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[G.R. No. 117190.

January 2, 1997]
JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND
GENERAL MERCHANDISING, petitioner, vs. COURT OF APPEALS and VICENTE
HERCE JR., respondents.
DECISION
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and
style J. M. T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the construction of
the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of
completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement
respondent paid petitioner a down payment of P30,000.00 and an installment payment
of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner
filed a complaint to collect the amount. In his Answer before the trial court respondent denied
the claim saying that he had already paid this amount to the San Pedro General Merchandising
Inc. (SPGMI) which constructed the deep well to which the windmill system was to be
connected. According to respondent, since the deep well formed part of the system the payment
he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that
he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill
system which caused the structure to collapse after a strong wind hit their place. [1]
Petitioner denied that the construction of a deep well was included in the agreement to build
the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly
and its installation, exclusive of other incidental materials needed for the project. He also
disowned any obligation to repair or reconstruct the system and insisted that he delivered it in
good and working condition to respondent who accepted the same without protest. Besides, its
collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the
deep well was not part of the windmill project as evidenced clearly by the letter proposals
submitted by petitioner to respondent. [2] It noted that "[i]f the intention of the parties is to
include the construction of the deep well in the project, the same should be stated in the
proposals. In the absence of such an agreement, it could be safely concluded that the
construction of the deep well is not a part of the project undertaken by the plaintiff." [3] With
respect to the repair of the windmill, the trial court found that "there is no clear and convincing
proof that the windmill system fell down due to the defect of the construction." [4]
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well
was included in the agreement of the parties because the term "deep well" was mentioned in
both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the
proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost
of constructing the deep well would be deducted from the contract price of P60,000.00. Upon
these premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI
should be applied to his remaining balance with petitioner thus effectively extinguishing his
contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the
latter to reconstruct the windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner now
seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the
windmill system included the installation of a deep well and, secondly, whether petitioner is
under obligation to reconstruct the windmill after it collapsed.
1

We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation of
a deep well was not included in the proposals of petitioner to construct a windmill system for
respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the
contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was
submitted three days later, i.e., on 22 May 1987 which contained more specifications but
proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by
respondent and the construction immediately followed. The pertinent portions of the first letterproposal (Exh. "1") are reproduced hereunder In connection with your Windmill System and Installation, we would like to quote to you as
follows:
One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in
diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable
to operate during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system Supply of Labor Materials and Installation, operated
water pump, we would like to quote to you as follows One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet
diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to
Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.
One (1) lot - Float valve.
One (1) lot - Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that a deep
well pump is a component of the proposed windmill system. The contract prices fixed in both
proposals cover only the features specifically described therein and no other. While the
words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a
deep well is part of the windmill system. They merely describe the type of deep well pump for
which the proposed windmill would be suitable. As correctly pointed out by petitioner, the
words "deep well"preceded by the prepositions "for" and "suitable for" were meant only to
convey the idea that the proposed windmill would be appropriate for a deep well pump with a
diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the
agreement
to
construct
a
windmill,
he
would
have
used
instead
the
conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as
to their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration [5] and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. [6] An examination of such
contemporaneous and subsequent acts of respondent as well as the attendant circumstances
does not persuade us to uphold him.
2

Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not have the
capacity to install the pump the latter agreed to have a third party do the work the cost of
which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili
of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent
Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer
(Herce) had with Mr. Tanguilig."[7]
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote
him a letter is unsubstantiated. The alleged letter was never presented in court by private
respondent for reasons known only to him. But granting that this written communication existed,
it could not have simply contained a request for Pili to install a deep well; it would have also
mentioned the party who would pay for the undertaking. It strains credulity that respondent
would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to
Pilithat the deep well was part of the windmill construction and that its payment would come
from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment for
which would come supposedly from the windmill contract price on the mere representation of
petitioner, whom he had never met before, without a written commitment at least from the
former. For if indeed the deep well were part of the windmill project, the contract for its
installation would have been strictly a matter between petitioner and Pili himself with the former
assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for
the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract
for the deep well was not part of the windmill project but a separate agreement between
respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of
respondent was to pay the entire amount to petitioner without prejudice to any action that
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he
tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that
he did it "because he has (sic) the money, so (he) just paid the money in his possession." [8]
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While
the
law
is
clear
that
"payment
shall
be
made
to
the
person
in
whose favor the obligation hasbeen constituted,
or
his successor
in
[9]
interest, or any person authorized to receive it,". It does not appear from the record that Pili
and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person."[10] The Civil Code provisions do not apply in the instant case because no creditor-debtor
relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding
the construction of the deep well. Specifically, witness Pili did not testify that he entered into a
contract with petitioner for the construction of respondent's deep well. If SPGMI was really
commissioned by petitioner to construct the deep well, an agreement particularly to this effect
should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well by
SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal nor
factual basis by which this Court can impose upon petitioner an obligation he did not expressly
assume nor ratify.
The second issue is not a novel one. In a long line of cases[11] this Court has consistently held
that in order for a party to claim exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of Appeals,[12] four (4) requisites must
concur: (a) the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as
to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the
debtor must be free from any participation in or aggravation of the injury to the creditor.
3

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day
the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind
in this case cannot be fortuitous - unforeseeable nor unavoidable. On the contrary, a strong wind
should be present in places where windmills are constructed, otherwise the windmills will not
turn.
The appellate court correctly observed that "given the newly-constructed windmill system,
the same would not have collapsed had there been no inherent defect in it which could only be
attributable
to
the
appellee."[13] It
emphasized
that
respondent had in his favor the
presumption that "things have happened according to the ordinary course of nature and the
ordinary habits of life."[14] This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the payment
of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. [15] When the windmill failed to
function properly it became incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of
the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is
directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the
legal rate from the date of the filing of the complaint. In return, petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with the one-year guaranty" [16]and
to complete the same within three (3) months from the finality of this decision.
SO ORDERED.
Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, JJ., concur.

FIRST DIVISION
[G.R. No. 144169. March 28, 2001]
KHE

HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, petitioners, vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM INSURANCE CO., INC., respondents.
4

DECISION
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the
decision of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000
denying the motion for reconsideration of the aforesaid decision. The original complaint that is
the subject matter of this case is an accion pauliana-- an action filed by Philam Insurance
Company, Inc. (respondent Philam) to rescind or annul the donations made by petitioner Khe
Hong Cheng allegedly in fraud of creditors. The main issue for resolution is whether or not the
action to rescind the donations has already prescribed. While the first paragraph of Article 1389
of the Civil Code states: The action to claim rescission must be commenced within four years...
the question is, from which point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears
that on or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on
board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at
Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of
copra was covered by a marine insurance policy issued by American Home Insurance Company
(respondent Philam's assured). M/V PRINCE ERIC, however, sank somewhere between Negros
Island and Northeastern Mindanao, resulting in the total loss of the shipment. Because of the
loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.
Having been subrogated into the rights of the consignee, American Home instituted Civil
Case No. 13357 in the Regional Trial Court (RTC) of Makati, Branch 147 to recover the money paid
to the consignee, based on breach of contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land
in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with
an area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was
donated to Ray Steven.Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2)
parcels of land located in Butuan City, covered by TCT No. RT-12838. On the basis of said deeds,
TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray
Steven and TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in
the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No. 13357
on December 29, 1993, four years after the donations were made and the TCTs were registered
in the donees names. The decretal portion of the aforesaid decision reads:
Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff
and against the defendant, ordering the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine
Agricultural Trading Corporation with legal interest at 12% from the time of the filing of the
complaint in this case;
2) the sum of P50,000.00 as attorneys fees;
3) the costs.[1]
After the said decision became final and executory, a writ of execution was forthwith issued
on September 14, 1995. Said writ of execution, however, was not served. An alias writ of
execution was, thereafter, applied for and granted in October 1996. Despite earnest efforts, the
sheriff found no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong
Cheng to levy or garnish for the satisfaction of the trial court's decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City on January 17, 1997, to
5

