Fortuitous Event Case - OBLICON

Manila
THIRD DIVISION
G.R. No. 165548
June 13, 2011
PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner,

vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.
3. Construction Agreement dated 23 November 1988 Alexandra-Cluster E

involving the construction of an eleven-storey twin-tower building with common
basement at a contract price of P 140,500,000 (Project 3); and
4. Construction Agreement dated 10 October 1989 Tektite Towers Phase I
involving the construction of Tektite Tower Building I at Tektite Road at a contract
price of P 729,138,964 (Tektite Building).
The agreement covering the construction of the Tektite Building was signed by a Mr.
Campos under the words "Phil. Realty & Holdings Corp." and by Santos as a witness.
Manuel Ley, the president of LCDC, signed under the words "Ley Const. & Dev. Corp."
x - - - - - - - - - - - - - - - - - - - - - - -x
The terms embodied in the afore-listed construction agreements were almost identical.
Each agreement provided for a fixed price to be paid by PRHC for every project.
G.R. No. 167879

LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner,
vs.
PHILIPPINE REALTY AND HOLDINGS CORPORATION, Respondent.
DECISION
SERENO, J.:
These are consolidated petitions for review under Rule 45 of the New Rules of Civil
Procedure filed by both parties from a Court of Appeals (CA) Decision in CA-GR No. 71293
dated 30 September 2004. This Decision reversed a Decision of the Regional Trial Court
(RTC), National Capital Judicial Region (NCJR), Branch 135 in Makati City dated 31 January
2001 in Civil Case No. 96-160.
The foregoing are the facts culled from the record, and from the findings of the CA and the
RTC.
All the aforementioned agreements contain the following provisions:

ARTICLE IV CONTRACT PRICE
...
...
...
The Contract Price shall not be subject to escalation except due to work addition,
(approved by the OWNER and the ARCHITECT) and to official increase in minimum wage
as covered by the Labor Adjustment Clause below. All costs and expenses over and above
the Contract Price except as provided in Article V hereof shall be for the account of the
CONTRACTOR. It is understood that there shall be no escalation on the price of materials.
However, should there be any increase in minimum daily wage level, the adjustment on
labor cost only shall be considered based on conditions as stipulated below.
...
...
...
...
...
ARTICLE VII TIME OF COMPLETION

Ley Construction and Development Corporation (LCDC) was the project contractor for the
construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the
project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of
PRHC, while Joselito Santos (Santos) was its general manager and vice-president for
operations.
Sometime between April 1988 and October 1989, the two corporations entered into four
major construction projects, as evidenced by four duly notarized "construction
agreements." LCDC committed itself to the construction of the buildings needed by PRHC,
which in turn committed itself to pay the contract price agreed upon. These were the four
construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all
of which involve the Alexandra buildings) and a Tektite Building:
...
Should the work be delayed by any act or omission of the OWNER or any other person
employed by or contracted by the OWNER in the project, including days in the delivery or
(sic) materials furnished by the OWNER or others, or by any appreciable additions or
alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by
force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military
authorities, the CONTRACTOR shall be granted time extension.
Sometime after the execution of these agreements, two more were entered into by the
parties:
1. Construction Agreement dated 25 April 1988 Alexandra-Cluster C involving

the construction of two units of seven-storey buildings with basement at a
contract price of P 68,000,000 (Project 1);
1. Letter-agreement dated 24 August 1989 Project 3 for the

construction of the drivers quarters in Project 3; and
2. Construction Agreement dated 25 July 1988 Alexandra-Cluster B involving

the construction of an eleven-storey twin-tower building with a common
basement at a contract price of P 140,500,000 (Project 2);
2. Agreement dated 7 January 1993 Tektite Towers for the

concreting works on "GL, 5, 9, & A" (ground floor to the 5th floor) of the
Tektite Towers.
Santos signed the letter-agreement on the construction of the drivers quarters in Project
3,1 while both he and Abcede signed the letter-agreement on the concreting works on GL,
5, 9, and A, and also of Project 3.2
In order to jump-start the construction operations, LCDC was required to submit a
performance bond as provided for in the construction agreements. As stated in these
agreements, as soon as PRHC received the performance bond, it would deliver its initial
payment to LCDC. The remaining balance was to be paid in monthly progress payments
based on actual work completed. In practice, these monthly progress payments were used
by LCDC to purchase the materials needed to continue the construction of the remaining
parts of the building.
In the course of the construction of the Tektite Building, it became evident to both parties
that LCDC would not be able to finish the project within the agreed period. Thus, through
its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained
that the unanticipated delay in construction was due mainly to the sudden, unexpected
hike in the prices of cement and other construction materials. It claimed that, without a
corresponding increase in the fixed prices found in the agreements, it would be impossible
for it to finish the construction of the Tektite Building. In their analysis of the project plans
for the building and of all the external factors affecting the completion of the project, the
parties discovered that even if LCDC were able to collect the entire balance from the
contract, the collected amount would still be insufficient to purchase all the materials
needed to complete the construction of the building.
Both parties agreed that their foremost objective should be to ensure that the Tektite
Building project would be completed. To achieve this goal, they entered into another
agreement. Abcede asked LCDC to advance the amount necessary to complete
construction. Its president acceded, on the absolute condition that it be allowed to
escalate the contract price. It wanted PRHC to allow the escalation and to disregard the
prohibition contained in Article VII of the agreements. Abcede replied that he would take
this matter up with the board of directors of PRHC.
The board of directors turned down the request for an escalation agreement. 3 Neither
PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal. However, on
9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect
that should it infuse P36 million into the project, a contract price escalation for the same
amount would be granted in its favor by PRHC. 4
This letter was signed by Abcede above the title "Construction Manager," as well as by
LCDC.5 A plain reading of the letter-agreement will reveal that the blank above the words
"PHIL. REALTY & HOLDINGS CORP." was never signed,6 viz:
Very truly yours,
(Signed)
_______________________
DENNIS A. ABCEDE
Construction Manager
APPROVED & ACCEPTED :

_______________________
PHIL. REALTY & HOLDINGS CORP.
Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded with
the construction of the Tektite Building, expending the entire amount necessary to
complete the project. From August to December 1991, it infused amounts
totaling P 38,248,463.92. These amounts were not deposited into the joint account of
LCDC and PRHC, but paid directly to the suppliers upon the instruction of Santos. 7
LCDC religiously submitted to PRHC monthly reports 8 that contained the amounts of
infusion it made from the period August 1991 to December 1991. These monthly reports
all had the following heading:
...
...
...
MR. JOSELITO L. SANTOS

VICE PRESIDENT OPERATION
PHIL. REALTY & HOLDINGS CORP.
4th Floor Quad Alpha Centrum Bldg.
125 Pioneer St., Mandaluyong, M.M.
T H R U : D.A. ABCEDE & ASSOCIATES
Construction Managers
SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT
From these monthly reports, it can be gleaned that the following were the cash infusions
made by LCDC:
Month
Amount
Date of monthly report
August 1991
PhP 6,724,632.26
15 October 19919
September 1991
PhP 7,326,230.69
7 October 199110
October 1991
PhP 7,756,846.88
7 November 199111
November 1991
PhP 8,553,313.50
7 December 199112
December 1991
PhP 7,887,440.50
9 January 199213
PhP 38,248,463.92
CONFORME:
PRHC never replied to any of these monthly reports.
(Signed)
_______________________
LEY CONST. & DEV. CORP.
On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already
complied with its commitment as of 31 December 1991 and was requesting the release
of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A. Abcede &

Associates, informing PRHC of the total cash infusion made by LCDC to the project, to wit:
the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs
earlier 7 December 1992 letter.
in compliance with the commitment of Ley Construction and Devt Corp. to

infuse P36.00M for the above subject project x x x
LCDC countered that there were many times when its requests for time extension
although due to reasonable causes sanctioned by the construction agreement such as
power failures, water supply interruption, and scarcity of construction materials were
unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992,
LCDC claimed that in a period of over two years, out of the 618 days of extension it
requested, only 256 days or not even half the number of days originally requested
were considered. It further claimed that its president inquired from Abcede and Santos
why its requests for extension of time were not granted in full. The two, however, assured
him that LCDC would not be penalized with damages for even a single day of delay,
because the fact that it was working hard on the Tektite Building project was known to
PRHC.16
x x x we would like to present the total cash infusion by LCDC for the period covering the
month of August, 1991 to December 1991 broken down as follows:
...
...
...
T O T A L: P 38,248,463.92
PRHC never replied to this letter.
In another letter dated 7 September 1992, there was a reconciliation of accounts between
the two corporations with respect to the balances due for Projects 1, 2, and 3. The
reconciliation of accounts resulted in PRHC owing LCDC the sum of P 20,862,546.41,
broken down as follows:
Project 1
P 1,783,046.72
Project 2
P 13,550,003.93
Project 3
P 5,529,495.76
Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed
total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC
denied any liability. During the course of the proceedings, both parties conducted another
reconciliation of their respective records. The reconciliation showed the following balances
in favor of LCDC:
Project 1
P 1,703,955.07
Project 2
P 13,251,152.61
Project 3
P 5,529,495.76
Total:
P 20,484,603.44
P 20,862,546.41
In a letter dated 8 September 1992,14 when 96.43% of Tektite Building had been
completed, LCDC requested the release of the P 36 million escalation price. PRHC did not
reply, but after the construction of the building was completed, it conveyed its decision in
a letter on 7 December 1992.15 That decision was to set off, in the form of liquidated
damages, its claim to the supposed liability of LCDC, to wit:
...
...
...
In this regard, please be advised that per owners decision; your claim of P 36,000,00.00
adjustment will be applied to the liquidated damages for concreting works computed in
the amount of Thirty Nine Million Three Hundred Twenty Six Thousand Eight Hundred
Seventeen & 15/100 (P39,326,817.15) as shown in the attached sheet.
Further, the net difference P 3,326,817.15 will also be considered waived as additional
consideration.
...
...
...
In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the
agreed escalation price ofP 36 million. In its reply on 16 February 1993, PRHC suddenly
denied any liability for the escalation price. In the same letter, it claimed that LCDC had
incurred 111 days of delay in the construction of the Tektite Building and demanded that
In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed
another outstanding balance of P 232,367.96 in its favor for the construction of the
drivers quarters in Project 3.
It also further claimed the amount of P 7,112,738.82, representing the balance for the
concreting works from the ground floor to the fifth floor of the Tektite Building.
Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with
Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before
the RTC in Makati City docketed as Civil Case No. 96-160:
WHEREFORE, it is respectfully prayed that:
1. Immediately upon the filing of this Complaint, an order of preliminary
attachment be issued over defendant Philrealtys properties as security for any
judgment which plaintiff may recover against said defendant; and
2. After trial, judgment be rendered as follows:
2.1. On the first, second and third alternative causes of action,
(a) Ordering defendant Philrealty to pay plaintiff actual

damages in the amount ofP36,000,00.00 with legal interest
thereon from the filing of this Complaint until fully paid;
(b) In the alternative, ordering defendants Abcede and Santos
to jointly and severally, in the event that they acted without
necessary authority, to pay plaintiff actual damages in the
amount of P36,000,00.00 with legal interest thereon from the
filing of this Complaint until fully paid; and
On 23 July 1999, a joint Stipulation of Facts 17 was filed by the parties. In the said
stipulation, they reconciled their respective claims on the payments made and the
balances due for the construction of the Tektite Building project, Project 1, and Project 2.
The reconciliation shows that the following amounts are due and/or overpaid:
Due to LCDC
Tektite Building
(c) Ordering defendant Philrealty or defendants Abcede and

Santos to pay plaintiff exemplary damages in the amount to
be determined by the Honorable Court but not less
thanP5,000,000.00
2.2. On the fourth cause of action, ordering defendant Philrealty to pay
plaintiff
(a) Actual damages in the amount of P7,112,738.82 with legal
interest thereon from the filing of this Complaint until fully
paid; and
(b) Exemplary damages in the amount to be determined by
the Honorable Court but not less than P1,000,000.00
2.3. On the fifth cause of action, ordering defendant Philrealty to pay
plaintiff
(a) Actual damages in the amount of P20,862,546.41 with
legal interest thereon from the filing of this Complaint until
fully paid; and
(b) Exemplary damages in an amount to be determined by
the Honorable Court but not less than P5,000,000.00.
2.4. On the sixth cause of action, ordering defendant Philrealty to pay
plaintiff
Overpaid to LCDC
P4,646,947.35
Project 1
P1,703,955.07
Project 2
P3,251,152.61
P14,955,107.68
P4,646,947.35
Both parties agreed that the only remaining issues to be resolved by the court, with
respect to the Tektite Building project and Projects 1 to 3, were as follows:
a) The validity of Ley Constructions claim that Philrealty had granted the former a
contract price escalation for Tektite Tower I in the amount of P36,000,000.00
b) The validity of the claim of Philrealty that the following amounts should be charged to
Ley Construction:
Payments/Advances without LCDCs conformity and recommendation of the Construction
Manager, D.A. Abcede & Associates that subject items are LCDCs account:
a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00
b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant
2 P885,000.00 P2,006,000.00
c) The claim of Philrealty for liquidated damages for delay in completion of the
construction as follows:
d) Tektite Tower I - P39,326,817.15
(a) Actual damages in the amount of P232,367.96 with legal

paid; and
the Honorable Court but not less than P100,000.00
2.5. On the seventh cause of action, ordering defendant Philrealty
and/or defendants Abcede and Santos to pay plaintiff attorneys fees in
the amount of P750,000.00 and expenses of litigation in the amount
of P50,000.00, plus costs.
Plaintiff prays for such other just and equitable reliefs as may be warranted by the
circumstances.
Alexandra Cluster B - 12,785,000.00

Alexandra Cluster C - 1,100,000.00
and
e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly
infused for the Tektite Tower I project over and above the original P36,000,000.00 it had
allegedly bound itself to infuse. 18
On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial
Reconsideration, which was granted.
It must be noted that in the Stipulation of Facts, the parties had jointly agreed that
the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be
included in the list of claims submitted to the RTC for decision. Nonetheless, this amount
was still included as an award in the trial courts 7 May 2001 amended Decision, the
dispositive portion of which provides:
WHEREFORE, premises considered, judgment is hereby rendered:
A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the crossclaim of defendant JOSELITO SANTOS; and
B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay
plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION:
1. P33,601,316.17, for the Tektite Tower I Project with legal interest
thereon from date of the filing of the complaint until fully paid;
2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon
from date of the filing of the complaint until fully paid;
3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon
4. P7,112,738.82 in actual damages for the concreting works of Tektite
Tower I, with legal interest thereon from the date of the filing of the
complaint until fully paid;
5. P5,529,495.76 in actual damages for the construction of Alexandra
Cluster E, with legal interest thereon from the date of the filing of the
6. P232,367.96 in actual damages for the construction of the drivers
quarters of Alexandra Cluster E, with legal interest thereon from the
date of the filing of the complaint until fully paid;
7. P750,000.00 for attorneys fees and expenses of litigation; and
8. Costs.
SO ORDERED.19
PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No.
71293,20 reversed the lower courts amended Decision on 30 September 2004 and ruled
thus:
WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7,
2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered:
I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of
Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100
(P60,464,764.90) PESOS detailed as follows:
[1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred

by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length
of delay having been signed and confirmed by LCDC;
[2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred
by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length
of delay having been signed and confirmed by LCDC;
[3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by
plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of
delay having been confirmed by LCDC;
[4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiffappellee LCDC for the Tektite Tower Phase I Project;
[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective
works to redo/repair allegedly defective Waterproofing construction work or
plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by
defendant-appellant PRHC to contractor Escritor, Inc.;
[6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective
works to redo/repair allegedly defective Waterproofing construction work of
plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander
Cluster B Project which was paid by defendant-appellant PRHC to contractor
Ideal Marketing Inc., and consideration.
...
...
...
In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the
agreed escalation price ofP 36 million. In its reply on 16 February 1993, PRHC suddenly
denied any liability for the escalation price. In the same letter, it claimed that LCDC had
incurred 111 days of delay in the construction of the Tektite Building and demanded that
the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs
earlier 7 December 1992 letter.
LCDC countered that there were many times when its requests for time extension
although due to reasonable causes sanctioned by the construction agreement such as
power failures, water supply interruption, and scarcity of construction materials were
unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992,
LCDC claimed that in a period of over two years, out of the 618 days of extension it
requested, only 256 days or not even half the number of days originally requested
were considered. It further claimed that its president inquired from Abcede and Santos
why its requests for extension of time were not granted in full. The two, however, assured
him that LCDC would not be penalized with damages for even a single day of delay,
because the fact that it was working hard on the Tektite Building project was known to
PRHC.16 Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the
agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February
1993, PRHC denied any liability. During the course of the proceedings, both parties
conducted another reconciliation of their respective records. The reconciliation showed
the following balances in favor of LCDC:
Project 1
P 1,703,955.07
Project 2
P 13,251,152.61
Project 3
P 5,529,495.76
Total:
P 20,484,603.44
2.3. On the fifth cause of action, ordering defendant Philrealty to pay

plaintiff
(a) Actual damages in the amount of P20,862,546.41 with
legal interest thereon from the filing of this Complaint until
fully paid; and
In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed
another outstanding balance of P 232,367.96 in its favor for the construction of the
drivers quarters in Project 3.
It also further claimed the amount of P 7,112,738.82, representing the balance for the
concreting works from the ground floor to the fifth floor of the Tektite Building.
(b) Exemplary damages in an amount to be determined by

the Honorable Court but not less than P5,000,000.00.
2.4. On the sixth cause of action, ordering defendant Philrealty to pay
plaintiff
the RTC in Makati City docketed as Civil Case No. 96-160:
(a) Actual damages in the amount of P232,367.96 with legal

paid; and
WHEREFORE, it is respectfully prayed that:

1. Immediately upon the filing of this Complaint, an order of preliminary
attachment be issued over defendant Philrealtys properties as security for any
judgment which plaintiff may recover against said defendant; and
2. After trial, judgment be rendered as follows:
2.1. On the first, second and third alternative causes of action,
(a) Ordering defendant Philrealty to pay plaintiff actual
damages in the amount ofP36,000,00.00 with legal interest
thereon from the filing of this Complaint until fully paid;
(b) In the alternative, ordering defendants Abcede and Santos
to jointly and severally, in the event that they acted without
necessary authority, to pay plaintiff actual damages in the
amount of P36,000,00.00 with legal interest thereon from the
filing of this Complaint until fully paid; and

the Honorable Court but not less than P100,000.00
2.5. On the seventh cause of action, ordering defendant Philrealty
and/or defendants Abcede and Santos to pay plaintiff attorneys fees in
the amount of P750,000.00 and expenses of litigation in the amount
of P50,000.00, plus costs.
Plaintiff prays for such other just and equitable reliefs as may be warranted by the
circumstances.
On 23 July 1999, a joint Stipulation of Facts 17 was filed by the parties. In the said
stipulation, they reconciled their respective claims on the payments made and the
balances due for the construction of the Tektite Building project, Project 1, and Project 2.
The reconciliation shows that the following amounts are due and/or overpaid:
Due to LCDC
Tektite Building
(c) Ordering defendant Philrealty or defendants Abcede and

Santos to pay plaintiff exemplary damages in the amount to
be determined by the Honorable Court but not less
thanP5,000,000.00
2.2. On the fourth cause of action, ordering defendant Philrealty to pay
plaintiff
(a) Actual damages in the amount of P7,112,738.82 with legal
paid; and
the Honorable Court but not less than P1,000,000.00
Overpaid to LCDC
P4,646,947.35
Project 1
P1,703,955.07
Project 2
P3,251,152.61
P14,955,107.68
P4,646,947.35
Both parties agreed that the only remaining issues to be resolved by the court, with
respect to the Tektite Building project and Projects 1 to 3, were as follows:
a) The validity of Ley Constructions claim that Philrealty had granted the former
a contract price escalation for Tektite Tower I in the amount of P36,000,000.00
b) The validity of the claim of Philrealty that the following amounts should be
charged to Ley Construction:
Payments/Advances without LCDCs conformity and recommendation of the

Construction Manager, D.A. Abcede & Associates that subject items are LCDCs
account:
4. P7,112,738.82 in actual damages for the concreting works of Tektite

Tower I, with legal interest thereon from the date of the filing of the
a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00
5. P5,529,495.76 in actual damages for the construction of Alexandra

Cluster E, with legal interest thereon from the date of the filing of the
b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant

