMA) cannot be faulted for organizing itself to take care of the
needs of its members. Definitely, it was organized at that time when petitioner
could not assure the planters that it could definitely haul and mill their canes.
More importantly, as mentioned earlier in a letter dated January 12, 1968, J.
Araneta, President & General Manager of the Central itself suggested to the
Bacolod-Murcia Sugar Farmer's Corporation that it explore solutions to the
problem of hauling the canes to the milling station in the face of the
eventuality of a judicial order permanently closing the railroad lines so that the
planters may be able to proceed with their planting of the canes with absolute
peace of mind and the certainty that they will be properly milled and not left to
rot in the fields. As a result, the signing of the milling contract between private
respondents AIDSISA and B-M-ACMA on June 19, 1968 28 was a matter of self-

81

preservation inasmuch as the sugarcanes were already matured and the

planters had crop loans to pay. Further delay would mean tremendous
losses. 29

SO ORDERED.
Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

In its defense AIDSISA stressed as earlier stated, that it agreed to mill the
sugarcanes of Gatuslao only after it had carefully ascertained and believed in
good faith that BMMC was incapable of milling the sugarcanes of the adherent
planters because of inadequate transportation and in fact up to now said
Central is incapable of hauling the sugarcanes of the said planters to its mill
site for milling purposes.
As an extra precaution, AIDSISA provided in paragraph 15
contract that

30

of its milling

If any member of the planter has an existing milling contract with

other sugar central, then this milling contract with the Central
shall be of no force and effect with respect to that member or
those members having such contract, if that other sugar central
is able, ready and willing, to mill said member or members' canes
in accordance with their said milling contract. (Emphasis
supplied)
The President of BANC himself induced the planters to believe and to act on
the belief that said Central would not object to the milling of their canes with
other centrals.
Under the circumstances, no evidence of bad faith on the part of private
respondents could be found much less any plausible reason to disturb the
findings and conclusions of the trial court and the Court of Appeals.
PREMISES CONSIDERED, the petition is hereby DENIED for lack of merit and
the decision of the Court of Appeals is hereby AFFIRMED in toto.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

82

G.R. No. 85691 July 31, 1990

BACHELOR EXPRESS, INCORPORATED, and CRESENCIO
RIVERA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (Sixth Division), RICARDO BETER,
SERGIA BETER, TEOFILO RAUTRAUT and ZOETERA RAUTRAUT, respondents.
Aquino W. Gambe for petitioners.
Tranquilino O. Calo, Jr. for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Court of Appeals which reversed
and set aside the order of the Regional Trial Court, Branch I, Butuan City dismissing
the private respondents' complaint for collection of "a sum of money" and finding the
petitioners solidarily liable for damages in the total amount of One Hundred Twenty
Thousand Pesos (P120,000.00). The petitioners also question the appellate court's
resolution denying a motion for reconsideration.
On August 1, 1980, Bus No. 800 owned by Bachelor Express, Inc. and driven by
Cresencio Rivera was the situs of a stampede which resulted in the death of
passengers Ornominio Beter and Narcisa Rautraut.
The evidence shows that the bus came from Davao City on its way to Cagayan de
Oro City passing Butuan City; that while at Tabon-Tabon, Butuan City, the bus picked
up a passenger; that about fifteen (15) minutes later, a passenger at the rear portion
suddenly stabbed a PC soldier which caused commotion and panic among the
passengers; that when the bus stopped, passengers Ornominio Beter and Narcisa
Rautraut were found lying down the road, the former already dead as a result of

head injuries and the latter also suffering from severe injuries which caused her
death later. The passenger assailant alighted from the bus and ran toward the
bushes but was killed by the police. Thereafter, the heirs of Ornominio Beter and
Narcisa Rautraut, private respondents herein (Ricardo Beter and Sergia Beter are
the parents of Ornominio while Teofilo Rautraut and Zoetera [should be Zotera]
Rautraut are the parents of Narcisa) filed a complaint for "sum of money" against
Bachelor Express, Inc. its alleged owner Samson Yasay and the driver Rivera.
In their answer, the petitioners denied liability for the death of Ornominio Beter and
Narcisa Rautraut. They alleged that ... the driver was able to transport his
passengers safely to their respective places of destination except Ornominio Beter
and Narcisa Rautraut who jumped off the bus without the knowledge and consent,
much less, the fault of the driver and conductor and the defendants in this case; the
defendant corporation had exercised due diligence in the choice of its employees to
avoid as much as possible accidents; the incident on August 1, 1980 was not a
traffic accident or vehicular accident; it was an incident or event very much beyond
the control of the defendants; defendants were not parties to the incident complained
of as it was an act of a third party who is not in any way connected with the
defendants and of which the latter have no control and supervision; ..." (Rollo, pp.
112-113).itc-asl
After due trial, the trial court issued an order dated August 8, 1985 dismissing the
complaint.
Upon appeal however, the trial court's decision was reversed and set aside. The
dispositive portion of the decision of the Court of Appeals states:
WHEREFORE, the Decision appealed from is REVERSED and SET
ASIDE and a new one entered finding the appellees jointly and
solidarily liable to pay the plaintiffs-appellants the following amounts:

83

1) To the heirs of Ornominio Beter, the amount of Seventy Five

Thousand Pesos (P75,000.00) in loss of earnings and support, moral
damages, straight death indemnity and attorney's fees; and,
2) To the heirs of Narcisa Rautraut, the amount of Forty Five Thousand
Pesos (P45,000.00) for straight death indemnity, moral damages and
attorney's fees. Costs against appellees. (Rollo, pp. 71-72)
The petitioners now pose the following questions
What was the proximate cause of the whole incident? Why were the
passengers on board the bus panicked (sic) and why were they
shoving one another? Why did Narcisa Rautraut and Ornominio Beter
jump off from the running bus?
The petitioners opine that answers to these questions are material to arrive at "a fair,
just and equitable judgment." (Rollo, p. 5) They claim that the assailed decision is
based on a misapprehension of facts and its conclusion is grounded on speculation,
surmises or conjectures.

As regards the proximate cause of the death of Ornominio Beter and Narcisa
Rautraut, the petitioners maintain that it was the act of the passenger who ran
amuck and stabbed another passenger of the bus. They contend that the stabbing
incident triggered off the commotion and panic among the passengers who pushed
one another and that presumably out of fear and moved by that human instinct of
self-preservation Beter and Rautraut jumped off the bus while the bus was still
running resulting in their untimely death." (Rollo, p. 6) Under these circumstances,
the petitioners asseverate that they were not negligent in the performance of their
duties and that the incident was completely and absolutely attributable to a third
person, the passenger who ran amuck, for without his criminal act, Beter and
Rautraut could not have been subjected to fear and shock which compelled them to
jump off the running bus. They argue that they should not be made liable for
damages arising from acts of third persons over whom they have no control or
supervision.
Furthermore, the petitioners maintain that the driver of the bus, before, during and
after the incident was driving cautiously giving due regard to traffic rules, laws and
regulations. The petitioners also argue that they are not insurers of their passengers
as ruled by the trial court.
The liability, if any, of the petitioners is anchored on culpa contractual or breach of
contract of carriage. The applicable provisions of law under the New Civil Code are
as follows:
ART. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both by land, water, or air, for compensation,
offering their services to the public.
ART. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.

84

xxx xxx xxx

ART. 1755. A common carrier is bound to carry the passengers safely
as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with a due regard for all the
circumstances.
ART. 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755.
There is no question that Bachelor Express, Inc. is a common carrier. Hence, from
the nature of its business and for reasons of public policy Bachelor Express, Inc. is
bound to carry its passengers safely as far as human care and foresight can provide
using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.
In the case at bar, Ornominio Beter and Narcisa Rautraut were passengers of a bus
belonging to petitioner Bachelor Express, Inc. and, while passengers of the bus,
suffered injuries which caused their death. Consequently, pursuant to Article 1756 of
the Civil Code, petitioner Bachelor Express, Inc. is presumed to have acted
negligently unless it can prove that it had observed extraordinary diligence in
accordance with Articles 1733 and 1755 of the New Civil Code.
Bachelor Express, Inc. denies liability for the death of Beter and Rautraut on its
posture that the death of the said passengers was caused by a third person who
was beyond its control and supervision. In effect, the petitioner, in order to overcome
the presumption of fault or negligence under the law, states that the vehicular
incident resulting in the death of passengers Beter and Rautraut was caused by
force majeure or caso fortuito over which the common carrier did not have any
control.

Article 1174 of the present Civil Code states:

Except in cases expressly specified by law, or when it is otherwise
declared by stipulations, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events
which could not be foreseen, or which though foreseen, were
inevitable.
The above-mentioned provision was substantially copied from Article 1105 of the old
Civil Code which states"
No one shall be liable for events which could not be foreseen or which,
even if foreseen, were inevitable, with the exception of the cases in
which the law expressly provides otherwise and those in which the
obligation itself imposes liability.
In the case of Lasam v. Smith (45 Phil. 657 [1924]), we defined "events" which
cannot be foreseen and which, having been foreseen, are inevitable in the following
manner:
... The Spanish authorities regard the language employed as an effort
to define the term 'caso fortuito' and hold that the two expressions are
synonymous. (Manresa Comentarios al Codigo Civil Espaol, vol. 8,
pp. 88 et seq.; Scaevola, Codigo Civil, vol. 19, pp. 526 et seq.)
The antecedent to Article 1105 is found in Law II, Title 33, Partida 7,
which defines caso fortuito as 'occasion que acaese por aventura de
que non se puede ante ver. E son estos, derrivamientos de casas e
fuego que enciende a so ora, e quebrantamiento de navio, fuerca de
ladrones' (An event that takes place by incident and could not have
been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers ...)

85

Escriche defines caso fortuito as an unexpected event or act of God

which could neither be foreseen nor resisted, such as floods, torrents,
shipwrecks, conflagrations, lightning, compulsion, insurrections,
destruction of buildings by unforeseen accidents and other
occurrences of a similar nature.
In discussing and analyzing the term caso fortuito the Enciclopedia
Juridica Espaola says: '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)
Enciclopedia Juridica Espaola, 309)
As will be seen, these authorities agree that some extraordinary
circumstance independent of the will of the obligor or of his employees,
is an essential element of a caso fortuito. ...
The running amuck of the passenger was the proximate cause of the incident as it
triggered off a commotion and panic among the passengers such that the
passengers started running to the sole exit shoving each other resulting in the falling
off the bus by passengers Beter and Rautraut causing them fatal injuries. The
sudden act of the passenger who stabbed another passenger in the bus is within the
context of force majeure.

However, in order that a common carrier may be absolved from liability in case
of force majeure, it is not enough that the accident was caused by force majeure.
The common carrier must still prove that it was not negligent in causing the injuries
resulting from such accident. Thus, as early as 1912, we ruled:
From all the foregoing, it is concluded that the defendant is not liable
for the loss and damage of the goods shipped on the lorcha Pilar by
the Chinaman, Ong Bien Sip, inasmuch as such loss and damage
were the result of a fortuitous event or force majeure, and there was
no negligence or lack of care and diligence on the part of the
defendant company or its agents. (Tan Chiong Sian v. Inchausti & Co.,
22 Phil. 152 [1912]; Emphasis supplied).
This principle was reiterated in a more recent case, Batangas Laguna Tayabas Co.
v. Intermediate Appellate Court (167 SCRA 379 [1988]), wherein we ruled:
... [F]or their defense of force majeure or act of God to prosper the
accident must be due to natural causes and exclusively without human
intervention. (Emphasis supplied)
Therefore, the next question to be determined is whether or not the petitioner's
common carrier observed extraordinary diligence to safeguard the lives of its
passengers.
In this regard the trial court and the appellate court arrived at conflicting factual
findings.
The trial court found the following facts:
The parties presented conflicting evidence as to how the two deceased
Narcisa Rautruat and Ornominio Beter met their deaths.

86

However, from the evidence adduced by the plaintiffs, the Court could
not see why the two deceased could have fallen off the bus when their
own witnesses testified that when the commotion ensued inside the
bus, the passengers pushed and shoved each other towards the door
apparently in order to get off from the bus through the door. But the
passengers also could not pass through the door because according to
the evidence the door was locked.
On the other hand, the Court is inclined to give credence to the
evidence adduced by the defendants that when the commotion ensued
inside the bus, the two deceased panicked and, in state of shock and
fear, they jumped off from the bus by passing through the window.
It is the prevailing rule and settled jurisprudence that transportation
companies are not insurers of their passengers. The evidence on
record does not show that defendants' personnel were negligent in
their duties. The defendants' personnel have every right to accept
passengers absent any manifestation of violence or drunkenness. If
and when such passengers harm other passengers without the
knowledge of the transportation company's personnel, the latter should
not be faulted. (Rollo, pp. 46-47)
A thorough examination of the records, however, show that there are material facts
ignored by the trial court which were discussed by the appellate court to arrive at a
different conclusion. These circumstances show that the petitioner common carrier
was negligent in the provision of safety precautions so that its passengers may be
transported safely to their destinations. The appellate court states:
A critical eye must be accorded the lower court's conclusions of fact in
its tersely written ratio decidendi. The lower court concluded that the
door of the bus was closed; secondly, the passengers, specifically the
two deceased, jumped out of the window. The lower court therefore
concluded that the defendant common carrier is not liable for the death

of the said passengers which it implicitly attributed to the unforeseen

acts of the unidentified passenger who went amuck.
There is nothing in the record to support the conclusion that the solitary
door of the bus was locked as to prevent the passengers from passing
through. Leonila Cullano, testifying for the defense, clearly stated that
the conductor opened the door when the passengers were shouting
that the bus stop while they were in a state of panic. Sergia Beter
categorically stated that she actually saw her son fall from the bus as
the door was forced open by the force of the onrushing passengers.
Pedro Collango, on the other hand, testified that he shut the door after
the last passenger had boarded the bus. But he had quite conveniently
neglected to say that when the passengers had panicked, he himself
panicked and had gone to open the door. Portions of the testimony of
Leonila Cullano, quoted below, are illuminating:
xxx xxx xxx
Q When you said the conductor opened the door, the door at the front
or rear portion of the bus?
A Front door.
Q And these two persons whom you said alighted, where did they
pass, the fron(t) door or rear door?
A Front door.
xxx xxx xxx
(Tsn., p. 4, Aug. 8, 1984)

87

xxx xxx xxx

Q What happened after there was a commotion at the rear portion of
the bus?
A When the commotion occurred, I stood up and I noticed that there
was a passenger who was sounded (sic). The conductor panicked
because the passengers were shouting 'stop, stop'. The conductor
opened the bus.'

A Yes, your Honor, but the speed was slow because we have just
picked up a passenger.
Atty. Gambe:
Q You said that at the time of the incident the bus was running slow
because you have just picked up a passenger. Can you estimate what
was your speed at that time?
Atty. Calo:

(Tsn. p. 3, August 8, 1984).

No basis, your Honor, he is neither a driver nor a conductor.
Accordingly, there is no reason to believe that the deceased
passengers jumped from the window when it was entirely possible for
them to have alighted through the door. The lower court's reliance on
the testimony of Pedro Collango, as the conductor and employee of
the common carrier, is unjustified, in the light of the clear testimony of
Leonila Cullano as the sole uninterested eyewitness of the entire
episode. Instead we find Pedro Collango's testimony to be infused by
bias and fraught with inconsistencies, if not notably unreliable for lack
of veracity. On direct examination, he testified:
xxx xxx xxx
Q So what happened to the passengers inside your bus?
A Some of the passengers jumped out of the window.
COURT:
Q While the bus was in motion?

COURT:
Let the witness answer. Estimate only, the conductor experienced.
Witness:
Not less than 30 to 40 miles.
COURT:
Kilometers or miles?
A Miles.
Atty. Gambe:
Q That is only your estimate by your experience?
A Yes, sir, estimate.
(Tsn., pp. 4-5, Oct. 17, 1983).