enforce the alias writ of execution, they discovered that petitioner Khe Hong Cheng no longer
had any property and that he had conveyed the subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of
Makati City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe
Hong Cheng in favor of his children and for the nullification of their titles (Civil Case No. 97415). Respondent Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the
aforesaid deeds in fraud of his creditors, including respondent Philam. [2]
Petitioners subsequently filed their answer to the complaint a quo. They moved for its
dismissal on the ground that the action had already prescribed. They posited that the registration
of the deeds of donation on December 27, 1989 constituted constructive notice and since the
complaint a quo was filed only on February 25, 1997, or more than four (4) years after said
registration, the action was already barred by prescription. [3]
Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam's
complaint had not yet prescribed. According to the trial court, the prescriptive period began to
run only from December 29, 1993, the date of the decision of the trial court in Civil Case No.
13357.[4]
On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent
Philam. The CA declared that the action to rescind the donations had not yet prescribed. Citing
Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the four year period to
institute the action for rescission began to run only in January 1997, and not when the decision in
the civil case became final and executory on December 29, 1993. The CA reckoned the accrual of
respondent Philam's cause of action on January 1997, the time when it first learned that the
judgment award could not be satisfied because the judgment creditor, petitioner Khe Hong
Cheng, had no more properties in his name. Prior thereto, respondent Philam had not yet
exhausted all legal means for the satisfaction of the decision in its favor, as prescribed under
Article 1383 of the Civil Code.[5]
The Court of Appeals thus denied the petition for certiorari filed before it, and held that the
trial court did not commit any error in denying petitioners' motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION WHEN IT
DENIED THE PETITION TO DISMISS THE CASE BASED ON THE GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PRESCRIPTION
BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO BUTUAN CITY IN SEARCH OF
PROPERTIES OF PETITIONER FELIX KHE CHENG TO SATISFY THE JUDGMENT IN CIVIL CASE NO.
13357 AND FOUND OUT THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG
EXECUTED THE DEEDS OF DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION
FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER 1989, AND
WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE THAN FOUR YEARS HAVE
ALREADY LAPSED AND THEREFORE, IT HAS ALREADY PRESCRIBED. [6]
Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year
prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file
its action for rescission of the subject deeds of donation commence to run?
The petition is without merit.
6

Article 1389 of the Civil Code simply provides that, The action to claim rescission must be
commenced within four years. Since this provision of law is silent as to when the prescriptive
period would commence, the general rule, i.e, from the moment the cause of action accrues,
therefore, applies. Article 1150 of the Civil Code is particularly instructive:
Art. 1150. The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action
which determines the starting point for the computation of the prescriptive period for the action.
[7]
Article 1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last resort,
availed of only after all other legal remedies have been exhausted and have been proven futile.
For an accion pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to the alienation, although
demandable later; 2) That the debtor has made a subsequent contract conveying a patrimonial
benefit to a third person; 3) That the creditor has no other legal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person; 4) That the act being
impugned is fraudulent; 5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud. [8] (Emphasis ours)
We quote with approval the following disquisition of the CA on the matter:
An accion pauliana accrues only when the creditor discovers that he has no other legal remedy
for the satisfaction of his claim against the debtor other than an accion pauliana. The accion
pauliana is an action of a last resort. For as long as the creditor still has a remedy at law for the
enforcement of his claim against the debtor, the creditor will not have any cause of action
against the creditor for rescission of the contracts entered into by and between the debtor and
another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance
by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the
Sheriff to enforce and satisfy the judgment of the court. It presupposes that the creditor has
exhausted the property of the debtor. The date of the decision of the trial court against the
debtor is immaterial. What is important is that the credit of the plaintiff antedates that of the
fraudulent alienation by the debtor of his property. After all, the decision of the trial court against
the debtor will retroact to the time when the debtor became indebted to the creditor. [9]
Petitioners, however, maintain that the cause of action of respondent Philam against them
for the rescission of the deeds of donation accrued as early as December 27, 1989, when
petitioner Khe Hong Cheng registered the subject conveyances with the Register of Deeds.
Respondent Philam allegedly had constructive knowledge of the execution of said deeds under
Section 52 of Presidential Decree No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered,
filed or entered in the Office of the Register of Deeds for the province or city where the land to
which it relates lies, be constructive notice to all persons from the time of such registering, filing,
or entering.
Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is
misplaced, for in no way does this imply that the specific provisions of the former may be all
together ignored. To count the four year prescriptive period to rescind an allegedly fraudulent
contract from the date of registration of the conveyance with the Register of Deeds, as alleged
by the petitioners, would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an action for rescission of an
7

allegedly fraudulent conveyance of property, i.e., the creditor has no other legal remedy to
satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the
trial court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the
sheriff to enforce and satisfy the judgment of the court. It requires that the creditor has
exhausted the property of the debtor. The date of the decision of the trial court is immaterial.
What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by
the debtor of his property. After all, the decision of the trial court against the debtor will retroact
to the time when the debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:
xxx[T]herefore, credits with suspensive term or condition are excluded, because the accion
pauliana presupposes a judgment and unsatisfied execution, which cannot exist when the debt is
not yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action,
which presupposes that the creditor has exhausted the property of the debtor which is
impossible in credits which cannot be enforced because of a suspensive term or condition.
While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment
be subsequent to the alienation, it is merely declaratory with retroactive effect to the date when
the credit was constituted.[10]
These principles were reiterated by the Court when it explained the requisites of an accion
pauliana in greater detail, to wit:
The following successive measures must be taken by a creditor before he may bring an action for
rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the debtor, except such as are
exempt from execution; (2) exercise all the rights and actions of the debtor, save those personal
to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in
fraud of their rights (accion pauliana). Without availing of the first and second remedies, i.e.,
exhausting the properties of the debtor or subrogating themselves in Francisco Baregs
transmissible rights and actions, petitioners simply undertook the third measure and filed an
action for annulment of sale. This cannot be done. [11] (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal
of the accion pauliana on the basis of lack of cause of action:
In this case, plaintiffs appellants had not even commenced an action against defendantsappellees Bareng for the collection of the alleged indebtedness. Plaintiffs-appellants had not
even tried to exhaust the property of defendants-appellees Bareng. Plaintiffs-appellants, in
seeking the rescission of the contracts of sale entered into between defendants-appellees, failed
to show and prove that defendants-appellees Bareng had no other property, either at the time of
the sale or at the time this action was filed, out of which they could have collected this (sic)
debts. (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong
Cheng had executed the deeds of donation in favor of his children, the complaint against Butuan
Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court.
Respondent Philam had no inkling, at the time, that the trial court's judgment would be in its
favor and further, that such judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam
filed his complaint on December 27, 1989, such complaint would have been dismissed for being
premature. Not only were all other legal remedies for the enforcement of respondent Philams
claims not yet exhausted at the time the deeds of donation were executed and registered.
Respondent Philam would also not have been able to prove then that petitioner Khe Hong Chneg
had no more property other than those covered by the subject deeds to satisfy a favorable
judgment by the trial court.
8

It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented
that he had reserved to himself property sufficient to answer for his debts contracted prior to this
date:
That the DONOR further states, for the same purpose as expressed in the next preceding
paragraph, that this donation is not made with the object of defrauding his creditors having
reserved to himself property sufficient to answer his debts contracted prior to this date. [12]
As mentioned earlier, respondent Philam only learned about the unlawful conveyances made
by petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to
Butuan City to attach the properties of petitioner Khe Hong Cheng. There they found that he no
longer had any properties in his name. It was only then that respondent Philam's action for
rescission of the deeds of donation accrued because then it could be said that respondent Philam
had exhausted all legal means to satisfy the trial court's judgment in its favor. Since respondent
Philam filed its complaint for accion paulianaagainst petitioners on February 25, 1997, barely a
month from its discovery that petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the subject deeds clearly had not yet
prescribed.
A final point. Petitioners now belatedly raise on appeal the defense of improper venue
claiming that respondent Philams complaint is a real action and should have been filed with the
RTC of Butuan City since the property subject matter of the donations are located therein. Suffice
it to say that petitioners are already deemed to have waived their right to question the venue of
the instant case. Improper venue should be objected to as follows 1) in a motion to dismiss filed
within the time but before the filing of the answer; [13] or 2) in the answer as an affirmative
defense over which, in the discretion of the court, a preliminary hearing may be held as if a
motion to dismiss had been filed. [14] Having failed to either file a motion to dismiss on the ground
of improper of venue or include the same as an affirmative defense in their answer, petitioners
are deemed to have their right to object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Pardo, and Ynares-Santiago, JJ., concur.
Puno, J., on official leave.