2 P885,000.00 P2,006,000.00
6. P232,367.96 in actual damages for the construction of the drivers

quarters of Alexandra Cluster E, with legal interest thereon from the
date of the filing of the complaint until fully paid;
c) The claim of Philrealty for liquidated damages for delay in completion of the
construction as follows:
7. P750,000.00 for attorneys fees and expenses of litigation; and
d) Tektite Tower I - P39,326,817.15
8. Costs.
Alexandra Cluster B - 12,785,000.00

Alexandra Cluster C - 1,100,000.00
and
e) The claim of Ley Construction for additional sum of P2,248,463.92 which it
allegedly infused for the Tektite Tower I project over and above the
original P36,000,000.00 it had allegedly bound itself to infuse. 18
On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial
Reconsideration, which was granted.
It must be noted that in the Stipulation of Facts, the parties had jointly agreed that
the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be
included in the list of claims submitted to the RTC for decision. Nonetheless, this amount
was still included as an award in the trial courts 7 May 2001 amended Decision, the
dispositive portion of which provides:
WHEREFORE, premises considered, judgment is hereby rendered:
A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the crossclaim of defendant JOSELITO SANTOS; and
B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay
plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION:
1. P33,601,316.17, for the Tektite Tower I Project with legal interest
thereon from date of the filing of the complaint until fully paid;
2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon
3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon
SO ORDERED.19
PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No.
71293,20 reversed the lower courts amended Decision on 30 September 2004 and ruled
thus:
WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7,
2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered:
I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the
amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred
Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows:
[1] P39,326,817.15 liquidated damages pursuant to contract for delay
incurred by plaintiff-appellee LCDC in the construction of Tektite Tower
Phase I, the length of delay having been signed and confirmed by
LCDC;
incurred by plaintiff-appellee LCDC in the construction of Alexandra
Cluster B, the length of delay having been signed and confirmed by
LCDC;
incurred by plaintiff appellee LCDC in the construction of Alexandra
Cluster C, the length of delay having been confirmed by LCDC;
[4] P4,646,947.75 overpayment by defendant-appellant PRHC to
plaintiff-appellee LCDC for the Tektite Tower Phase I Project;
[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for
corrective works to redo/repair allegedly defective Waterproofing
construction work or plaintiff-appellee LCDC in the Alexander Cluster B
Project which was paid by defendant-appellant PRHC to contractor
Escritor, Inc.;
[6] P885,000.00 expenses incurred by defendant-appellant PRHC for

corrective works to redo/repair allegedly defective Waterproofing
construction work of plaintiff-appellee LCDC at the Alexandra Cluster B
Quadrant in the Alexander Cluster B Project which was paid by
defendant-appellant PRHC to contractor Ideal Marketing Inc., and
II. FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee LCDC in the
amount of Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred
Seventy One 40/100 (P56,716,971.40) detailed as follows:
In Yao Ka Sin Trading v. Court of Appeals, et al,. 43 this Court discussed the applicable rules
on the doctrine of apparent authority, to wit:
The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess
of, his actual authority if he acts within the scope of an apparent authority with which the
corporation has clothed him by holding him out or permitting him to appear as having
such authority, the corporation is bound thereby in favor of a person who deals with him
in good faith in reliance on such apparent authority, as where an officer is allowed to
exercise a particular authority with respect to the business, or a particular branch of it,
continuously and publicly, for a considerable time." Also, "if a private corporation
intentionally or negligently clothes its officers or agents with apparent power to perform
acts for it, the corporation will be estopped to deny that such apparent authority is real, as
to innocent third persons dealing in good faith with such officers or agents." 44
In Peoples Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al., 45 we held that
apparent authority is derived not merely from practice:
4. There must be a valid new contract.46

All the aforementioned requisites are present in this case. The obligation of both parties
not to increase the contract price in the Tektite Building Agreement was extinguished, and
a new obligation increasing the old contract price by P 36 million was created by the
parties to take its place.
What makes this Court believe that it is incorrect to allow PRHC to escape liability for the
escalation price is the fact that LCDC was never informed of the board of directors
supposed non-approval of the escalation agreement until it was too late. Instead, PRHC,
for its own benefit, waited for the former to finish infusing the entire amount into the
construction of the building before informing it that the said agreement had never been
approved by the board of directors. LCDC diligently informed PRHC each month of the
partial amounts the former infused into the project. PRHC must be deemed estopped from
denying the existence of the escalation agreement for having allowed LCDC to continue
infusing additional money spending for its own project, when it could have promptly
notified LCDC of the alleged disapproval of the proposed escalation price by its board of
directors.
Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons
from going back on their own acts and representations, to the prejudice of others who
have relied on them.47 Article 1431 of the Civil Code provides:
Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.:
Its existence may be ascertained through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of
a particular nature, with actual or constructive knowledge thereof, whether within or
beyond the scope of his ordinary powers.
We rule that Santos and Abcede held themselves out as possessing the authority to act,
negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It
would be the height of incongruity to now allow PRHC to deny the extent of the authority
with which it had clothed both individuals. We find that Abcedes role as construction
manager, with regard to the construction projects, was akin to that of a general manager
with regard to the general operations of the corporation he or she is representing.
Consequently, the escalation agreement entered into by LCDC and Abcede is a valid
agreement that PRHC is obligated to comply with. This escalation agreement whether
written or verbal has lifted, through novation, the prohibition contained in the Tektite
Building Agreement.
In order for novation to take place, the concurrence of the following requisites is
indispensable:
1. There must be a previous valid obligation.
2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
Sec. 2. Conclusive presumptions. The following are instances of conclusive

presumptions:
(a) Whenever a party has by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission be permitted to
falsify it.
This Court has identified the elements of estoppel as:
[F]irst, the actor who usually must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably or justifiably, upon that
communication; third, the other would be harmed materially if the actor is later permitted
to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows,
expects or foresees that the other would act upon the information given or that a
reasonable person in the actor's position would expect or foresee such action. 48
This liability of PRHC, however, has a ceiling. The escalation agreement entered into was
for P 36 millionthe maximum amount that LCDC contracted itself to infuse and that
PRHC agreed to reimburse. Thus, the Court of Appeals was correct in ruling that
the P 2,248,463.92 infused by LCDC over and above the P 36 million should be for its
account, since PRHC never agreed to pay anything beyond the latter amount. While PRHC
benefited from this excess infusion, this did not result in its unjust enrichment, as defined
by law.
Unjust enrichment exists "when a person unjustly retains a benefit to the loss of another,
or when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience."49 Under Art. 22 of the Civil Code, there is unjust
enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.50 The term is further defined thus:
Unjust enrichment is a term used to depict result or effect of failure to make remuneration
of or for property or benefits received under circumstances that give rise to legal or
equitable obligation to account for them; to be entitled to remuneration, one must confer
benefit by mistake, fraud, coercion, or request.51
In order for an unjust enrichment claim to prosper, one must not only prove that the other
party benefited from ones efforts or the obligations of others; it must also be shown that
the other party was unjustly enriched in the sense that the term "unjustly" could mean
"illegally" or "unlawfully."52 LCDC was aware that the escalation agreement was limited
to P36 million. It is not entitled to remuneration of the excess, since it did not confer this
benefit by mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess
amount with full knowledge that PRHC had no obligation to reimburse it.
Parenthetically, we note that the CA had ruled that the 7 December 1992 letter
demonstrates that PRHC treated the P 36 million as a loan deductible from the liquidated
damages for which LCDC is supposedly liable. 53 It ruled that when PRHC informed LCDC
that it would apply the P 36 million to the liquidated damages, PRHC, in effect,
acknowledged that it was in debt to LCDC in the amount of P 36 million, and that forms
the basis for PRHCs liability to LCDC for the said amount.
We disagree with this analysis.
In a contract of loan, ownership of the money is transferred from the lender to the
borrower.54 In this case, ownership of the P 36 million was never transferred to PRHC. As
previously mentioned, such amount was paid directly to the suppliers. 55 We find that
arrangement between PRHC and LCDC cannot be construed as a loan agreement but
rather, it was an agreement to advance the costs of construction. In Liwanag v. Court of
Appeals et al., we state:
Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred. Being the
owner, the borrower can dispose of it for whatever purpose he may deem proper. In the
instant petition, however, it is evident that Liwanag could not dispose of the money as she
pleased because it was only delivered to her for a single purpose, namely, for the
purchase of cigarettes, and if this was not possible then to return the money to Rosales.
LCDC is not liable for liquidated damages for delay in the construction of the buildings for
PRHC.
There is no question that LCDC was not able to fully construct the Tektite Building and
Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated
damages, because its rightful and reasonable requests for time extension were denied by
PRHC.56
It is important to note that PRHC does not question the veracity of the factual
representations of LCDC to justify the latters requests for extension of time. It insists,
however, that in any event LCDC agreed to the limits of the time extensions it granted. 57
The practice of the parties is that each time LCDC requests for more time, an extension
agreement is executed and signed by both parties to indicate their joint approval of the
number of days of extension agreed upon.
The applicable provision in the parties agreements is as follows:
ARTICLE VII TIME OF COMPLETION
...
...
...
Should the work be delayed by any act or omission of the OWNER or any other person
employed by or contracted by the OWNER in the project, including days in the delivery or
(sic) materials furnished by the OWNER or others, or by any appreciable additions or
alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by
force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military
authorities, the CONTRACTOR shall be granted time extension.
In case the CONTRACTOR encounters any justifiable cause or reason for delay, the
CONTRACTOR shall within ten (10) days, after encountering such cause of delay submit to
the OWNER in writing a written request for time extension indicating therein the
requested contract time extension. Failure by the CONTRACTOR to comply with this
requirements (sic) will be adequate reason for the OWNER not to grant the time
extension.1avvphi1
The following table shows the dates of LCDCs letter-requests, the supposed causes
justifying them, the number of days requested, and the number of days granted by PRHC
and supposedly conformed to by LCDC:
1avvphi1
Cause
# of days requested
# of days
granted
1 Mar
1990
Due to additional works and

shortage of supplies and cement
30
11
14 Apr
1990
Shortage of cement supply
18
10 May
1990
Frequent power failures
10
9 Jul 1990
Bad weather which endangered

the lives of the construction
workers ("heavy winds")
10
4 Sep
1990
Inclement weather that

endangered the lives of the
construction workers
10
28 Feb
1991
Architectural and structural

revisions of R.C. beams at the
8th floor level
20
28 Aug
For change order work and
271
13
number of days extension of time for CONTRACTOR to finish the contract as

recommended by the CONSTRUCTION MANAGER ABCEDE, and in the end, both
CONTRACTOR and OWNER sign jointly the approved number of days agreed upon. That
signed extension of time is taken to be the contract between the parties. 59
1991
revisions in the plans initiated by

the architect and Abcedes delay
in giving the revised plans to
contractor
2 Sep
1991
Inclement weather and scarcity

of cement
25
17
The appellate court further ruled that each signed extension is a separate contract that
becomes the law between the parties:60
13 Oct
1991
Water supply interruption and

power failures preventing the
mixing of cement
15
there is nothing arbitrary or unreasonable about the number of days extension of time
because each extension is a meeting of the minds between the parties, each under joint
signature OWNER and CONTRACTOR witnessed by the CONSTRUCTION MANAGER. 61
5 Dec
1991
Typhoon Uring and water supply

interruption (typhoon Uring
alone caused a delay for more
than 10 days due to strong and
continuous rains)
15
2 Apr
1992
Inadequate supply of Portland

cement and frequent power
failures
15
5 May
1992
Inadequate supply of cement

and frequent power failures
17
12
456
21
7
108
20
564
23
7
additions and alterations in the

work ordered by the owner and
architect
Inasmuch as LCDCs claimed exemption from liability are beyond the approved time
extensions, LCDC, according to the majority of the CA, is liable therefor.
Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by
LCDC fell under the definition of force majeure.62 This specific point was not refuted by the
majority.
12
We agree with Justice Enriquez on this point and thereby disagree with the majority ruling
of the CA.
As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a
period of over two years, only 256 out of the 618 days of extension requested were
considered. We disregard these numbers presented by LCDC because of its failure to
present evidence to prove its allegation. The tally that we will acceptas reflected by the
evidence submitted to the lower courtis as follows: out of the 564 days requested, only
237 were considered.
Essentially the same aforementioned reasons or causes are presented by LCDC as
defense against liability for both Projects 1 and 2. 58 In this regard, the CA ruled:
Plaintiff-appellees allegation that determination by PHRC of extensions of time were
unreasonable or arbitrary is untenable in the light of express provisions of the
Construction Agreements which prescribed precise procedures for extensions of time. In
fact the procedure is fool-proof because both OWNER and CONTRACTOR sign to indicate
approval of the number of days of extension. Computation of the penalty becomes
mechanical after that. Each extension as signed by the parties is a contract by itself and
has the force of law between them.
In fact, the parties followed that prescribed procedure strictly the CONTRACTOR first
requested the OWNER to approve the number of days applied for as extension of time to
finish the particular project and the OWNER will counter-offer by approving only a lower
Article 1174 of the Civil Code provides: "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." A perusal of the construction
agreements shows that the parties never agreed to make LCDC liable even in cases of
force majeure. Neither was the assumption of risk required. Thus, in the occurrence of
events that could not be foreseen, or though foreseen were inevitable, neither party
should be held responsible.
Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an "act of God" or force majeure, the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable; (c) the event must be such as
to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d)
the debtor must be free from any participation in, or aggravation of the injury to the
creditor.63
The shortage in supplies and cement may be characterized as force majeure. 64 In the
present case, hardware stores did not have enough cement available in their supplies or
stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and
interruptions of water supply all clearly fall under force majeure. Since LCDC could not
possibly continue constructing the building under the circumstances prevailing, it cannot
be held liable for any delay that resulted from the causes aforementioned.
Further, PRHC is barred by the doctrine of promissory estoppel from denying that it
agreed, and even promised, to hold LCDC free and clear of any liquidated damages.
Abcede and Santos also promised that the latter corporation would not be held liable for
liquidated damages even for a single day of delay despite the non-approval of the
requests for extension.65 Mr. Ley testified to this fact as follows:
Q: So, Mr. Witness in all those requests for extension and whenever the D.A. Abcede &
Associates did not grant you the actual number of days stated in your requests for
extension, what did Ley construction and Development do, if any?
A: We talked to Dennis Abcede and Mr. Santos, Maam.
Q: And what did you tell them?
A: I will tell them why did you not grant the extension for us, Maam.
Q: What was the response of Mr. Abcede and Mr. Santos?
A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont worry, you will not be liquidated of
any single day for this because we can see that you worked so hard for this project,
Maam.
On its part, LCDC disputes the deletion by the CA of the lower courts grant of the
alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite Building.
The CA had ruled that this cause of action was withdrawn by the parties when they did not
include it in their Joint Stipulation of Facts. LCDC argues that to the contrary, the silence of
the Stipulation of Facts on this matter proves that the claim still stands. 71
Considering that the unpaid balances for Project 3, its drivers quarters, and the
concreting works in the Tektite Building were not covered by the Stipulation of Facts
entered into by the parties, we rule that no judicial admission could have been made by
LCDC regarding any issue involving the unpaid balances for those pieces of work.
We affirm in this case the doctrine that courts may rule or decide on matters that,
although not submitted as issues, were proven during trial. The admission of evidence,
presented to support an allegation not submitted as an issue, should be objected to at the
time of its presentation by the party to be affected thereby; otherwise, the court may
admit the evidence, and the fact that such evidence seeks to prove a matter not included
or presented as an issue in the pleadings submitted becomes irrelevant, because of the
failure of the appropriate party to object to the presentation.
Q: And what did you do after you were given that response of Mr. Abcede and Mr. Santos?
A: They told me you just relax and finish the project, and we will pay you up to the last
centavos, Maam.
Q: What did you do after taking that statement or assurance?
A: As gentlemans agreement I just continued working without complaining anymore,
Maam.66
The above testimony is uncontradicted. Even assuming that all the reasons LCDC
presented do not qualify as fortuitous events, as contemplated by law, this Court finds
that PRHC is estopped from denying that it had granted a waiver of the liquidated
damages the latter corporation may collect from the former due to a delay in the
construction of any of the buildings.
Courts may rule on causes of action not included in the Complaint, as long as these have
been proven during trial without the objection of the opposing party.
PRHC argues that since the parties had already limited the issues to those reflected in
their joint stipulation of facts, neither the trial court nor the appellate court has the
authority to rule upon issues not included therein. Thus it was wrong for the trial court and
the CA to have awarded the amounts of P 5,529,495.76 representing the remaining
balance for Project 3 as well as for the P 232,367.96 representing the balance for the
construction of the drivers quarters in Project 3. PRHC claims that in the Stipulation of
Facts, all the issues regarding Project 3 were already made part of the computation of the
balances for the other projects. It thus argues that the computation for the Tektite Building
showed that the overpayment for Project 3 in the amount of P 9,531,181.80 was credited
as payment for the Tektite Tower Project.67 It reasons that, considering that it actually
made an overpayment for Project 3, it should not be made liable for the remaining
balances for Project 3 and the drivers quarters in Project 3. 68 It is LCDCs position,
however, that the Stipulation of Facts covers the balances due only for the Tektite Tower
Project, Project 1, and Project 2.69 Since Project 3 was not included in the reconciliation
contained in the said stipulation, it maintains that the balance for Project 3 remains
at P 5,529,495.76,70 and that the balance for the construction of the drivers quarters in
Project 3 remains at P 232,367.96.
No objection was raised when LCDC presented evidence to prove the outstanding
balances for Project 3, its drivers quarters, and the concreting works in the Tektite
Building.
In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et al., 72 this Court
held:
It is settled that even if the complaint be defective, but the parties go to trial thereon, and
the plaintiff, without objection, introduces sufficient evidence to constitute the particular
cause of action which it intended to allege in the original complaint, and the defendant
voluntarily produces witnesses to meet the cause of action thus established, an issue is
joined as fully and as effectively as if it had been previously joined by the most perfect
pleadings. Likewise, when issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings.
Considering the absence of timely and appropriate objections, the trial court did not err in
admitting evidence of the unpaid balances for Project 3, its drivers quarters, and the
concreting works in the Tektite Building. Furthermore, both the lower and the appellate
courts found that the supporting evidence presented by LCDC were sufficient to prove
that the claimed amounts were due, but that they remained unpaid.
LCDC should be held liable for the corrective works to redo or repair the defective
waterproofing in Project 2.
The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem Corporation
(Vulchem), which was recommended by Santos and Abcede, was hired for that task.
Vulchems waterproofing turned out to be defective. In order to correct or repair the
defective waterproofing, PRHC had to contract the services of another corporation, which
charged it P2,006,000.
Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for the
waterproofing works in Project 2, LCDC argues that under Article 1892, an agent is
responsible for the acts of the substitute if he was given the power to appoint a substitute.
Conversely, if it is the principal and not the agent who appointed the substitute, the agent
bears no responsibility for the acts of the sub-agent. 73 The provision reads:
"Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent."
LCDC argues that because PRHC, as the principal, had designated Vulchem as sub-agent,
LCDC, as the agent, should not be made responsible for the acts of the substitute, even in
the instance where the latter were notoriously incompetent. 74
LCDCs reliance on Art. 1892 is misplaced. The principles of agency are not to be applied
to this case, since the legal relationship between PRHC and LCDC was not one of agency,
but was rather that between the owner of the project and an independent contractor
under a contract of service. Thus, it is the agreement between the parties and not the
Civil Code provisions on agency that should be applied to resolve this issue.
Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any part of
the agreement to a third party, who in effect becomes a sub-contractor, the losses or
expenses that result from the acts/inactions of the sub-contractor should be for the
contractors account, to wit:
ARTICLE XIV ASSIGNMENT
This Agreement, and/or any of the payments to be due hereunder shall not be assigned in
whole or in part by the CONTRACTOR nor shall any part of the works be sublet by
CONTRACTOR without the prior written consent of OWNER, and such consent shall not
relieve the CONTRACTOR from full responsibility and liability for the works hereunder shall
not be granted in any event until CONTRACTOR has furnished OWNER with satisfactory
evidence that the Sub-Contractor is carrying ample insurance to the same extent and in
the same manner as herein provided to be furnished by CONTRACTOR. If the agreement is
assigned or any part thereof is sublet, CONTRACTOR shall exonerate, indemnify and save
harmless the OWNER from and against any and all losses or expenses caused thereby. 75
LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work of
Project 2 but it did not do so and proceeded to hire the latter. It is not unusual for project
owners to recommend sub-contractors, and such recommendations do not diminish the
liability of contractors in the presence of an Article XIV-type clause in the construction
agreement. The failure of LCDC to ensure that the work of its sub-contractor is satisfactory
makes it liable for the expenses PRHC incurred in order to correct the defective works of
the sub-contractor. The CA did not err in ruling that the contract itself gave PRHC the
authority to recover the expenses for the "re-do" works arising from the defective work of
Vulchem.76
LCDC is entitled to attorneys fees and the expenses of litigation and costs.
According to the CA, LCDC was not entitled to attorneys fees, because it was not the
aggrieved party, but was the one that violated the terms of the construction agreements
and should thus be made to pay costs. 77 LCDC claims, on the other hand, that the CA
seriously erred in deleting the lower courts award of P750,000 attorneys fees and the
expenses of litigation in its favor, since this award is justified under the law. 78 To support
its claim, LCDC cites Article 2208(5), which provides:
ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
...
...
...
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
...
...
...
Attorney's fees may be awarded when the act or omission of the defendant compelled the
plaintiff to incur expenses to protect the latters interest. 79 In ABS-CBN Broadcasting Corp.
v. CA,80 we held thus:
The general rule is that attorney's fees cannot be recovered as part of damages because
of the policy that no premium should be placed on the right to litigate. They are not to be
awarded every time a party wins a suit. The power of the court to award attorney's fees
under Article 2208 demands factual, legal, and equitable justification. Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his
rights, still attorney's fees may not be awarded where no sufficient showing of bad faith
could be reflected in a party's persistence in a case other than an erroneous conviction of
the righteousness of his cause.
LCDC has failed to establish bad faith on the part of PRHC so as to sustain its position that
it is entitled to attorneys fees. Nevertheless, the CA erred in reversing the lower courts
Decision granting LCDCs claim for attorneys fees considering that the construction
agreements contain a penal clause that deals with the award of attorneys fees, as
follows:
In the event the OWNER/CONTRACTOR institutes a judicial proceeding in order to enforce
any terms or conditions of this Agreement, the CONTRACTOR/OWNER should it be
adjudged liable in whole or in part, shall pay the OWNER/CONTRACTOR reasonable
attorneys fees in the amount equivalent to Twenty Percent (20%) of the total amount
claimed in addition to all expenses of litigation and costs of the suit.
Equivalent to at least Twenty Percent (20%) of the total amount claimed in addition to all
expenses of litigation and costs of the suit.
As long as a stipulation does not contravene the law, morals, and public order, it is
binding upon the obligor.81Thus, LCDC is entitled to recover attorneys fees. Nevertheless,
this Court deems it proper to equitably reduce the stipulated amount. Courts have the
power to reduce the amount of attorneys fees when found to be excessive, 82viz:
We affirm the equitable reduction in attorneys fees. These are not an integral part of the
cost of borrowing, but arise only when collecting upon the Notes becomes necessary. The
purpose of these fees is not to give respondent a larger compensation for the loan than
the law already allows, but to protect it against any future loss or damage by being
compelled to retain counsel in-house or notto institute judicial proceedings for the
collection of its credit. Courts have has the power to determine their reasonableness
based on quantum meruit and to reduce the amount thereof if excessive. 83
We reverse the appellate courts Decision and reinstate the lower courts award of
attorneys fees, but reduce the amount from P750,000 to P200,000.
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as follows:
I. We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley Construction
Development Corporation (LCDC) in the amount of P 64,029,710.22, detailed as follows:
1. P 13,251,152.61 as balance yet unpaid by PRHC for Project 2;
4. P 232,367.96 as balance yet unpaid by PRHC for the drivers
quarters for Project 3;
5. P 36,000,000.00 as agreed upon in the escalation agreement
entered into by PRHCs representatives and LCDC for the Tektite
Building;
6. P 7,112,738.82 as balance yet unpaid by PRHC for the concreting
works from the ground floor to the fifth floor of the Tektite Building;
7. P 200,000.00 as LCDCs reduced attorneys fees.
II. Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75 detailed as
follows:
1. P 4,646,947.75 for the overpayment made by PRHC for the Tektite
Building;
2. P 2,006,000.00 for the expenses incurred by PRHC for corrective
works to redo/repair the allegedly defective waterproofing construction
work done by LCDC in Project 2.
The respective liabilities of the parties as enumerated above are hereby SET OFF against
each other, and PRHC is hereby DIRECTED to pay LCDC the net amount due, which
is P 57,376,762.47, with legal interest from the date of the filing of Complaint.
SO ORDERED.
CARPIO MORALES, J.:

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila
S. Tanseco (Tanseco) entered into a Contract to Buy and Sell 1 a 224 square-meter (more or
less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator
Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the
reservation fee of P100,000, orP4,940,611.19, by postdated check payable on July 14,
1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from
August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 onOctober 31,
1998, the stipulated delivery date of the unit; provided that if the construction is
completed earlier, Tanseco would pay the balance within seven days from receipt of a
notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as
follows:
4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s herein
purchased shall be completed and delivered not later than October 31, 1998 with
additional grace period of six (6) months within which to complete the Project and the
unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil
disturbances, strikes or other labor disturbances, government and economic controls
making it, among others, impossible or difficult to obtain the necessary materials, acts of
third person, or any other cause or conditions beyond the control of the SELLER. In this
event, the completion and delivery of the unit are deemed extended accordingly without
liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the
right to withdraw from this transaction and refund to the BUYER without interest the
amounts received from him under this contract if for any reason not attributable to
SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection,
wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project
may not be completed or it can only be completed at a financial loss to the SELLER. In any
event, all construction on or of the Project shall remain the property of the SELLER.
(Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance
of P2,520,305.63 pending delivery of the unit.2 Megaworld, however, failed to deliver the
unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the
six-month grace period.
Manila
G.R. No. 181206
DECISION
October 9, 2009
MEGAWORLD GLOBUS ASIA, INC., Petitioner,

vs.
MILA S. TANSECO, Respondent.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of
turnover), informed Tanseco that the unit was ready for inspection preparatory to
delivery.3 Tanseco replied through counsel, by letter of May 6, 2002, that in view of
Megaworlds failure to deliver the unit on time, she was demanding the return
of P14,281,731.70 representing the total installment payment she had made, with interest
at 12% per annum from April 30, 1999, the expiration of the six-month grace period.
Tanseco pointed out that none of the excepted causes of delay existed. 4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and
Land Use Regulatory Boards (HLURB) Expanded National Capital Region Field Office a
complaint against Megaworld for rescission of contract, refund of payment, and damages. 5
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was
beyond its control; and argued that default had not set in, Tanseco not having made any
judicial or extrajudicial demand for delivery before receipt of the notice of turnover. 6
By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tansecos complaint for lack of
cause of action, finding that Megaworld had effected delivery by the notice of turnover
before Tanseco made a demand. Tanseco was thereupon ordered to pay Megaworld the
balance of the purchase price, plus P25,000 as moral damages,P25,000 as exemplary
damages, and P25,000 as attorneys fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28,
2003,8 sustained the HLURB Arbiters Decision on the ground of laches for failure to
demand rescission when the right thereto accrued. It deleted the award of damages,
however. Tansecos Motion for Reconsideration having been denied, 9 she appealed to the
Office of the President which dismissed the appeal by Decision of April 28, 2006 10 for
failure to show that the findings of the HLURB were tainted with grave abuse of discretion.
Her Motion for Reconsideration having been denied by Resolution dated August 30,
2006,11 Tanseco filed a Petition for Review under Rule 43 with the Court of Appeals. 12
By Decision of September 28, 2007,13 the appellate court granted Tansecos petition,
disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May
28, 2003 decision of the HLURB Field Office, the November 28, 2003 decision of the
HLURB Board of Commissioners in HLURB Case No. REM-A-030711-0162, the April 28,
2006 Decision and August 30, 2006 Resolution of the Office of the President in O.P. Case
No. 05-I-318, are hereby REVERSED and SET ASIDE and a new one entered:
(1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy
and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid
totaling P14,281,731.70 with Twelve (12%) Percent interest per annum from October 31,
1998; (3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary
damages; (4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorneys fees;
and (5)ORDERING MEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in the
original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or
extrajudicial demand is needed to put the obligor in default if the contract, as in the
herein parties contract, states the date when the obligation should be performed; that
time was of the essence because Tanseco relied on Megaworlds promise of timely
delivery when she agreed to part with her money; that the delay should be reckoned from
October 31, 1998, there being no force majeure to warrant the application of the April 30,
1999 alternative date; and that specific performance could not be ordered in lieu of
rescission as the right to choose the remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the
part of Megaworld in forcing her to accept its long-delayed delivery; and attorneys fees,
she having been compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by Resolution of January 8,

2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its position
before the HLURB, adding that Tanseco had not shown any basis for the award of damages
and attorneys fees.15
Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad faith
which became evident when it insisted on making the delivery despite the long
delay,16 insisted that she deserved the award of damages and attorneys fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring
supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months thereafter
on the part of Megaworld, and to pay the balance of the purchase price at or about the
time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is
determinative of compliance by Tanseco with her obligation to pay the balance of the
purchase price. Megaworld having failed to comply with its obligation under the contract,
it is liable therefor.17
That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund
does not abate her cause. For demand would have been useless, Megaworld admittedly
having failed in its obligation to deliver the unit on the agreed date.
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.18
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and
beyond the control of a business corporation. A real estate enterprise engaged in the preselling of condominium units is concededly a master in projections on commodities and
currency movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an
instance of caso fortuito.19 Megaworlds excuse for its delay does not thus lie.
As for Megaworlds argument that Tansecos claim is considered barred by laches on
account of her belated demand, it does not lie too. Laches is a creation of equity and its
application is controlled by equitable considerations. 20 It bears noting that Tanseco
religiously paid all the installments due up to January, 1998, whereas Megaworld reneged
on its obligation to deliver within the stipulated period. A circumspect weighing of
equitable considerations thus tilts the scale of justice in favor of Tanseco.
Pursuant to Section 23 of Presidential Decree No. 957 21 which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the owner
or developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and
within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid includingamortization
interests but excluding delinquency interests, with interest thereon at the legal rate.
(Emphasis and underscoring supplied),
trigger the obligation to convey title,cancellation, not rescission, of the contract is thus
the correct remedy in the premises.26
WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing,
AFFIRMED with MODIFICATION.
As modified, the dispositive portion of the Decision reads:
The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner,
Megaworld Globus Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount
of P14,281,731.70, to bear 6% interest per annum starting May 6, 2002 and 12% interest
per annum from the time the judgment becomes final and executory; and to pay P200,000
attorneys fees, P100,000 exemplary damages, and costs of suit.
Costs against petitioner.
SO ORDERED
THIRD DIVISION
[G.R. No. 95897. December 14, 1999]
Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid
Megaworld.
While the appellate court correctly awarded P14,281,731.70 then, the interest rate should,
however, be 6% per annum accruing from the date of demand on May 6, 2002, and then
12% per annum from the time this judgment becomes final and executory, conformably
with Eastern Shipping Lines, Inc. v. Court of Appeals. 22
The award of P200,000 attorneys fees and of costs of suit is in order too, the parties
having stipulated in the Contract to Buy and Sell that these shall be borne by the losing
party in a suit based thereon,23 not to mention that Tanseco was compelled to retain the
services of counsel to protect her interest. And so is the award of exemplary damages.
With pre-selling ventures mushrooming in the metropolis, there is an increasing need to
correct the insidious practice of real estate companies of proffering all sorts of empty
promises to entice innocent buyers and ensure the profitability of their projects.
The Court finds the appellate courts award of P200,000 as exemplary damages excessive,
however. Exemplary damages are imposed not to enrich one party or impoverish another
but to serve as a deterrent against or as a negative incentive to curb socially deleterious
actions.24 The Court finds that P100,000 is reasonable in this case.
Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell,
the suspensive condition of full payment of the purchase price not having occurred to
FLORENCIA T. HUIBONHOA, petitioner, vs. COURT OF APPEALS, Spouses Rufina

G. Lim and ANTHONY LIM, LORETA GOJOCCO CHUA and Spouses
SEVERINO and PRISCILLA GOJOCCO, respondents.
[G.R. No. 102604. December 14, 1999]
SEVERINO GOJOCCO and LORETA GOJOCCO CHUA, petitioners, vs. COURT OF