88

At such speed of not less than 30 to 40 miles ..., or about 48 to 65

kilometers per hour, the speed of the bus could scarcely be considered
slow considering that according to Collango himself, the bus had just
come from a full stop after picking a passenger (Tsn, p. 4, Id.) and that
the bus was still on its second or third gear (Tsn., p. 12, Id.).
In the light of the foregoing, the negligence of the common carrier,
through its employees, consisted of the lack of extraordinary diligence
required of common carriers, in exercising vigilance and utmost care of
the safety of its passengers, exemplified by the driver's belated stop
and the reckless opening of the doors of the bus while the same was
travelling at an appreciably fast speed. At the same time, the common
carrier itself acknowledged, through its administrative officer, Benjamin
Granada, that the bus was commissioned to travel and take on
passengers and the public at large, while equipped with only a solitary
door for a bus its size and loading capacity, in contravention of rules
and regulations provided for under the Land Transportation and Traffic
Code (RA 4136 as amended.) (Rollo, pp. 23-26)
Considering the factual findings of the Court of Appeals-the bus driver did not
immediately stop the bus at the height of the commotion; the bus was speeding from
a full stop; the victims fell from the bus door when it was opened or gave way while
the bus was still running; the conductor panicked and blew his whistle after people
had already fallen off the bus; and the bus was not properly equipped with doors in
accordance with law-it is clear that the petitioners have failed to overcome the
presumption of fault and negligence found in the law governing common carriers.

The petitioners' argument that the petitioners "are not insurers of their passengers"
deserves no merit in view of the failure of the petitioners to prove that the deaths of
the two passengers were exclusively due to force majeure and not to the failure of
the petitioners to observe extraordinary diligence in transporting safely the
passengers to their destinations as warranted by law. (See Batangas Laguna
Tayabas Co. v. Intermediate Appellate Court, supra).
The petitioners also contend that the private respondents failed to show to the court
that they are the parents of Ornominio Beter and Narcisa Rautraut respectively and
therefore have no legal personality to sue the petitioners. This argument deserves
scant consideration. We find this argument a belated attempt on the part of the
petitioners to avoid liability for the deaths of Beter and Rautraut. The private
respondents were Identified as the parents of the victims by witnesses during the
trial and the trial court recognized them as such. The trial court dismissed the
complaint solely on the ground that the petitioners were not negligent.
Finally, the amount of damages awarded to the heirs of Beter and Rautraut by the
appellate court is supported by the evidence. The appellate court stated:
Ornominio Beter was 32 years of age at the time of his death, single, in
good health and rendering support and service to his mother. As far as
Narcisa Rautraut is concerned, the only evidence adduced is to the
effect that at her death, she was 23 years of age, in good health and
without visible means of support.
In accordance with Art. 1764 in conjunction with Art. 2206 of the Civil
Code, and established jurisprudence, several factors may be
considered in determining the award of damages, namely: 1) life
expectancy (considering the state of health of the deceased and the
mortality tables are deemed conclusive) and loss of earning capacity;
(2) pecuniary loss, loss of support and service; and (3) moral and
mental suffering (Alcantara, et al. v. Surro, et al., 93 Phil. 470).

89

In the case of People v. Daniel (No. L-66551, April 25, 1985, 136
SCRA 92, at page 104), the High Tribunal, reiterating the rule in Villa
Rey Transit, Inc. v. Court of Appeals (31 SCRA 511), stated that the
amount of loss of earring capacity is based mainly on two factors,
namely, (1) the number of years on the basis of which the damages
shall be computed; and (2) the rate at which the losses sustained by
the heirs should be fixed.
As the formula adopted in the case of Davila v. Philippine Air Lines, 49
SCRA 497, at the age of 30 one's normal life expectancy is 33-1/3
years based on the American Expectancy Table of Mortality (2/3 x 8032).itc-aslBy taking into account the pace and nature of the life of a
carpenter, it is reasonable to make allowances for these circumstances
and reduce the life expectancy of the deceased Ornominio Beter to 25
years (People v. Daniel, supra). To fix the rate of losses it must be
noted that Art. 2206 refers to gross earnings less necessary living
expenses of the deceased, in other words, only net earnings are to be
considered (People v. Daniel, supra; Villa Rey Transit, Inc. v. Court of
Appeals, supra).
Applying the foregoing rules with respect to Ornominio Beter, it is both
just and reasonable, considering his social standing and position, to fix
the deductible, living and incidental expenses at the sum of Four
Hundred Pesos (P400.00) a month, or Four Thousand Eight Hundred
Pesos (P4,800.00) annually. As to his income, considering the irregular
nature of the work of a daily wage carpenter which is seasonal, it is
safe to assume that he shall have work for twenty (20) days a month at
Twenty Five Pesos (P150,000.00) for twenty five years. Deducting
therefrom his necessary expenses, his heirs would be entitled to Thirty
Thousand Pesos (P30,000.00) representing loss of support and
service (P150,000.00 less P120,000.00). In addition, his heirs are
entitled to Thirty Thousand Pesos (P30,000.00) as straight death

indemnity pursuant to Article 2206 (People v. Daniel, supra). For

damages for their moral and mental anguish, his heirs are entitled to
the reasonable sum of P10,000.00 as an exception to the general rule
against moral damages in case of breach of contract rule Art. 2200
(Necesito v. Paras, 104 Phil. 75). As attorney's fees, Beter's heirs are
entitled to P5,000.00. All in all, the plaintiff-appellants Ricardo and
Sergia Beter as heirs of their son Ornominio are entitled to an
indemnity of Seventy Five Thousand Pesos (P75,000.00).
In the case of Narcisa Rautraut, her heirs are entitled to a straight
death indemnity of Thirty Thousand Pesos (P30,000.00), to moral
damages in the amount of Ten Thousand Pesos (P10,000.00) and Five
Thousand Pesos (P5,000.00) as attorney's fees, or a total of Forty Five
Thousand Pesos (P45,000.00) as total indemnity for her death in the
absence of any evidence that she had visible means of support. (Rollo,
pp. 30-31)
WHEREFORE, the instant petition is DISMISSED. The questioned decision dated
May 19, 1988 and the resolution dated August 1, 1988 of the Court of Appeals are
AFFIRMED.
SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

90

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. Nos. 103442-45 May 21, 1993

NATIONAL POWER CORPORATION, ET AL., petitioners,
vs.
THE COURT OF APPEALS, GAUDENCIO C. RAYO, ET AL., respondents.
The Solicitor General for plaintiff-appellee.
Ponciano G. Hernandez for private respondents.

DAVIDE, JR., J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
urging this Court to set aside the 19 August 1991 consolidated Decision of the Court
of Appeals in CA.-G.R. CV Nos. 27290-93 1 which reversed the Decision of Branch 5
of the then Court of First Instance (now Regional Trial Court) of Bulacan, and held
petitioners National Power Corporation (NPC) and Benjamin Chavez jointly and
severally liable to the private respondents for actual and moral damages, litigation
expenses and attorney's fees.

This present controversy traces its beginnings to four (4) separate complaints 2 for
damages filed against the NPC and Benjamin Chavez before the trial court. The
plaintiffs therein, now private respondents, sought to recover actual and other
damages for the loss of lives and the destruction to property caused by the
inundation of the town of Norzagaray, Bulacan on 26-27 October 1978. The flooding
was purportedly caused by the negligent release by the defendants of water through
the spillways of the Angat Dam (Hydroelectric Plant). In said complaints, the plaintiffs
alleged, inter alia, that: 1) defendant NPC operated and maintained a multi-purpose
hydroelectric plant in the Angat River at Hilltop, Norzagaray, Bulacan; 2) defendant
Benjamin Chavez was the plant supervisor at the time of the incident in question; 3)
despite the defendants' knowledge, as early as 24 October 1978, of the impending
entry of typhoon "Kading," they failed to exercise due diligence in monitoring the
water level at the dam; 4) when the said water level went beyond the maximum
allowable limit at the height of the typhoon, the defendants suddenly, negligently and
recklessly opened three (3) of the dam's spillways, thereby releasing a large amount
of water which inundated the banks of the Angat River; and 5) as a consequence,
members of the household of the plaintiffs, together with their animals, drowned, and
their properties were washed away in the evening of 26 October and the early hours
of 27 October 1978. 3
In their Answers, the defendants, now petitioners, alleged that: 1) the NPC exercised
due care, diligence and prudence in the operation and maintenance of the
hydroelectric plant; 2) the NPC exercised the diligence of a good father in the
selection of its employees; 3) written notices were sent to the different municipalities
of Bulacan warning the residents therein about the impending release of a large
volume of water with the onset of typhoon "Kading" and advise them to take the
necessary precautions; 4) the water released during the typhoon was needed to
prevent the collapse of the dam and avoid greater damage to people and property;
5) in spite of the precautions undertaken and the diligence exercised, they could still
not contain or control the flood that resulted and; 6) the damages incurred by the
private respondents were caused by a fortuitous event or force majeure and are in
the nature and character of damnum absque injuria. By way of special affirmative

91

defense, the defendants averred that the NPC cannot be sued because it performs a
purely governmental function. 4

1) Gaudencio C. Rayo, Two Hundred Thirty One

Thousand Two Hundred Sixty Pesos (P231,260.00);

Upon motion of the defendants, a preliminary hearing on the special defense was
conducted. As a result thereof, the trial court dismissed the complaints as against
the NPC on the ground that the provision of its charter allowing it to sue and be sued
does not contemplate actions based on tort. The parties do not, however, dispute the
fact that this Court overruled the trial court and ordered the reinstatement of the
complaints as against the NPC. 5

2) Bienvenido P. Pascual, Two Hundred Four Thousand

Five Hundred Pesos (P204.500.00);

Being closely interrelated, the cases were consolidated and trial thereafter ensued.
The lower court rendered its decision on 30 April 1990 dismissing the complaints "for
lack of sufficient and credible evidence." 6 Consequently, the private respondents
seasonably appealed therefrom to the respondent Court which then docketed the
cases as CA-G.R. CV Nos. 27290-93.
In its joint decision promulgated on 19 August 1991, the Court of Appeals reversed
the appealed decision and awarded damages in favor of the private respondents.
The dispositive portion of the decision reads:
CONFORMABLY TO THE FOREGOING, the joint decision appealed
from is hereby REVERSED and SET ASIDE, and a new one is hereby
rendered:
1. In Civil Case No. SM-950, ordering defendants-appellees to pay,
jointly and severally, plaintiffs-appellants, with legal interest from the
date when this decision shall become final and executory, the
following:
A. Actual damages, to wit:

3) Tomas Manuel, One Hundred Fifty Five Thousand

Pesos (P155,000.00);
4) Pedro C. Bartolome, One Hundred Forty Seven
Thousand Pesos (P147,000.00);.
5) Bernardino Cruz, One Hundred Forty Three Thousand
Five Hundred Fifty Two Pesos and Fifty Centavos
(P143,552.50);
6) Jose Palad, Fifty Seven Thousand Five Hundred
Pesos (P57,500.00);
7) Mariano S. Cruz, Forty Thousand Pesos (P40,000.00);
8) Lucio Fajardo, Twenty nine Thousand Eighty Pesos
(P29,080.00); and
B. Litigation expenses of Ten Thousand Pesos (P10,000.00);
2. In Civil case No. SM-951, ordering defendants-appellees to pay
jointly and severally, plaintiff-appellant, with legal interest from the date
when this decision shall have become final and executory, the
following :
A. Actual damages of Five Hundred Twenty Thousand
Pesos (P520,000.00);.

92

B. Moral damages of five hundred Thousand Pesos

(P500,000.00); and.

D. Plaintifsf-appellants litigation expenses of Ten Thousand Pesos

(P10,000.00);

C. Litigation expenses of Ten Thousand Pesos

(P10,000.00);.

4. In Civil case No. SM-1247, ordering defendants-appellees to pay,

jointly and severally, with legal interest from the date when this
decision shall have become final and executory :

3. In Civil Case No. SM-953, ordering defendants-appellees to pay,

jointly and severally, with legal interest from the date when this
decision shall have become final and executory;
A. Plaintiff-appellant Angel C. Torres:
1) Actual damages of One Hundred Ninety Nine Thousand One
Hundred Twenty Pesos (P199,120.00);

A. Plaintiffs-appellants Presentacion Lorenzo and Clodualdo Lorenzo:

1) Actual damages of Two Hundred Fifty Six Thousand
Six Hundred Pesos (P256,600.00);
2) Moral damages of Fifty Thousand Pesos (P50,000.00);
B. Plaintiff-appellant Consolacion Guzman :

2) Moral Damages of One Hundred Fifty Thousand Pesos

(P150,000.00);

1) Actual damages of One Hundred forty Thousand

Pesos (P140,000.00);

B. Plaintiff-appellant Norberto Torres:

2) Moral damages of Fifty Thousand Pesos (P50,000.00);
1) Actual damages of Fifty Thousand Pesos (P50,000.00);
C. Plaintiff-appellant Virginia Guzman :
2) Moral damages of Fifty Thousand Pesos (P50,000.00);
C. Plaintiff-appellant Rodelio Joaquin:

1) Actual damages of Two Hundred Five Hundred Twenty

Pesos (205,520.00); and

1) Actual damages of One Hundred Thousand Pesos

(P100,000.00);

D. Plaintiffs-appellants litigation expenses of Ten Thousand Pesos

(10,000.00).

2) Moral damages of One Hundred Thousand Pesos

(P100,000.00); and

In addition, in all the four (4) instant cases, ordering defendantsappellees to pay, jointly and severally, plaintiffs-appellants attorney
fees in an amount equivalent to 15% of the total amount awarded.

93

No pronouncement as to costs. 7
The foregoing judgment is based on the public respondent's conclusion that the
petitioners were guilty of:
. . . a patent gross and evident lack of foresight, imprudence and
negligence . . . in the management and operation of Angat Dam. The
unholiness of the hour, the extent of the opening of the spillways, And
the magnitude of the water released, are all but products of
defendants-appellees' headlessness, slovenliness, and carelessness.
The resulting flash flood and inundation of even areas (sic) one (1)
kilometer away from the Angat River bank would have been avoided
had defendants-appellees prepared the Angat Dam by maintaining in
the first place, a water elevation which would allow room for the
expected torrential rains. 8
This conclusion, in turn, is anchored on its findings of fact, to wit:
As early as October 21, 1978, defendants-appellees knew of the
impending onslaught of and imminent danger posed by typhoon
"Kading". For as alleged by defendants-appellees themselves, the
coming of said super typhoon was bannered by Bulletin Today, a
newspaper of national circulation, on October 25, 1978, as "Super
Howler to hit R.P." The next day, October 26, 1978, said typhoon once
again merited a headline in said newspaper as "Kading's Big Blow
expected this afternoon" (Appellee's Brief, p. 6). Apart from the
newspapers, defendants-appellees learned of typhoon "Kading'
through radio announcements (Civil Case No. SM-950, TSN, Benjamin
Chavez, December 4, 1984, pp. 7-9).