FIRST DIVISION
[G.R. No. 134685. November 19, 1999]
MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL
LIM, respondents.
9

DECISION
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her
children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia
Siguan? This is the pivotal issue to be resolved in this petition for review on certiorari under Rule
45 of the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000
and P241,668, respectively, payable to cash. Upon presentment by petitioner with the drawee
bank, the checks were dishonored for the reason account closed. Demands to make good the
checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22,
docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of
the Regional Trial Court (RTC) of Cebu City. In its decision[1] dated 29 December 1992, the court a
quo convicted LIM as charged. The case is pending before this Court for review and docketed as
G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in
Criminal Case No. Q-89-2216[2] filed by a certain Victoria Suarez. This decision was affirmed by
the Court of Appeals. On appeal, however, this Court, in a decision [3] promulgated on 7 April
1997, acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages, plus
legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation [4] conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil,
was registered with the Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m.
and covered by TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m.
and covered by TCT No. 93434;
(3) a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by
TCT No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and
covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees. [5]
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before
Branch 18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as
null and void the new transfer certificates of title issued for the lots covered by the questioned
Deed. The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that
sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors, including her; that LIM conspired
and confederated with her children in antedating the questioned Deed of Donation, to petitioners
and other creditors prejudice; and that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in
Criminal Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said
decision to the Court of Appeals. As regards the questioned Deed of Donation, she maintained
that it was not antedated but was made in good faith at a time when she had sufficient
property. Finally, she alleged that the Deed of Donation was registered only on 2 July 1991
because she was seriously ill.
In its decision of 31 December 1994, [6] the trial court ordered the rescission of the questioned
deed of donation; (2) declared null and void the transfer certificates of title issued in the names
of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City
to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed
the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral
damages; P10,000 as attorneys fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision [7] promulgated on 20 February 1998, reversed
the decision of the trial court and dismissed petitioners accion pauliana. It held that two of the
requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing
10

prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to
commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and
acknowledged before a notary public, appears on its face to have been executed on 10 August
1989. Under Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public
document, is evidence of the fact which gave rise to its execution and of the date thereof. No
antedating of the Deed of Donation was made, there being no convincing evidence on record to
indicate that the notary public and the parties did antedate it. Since LIMs indebtedness to
petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation, the
first requirement for accion pauliana was not met.
Anent petitioners contention that assuming that the Deed of Donation was not antedated it
was nevertheless in fraud of creditors because Victoria Suarez became LIMs creditor on 8
October 1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud
must prejudice the creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and
submits the following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF [THE]
CREDITORS OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not
in fraud of creditors is contrary to well-settled jurisprudence laid down by this Court as early as
1912 in the case of Oria v. McMicking,[8] which enumerated the various circumstances indicating
the existence of fraud in a transaction. She reiterates her arguments below, and adds that
another fact found by the trial court and admitted by the parties but untouched by the Court of
Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216
declaring Victoria Suarez as LIMs judgment creditor before the execution of the Deed of
Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section
23,[9] Rule 132 of the Rules of Court, in holding that being a public document, the said deed of
donation is evidence of the fact which gave rise to its execution and of the date of the latter. Said
provision should be read with Section 30 [10] of the same Rule which provides that notarial
documents are prima facieevidence of their execution, not of the facts which gave rise to their
execution and of the date of the latter.
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil
Code, which provides: The donation is always presumed to be in fraud of creditors when at the
time of the execution thereof the donor did not reserve sufficient property to pay his debts prior
to the donation. In this case, LIM made no reservation of sufficient property to pay her creditors
prior to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and requisites
of accion pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot
invoke the credit of Victoria Suarez, who is not a party to this case, to support her accion
pauliana; (c) the Court of Appeals correctly applied or interpreted Section 23 of Rule 132 of the
Rules of Court; (d) petitioner failed to present convincing evidence that the Deed of Donation was
antedated and executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down
the awards of damages, attorneys fees and expenses of litigation because there is no factual
basis therefor in the body of the trial courts decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in
fraud of petitioner and, therefore, rescissible. A corollary issue is whether the awards of
damages, attorneys fees and expenses of litigation are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases brought before it from the
Court of Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of
fact of the latter court are conclusive, except in a number of instances. [11] In the case at bar, one
of the recognized exceptions warranting a review by this Court of the factual findings of the
Court of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court
of Appeals are conflicting, especially on the issue of whether the Deed of Donation in question
was in fraud of creditors.

11

Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among
them are those contracts undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them.
The action to rescind contracts in fraud of creditors is known as accion pauliana. For this
action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission
has a credit prior to the alienation, [12] although demandable later; (2) the debtor has made a
subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no
other legal remedy to satisfy his claim;[13] (4) the act being impugned is fraudulent; [14] (5) the
third person who received the property conveyed, if it is by onerous title, has been an accomplice
in the fraud.[15]
The general rule is that rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. [16] Without any prior existing debt, there can neither
be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion
pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is
immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted. [17]
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990,
while the deed of donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was
antedated to make it appear that it was made prior to petitioners credit. Notably, that deed is a
public document, it having been acknowledged before a notary public. [18] As such, it is evidence
of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of
the Rules of Court.
Petitioners contention that the public documents referred to in said Section 23 are only those
entries in public records made in the performance of a duty by a public officer does not hold
water. Section 23 reads:
SEC. 23. Public documents as evidence. Documents consisting of entries in public records made
in the performance of a duty by a public officer are prima facie evidence of the facts therein
stated. All other public documents are evidence, even against a third person, of the fact which
gave rise to their execution and of the date of the latter. (Emphasis supplied).
The phrase all other public documents in the second sentence of Section 23 means those
public documents other than the entries in public records made in the performance of a duty by
a public officer.And these include notarial documents, like the subject deed of donation. Section
19, Rule 132 of the Rules of Court provides:
SEC. 19. Classes of documents. -- For the purpose of their presentation in evidence, documents
are either public or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills and testaments. . . .
It bears repeating that notarial documents, except last wills and testaments, are public
documents and are evidence of the facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is
not enough to overcome the presumption as to the truthfulness of the statement of the date in
the questioned deed, which is 10 August 1989. Petitioners claim against LIM was constituted only
in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of
the contract of donation, still her action for rescission would not fare well because the third
requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of
creditors may be rescinded only when the creditors cannot in any manner collect the claims due
them. Also, Article 1383 of the same Code provides that the action for rescission is but a
subsidiary remedy which cannot be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same. The term subsidiary remedy has been
defined as the exhaustion of all remedies by the prejudiced creditor to collect claims due him
before rescission is resorted to. [19] It is, therefore, essential that the party asking for rescission
12

prove that he has exhausted all other legal means to obtain satisfaction of his claim. [20] Petitioner
neither alleged nor proved that she did so. On this score, her action for the rescission of the
questioned deed is not maintainable even if the fraud charged actually did exist. [21]
The fourth requisite for an accion pauliana to prosper is not present either.
Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which the
debtor alienates property by gratuitous title are presumed to have been entered into in fraud of
creditors when the donor did not reserve sufficient property to pay all debts contracted before
the donation. Likewise, Article 759 of the same Code, second paragraph, states that the donation
is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation.
As earlier discussed, petitioners alleged credit existed only a year after the deed of donation
was executed. She cannot, therefore, be said to have been prejudiced or defrauded by such
alienation. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation
was executed, LIM had the following properties:
(1) A parcel of land containing an area of 220 square meters, together with the house
constructed thereon, situated in Sto. Nio Village, Mandaue City, Cebu, registered in the
name of Rosa Lim and covered by TCT No. 19706;[22]
(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu; [23]
(3) A parcel of land containing an area of 2.152 hectares, with coconut trees thereon,
situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No.
13572.[24]
(4) A parcel of land containing an area of 3.6 hectares, with coconut trees thereon,
situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No.
13571.[25]
During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was
bought by her in the amount of about P800,000 to P900,000.[26] Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Nio Village, how much did you acquire this property?
A Including the residential house P800,000.00 to P900,000.00.
Q How about the lot which includes the house. How much was the price in the Deed of Sale of
the house and lot at Sto. Nio Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in 1990. [27] As to the properties in nos. 3 and 4, the
total market value stated in the tax declarations dated 23 November 1993
was P56,871.60. Aside from these tax declarations, petitioner did not present evidence that
would indicate the actual market value of said properties. It was not, therefore, sufficiently
established that the properties left behind by LIM were not sufficient to cover her debts existing
before the donation was made. Hence, the presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles
759 and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud
may be proved in any other manner recognized by the law of evidence. Thus in the consideration
of whether certain transfers are fraudulent, the Court has laid down specific rules by which the
character of the transaction may be determined. The following have been denominated by the
Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending against him;
13

(3) A sale upon credit by an insolvent debtor;


(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are present
other of the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the property. [28]
The above enumeration, however, is not an exclusive list. The circumstances evidencing
fraud are as varied as the men who perpetrate the fraud in each case. This Court has therefore
declined to define it, reserving the liberty to deal with it under whatever form it may present
itself.[29]
Petitioner failed to discharge the burden of proving any of the circumstances enumerated
above or any other circumstance from which fraud can be inferred. Accordingly, since the four
requirements for the rescission of a gratuitous contract are not present in this case, petitioners
action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention
the 31 July 1990 Decision[30] of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-892216. LIM was therein held guilty of estafa and was ordered to pay complainant Victoria Suarez
the sum of P169,000 for the obligation LIM incurred on 8 October 1987. This decision was
affirmed by the Court of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but
held her civilly liable for P169,000 as actual damages.
It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to
the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code
provides that rescission shall only be to the extent necessary to cover the damages
caused. Under this Article, only the creditor who brought the action for rescission can benefit
from the rescission; those who are strangers to the action cannot benefit from its effects. [31] And
the revocation is only to the extent of the plaintiff creditors unsatisfied credit; as to the excess,
the alienation is maintained.[32] Thus, petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.
Now on the propriety of the trial courts awards of moral damages, attorneys fees and
expenses of litigation in favor of the petitioner. We have pored over the records and found no
factual or legal basis therefor. The trial court made these awards in the dispositive portion of its
decision without stating, however, any justification for the same in the ratio decidendi. Hence,
the Court of Appeals correctly deleted these awards for want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of
Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

14

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


JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and
the PHILIPPINE BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.