APPEALS, HON. HERMOGENES R. LIWAG, as Judge of the RTC of Manila
Branch 55 and FLORENCIA HUIBONHOA, respondents.
DECISION
PURISIMA, J.:
These two petitions for review on certiorari under Rule 45 of the Rules of Court seek
the reversal of the Decisions of the Court of Appeals in CA-G.R. CV No. 16575 and CA-G.R.
SP No. 24654 which affirmed, respectively, the decision of Branch 148 of the Regional Trial
Court of Makati City, dismissing the complaint for reformation of contract, and the
decision of Branch 55 of the Regional Trial Court of Manila, reversing that of Branch 13 of
the Metropolitan Trial Court of Manila, which favorably acted in the ejectment case. Both
petitions involve the same parties.
Culled from the records on hand, the facts giving rise to the two cases are as
follows:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement
with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating
that Florencia T. Huibonhoa would lease from them (Gojoccos) three (3) adjacent
commercial lots at Ilaya Street, Binondo, Manila, described as lot nos. 26-A, 26-B and 26C, covered by Transfer Certificates of Title Nos. 76098, 80728 and 155450, all in their
(Gojoccos) names.
On June 30, 1983, pursuant to the said memorandum of agreement, the parties
inked a contract of lease of the same three lots for a period of fifteen (15) years
commencing on July 1, 1983 and renewable upon agreement of the parties. Subject
contract was to enable the lessee, Florencia T. Huibonhoa, to construct a four-storey
reinforced concrete building with concrete roof deck, according to plans and specifications
approved by the City Engineers Office. The parties agreed that the lessee could
let/sublease the building and/or its spaces to interested parties under such terms and
conditions as the lessee would determine and that all amounts collected as rents or
income from the property would belong exclusively to the lessee. The lessee undertook to
complete construction of the building within eight (8) months from the date of the
execution of the contract of lease. The contract further provided as follows:
5. Good will Money and Rate of Monthly Rental: Upon the signing of this Contract of Lease,
LESSEE shall pay to each of the LESSOR the sum of P300,000.00 each or a total sum of
P900,000.00, as goodwill money.
LESSEE shall pay to each of the LESSOR the sum of P15,000.00 each or a total amount
of P45,000.00 as monthly rental for the leased premises, within the first five (5) days of
each calendar month, at the office of the LESSOR or their authorized agent; Provided,
however, that LESSEEs obligation to pay the rental shall start only upon completion of the
building, but if it is not completed within eight (8) months from date hereof as provided for
in par. 4 above, the monthly rental shall already accrue and shall be paid by LESSEE to
LESSOR. In other words, during the period of construction, no monthly rental shall be
collected from LESSEE; Provided, Finally, that the monthly rental shall be
adjusted/increased upon the corresponding increase in the rental of sub-leasees (sic)
using the percentage increase in the totality of rentals of the sub-leasees (sic) as basis for
the percentage increase of monthly rental that LESSEE will pay to LESSOR.
The parties also agreed that upon the termination of the lease, the ownership and
title to the building thus constructed on the said lots would automatically transfer to the
lessor, even without any implementing document therefor. Real estate taxes on the land
would be borne by the lessor while that on the building, by the lessee, but the latter was
authorized to advance the money needed to meet the lessors obligations such as the
payment of real estate taxes on their lots. The lessors would deduct from the monthly
rental due all such advances made by the lessee.
After the execution of the contract, the Gojoccos executed a power of attorney
granting Huibonhoa the authority to obtain credit facilities in order that the three lots
could be mortgaged for a limited one-year period from July 1983. [1] Hence, on September
12, 1983, Huibonhoa obtained from China Banking Corporation credit facilities not
exceeding One Million (P1,000.000.00) Pesos. Simultaneously, she mortgaged the three
lots to the creditor bank.[2] Fifteen days later or on September 27, 1983, to be precise,
Huibonhoa signed a contract amending the real estate mortgage in favor of China Banking
Corporation whereby the credit facilities were increased to the principal sum of Three
Million (P3,000,000.00) Pesos.[3]
During the construction of the building which later became known as Poulex
Merchandise Center,[4] former Senator Benigno Aquino, Jr. was assassinated. The incident
must have affected the countrys political and economic stability. The consequent hoarding
of construction materials and increase in interest rates allegedly affected adversely the
construction of the building such that Huibonhoa failed to complete the same within the
stipulated eight-month period from July 1, 1983. Projected to be finished on February 29,
1984, the construction was completed only in September 1984 or seven (7) months later.
Under the contract, Huibonhoa was supposed to start paying rental in March 1984
but she failed to do so. Consequently, the Gojoccos made several verbal demands upon
Huibonhoa for the payment of rental arrearages and, for her to vacate the leased
premises. On December 19, 1984, lessors sent lessee a final letter of demand to pay the
rental arrearages and to vacate the leased premises. The former also notified the latter of
their intention to terminate the contract of lease. [5]
However, on January 3, 1985, Huibonhoa brought an action for reformation of
contract before Branch 148 of the Regional Trial Court in Makati. Docketed as Civil Case
No. 9402, the Complaint alleged that although there was a meeting of the minds between
the parties on the lease contract, their true intention as to when the monthly rental would
accrue was not therein expressed due to mistake or accident.She (lessee) alleged that the
Gojoccos had erroneously considered the first accrual date of the rents to be March 1984
when their true intention was that during the entire period of actual construction of the
building, no rents would accrue. Thus, according to Huibonhoa, the first rent would have
been due only in October 1984. Moreover, the assassination of former Senator Benigno
Aquino, Jr., an unforeseen event, caused the countrys economy to turn from bad to worse
and as a result, the prices of commodities like construction materials so increased that the
building worth Six Million pesos escalated to "something like 11 to 12 million pesos.
However, she averred that by reason of mistake or accident, the lease contract failed to
provide that should an unforeseen event dramatically increase the cost of construction,
the monthly rental would be reduced and the term of the lease would be extended for
such duration as may be fair and equitable to both the lessors and the lessee.
Huibonhoa then prayed that the contract of lease be reformed so as to reflect the
true intention of the parties; that its terms be novated so that the accrual of rents should
be computed from October 1984; that the monthly rent of P45,000.00 be equitably
reduced to P30,000.00, and the term of the lease be extended by five (5) years. [6]
Eleven days later or on January 14, 1985, to be exact, the Gojoccos filed Civil Case
No. 106097 against Huibonhoa for cancellation of lease, ejectment and collection with the
Metropolitan Trial Court of Manila. They theorized that despite the expiration of the 8month construction period, Huibonhoa failed to pay the rents that had accrued since
March 1, 1984, their verbal demands therefor notwithstanding; that, in their letter of
December 19, 1984, they had notified Huibonhoa of their intention to terminate and
cancel the lease for violation of its terms and that they demanded from her the restitution
of the land in question and the payment of all rentals due thereunder; that Huibonhoa
refused to pay the rentals in bad faith because she had sublet the stalls, bodegas and
offices to numerous tenants and/or stallholders from whom she had collected goodwill
money and exorbitant rentals even prior to the completion of the building or as of March
1984; that she was about to sublease the vacant spaces in the building; that she was able
to finish construction of the building without utilizing her own capital or investment on
account of the mortgages of their land in the amount of P3,700,000 (sic); that because
the mortgage indebtedness with China Banking Corporation had remained outstanding
and unpaid, they had revoked the power of attorney in Huibonhoas favor on December 21,
1984, and that, because Huibonhoa was about to depart from the Philippines, the rentals
due and owing from the leased premises should be held to answer for their claim by virtue
of a writ of attachment.
The Gojoccos prayed that Huibonhoa and all persons claiming rights under her be
ordered to vacate the leased premises, to surrender to them actual and physical
possession thereof and to pay the rents due and unpaid at the agreed rate of P45,000.00
a month from March 1984 to January 1985, with legal interest thereon. They also prayed
that Huibonhua be ordered to pay the fair rental value of P60,000.00 a month beginning
February 5, 1985 and every 5 th of the month until the premises shall be actually vacated
and restored to them and that, considering the nature of the action, the Rules on
Summary Procedure be applied to prevent further losses, damages and expenses on their
part.[7]
b) Ordering the plaintiff to pay to defendant Loretta Gojocco Chua the amount
of P360,000.00, representing rentals due from March 1, 1984 to February 28,
1987, with interests thereon at the legal rate from date of the filing of the
complaint until full payment thereof, plus the sum of P15,000.00 per month
beginning March, 1987 and for as long as the plaintiff is in possession of the
leased premises;
Meanwhile, in Civil Case No. 9402, the Gojoccos submitted an answer to the
complaint for reformation of contract; asserting that the true intention of the parties was
to obligate Huibonhoa to pay rents immediately upon the expiration of the maximum
period of eight (8) months from the execution of the lease contract, which intention was
meant to avoid a situation wherein Huibonhoa would deliberately delay the completion of
the building within the 8-month period to elude payment of rental starting March
1984. They also claimed that Huibonhoa instituted the case in anticipation of the
ejectment suit they would file against her; that she was estopped from questioning the
enforceability of the lease contract after having received monetary benefits as a result of
her utilization of the premises to her sole profit and advantage; that the financial reverses
she suffered after the assassination of Senator Benigno Aquino, Jr. could not be considered
a fortuitous event that would justify the reduction of the monthly rental and extension of
the contract of lease for five years; and that the principle of contract of adhesion in
interpreting the lease contract should be strictly applied to Huibonhoa because it was her
counsel who prepared it.[8]
SO ORDERED.
The Gojoccos prayed that Huibonhoa be ordered to pay them the sum
of P495,000.00 representing unpaid rents from March 1, 1984 to January 31, 1985 and the
monthly rent of P60,000.00 from February 1, 1985 until Huibonhoa shall have surrendered
the premises to them, and that she be ordered to pay attorneys fees, moral and
exemplary damages and the costs of suit.
Upon motion of the Gojocco, the trial court amended the dispositive portion of its
aforesaid decision in that Huibonhua was ordered to pay each of Loretta Gojocco Chua
and Severino Gojocco the amount of P540,000.00 instead of P360,000.00 and that
attorneys fees of P54,000.00, instead of P36,000.00, be paid by Huibonhoa.
On January 31, 1985, Rufina Gojocco Lim entered into an agreement [9] with
Huibonhoa whereby, to put an end to Civil Case No. 9402, the former agreed to extend
the term of the lease by three (3) more years or for eighteen (18) years from July 1,
1983. The agreement expressly provided that no rents would be collected unless and until
the construction work was already completed or that during the construction, no monthly
rental should be collected. It also provided that in case some unforeseen event should
dramatically increase the cost of the building, then the amount of monthly rent shall be
reduced to such sum and the term of the lease extended for such duration as may be fair
and equitable, bearing in mind the actual construction cost of the building. The agreement
recognized the fact that the Aquino assassination that resulted in the hoarding of
construction materials and the skyrocketing of the interest rates on Huibonhoas loans,
resulted in the increase in actual cost of the construction from P6,000,000.00 to
between P11,000,000.00 and P12,000,000.00.
There is no record that Rufina Gojocco Lim was dropped as a defendant in Civil Case
No. 9402 but only Loretta Gojocco Chua and the Spouses Severino and Priscilla Gojocco
filed the memorandum for the defendants in that case.[10]
On March 9, 1987, the Makati RTC[11] rendered a decision holding that Huibonhoa
had not presented clear and convincing evidence to justify the reformation of the lease
contract. It considered as misplaced her contention that the Aquino assassination was an
accident within the purview of Art. 1359 of the Civil Code. It held that the act of Rufina G.
Lim in entering into an agreement with Huibonhoa that, in effect, reformed the lease
contract, was not binding upon Severino and Loretta Gojocco considering that they were
separate and independent owners of the lots subject of the lease. On this point, the trial
court cited Sec. 25, Rule 130 of the Rules of Court which provides that the rights of a party
cannot be prejudiced by the act, declaration or omission of another. It thus decided Civil
Case No. 9402 as follows:
WHEREFORE, judgment is hereby rendered:
a) Dismissing the plaintiffs complaint and defendant Rufina Lims counterclaim, with
costs against them;
c) Ordering the plaintiff to pay to defendant Severino Gojocco Chua the amount
of P360,000.00, representing rentals due from March 1, 1984 to February 28,
1987, with interests thereon at the legal rate from date of the filing of the
complaint until full payment thereof, plus the sum of P15,000.00 per month
beginning March, 1987 and for as long as the plaintiff is in possession of the
leased premises;
d) Ordering the plaintiff to pay attorneys fees in favor of the above-named
defendants in the sum of P36,000.00, aside from costs of suit.
On the other hand, in Civil Case No. 102604, the Metropolitan Trial Court of Manila
granted Huibonhoas prayer that the case be excluded from the operation of the Rule on
Summary Procedure for the reason that the unpaid rents sued upon amounted
to P495,000.00.[12] Thereafter, Huibonhoa presented a motion to dismiss or, in the
alternative, to suspend proceedings in the case, contending that the pendency of the
action for reformation of contract constituted a ground of lis pendens or at the very least,
posed a prejudicial question to the ejectment case. The Gojoccos opposed such motion,
pointing out that while there was identity of parties between the two cases, the causes of
action, subject matter and reliefs sought for therein were different.
On May 10, 1985, after Huibonhoa had sent in her reply to the said opposition,
Rufina G. Lim, through counsel, prayed that she be dropped as plaintiff in the case, and
counsel begged leave to withdraw as the lawyer of the latter in the case. Subsequently,
Severino Gojocco and Loretta Gojocco Chua filed a motion praying for an order requiring
Huibonhoa to deposit the rents. On March 25, 1986, the court below issued an Omnibus
Order denying Huibonhoas motion to dismiss, requiring her to pay monthly rental
of P30,000.00 starting March 1984 and every month thereafter, and denying Rufina G.
Lims motion that she be dropped as plaintiff in the case. [13] Huibonhoa moved
for reconsideration of said order but the plaintiffs, apparently including Rufina, opposed
the motion.
On July 21, 1986, Severino Gojocco and Huibonhoa entered into an agreement that
altered certain terms of the lease contract in the same way that the agreement between
Huibonhoa and Rufina G. Lim novated the contract. [14]
On March 24, 1987, the Metropolitan Trial Court of Manila issued an Order denying
Huibonhoas motion for reconsideration and the Gojoccos motion for issuance of a writ of
preliminary attachment, and allowing Huibonhoa a period of fifteen (15) days within which
to deposit P30,000.00 a month starting March 1984 and every month thereafter.
[15]
Huibonhoa interposed a second motion for reconsideration of the March 25, 1986 order
on the ground that she had amicably settled the case with Severino Gojocco and Rufina G.
Lim. She therein alleged that only P15,000.00 was due Loretta G. Chua. She informed the
court of the decision of the Makati Regional Trial Court in Civil Case No. 9402 and argued
that since that court had awarded the Gojoccos rental arrearages, it would be unjust
should she be made to pay rental arrearages, once again.
On June 30, 1987, the Metropolitan Trial Court of Manila issued an Order reiterating
its decision to assume jurisdiction over Civil Case No. 106097 and modified its March 24,
1987 Order by deleting the portion thereof which required Huibonhua to deposit monthly
rents. It also required Huibonhoa to file her answer within fifteen (15) days from receipt of
the copy of the courts order. Accordingly, on July 21, 1987, Huibonhoa sent in her answer
alleging that the lease contract had been novated by the agreements she had signed on
January 31, 1985 and July 21, 1986, with Rufina G. Lim and Severino Gojocco,
respectively. Huibonhoa added that she had paid Severino Gojocco the amount
of P228,000.00 through an Allied Bank managers check. [16]
On August 27, 1987, the Metropolitan Trial Court of Manila issued a Pre-trial Order
limiting the issues in Civil Case No. 106097 to: (a) whether or not plaintiffs had the right to
eject the defendant on the ground of violation of the conditions of the lease contract and
(b) whether or not Severino Gojocco had the right to pursue the ejectment case in view of
the agreement he had entered into with Huibonhoa on July 21, 1986.
On July 30, 1990, the Metropolitan Trial Court of Manila [17] came out with a decision
in favor of plaintiffs Severino Gojocco and Loreta Gojocco Chua and against Florencia T.
Huibonhoa. It ordered Huibonhoa to vacate the lots owned by Severino Gojocco and
Loreta Gojocco Chua and to pay each of them the amounts P5,000.00 as attorneys fees
and P1,000.00 as appearance fee. All three (3) party-litigants appealed to the Regional
Trial Court of Manila.
On February 14, 1991, the Regional Trial Court of Manila, Branch 55, [18] reversed the
decision of the Metropolitan Trial Court and ordered the dismissal of the complaint in Civil
Case No. 106097. The reversal of the inferior courts decision was based primarily on its
finding that:
1. The suit below is intrinsically and inherently an action for cancellation of lease or
rescission of contract. In fact, the plaintiffs themselves recognized this intrinsic nature of
the action by categorizing the same action as one for cancellation of lease, ejectment and
collection. The suit cannot properly be reduced to one of simple ejectment as rights of the
parties to the still existing contracts have yet to be determined and resolved. Necessarily,
to put an end to the parties relation, the contract between them has got to be abrogated,
rescinded or resolved. The action for the purpose is however cognizable by the Regional
Trial Court as its subject-matter is incapable of pecuniary estimation (See Sec. 19(1), B.P.
129).
Hence, Civil Case Nos. 9402 and 106097 (that was docketed before the RTC of
Manila as Civil Case No. 90-54557) were both elevated to the Court of Appeals.
In CA-G.R. CV No. 16575, the Court of Appeals rendered a Decision [19] on May 31,
1990, affirming the decision of the Makati Regional Trial Court in Civil Case No.
9402. Huibonhoa filed a motion for the reconsideration of such Decision and on October
18, 1990, the Court of Appeals modified the same accordingly, by ordering that the
amount of P270,825.00 paid by Huibonhoa to Severino and Priscilla Gojocco be deducted
from the total amount of unpaid rentals due the said spouses.
In CA-G.R. SP No. 24654, the Court of Appeals also affirmed the decision of the
Regional Trial Court of Manila in Civil Case No. 106097 by its Decision [20] promulgated on
October 29, 1991. Considering the allegations of the complaint for cancellation of lease,
ejectment and collection, the Court of Appeals ratiocinated and concluded:
These allegations, which are denied by private respondent, raised issues which go beyond
the simple issue of unlawful possession in ejectment cases. While the complaint does not
seek the rescission of the lease contract, ejecting the lessee would, in effect, deprive the
lessee of the income and other beneficial fruits of the building of which she is the owner
until the end of the term of the lease. Certainly this cannot be decreed in a summary
action for ejectment. The decision of the MTC, it is true, only ordered the ejectment of the
private respondent from the leased premises. But what about the building which,
according to petitioners themselves, cost the private respondent P3,700,000.00 to

construct? Will it be demolished or will its ownership vest, even before the end of the 15year term, in the petitioners as owners of the land? Indeed, inextricably linked to the
question of physical possession is the ownership of the building which the lessee was
permitted to put up on the land. To evict the lessee from the land would be to bar her not
only from entering the building which she owns but also from collecting the rents from its
tenants.
With respect to the contention of the Gojoccos that since Huibonhoa had submitted
to the jurisdiction of the Metropolitan Trial Court, the jurisdictional issue had been
foreclosed, the Court of Appeals opined:
Petitioners point out that private respondent can no longer raise the question of
jurisdiction because she filed a motion to dismiss in the MTC but she did not raise this
question (Rule 15, sec. 8). But the Omnibus motion rule does not cover two grounds
which, although not raised in a motion to dismiss, are not waived. These are (1) failure to
state a cause of action and (2) lack of jurisdiction over the subject matter. (Rule 9, sec.
2). These grounds can be invoked any time. Moreover, in this case it was not really private
respondent who questioned the jurisdiction over the Metropolitan Trial Court. It was the
Regional Trial Court which did so motu propio.
On February 19, 1992, [21] the Court resolved that these two petitions for review
on certiorari be consolidated. Although they sprang from the same factual milieu, the
petitions are to be discussed separately, however, because the issues raised are cognate
yet independent from each other.
In G.R. No. 95897
Petitioner Huibonhoa contends that:

1. THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE AND SERIOUS
ERROR, CONSTITUTING ABUSE OF DISCRETION, IN FINDING THE AGREEMENT
BETWEEN PETITIONER AND PRIVATE RESPONDENT SEVERINO GOJOCCO
(ANNEX E) WORTHLESS AND USELESS ALTHOUGH IT HAS RECOGNIZED THE
PAYMENTS WHICH RESPONDENT SEVERINO GOJOCCO HAS RECEIVED FROM
THE PETITIONER WHICH ACTUALLY CONSTITUTED AN ACT OF RATIFICATION;
2. THE RESPONDENT COURT FAILED TO CONSIDER THE TRAGIC ASSASSINATION OF
FORMER SENATOR BENIGNO AQUINO AS A FORTUITOUS EVENT OR FORCE
MAJEUREWHICH JUSTIFIES THE ADJUSTMENT OF THE TERMS OF THE
CONTRACT OF LEASE.[22]
Article 1305 of the Civil Code defines a contract as a meeting of the minds between
two persons whereby one binds himself, with respect to the other, to give something or to
render some service. Once the minds of the contacting parties meet, a valid contract
exists, whether it is reduced to writing or not. When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon. As such, there
can be, between the parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement, except when it fails to express the true
intent and agreement of the parties. [23] In such an exception, one of the parties may bring
an action for the reformation of the instrument to the end that their true intention may be
expressed.[24]
Reformation is that remedy in equity by means of which a written instrument is

made or construed so as to express or conform to the real intention of the parties. [25] As to
its nature, in Toyota Motor Philippines Corporation v. Court of Appeals, [26] the Court said:
An action for reformation is in personam, not in rem, xxx even when real estate is
involved. xxx It is merely an equitable relief granted to the parties where through mistake
or fraud, the instrument failed to express the real agreement or intention of the
parties. While it is a recognized remedy afforded by courts of equity it may not be applied
if it is contrary to well-settled principles or rules. It is a long-standing principle that equity
follows the law. It is applied in the absence of and never against statutory law. xxx Courts
are bound by rules of law and have no arbitrary discretion to disregard them. xxx Courts
of equity must proceed with outmost caution especially when rights of third parties may
intervene. xxx.
Article 1359 of the Civil Code provides that (w)hen, there having been a meeting of
the minds of the parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the reformation of the instrument to
the end that such intention may be expressed. xxx. An action for reformation of
instrument under this provision of law may prosper only upon the concurrence of the
following requisites: (1) there must have been a meeting of the minds of the parties to the
contact; (2) the instrument does not express the true intention of the parties; and (3) the
failure of the instrument to express the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident.[27]
The meeting of the minds between Huibonhoa, on the one hand, and the Gojoccos,
on the other, is manifest in the written lease contract duly executed by them. The success
of the action for reformation of the contract of lease at bar should therefore, depend on
the presence of the two other requisites aforementioned.
To prove that the lease contract does not evince the true intention of the parties,
specifically as regards the time when Huibonhoa should start paying rents, she presented
as a witness one of the lessors, Rufina G. Lim, who testified that prior to the execution of
the lease contract on June 30, 1983, the parties had entered into a Memorandum of
Agreement on June 8, 1983; that on December 21, 1984, the lessors revoked the special
power of attorney in favor of Huibonhoa; that on January 31, 1985, she entered into an
agreement with Huibonhoa whereby the amount of the rent was reduced to P10,000 a
month and the term of the lease was extended by three (3) years, and that Huibonhoa
started paying rental in September 1984.[28]
There is no statement in such testimony that categorically points to the fact that the
contract of lease has failed to express the true intention of the parties. While it is true that
paragraph 4 of the Memorandum of Agreement [29] states that the P15,000 monthly rental
due each of the three lessors shall be collected in advance within the first five (5) days of
each month upon completion of the building, the same memorandum of agreement also
provides as follows:
8. This Memorandum of Agreement shall bind the SECOND PARTY only after the signing of
the Contact of Lease by both parties which shall not be later than June 30, 1983, provided,
however, that should the SECOND PARTY decide not to proceed with the signing on the
deadline aforestated, the FIRST PARTY shall not hold her liable therefor.
In view thereof, reliance on the provisions of the Memorandum of Agreement is misplaced
considering that its provisions would bind the parties only upon the signing of the lease
contract. However, the lease contract that was later entered into by the parties qualified
the time when the lessee should start paying the monthly rentals. Paragraph 5 of the
lease contract states that the LESSEEs obligation to pay the rental shall start only upon
the completion of the building, but if it is not completed within eight (8) months from date
hereof as provided for in par. 5 (sic) above, the monthly rental shall already accrue and
shall be paid by LESSEE to LESSOR. That qualification applies even though the next
sentence states that (I)n other words, during the period of construction, no monthly
rentals shall be collected from LESSEE. Otherwise, there was no reason for the insertion of
that qualification on the period of construction of the building the termination of which
would signal the accrual of the monthly rentals. Non-inclusion of that qualification would
also give the lessee the unbridled discretion as to the period of construction of the
building to the detriment of the lessors right to exercise ownership thereover upon the
expiration of the 15-year lease period.
In actions for reformation of contact, the onus probandi is upon the party who insists
that the contract should be reformed.[30] Huibonhoa having failed to discharge that burden
of proving that the true intention of the parties has not been accurately expressed in the
lease contract sought to be reformed, the trial court correctly held that no clear and
convincing proof warrants the reformation thereof.
In the complaint, Huibonhoa alleged:
5.9 By reason of mistake or accident, the contract (Annex A) fails to state the true
intention and real agreement of the parties to the effect that in case some unforeseen
event should dramatically increase the cost of the building, then the amount of monthly
rent shall be reduced to such sum and the term of the lease extended for such duration as
may be fair and equitable to both parties, bearing in mind the actual construction cost of
the building.
5.10. As a direct result of the tragic Aquino assassination on 21 August 1983, which the
parties did not foresee and coming as it did barely two (2) months after the contract
(Annex A) had been signed, the countrys economy dramatically turned from bad to worse,
and the resulting ill effects thereof specifically the hoarding of construction materials
adversely affected the plaintiff resulting, among others, in delaying the construction work
and the skyrocketing of the interest rates on plaintiffs loans, such that instead of
roughly P6 Million as originally budgeted the building in question now actually cost the
plaintiff something like 11 to 12 million pesos, more or less.
In the present petition, Huibonhoa asserts that: by reason of oversight or mistake,
the true intention of the parties that should some unforeseen event dramatically increase
the cost of the building, then the amount of monthly rent shall be reduced to such sum
and the term of the lease extended to such period as would be fair and equitable to both
sides, bearing in mind always that petitioner was ordinary LESSEE but was an investordeveloper. She insists that (i)n truth, the contract, while that of lease, really amounted to
a common business venture of the parties.[31]
On account of her failure to prove what costly mistake allegedly suppressed the true
intention of the parties, Huibonhoa honestly admitted that there was an oversight in the
drafting of the contract by her own counsel. By such admission, oversight may not be
attributed to all the parties to the contract and therefore, it cannot be considered a valid
reason for the reformation of the same contract. In fact, because it was Huibonhoas
counsel himself who drafted the contract, any obscurity therein should be construed
against her.[32] Unable to substantiate her stance that the true intention of the parties is
not expressed in the lease contract in question, Huibonhoa nonetheless contends that
paragraph 5 thereof should be interpreted in such a way that she should only begin
paying monthly rent in October 1984 and not in March 1984. [33]
Such contention betrays Huibonhoas confusion on the distinction between
interpretation and reformation of contracts. In National Irrigation Administration v. Gamit,
[34]
the Court distinguished the two concepts as follows:
Interpretation is the act of making intelligible what was before not understood,
ambiguous, or not obvious. It is a method by which the meaning of language is
ascertained. The interpretation of a contract is the determination of the meaning attached
to the words written or spoken which make the contract. On the other hand, reformation is
that remedy in equity by means of which a written instrument is made or construed so as