Defendants-appellees doubly knew that the Angat Dam can safely

hold a normal maximum headwater elevation of 217 meters (Appellee's
brief, p. 12; Civil Case No. SM-951, Exhibit "I-6"; Civil Case No. SM953, Exhibit "J-6"; Civil Case No. SM-1247, Exhibit "G-6").
Yet, despite such knowledge, defendants-appellees maintained a
reservoir water elevation even beyond its maximum and safe level,
thereby giving no sufficient allowance for the reservoir to contain the
rain water that will inevitably be brought by the coming typhoon.
On October 24, 1978, before typhoon "Kading" entered the Philippine
area of responsibility, water elevation ranged from 217.61 to 217.53,
with very little opening of the spillways, ranging from 1/2 to 1 meter. On
October 25, 1978, when typhoon "Kading" entered the Philippine area
of responsibility, and public storm signal number one was hoisted over
Bulacan at 10:45 a.m., later raised to number two at 4:45 p.m., and
then to number three at 10:45 p.m., water elevation ranged from
217.47 to 217.57, with very little opening of the spillways, ranging from
1/2 to 1 meter. On October 26, 1978, when public storm signal number
three remained hoisted over Bulacan, the water elevation still remained
at its maximum level of 217.00 to 218.00 with very little opening of the
spillways ranging from 1/2 to 2 meters, until at or about midnight, the
spillways were suddenly opened at 5 meters, then increasing swiftly to
8, 10, 12, 12.5, 13, 13.5, 14, 14.5 in the early morning hours of
October 27, 1978, releasing water at the rate of 4,500 cubic meters per
second, more or less. On October 27, 1978, water elevation remained
at a range of 218.30 to 217.05 (Civil Case No. SM-950, Exhibits "D"
and series, "L", "M", "N", and "O" and Exhibits "3" and "4"; Civil Case
No. SM-951, Exhibits "H" and "H-1"; Civil Case No. SM-953, Exhibits
"I" and "I-1"; Civil Case No. SM 1247, Exhibits "F" and "F-1").
xxx xxx xxx

94

From the mass of evidence extant in the record, We are convinced,

and so hold that the flash flood on October 27, 1978, was caused not
by rain waters (sic), but by stored waters (sic) suddenly and
simultaneously released from the Angat Dam by defendants-appellees,
particularly from midnight of October 26, 1978 up to the morning hours
of October 27,
1978. 9
The appellate court rejected the petitioners' defense that they had sent "early
warning written notices" to the towns of Norzagaray, Angat, Bustos, Plaridel, Baliwag
and Calumpit dated 24 October 1978 which read:
TO ALL CONCERN (sic):
Please be informed that at present our reservoir (dam) is full and that
we have been releasing water intermittently for the past several days.
With the coming of typhoon "Rita" (Kading) we expect to release
greater (sic) volume of water, if it pass (sic) over our place.
In view of this kindly advise people residing along Angat River to keep
alert and stay in safe places.
BENJAMIN L. CHAVEZ
Power Plant Superintent
because:
Said notice was delivered to the "towns of Bulacan" on October 26,
1978 by defendants-appellees driver, Leonardo Nepomuceno (Civil
Case No. SM-950, TSN, Benjamin Chavez, December 4, 1984, pp. 711 and TSN, Leonardo Nepomuceno, March 7, 1985, pp. 10-12).

Said notice is ineffectual, insufficient and inadequate for purposes of

the opening of the spillway gates at midnight of October 26, 1978 and
on October 27, 1978. It did not prepare or warn the persons so served,
for the volume of water to be released, which turned out to be of such
magnitude, that residents near or along the Angat River, even those
one (1) kilometer away, should have been advised to evacuate. Said
notice, addressed "TO ALL CONCERN (sic)," was delivered to a
policeman (Civil Case No. SM-950, pp. 10-12 and Exhibit "2-A") for the
municipality of Norzagaray. Said notice was not thus addressed and
delivered to the proper and responsible officials who could have
disseminated the warning to the residents directly affected. As for the
municipality of Sta. Maria, where plaintiffs-appellants in Civil Case No.
SM-1246 reside, said notice does not appear to have been served. 11
Relying on Juan F. Nakpil & Sons vs. Court of Appeals, 12 public respondent rejected
the petitioners' plea that the incident in question was caused by force majeure and
that they are, therefore, not liable to the private respondents for any kind of damage
such damage being in the nature of damnum absque injuria.
The motion for reconsideration filed by the petitioners, as well as the motion to
modify judgment filed by the public respondents, 13 were denied by the public
respondent in its Resolution of 27 December 1991. 14
Petitioners thus filed the instant petition on 21 February 1992.
After the Comment to the petition was filed by the private respondents and the Reply
thereto was filed by the petitioners, We gave due course to the petition on 17 June
1992 and directed the parties to submit their respective Memoranda, 15which they
subsequently complied with.
The petitioners raised the following errors allegedly committed by the respondent
Court :

95

I. THE COURT OF APPEALS ERRED IN APPLYING THE RULING

OF NAKPIL & SONS V. COURT OF APPEALS AND HOLDING THAT
PETITIONERS WERE GUILTY OF NEGLIGENCE.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
WRITTEN NOTICES OF WARNING ISSUED BY PETITIONERS
WERE INSUFFICIENT.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DAMAGE SUFFERED BY PRIVATE RESPONDENTS WAS
NOT DAMNUM ABSQUE INJURIA.
IV. THE COURT OF APPEALS ERRED IN NOT AWARDING THE
COUNTERCLAIM OF PETITIONERS FOR ATTORNEY'S FEES AND
EXPENSES OF LITIGATION. 16
These same errors were raised by herein petitioners in G.R. No. 96410,
entitled National Power Corporation, et al., vs. Court of Appeals, et al., 17 which this
Court decided on 3 July 1992. The said case involved the very same incident subject
of the instant petition. In no uncertain terms, We declared therein that the proximate
cause of the loss and damage sustained by the plaintiffs therein who were
similarly situated as the private respondents herein was the negligence of the
petitioners, and that the 24 October 1978 "early warning notice" supposedly sent to
the affected municipalities, the same notice involved in the case at bar, was
insufficient. We thus cannot now rule otherwise not only because such a decision
binds this Court with respect to the cause of the inundation of the town of
Norzagaray, Bulacan on 26-27 October 1978 which resulted in the loss of lives and
the destruction to property in both cases, but also because of the fact that on the
basis of its meticulous analysis and evaluation of the evidence adduced by the
parties in the cases subject of CA-G.R. CV Nos. 27290-93, public respondent found
as conclusively established that indeed, the petitioners were guilty of "patent gross
and evident lack of foresight, imprudence and negligence in the management and
operation of Angat Dam," and that "the extent of the opening of the spillways, and

the magnitude of the water released, are all but products of defendants-appellees'
headlessness, slovenliness, and carelessness." 18 Its findings and conclusions are
biding upon Us, there being no showing of the existence of any of the exceptions to
the general rule that findings of fact of the Court of Appeals are conclusive upon this
Court. 19 Elsewise stated, the challenged decision can stand on its own merits
independently of Our decision in G.R. No. 96410. In any event, We reiterate here in
Our pronouncement in the latter case that Juan F. Nakpil & Sons vs. Court of
Appeals 20 is still good law as far as the concurrent liability of an obligor in the case
of force majeure is concerned. In the Nakpil case, We held:
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 moral 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

96

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. 11741175).
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). 21
Accordingly, petitioners cannot be heard to invoke the act of God or force majeure to
escape liability for the loss or damage sustained by private respondents since they,
the petitioners, were guilty of negligence. The event then was not occasioned
exclusively by an act of God or force majeure; a human factor negligence or
imprudence had intervened. The effect then of the force majeure in question may
be deemed to have, even if only partly, resulted from the participation of man. Thus,
the whole occurrence was thereby humanized, as it were, and removed from the
laws applicable to acts of God.
WHEREFORE, for want of merit, the instant petition is hereby DISMISSED and the
Consolidated Decision of the Court of Appeals in CA-G.R. CV Nos. 27290-93 is
AFFIRMED, with costs against the petitioners.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.

97

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 117190 January 2, 1997

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.

BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the
name and style J.M.T. Engineering and General Merchandising proposed to
respondent Vicente Herce Jr. to construct a windmill system for him. After some
negotiations they agreed on the construction of the windmill for a consideration of
P60,000.00 with a one-year guaranty from the date of completion and acceptance by
respondent Herce Jr. of the project. Pursuant to the agreement respondent paid
petitioner a down payment of P30,000.00 and an installment payment of
P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court

respondent denied the claim saying that he had already paid this amount to the San
Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to
which the windmill system was to be connected. According to respondent, since the
deep well formed part of the system the payment he tendered to SPGMI should be
credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system
which caused the structure to collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well was included in the agreement
to build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed
for the project. He also disowned any obligation to repair or reconstruct the system
and insisted that he delivered it in good and working condition to respondent who
accepted the same without protest. Besides, its collapse was attributable to a
typhoon, a force majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was
not part of the windmill project as evidenced clearly by the letter proposals submitted
by petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include
the construction of the deep well in the project, the same should be stated in the
proposals. In the absence of such an agreement, it could be safely concluded that
the construction of the deep well is not a part of the project undertaken by the
plaintiff." 3 With respect to the repair of the windmill, the trial court found that "there is
no clear and convincing proof that the windmill system fell down due to the defect of
the construction." 4
The Court of Appeals reversed the trial court. It ruled that the construction of the
deep well was included in the agreement of the parties because the term "deep well"
was mentioned in both proposals. It also gave credence to the testimony of
respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the
deep well, that petitioner Tanguilig told him that the cost of constructing the deep
well would be deducted from the contract price of P60,000.00. Upon these premises

98

the appellate court concluded that respondent's payment of P15,000.00 to SPGMI

should be applied to his remaining balance with petitioner thus effectively
extinguishing his contractual obligation. However, it rejected petitioner's claim
offorce majeure and ordered the latter to reconstruct the windmill in accordance with
the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals,
petitioner now seeks relief from this Court. He raises two issues: firstly, whether the
agreement to construct the windmill system included the installation of a deep well
and, secondly, whether petitioner is under obligation to reconstruct the windmill after
it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the
installation of a deep well was not included in the proposals of petitioner to construct
a windmill system for respondent. There were in fact two (2) proposals: one dated 19
May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was
rejected by respondent. The other was submitted three days later, i.e., on 22 May
1987 which contained more specifications but proposed a lower contract price of
P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the
construction immediately followed. The pertinent portions of the first letter-proposal
(Exh. "1") are reproduced hereunder
In connection with your Windmill System and Installation, we would like to
quote to you as follows:
One (1) Set Windmill suitable for 2 inches diameter deepwell,
2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower
40 feet high, including mechanism which is not advisable to
operate during extra-intensity wind. Excluding cylinder pump.

UNIT CONTRACT
PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials and
Installation, operated water pump, we would like to quote to you as
follows
One (1) set Windmill assembly for 2 inches or 3 inches deepwell pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40
feet Tower complete with standard appurtenances up to
Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot Angle bar, G.I. pipe, Reducer Coupling, Elbow
Gate valve, cross Tee coupling.
One (1) lot Float valve.
One (1) lot Concreting materials foundation.
F. O. B. Laguna
Contract Price
P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents
that a deep well pump is a component of the proposed windmill system. The contract
prices fixed in both proposals cover only the features specifically described therein
and no other. While the words "deep well" and "deep well pump" are mentioned in
both, these do not indicate that a deep well is part of the windmill system. They
merely describe the type of deep well pump for which the proposed windmill would

99

be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by
the prepositions "for" and "suitable for" were meant only to convey the idea that the
proposed windmill would be appropriate for a deep well pump with a diameter of 2 to
3 inches. For if the real intent of petitioner was to include a deep well in the
agreement to construct a windmill, he would have used instead the conjunctions
"and" or "with." Since the terms of the instruments are clear and leave no doubt as to
their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of
the parties shall be accorded primordial consideration 5 and, in case
of doubt, their contemporaneous and subsequent acts shall be principally
considered. 6 An examination of such contemporaneous and subsequent acts of
respondent as well as the attendant circumstances does not persuade us to uphold
him.
Respondent insists that petitioner verbally agreed that the contract price of
P60,000.00 covered the installation of a deep well pump. He contends that since
petitioner did not have the capacity to install the pump the latter agreed to have a
third party do the work the cost of which was to be deducted from the contract price.
To prove his point, he presented Guillermo Pili of SPGMI who declared that
petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking
him to build a deep well pump as "part of the price/contract which Engineer (Herce)
had with Mr. Tanguilig." 7
We are disinclined to accept the version of respondent. The claim of Pili that Herce
Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in
court by private respondent for reasons known only to him. But granting that this
written communication existed, it could not have simply contained a request for Pili
to install a deep well; it would have also mentioned the party who would pay for the
undertaking. It strains credulity that respondent would keep silent on this matter and
leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part

of the windmill construction and that its payment would come from the contract price
of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the
payment for which would come supposedly from the windmill contract price on the
mere representation of petitioner, whom he had never met before, without a written
commitment at least from the former. For if indeed the deep well were part of the
windmill project, the contract for its installation would have been strictly a matter
between petitioner and Pili himself with the former assuming the obligation to pay
the price. That it was respondent Herce Jr. himself who paid for the deep well by
handing over to Pili the amount of P15,000.00 clearly indicates that the contract for
the deep well was not part of the windmill project but a separate agreement between
respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the
obligation of respondent was to pay the entire amount to petitioner without prejudice
to any action that Guillermo Pili or SPGMI may take, if any, against the latter.
Significantly, when asked why he tendered payment directly to Pili and not to
petitioner, respondent explained, rather lamely, that he did it "because he has (sic)
the money, so (he) just paid the money in his possession." 8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No.
While the law is clear that "payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it," 9 it does not appear from the record that Pili and/or SPGMI
was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a
third person." 10 The Civil Code provisions do not apply in the instant case because
no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI
has been established regarding the construction of the deep well. Specifically,
witness Pili did not testify that he entered into a contract with petitioner for the
construction of respondent's deep well. If SPGMI was really commissioned by

100

petitioner to construct the deep well, an agreement particularly to this effect should
have been entered into.
The contemporaneous and subsequent acts of the parties concerned
effectively belie respondent's assertions. These circumstances only show that
the construction of the well by SPGMI was for the sole account of respondent
and that petitioner merely supervised the installation of the well because the
windmill was to be connected to it. There is no legal nor factual basis by
which this Court can impose upon petitioner an obligation he did not
expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has
consistently held that in order for a party to claim exemption from liability by
reason of fortuitous event under Art. 1174 of the Civil Code the event should
be the sole and proximate cause of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites 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 unforeseeable 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.
Petitioner failed to show that the collapse of the windmill was due solely to a
fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely stated
that there was a "strong wind." But a strong wind in this case cannot be
fortuitous unforeseeable nor unavoidable. On the contrary, a strong wind
should be present in places where windmills are constructed, otherwise the
windmills will not turn.
The appellate court correctly observed that "given the newly-constructed
windmill system, the same would not have collapsed had there been no
inherent defect in it which could only be attributable to the appellee." 13 It

emphasized that respondent had in his favor the presumption that "things
have happened according to the ordinary course of nature and the ordinary
habits of life." 14 This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in
the payment of his outstanding balance of P15,000.00 and hence should bear
his own loss, is untenable. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. 15 When the windmill failed to
function properly it became incumbent upon petitioner to institute the proper
repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner
who should bear the expenses for the reconstruction of the windmill. Article
1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE
HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance
of P15,000.00 with interest at the legal rate from the date of the filing of the
complaint. In return, petitioner is ordered to "reconstruct subject defective
windmill system, in accordance with the one-year guaranty" 16 and to complete
the same within three (3) months from the finality of this decision.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

101

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 126389 July 10, 1998

SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA
DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO and MILAGROS
DIMAANO, respondents.

PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision 1 promulgated on July 31, 1996, and Resolution 2 dated September 12,
1996 of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda.
de Dimaano, et al. vs. Southeastern College, Inc.", which reduced the moral
damages awarded below from P1,000,000.00 to P200,000.00. 4 The Resolution
under attack denied petitioner's motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while
petitioner owns a four-storey school building along the same College Road. On

October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit
Metro Manila. Buffeted by very strong winds, the roof of petitioner's building was
partly ripped off and blown away, landing on and destroying portions of the roofing of
private respondents' house. After the typhoon had passed, an ocular inspection of
the destroyed building was conducted by a team of engineers headed by the city
building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's
Report 5 dated October 18, 1989 stated, as follows:
5. One of the factors that may have led to this calamitous event is the
formation of the building in the area and the general direction of the
wind. Situated in the peripheral lot is an almost U-shaped formation of
4-storey building. Thus, with the strong winds having a westerly
direction, the general formation of the building becomes a big funnellike structure, the one situated along College Road, receiving the
heaviest impact of the strong winds. Hence, there are portions of the
roofing, those located on both ends of the building, which remained
intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging
of the roofing structural trusses is the improper anchorage of the said
trusses to the roof beams. The 1/2' diameter steel bars embedded on
the concrete roof beams which serve as truss anchorage are not
bolted nor nailed to the trusses. Still, there are other steel bars which
were not even bent to the trusses, thus, those trusses are not
anchored at all to the roof beams.
It then recommended that "to avoid any further loss and damage to lives,
limbs and property of persons living in the vicinity," the fourth floor of subject
school building be declared as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for
damages based on culpa aquiliana, private respondents alleged that the damage to
their house rendered the same uninhabitable, forcing them to stay temporarily in

102

others' houses. And so they sought to recover from petitioner P117,116.00, as actual
damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary damages
and P100,000.00, for and as attorney's fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several
devastating typhoons and other calamities in the past, without its roofing or any
portion thereof giving way; that it has not been remiss in its responsibility to see to it
that said school building, which houses school children, faculty members, and
employees, is "in tip-top condition"; and furthermore, typhoon "Saling" was "an act of
God and therefore beyond human control" such that petitioner cannot be answerable
for the damages wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that
subject school building had a "defective roofing structure," found that, while typhoon
"Saling" was accompanied by strong winds, the damage to private respondents'
houses "could have been avoided if the construction of the roof of [petitioner's]
building was not faulty." The dispositive portion of the lower court's decision 7 reads,
thus:
WHEREFORE, in view of the foregoing, the Court renders judgment
(sic) in favor of the plaintiff (sic) and against the defendants, (sic)
ordering the latter to pay jointly and severally the former as follows:
a) P117,116.00, as actual damages, plus
litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.