15

PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977 decision of the Court of
Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila,
Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order of the
lower court dated December 8, 1971. The Court of Appeals in modifying the decision of the lower
court included an award of an additional amount of P200,000.00 to the Philippine Bar Association
to be paid jointly and severally by the defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party defendants
(except Roman Ozaeta) to pay the plaintiff, jointly and severally, the sum of
P989,335.68 with interest at the legal rate from November 29, 1968, the date of the
filing of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of
merit;
(e) Ordering defendant United Construction Co., Inc. and third-party defendants
(except Roman Ozaeta) to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to include an award of
P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with interest at
the legal rate from November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third party defendants
(except Roman Ozaeta). In all other respects, the judgment dated September 21,
1971 as modified in the December 8, 1971 Order of the lower court is hereby
affirmed with COSTS to be paid by the defendant and third party defendant (except
Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in
L-47863 seek the reversal of the decision of the Court of Appeals, among other things, for
exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the
modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss of the PBA
building plus four (4) times such amount as damages resulting in increased cost of the building,
P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First Instance of Manila were
consolidated by this Court in the resolution of May 10, 1978 requiring the respective respondents
to comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348;
pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located at
16

the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was
undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of
Juan J. Carlos, the president and general manager of said corporation. The proposal was
approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party
defendant in this case. The plans and specifications for the building were prepared by the other
third-party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its
environs and the building in question sustained major damage. The front columns of the building
buckled, causing the building to tilt forward dangerously. The tenants vacated the building in
view of its precarious condition. As a temporary remedial measure, the building was shored up by
United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising
from the partial collapse of the building against United Construction, Inc. and its President and
General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building
was accused by defects in the construction, the failure of the contractors to follow plans and
specifications and violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the plans
and specifications, alleging in essence that the collapse of the building was due to the defects in
the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for having included Juan J.
Carlos, President of the United Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F.
Nakpil presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and third- party
complaints and the third-party defendants Nakpil & Sons' answer thereto, the
plaintiff need not amend its complaint by including the said Juan F. Nakpil & Sons
and Juan F. Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the Court should find
after the trial that the above-named defendants Juan J. Carlos and United
Construction Co., Inc. are free from any blame and liability for the collapse of the
PBA Building, and should further find that the collapse of said building was due to
defects and/or inadequacy of the plans, designs, and specifications p by the thirdparty defendants, or in the event that the Court may find Juan F. Nakpil and Sons
and/or Juan F. Nakpil contributorily negligent or in any way jointly and solidarily
liable with the defendants, judgment may be rendered in whole or in part. as the
case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended
by including the said Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant
and by alleging causes of action against them including, among others, the defects
or inadequacy of the plans, designs, and specifications prepared by them and/or
failure in the performance of their contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this
stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among
others, the parties agreed to refer the technical issues involved in the case to a Commissioner.
Mr. Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building during the August 2, 1968
earthquake had been caused, directly or indirectly, by:

17

(a) The inadequacies or defects in the plans and specifications prepared by thirdparty defendants;
(b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage sustained;
(c) The alleged failure of defendants to observe the requisite quality of materials
and workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision expected of
the architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a combination of
the above-enumerated factors, the degree or proportion in which each individual
factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be completely demolished or
whether it may still be repaired and restored to a tenantable condition. In the latter
case, the determination of the cost of such restoration or repair, and the value of
any remaining construction, such as the foundation, which may still be utilized or
availed of (Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-technical issues. As
aforestated the technical issues were referred to the Commissioner. The non-technical issues
were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may
topple down in case of a strong earthquake. The motions were opposed by the defendants and
the matter was referred to the Commissioner. Finally, on April 30, 1979 the building was
authorized to be demolished at the expense of the plaintiff, but not another earthquake of high
intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970, caused
further damage to the property. The actual demolition was undertaken by the buyer of the
damaged building. (Record on Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted his report on September
25, 1970 with the findings that while the damage sustained by the PBA building was caused
directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also
caused by the defects in the plans and specifications prepared by the third-party defendants'
architects, deviations from said plans and specifications by the defendant contractors and failure
of the latter to observe the requisite workmanship in the construction of the building and of the
contractors, architects and even the owners to exercise the requisite degree of supervision in the
construction of subject building.
All the parties registered their objections to aforesaid findings which in turn were answered by
the Commissioner.
The trial court agreed with the findings of the Commissioner except as to the holding that the
owner is charged with full nine supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified
by the Intermediate Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence,
these petitions.
18

On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and
the Philippine Institute of Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the liability of architects when a building
collapses and to submit likewise a critical analysis with computations on the divergent views on
the design and plans as submitted by the experts procured by the parties. The motion having
been granted, the amicus curiaewere granted a period of 60 days within which to submit their
position.
After the parties had all filed their comments, We gave due course to the petitions in Our
Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not
defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion that
the defects in the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No.
4131) and the 1966 Asep Code, the Commissioner added that even if it can be proved that the
defects in the construction alone (and not in the plans and design) caused the damage to the
building, still the deficiency in the original design and jack of specific provisions against torsion in
the original plans and the overload on the ground floor columns (found by an the experts
including the original designer) certainly contributed to the damage which occurred. (Ibid, p.
174).
In their respective briefs petitioners, among others, raised the following assignments of errors:
Philippine Bar Association claimed that the measure of damages should not be limited to
P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals
while United Construction Co., Inc. and the Nakpils claimed that it was an act of God that caused
the failure of the building which should exempt them from responsibility and not the defective
construction, poor workmanship, deviations from plans and specifications and other
imperfections in the case of United Construction Co., Inc. or the deficiencies in the design, plans
and specifications prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils
object to the payment of the additional amount of P200,000.00 imposed by the Court of Appeals.
UCCI also claimed that it should be reimbursed the expenses of shoring the building in the
amount of P13,661.28 while the Nakpils opposed the payment of damages jointly and solidarity
with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually strong earthquakewhich caused the failure of the building, exempts from liability, parties who are otherwise liable
because of their negligence.
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the
New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and specifications for a
building is liable for damages if within fifteen years from the completion of the
structure the same should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. The contractor is likewise
responsible for the damage if the edifice fags within the same period on account of
defects in the construction or the use of materials of inferior quality furnished by
him, or due to any violation of the terms of the contract. If the engineer or architect
supervises the construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of the
causes of action by reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.