to express or conform to the real intention of the parties. In granting reformation,
therefore, equity is not really making a new contract for the parties, but is confirming and
perpetuating the real contract between the parties which, under the technical rules of law,
could not be enforced but for such reformation. As aptly observed by the Code
Commission, the rationale of the doctrine is that it would be unjust and inequitable to
allow the enforcement of a written instrument which does not reflect or disclose the real
meeting of the minds of the parties.
By bringing an action for the reformation of subject lease contract, Huibonhoa chose to
reform the instrument and not the contract itself. [35] She is thus precluded from inserting
stipulations that are not extant in the lease contract itself lest the very agreement
embodied in the instrument is altered.
Neither does the Court find merit in her submission that the assassination of the late
Senator Benigno Aquino, Jr. was a fortuitous event that justified a modification of the
terms of the lease contract.
A fortuitous event is that which could not be foreseen, or which even if foreseen,
was inevitable. To exempt the obligor from liability for a breach of an obligation due to an
act of God, the following 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. [36]
In the case under scrutiny, the assassination of Senator Aquino may indeed be
considered a fortuitous event. However, the said incident per se could not have caused
the delay in the construction of the building. What might have caused the delay was the
resulting escalation of prices of commodities including construction materials. Be that as
it may, there is no merit in Huibonhoas argument that the inflation borne by the Filipinos
in 1983 justified the delayed accrual of monthly rental, the reduction of its amount and
the extension of the lease by three (3) years.
Inflation is the sharp increase of money or credit or both without a corresponding
increase in business transaction.[37] There is inflation when there is an increase in the
volume of money and credit relative to available goods resulting in a substantial and
continuing rise in the general price level. [38] While it is of judicial notice that there has
been a decline in the purchasing power of the Philippine peso, this downward fall of the
currency cannot be considered unforeseeable considering that since the 1970s we have
been experiencing inflation. It is simply a universal trend that has not spared our country.
[39]
Conformably, this Court upheld the petitioners view in Occea v. Jabson[40] that even a
worldwide increase in prices does not constitute a sufficient cause of action for
modification of an instrument.
It is only when an extraordinary inflation supervenes that the law affords the parties
a relief in contractual obligations.[41] In Filipino Pipe and Foundry Corporation v. NAWASA,
[42]
the Court explained extraordinary inflation thus:
Extraordinary inflation exists when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation in
the value of said currency, and such decrease or increase could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation. (Tolentino, Commentaries and Jurisprudence on the Civil
Code, Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of what happened to the
Deutschmark in 1920:
More recently, in the 1920s Germany experienced a case of hyperinflation. In early 1921,
the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had
stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923,
it had reached 4.2 trillion to the U.S. dollar! (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition]).
As reported, prices were going up every week, then every day, then every hour. Women
were paid several times a days so that they could rush out and exchange their money for
something of value before what little purchasing power was left dissolved in their
hands. Some workers tried to beat the constantly rising prices by throwing their money
out of the windows to their waiting wives, who would rush to unload the nearly worthless
paper. A postage stamp cost millions of marks and a loaf of bread, billions. (Sidney
Rutberg, The Money Balloon New York: Simon and Schuster, 1975, p. 19, cited in
Economics, An Introduction by Villegas & Abola, 3rd Ed.)
No decrease in the peso value of such magnitude having occurred, Huibonhoa has
no valid ground to ask this Court to intervene and modify the lease agreement to suit her
purpose. As it is, Huibonhoa even failed to prove by evidence, documentary or
testimonial, that there was an extraordinary inflation from July 1983 to February
1984. Although she repeatedly alleged that the cost of constructing the building doubled
from P6 million to P12 million, she failed to show by how much, for instance, the price
index of goods and services had risen during that intervening period. An extraordinary
inflation cannot be assumed. [43] Hence, for Huibonhoa to claim exemption from liability by
reason of fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation
was the sole and proximate cause of the loss or destruction of the contract [44]or, in this
case, of the delay in the construction of the building. Having failed to do so, Huibonhoas
contention is untenable.
Pathetically, if indeed a fortuitous event deterred the timely fulfillment of
Huibonhoas obligation under the lease contract, she chose the wrong remedy in filing the
case for reformation of the contract.Instead, she should have availed of the remedy of
recission of contract in order that the court could release her from performing her
obligation under Arts. 1266 [45] and 1267[46] of the Civil Code, so that the parties could be
restored to their status prior to the execution of the lease contract.
As regards Huibonhoas assertion that the lease contract was novated by Rufina G.
Lim and Severino Gojocco who entered into an agreement with her on January 31, 1985
and July 21, 1986, respectively, it bears stressing that the lease contract they had entered
into is not a simple one. It is unique in that while there is only one lessee, Huibonhoa, and
the contract refers to a LESSOR, there are actually three lessors with separate certificates
of title over the three lots on which Huibonhoa constructed the 4-storey building. As
Huibonhoa herself ironically asserts, the lease contract is an indivisible one because the
lessors interests cannot be separated even if they owned the lands separately under
different certificates of title. [47] Hence, the acts of Rufina G. Lim and Severino Gojocco in
entering into the new agreement with Huibonhoa could have affected only their individual
rights as lessors because no new agreement was forged between Huibonhoa and all the
lessors, including Loreta Gojocco.
Consequently, because the three lot owners simultaneously entered into the lease
contract with Huibonhoa, novation of the contract could only be effected by their
simultaneous act of abrogating the original contract and at the same time forging a new
one in writing. Although as a rule no form of words or writing is necessary to give effect to
a novation,[48] a written agreement signed by all the parties to the lease contract is
required in this case. Ordinary diligence on the part of the parties demanded that they
execute a written agreement if indeed they wanted to enter into a new one because of the
15-year life span of the lease affecting real property and the fact that third persons would
be affected thereby on account of the express agreement allowing the lessee to lease the
building to third parties.[49]
Under the law, novation is never presumed. The parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. [50] Accordingly, it
was held that no novation of a contract had occurred when the new agreement entered
into between the parties was intended to give life to the old one. [51] Giving life to the
contract was the very purpose for which Rufina G. Lim signed the agreement on January
31, 1986 with Huibonhoa. It was intended to graft into the lease contract provisions that
would facilitate fulfillment of Huibonhoas obligation therein. [52] That the new agreement
was meant to strengthen the enforceability of the lease is further evidenced by the fact,
although its stipulations as to the period of the lease and as to the amount of rental were
altered, the agreement with Rufina G. Lim does not even hint that the lease itself would
be abrogated. As such, even Huibonhoas agreement with Rufina G. Lim cannot be
considered a novation of the original lease contract. Where the parties to the new
obligation expressly recognize the continuing existence and validity of the old one, where,
in other words, the parties expressly negated the lapsing of the old obligation, there can
be no novation.[53]
As regards the new agreement with Severino Gojocco, it should be noted that he
only disclaimed its existence when the check issued by Huibonhoa to him, allegedly in
accordance with the new agreement, was dishonored. That unfortunate fact might have
led Severino Gojocco to refuse acceptance of rents paid by Huibonhoa subsequent to the
dishonor of the check. However, the non-existence of the new agreement with Severino
Gojocco is a question of fact that the courts below had properly determined. The Court of
Appeals has affirmed the trial courts finding that not only was Gojoccos consent vitiated
by fraud and false representation there likewise was failure of consideration in the
execution of Exhibit C, (and therefore) the said agreement is legally inefficacious. [54] In the
Resolution of October 18, 1990, the Court of Appeals considered the amount
of P270,825.00 represented by the check handed by Huibonhoa to Severino Gojocco as
partial settlement or partial payment [55] clearly under the terms of the original lease
contract. There is no reason to depart from the findings and conclusions of the appellate
court on this matter.
Nevertheless, because Severino Gojocco repudiates the new agreement even before
this Court as his consent thereto had allegedly been vitiated by fraud and false
representation,[56] Huibonhoa may not escape complete fulfillment of her obligation under
the original lease contract as far as Severino Gojocco is concerned. She is thus
contractually bound to pay him the unpaid rents.
Aside from the monthly rental that should be paid by Huibonhoa starting March
1984, Loreto Gojocco Chua is also entitled to interest at the rate of 6% per annum from
the accrual of the rent in accordance with Article 2209 [57] of the Civil Code until it is fully
paid because the monetary award does not partake of a loan or forbearance in
money. However, the interim period from the finality of this judgment until the monetary
award is fully satisfied, is equivalent to a forbearance of credit and therefore, during that
interim period, the applicable rate of legal interest shall be 12%. [58] As regards Severino
Gojocco, he shall be entitled to such interests only from the time that Huibonhoa
defaulted paying her monthly rentals to him considering that he had already received
from her the amount of P270,825.00 as rentals.
The amount of monthly rentals upon which interest shall be charged shall be that
stipulated in paragraph 5 of the lease contract or P15,000.00 to each lessor. That amount,
however, shall be subject to the provision therein that the amount of rentals shall be
adjusted/increased upon the corresponding increase in the rental of subleases using the
percentage increase in the totality of rentals of the sub-lessees as basis for the
percentage increase of monthly rental that LESSEE will pay to LESSOR. Upon remand of
this case therefore, the trial court shall determine the total monetary award in favor of
Loreta Gojocco Chua and of Severino Gojocco.
From the facts of the case, it is clear that what Huibonhoa aimed for in filing the
action for reformation of the lease contract, is to absolve herself from her delay in the
payment of monthly rentals and to extend the term of the lease, which under the original
lease contract, expired in 1988. The ostensible reasons behind the institution of the case
she alleged were the unfavorable repercussions resulting from the economic and political
upheaval on the heels of the Aquino assassination. However, a contract duly executed is
the law between the parties who are obliged to comply with its terms. Events occurring
subsequent to the signing of an agreement may suffice to alter its terms only if, upon
failure of the parties to arrive at a valid compromise, the court deems the same to be
sufficient reasons in law for altering the terms of the contract. This court once said:
It is a long established doctrine that the law does not relieve a party from the effects of an
unwise, foolish, or disastrous contract, entered into with all the required formalities and
with full awareness of what he was doing. Courts have no power to relieve parties from
obligations voluntarily assumed, simply because their contracts turned out to be
disastrous deals or unwise investments. [59]
In G.R. No. 102604
Petitioners Severino Gojocco and Loreta G. Chua assail the Decision of the Court of
Appeals on the following grounds;
a) RESPONDENT COURT HAS DECIDED QUESTIONS OF SUBSTANCE NOT
HERETOFORE DETERMINED BY THIS HONORABLE COURT OR HAS DECIDED THEM
IN A WAY CLEARLY CONTRARY TO LAW OR THE APPLICABLE DECISIONS OF THIS
HONORABLE COURT;
b) RESPONDENT COURT HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWERS OF SUPERVISION BY THE HONORABLE COURT.[60]
The contentions of petitioners relate to the basic issue raised in the petition whether or not the Court of Appeals erred in affirming the decision of the Regional Trial
Court that dismissed for lack of jurisdiction the complaint for ejectment brought by
petitioners before the Metropolitan Trial Court of Manila. In other words, the issue for
determination here is: whether or not the Metropolitan Trial Court had jurisdiction over the
complaint for cancellation of lease, ejectment and collection in Civil Case No. 90-54557.
The governing law on jurisdiction when the complaint was filed on January 14, 1985
was Sec. 33 (2) of Batas Pambansa Blg. 129 vesting municipal courts with:
Exclusive original jurisdiction over cases of forcible entry and unlawful detainer. Provided,
That when, in such cases, the defendant raises the question of ownership in his pleadings
and the question of possession cannot be resolved without deciding the issue of
ownership, the issue of ownership should be resolved only to determine the issue of
possession.
Thereunder, when the issue of ownership is indispensable to the resolution of the
issue of possession, the Metropolitan Trial Court is empowered to decide it as well.
[61]
Explaining this jurisdictional matter, in Dizon v. Court of Appeals, [62] the Court said:
x x x. Well-settled is the rule that in an ejectment suit, the only issue is possession de
facto or physical or material possession and not possession de jure. So that, even if the
question of ownership is raised in the pleadings, as in this case, the court may pass upon
such issue but only to determine the question of possession especially if the former is
inseparably linked with the latter. It cannot dispose with finality the issue of ownershipsuch issue being inutile in an ejectment suit except to throw light on the question of
possession. This is why the issue of ownership or title is generally immaterial and foreign
to an ejectment suit.
Detainer, being a mere quieting process, questions raised on real property are incidentally
discussed. In fact, any evidence of ownership is expressly banned by Sec. 4, Rule 70
except to resolve the question of possession. Thus, all that the court may do, is to make
an initial determination of who is the owner of the property so that it can resolve who is
entitled to its possession absent other evidence to resolve the latter. But such
determination of ownership is not clothed with finality. Neither will it affect ownership of
the property nor constitute a binding and conclusive adjudication on the merits with
respect to the issue of ownership. x x x.
The Court has consistently held that in forcible entry and unlawful detainer cases,
jurisdiction is determined by the nature of the action as pleaded in the complaint. [63] The
test of the sufficiency of the facts alleged in the complaint is whether or not admitting the
facts alleged therein, the court could render a valid judgment upon the same in
accordance with the prayer of the plaintiff. [64]
In an ejectment case, or specifically in an action for unlawful detainer like the
present case, it suffices to allege that the defendant is unlawfully withholding possession
of the property in question. [65] A complaint for unlawful detainer is therefore sufficient if it
alleges that the withholding of possession or the refusal to vacate is unlawful without
necessarily employing the terminology of the law. [66] It is therefore in order to make an
inquiry into the averments of the complaint in Civil Case No. 90-54557. [67] The complaint,
that was called one for cancellation of lease, ejectment and collection, alleged the
following facts:
1. The parties are residents of different barangays and therefore the provisions
of P.D. No. 1508 (the law on the katarungang pambarangay) are
inapplicable;
2. The plaintiffs, Rufina G. Lim, Severino Gojocco and Loreta Gojocco Chua are
the registered owners of three parcels of commercial land in Ilaya Street,
Binondo, Manila.
3. On June 30, 1983, they entered into a lease contract with defendant
Huibonhoa whereby the latter would construct a 4-storey building on the
three lots that, after the expiration of the 15-year period of the lease,
would be owned by the lessors, and that, upon completion of construction
of the building within eight (8) months from signing of the lease contract,
the lessee would start paying monthly rentals;
4. After the expiration of the 8-months period or in March 1984, the rentals
of P45,000.00 a month accrued.
5. Despite verbal demands, meetings and conferences by which the plaintiffs
demanded from defendant payment of the total amount due on account of
the lease contract, defendant failed to pay;
6. On December 19, 1984, the plaintiffs, through counsel, wrote defendant
letter informing her of their intention to terminate and cancel the lease for
violation of its terms by the defendant at the same time demanding
restitution of the lots in question and payment of all rentals due;
7. Despite such verbal and written demands, the defendant refused to comply
therewith to the damage and prejudice of the plaintiffs considering that
defendant was subleasing the stalls, bodegas and offices to tenants who
had paid her goodwill money and exorbitant rentals since March 1984 or
prior to the completion of the building until the filing of the complaint in
amounts totaling millions of pesos;
8. Defendant continued to sublease vacant spaces while depriving plaintiffs of
reasonable compensation for the use and occupation of the premises;
9. Defendant did not utilize her own capital in the construction of the building
as she was able to mortgage the lots to the China Banking Corporation in
the total amount of P3,700,000.00 as well as collect goodwill money from
tenants;
10. Plaintiffs revoked the authority given to defendant to encumber the
property because of her failure of pay and liquidate the real estate loan
within the one-year period which expired on September 30, 1984;
11. That plaintiffs were forced to file the action by reason of defendants bad
faith and unwarranted refusal to satisfy their claims; and
12. The rentals should be made to answer for plaintiffs monetary claims on
account of defendants impending departure from the Philippines.
After praying for the issuance of a preliminary writ of attachment, the plaintiffs
prayed as follows:
WHEREFORE, premises considered, it is most respectfully prayed that judgment be
rendered in favor of plaintiffs and against the defendant as follows:
1. Ordering defendant and all persons claiming rights under her to forthwith
vacate the leased premises described in this Complaint and to surrender
actual and physical possession to herein plaintiffs and/or their duly
authorized representatives;
2. Ordering defendant to pay plaintiff all rentals due and unpaid at the agreed
rate of P45,000.00 per month from March, 1984 to January, 1985 or for a
period of 11 months with legal interests thereon until fully paid;
3. Ordering the defendant to deposit past and future rentals with this
Honorable Court, or in a bank acceptable to both parties, the Passbook to
be turned over and submitted to this Honorable Court for further
disposition;
4. Sentencing defendant to pay the fair rental value of, and/or reasonable
compensation for, the use and occupancy of the leased premises at the
rate of P60,000 per month beginning February 5, 1985 and every 5th of
the succeeding month thereafter until the premises is actually vacated and
restored to herein plaintiffs;
5. To pay plaintiffs a sum equivalent to 20% of the total amount claimed in this
action for and as attorneys fees exclusive of appearance fees and costs of
this action;
6. That pending hearing of this case, a writ of preliminary attachment be
issued against the credits due defendant from the tenants or sublessees of
the premises in question to serve as security for the satisfaction of any
judgment that may be recovered in this case;
7. For such other and further relief as this Honorable Court may deem proper,
just and equitable;
8. Plaintiffs further respectfully pray that for expediency, considering the
nature of this action and to protect plaintiffs from incurring further losses,
damages and expenses concomittant to the deprivation or loss of their
possession, that notwithstanding the amount of claim involved, they
hereby respectfully invoke the applicability of the rules on Summary
Procedure in the interest of justice.
Undoubtedly, the complaint avers ultimate facts required for a cause of action in an
unlawful detainer case. It alleges possession of the properties by the lessee, verbal and
written demands to pay rental arrearages and to vacate the leased premises, continued
refusal of the lessees to surrender possession of the premises, and the fact that the action
was filed within one year from demand to vacate.
A reading of the allegations of the complaint and the reliefs prayed for indeed
reveals facts that appear to be extraneous to the primary aim of recovering possession of
property in an action for unlawful detainer although these facts do not involve issue of
ownership of the premises. Thus, consonant with the allegation that defendant was
leasing the spaces in the building to the tune of millions of peso, plaintiffs pray for an
increase in monthly rentals to P60,000.00 a month starting February 5, 1985 or after
construction of the building had been completed. The prayer likewise speaks of past and
future rentals that should be deposited with the court or in an acceptable bank. In other
words, the complaint seeks relief that are not limited to payment of the rent arrearages
and the eviction of defendant from the leased premises.
Although for reasons of their own the Gojoccos opted not to express in the complaint
their intention to terminate the lease, such intention could be gleaned from their prayer
that the court should sentence Huibonhoa to pay the higher rent of P60,000.00 a
month. That explains why the complaint is captioned as one for cancellation of the lease
aside from its being one for ejectment and collection. In praying that the court directs the
defendant to pay the increased rental of P60,000.00 a month, plaintiffs, in effect, would
want the existing contract terminated in order that the court could substitute it with
another providing for an increased monthly rental.
However, forging contracts for parties in a case is beyond the jurisdiction of
courts. Otherwise, it would result in the courts substitution of its own volition in a contract
that should express only the parties will. Necessarily, the Metropolitan Trial Court could
not favorably act on the prayer for cancellation of the contract with another containing
terms suggested by the plaintiffs as the allegations and prayer therefor are no more than
superfluities that do not affect the main cause of action averred in the complaint. The
court therefore granted only the main relief sought by the plaintiffs-the eviction of the
defendant.
The Regional Trial Court incorrectly held that the complaint was also for rescission of
contract, a case that is certainly not within the jurisdiction of the Metropolitan Trial
Court. By the allegations of the complaint, the Gojoccos aim was to cancel or terminate
the contract because they sought its partial enforcement in praying for rental
arrearages. There is a distinction in law between cancellation of a contract and its
rescission. To rescind is to declare a contract void in its inception and to put an end to it as
though it never were. It is not merely to terminate it and release parties from further
obligations to each other but to abrogate it from the beginning and restore the parties to
relative positions which they would have occupied had no contract ever been made. [68]
Termination of a contract is congruent with an action for unlawful detainer. The
termination or cancellation of a contract would necessarily entail enforcement of its terms
prior to the declaration of its cancellation in the same way that before a lessee is ejected
under a lease contract, he has to fulfill his obligations thereunder that had accrued prior
to his ejectment. However, termination of a contract need not undergo judicial
intervention. The parties themselves may exercise such option. Only upon disagreement
between the parties as to how it should be undertaken may the parties resort to
courts. Hence, notwithstanding the allegations in the complaint that are extraneous or not
essential in an action for unlawful detainer, the Metropolitan Trial Court correctly assumed
jurisdiction over Civil Case No. 90-54557.
The Court finds sustainable basis for the observation of the Court of Appeals that
execution of the judgment ejecting Huibonhoa would cause complications that are
anathema to a peaceful resolution of the controversy between the parties. Thus, while
Huibonhoa would be ejected from the lots owned by Severino Gojocco and Loreta Gojocco
Chua, she would be bound by her agreement with Rufina G. Lim to continue with the
lease. The result would be disadvantageous to both Huibonhoa and Severino Gojocco and
Loreta G. Chua. The said owners would be unable to exercise rights of ownership over
their lots upon which the building was constructed unless they remove or buy two-thirds
of the building.
However, an action for unlawful detainer does not preclude the lessee or ejected
party from availing of other remedies provided by law. The prevailing doctrine is that suits
or actions for the annulment of sale, title or document do not abate any ejectment action
respecting the same property.[69] In fact, in this case, the lessee, as it was, jumped the gun
over the lessors in filing the action for reformation of the lease contract. That it proved
unfavorable to her does not detract from the fact that the controversy between her and
the lessors has been resolved in accordance with law albeit not in consonance with the
wishes of all the parties.
Be that as it may, the problem of ejecting Huibonhoa has been rendered moot and
academic by the expiration of the lease contract litigated upon in June 1998. The parties
might have availed of the provision of paragraph 1 of the lease contract whereby the
parties agreed to renew it for a similar or shorter period upon terms and conditions
mutually agreeable to them. If they opted to brush aside that provision, with more reason,
Huibonhoas eviction should ensue as a matter of enforcement of the lease contract.
WHEREFORE, judgment is hereby rendered as follows:
a.) In G.R. No. 95897, the decision of the Court of Appeals in CA-G.R. CV No. 16575,
dismissing petitioners complaint for reformation of contract, is AFFIRMED with the
modifications that:
1] Private respondent Loreta Gojocco Chua is adjudged entitled to legal interest of 6% per
annum from March, 1984, the time the rents became due;
2] Private respondent Severino Gojocco shall receive 6% legal interest only from the time
Florencia T. Huibonhoa defaulted in the payment of her monthly rents; and
3] Legal interest of 12% per annum shall accrue from the finality of this decision until the
amount due is fully paid.
b) In G.R. No. 102604, the decision of the Court of Appeals in CA-G.R. SP No. 24654,
affirming the decision of the Regional Trial Court of origin which dismissed the ejectment
case instituted by the petitioners against the private respondent is SET ASIDE; the order
of ejectment issued by the Metropolitan Trial Court a quo on July 30, 1980 is UPHELD; and
the private respondent and all persons claiming authority under her are ordered to vacate
the land and portion of the building corresponding to Lot No. 26-B covered by TCT No.
80728 of petitioner Severino Gojocco, and the portion corresponding to Lot No. 26-C
covered by TCT No. 155450 of petitioner Loreta Chua. No pronouncement as to costs.
SO ORDERED.
EN BANC
G.R. No. L-25906 May 28, 1970

PEDRO D. DIOQUINO, plaintiff-appellee,
vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO, defendantsappellants.