The claim for exemplary damages is denied for the reason that the
defendants (sic) did in a wanton fraudulent, reckless, oppressive or
malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON
"SALING", AS AN ACT OF GOD, IS NOT "THE SOLE AND
ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL
PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4)
STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT "THE
CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL
BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS
TYPHOON "SALING" WHICH IS THE DIRECT AND PROXIMATE
CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEY'S FEES AND LITIGATION
EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY
HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS
HAVE ALREADY SOLD THEIR PROPERTY, AN INTERVENING
EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC.
IV

103

THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE

WRIT OF EXECUTION INSPITE OF THE PERFECTION OF
SOUTHEASTERN'S APPEAL WHEN THERE IS NO COMPELLING
REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial
court's disposition by reducing the award of moral damages from P1,000,000.00 to
P200,000.00. Hence, petitioner's resort to this Court, raising for resolution the issues
of:
1. Whether or not the award of actual damages [sic] to respondent
Dimaanos on the basis of speculation or conjecture, without proof or
receipts of actual damage, [sic] legally feasible or justified.
2. Whether or not the award of moral damages to respondent
Dimaanos, with the latter having suffered, actual damage has legal
basis.
3. Whether or not respondent Dimaanos who are no longer the owner
of the property, subject matter of the case, during its pendency, has the
right to pursue their complaint against petitioner when the case was
already moot and academic by the sale of the property to third party.
4. Whether or not the award of attorney's fees when the case was
already moot academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to others by
typhoon "Saling" being an act of God.
6. Whether or not the issuance of a writ of execution pending
appeal, ex-parte or without hearing, has support in law.

The pivot of inquiry here, determinative of the other issues, is whether the damage
on the roof of the building of private respondents resulting from the impact of the
falling portions of the school building's roof ripped off by the strong winds of typhoon
"Saling", was, within legal contemplation, due to fortuitous event? If so, petitioner
cannot be held liable for the damages suffered by the private respondents. This
conclusion finds support in Article 1174 of Civil Code, which provides:
Art 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen,
were inevitable.
The antecedent of fortuitous event or caso fortuito is found in the Partidas which
defines it as "an event which takes place by accident and could not have been
foreseen." 9 Escriche elaborates it as "an unexpected event or act of God which
could neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino adds that
"[f]ortuitous events may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as
an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." 11
In order that a fortuitous event may exempt a person from liability, it is necessary
that he be free from any previous negligence or misconduct by reason of which the
loss may have been occasioned. 12 An act of God cannot be invoked for the
protection of a person who has been guilty of gross negligence in not trying to
forestall its possible adverse consequences. When a person's negligence concurs
with an act of God in producing damage or injury to another, such person is not
exempt from liability by showing that the immediate or proximate cause of the
damages or injury was a fortuitous event. When the effect is found to be partly the
result of the participation of man whether it be from active intervention, or neglect,
or failure to act the whole occurrence is hereby humanized, and removed from
the rules applicable to acts of God. 13

104

In the case under consideration, the lower court accorded full credence to the finding
of the investigating team that subject school building's roofing had "no sufficient
anchorage to hold it in position especially when battered by strong winds." Based on
such finding, the trial court imputed negligence to petitioner and adjudged it liable for
damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes
otherwise, notwithstanding the general rule that factual findings by the trail court,
especially when affirmed by the appellate court, are binding and conclusive upon
this Court. 14 After a careful scrutiny of the records and the pleadings submitted by
the parties, we find exception to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a natural
occurrence which may be foreseen but is unavoidable despite any amount of
foresight, diligence or care. 15 In order to be exempt from liability arising from any
adverse consequence engendered thereby, there should have been no human
participation amounting to a negligent act.16 In other words; the person seeking
exoneration from liability must not be guilty of negligence. Negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to
others. It may be the failure to observe that degree of care, precaution, and vigilance
which the circumstances justify demand, 17 or the omission to do something which a
prudent and reasonable man, guided by considerations which ordinarily regulate the
conduct of human affairs, would
do. 18 From these premises, we proceed to determine whether petitioner was
negligent, such that if it were not, the damage caused to private respondents' house
could have been avoided?
At the outset, it bears emphasizing that a person claiming damages for the
negligence of another has the burden of proving the existence of fault or negligence
causative of his injury or loss. The facts constitutive of negligence must be
affirmatively established by competent evidence, 19 not merely by presumptions and

conclusions without basis in fact. Private respondents, in establishing the culpability

of petitioner, merely relied on the aforementioned report submitted by a team which
made an ocular inspection of petitioner's school building after the typhoon. As the
term imparts, an ocular inspection is one by means of actual sight or
viewing. 20 What is visual to the eye through, is not always reflective of the real
cause behind. For instance, one who hears a gunshot and then sees a wounded
person, cannot always definitely conclude that a third person shot the victim. It could
have been self-inflicted or caused accidentally by a stray bullet. The relationship of
cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no investigation was
conducted to determine the real cause of the partial unroofing of petitioner's school
building. Private respondents did not even show that the plans, specifications and
design of said school building were deficient and defective. Neither did they prove
any substantial deviation from the approved plans and specifications. Nor did they
conclusively establish that the construction of such building was basically flawed. 21
On the other hand, petitioner elicited from one of the witnesses of private
respondents, city building official Jesus Reyna, that the original plans and design of
petitioner's school building were approved prior to its construction. Engr. Reyna
admitted that it was a legal requirement before the construction of any building to
obtain a permit from the city building official (city engineer, prior to the passage of
the Building Act of 1977). In like manner, after construction of the building, a
certification must be secured from the same official attesting to the readiness for
occupancy of the edifice. Having obtained both building permit and certificate of
occupancy, these are, at the very least, prima facie evidence of the regular and
proper construction of subject school building. 22
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon
"Saling", the same city official gave the go-signal for such repairs without any
deviation from the original design and subsequently, authorized the use of the
entire fourth floor of the same building. These only prove that subject building suffers

105

from no structural defect, contrary to the report that its "U-shaped" form was
"structurally defective." Having given his unqualified imprimatur, the city building
official is presumed to have properly performed his duties 23 in connection therewith.
In addition, petitioner presented its vice president for finance and administration who
testified that an annual maintenance inspection and repair of subject school building
were regularly undertaken. Petitioner was even willing to present its maintenance
supervisor to attest to the extent of such regular inspection but private respondents
agreed to dispense with his testimony and simply stipulated that it would be
corroborative of the vice president's narration.
Moreover, the city building official, who has been in the city government service
since 1974, admitted in open court that no complaint regarding any defect on the
same structure has ever been lodged before his office prior to the institution of the
case at bench. It is a matter of judicial notice that typhoons are common
occurrences in this country. If subject school building's roofing was not firmly
anchored to its trusses, obviously, it could not have withstood long years and several
typhoons even stronger than "Saling."
In light of the foregoing, we find no clear and convincing evidence to sustain the
judgment of the appellate court. We thus hold that petitioner has not been shown
negligent or at fault regarding the construction and maintenance of its school
building in question and that typhoon "Saling" was the proximate cause of the
damage suffered by private respondents' house.
With this disposition on the pivotal issue, private respondents' claim for actual and
moral damages as well as attorney's fees must fail. 24 Petitioner cannot be made to
answer for a purely fortuitous event. 25 More so because no bad faith or willful act to
cause damage was alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent proof of the
pecuniary loss they actually incurred. 26 It is not enough that the damage be capable
of proof but must be actually proved with a reasonable degree of certainty, pointing

out specific facts that afford a basis for measuring whatever compensatory damages
are borne. 27 Private respondents merely submitted an estimated amount needed for
the repair of the roof their subject building. What is more, whether the "necessary
repairs" were caused ONLY by petitioner's alleged negligence in the maintenance of
its school building, or included the ordinary wear and tear of the house itself, is an
essential question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by
the trial court is hereby nullified and set aside. Private respondents are ordered to
reimburse any amount or return to petitioner any property which they may have
received by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is
REVERSED. The complaint of private respondents in Civil Case No. 7314 before the
trial court a quo is ordered DISMISSED and the writ of execution issued on April 1,
1993 in said case is SET ASIDE. Accordingly, private respondents are ORDERED to
return to petitioner any amount or property received by them by virtue of said writ.
Costs against the private respondents.
SO ORDERED.
Narvasa, C.J., Romero and Kapunan, JJ., concur.

106

Republic of the Philippines

SUPREME COURT
Manila

Petitioner is a bus company in northern Mindanao. Private respondent Paulie

Caorong is the widow of Atty. Caorong, while private respondents Yasser King, Rose
Heinni, and Prince Alexander are their minor children.

SECOND DIVISION

On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in

Kauswagan, Lanao del Norte, resulting in the death of several passengers of the
jeepney, including two Maranaos. Crisanto Generalao, a volunteer field agent of the
Constabulary Regional Security Unit No. X, conducted an investigation of the
accident. He found that the owner of the jeepney was a Maranao residing in
Delabayan, Lanao del Norte and that certain Maranaos were planning to take
revenge on the petitioner by burning some of its buses. Generalao rendered a report
on his findings to Sgt. Reynaldo Bastasa of the Philippine Constabulary Regional
Headquarters at Cagayan de Oro. Upon the instruction of Sgt. Bastasa, he went to
see Diosdado Bravo, operations manager of petitioner, its main office in Cagayan de
Oro City. Bravo assured him that the necessary precautions to insure the safety of
lives and property would be taken. 1

G.R. No. 119756 March 18, 1999

FORTUNE EXPRESS, INC., petitioner,
vs.
COURT OF APPEALS, PAULIE U.CAORONG, and minor childrenYASSER KING
CAORONG, ROSE HEINNI and PRINCE ALEXANDER, all surnamed CAORONG,
and represented by their mother PAULIE U. CAORONG,respondents.

MENDOZA, J.:
This is an appeal by petition for review on certiorari of the decision, dated July 29,
1994, of the Court of Appeals, which reversed the decision of the Regional Trial
Court, Branch VI, Iligan City. The aforesaid decision of the trial court dismissed the
complaint of public respondents against petitioner for damages for breach of
contract of carriage filed on the ground that petitioner had not exercised the required
degree of diligence in the operation of one of its buses. Atty. Talib Caorong, whose
heirs are private respondents herein, was a passenger of the bus and was killed in
the ambush involving said bus.
The facts of the instant case are as follows:

At about 6:45 P.M. on November 22, 1989, three armed Maranaos who pretended to
be passengers, seized a bus of petitioner at Linamon, Lanao del Norte while on its
way to Iligan City. Among the passengers of the bus was Atty. Caorong. The leader
of the Maranaos, identified as one Bashier Mananggolo, ordered the driver,
Godofredo Cabatuan, to stop the bus on the side of the highway. Mananggolo then
shot Cabatuan on the arm, which caused him to slump on the steering wheel. The
one of the companions of Mananggolo started pouring gasoline inside the bus, as
the other held the passenger at bay with a handgun. Mananggolo then ordered the
passenger to get off the bus. The passengers, including Atty. Caorong, stepped out
of the bus and went behind the bushes in a field some distance from the highway. 2
However, Atty. Caorong returned to the bus to retrieve something from the overhead
rack. at that time, one of the armed men was pouring gasoline on the head of the
driver. Cabatuan, who had meantime regained consciousness, heard Atty. Caorong
pleading with the armed men to spare the driver as he was innocent of any wrong

107

doing and was only trying to make a living. The armed men were, however, adamant
as they repeated the warning that they were going to burn the bus along with its
driver. During this exchange between Atty. Caorong and the assailants, Cabatuan
climbed out of the left window of the bus and crawled to the canal on the opposite
side of the highway. He heard shots from inside the bus. Larry de la Cruz, one of the
passengers, saw that Atty. Caorong was hit. Then the bus was set on fire. Some of
the passengers were able to pull Atty. Caorong out of the burning bus and rush him
to the Mercy Community Hospital in Iligan City, but he died while undergoing
operation. 3
The private respondents brought this suit for breach of contract of carriage in the
Regional Trial Court, Branch VI, Iligan City. In its decision, dated December 28,
1990, the trial court dismissed the complaint, holding as follows:

The fact that defendant, through Operations Manager Diosdado Bravo,

was informed of the "rumors" that the Moslems intended to take
revenge by burning five buses of defendant is established since the
latter also utilized Crisanto Generalao as a witness. Yet despite this
information, the plaintiffs charge, defendant did not take proper
precautions. . . . Consequently, plaintiffs now fault the defendant for
ignoring the report. Their position is that the defendant should have
provided its buses with security guards. Does the law require common
carriers to install security guards in its buses for the protection and
safety of its passengers? Is the failure to post guards on omission of
the duty to "exercise the diligence of a good father of the family" which
could have prevented the killing of Atty. Caorong? To our mind, the
diligence demanded by law does not include the posting of security
guard in buses. It is an obligation that properly belongs to the State.
Besides, will the presence of one or two security guards suffice to deter
a determined assault of the lawless and thus prevent the injury
complained of? Maybe so, but again, perhaps not. In other words, the
presence of a security guard is not a guarantee that the killing of Atty.
Caorong would have been definitely avoided.
xxx xxx xxx
Accordingly, the failure of defendant to accord faith and credit to the
report of Mr. Generalao and the fact that it did not provide security to
its buses cannot, in the light of the circumstances, be characterized as
negligence.
Finally, the evidence clearly shows that the assalants did not have the
least intention of the harming any of the passengers. They ordered all
the passengers to alight and set fire on the bus only after all the
passengers were out of danger. The death of Atty. Caorong was an
unexpected and unforseen occurrense over which defendant had no

108

control. Atty. Caorong performed an act of charity and heroism in

coming to the succor of the driver even in the face of danger. He
deserves the undying gratitude of the driver whose life he saved. No
one should blame him for an act of extraordinary charity and altruism
which cost his life. But neither should any blame be laid on the
doorstep of defendant. His death was solely due to the willfull acts of
the lawless which defendant could neither prevent nor to stop.
WHEREFORE, in view of the foregoing, the complaint is hereby
dismissed. For lack of merit, the counter-claim is likewise dismissed.
No costs. 4
On appeal, however, the Court of Appeals reversed. It held:
In the case at bench, how did defendant-appellee react to the tip or
information that certain Maranao hotheads were planning to burn five
of its buses out of revenge for the deaths of two Maranaos in an earlier
collision involving appellee's bus? Except for the remarks of appellee's
operations manager that "we will have our action . . . . and I'll be the
one to settle it personally," nothing concrete whatsoever was taken by
appellee or its employees to prevent the execution of the threat.
Defendant-appellee never adopted even a single safety measure for
the protection of its paying passengers. Were there available
safeguards? Of course, there were: one was frisking passengers
particularly those en route to the area where the threats were likely to
be carried out such as where the earlier accident occurred or the place
of influence of the victims or their locality. If frisking was resorted to,
even temporarily, . . . . appellee might be legally excused from liabilty.
Frisking of passengers picked up along the route could have been
implemented by the bus conductor; for those boarding at the bus
terminal, frisking could have been conducted by him and perhaps by
additional personnel of defendant-appellee. On hindsight, the

handguns and especially the gallon of gasoline used by the felons all
of which were brought inside the bus would have been discovered,
thus preventing the burning of the bus and the fatal shooting of the
victim.
Appellee's argument that there is no law requiring it to provide guards
on its buses and that the safety of citizens is the duty of the
government, is not well taken. To be sure, appellee is not expected to
assign security guards on all its buses; if at all, it has the duty to post
guards only on its buses plying predominantly Maranaos areas. As
discussed in the next preceding paragraph, least appellee could have
done in response to the report was to adopt a system of verification
such as the frisking of passengers boarding at its buses. Nothing, and
no repeat, nothing at all, was done by defendant-appellee to protect its
innocent passengers from the danger arising from the "Maranao
threats." It must be observed that frisking is not a novelty as a safety
measure in our society. Sensitive places in fact, nearly all important
places have applied this method of security enhancement. Gadgets
and devices are avilable in the market for this purpose. It would not
have weighed much against the budget of the bus company if such
items were made available to its personnel to cope up with situations
such as the "Maranaos threats."
In view of the constitutional right to personal privacy, our
pronouncement in this decision should not be construed as an
advocacy of mandatory frisking in all public conveyances. What we are
saying is that given the circumstances obtaining in the case at bench
that: (a) two Maranaos died because of a vehicular collision involving
one of appellee's vehicles; (b) appellee received a written report from a
member of the Regional Security Unit, Constabulary Security Group,
that the tribal/ethnic group of the two deceased were planning to burn
five buses of appellee out of revenge; and (c) appelle did nothing

109

absolutely nothing for the safety of its passengers travelling in the

area of influence of the victims, appellee has failed to exercise the
degree of dilegence required of common carriers. Hence, appellee
must be adjudge liable.