19

On the other hand, the general rule is that no person shall be responsible for events which could
not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to have
been expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an
obligation due to an "act of God," the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation
in, or aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553;
Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the
Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation
as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor
cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were,
and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate cause
of the damage was the act of God. To be exempt from liability for loss because of an act of God,
he must be free from any previous negligence or misconduct by which that loss or damage may
have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G.
4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil.
657).
The negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in the construction as
well as to exercise the requisite degree of supervision; while the third-party defendants were
found to have inadequacies or defects in the plans and specifications prepared by them. As
correctly assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building unable to withstand the
earthquake of August 2, 1968. For this reason the defendant and third-party defendants cannot
claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties
and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan,
January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there is
grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the
findings of fact are conflicting , (6) the Court of Appeals went beyond the issues of the case and
its findings are contrary to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola
Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA
648, 651); (7) the findings of facts of the Court of Appeals are contrary to those of the trial court;
(8) said findings of facts are conclusions without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are
20

not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court
of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is
premised on the supposed absence of evidence and is contradicted by evidence on record
(Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On
the contrary, the records show that the lower court spared no effort in arriving at the correct
appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties
whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus
curiae who were allowed to intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of
Appeals that "while it is not possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that several buildings in the same
area withstood the earthquake to which the building of the plaintiff was similarly subjected,"
cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial
collapse (and eventual complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on the report of the
Commissioner that the total amount required to repair the PBA building and to restore it to
tenantable condition was P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus unrealized rental income for
one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an
additional sum of P200,000.00 representing the damage suffered by the PBA building as a result
of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total
value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS
and UNITED question the additional award of P200,000.00 in favor of the PBA (L- 47851, NAKPIL's
Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further urges that the
unrealized rental income awarded to it should not be limited to a period of one-half year but
should be computed on a continuing basis at the rate of P178,671.76 a year until the judgment
for the principal amount shall have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p.
19).
The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial
and it is undisputed that the building could then still be repaired and restored to its tenantable
condition. The PBA, however, in view of its lack of needed funding, was unable, thru no fault of its
own, to have the building repaired. UNITED, on the other hand, spent P13,661.28 to shore up the
building after the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of the
earthquake on April 7, 1970, the trial court after the needed consultations, authorized the total
demolition of the building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for the damage resulting
from the partial and eventual collapse of the PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision penned by Justice Hugo E.
Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the
Court of Appeals:
There is no question that an earthquake and other forces of nature such as
cyclones, drought, floods, lightning, and perils of the sea are acts of God. It does not
necessarily follow, however, that specific losses and suffering resulting from the
occurrence of these natural force are also acts of God. We are not convinced on the
basis of the evidence on record that from the thousands of structures in Manila, God
singled out the blameless PBA building in Intramuros and around six or seven other
21

buildings in various parts of the city for collapse or severe damage and that God
alone was responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the designs and
plans, defective construction, poor workmanship, deviation from plans and
specifications and other imperfections. These deficiencies are attributable to
negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party defendantsappellants presented in their briefs are premised on legal generalizations or
speculations and on theological fatalism both of which ignore the plain facts. The
lengthy discussion of United on ordinary earthquakes and unusually strong
earthquakes and on ordinary fortuitous events and extraordinary fortuitous events
leads to its argument that the August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its own force and independent of
the particular negligence alleged, the injury would have been produced. If we follow
this line of speculative reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of Manila would have
toppled down. Following the same line of reasoning, Nakpil and Sons alleges that
the designs were adequate in accordance with pre-August 2, 1968 knowledge and
appear inadequate only in the light of engineering information acquired after the
earthquake. If this were so, hundreds of ancient buildings which survived the
earthquake better than the two-year old PBA building must have been designed and
constructed by architects and contractors whose knowledge and foresight were
unexplainably auspicious and prophetic. Fortunately, the facts on record allow a
more down to earth explanation of the collapse. The failure of the PBA building, as a
unique and distinct construction with no reference or comparison to other buildings,
to weather the severe earthquake forces was traced to design deficiencies and
defective construction, factors which are neither mysterious nor esoteric. The
theological allusion of appellant United that God acts in mysterious ways His
wonders to perform impresses us to be inappropriate. The evidence reveals defects
and deficiencies in design and construction. There is no mystery about these acts of
negligence. The collapse of the PBA building was no wonder performed by God. It
was a result of the imperfections in the work of the architects and the people in the
construction company. More relevant to our mind is the lesson from the parable of
the wise man in the Sermon on the Mount "which built his house upon a rock; and
the rain descended and the floods came and the winds blew and beat upon that
house; and it fen not; for it was founded upon a rock" and of the "foolish upon the
sand. And the rain descended and man which built his house the floods came, and
the winds blew, and beat upon that house; and it fell and great was the fall of it. (St.
Matthew 7: 24-27)." The requirement that a building should withstand rains, floods,
winds, earthquakes, and natural forces is precisely the reason why we have
professional experts like architects, and engineers. Designs and constructions vary
under varying circumstances and conditions but the requirement to design and
build well does not change.
The findings of the lower Court on the cause of the collapse are more rational and
accurate. Instead of laying the blame solely on the motions and forces generated by
the earthquake, it also examined the ability of the PBA building, as designed and
constructed, to withstand and successfully weather those forces.
The evidence sufficiently supports a conclusion that the negligence and fault of both
United and Nakpil and Sons, not a mysterious act of an inscrutable God, were
responsible for the damages. The Report of the Commissioner, Plaintiff's Objections
to the Report, Third Party Defendants' Objections to the Report, Defendants'
Objections to the Report, Commissioner's Answer to the various Objections,
Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply to the
Commissioner's Answer, Counter-Reply to Defendants' Reply, and Third-Party
Defendants' Reply to the Commissioner's Report not to mention the exhibits and the
testimonies show that the main arguments raised on appeal were already raised
22

during the trial and fully considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should reverse or disturb the
lower Court's factual findings and its conclusions drawn from the facts, among
them:
The Commissioner also found merit in the allegations of the defendants as to the
physical evidence before and after the earthquake showing the inadequacy of
design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the Manila Fire
Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior columns reduces
the cross-sectional area of each of the columns and the strength thereof.
4. Two front corners, A7 and D7 columns were very much less reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;
1. Column A7 suffered the severest fracture and maximum sagging. Also D7.
2. There are more damages in the front part of the building than towards the rear,
not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front corner parts
of the building.
5. There was a lateral displacement of the building of about 8", Maximum sagging
occurs at the column A7 where the floor is lower by 80 cm. than the highest slab
level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects in the design,
plans and specifications of the PBA building which involved appreciable risks with
respect to the accidental forces which may result from earthquake shocks. He
conceded, however, that the fact that those deficiencies or defects may have arisen
from an obsolete or not too conservative code or even a code that does not require
a design for earthquake forces mitigates in a large measure the responsibility or
liability of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion of the
Commissioner's report, voiced opposition to the same on the grounds that (a) the
finding is based on a basic erroneous conception as to the design concept of the
building, to wit, that the design is essentially that of a heavy rectangular box on
stilts with shear wan at one end; (b) the finding that there were defects and a
deficiency in the design of the building would at best be based on an approximation
and, therefore, rightly belonged to the realm of speculation, rather than of certainty
and could very possibly be outright error; (c) the Commissioner has failed to back
up or support his finding with extensive, complex and highly specialized
23

computations and analyzes which he himself emphasizes are necessary in the


determination of such a highly technical question; and (d) the Commissioner has
analyzed the design of the PBA building not in the light of existing and available
earthquake engineering knowledge at the time of the preparation of the design, but
in the light of recent and current standards.
The Commissioner answered the said objections alleging that third-party
defendants' objections were based on estimates or exhibits not presented during
the hearing that the resort to engineering references posterior to the date of the
preparation of the plans was induced by the third-party defendants themselves who
submitted computations of the third-party defendants are erroneous.
The issue presently considered is admittedly a technical one of the highest degree.
It involves questions not within the ordinary competence of the bench and the bar
to resolve by themselves. Counsel for the third-party defendants has aptly remarked
that "engineering, although dealing in mathematics, is not an exact science and
that the present knowledge as to the nature of earthquakes and the behaviour of
forces generated by them still leaves much to be desired; so much so "that the
experts of the different parties, who are all engineers, cannot agree on what
equation to use, as to what earthquake co-efficients are, on the codes to be used
and even as to the type of structure that the PBA building (is) was (p. 29, Memo, of
third- party defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were to be tried and
inquired into by the Court itself, coupled with the intrinsic nature of the questions
involved therein, constituted the reason for the reference of the said issues to a
Commissioner whose qualifications and experience have eminently qualified him for
the task, and whose competence had not been questioned by the parties until he
submitted his report. Within the pardonable limit of the Court's ability to
comprehend the meaning of the Commissioner's report on this issue, and the
objections voiced to the same, the Court sees no compelling reasons to disturb the
findings of the Commissioner that there were defects and deficiencies in the design,
plans and specifications prepared by third-party defendants, and that said defects
and deficiencies involved appreciable risks with respect to the accidental forces
which may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans and
specifications, and how said deviations contributed to the damage sustained by the
building.
(b) The alleged failure of defendants to observe the requisite quality of materials
and workmanship in the construction of the building.
These two issues, being interrelated with each other, will be discussed together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the alleged deficiencies or
defects in the construction and violations or deviations from the plans and
specifications. All these may be summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3 bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no
larger than 1 inch.
24

(4) Reinforcement assembly is not concentric with the column, eccentricity being 3"
off when on one face the main bars are only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground
floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled worst where there are
no spirals or where spirals are cut. Columns suffered worst displacement where the
eccentricity of the columnar reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 Spacing of spiral is changed from 2" to 5" on centers,
(2) Column D5 No spiral up to a height of 22" from the ground floor,
(3) Column D6 Spacing of spiral over 4 l/2,
(4) Column D7 Lack of lateral ties,
(5) Column C7 Absence of spiral to a height of 20" from the ground level, Spirals
are at 2" from the exterior column face and 6" from the inner column face,
(6) Column B6 Lack of spiral on 2 feet below the floor beams,
(7) Column B5 Lack of spirals at a distance of 26' below the beam,
(8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals are uneven 2"
to 4",
(9) Column A3 Lack of lateral ties,
(10) Column A4 Spirals cut off and welded to two separate clustered vertical bars,
(11) Column A4 (second floor Column is completely hollow to a height of 30"
(12) Column A5 Spirals were cut from the floor level to the bottom of the spandrel
beam to a height of 6 feet,
(13) Column A6 No spirals up to a height of 30' above the ground floor level,
(14) Column A7 Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the Third-Party
defendants.
25

Ground floor columns.