Pedro D. Dioquino in his own behalf.
Arturo E. Valdomero, Jose L. Almario and Rolando S. Relova for defendants-appellants.
FERNANDO, J.:
The present lawsuit had its origin in a relationship, if it could be called such, the use of a
car owned by plaintiff Pedro D. Dioquino by defendant Federico Laureano, clearly of a
character casual and temporary but unfortunately married by an occurrence resulting in
its windshield being damaged. A stone thrown by a boy who, with his other companions,
was thus engaged in what undoubtedly for them must have been mistakenly thought to
be a none too harmful prank did not miss its mark. Plaintiff would hold defendant Federico
Laureano accountable for the loss thus sustained, including in the action filed the wife,
Aida de Laureano, and the father, Juanito Laureano. Plaintiff prevail in the lower court, the
judgment however going only against the principal defendant, his spouse and his father
being absolved of any responsibility. Nonetheless, all three of them appealed directly to
us, raising two questions of law, the first being the failure of the lower court to dismiss
such a suit as no liability could have been incurred as a result of a fortuitous event and
the other being its failure to award damages against plaintiff for the unwarranted inclusion
of the wife and the father in this litigation. We agree that the lower court ought to have
dismissed the suit, but it does not follow that thereby damages for the inclusion of the
above two other parties in the complaint should have been awarded appellants.
The facts as found by the lower court follow: "Attorney Pedro Dioquino, a practicing lawyer
of Masbate, is the owner of a car. On March 31, 1964, he went to the office of the MVO,
Masbate, to register the same. He met the defendant Federico Laureano, a patrol officer of
said MVO office, who was waiting for a jeepney to take him to the office of the Provincial
Commander, PC, Masbate. Attorney Dioquino requested the defendant Federico Laureano
to introduce him to one of the clerks in the MVO Office, who could facilitate the
registration of his car and the request was graciously attended to. Defendant Laureano
rode on the car of Atty. Dioquino on his way to the P.C. Barracks at Masbate. While about
to reach their destination, the car driven by plaintiff's driver and with defendant Federico
Laureano as the sole passenger was stoned by some 'mischievous boys,' and its
windshield was broken. Defendant Federico Laureano chased the boys and he was able to
catch one of them. The boy was taken to Atty. Dioquino [and] admitted having thrown the
stone that broke the car's windshield. The plaintiff and the defendant Federico Laureano
with the boy returned to the P.C. barracks and the father of the boy was called, but no
satisfactory arrangements [were] made about the damage to the
windshield." 1
It was likewise noted in the decision now on appeal: "The defendant Federico Laureano
refused to file any charges against the boy and his parents because he thought that the
stone-throwing was merely accidental and that it was due to force majeure. So he did not
want to take any action and after delaying the settlement, after perhaps consulting a
lawyer, the defendant Federico Laureano refused to pay the windshield himself and
challenged that the case be brought to court for judicial adjudication. There is no question
that the plaintiff tried to convince the defendant Federico Laureano just to pay the value
of the windshield and he even came to the extent of asking the wife to convince her
husband to settle the matter amicably but the defendant Federico Laureano refused to
make any settlement, clinging [to] the belief that he could not be held liable because a
minor child threw a stone accidentally on the windshield and therefore, the same was due
to force majeure." 2
1. The law being what it is, such a belief on the part of defendant Federico Laureano was
justified. The express language of Art. 1174 of the present Civil Code which is a
restatement of Art. 1105 of the Old Civil Code, except for the addition of the nature of an
obligation requiring the assumption of risk, compels such a conclusion. It reads thus:
"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." Even under the old Civil Code then, as stressed by us in the
first decision dating back to 1908, in an opinion by Justice Mapa, the rule was well-settled
that in the absence of a legal provision or an express covenant, "no one should be held to
account for fortuitous cases." 3 Its basis, as Justice Moreland stressed, is the Roman law
principle major casus est, cui humana infirmitas resistere non potest. 4 Authorities of
repute are in agreement, more specifically concerning an obligation arising from contract
"that some extraordinary circumstance independent of the will of the obligor, or of his
employees, is an essential element of a caso fortuito." 5 If it could be shown that such
indeed was the case, liability is ruled out. There is no requirement of "diligence beyond
what human care and foresight can provide." 6
The error committed by the lower court in holding defendant Federico Laureano liable
appears to be thus obvious. Its own findings of fact repel the motion that he should be
made to respond in damages to the plaintiff for the broken windshield. What happened
was clearly unforeseen. It was a fortuitous event resulting in a loss which must be borne
by the owner of the car. An element of reasonableness in the law would be manifestly
lacking if, on the circumstances as thus disclosed, legal responsibility could be imputed to
an individual in the situation of defendant Laureano. Art. 1174 of the Civil Code guards
against the possibility of its being visited with such a reproach. Unfortunately, the lower
court was of a different mind and thus failed to heed its command.
It was misled, apparently, by the inclusion of the exemption from the operation of such a
provision of a party assuming the risk, considering the nature of the obligation
undertaken. A more careful analysis would have led the lower court to a different and
correct interpretation. The very wording of the law dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a fortuitous event where the party
charged may be considered as having assumed the risk incident in the nature of the
obligation to be performed. It would be an affront, not only to the logic but to the realities
of the situation, if in the light of what transpired, as found by the lower court, defendant
Federico Laureano could be held as bound to assume a risk of this nature. There was no
such obligation on his part.
Reference to the leading case of Republic v. Luzon Stevedoring Corp. 7 will illustrate when
the nature of the obligation is such that the risk could be considered as having been
assumed. As noted in the opinion of Justice J.B.L. Reyes, speaking for the Court: "The
appellant strongly stresses the precautions taken by it on the day in question: that it
assigned two of its most powerful tugboats to tow down river its barge L-1892; that it
assigned to the task the more competent and experienced among its patrons, had the
towlines, engines and equipment double-checked and inspected; that it instructed

its patrons to take extra-precautions; and concludes that it had done all it was called to
do, and that the accident, therefore, should be held due to force majeure or fortuitous
event." Its next paragraph explained clearly why the defense of caso fortuito or force
majeure does not lie. Thus: "These very precautions, however, completely destroy the
appellant's defense. For caso fortuito or force majeure (which in law are identical in so far
as they exempt an obligor from liability) by definition, are extraordinary events not
foreseeable or avoidable, 'events that could not be foreseen, or which, though foreseen,
were inevitable' (Art. 1174, Civil Code of the Philippines). It is, therefore, not enough that
the event should not have been foreseen or participated, as is commonly believed, but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same: un hecho no constituye caso fortuito
por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion
diligente del presente ofensor' (Peirano Facio, Responsibilidad Extra-contractual, p. 465;
Mazeaud, Traite de la Responsibilite Civile, Vol. 2, sec. 1569). The very measures adopted
by appellant prove that the possibility of danger was not only foreseeable, but actually
foreseen, and was not caso fortuito."
pecuniary loss which, while resulting from a fortuitous event, perhaps would not have
occurred at all had not defendant Federico Laureano borrowed his car, we, feel that he is
not to be penalized further by his mistaken view of the law in including them in his
complaint. Well-worth paraphrasing is the thought expressed in a United States Supreme
Court decision as to the existence of an abiding and fundamental principle that the
expenses and annoyance of litigation form part of the social burden of living in a society
which seeks to attain social control through law. 8
In that case then, the risk was quite evident and the nature of the obligation such that a
party could rightfully be deemed as having assumed it. It is not so in the case before us. It
is anything but that. If the lower court, therefore, were duly mindful of what this particular
legal provision contemplates, it could not have reached the conclusion that defendant
Federico Laureano could be held liable. To repeat, that was clear error on its part.
THIRD DIVISION
2. Appellants do not stop there. It does not suffice for them that defendant Federico
Laureano would be freed from liability. They would go farther. They would take plaintiff to
task for his complaint having joined the wife, Aida de Laureano, and the father, Juanita
Laureano. They were far from satisfied with the lower court's absolving these two from
any financial responsibility. Appellants would have plaintiff pay damages for their inclusion
in this litigation. We are not disposed to view the matter thus.
It is to be admitted, of course, that plaintiff, who is a member of the bar, ought to have
exercised greater care in selecting the parties against whom he would proceed. It may be
said that his view of the law that would consider defendant Federico Laureano liable on
the facts as thus disclosed, while erroneous, is not bereft of plausibility. Even the lower
court, mistakenly of course, entertained similar view. For plaintiff, however, to have
included the wife and the father would seem to indicate that his understanding of the law
is not all that it ought to have been.
Plaintiff apparently was not entirely unaware that the inclusion in the suit filed by him was
characterized by unorthodoxy. He did attempt to lend some color of justification by
explicitly setting forth that the father was joined as party defendant in the case as he was
the administrator of the inheritance of an undivided property to which defendant Federico
Laureano could lay claim and that the wife was likewise proceeded against because the
conjugal partnership would be made to respond for whatever liability would be
adjudicated against the husband.
It cannot be said that such an attempt at justification is impressed with a high persuasive
quality. Far from it. Nonetheless, mistaken as plaintiff apparently was, it cannot be
concluded that he was prompted solely by the desire to inflict needless and unjustified
vexation on them. Considering the equities of the situation, plaintiff having suffered a
WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it orders
defendant Federico Laureano to pay plaintiff the amount of P30,000.00 as damages plus
the payment of costs, is hereby reversed. It is affirmed insofar as it dismissed the case
against the other two defendants, Juanita Laureano and Aida de Laureano, and declared
that no moral damages should be awarded the parties. Without pronouncement as to
costs.
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:
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.
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 ...)
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.
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)
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.'
(Tsn. p. 3, August 8, 1984).
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?
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:
No basis, your Honor, he is neither a driver nor a conductor.
COURT:
Let the witness answer. Estimate only, the conductor
experienced.
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 majeureand 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).
Witness:
Not less than 30 to 40 miles.
COURT:
Kilometers or miles?
A Miles.
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:
Atty. Gambe:
Q That is only your estimate by your experience?
A Yes, sir, estimate.
(Tsn., pp. 4-5, Oct. 17, 1983).
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
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).
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 80-32).itc-asl By

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.
FACTS:
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.
ISSUE:
Whether or not Bachelor Express, Inc. can be held liable for the death of Beter and
Rautraut.
HELD:
majeure.
Bachelor Express, Incorporated vs. Court of Appeals

G.R. No. 85691, July 31, 1990
193 SCRA 216
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.
two passengers were exclusively due to force majeure and not to the failure of the
their destinations as warranted by law.
contract of carriage.
[G.R. No. 126204. November 20, 2001]

NATIONAL POWER CORPORATION, petitioner, vs. PHILIPP BROTHERS OCEANIC,
INC., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Where a person merely uses a right pertaining to him, without bad faith or intent to
injure, the fact that damages are thereby suffered by another will not make him liable. [1]
This principle finds useful application to the present case.
Before us is a petition for review of the Decision [2] dated August 27, 1996 of the
Court of Appeals affirming in toto the Decision[3] dated January 16, 1992 of the Regional
Trial Court, Branch 57, Makati City.
The facts are:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to
bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas
Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc.
(PHIBRO) prequalified and was allowed to participate as one of the bidders. After the
public bidding was conducted, PHIBROs bid was accepted. NAPOCORs acceptance was
conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987.
The Bidding Terms and Specifications[4] provide for the manner of shipment of coals,
thus:
SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall arrange and provide
gearless bulk carrier for the shipment of coal to arrive at discharging port on or
before thirty (30) calendar days after receipt of the Letter of Credit by the
SELLER or its nominee as per Section XIV hereof to meet the vessel arrival schedules at
Calaca, Batangas, Philippines as follows:
60,000 +/ - 10 % July 20, 1987
60,000 +/ - 10% September 4, 1987[5]
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon
plague Australia, the shipments point of origin, which could seriously hamper PHIBROs
ability to supply the needed coal.[6] From July 23 to July 31, 1987, PHIBRO again apprised
NAPOCOR of the situation in Australia, particularly informing the latter that the ship
owners therein are not willing to load cargo unless a strike-free clause is incorporated in
the charter party or the contract of carriage. [7] In order to hasten the transfer of coal,
PHIBRO proposed to NAPOCOR that they equally share the burden of a strike-free
clause. NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable
letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of
the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its
first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of
coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On
November 24, 1987, NAPOCOR disapproved PHIBROs application for pre-qualification to
bid for not meeting the minimum requirements. [8] Upon further inquiry, PHIBRO found that
the real reason for the disapproval was its purported failure to satisfy NAPOCORs demand
for damages due to the delay in the delivery of the first coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction
against NAPOCOR with the Regional Trial Court, Branch 57, Makati City. [9] In its complaint,
PHIBRO alleged that NAPOCORs act of disqualifying it in the October 1987 bidding and in
all subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual,
moral and exemplary damages and attorneys fees.
In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as
reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July
28, 1987 those strikes had already ceased. And, even assuming that the strikes were still
ongoing, PHIBRO should have shouldered the burden of a strike-free clause because their
contract was C and F Calaca, Batangas, Philippines, meaning, the cost and freight from
the point of origin until the point of destination would be for the account of
PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBROs failure to deliver the coal on
time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed
for actual damages in the amount of P12,436,185.73, representing the increase in the
price of coal, and a claim ofP500,000.00 as litigation expenses.[10]
Thereafter, trial on the merits ensued.

On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic
Inc. (PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering
the said defendant NAPOCOR:
1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant
National Power Corporations list of accredited bidders and allow PHIBRO to
participate in any and all future tenders of National Power Corporation for
the supply and delivery of imported steam coal;
2 To pay Philipp Brothers Oceanic, Inc. (PHIBRO);
a. The peso equivalent at the time of payment of $864,000 as actual
damages;
b. The peso equivalent at the time of payment of $100,000 as moral
damages;
c. The peso equivalent at the time of payment of $ 50,000 as exemplary
damages;
d. The peso equivalent at the time of payment of $73,231.91 as
reimbursement for expenses, cost of litigation and attorneys
fees;
3. To pay the costs of suit;
4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.
SO ORDERED.[11]
Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court
of Appeals. On August 27, 1996, the Court of Appeals rendered a Decision affirming
in toto the Decision of the Regional Trial Court. It ratiocinated that:
There is ample evidence to show that although PHIBROs delivery of the shipment of coal
was delayed, the delay was in fact caused by a) Napocors own delay in opening a
workable letter of credit; and b) the strikes which plaqued the Australian coal industry
from the first week of July to the third week of September 1987. Strikes are included in the
definition of force majeure in Section XVII of the Bidding Terms and Specifications, (supra),
so Phibro is not liable for any delay caused thereby.
Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to
be effected thirty (30) days from Napocors opening of a confirmed and workable letter of
credit. Napocor was only able to do so on August 6, 1987.
By that time, Australias coal industry was in the middle of a seething controversy and
unrest, occasioned by strikes, overtime bans, mine stoppages. The origin, the scope and
the effects of this industrial unrest are lucidly described in the uncontroverted testimony
of James Archibald, an employee of Phibro and member of the Export Committee of the
Australian Coal Association during the time these events transpired.
xxxxxx
The records also attest that Phibro periodically informed Napocor of these developments
as early as July 1, 1987, even before the bid was approved. Yet, Napocor did not forthwith
open the letter of credit in order to avoid delay which might be caused by the strikes and
their after-effects.
Strikes are undoubtedly included in the force majeure clause of the Bidding Terms and
Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines
force majeure as an event which takes place by accident and could not have been
foreseen. (Civil Code of the Philippines, Volume IV, Obligations and Constracts, 126,
[1991]) He further states:
Fortuitous 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.
Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In
order that acts of man such as a strike, may constitute fortuitous event, it is necessary
that they have the force of an imposition which the debtor could not have resisted. He
cites a parallel example in the case of Philippine National Bank v. Court of Appeals, 94
SCRA 357 (1979), wherein the Supreme Court said that the outbreak of war which
prevents performance exempts a party from liability.
Hence, by law and by stipulation of the parties, the strikes which took place in Australia
from the first week of July to the third week of September, 1987, exempted Phibro from
the effects of delay of the delivery of the shipment of coal. [12]
Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the
Court of Appeals the following errors:
I
Respondent Court of Appeals gravely and seriously erred in concluding and so
holding that PHIBROs delay in the delivery of imported coal was due to
NAPOCORs alleged delay in opening a letter of credit and to force majeure, and
not to PHIBROs own deliberate acts and faults.[13]
II

holding that NAPOCOR acted maliciously and unjustifiably in disqualifying
PHIBRO from participating in the December 8, 1987 and future biddings for the
supply of imported coal despite the existence of valid grounds therefor such as
serious impairment of its track record.[14]
III
holding that PHIBRO was entitled to injunctive relief, to actual or compensatory,
moral and exemplary damages, attorneys fees and litigation expenses despite
the clear absence of legal and factual bases for such award.[15]
IV
Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO
from any liability for damages to NAPOCOR for its unjustified and deliberate
refusal and/or failure to deliver the contracted imported coal within the
stipulated period.[16]
V
Respondent Court of Appeals gravely and seriously erred in dismissing
NAPOCORs counterclaims for damages and litigation expenses.[17]
In addition to the above legal precept, it is worthy to note that PHIBRO and
NAPOCOR explicitly agreed in Section XVII of the Bidding Terms and Specifications [24] that
neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of
the performance of its obligations, other than the payment of money due, if any such
delay or failure is due to Force Majeure. Specifically, theydefined force majeure as any
disabling cause beyond the control of and without fault or negligence of the party, which
causes may include but are not restricted to Acts of God or of the public enemy; acts of
the Government in either its sovereign or contractual capacity; governmental
restrictions; strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine
restrictions.
The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore,
we have no reason to rule otherwise.
However, proceeding from the premise that PHIBRO was prevented by
force majeure from complying with its obligation, does it necessarily follow that NAPOCOR
acted unjustly, capriciously, and unfairly in disapproving PHIBROs application for prequalification to bid?
First, it must be stressed that NAPOCOR was not bound under any contract to
approve PHIBROs pre-qualification requirements. In fact, NAPOCOR had expressly
reserved its right to reject bids. The Instruction to Bidders found in the Post-Qualification
Documents/ Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired
Thermal Power Plant I at Calaca, Batangas Philippines,[25] is explicit, thus:
IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS
It is axiomatic that only questions of law, not questions of fact, may be raised before
this Court in a petition for review under Rule 45 of the Rules of Court. [18] The findings of
facts of the Court of Appeals are conclusive and binding on this Court [19] and they carry
even more weight when the said court affirms the factual findings of the trial court.
[20]
Stated differently, the findings of the Court of Appeals, by itself, which are supported
by substantial evidence, are almost beyond the power of review by this Court. [21]
With the foregoing settled jurisprudence, we find it pointless to delve lengthily on
the factual issues raised by petitioner. The existence of strikes in Australia having been
duly established in the lower courts, we are left only with the burden of
determining whether or not NAPOCOR acted wrongfully or with bad faith in disqualifying
PHIBRO from participating in the subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial Courts decision
exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly
established from the evidence, testimonial and documentary, that what prevented
PHIBRO from complying with its obligation under the July 1987 contract was the industrial
disputes which besieged Australia during that time. Extant in our Civil Code is the rule
that no person shall be responsible for those events which could not be foreseeen, or
which, though foreseen, were inevitable. [22] This means that when an obligor is unable to
fulfill his obligation because of a fortuitous event or force majeure, he cannot be held
liable for damages for non-performance.[23]
NAPOCOR reserves the right to reject any or all bids, to waive any minor
informality in the bids received. The right is also reserved to reject
the bids of any bidder who has previously failed to properly
perform or complete on time any and all contracts for delivery of
coal or any supply undertaken by a bidder.[26] (Emphasis supplied)
This Court has held that where the right to reject is so reserved, the lowest bid or
any bid for that matter may be rejected on a mere technicality. [27] And where the
government as advertiser, availing itself of that right, makes its choice in rejecting any or
all bids, the losing bidder has no cause to complain nor right to dispute that choice unless
an unfairness or injustice is shown. Accordingly, a bidder has no ground of action to
compel the Government to award the contract in his favor, nor to compel it to
accept his bid. Even the lowest bid or any bid may be rejected. [28] In Celeste v. Court of
Appeals,[29]we had the occasion to rule:
Moreover, paragraph 15 of the Instructions to Bidders states that the Government
hereby reserves the right to reject any or all bids submitted. In the case of A.C.
Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held:
x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect
that the bidders shall be subject to the right of the government to reject any and all bids
subject to its discretion. Herethe government has made its choice, and unless an
unfairness or injustice is shown, the losing bidders have no cause to complain,