SUPPLEMENT TO SAID MOTION, WHILE

HOLDING, AMONG OTHERS, THAT THE
PETITIONER BREACHED THE
CONTRACT OF THE CARRIAGE BY ITS
FAILURE TO EXCERCISE THE
REQUIRED DEGREE OF DILIGENCE;

xxx xxx xxx

WHEREFORE the decision appealed from is hereby REVERSED and
another rendered ordering defendant-appellee to pay plaintiffsappellants the following:

(B) THAT THE ACTS OF THE MARANAO

OUTLAWS WERE SO GRAVE,
IRRESISTABLE, VIOLENT, AND
FORCEFULL, AS TO BE REGARDED
ASCASO FORTUITO; AND

1) P3,399,649.20 as death indemnity;

2) P50,000.00 and P500.00 per
appearance as attorney's fee and

(C) THAT PUBLIC RESPONDENT COURT

OF APPEALS SERIOUSLY ERRED IN
HOLDING THAT PETITIONER COULD
HAVE PROVIDED ADEQUATE SECURITY
IN PREDOMINANTLY MUSLIM AREAS AS
PART OF ITS DUTY TO OBSERVE
EXTRA-ORDINARY DILIGENCE AS A
COMMON CARRIER.

Costs against defendant-appellee. 5

Hence, this appeal. Petitioner contends:
(A) THAT PUBLIC RESPONDENT ERRED
IN REVERSING THE DECISION OF THE
REGIONAL TRIAL COURT DATED
DECEMBER 28, 1990 DISMISSING THE
COMPLAINT AS WELL AS THE
COUNTERCLAIM, AND FINDING FOR
PRIVATE RESPONDENTS BY ORDERING
PETITIONER TO PAY THE GARGANTUAN
SUM OF P3,449,649.20 PLUS P500.00
PER APPEARANCE AS ATTORNEY'S
FEES, AS WELL AS DENYING
PETITIONERS MOTION FRO
RECONSIDERATION AND THE

The instant has no merit.

First. Petitioner's Breach of the Contract of Carriage.
Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries
suffered by a passenger on account of wilfull acts of other passengers, if the
employees of the common carrier could have prevented the act through the exercise
of the diligence of a good father of a family. In the present case, it is clear that
because of the negligence of petitioner's employees, the seizure of the bus by
Mananggolo and his men was made possible.

110

Despite warning by the Philippine Constabulary at Cagayan de Oro that the

Maranaos were planning to take revenge on the petitioner by burning some of its
buses and the assurance of petitioner's operation manager, Diosdado Bravo, that
the necessary precautions would be taken, petitioner did nothing to protect the
safety of its passengers.
Had petitioner and its employees been vigilant they would not have failed to see that
the malefactors had a large quantity of gasoline with them. Under the circumstances,
simple precautionary measures to protect the safety of passengers, such as frisking
passengers and inspecting their baggages, preferably with non-intrusive gadgets
such as metal detectors, before allowing them on board could have been employed
without violating the passenger's constitutional rights. As this Court amended
in Gacal v. Philippine Air Lines, Inc., 6 a common carrier can be held liable for failing
to prevent a hijacking by frisking passengers and inspecting their baggages.
From the foregoing, it is evident that petitioner's employees failed to prevent the
attack on one of petitioner's buses because they did not exercise the diligence of a
good father of a family. Hence, petitioner should be held liable for the death of Atty.
Caorong.
Second. Seizure of Petitioner's Bus not a Case of Force Majeure
The petitioner contends that the seizure of its bus by the armed assailants was a
fortuitous event for which it could not be held liable.

Art. 1174 of the Civil Code defines a fortuitous event as an occurence which could
not be foreseen, is inevitable. In Yobido v. Court of Appeals, 7 we held that to
considered as force majeure, it is necessary that (1) the cause of the breach of the
obligation must be independent of the human will; (2) the event must be either
unforeseeable or unavoidable; (3) the occurence must be render it impossible for the
debtor to fulfill the obligation in a normal manner; and (4) the obligor must be free of
participation in, or aggravation of, the injury to the creditor. The absence of any of
the requisites mentioned above would prevent the obligor from being excused from
liability.
Thus, in Vasquez v. Court of Appeals, 8 it was held that the common carrier was
liable for its failure to take the necessary precautions against an approaching
typhoon, of which it was warned, resulting in the loss of the lives of several
passengers. The event was forseeable, and, thus, the second requisite mentioned
above was not fulfilled. This ruling applies by analogy to the present case. Despite
the report of PC agent Generalao that the Maranaos were going to attack its buses,
petitioner took no steps to safeguard the lives and properties of its passengers. The
seizure of the bus of the petitioner was foreseeable and, therefore, was not a
fortuitous event which would exempt petitioner from liabilty.
Petitioner invokes the ruling in Pilapil v. Court of Appeals, 9 and De Guzman v. Court
of Appeals, 10 in support of its contention that the seizure of its bus by the assailants
constitutes force majeure. In Pilapil v. Court of Appeals, 11 it was held that a common
carrier is not liable for failing to install window grills on its buses to protect the
passengers from injuries cause by rocks hurled at the bus by lawless elements. On
the other hand, in De Guzman v. Court of Appeals, 12 it was ruled that a common
carriers is not responsible for goods lost as a result of a robbery which is attended
by grave or irresistable threat, violence, or force.
It is clear that the cases of Pilapil and De Guzman do not apply to the prensent case.
Art. 1755 of the Civil Code provides that "a common carrier is bound to carry the
passengers as far as human care and foresight can provide, using the utmost

111

diligence of very cautious persons, with due regard for all the circumstances." Thus,
we held in Pilapil and De Guzman that the respondents therein were not negligent in
failing to take special precautions against threats to the safety of passengers which
could not be foreseen, such as tortious or criminal acts of third persons. In the
present case, this factor of unforeseeability (the second requisite for an event to be
considered force majeure) is lacking. As already stated, despite the report of PC
agent Generalao that the Maranaos were planning to burn some of petitioner's
buses and the assurance of petitioner's operation manager (Diosdado Bravo) that
the necessary precautions would be taken, nothing was really done by petitioner to
protect the safety of passengers.

breach of contract of carriage by a common carrier. Initially fixed in Art. 2206 at

P3,000.00, the amount of the said indemnity for death has through the years been
gradually increased in view of the declining value of the peso. It is presently fixed at
P50,000.00. 13 Private respondents are entitled to this amount.
Actual Damages. Art. 2199 provides that "except as provided by law or by
stipulation, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as has duly proved." The trial court found that the private
respondents spent P30,000.00 for the wake and burial of Atty. Caorong. 14 Since
petitioner does not question this finding of the trial court, it is liable to private
respondent in the said amount as actual damages.

Third. Deceased not Guilty of Contributory Negligence

The petitioner contends that Atty. Caorong was guilty of contributory negligence in
returning to the bus to retrieve something. But Atty. Caorong did not act recklessly. It
should be pointed out that the intended targets of the violence were petitioners and
its employees, not its passengers. The assailant's motive was to retaliate for the loss
of life of two Maranaos as a result of the collision between petitioner's bus and the
jeepney in which the two Maranaos were riding. Mananggolo, the leader of the group
which had hijacked the bus, ordered the passengers to get off the bus as they
intended to burn it and its driver. The armed men actually allowed Atty. Caorong to
retrieve something from the bus. What apparently angered them was his attempt to
help the driver of the bus by pleading for his life. He was playing the role of the good
Samaritan. Certainly, this act cannot considered an act of negligence, let alone
recklessness.
Fourth. Petitioner Liable to Private Respaondents for Damages
We now consider the question of damages that the heirs of Atty. Caorong, private
respondents herein, are entitled to recover from the petitioner.
Indemnity for Death. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof,
provides for the payment of indemnity for the death of passengers caused by the

Moral Damages. Under Art. 2206, the "spouse, legitimate and illegitimate
descendants and ascendants of the deceased may demand moral damages for
mental anguish by reason of the death of the deceased." The trial court found that
private respondent Paulie Caorong suffered pain from the death of her husband and
worry on how to provide support for their minor children, private respondents Yasser
King, Rose Heinni, and Prince Alexander. 15 The petitioner likewise does not
question this finding of the trial court. Thus, in accordance with recent decisions of
this Court, 16 we hold that the petitioner is liable to the private respondents in the
amount of P100,000.00 as moral damages for the death of Atty. Caorong.
Exemplary Damages. Art. 2232 provides that "in contracts and quasi-contracts, the
court may award exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent reckless manner." In the present case, the
petitioner acted in a wanton and reckless manner. Despite warning that the
Maranaos were planning to take revenge against the petitioner by burning some of
its buses, and contary to the assurance made by its operations manager that the
necessary precautions would be take, the petitioner and its employees did nothing to
protect the safety of passengers. Under the circumtances, we deem it reasonable to
award private respondents exemplary damages in the amount of P100,000.00. 17

112

Attorney's Fees. Pursuant to Art. 2208, attorney's fees may be recovered when, as
in the instant case, exemplary damages are awarded. In the recent case of Sulpicio
Lines, Inc. v. Court of Appeals, 18 we held an award of P50,000.00 as attorney's fees
to be reasonable. Hence, the private respondents are entitled to attorney's fees in
that amount.

1. death indemnity in the amount of fifty thousand pesos (P50,000.00);

Compensation for Loss of Earning Capacity. Art. 1764 of the Civil Code, in relation to
Art. 2206 thereof, provides that in addition to the indemnity for death arising from the
breach of contrtact of carriage by a common carrier, the "defendant shall be liable for
the loss of the earning capacity of the deceased, and the indemnity shall be paid to
the heirs of the latter." The formula established in decided cases for computing net
earning capacity is as follows: 19

4. exemplary damages in the amount of one hundred thousand pesos

(P100,000.00);

2. actual damages in the amount of thirty thousand pesos (P30,000.00);

3. moral damages in the amount of one hundred thousand pesos (P100,000.00);

5. attorney's fees in the amount of fifty thousand pesos (P50,000.00);

Gross Necessary

6. compensation for loss of earning capacity in the amount of two million one
hundred twenty-one thousand four hundred four pesos and ninety centavos
(P2,121,404.90); and

Net Earning = Life x Annual Living

7. cost of suits.

Capacity Expectancy Income Expenses

SO ORDERED.

Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty
(80) and the age of the deceased. 20Since Atty. Caorong was 37 years old at that
time of his death, 21 he had a life expectancy of 28 2/3 more years. 22 His projected
gross annual income, computed based on his monthly salary of P11,385.00. 23 as a
lawyer in the Department of Agrarian Reform at the time of his death, was
P148,005.00. 24 Allowing for necessary living expenses of fifty percent (50%) 25 of his
projected gross annual income, his total earning capacity amounts to
P2,121,404.90. 26 Hence, the petitioner is liable to the private respondents in the
said amount as a compensation for loss of earning capacity.
WHEREFORE, the decision, dated July 29, 1994, of the Court of Appeals is hereby
AFFIRMED with the MODIFICATION that petitioner Fortune Express, Inc. is ordered
to pay the following amounts to private respondents Paulie, Yasser King, Rose
Heinni, and Prince Alexander Caorong:

Bellosillo, Puno and Buena, JJ., concur.

Quisumbing, J., abroad on official business.

113

traveling along the same road going to the direction of Cainta collided with the
taxicab. The point of impact was so great that the taxicab was hit in the
middle portion and was pushed sideward, causing the driver to lose control of
the vehicle. The taxicab was then dragged into the nearby Question Tailoring
Shop, thus, causing damage to the said tailoring shop, and its driver, Eduardo
Eden, sustained injuries as a result of the incident." 2

Republic of the Philippines

SUPREME COURT
FIRST DIVISION
G.R. No. 131541

October 20, 2000

THERMOCHEM INCORPORATED and JEROME O. CASTRO, petitioners,

vs.
LEONORA NAVAL and THE COURT OF APPEALS, respondents.
YNARES-SANTIAGO, J.:
This damage suit arose from a collision of vehicles based on the following facts:
"(O)n May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem 1 was
driving a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going
towards Cainta. Prior to the collision, the taxicab was parked along the right
side of Ortigas Avenue, not far from the Rosario Bridge, to unload a
passenger. Thereafter, the driver executed a U-turn to traverse the same
road, going to the direction of EDSA. At this point, the Nissan Pathfinder

Private respondent, as owner of the taxi, filed a damage suit against petitioner,
Thermochem Incorporated, as the owner of the Nissan Pathfinder, and its driver,
petitioner Jerome Castro. After trial, the lower court adjudged petitioner Castro
negligent and ordered petitioners, jointly and severally, to pay private respondent
actual, compensatory and exemplary damages plus attorney's fees and costs of suit.
The dispositive portion of the Decision of the Regional Trial Court, Branch 150 of
Makati City dated September 25, 1995, reads:
In view of all the foregoing, judgment is hereby rendered ordering the defendants,
jointly and severally, to pay plaintiff the following:
1. The amount of P47,850.00 as actual damages;
2. The amount of P45,000.00 as compensatory damages for unrealized
income;
3. The amount of P 10,000.00 as exemplary damages;
4. The amount of P10,000.00 as and for attorney's fees; and
5. Cost of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the judgment of the court a quo. 4 Hence,
this petition for review on certiorari. The petition was denied on February 2, 1998 for

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failure to submit an explanation why no personal service of copies of certain

pleadings was made as required by Rule 13, Section 11 of the 1997 Rules of Civil
Procedure.5 Upon petitioners' motion for reconsideration, the petition was reinstated
and private respondent was required to file her Comment in a Resolution dated June
22, 1998.6 A copy of the said Resolution was sent by registered mail to private
respondent's counsel but the same was returned to sender.7 In a separate
Resolution issued on the same date, this Court ordered that a copy of the June 22,
1998 Resolution be served personally on private respondent's counsel. 8 As the said
Resolution was also returned unserved, "the Court Resolved to consider the said
Resolution as SERVED."9 After more than a year, no Comment has been filed.
Considering that private respondent was given only ten (10) days to file her
Comment, that period had already lapsed ten days after the June 23, 1999
Resolution which stated that the June 22, 1998 resolution as "served".

court fails to file its comment, the case may be decided on the basis of the evidence
on record without prejudice to disciplinary action against the disobedient party.
Concomitant thereto is the rule that pursuant to Rule 51, Section 1(B)(1), 14 where no
comment is filed upon the expiration of the period to comment in an original action or
a petition for review, the case shall be deemed submitted for decision. Both
provisions are applicable to a petition for review filed with the Supreme Court as
provided in Rule 56, Section 2(a) of the Rules. 15 Moreover, a lawyer who fails to
submit the required Comment manifests willful disobedience to a lawful order of the
Supreme Court, a clear violation of the Canon of Professional Ethics. 16 Counsel
must remember that his actions and omissions are binding on his client. 17 He should
not neglect legal matters entrusted to him as his negligence therefrom shall render
him liable. 18
The petition lacks merit.