(1) Column A4 Spirals are cut,
(2) Column A5 Spirals are cut,
(3) Column A6 At lower 18" spirals are absent,
(4) Column A7 Ties are too far apart,
(5) Column B5 At upper fourth of column spirals are either absent or improperly
spliced,
(6) Column B6 At upper 2 feet spirals are absent,
(7) Column B7 At upper fourth of column spirals missing or improperly spliced.
(8) Column C7 Spirals are absent at lowest 18"
(9) Column D5 At lowest 2 feet spirals are absent,
(10) Column D6 Spirals are too far apart and apparently improperly spliced,
(11) Column D7 Lateral ties are too far apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations given by the
engineering experts for the defendants are either contrary to general principles of
engineering design for reinforced concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in earthquake-resistant design and
construction.
We shall first classify and consider defects which may have appreciable bearing or
relation to' the earthquake-resistant property of the building.
As heretofore mentioned, details which insure ductility at or near the connections
between columns and girders are desirable in earthquake resistant design and
construction. The omission of spirals and ties or hoops at the bottom and/or tops of
columns contributed greatly to the loss of earthquake-resistant strength. The plans
and specifications required that these spirals and ties be carried from the floor level
to the bottom reinforcement of the deeper beam (p. 1, Specifications, p. 970,
Reference 11). There were several clear evidences where this was not done
especially in some of the ground floor columns which failed.
There were also unmistakable evidences that the spacings of the spirals and ties in
the columns were in many cases greater than those called for in the plans and
specifications resulting again in loss of earthquake-resistant strength. The assertion
of the engineering experts for the defendants that the improper spacings and the
cutting of the spirals did not result in loss of strength in the column cannot be
maintained and is certainly contrary to the general principles of column design and
construction. And even granting that there be no loss in strength at the yield point
(an assumption which is very doubtful) the cutting or improper spacings of spirals
will certainly result in the loss of the plastic range or ductility in the column and it is
precisely this plastic range or ductility which is desirable and needed for
earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the column A4, second floor,
and although this column did not fail, this is certainly an evidence on the part of the
contractor of poor construction.

26

The effect of eccentricities in the columns which were measured at about 2 1/2
inches maximum may be approximated in relation to column loads and column and
beam moments. The main effect of eccentricity is to change the beam or girder
span. The effect on the measured eccentricity of 2 inches, therefore, is to increase
or diminish the column load by a maximum of about 1% and to increase or diminish
the column or beam movements by about a maximum of 2%. While these can
certainly be absorbed within the factor of safety, they nevertheless diminish said
factor of safety.
The cutting of the spirals in column A5, ground floor is the subject of great
contention between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5, ground
floor, is the responsibility of the general contractor which is the UCCI. The burden of
proof, therefore, that this cutting was done by others is upon the defendants. Other
than a strong allegation and assertion that it is the plumber or his men who may
have done the cutting (and this was flatly denied by the plumber) no conclusive
proof was presented. The engineering experts for the defendants asserted that they
could have no motivation for cutting the bar because they can simply replace the
spirals by wrapping around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was sometimes done
through the beam and girder reinforcements which were already in place as in the
case of column A4 second floor. If the reinforcement for the girder and column is to
subsequently wrap around the spirals, this would not do for the elasticity of steel
would prevent the making of tight column spirals and loose or improper spirals
would result. The proper way is to produce correct spirals down from the top of the
main column bars, a procedure which can not be done if either the beam or girder
reinforcement is already in place. The engineering experts for the defendants
strongly assert and apparently believe that the cutting of the spirals did not
materially diminish the strength of the column. This belief together with the
difficulty of slipping the spirals on the top of the column once the beam
reinforcement is in place may be a sufficient motivation for the cutting of the spirals
themselves. The defendants, therefore, should be held responsible for the
consequences arising from the loss of strength or ductility in column A5 which may
have contributed to the damages sustained by the building.
The lack of proper length of splicing of spirals was also proven in the visible spirals
of the columns where spalling of the concrete cover had taken place. This lack of
proper splicing contributed in a small measure to the loss of strength.
The effects of all the other proven and visible defects although nor can certainly be
accumulated so that they can contribute to an appreciable loss in earthquakeresistant strength. The engineering experts for the defendants submitted an
estimate on some of these defects in the amount of a few percent. If accumulated,
therefore, including the effect of eccentricity in the column the loss in strength due
to these minor defects may run to as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the
top of some of the ground floor columns contributed greatly to the collapse of the
PBA building since it is at these points where the greater part of the failure
occurred. The liability for the cutting of the spirals in column A5, ground floor, in the
considered opinion of the Commissioner rests on the shoulders of the defendants
and the loss of strength in this column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects, deficiencies and
violations of the plans and specifications of the PBA building contributed to the
damages which resulted during the earthquake of August 2, 1968 and the vice of
these defects and deficiencies is that they not only increase but also aggravate the
weakness mentioned in the design of the structure. In other words, these defects
and deficiencies not only tend to add but also to multiply the effects of the
27

shortcomings in the design of the building. We may say, therefore, that the defects
and deficiencies in the construction contributed greatly to the damage which
occurred.
Since the execution and supervision of the construction work in the hands of the
contractor is direct and positive, the presence of existence of all the major defects
and deficiencies noted and proven manifests an element of negligence which may
amount to imprudence in the construction work. (pp. 42-49, Commissioners Report).
As the parties most directly concerned with this portion of the Commissioner's report, the
defendants voiced their objections to the same on the grounds that the Commissioner should
have specified the defects found by him to be "meritorious"; that the Commissioner failed to
indicate the number of cases where the spirals and ties were not carried from the floor level to
the bottom reinforcement of the deeper beam, or where the spacing of the spirals and ties in the
columns were greater than that called for in the specifications; that the hollow in column A4,
second floor, the eccentricities in the columns, the lack of proper length of splicing of spirals, and
the cut in the spirals in column A5, ground floor, did not aggravate or contribute to the damage
suffered by the building; that the defects in the construction were within the tolerable margin of
safety; and that the cutting of the spirals in column A5, ground floor, was done by the plumber or
his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many of the defects were
minor only the totality of the defects was considered. As regards the objection as to failure to
state the number of cases where the spirals and ties were not carried from the floor level to the
bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the first one
without spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at
the bottom. The Commissioner likewise specified the first storey columns where the spacings
were greater than that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5
and B-7. The objection to the failure of the Commissioner to specify the number of columns
where there was lack of proper length of splicing of spirals, the Commissioner mentioned
groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not
welded, resulting in some loss of strength which could be critical near the ends of the columns.
He answered the supposition of the defendants that the spirals and the ties must have been
looted, by calling attention to the fact that the missing spirals and ties were only in two out of
the 25 columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or
contribute to the damage, but averred that it is "evidence of poor construction." On the claim
that the eccentricity could be absorbed within the factor of safety, the Commissioner answered
that, while the same may be true, it also contributed to or aggravated the damage suffered by
the building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by
the Commissioner by reiterating the observation in his report that irrespective of who did the
cutting of the spirals, the defendants should be held liable for the same as the general contractor
of the building. The Commissioner further stated that the loss of strength of the cut spirals and
inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment
in the column and resulted in the loss of strength, as evidenced by the actual failure of this
column.
Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any
sufficient cause to disregard or modify the same. As found by the Commissioner, the "deviations
made by the defendants from the plans and specifications caused indirectly the damage
sustained and that those deviations not only added but also aggravated the damage caused by
the defects in the plans and specifications prepared by third-party defendants. (Rollo, Vol. I, pp.
128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the
third-party defendants in effecting the plans, designs, specifications, and construction of the PBA
28

building and We hold such negligence as equivalent to bad faith in the performance of their
respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which
may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the natural and
probable consequences thereof, although the act of a third person, or an act of God for which he
is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out
the fatal difference; gross negligence and evident bad faith, without which the damage would not
have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, We deem it reasonable to render a decision imposing,
as We do hereby impose, upon the defendant and the third-party defendants (with the exception
of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the
Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the
exception of attorney's fees) occasioned by the loss of the building (including interest charges
and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay
on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

29

G.R. No. L-21749

September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,


vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant.