nor right to dispute that choice.
Since there is no evidence to prove bad faith and arbitrariness on the part of
the petitioners in evaluating the bids, we rule that the private respondents are
not entitled to damages representing lost profits. (Emphasis supplied)
Verily, a reservation of the government of its right to reject any bid, generally vests
in the authorities a wide discretion as to who is the best and most advantageous
bidder. The exercise of such discretion involves inquiry, investigation, comparison,
deliberation and decision, which are quasi-judicial functions, and when honestly exercised,
may not be reviewed by the court. [30] In Bureau Veritas v. Office of the President,
[31]
we decreed:
The discretion to accept or reject a bid and award contracts is vested in the
Government agencies entrusted with that function. The discretion given to the
authorities on this matter is of such wide latitude that the Courts will not
interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x. The exercise of this
discretion is a policy decision that necessitates prior inquiry, investigation, comparison,
evaluation, and deliberation. This task can best be discharged by the Government
agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a
branch or instrumentality of the Government has transgresses its constitutional
boundaries. But the Courts will not interfere with executive or legislative discretion
exercised within those boundaries. Otherwise, it strays into the realm of policy decisionmaking. x x x. (Emphasis supplied)
Owing to the discretionary character of the right involved in this case, the propriety
of NAPOCORs act should therefore be judged on the basis of the general principles
regulating human relations, the forefront provision of which is Article 19 of the Civil Code
which provides that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith.[32] Accordingly, a person will be protected only when he acts in the
legitimate exercise of his right, that is, when he acts with prudence and in good faith; but
not when he acts with negligence or abuse.[33]
Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public
bidding?
We rule in the negative.
In practice, courts, in the sound exercise of their discretion, will have to determine
under all the facts and circumstances when the exercise of a right is unjust, or when there
has been an abuse of right. [34]
We went over the record of the case with painstaking solicitude and we are
convinced that NAPOCORs act of disapproving PHIBRO's application for pre-qualification to
bid was without any intent to injure or a purposive motive to perpetrate
damage. Apparently, NAPOCOR acted on the strong conviction that PHIBRO had a
seriously-impaired track record. NAPOCOR cannot be faulted from believing so. At this
juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation
to Bid, i.e., October 1987, PHIBRO had not yet delivered the first shipment of coal under
the July 1987 contract, which was due on or before September 5, 1987. Naturally,
NAPOCOR is justified in entertaining doubts on PHIBROs qualification or capability to
assume an obligation under a new contract.
Moreover, PHIBROs actuation in 1987 raised doubts as to the real situation of the
coal industry in Australia. It appears from the records that when NAPOCOR was
constrained to consider an offer from another coal supplier (ASEA) at a price of US$33.44
per metric ton, PHIBRO unexpectedly offered the immediate delivery of 60,000 metric
tons of Ulan steam coal at US$31.00 per metric ton for arrival at Calaca, Batangas on
September 20-21, 1987.[35] Of course, NAPOCOR had reason to ponder-- how come
PHIBRO could assure the immediate delivery of 60,000 metric tons of coal from
the same source to arrive at Calaca not later than September 20/21, 1987 but it
could not deliver the coal it had undertaken under its contract?
Significantly, one characteristic of a fortuitous event, in a legal sense, and
consequently in relations to contracts, is that the concurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner. [36] Faced with the
above circumstance, NAPOCOR is justified in assuming that, may be, there was really no
fortuitous event or force majeure which could render it impossible for PHIBRO to effect the
delivery of coal. Correspondingly, it is also justified in treating PHIBROs failure to deliver a
serious impairment of its track record. That the trial court, thereafter, found PHIBROs
unexpected offer actually a result of its desire to minimize losses on the part of NAPOCOR
is inconsequential. In determining the existence of good faith, the yardstick is the frame of
mind of the actor at the time he committed the act, disregarding actualities or facts
outside his knowledge. We cannot fault NAPOCOR if it mistook PHIBROs unexpected offer
a mere attempt on the latters part to undercut ASEA or an indication of PHIBROs
inconsistency. The circumstances warrant such contemplation.
That NAPOCOR believed all along that PHIBROs failure to deliver on time was
unfounded is manifest from its letters [37] reminding PHIBRO that it was bound to deliver
the coal within 30 days from its (PHIBROs) receipt of the Letter of Credit, otherwise it
would be constrained to take legal action. The same honest belief can be deduced from
NAPOCORs Board Resolution, thus:
On the legal aspect, Management stressed that failure of PBO to deliver under
the contract makes them liable for damages, considering that the reasons
invoked were not valid. The measure of the damages will be limited to actual
and compensatory damages. However, it was reported that Philipp Brothers advised
they would like to have continuous business relation with NPC so they are willing to sit
down or even proposed that the case be submitted to the Department of Justice as to
avoid a court action or arbitration.
xxxxxx
On the technical-economic aspect, Management claims that if PBO delivers in November
1987 and January 1988, there are some advantages. If PBO reacts to any legal action and
fails to deliver, the options are: one, to use 100% Semirara and second, to go into urgent
coal order. The first option will result in a 75 MW derating and oil will be needed as
supplement. We will stand to lose around P30 M. On the other hand, if NPC goes into
an urgent coal order, there will be an additional expense of $786,000 or P16.11 M,

considering the price of the latest purchase with ASEA. On both points, reliability is
decreased.[38]
was disqualified and in subsequent tenders for supply and delivery of imported
coal.
We find this to be erroneous.
The very purpose of requiring a bidder to furnish the awarding authority its prequalification documents is to ensure that only those responsible and qualified bidders
could bid and be awarded with government contracts. It bears stressing that the award of
a contract is measured not solely by the smallest amount of bid for its performance, but
also by the responsibility of the bidder. Consequently, the integrity, honesty, and
trustworthiness of the bidder is to be considered. An awarding official is justified in
considering a bidder not qualified or not responsible if he has previously defrauded the
public in such contracts or if, on the evidence before him, the official bona fide believes
the bidder has committed such fraud, despite the fact that there is yet no judicial
determination to that effect.[39] Otherwise stated, if the awarding body bona
fide believes that a bidder has seriously impaired its track record because of a particular
conduct, it is justified in disqualifying the bidder. This policy is necessary to protect the
interest of the awarding body against irresponsible bidders.
Thus, one who acted pursuant to the sincere belief that another willfully committed
an act prejudicial to the interest of the government cannot be considered to have acted in
bad faith. Bad faith has always been a question of intention. It is that corrupt motive that
operates in the mind. As understood in law, it contemplates a state of mind affirmatively
operating with furtive design or with some motive of self-interest or ill-will or for ulterior
purpose.[40] While confined in the realm of thought, its presence may be ascertained
through the partys actuation or through circumstantial evidence. [41] The circumstances
under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an
intention to cause damage to the latter. The measure it adopted was one of selfprotection. Consequently, we cannot penalize NAPOCOR for the course of action it
took. NAPOCOR cannot be made liable for actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the
Regional Trial Court computed what could have been the profits of PHIBRO had NAPOCOR
allowed it to participate in the subsequent public bidding. It ruled that PHIBRO would have
won the tenders for the supply of about 960,000 metric tons out of at least 1,200,000
metric tons from the public bidding of December 1987 to 1990. We quote the trial courts
ruling, thus:
x x x. PHIBRO was unjustly excluded from participating in at least five (5) tenders
beginning December 1987 to 1990, for the supply and delivery of imported coal with a
total volume of about 1,200,000 metric tons valued at no less than US$32 Million. (Exhs.
AA, AA-1, to AA-2). The price of imported coal for delivery in 1988 was quoted in June
1988 by bidders at US$ 41.35 to US $ 43.95 per metric ton (Exh. JJ); in September 1988 at
US$41.50 to US$49.50 per metric ton (Exh. J-1); in November 1988 at US$ 39.00 to US$
48.50 per metric ton (Exh. J-2) and for the 1989 deliveries, at US$ 44.35 to US$ 47.35 per
metric ton (Exh. J-3) and US$38.00 to US$48.25 per metric ton in September 1990 (Exh. JJ6 and JJ-7). PHIBRO would have won the tenders for the supply and delivery of about
960,000 metric tons of coal out of at least 1,200,000 metric tons awarded during said
period based on its proven track record of 80%. The Court, therefore finds that as a
result of its disqualification, PHIBRO suffered damages equivalent to its
standard 3% margin in 960,000 metric tons of coal at the most conservative
price of US$ 30.000 per metric ton, or the total of US$ 864,000 which PHIBRO
would have earned had it been allowed to participate in biddings in which it
Basic is the rule that to recover actual damages, the amount of loss must not only
be capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount thereof.
[42]
A court cannot merely rely on speculations, conjectures, or guesswork as to the fact
and amount of damages. Thus, while indemnification for damages shall comprehend not
only the value of the loss suffered, but also that of the profits which the obligee failed to
obtain,[43] it is imperative that the basis of the alleged unearned profits is not too
speculative and conjectural as to show the actual damages which may be suffered on a
future period.
In Pantranco North Express, Inc. v. Court of Appeals,[44] this Court denied the
plaintiffs claim for actual damages which was premised on a contract he was about to
negotiate on the ground that there was still the requisite public bidding to be complied
with, thus:
As to the alleged contract he was about to negotiate with Minister Hipolito, there is no
showing that the same has been awarded to him. If Tandoc was about to negotiate a
contract with Minister Hipolito, there was no assurance that the former would get it or that
the latter would award the contract to him since there was the requisite public
bidding. The claimed loss of profit arising out of that alleged contract which was
still to be negotiated is a mere expectancy. Tandocs claim that he could have
earned P2 million in profits is highly speculative and no concrete evidence was
presented to prove the same. The only unearned income to which Tandoc is entitled to
from the evidence presented is that for the one-month period, during which his business
was interrupted, which is P6,125.00, considering that his annual net income was P73,
500.00.
In Lufthansa German Airlines v. Court of Appeals, [45] this Court likewise disallowed
the trial court's award of actual damages for unrealized profits in the amount of
US$75,000.00 for being highly speculative. It was held that the realization of profits by
respondent x x x was not a certainty, but depended on a number of factors, foremost of
which was his ability to invite investors and to win the bid.This Court went further saying
that actual or compensatory damages cannot be presumed, but must be duly proved, and
proved with reasonable degree of certainty.
And in National Power Corporation v. Court of Appeals, [46] the Court, in denying the
bidders claim for unrealized commissions, ruled that even if NAPOCOR does not deny its
(bidder's) claims for unrealized commissions, and that these claims have been transmuted
into judicial admissions, these admissions cannot prevail over the rules and regulations
governing the bidding for NAPOCOR contracts, which necessarily and inherently include
the reservation by the NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act
in bad faith. Moreover, moral damages are not, as a general rule, granted to a
corporation.[47] While it is true that besmirched reputation is included in moral damages, it
cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a
corporation has no reputation in the sense that an individual has, and besides, it is
inherently impossible for a corporation to suffer mental anguish. [48] In LBC Express, Inc. v.
Court of Appeals,[49] we ruled:
Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot
experience physical suffering and mental anguish. Mental suffering can be experienced
only by one having a nervous system and it flows from real ills, sorrows, and griefs of life
all of which cannot be suffered by respondent bank as an artificial person.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated
August 27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and
exemplary damages, reimbursement for expenses, cost of litigation and attorneys fees,
and costs of suit, is DELETED.
SO ORDERED.
Vitug, Panganiban, and Carpio, JJ., concur.
Melo, J., (Chairman), see dissenting opinion.
Neither can we award exemplary damages under Article 2234 of the Civil Code.
Before the court may consider the question of whether or not exemplary damages should
be awarded, the plaintiff must show that he is entitled to moral, temperate, or
compensatory damages.
NAPOCOR, in this petition, likewise contests the judgment of the lower courts
awarding PHIBRO the amount of $73,231.91 as reimbursement for expenses, cost of
litigation and attorneys fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of stipulation, a winning party
may be awarded attorney's fees only in case plaintiff's action or defendant's stand is so
untenable as to amount to gross and evident bad faith. [50] This cannot be said of the case
at bar. NAPOCOR is justified in resisting PHIBROs claim for damages. As a matter of fact,
we partially grant the prayer of NAPOCOR as we find that it did not act in bad faith in
disapproving PHIBRO's pre-qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party
simply because the judgment is favorable to him, for it may amount to imposing a
premium on the right to redress grievances in court. We adopt the same policy with
respect to the expenses of litigation. A winning party may be entitled to expenses of
litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's
unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently,
the facts of this case do not warrant the granting of such litigation expenses to PHIBRO.
At this point, we believe that, in the interest of fairness, NAPOCOR should give
PHIBRO another opportunity to participate in future public bidding. As earlier mentioned,
the delay on its part was due to a fortuitous event.
FIRST DIVISION
G.R. No. 171035
August 24, 2009
WILLIAM ONG GENATO, Petitioner,

vs.
BENJAMIN BAYHON, MELANIE BAYHON, BENJAMIN BAYHON, JR., BRENDA
BAYHON, ALINA BAYHON-CAMPOS, IRENE BAYHON-TOLOSA, and the minor GINO
BAYHON, as represented herein by his natural mother as guardian-ad-litem,
JESUSITA M. BAYHON, Respondents.
DECISION
But before we dispose of this case, we take this occasion to remind PHIBRO of the
indispensability of coal to a coal-fired thermal plant. With households and businesses
being entirely dependent on the electricity supplied by NAPOCOR, the delivery of coal
cannot be venturesome. Indeed, public interest demands that one who offers to deliver
coal at an appointed time must give a reasonable assurance that it can carry
through. With the deleterious possible consequences that may result from failure to
deliver the needed coal, we believe there is greater strain of commitment in this kind of
obligation.
PUNO, CJ.:
At bar is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals
dated September 16, 20051 and Resolution denying the petitioners motion for
reconsideration issued on January 6, 2006.
This is a consolidated case stemming from two civil cases filed before the Regional Trial
Court (RTC) Civil Case No. Q-90-7012 and Civil Case No. Q-90-7551.
Civil Case No. Q-90-7012
On October 18, 1990, respondents Benjamin M. Bayhon, Melanie Bayhon, Benjamin
Bayhon Jr., Brenda Bayhon, Alina Bayhon-Campos, Irene Bayhon-Tolosa and the minor Gino
Bayhon, as represented by his mother Jesusita M. Bayhon, filed an action before the RTC,
Quezon City, Branch 76, docketed as Civil Case No. Q-90-7012. In their Complaint,
respondents sought the declaration of nullity of a dacion en pago allegedly executed by
respondent Benjamin Bayhon in favor of petitioner William Ong Genato. 2
Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the
petitioner a loan amounting to PhP 1,000,000.00;3 that to cover the loan, he executed a
Deed of Real Estate Mortgage over the property covered by Transfer Certificate of Title
(TCT) No. 38052; that, however, the execution of the Deed of Real Estate Mortgage was
conditioned upon the personal assurance of the petitioner that the said instrument is only
a private memorandum of indebtedness and that it would neither be notarized nor
enforced according to its tenor.4
With respect to the dacion en pago, the trial court held that the parties have novated the
agreement.14 It deduced the novation from the subsequent payments made by the
respondent to the petitioner. Of the principal amount, the sum of PhP 102,870.00 had
been paid: PhP 27,870.00 on March 23, 1990, PhP 55,000.00 on 26 March 1990 and PhP
20,000.00 on 16 November 1990.15 All payments were made after the purported execution
of the dacion en pago.
The trial court likewise found that at the time of the execution of the real estate mortgage,
the wife of respondent, Amparo Mercado, was already dead. It held that the property
covered by TCT No. 38052 was owned in common by the respondents and not by
respondent Benjamin Bayhon alone. It concluded that the said lot could not have been
validly mortgaged by the respondent alone; the deed of mortgage was not enforceable
and only served as evidence of the obligation of the respondent. 16
In sum, the trial court upheld the respondents liability to the petitioner and ordered the
latter to pay the sum of Php 5,647,130.00. 17 This amount included the principal, the
stipulated interest of 5% per month, and the penalty; and, was calculated from the date of
demand until the date the RTC rendered its judgment.
Appeal to the Court of Appeals
Respondent further alleged that he filed a separate proceeding for the reconstitution of
TCT No. 38052 before the RTC, Quezon City, Branch 87. 5 Petitioner William Ong Genato
filed an Answer in Intervention in the said proceeding and attached a copy of an
alleged dacion en pago covering said lot.6 Respondent assailed the dacion en pago as a
forgery alleging that neither he nor his wife, who had died 3 years earlier, had executed
it.7
In his Answer, petitioner Genato denied the claim of the respondent regarding the death
of the latters wife.8 He alleged that on the date that the real estate mortgage was to be
signed, respondent introduced to him a woman as his wife. 9 He alleged that the
respondent signed the dacion en pago and that the execution of the instrument was
above-board.10
Civil Case No. Q-90-7551
On December 20, 1990, petitioner William Ong Genato filed Civil Case No. Q-90-7551, an
action for specific performance, before the RTC, Quezon City, Branch 79. In his Complaint,
petitioner alleged that respondent obtained a loan from him in the amount of PhP
1,000,000.00. Petitioner alleged further that respondent failed to pay the loan and
executed on October 21, 1989 a dacion en pago in favor of the petitioner. The dacion en
pagowas inscribed and recorded with the Registry of Deeds of Quezon City. 11
Petitioner further averred that despite demands, respondent refused to execute the
requisite documents to transfer to him the ownership of the lot subject of the dacion en
pago. Petitioner prayed, inter alia, for the court to order the respondent to execute the
final deed of sale and transfer of possession of the said lot. 12
Respondents appealed before the Court of Appeals. On March 28, 2002, respondent
Benjamin Bayhon died while the case was still pending decision. 18 On September 16,
2005, the Court of Appeals rendered a decision reversing the trial court.
The Court of Appeals held that the real estate mortgage and the dacion en pago were
both void. The appellate court ruled that at the time the real estate mortgage and
the dacion en pago were executed, or on July 3, 1989 and October 21, 1989, respectively,
the wife of respondent Benjamin Bayhon was already dead. 19 Thus, she could not have
participated in the execution of the two documents. The appellate court struck down both
thedacion en pago and the real estate mortgage as being simulated or fictitious contracts
pursuant to Article 1409 of the Civil Code.20
The Court of Appeals held further that while the principal obligation is valid, the death of
respondent Benjamin Bayhon extinguished it. 21 The heirs could not be ordered to pay the
debts left by the deceased.22 Based on the foregoing, the Court of Appeals dismissed
petitioners appeal. Petitioners motion for reconsideration was denied in a resolution
dated January 6, 2006.23
Petition for Review
Petitioner now comes before this Court assailing the decision of the Court of Appeals and
raising the following issues:
Whether or not Benjamin Bayhon is liable to Mr. Genato in the amount of Php
5,647,130.00 in principal and interest as of October 3, 1997 and 5% monthly interest
thereafter until the account shall have been fully paid. 24
Decision of the Consolidated Cases