Service of notice or other pleadings which are required by the rules to be furnished
to the parties must be made on their last address on record. If they are represented
by counsel, such notices shall be sent instead to the counsel's last given address on
record in the absence of a proper and adequate notice to the court of a change of
address,10 unless service upon the party himself is ordered by the court. 11 It is the
party and his counsel's responsibility to device a system for the receipt of mail
intended for them12 just as it is the duty of counsel to inform the court of a change in
his address. In the case at bar, private respondent's counsel never notified the Court
of any change of his address or whether he no longer holds office in his last address
of record. Neither was the Court informed if his ties with his client has been severed.
Insofar as the Court is concerned, the last address on record is the place where all
notices shall be served until the Court is officially informed to the contrary. What is
the effect of the failure of a private respondent to comply with a court order to file
Comment?
Courts are given the option to dispense with the filing of the Comment and consider
the case as deemed submitted for decision. Under Rule 46, Section 7 of the 1997
Rules of Civil Procedure,13 when the respondent in an original action filed with the

The issue of whether a party is negligent is a question of fact. It is a time-honored

precept that the Supreme Court is not a trier of facts, 19 although it has authority to
review and reverse factual findings of lower courts if these do not conform to
evidence.20 It is also settled that findings of fact of the trial court, particularly when
affirmed by the Court of Appeals, is binding on the Supreme Court 21 and generally
conclusive,22 especially if it has not been adequately shown that no significant facts
and circumstances were overlooked or disregarded which when considered would
have altered the outcome of the disposition.
The driver of the oncoming Nissan Pathfinder vehicle was liable and the driver of the
U-turning taxicab was contributorily liable. Contrary to petitioners' contention, the fact
that a party had no opportunity to avoid the collision is of his own making and this
should not relieve him of liability.23 From petitioner Castro's testimonial admissions, it
is established that he was driving at a speed faster than 50 kilometers per hour
because it was a downhill slope coming from the Rosario bridge. But as he allegedly
stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left and
consequently hit the taxicab. The sudden malfunction of the vehicle's brake system

115

is the usual excuse of drivers involved in collisions which are the result of speedy
driving, particularly when the road is downhill.
Malfunction or loss of brake is not a fortuitous event. Between the owner and his
driver, on the one hand, and third parties such as commuters, drivers and
pedestrians, on the other, the former is presumed to know about the conditions of his
vehicle and is duty bound to take care thereof with the diligence of a good father of
the family. A mechanically defective vehicle should avoid the streets. As petitioner's
vehicle was moving downhill, the driver should have slowed down since a downhill
drive would naturally cause the vehicle to accelerate. Moreover, the record shows
that the Nissan Pathfinder was on the wrong lane when the collision occurred. This
was a disregard of traffic safety rules. The law considers what would be reckless,
blameworthy or negligent in a man of ordinary diligence and prudence and
determines liability by that.24 Even assuming arguendo that loss of brakes is an act
of God, by reason of their negligence, the fortuitous event became humanized,
rendering the Nissan driver liable for the ensuing damages. 25

WHEREFORE, based on the foregoing, the assailed decision is MODIFIED.

Petitioners are ordered to pay, jointly and severally, to private respondent the
amount of P23,925.00 as actual damages. All other awards are DELETED.
SO ORDERED.
Davide, Jr., C .J ., Puno, Kapunan and Pardo, JJ ., concur.

As mentioned earlier, the driver of the taxi is contributorily liable. U-turns are not
generally advisable particularly on major streets. The taxi was hit on its side which
means that it had not yet fully made a turn to the other lane. The driver of the taxi
ought to have known that vehicles coming from the Rosario bridge are on a downhill
slope. Obviously, there was lack of foresight on his part, making him contributorily
liable. Most public utility drivers disregard signs and traffic rules especially during the
night when traffic enforcers manning the streets disappear with the light. In driving
vehicles, the primary concern should be the safety not only of the driver or his
passengers, but also his fellow motorists.
Considering the contributory negligence of the driver of private respondent's taxi, the
award of P47,850.00, for the repair of the taxi, should be reduced in half. All other
awards for damages are deleted for lack of merit.

Republic of the Philippines

SUPREME COURT
Manila

116

SECOND DIVISION
G.R. No. 147324

May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of
Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619. 1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now
Globe Telecom, Inc. (Globe), had been engaged in the coordination of the provision
of various communication facilities for the military bases of the United States of
America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi
Point, Zambales. The said communication facilities were installed and configured for
the exclusive use of the US Defense Communications Agency (USDCA), and for
security reasons, were operated only by its personnel or those of American
companies contracted by it to operate said facilities. The USDCA contracted with
said American companies, and the latter, in turn, contracted with Globe for the use of

the communication facilities. Globe, on the other hand, contracted with local service
providers such as the Philippine Communications Satellite Corporation (Philcomsat)
for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby
Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth
station (earth station) within Cubi Point for the exclusive use of the USDCA. 2The
term of the contract was for 60 months, or five (5) years. 3 In turn, Globe promised to
pay Philcomsat monthly rentals for each leased circuit involved. 4
At the time of the execution of the Agreement, both parties knew that the Military
Bases Agreement between the Republic of the Philippines and the US (RP-US
Military Bases Agreement), which was the basis for the occupancy of the Clark Air
Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25,
Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities,
which include those located at the US Naval Facility in Cubi Point, shall not be
allowed in the Philippines unless a new treaty is duly concurred in by the Senate and
ratified by a majority of the votes cast by the people in a national referendum when
the Congress so requires, and such new treaty is recognized as such by the US
Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point
and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No.
141, expressing its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements that was
supposed to extend the term of the use by the US of Subic Naval Base, among
others.5 The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing
relationship between the two countries in the spirit of friendship, cooperation
and sovereign equality: Now, therefore, be it Resolved by the Senate, as it is

117

hereby resolved, To express its decision not to concur in the ratification of the
Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements, at the same time reaffirming its desire to continue friendly
relations with the government and people of the United States of America. 6
On 31 December 1991, the Philippine Government sent a Note Verbale to the US
Government through the US Embassy, notifying it of the Philippines termination of
the RP-US Military Bases Agreement. The Note Verbale stated that since the RP-US
Military Bases Agreement, as amended, shall terminate on 31 December 1992, the
withdrawal of all US military forces from Subic Naval Base should be completed by
said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to
discontinue the use of the earth station effective 08 November 1992 in view of the
withdrawal of US military personnel from Subic Naval Base after the termination of
the RP-US Military Bases Agreement. Globe invoked as basis for the letter of
termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to
perform its obligation under this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event. Either party is thus precluded
from performing its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall mean
circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of
the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect
[Globe] to know its commitment to pay the stipulated rentals for the remaining terms
of the Agreement even after [Globe] shall have discontinue[d] the use of the earth

station after November 08, 1992."7 Philcomsat referred to Section 7 of the

Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it
has been put into operation, a written notice shall be served to PHILCOMSAT
at least sixty (60) days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe] shall continue to pay
PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in
no case shall be less than the first two (2) T1 circuits, for the remaining life of
the agreement. However, should PHILCOMSAT make use or sell the earth
station subject to this agreement, the obligation of [Globe] to pay the rental for
the remaining life of the agreement shall be at such monthly rate as may be
agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter
dated 24 November 1993 demanding payment of its outstanding obligations under
the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees.
However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati
a Complaint against Globe, praying that the latter be ordered to pay liquidated
damages under the Agreement, with legal interest, exemplary damages, attorneys
fees and costs of suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the
non-ratification by the Senate of the Treaty of Friendship and Cooperation, which
events constituted force majeure under the Agreement. Globe explained that the
occurrence of said events exempted it from paying rentals for the remaining period
of the Agreement.

118

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two
Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its
equivalent in Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment) representing rentals
for the month of December 1992 with interest thereon at the legal rate
of twelve percent (12%) per annum starting December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of
merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by
the Senate of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements constitutes force majeure which exempts Globe from
complying with its obligations under the Agreement; (2) Globe is not liable to pay the
rentals for the remainder of the term of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for
payment of rent of the earth station for December 1992 and of attorneys fees. It
explained that it terminated Philcomsats services on 08 November 1992; hence, it
had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsats appeal for lack of merit and affirming the trial courts finding that certain
events constituting force majeure under Section 8 the Agreement occurred and
justified the non-payment by Globe of rentals for the remainder of the term of the
Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security, and its Supplementary Agreements, and the
termination by the Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine Governments Note
Verbale to the US Government, are acts, directions, or requests of the Government
of the Philippines which constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such as the issuance of a formal
order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification
from ATT and the complete withdrawal of all US military forces and personnel from
Cubi Point, which prevented further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate
Philcomsats services by 08 November 1992, it is still liable to pay rentals for the
December 1992, amounting to US$92,238.00 plus interest, considering that the US
military forces and personnel completely withdrew from Cubi Point only on 31
December 1992.10
Both parties filed their respective Petitions for Review assailing the Decision of the
Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of
error:

119

A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A

DEFINITION OF FORCE MAJEUREDIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES,
SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR
THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE
TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF
PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY
DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement
cannot be considered a fortuitous event because the happening thereof was
foreseeable. Although the Agreement was freely entered into by both parties,
Section 8 should be deemed ineffective because it is contrary to Article 1174 of the
Civil Code. Philcomsat posits the view that the validity of the parties definition
of force majeure in Section 8 of the Agreement as "circumstances beyond the control
of the party involved including, but not limited to, any law, order, regulation, direction
or request of the Government of the Philippines, strikes or other labor difficulties,
insurrection riots, national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God," should be deemed subject to Article
1174 which defines fortuitous events as events which could not be foreseen, or
which, though foreseen, were inevitable. 13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not
liable to pay for the rental of the earth station for the entire term of the Agreement
because it runs counter to what was plainly stipulated by the parties in Section 7
thereof. Moreover, said ruling is inconsistent with the appellate courts
pronouncement that Globe is liable to pay rentals for December 1992 even though it
terminated Philcomsats services effective 08 November 1992, because the US
military and personnel completely withdrew from Cubi Point only in December 1992.
Philcomsat points out that it was Globe which proposed the five-year term of the
Agreement, and that the other provisions of the Agreement, such as Section
4.114thereof, evince the intent of Globe to be bound to pay rentals for the entire fiveyear term.15
Philcomsat also maintains that contrary to the appellate courts findings, it is entitled
to attorneys fees and exemplary damages.16
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the
Agreement is not contrary to Article 1174 of the Civil Code because said provision
does not prohibit parties to a contract from providing for other instances when they
would be exempt from fulfilling their contractual obligations. Globe also claims that
the termination of the RP-US Military Bases Agreement constitutes force
majeure and exempts it from complying with its obligations under the
Agreement.17On the issue of the propriety of awarding attorneys fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto
because in refusing to pay rentals for the remainder of the term of the Agreement,
Globe only acted in accordance with its rights. 18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of
Appeals erred in finding it liable for the amount of US$92,238.00, representing
rentals for December 1992, since Philcomsats services were actually terminated on
08 November 1992.20

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In its Comment, Philcomsat claims that Globes petition should be dismissed as it

raises a factual issue which is not cognizable by the Court in a petition for review
on certiorari.21

147324 and required the parties to submit their respective memoranda. 22

In support of its position, Philcomsat contends that under Article 1174 of the Civil
Code, an event must be unforeseen in order to exempt a party to a contract from
complying with its obligations therein. It insists that since the expiration of the RP-US
Military Bases Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security and the withdrawal of US military forces and personnel
from Cubi Point were not unforeseeable, but were possibilities known to it and Globe
at the time they entered into the Agreement, such events cannot exempt Globe from
performing its obligation of paying rentals for the entire five-year term thereof.

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to
the Petition filed by Globe in G.R. No. 147334 and required both parties to submit
their memoranda.23

However, Article 1174, which exempts an obligor from liability on account of

fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable:

On 15 August 2001, the Court issued a Resolution giving due course to

Philcomsats Petition in G.R. No.

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in

the two cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of
the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security, and the consequent withdrawal of US military forces and
personnel from Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with Philcomsat; (2)
whether Globe is liable to pay rentals under the Agreement for the month of
December 1992; and (3) whether Philcomsat is entitled to attorneys fees and
exemplary damages.

Art. 1174. Except in cases specified by the law, or when it is otherwise

declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which,
could not be foreseen, or which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural
occurrences such as floods or typhoons,24or an "act of man," such as riots, strikes or
wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following
events shall be deemed events constitutingforce majeure:

No reversible error was committed by the Court of Appeals in issuing the

assailed Decision; hence the petitions are denied.

1. Any law, order, regulation, direction or request of the Philippine

Government;

There is no merit is Philcomsats argument that Section 8 of the Agreement cannot

be given effect because the enumeration of events constituting force majeure therein
unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.

2. Strikes or other labor difficulties;

3. Insurrection;
4. Riots;

121

5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the
control of the parties. There is nothing in the enumeration that runs contrary to, or
expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may
establish such stipulations, clauses, terms and conditions as they may deem fit, as
long as the same do not run counter to the law, morals, good customs, public order
or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts
have the force of law between the contracting parties and should be complied with in
good faith."28 Courts cannot stipulate for the parties nor amend their agreement
where the same does not contravene law, morals, good customs, public order or
public policy, for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect thereto. 29
Not being contrary to law, morals, good customs, public order, or public policy,
Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has the
force of law between them.30
In order that Globe may be exempt from non-compliance with its obligation to pay
rentals under Section 8, the concurrence of the following elements must be
established: (1) the event must be independent of the human will; (2) the occurrence

must render it impossible for the debtor to fulfill the obligation in a normal manner;
and (3) the obligor must be free of participation in, or aggravation of, the injury to the
creditor.31
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat and Globe
had no control over the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate. Neither did the parties have
control over the subsequent withdrawal of the US military forces and personnel from
Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases
Agreement (and its Supplemental Agreements) under its Resolution No. 141.
(Exhibit "2") on September 16, 1991 is beyond the control of the parties. This
resolution was followed by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government to the US Government
notifying the latter of the formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that accordingly, the
withdrawal of all U.S. military forces from Subic Naval Base should be
completed by said date. Subsequently, defendant [Globe] received a formal
order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and
a notification from ATT dated July 29, 1992 to terminate the provision of T1s
services (via an IBS Standard B Earth Station) effective November 08, 1992.
Plaintiff [Philcomsat] was furnished with copies of the said order and letter by
the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the
Philippine Government to the US Government are acts, direction or request of
the Government of the Philippines and circumstances beyond the control of
the defendant. The formal order from Cdr. Walter Corliss of the USN, the
letter notification from ATT and the complete withdrawal of all the military

122

forces and personnel from Cubi Point in the year-end 1992 are also acts and
circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the aforenarrated circumstances constitute "force majeure or fortuitous event(s) as
defined under paragraph 8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from
paying the rentals for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement
(as amended) the continued stay of all US Military forces and personnel from
Subic Naval Base would no longer be allowed, hence, plaintiff would no
longer be in any position to render the service it was obligated under the
Agreement. To put it blantly (sic), since the US military forces and personnel
left or withdrew from Cubi Point in the year end December 1992, there was no
longer any necessity for the plaintiff to continue maintaining the IBS
facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until
the end of its five-year term without fault on the part of either party. The Court of
Appeals was thus correct in ruling that the happening of such fortuitous events
rendered Globe exempt from payment of rentals for the remainder of the term of the
Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though
Philcomsat cannot be compelled to perform its corresponding obligation under the
Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSATs position.
PHILCOMSAT would like to charge GLOBE rentals for the balance of the

lease term without there being any corresponding telecommunications service

subject of the lease. It will be grossly unfair and iniquitous to hold GLOBE
liable for lease charges for a service that was not and could not have been
rendered due to an act of the government which was clearly beyond GLOBEs
control. The binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the force of law
between the contracting parties, and there must be mutuality between them
based essentially on their equality under which it is repugnant to have one
party bound by the contract while leaving the other party free therefrom
(Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals for the
month of December 1992, the Court likewise affirms the appellate courts ruling that
Globe should pay the same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective
08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US
Navy, the date when they actually ceased using the earth station subject of the
Agreement was not established during the trial. 34 However, the trial court found that
the US military forces and personnel completely withdrew from Cubi Point only on 31
December 1992.35 Thus, until that date, the USDCA had control over the earth
station and had the option of using the same. Furthermore, Philcomsat could not
have removed or rendered ineffective said communication facility until after 31
December 1992 because Cubi Point was accessible only to US naval personnel up
to that time. Hence, the Court of Appeals did not err when it affirmed the trial courts
ruling that Globe is liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not
entitled to attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and must be
supported by factual, legal and equitable justifications. 36 In previously decided cases,
the Court awarded attorneys fees where a party acted in gross and evident bad faith

123

in refusing to satisfy the other partys claims and compelled the former to litigate to
protect his rights;37 when the action filed is clearly unfounded, 38 or where moral or
exemplary damages are awarded.39 However, in cases where both parties have
legitimate claims against each other and no party actually prevailed, such as in the
present case where the claims of both parties were sustained in part, an award of
attorneys fees would not be warranted. 40

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of
Pasig City for damages arising from the death of their son Ruelito C. Cruz (Ruelito)
who perished with his wife on September 11, 2000 on board the boat M/B Coco
Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro
where the couple had stayed at Coco Beach Island Resort (Resort) owned and
operated by respondent.