REYES, J.B.L., J.:


The present case comes by direct appeal from a decision of the Court of First Instance of Manila
(Case No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in
damages to the plaintiff-appellee Republic of the Philippines.
In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring
Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero" 1 also
belonging to the same corporation, when the barge rammed against one of the wooden piles of
the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the
time, was swollen and the current swift, on account of the heavy downpour of Manila and the
surrounding provinces on August 15 and 16, 1960.
Sued by the Republic of the Philippines for actual and consequential damage caused by its
employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon
Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due
diligence in the selection and supervision of its employees; that the damages to the bridge were
caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey
bridge is an obstruction to navigation.
After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for
the damage caused by its employees and ordering it to pay to plaintiff the actual cost of the
repair of the Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon
from the date of the filing of the complaint.
Defendant appealed directly to this Court assigning the following errors allegedly committed by
the court a quo, to wit:
I The lower court erred in not holding that the herein defendant-appellant had exercised
the diligence required of it in the selection and supervision of its personnel to prevent
damage or injury to others.1awphl.nt
II The lower court erred in not holding that the ramming of the Nagtahan bailey bridge
by barge L-1892 was caused by force majeure.
III The lower court erred in not holding that the Nagtahan bailey bridge is an
obstruction, if not a menace, to navigation in the Pasig river.
30

IV The lower court erred in not blaming the damage sustained by the Nagtahan bailey
bridge to the improper placement of the dolphins.
V The lower court erred in granting plaintiff's motion to adduce further evidence in chief
after it has rested its case.
VI The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for
damages which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that when a party
appeals directly to the Supreme Court, and submits his case there for decision, he is deemed to
have waived the right to dispute any finding of fact made by the trial Court. The only questions
that may be raised are those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs.
Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a
party who resorts to the Court of Appeals, and submits his case for decision there, is barred from
contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is
that a contrary rule would encourage the undesirable practice of appellants' submitting their
cases for decision to either court in expectation of favorable judgment, but with intent of
attacking its jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas
Compaia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23, 1966).
Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief.
Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this
appeal are reduced to two:
1) Whether or not the collision of appellant's barge with the supports or piers of the
Nagtahan bridge was in law caused by fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to
introduce additional evidence of damages after said party had rested its case.
As to the first question, considering that the Nagtahan bridge was an immovable and stationary
object and uncontrovertedly provided with adequate openings for the passage of water craft,
including barges like of appellant's, it is undeniable that the unusual event that the barge,
exclusively controlled by appellant, rammed the bridge supports raises a presumption of
negligence on the part of appellant or its employees manning the barge or the tugs that towed it.
For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo
American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule
(Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89,
56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific
Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).
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.
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)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could
not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the
Philippines). It is, therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no
constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas
onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad Extracontractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very
31

measures adopted by appellant prove that the possibility of danger was not only foreseeable, but
actually foreseen, and was not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the
perils posed by the swollen stream and its swift current, voluntarily entered into a situation
involving obvious danger; it therefore assured the risk, and can not shed responsibility merely
because the precautions it adopted turned out to be insufficient. Hence, the lower Court
committed no error in holding it negligent in not suspending operations and in holding it liable for
the damages caused.
It avails the appellant naught to argue that the dolphins, like the bridge, were improperly
located. Even if true, these circumstances would merely emphasize the need of even higher
degree of care on appellant's part in the situation involved in the present case. The appellant,
whose barges and tugs travel up and down the river everyday, could not safely ignore the
danger posed by these allegedly improper constructions that had been erected, and in place, for
years.
On the second point: appellant charges the lower court with having abused its discretion in the
admission of plaintiff's additional evidence after the latter had rested its case. There is an
insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice
defendant-appellant.
We find no merit in the contention. Whether or not further evidence will be allowed after a party
offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and
this discretion will not be reviewed except in clear case of abuse. 3
In the present case, no abuse of that discretion is shown. What was allowed to be introduced,
after plaintiff had rested its evidence in chief, were vouchers and papers to support an item of
P1,558.00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which item
already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of
being unfair, because it was also able to secure, upon written motion, a similar order dated
November 24, 1962, allowing reception of additional evidence for the said defendant-appellant. 4
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is
hereby affirmed. Costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.

G.R. No. L-25906 May 28, 1970


PEDRO D. DIOQUINO, plaintiff-appellee, vs.FEDERICO LAUREANO, AIDA DE LAUREANO and
JUANITO LAUREANO, defendants-appellants. Pedro D. Dioquino in his own behalf. Arturo E.
Valdomero, Jose L. Almario and Rolando S. Relova for defendants-appellants.
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
32

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
33

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 doublechecked 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."
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.
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
34

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 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
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. L-29640 June 10, 1971
GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G.
ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.

REYES, J.B.L., J.:


Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CAG.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods
for sale) it is necessary that there be prior conviction for robbery before the loss of the article
shall exempt the consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo
Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to
be returned on demand. On 1 February 1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on
the face, while the other snatched her purse containing jewelry and cash, and ran away. Among
the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident
became the subject of a criminal case filed in the Court of First Instance of Rizal against certain
persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria
brought in the Court of First Instance of Manila an action against her and her husband for
recovery of the pendant or of its value, and damages. Answering the allegations of the
complaint, defendants spouses set up the defense that the alleged robbery had extinguished
their obligation.
After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants
spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest
35

thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held
that defendants failed to prove the fact of robbery, or, if indeed it was committed, that defendant
Maria Abad was guilty of negligence when she went home without any companion, although it
was already getting dark and she was carrying a large amount of cash and valuables on the day
in question, and such negligence did not free her from liability for damages for the loss of the
jewelry.
Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a
reversal of the judgment. The appellate court overruling the finding of the trial court on the lack
of credibility of the two defense witnesses who testified on the occurrence of the robbery, and
holding that the facts of robbery and defendant Maria Abad's possesion of the pendant on that
unfortunate day have been duly published, declared respondents not responsible for the loss of
the jewelry on account of a fortuitous event, and relieved them from liability for damages to the
owner. Plaintiff thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals erred in finding that there was
robbery in the case, although nobody has been found guilty of the supposed crime. It is
petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the
obligor from his obligation under a contract, pursuant to Article 1174 of the new Civil Code, there
ought to be prior finding on the guilt of the persons responsible therefor. In short, that the
occurrence of the robbery should be proved by a final judgment of conviction in the criminal
case. To adopt a different view, petitioner argues, would be to encourage persons accountable for
goods or properties received in trust or consignment to connive with others, who would be willing
to be accused in court for the robbery, in order to be absolved from civil liability for the loss or
disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person
from responsibility, it is necessary that (1) the event must be independent of the human will (or
rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in
or aggravation of the injury to the creditor. 1 A fortuitous event, therefore, can be produced by
nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by
bandits, robbery, 2 etc., provided that the event has all the characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it
were really true that the pendant, which she was obliged either to sell on commission or to return
to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would
have extinguished her liability. The point at issue in this proceeding is how the fact of robbery is
to be established in order that a person may avail of the exempting provision of Article 1174 of
the new Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by 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.
It may be noted the reform that the emphasis of the provision is on the events, not on the agents
or factors responsible for them. To avail of the exemption granted in the law, it is not necessary
that the persons responsible for the occurrence should be found or punished; it would only be
sufficient to established that the enforceable event, the robbery in this case did take place
without any concurrent fault on the debtor's part, and this can be done by preponderant
evidence. To require in the present action for recovery the prior conviction of the culprits in the
criminal case, in order to establish the robbery as a fact, would be to demand proof beyond
reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event,
such debtor must, in addition to the cams itself, be free of any concurrent or contributory fault or
36

negligence. 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing
that:
ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.
It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs,
with their high incidence of crimes against persons and property that renders travel after
nightfall a matter to be sedulously avoided without suitable precaution and protection, the
conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying
jewelry of considerable value would be negligent per se and would not exempt her from
responsibility in the case of a robbery. We are not persuaded, however, that the same rule should
obtain ten years previously, in 1961, when the robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the present day.
There is likewise no merit in petitioner's argument that to allow the fact of robbery to be
recognized in the civil case before conviction is secured in the criminal action, would prejudice
the latter case, or would result in inconsistency should the accused obtain an acquittal or should
the criminal case be dismissed. It must be realized that a court finding that a robbery has
happened would not necessarily mean that those accused in the criminal action should be found
guilty of the crime; nor would a ruling that those actually accused did not commit the robbery be
inconsistent with a finding that a robbery did take place. The evidence to establish these facts
would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in
this case is hereby dismissed with costs against the petitioner.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.
Castro, J., took no part.