The two cases were consolidated and transferred to the RTC, Quezon City, Branch 215. On
October 9, 1997, the trial court rendered its Decision. It found that respondent obtained a
loan in the amount of PhP 1,000,000.00 from the petitioner on July 3, 1989. The terms of
the loan were interest payment at 5% per month with an additional 3% penalty in case of
nonpayment.13
The Court of Appeals erred in declaring the Real Estate Mortgage dated July 3, 1989 and
the Dacion en Pago dated October 21, 1989, null and void. 25
We shall first tackle the nullity of the dacion en pago.
We affirm the ruling of the appellate court that the subject dacion en pago is a simulated
or fictitious contract, and hence void. The evidence shows that at the time it was allegedly
signed by the wife of the respondent, his wife was already dead. This finding of fact
cannot be reversed.
We now go to the ruling of the appellate court extinguishing the obligation of respondent.
As a general rule, obligations derived from a contract are transmissible. Article 1311, par.1
of the Civil Code provides:
Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of
the property he received from the decedent.1avvphi1
In Estate of Hemady v. Luzon Surety Co., Inc.,26 the Court, through Justice JBL Reyes, held:
continue until entry of final judgment. A favorable judgment obtained by the plaintiff
therein shall be enforced in the manner especially provided in these Rules for prosecuting
claims against the estate of a deceased person.
Pursuant to this provision, petitioners remedy lies in filing a claim against the estate of
the deceased respondent.
We now go to the interest awarded by the trial court. We note that the interest has been
pegged at 5% per month, or 60% per annum. This is unconscionable, hence cannot be
enforced.29 In light of this, the rate of interest for this kind of loan transaction has been
fixed in the case of Eastern Shipping Lines v. Court of Appeals, 30 at 12% per annum,
calculated from October 3, 1989, the date of extrajudicial demand. 31
Following this formula, the total amount of the obligation of the estate of Benjamin
Bayhon is as follows:
While in our successional system the responsibility of the heirs for the debts of their
decedent cannot exceed the value of the inheritance they receive from him, the principle
remains intact that these heirs succeed not only to the rights of the deceased but also to
his obligations. Articles 774 and 776 of the New Civil Code (and Articles 659 and 661 of
the preceding one) expressly so provide, thereby confirming Article 1311 already quoted.
Plus: Interest
Principal
Less: Partial Payments
"ART. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance, of a person are transmitted
through his death to another or others either by his will or by operation of law."
Php 1,000,000.00
27,870.00
55,000.00
20,000.00
"ART. 776. The inheritance includes all the property, rights and obligations of a person
which are not extinguished by his death."27 (Emphasis supplied)
897,130.00
(12% per annum x 20 years)
2,153,552.00
The Court proceeded further to state the general rule:

Under our law, therefore, the general rule is that a party's contractual rights
and obligations are transmissible to the successors. The rule is a consequence of
the progressive "depersonalization" of patrimonial rights and duties that, as observed by
Victorio Polacco, has characterized the history of these institutions. From the Roman
concept of a relation from person to person, the obligation has evolved into a relation
from patrimony to patrimony, with the persons occupying only a representative position,
barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The
transition is marked by the disappearance of the imprisonment for debt. 28 (Emphasis
supplied)
The loan in this case was contracted by respondent. He died while the case was pending
before the Court of Appeals. While he may no longer be compelled to pay the loan, the
debt subsists against his estate. No property or portion of the inheritance may be
transmitted to his heirs unless the debt has first been satisfied. Notably, throughout the
appellate stage of this case, the estate has been amply represented by the heirs of the
deceased, who are also his co-parties in Civil Case No. Q-90-7012.
The procedure in vindicating monetary claims involving a defendant who dies before final
judgment is governed by Rule 3, Section 20 of the Rules of Civil Procedure, to wit:
When the action is for recovery of money arising from contract, express or implied, and
the defendant dies before entry of final judgment in the court in which the action was
pending at the time of such death, it shall not be dismissed but shall instead be allowed to
TOTAL:
Php 3,050,682.00
IN VIEW WHEREOF, the decision of the Court of Appeals dated September 16, 2005 is
AFFIRMED with the MODIFICATION that the obligation to pay the principal loan and interest
contracted by the deceased Benjamin Bayhon subsists against his estate and is computed
at PhP 3,050,682.00.
No costs.
SO ORDERED.
G. R. No. 165548: June 13, 2011

PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner, v. LEY
CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.
SERENO, J.:
FACTS:
Ley Construction and Development Corporation(LCDC) was the project contractor for the
construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the
project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of
PRHC, while Joselito Santos (Santos) was its general manager and vice-president for
operations.
Sometime between April 1988 and October 1989, the two corporations entered into four
major construction projects, as evidenced by four duly notarized "construction
agreements." LCDC committed itself to the construction of the buildings needed by PRHC,
which in turn committed itself to pay the contract price agreed upon.
The agreement covering the construction of the Tektite Building was signed by a Mr.
Campos under the words "Phil. Realty & Holdings Corp." and by Santos as a
witness.Manuel Ley, the president of LCDC, signed under the words "Ley Const. & Dev.
Corp."
The terms embodied in the afore-listed construction agreements were almost identical.
Each agreement provided for a fixed price to be paid by PRHC for every project.
damages, because its rightful and reasonable requests for time extension were denied by
PRHC.
It is important to note that PRHC does not question the veracity of the factual
representations of LCDC to justify the latters requests for extension of time. It insists,
however, that in any event LCDC agreed to the limits of the time extensions it granted.
The practice of the parties is that each time LCDC requests for more time, an extension
agreement is executed and signed by both parties to indicate their joint approval of the
number of days of extension agreed upon.
As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a
period of over two years, only 256 out of the 618 days of extension requested were
considered. We disregard these numbers presented by LCDC because of its failure to
present evidence to prove its allegation. The tally that we will acceptas reflected by the
evidence submitted to the lower courtis as follows: out of the 564 days requested, only
237 were considered.
Essentially the same aforementioned reasons or causes are presented by LCDC as
defense against liability for both Projects 1 and 2.
Inasmuch as LCDCs claimed exemption from liability are beyond the approved time
extensions, LCDC, according to the majority of the CA, is liable therefor.
JusticeJuan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by
LCDC fell under the definition offorce majeure. This specific point was not refuted by the
majority.
In the course of the construction of the Tektite Building, it became evident to both parties
that LCDC would not be able to finish the project within the agreed period.Thus, through
its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained
that the unanticipated delay in construction was due mainly to the sudden, unexpected
hike in the prices of cement and other construction materials. It claimed that, without a
corresponding increase in the fixed prices found in the agreements, it would be impossible
for it to finish the construction of the Tektite Building. In their analysis of the project plans
for the building and of all the external factors affecting the completion of the project, the
parties discovered that even if LCDC were able to collect the entire balance from the
contract, the collected amount would still be insufficient to purchase all the materials
needed to complete the construction of the building.
We agree with Justice Enriquez on this point and thereby disagree with the majority ruling
of the CA.
the RTC in Makati City docketed as Civil Case No. 96-160
Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an "act of God" orforce majeure, the following must concur:
ISSUE: Whether LCDC is liable for liquidated damages for delay in the construction of the
buildings for PRHC.
HELD: NO
CIVIL LAW: Obligations and Contracts, Delay
There is no question that LCDC was not able to fully construct the Tektite Building and
Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated
Article 1174 of the Civil Code provides: "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." A perusal of the construction
agreements shows that the parties never agreed to make LCDC liable even in cases
offorce majeure. Neither was the assumption of risk required. Thus, in the occurrence of
events that could not be foreseen, or though foreseen were inevitable, neither party
should be held responsible.
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable; (c) the event must be such as
to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d)
the debtor must be free from any participation in, or aggravation of the injury to the
creditor.
The shortage in supplies and cement may be characterized asforce majeure. In the
present case, hardware stores did not have enough cement available in their supplies or
stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and
interruptions of water supply all clearly fall underforce majeure. Since LCDC could not
possibly continue constructing the building under the circumstances prevailing, it cannot
be held liable for any delay that resulted from the causes aforementioned.
Further, PRHC is barred by the doctrine of promissory estoppel from denying that it
agreed, and even promised, to hold LCDC free and clear of any liquidated damages.
Abcede and Santos also promised that the latter corporation would not be held liable for
liquidated damages even for a single day of delay despite the non-approval of the
requests for extension.
That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund
does not abate her cause. For demand would have been useless, Megaworld admittedly
having failed in its obligation to deliver the unit on the agreed date.
MEGAWORLD GLOBUS ASIA, INC. v .MILA S. TANSECO

G.R. No. 181206
October 9, 2009
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.
FACTS:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila
S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more
or less) condominium unit at a pre-selling project. The purchase price was
P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, or
P4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through
30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998;
and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated delivery date of
the unit; provided that if the construction is completed earlier, Tanseco would pay the
balance within seven days from receipt of a notice of turnover. Tanseco paid all
installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63
pending delivery of the unit. Megaworld, however, failed to deliver the unit within the
stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month
grace period.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and
beyond the control of a business corporation. A real estate enterprise engaged in the preselling of condominium units is concededly a master in projections on commodities and
currency movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an
instance of caso fortuito. Megaworlds excuse for its delay does not thus lie.
Florencia Huibonhoa vs. Court of Appeals

G.R. No. 95897, December 14, 1999
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of
turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.
Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworlds
failure to deliver the unit on time, she was demanding the return of P14,281,731.70
representing the total installment payment she had made, with interest at 12% per
annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed
out that none of the excepted causes of delay existed.
ISSUE:Whether or not there was a fortuitous event in the case at bar
RULING:
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months thereafter
on the part of Megaworld, and to pay the balance of the purchase price at or about the
time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is
determinative of compliance by Tanseco with her obligation to pay the balance of the
purchase price. Megaworld having failed to comply with its obligation under the contract,
it is liable therefor.
320 SCRA 625
FACTS:
On June 8, 1983, Florencia Huibonhoa entered into a memorandum of agreement
with the siblings Lim, Gojocco and Chua, stating that she will lease from them three (3)
adjacent commercial lots in Binondo, Manila. A contract of lease was thereafter executed
between the parties, where such lease over the lots shall last for fifteen (15) years
commencing on July 1, 1983 and renewable upon agreement of the parties. Further, it was
agreed in the terms and conditions of the contract, among others that: (1) Huibonhoa was
allowed to construct a four-storey building; (2) that the said building shall be completed
within eight (8) months from the date of the execution of the contract of lease; (3) that
Huibonhoa shall pay to each lessor the sum of P 300, 000; (4) that Huibonhoa shall pay to
each lessor P 15, 000.00 as monthly rentals; (6) that the obligation to start paying the
rental shall commence only upon completion of the building within the eight-month
period.
However, Huibonhoa brought an action for reformation of the contract alleging

that their true intention as to when the monthly rental would accrue was not expressed
due to mistake or accident, averring that by reason of such, the lease contract failed to
provide that should an unforeseen event dramatically increase the cost of construction,
the monthly rental would be reduced and the term of the lease would be extended for
such duration as may be fair and equitable to both the lessor and the lessee.
Pedro Dioquino vs. Federico Laureano

G.R. No. L-25906, May 28, 1970
33 SCRA 65
FACTS:
ISSUE:
Whether or not the assassination of former senator Benigno Aquino was a fortuitous
event that can thereby lead the parties to reform the contract.
HELD:
A fortuitous event is that which could not be foreseen, or even if foreseen, was
inevitable. To exempt the obligor from liability for breach of an obligation due to an act of
God, the following must concur: first, the cause of breach must be independent of the will
of the obligor. Second, the event must be unforeseeable or inevitable. Third, the event
must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner. And fourth, the debtor must be free from any participation in, or aggravation of,
the injury to the creditor. Further, inflation per se, does not account that a fortuitous event
transpired. Inflation is the sharp increase of money or credit or both without a
corresponding increase in business transaction. There is inflation when there is an
increase in the volume of money and credit relative to available parties to the lease
contract. Ordinary diligence on the part of the parties demanded that they execute a
written agreement if indeed they wanted to enter into a new one because of the 15-year
life span of the lease affecting real property and the fact that third persons would be
affected thereby on account of the express agreement allowing the lessee to lease the
building to third parties. However, only when an extraordinary inflation supervenes that
the law affords the parties a relief in contractual obligations. Extraordinary inflation exists
when there is a decrease or increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the value of said currency, and
such decrease or increase could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the establishment of the
obligation. Further, no decrease in the peso value of such magnitude having occurred,
Huibonhoa has no valid ground to ask the Court to intervene and modify the lease
agreement to suit her purpose. Huibonhoa failed to prove by evidence, both documentary
and testimonial, that there was an extraordinary inflation from July 1983 to February
1984. Although she repeatedly alleged that the cost of constructing the building doubled
from P 6M to P 12 M, she failed to show by how much, for instance, the price index of
goods and services had risen during that intervening period. An extraordinary inflation
cannot be assumed. Hence, for Huibonhoa to claim exemption from liability by reason of
fortuitous event under Article 1174 of the Civil Code, she must prove that inflation was the
sole and proximate cause of the loss or destruction of the contract or in this case, of the
delay in the construction of the building. Having failed to do so, Huibonhoas contention is
untenable.
Atty. Dioquino met patrol officer Federico Laureano in the MVO office in Masbate to
register his car. Laureano helped Dioquino in the facilitation of the registration of his car.
Thereby, Atty. Dioquino lent Laureano his car on a commodatum basis but the cars
windshield was broken due to a stone thrown by some mischievous boys. No satisfactory
arrangements were made about the damage caused on the windshield. Laureano believed
that the stone-throwing was merely accidental so he refused to file any charges against
the stone-thrower or the parents; and he also believed that he is not liable for any
damages because the incident was a force majeure.
ISSUE: The issue is whether or not the breaking of the cars windshield due to the stonethrowing is a force majeure and thereby exculpating defendant from civil liability in favor
of Atty. Dioquino.
HELD
YES, because Article 1174 of the Civil Code states that 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
stone-throwing that yielded to the breaking of the windshield was clearly unforeseeable
and inevitable. Hence, Laureano cannot be compelled to pay the damages caused on Atty.
Dioquinos car windshield.
Bachelor Express, Incorporated vs. Court of Appeals

G.R. No. 85691, July 31, 1990
193 SCRA 216
FACTS
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.
138 SCRA 553

Facts: Petitioners lost their children in a shipwreck involving the vessel of private
respondent when it sailed despite a typhoon.
Issue: 1) W/n it is a fortuitous event
2) W/n respondents are liable
HELD:
ISSUE: Whether or not Bachelor Express, Inc. can be held liable for the death of Beter and
Rautraut
HELD:
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.
two passengers were exclusively due to force majeure and not to the failure of the
their destinations as warranted by law.
contract of carriage.
Vasquez v. CA
1) No. It is not a caso fortuito. The elements to consider in sustaining a case of caso
fortuito are the ff: 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, 3) the
obligor must be free of participation in, aggravation of, the injury to the creditor,
2) Petitioners are liable as it is not a caso fortutito. There is no caso fortuito when the ship
captain proceeded en route despite a typhoon advice close to the area where the vessel
will pass. Moreover, the Board of Marines inquiry conclusion that the ship captain was not
negligent is not binding on the Court when said finding is not complete. The liability of the
ship owner also extends to the value of vessel and the insurance proceeds thereon.
NATIONAL POWER CORPORATION vs. PHILIPP BROTHERS OCEANIC, INC.
G.R. No. 126204 2001 Nov 20
FACTS:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to
bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas
Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc.
(PHIBRO) prequalified and was allowed to participate as one of the bidders. After the
public bidding was conducted, PHIBROs bid was accepted. NAPOCORs acceptance was
conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987.
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon
plague Australia, the shipments point of origin, which could seriously hamper PHIBROs
ability to supply the needed coal. From July 23 to July 31, 1987, PHIBRO again apprised
NAPOCOR of the situation in Australia, particularly informing the latter that the ship
owners therein are not willing to load cargo unless a strike-free clause is incorporated in
the charter party or the contract of carriage. In order to hasten the transfer of coal,
PHIBRO proposed to NAPOCOR that they equally share the burden of a strike-free
clause. NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable
letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of
the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its
first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR
once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO
participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR
disapproved PHIBROs application for pre-qualification to bid for not meeting the minimum
requirements. Upon further inquiry, PHIBRO found that the real reason for the disapproval
was its purported failure to satisfy NAPOCORs demand for damages due to the delay in
the delivery of the first coal shipment.
ISSUE:
Whether or not the Court of Appeals gravely and seriously erred in concluding
and so holding that PHIBROs delay in the delivery of imported coal was due to
NAPOCORs alleged delay in opening a letter of credit and to force majeure, and not to
PHIBROs own deliberate acts and faults
RULING Fortuitous 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. The term
generally applies, broadly speaking, to natural accidents. In order that acts of man such
as a strike, may constitute fortuitous event, it is necessary that they have the force of an
imposition which the debtor could not have resisted. Hence, by law and by stipulation of
the parties, the strikes which took place in Australia from the first week of July to the third
week of September, 1987, exempted Phibro from the effects of delay of the delivery of the
shipment of coal.
In addition, PHIBRO and NAPOCOR explicitly agreed in Section XVII of the

Bidding Terms and Specifications that neither seller (PHIBRO) nor buyer (NAPOCOR)
shall be liable for any delay in or failure of the performance of its obligations, other than
the payment of money due, if any such delay or failure is due to Force Majeure.
Specifically, they defined force majeure as any disabling cause beyond the control of and
without fault or negligence of the party, which causes may include but are not restricted
to Acts of God or of the public enemy; acts of the Government in either its sovereign or
contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons,
storms, epidemics and quarantine restrictions.

Fortuitous Event Case - OBLICON

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Manila

June 13, 2011

PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner,

3. Construction Agreement dated 23 November 1988 Alexandra-Cluster E

G.R. No. 167879

All the aforementioned agreements contain the following provisions:

ARTICLE VII TIME OF COMPLETION

1. Construction Agreement dated 25 April 1988 Alexandra-Cluster C involving

1. Letter-agreement dated 24 August 1989 Project 3 for the

2. Construction Agreement dated 25 July 1988 Alexandra-Cluster B involving

2. Agreement dated 7 January 1993 Tektite Towers for the

APPROVED & ACCEPTED :

MR. JOSELITO L. SANTOS

Date of monthly report

of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A. Abcede &

in compliance with the commitment of Ley Construction and Devt Corp. to

(a) Ordering defendant Philrealty to pay plaintiff actual

(c) Ordering defendant Philrealty or defendants Abcede and

(a) Actual damages in the amount of P232,367.96 with legal

Alexandra Cluster B - 12,785,000.00

[1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred

2.3. On the fifth cause of action, ordering defendant Philrealty to pay

(b) Exemplary damages in an amount to be determined by

(a) Actual damages in the amount of P232,367.96 with legal

WHEREFORE, it is respectfully prayed that:

(b) Exemplary damages in the amount to be determined by

(c) Ordering defendant Philrealty or defendants Abcede and

Payments/Advances without LCDCs conformity and recommendation of the

4. P7,112,738.82 in actual damages for the concreting works of Tektite

a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00

5. P5,529,495.76 in actual damages for the construction of Alexandra

b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant

6. P232,367.96 in actual damages for the construction of the drivers

7. P750,000.00 for attorneys fees and expenses of litigation; and

d) Tektite Tower I - P39,326,817.15

Alexandra Cluster B - 12,785,000.00

[6] P885,000.00 expenses incurred by defendant-appellant PRHC for

4. There must be a valid new contract.46

Sec. 2. Conclusive presumptions. The following are instances of conclusive

Due to additional works and

Shortage of cement supply

Frequent power failures

Bad weather which endangered

Inclement weather that

Architectural and structural

For change order work and

number of days extension of time for CONTRACTOR to finish the contract as

revisions in the plans initiated by

Inclement weather and scarcity

Water supply interruption and

Typhoon Uring and water supply

Inadequate supply of Portland

Inadequate supply of cement

additions and alterations in the

CARPIO MORALES, J.:

MEGAWORLD GLOBUS ASIA, INC., Petitioner,

Its Motion for Reconsideration having been denied by Resolution of January 8,

[G.R. No. 95897. December 14, 1999]

FLORENCIA T. HUIBONHOA, petitioner, vs. COURT OF APPEALS, Spouses Rufina

[G.R. No. 102604. December 14, 1999]

SEVERINO GOJOCCO and LORETA GOJOCCO CHUA, petitioners, vs. COURT OF

according to petitioners themselves, cost the private respondent P3,700,000.00 to

In G.R. No. 95897