Exemplary damages may be awarded in cases involving contracts or quasicontracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.41 In the present case, it was not shown that Globe acted
wantonly or oppressively in not heeding Philcomsats demands for payment of
rentals. It was established during the trial of the case before the trial court that Globe
had valid grounds for refusing to comply with its contractual obligations after 1992.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of
the Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 186312

June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave
his account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners son and his wife trekked to the other side of the Coco Beach
mountain that was sheltered from the wind where they boarded M/B Coco Beach III,
which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto
Galera and into the open seas, the rain and wind got stronger, causing the boat to tilt
from side to side and the captain to step forward to the front, leaving the wheel to
one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one
after the other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat.
Upon seeing the captain, Matute and the other passengers who reached the surface
asked him what they could do to save the people who were still trapped under the
boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

124

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang,
Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on those two
boats were 22 persons, consisting of 18 passengers and four crew members, who
were brought to Pisa Island. Eight passengers, including petitioners son and his
wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility
for the incident which it considered to be a fortuitous event. It nevertheless offered,
as an act of commiseration, the amount of P10,000 to petitioners upon their signing
of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier
reflected, alleging that respondent, as a common carrier, was guilty of negligence in
allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins issued
by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. 6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are
not available to the general public as they only ferry Resort guests and crew
members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B
Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less
than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily
requires four conditions to be met before a boat is allowed to sail, to wit: (1) the sea
is calm, (2) there is clearance from the Coast Guard, (3) there is clearance from the

captain and (4) there is clearance from the Resorts assistant manager.8 He added
that M/B Coco Beach III met all four conditions on September 11, 2000, 9 but a
subasco or squall, characterized by strong winds and big waves, suddenly occurred,
causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed
petitioners Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated
September 2, 2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal,
holding, among other things, that the trial court correctly ruled that respondent is a
private carrier which is only required to observe ordinary diligence; that respondent
in fact observed extraordinary diligence in transporting its guests on board M/B Coco
Beach III; and that the proximate cause of the incident was a squall, a fortuitous
event.
Petitioners Motion for Reconsideration having been denied by Resolution dated
January 16, 2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its
guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors
of the incident.
Upon the other hand, respondent contends that petitioners failed to present
evidence to prove that it is a common carrier; that the Resorts ferry services for
guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it had
imposed before allowing M/B Coco Beach III to sail; that the incident was caused by
a fortuitous event without any contributory negligence on its part; and that the other
case wherein the appellate court held it liable for damages involved different
plaintiffs, issues and evidence.16
The petition is impressed with merit.

125

Petitioners correctly rely on De Guzman v. Court of Appeals 17 in characterizing

respondent as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also
carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, "public service" includes:

. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and other
similar public services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its
main business as to be properly considered ancillary thereto. The constancy of
respondents ferry services in its resort operations is underscored by its having its
own Coco Beach boats. And the tour packages it offers, which include the ferry
services, may be availed of by anyone who can afford to pay the same. These
services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no
moment. It would be imprudent to suppose that it provides said services at a loss.
The Court is aware of the practice of beach resort operators offering tour packages
to factor the transportation fee in arriving at the tour package price. That guests who
opt not to avail of respondents ferry services pay the same amount is likewise
inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers"
has deliberately refrained from making distinctions on whether the carrying of
persons or goods is the carriers principal business, whether it is offered on a regular
basis, or whether it is offered to the general public. The intent of the law is thus to
not consider such distinctions. Otherwise, there is no telling how many other
distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities of
common carriers.

126

Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the safety
of the passengers transported by them, according to all the circumstances of each
case.19 They are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.20
When a passenger dies or is injured in the discharge of a contract of carriage, it is
presumed that the common carrier is at fault or negligent. In fact, there is even no
need for the court to make an express finding of fault or negligence on the part of the
common carrier. This statutory presumption may only be overcome by evidence that
the carrier exercised extraordinary diligence.21
Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September 11,
2000. Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect the province of
Mindoro.22 By the testimony of Dr. Frisco Nilo, supervising weather specialist of
PAGASA, squalls are to be expected under such weather condition. 23
A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk. The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not
impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their obligations,
must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid;
(c) the occurrence must have been such as to render it impossible for the debtors to
fulfill their obligation in a normal manner; and (d) the obligor must have been free
from any participation in the aggravation of the resulting injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should have exercised due diligence
to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence of
squalls was expected under the weather condition of September 11, 2000.
Moreover, evidence shows that M/B Coco Beach III suffered engine trouble before it
capsized and sank.26 The incident was, therefore, not completely free from human
intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate
that it exercised due diligence to prevent or minimize the loss before, during and
after the occurrence of the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in
breach of its contract of carriage that results in the death of a passenger liable to pay
the following: (1) indemnity for death, (2) indemnity for loss of earning capacity and
(3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed
at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and
necessary living expenses).

127

Life expectancy is determined in accordance with the formula:

Capacity

2 / 3 x [80 age of deceased at the time of death] 30

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80
age at death]) adopted in the American Expectancy Table of Mortality or the
Actuarial of Combined Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings
of the deceased, i.e., the total earnings less expenses necessary in the creation of
such earnings or income and less living and other incidental expenses. 32 The loss is
not equivalent to the entire earnings of the deceased, but only such portion as he
would have used to support his dependents or heirs. Hence, to be deducted from his
gross earnings are the necessary expenses supposed to be used by the deceased
for his own needs.33
In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja34 teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as
follows:
Life expectancy =

2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]
2/3 x [52]

Life expectancy =

35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average
exchange rate of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net earning
capacity is thus computed as follows:
Net Earning

= life expectancy x (gross annual income - reasonable and

Net Earning
Capacity

necessary living expenses).

= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach
of contract of carriage resulted in the death of petitioners son, following Article 1764
vis--vis Article 2206 of the Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence
required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in contractual
obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount
of P100,000 as moral damages and P100,000 as exemplary damages.381avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded
where exemplary damages are awarded. The Court finds that 10% of the total
amount adjudged against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for payment of interest
in the concept of actual and compensatory damages, subject to the following rules,
to wit
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

128

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 177685

January 26, 2011

HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN

BUILDERS, Petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE CORPORATION, Respondents.

3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. (emphasis supplied).

Present:
CARPIO MORALES, J.,
Chairperson,

Since the amounts payable by respondent have been determined with certainty only
in the present petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines, Inc.

NACHURA,*
BRION,
VILLARAMA, JR., and

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED

and SET ASIDE. Judgment is rendered in favor of petitioners ordering respondent to
pay petitioners the following: (1) P50,000 as indemnity for the death of Ruelito Cruz;
(2) P8,316,000 as indemnity for Ruelitos loss of earning capacity; (3) P100,000 as
moral damages; (4) P100,000 as exemplary damages; (5) 10% of the total amount
adjudged against respondent as attorneys fees; and (6) the costs of suit.

SERENO, JJ.
Promulgated:

The total amount adjudged against respondent shall earn interest at the rate of 12%
per annum computed from the finality of this decision until full payment.

DECISION
VILLARAMA, JR., J.:

129

This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, which seeks to reverse and set aside the Decision[1] dated June 27, 2006
and Resolution[2] dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV
No. 58790. The CA affirmed with modification the Decision[3] dated July 3, 1997 of
the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328
(43083) and 40755.

3) Some workers have no safety devices.

The facts are as follows:

6) Construction plans use[d] on the job site is not in accordance to the approved
plan.[7]

On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the
restaurant business, through its President, Jose C. Reyes, entered into a
contract[4] with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for the
construction of a restaurant building in Greenbelt, Makati, Metro Manila for the price
ofP7,600,000.00. On July 18, 1980, to secure Rhogens compliance with its
obligation under the contract, Gaite and FGU Insurance Corporation (FGU) executed
a surety bond in the amount of P1,155,000.00 in favor of The Plaza. On July 28,
1980, The Plaza paid P1,155,000.00 less withholding taxes as down payment to
Gaite. Thereafter, Rhogen commenced construction of the restaurant building.
In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting
Building Official of the Municipality of Makati, ordered Gaite to cease and desist from
continuing with the construction of the building for violation of Sections 301 and 302
of the National Building Code (P.D. 1096) and its implementing rules and
regulations.[5]The letter was referred to The Plazas Project Manager, Architect
Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for
the construction of the restaurant was revoked for non-compliance with the
provisions of the National Building Code and for the additional temporary
construction without permit.[6] The Memorandum Report of Building Inspector Victor
Gregory enumerated the following violations of Rhogen in the construction of the
building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.

4) The Secretary and Construction Foreman refused to [receive] the Letter of

Stoppage dated September 10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority of the Building Officials Inspector.

On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo
#23 reported on his evaluation of Progress Billing #1 submitted by Rhogen. Tayzon
stated that actual jobsite assessment showed that the finished works fall short of
Rhogens claimed percentage of accomplishment and Rhogen was entitled to
only P32,684.16 and not P260,649.91 being demanded by Rhogen. Further, he
recommended that said amount payable to Rhogen be withheld pending compliance
with Construction Memo #18, resolution of cases regarding unauthorized withdrawal
of materials from jobsite and stoppage of work by the Municipal Engineers Office of
Makati.[8]
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza
regarding his actions/observations on the stoppage order issued. On the permit for
temporary structure, Gaite said the plans were being readied for submission to the
Engineering Department of the Municipality of Makati and the application was being
resent to Reyes for his appropriate action. As to the notice for concrete pouring,
Gaite said that their construction set-up provides for a Project Manager to whom the
Pouring Request is first submitted and whose job is to clear to whoever parties are
involved (this could still be worked out with the Building Inspector). Regarding the
safety devices for workers, Gaite averred that he had given strict rules on this but in
the course of construction some workers have personal preferences. On the refusal
of the secretary and construction foreman to receive the stoppage order dated
September 10, 1980, Gaite took responsibility but insisted it was not a violation of
theNational Building Code. Likewise, questioning the authority of the Building
Inspector is not a violation of the Code although Gaite denied he ever did so. Lastly,
on the construction plans used in the jobsite not being in accordance with the
approved plan, Gaite said he had sent Engr. Cristino V. Laurel on October 3, 1980 to
Reyes office and make a copy of the only approved plan which was in the care of

130

Reyes, but the latter did not give it to Engr. Laurel. Gaite thus thought that Reyes
would handle the matter by himself.[9]
On the same day, Gaite notified Reyes that he is suspending all construction works
until Reyes and the Project Manager cooperate to resolve the issue he had raised to
address the problem.[10] This was followed by another letter dated November 18,
1980 in which Gaite expressed his sentiments on their aborted project and reiterated
that they can still resolve the matter with cooperation from the side of The Plaza.
[11] In his reply-letter dated November 24, 1980, Reyes asserted that The Plaza is
not the one to initiate a solution to the situation, especially after The Plaza already
paid the agreed down payment of P1,155,000.00, which compensation so far
exceeds the work completed by Rhogen before the municipal authorities stopped the
construction for several violations. Reyes made it clear they have no obligation to
help Rhogen get out of the situation arising from non-performance of its own
contractual undertakings, and that The Plaza has its rights and remedies to protect
its interest.[12]
Subsequently, the correspondence between Gaite and Reyes involved the custody
of remaining bags of cement in the jobsite, in the course of which Gaite was charged
with estafa for ordering the removal of said items. Gaite complained that Reyes
continued to be uncooperative in refusing to meet with him to resolve the delay.
Gaite further answered the estafa charge by saying that he only acted to protect the
interest of the owner (prevent spoilage/hardening of cement) and that Reyes did not
reply to his request for exchange.[13]
On January 9, 1981, Gaite informed The Plaza that he is terminating their contract
based on the Contractors Right to Stop Work or Terminate Contracts as provided for
in the General Conditions of the Contract. In his letter, Gaite accused Reyes of not
cooperating with Rhogen in solving the problem concerning the revocation of the
building permits, which he described as a "minor problem." Additionally, Gaite
demanded the payment ofP63,058.50 from The Plaza representing the work that
has already been completed by Rhogen.[14]

On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite
and Rhogen fully responsible for failure to comply with the terms of the contract and
to deliver the finished structure on the stipulated date. Reyes argued that the down
payment made by The Plaza was more than enough to cover Rhogens expenses.
[15]
In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogens
undertaking to complete the construction within 180 calendar days from July 16,
1980 or up to January 12, 1981, and to pay the agreed payment of liquidated
damages for every month of delay, chargeable against the performance bond posted
by FGU. Reyes invoked Section 121 of the Articles of General Conditions granting
the owner the right to terminate the contract if the contractor fails to execute the
work properly and to make good such deficiencies and deducting the cost from the
payment due to the contractor. Reyes also informed Gaite that The Plaza will
continue the completion of the structure utilizing the services of a competent
contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII
of the Contract. After proper evaluation of the works completed by Rhogen, The
Plaza shall then resume the construction and charge Rhogen for all the costs and
expenses incurred in excess of the contract price. In the meantime that The Plaza is
still evaluating the extent and condition of the works performed by Rhogen to
determine whether these are done in accordance with the approved plans, Reyes
demanded from Gaite the reimbursement of the balance of their initial payment
of P1,155,000.00 from the value of the works correctly completed by Rhogen, or if
none, to reimburse the entire down payment plus expenses of removal and
replacement. Rhogen was also asked to turn over the jobsite premises as soon as
possible.[16] The Plaza sent copy of said letter to FGU but the latter replied that it
has no liability under the circumstances and hence it could not act favorably on its
claim against the bond.[17]
On March 3, 1981, The Plaza notified Gaite that it could no longer credit any
payment to Rhogen for the work it had completed because the evaluation of the
extent, condition, and cost of work done revealed that in addition to the violations
committed during the construction of the building, the structure was not in
accordance with plans approved by the government and accepted by Ayala. Hence,
The Plaza demanded the reimbursement of the down payment, the cost of uprooting
or removal of the defective structures, the value of owner-furnished materials, and
payment of liquidated damages.[18]

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On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract,
sum of money and damages against Gaite and FGU in the Court of First Instance
(CFI) of Rizal.[19] The Plaza later amended its complaint to include Cynthia G. Gaite
and Rhogen.[20] The Plaza likewise filed Civil Case No. 1328 (43083) against
Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal
for nullification of the project development contract executed prior to the General
Construction Contract subject of Civil Case No. 40755, which was allegedly in
violation of the provisions of R.A. No. 545 (Architectural Law of the Philippines).
[21] After the reorganization of the Judiciary in 1983, the cases were transferred to
the RTC of Makati and eventually consolidated.

1. the amount of P525,422.73 as actual damages representing owner-furnished

materials with legal interest from the time of filing of the complaint until full payment;

On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the
claims of The Plaza against Rhogen, the Gaites and FGU, and the cross-claim of
FGU against Rhogen and the Gaites. The trial court ruled that the Project Manager
was justified in recommending that The Plaza withhold payment on the progress
billings submitted by Rhogen based on his evaluation that The Plaza is liable to pay
only P32,684.16 and notP260,649.91. The other valid grounds for the withholding of
payment were the pending estafa case against Gaite, non-compliance by Rhogen
with Construction Memorandum No. 18 and the non-lifting of the stoppage order.[22]

5. the amount of P100,000.00 for exemplary damages;

Regarding the non-lifting of the stoppage order, which the trial court said was based
on simple infractions, the same was held to be solely attributable to Rhogens willful
inaction. Instead of readily rectifying the violations, Rhogen continued with the
construction works thereby causing more damage. The trial court pointed out that
Rhogen is not only expected to be aware of standard requirements and pertinent
regulations on construction work, but also expressly bound itself under the General
Construction Contract to comply with all the laws, city and municipal ordinances and
all government regulations. Having failed to complete the project within the
stipulated period and comply with its obligations, Rhogen was thus declared guilty of
breaching the Construction Contract and is liable for damages under Articles 1170
and 1167 of the Civil Code.[23]
The dispositive portion of the trial courts decision reads:
WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite
and Rhogen Builders are jointly and severally ordered to pay plaintiff:

2. the amount of P14,504.66 as actual damages representing expenses for

uprooting with interest from the time of filing the complaint until full payment;
3. the amount of P1,155,000.00 as actual damages representing the downpayment
with legal interest from the time of filing the complaint until full payment;
4. the amount of P150,000.00 for moral damages;

6. the amount of P500,000.00 as liquidated damages;

7. the amount of P100,000.00 as reasonable attorneys fees; and,
8. the cost of suit.
Under the surety bond, defendants Rhogen and FGU are jointly and severally
ordered to pay plaintiff the amount of P1,155,000.00 with legal interest from the time
of filing the complaint until full payment. In the event [that] FGU pays the said
amount, third-party defendants are jointly and severally ordered to pay the same
amount to FGU plus P50,000.00 as reasonable attorneys fees, the latter having
been forced to litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.
SO ORDERED.[24]
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.[25] In
view of the death of Ramon C. Gaite on April 21, 1999, the CA issued a Resolution
dated July 12, 2000 granting the substitution of the former by his heirs Cynthia G.
Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and Roman Juan G. Gaite.[26]
In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned
the following errors, to wit:

132

I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED

UPON BY DEFENDANT-APPELLANT RHOGEN BUILDERS IN TERMINATING THE
CONTRACT ARE UNTENABLE;
II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE
STOPPAGE ORDER OF THE THEN MUNICIPAL GOVERNMENT OF MAKATI WAS
SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGENS WILLFUL
INACTION;
III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE
WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE
FOR DEFENDANTAPPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS
UNDER THE CONTRACT;
IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS
MORAL, EXEMPLARY, AND LIQUIDATED DAMAGES AND ATTORNEYS FEES
SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND
V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTSAPPELLANTS.[27]
For its part, FGU interposed the following assignment of errors:
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANTAPPELLANT RAMON GAITE VALIDLY TERMINATED THE CONTRACT BETWEEN
HIM AND PLAINTIFF-APPELLEE.
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT RAMON GAITE RESPONSIBLE FOR THE STOPPAGE OF THE
CONSTRUCTION.
III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO PAY THE AMOUNT OF P525,422.73 FOR THE
OWNER FURNISHED MATERIALS.

IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE THE AMOUNT OF
P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE
PERFORMED.
V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO REFUND THE DOWN PAYMENT OF
P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.
VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO
PLAINTIFF-APPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY
DAMAGES TO PLAINTIFF-APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED
DAMAGES TO PLAINTIFF-APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES TO
PLAINTIFF-APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT FGU INSURANCE CORPORATION LIABLE TO PLAINTIFFAPPELLEE.[28]
On June 27, 2006, the CA affirmed the Decision of the trial court but modified the
award of damages as follows:
WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court
of Makati City, Branch 63 in Civil Case Nos. 40755 and 1328 is AFFIRMED with
the modification that: (a) the award for actual damages representing the ownerfurnished materials and the expenses for uprooting are deleted, and in lieu thereof,
the amount of P300,000.00 as temperate damages is awarded; and (b) the awards
for moral, exemplary, liquidated and attorneys fees are likewise deleted.
SO ORDERED.[29]

133

According to the CA, The Plaza cannot now be demanded to comply with its
obligation under the contract since Rhogen has already failed to comply with its own
contractual obligation. Thus, The Plaza had every reason not to pay the progress
billing as a result of Rhogens inability to perform its obligations under the contract.
Further, the stoppage and revocation orders were issued on account of Rhogens
own violations involving the construction as found by the local building official.
Clearly, Rhogen cannot blame The Plaza for its own failure to comply with its
contractual obligations. The CA stressed that Rhogen obliged itself to comply with
"all the laws, city and municipal ordinances and all government regulations insofar
as they are binding upon or affect the parties [to the contract] , the work or those
engaged thereon."[30] As such, it was responsible for the lifting of the stoppage and
revocation orders. As to Rhogens act of challenging the validity of the stoppage and
revocation orders, the CA held that it cannot be done in the present case because
under Section 307 of the National Building Code, appeal to the Secretary of the
Department of Public Works and Highways (DPWH) whose decision is subject to
review by the Office of the President -- is available as remedy for Rhogen.[31]
However, the CA modified the award of damages holding that the claim for actual
damages of P525,422.73 representing the damaged owner-furnished materials was
not supported by any evidence. Instead, the CA granted temperate damages in the
amount of P300,000.00. As to moral damages, no specific finding for the factual
basis of said award was made by the trial court, and hence it should be deleted.
Likewise, liquidated damages is not proper considering that this is not a case of
delay but non-completion of the project. The Plaza similarly failed to establish that
Rhogen and Gaite acted with malice or bad faith; consequently, the award of
exemplary damages must be deleted. Finally, there being no bad faith on the part of
the defendants, the award of attorneys fees cannot be sustained.[32]
The motion for reconsideration of the aforesaid Decision was denied in the
Resolution dated April 20, 2007 for lack of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with
grave abuse of discretion amounting to lack of or excess of jurisdiction, when it

found that Petitioner Rhogen had no factual or legal basis to terminate the General
Construction Contract.
II.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with
grave abuse of discretion amounting to lack of or excess of jurisdiction, when, as a
consequence of its finding that Petitioners did not have valid grounds to terminate
the Construction Contract, it directed Petitioners to return the downpayment paid by
The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with
grave abuse of discretion amounting to lack of or excess of jurisdiction, when, in
addition thereto, it awarded temperate damages to The Plaza.
IV.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with
grave abuse of discretion amounting to lack of or excess of jurisdiction, when it failed
to award damages in favor of Petitioners.[33]
Petitioners contend that the CA gravely erred in not holding that there were valid and
legal grounds for Rhogen to terminate the contract pursuant to Article 1191 of
the Civil Code and Article 123 of the General Conditions of the Construction
Contract. Petitioners claim that Rhogen sent Progress Billing No. 1 dated September
10, 1980 and demanded payment from The Plaza in the net amount of P473,554.06
for the work it had accomplished from July 28, 1980 until September 7, 1980. The
Plaza, however, failed to pay the said amount. According to petitioners, Article 123 of
the General Conditions of the Construction Contract gives The Plaza seven days
from notice within which to pay the Progress Billing; otherwise, Rhogen may
terminate the contract. Petitioners also invoke Article 1191 of the Civil Code, which
states that the power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
We deny the petition.

134

Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed simultaneously
such that the performance of one is conditioned upon the simultaneous fulfillment of
the other. Respondent The Plaza predicated its action on Article 1191[34] of the Civil
Code, which provides for the remedy of "rescission" or more properly resolution, a
principal action based on breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the provision is the obligors
failure to comply with an existing obligation. Thus, the power to rescind is given only
to the injured party. The injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his obligation.[35]
The construction contract between Rhogen and The Plaza provides for reciprocal
obligations whereby the latters obligation to pay the contract price or progress billing
is conditioned on the formers performance of its undertaking to complete the works
within the stipulated period and in accordance with approved plans and other
specifications by the owner. Pursuant to its contractual obligation, The Plaza
furnished materials and paid the agreed down payment. It also exercised the option
of furnishing and delivering construction materials at the jobsite pursuant to Article III
of the Construction Contract. However, just two months after commencement of the
project, construction works were ordered stopped by the local building official and
the building permit subsequently revoked on account of several violations of
the National Building Code and other regulations of the municipal authorities.
Petitioners reiterate their position that the stoppage order was unlawful, citing the
fact that when the new contractor (ACK Construction, Inc.) took over the project, the
local government of Makati allowed the construction of the building using the old
building permit; moreover, the basement depth of only two meters was retained, with
no further excavation made. They cite the testimony of the late Ramon Gaite before
the trial court that at the time, he had incurred the ire of then Mayor of Makati
because his (Gaite) brother was the Mayors political opponent; hence, they sought
to file whatever charge they could against him in order to call the attention of his
brother. This "political harassment" defense was raised by petitioners in their
Amended Answer. Gaites testimony was intended to explain the circumstances
leading to his decision to terminate the construction contract and not to question the
revocation of the building permit. As the available remedy was already foreclosed, it
was thus error for the CA to suggest that Rhogen should have appealed the

stoppage and revocations orders issued by the municipal authorities to the DPWH
and then to the OP.[36]
Article 123 of the Articles of General Conditions states the grounds for the
termination of the work or contract by the Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR TERMINATE
CONTRACT
If work should be stopped under order of any court, or other public authority, for
period of three (3) months through no act or fault of Contractor or of anyone
employed by him, or if Owners Representative should fail to issue any certificate of
payment within seven (7) days after its maturity and presentation of any sum
certified by Owners Representative or awarded arbitrator, then contractor, may, stop
work or terminate Contract, recover from Owner payment for work executed, loss
sustained upon any plant or materials, reasonable profit, damages.[37](Emphasis
supplied.)
Petitioners may not justify Rhogens termination of the contract upon grounds of
non-payment of progress billing and uncooperative attitude of respondent The Plaza
and its employees in rectifying the violations which were the basis for issuance of
the stoppage order. Having breached the contractual obligation it had expressly
assumed, i.e., to comply with all laws, rules and regulations of the local authorities,
Rhogen was already at fault. Respondent The Plaza, on the other hand, was
justified in withholding payment on Rhogens first progress billing, on account of the
stoppage order and additionally due to disappearance of owner-furnished materials
at the jobsite. In failing to have the stoppage and revocation orders lifted or recalled,
Rhogen should take full responsibility in accordance with its contractual undertaking,
thus:
In the performance of the works, services, and obligations subject of this Contract,
the CONTRACTOR binds itself to observe all pertinent and applicable laws, rules
and regulations promulgated by duly constituted authorities and to be personally,
fully and solely liable for any and all violations of the same.[38] (Emphasis supplied.)

135

Significantly, Rhogen did not mention in its communications to Reyes that Gaite was
merely a victim of abuse by a local official and this was the primary reason for the
problems besetting the project. On the contrary, the site appraisal inspection
conducted on February 12 and 13, 1981 in the presence of representatives from The
Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in
addition to the violations committed by Rhogen which resulted in the issuance of the
stoppage order, Rhogen built the structure not in accordance with government
approved plans and/or without securing the approval of the Municipal Engineer
before making the changes thereon.[39]
Such non-observance of laws and regulations of the local authorities affecting the
construction project constitutes a substantial violation of the Construction Contract
which entitles The Plaza to terminate the same, without obligation to make further
payment to Rhogen until the work is finished or subject to refund of payment
exceeding the expenses of completing the works. This is evident from a reading of
Article 122 which states:

B. If unpaid balance of Contract sum shall exceed expense of finishing work

including compensation for additional managerial and administrative services, such
excess, paid to Contractor. Refund the difference to Owner if such expense shall
exceed unpaid balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore did not err in holding that Rhogen
committed a serious breach of its contract with The Plaza, which justified the latter in
terminating the contract. Petitioners are thus liable for damages for having breached
their contract with respondent The Plaza. Article 1170 of the Civil Code provides that
those who in the performance of their obligations are guilty of fraud, negligence or
delay and those who in any manner contravene the tenor thereof are liable for
damages.
Petitioners assail the order for the return of down payment, asserting that the
principle of quantum meruit demands that Rhogen as contractor be paid for the work
already accomplished.

122. OWNERS RIGHT TO TERMINATE CONTRACT

We disagree.

A. If Contractor should be adjudged bankrupt, or if he should make general

assignment for benefit of his creditors, or if receiver should be appointed on account
of his insolvency, or if he should persistently or repeatedly refuse or should fail,
except in cases for which extension of time is provided, to supply enough properly
skilled workmen or proper materials, or if he should fail to make prompt payment to
Sub-Contractors or for materials of labor, or persistently disregard laws, ordinances,
or instructions of Owners Representative or otherwise be guilty of substantial
violation of any provision of [the] Contract, then Owner, upon certification by Owners
Representative that sufficient cause exists to justify such action, may, without
prejudice to any right or remedy, after giving Contractor seven days written notice,
terminate contract with Contractor, take possession of premises, materials, tools,
appliances, thereon, finish work by whatever method he may deem expedient. In
such cases, Contractor shall not be entitled to receive any further payment until work
is finished.

Under the principle of quantum meruit, a contractor is allowed to recover the

reasonable value of the thing or services rendered despite the lack of a written
contract, in order to avoid unjust enrichment. Quantum meruit means that in an
action for work and labor, payment shall be made in such amount as the plaintiff
reasonably deserves. To deny payment for a building almost completed and already
occupied would be to permit unjust enrichment at the expense of the contractor.[41]
Rhogen failed to finish even a substantial portion of the works due to the stoppage
order issued just two months from the start of construction. Despite the down
payment received from The Plaza, Rhogen, upon evaluation of the Project Manager,
was able to complete a meager percentage much lower than that claimed by it under
the first progress billing between July and September 1980. Moreover, after it
relinquished the project in January 1981, the site inspection appraisal jointly
conducted by the Project Manager, Building Inspector Engr. Gregory and
representatives from FGU and Rhogen, Rhogen was found to have executed the
works not in accordance with the approved plans or failed to seek prior approval of
the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost.

136

Art. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be
undone.
In addition, Article 122 of the Articles of General Conditions provides that the
contractor shall not be entitled to receive further payment "until the work is finished."
As the works completed by Rhogen were not in accordance with approved plans, it
should have been executed at its cost had it not relinquished the project in January
1981. The CA thus did not err in sustaining the trial courts order for the return of the
down payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil Code provides that temperate or
moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the case, be proved with
certainty. The rationale behind temperate damages is precisely that from the nature
of the case, definite proof of pecuniary loss cannot be offered. When the court is
convinced that there has been such loss, the judge is empowered to calculate
moderate damages, rather than let the complainant suffer without redress from the

defendants wrongful act.[42] Petitioners contention that such award is improper

because The Plaza could have presented receipts to support the claim for actual
damages, must fail considering that Rhogen never denied the delivery of the ownerfurnished materials which were under its custody at the jobsite during the work
stoppage and before it terminated the contract. Since Rhogen failed to account
either for those items which it had caused to be withdrawn from the premises, or
those considered damaged or lost due spoilage, or disappeared for whatever reason
there was no way of determining the exact quantity and cost of those materials.
Hence, The Plaza was correctly allowed to recover temperate damages.
Upon the foregoing, we find petitioners claim for actual, moral and exemplary
damages and attorneys fees lacking in legal basis and undeserving of further
discussion.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the
Resolution dated April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790
are AFFIRMED.
With costs against petitioners.
SO ORDERED.