[G.R. No. 113003. October 17, 1997]


37

ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT OF APPEALS, LENY
TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.
DECISION
ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is
whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event
that exempts the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and
Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along
Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus
fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in
the death of 28-year-old Tito Tumboy and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and
attorneys fees was filed by Leny and her children against Alberta Yobido, the owner of the bus,
and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the
defendants therein filed their answer to the complaint, they raised the affirmative defense
of caso fortuito. They also filed a third-party complaint against Philippine Phoenix Surety and
Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim. At the
pre-trial conference, the parties agreed to a stipulation of facts. [1]
Upon a finding that the third party defendant was not liable under the insurance contract, the
lower court dismissed the third party complaint. No amicable settlement having been arrived at
by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the
defendants was brought about by the drivers failure to exercise the diligence required of the
carrier in transporting passengers safely to their place of destination. According to Leny Tumboy,
the bus left Mangagoy at 3:00 oclock in the afternoon. The winding road it traversed was not
cemented and was wet due to the rain; it was rough with crushed rocks. The bus which was full
of passengers had cargoes on top. Since it was running fast, she cautioned the driver to slow
down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard
something explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous
event. Abundio Salce, who was the bus conductor when the incident happened, testified that the
42-seater bus was not full as there were only 32 passengers, such that he himself managed to
get a seat. He added that the bus was running at a speed of 60 to 50 and that it was going slow
because of the zigzag road. He affirmed that the left front tire that exploded was a brand new tire
that he mounted on the bus on April 21, 1988 or only five (5) days before the incident. The
Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts
on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated that
all driver applicants in Yobido Liner underwent actual driving tests before they were employed.
Defendant Cresencio Yobido underwent such test and submitted his professional drivers license
and clearances from the barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a decision [2] dismissing the action for lack of
merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that the falling
of the bus to the cliff was a result of no other outside factor than the tire blow-out. It held that
the ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus [3] that a tire blowout is a
mechanical defect of the conveyance or a fault in its equipment which was easily discoverable if
the bus had been subjected to a more thorough or rigid check-up before it took to the road that
morning is inapplicable to this case. It reasoned out that in said case, it was found that the
blowout was caused by the established fact that the inner tube of the left front tire was pressed
between the inner circle of the left wheel and the rim which had slipped out of the wheel. In this
case, however, the cause of the explosion remains a mystery until at present. As such, the court
added, the tire blowout was a caso fortuito which is completely an extraordinary circumstance
independent of the will of the defendants who should be relieved of whatever liability the
plaintiffs may have suffered by reason of the explosion pursuant to Article 1174 [4] of the Civil
Code.
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court
the following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that
the defendants did not exercise utmost and/or extraordinary diligence required of carriers under
38

Article 1755 of the Civil Code, and (c) deciding the case contrary to the ruling in Juntilla v.
Fontanar,[5] and Necesito v. Paras.[6]
On August 23, 1993, the Court of Appeals rendered the Decision [7] reversing that of the lower
court. It held that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-out,
if due to a factory defect, improper mounting, excessive tire pressure, is not an unavoidable
event. On the other hand, there may have been adverse conditions on the road that were
unforeseeable and/or inevitable, which could make the blow-out a caso fortuito. The fact that the
cause of the blow-out was not known does not relieve the carrier of liability. Owing to the
statutory presumption of negligence against the carrier and its obligation to exercise the utmost
diligence of very cautious persons to carry the passenger safely as far as human care and
foresight can provide, it is the burden of the defendants to prove that the cause of the blow-out
was a fortuitous event. It is not incumbent upon the plaintiff to prove that the cause of the blowout is not caso-fortuito.
Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge
defendants burden. As enunciated in Necesito vs. Paras, the passenger has neither choice nor
control over the carrier in the selection and use of its equipment, and the good repute of the
manufacturer will not necessarily relieve the carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and rough. The
driver could have explained that the blow-out that precipitated the accident that caused the
death of Toto Tumboy could not have been prevented even if he had exercised due care to avoid
the same, but he was
not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering
defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00 in
moral damages, and P7,000.00 for funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said decision which was denied on
November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the position that
the tire blowout that caused the death of Tito Tumboy was a caso fortuito. Petitioners claim
further that the Court of Appeals, in ruling contrary to that of the lower court, misapprehended
facts and, therefore, its findings of fact cannot be considered final which shall bind this
Court. Hence, they pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of
the established principle that the factual findings of the Court of Appeals are final and may not
be reviewed on appeal by this Court. This general principle is subject to exceptions such as the
one present in this case, namely, that the lower court and the Court of Appeals arrived at diverse
factual findings.[8] However, upon such re-examination, we found no reason to overturn the
findings and conclusions of the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the
mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers
and is not bound absolutely and at all events to carry them safely and without injury. [9] However,
when a passenger is injured or dies while travelling, the law presumes that the common carrier is
negligent. Thus, the Civil Code provides:
Art. 1756. In case of death 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.
Article 1755 provides that (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. Accordingly, in culpa contractual, once a passenger
dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This
disputable presumption may only be overcome by evidence that the carrier had observed
extraordinary diligence as prescribed by Articles 1733, [10] 1755 and 1756 of the Civil Code or that
the death or injury of the passenger was due to a fortuitous event. [11] Consequently, the court
need not make an express finding of fault or negligence on the part of the carrier to hold it
responsible for damages sought by the passenger. [12]
39

In view of the foregoing, petitioners contention that they should be exempt from liability
because the tire blowout was no more than a fortuitous event that could not have been foreseen,
must fail. A fortuitous event is possessed of the following characteristics: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) 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; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the obligor must be free from any participation in the aggravation of the
injury resulting to the creditor. [13] As Article 1174 provides, no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other
words, there must be an entire exclusion of human agency from the cause of injury or loss. [14]
Under the circumstances of this case, the explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the situation. The fact that the tire was
new did not imply that it was entirely free from manufacturing defects or that it was properly
mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a
brand name noted for quality, resulting in the conclusion that it could not explode within five
days use. Be that as it may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso fortuito that would exempt the
carrier from liability for damages.[15]
Moreover, a common carrier may not be absolved from liability in case of force majeure or
fortuitous event alone. The common carrier must still prove that it was not negligent in causing
the death or injury resulting from an accident. [16] This Court has had occasion to state:
While it may be true that the tire that blew-up was still good because the grooves of the tire were
still visible, this fact alone does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road conditions or that
precautions were taken by the jeepney driver to compensate for any conditions liable to cause
accidents. The sudden blowing-up, therefore, could have been caused by too much air pressure
injected into the tire coupled by the fact that the jeepney was overloaded and speeding at the
time of the accident.[17]
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus
was running at 60-50 kilometers per hour only or within the prescribed lawful speed
limit. However, they failed to rebut the testimony of Leny Tumboy that the bus was running so
fast that she cautioned the driver to slow down. These contradictory facts must, therefore, be
resolved in favor of liability in view of the presumption of negligence of the carrier in the law.
Coupled with this is the established condition of the road rough, winding and wet due to the
rain. It was incumbent upon the defense to establish that it took precautionary measures
considering partially dangerous condition of the road. As stated above, proof that the tire was
new and of good quality is not sufficient proof that it was not negligent. Petitioners should have
shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily
routinary check-ups of the vehicles parts. As the late Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of carriers to test the strength of each
and every part of its vehicles before each trip; but we are of the opinion that a due regard for the
carriers obligations toward the traveling public demands adequate periodical tests to determine
the condition and strength of those vehicle portions the failure of which may endanger the safety
of the passengers.[18]
Having failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence, petitioners are hereby held liable for damages. Article 1764[19] in relation to
Article 2206[20] of the Civil Code prescribes the amount of at least three thousand pesos as
damages for the death of a passenger. Under prevailing jurisprudence, the award of damages
under Article 2206 has been increased to fifty thousand pesos (P50,000.00).[21]
Moral damages are generally not recoverable in culpa contractual except when bad faith had
been proven. However, the same damages may be recovered when breach of contract of
carriage results in the death of a passenger, [22] as in this case. Exemplary damages, awarded by
way of example or correction for the public good when moral damages are awarded, [23]may
likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.[24] Because petitioners failed to exercise the
extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy,
it is deemed to have acted recklessly.[25] As such, private respondents shall be entitled to
exemplary damages.

40

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the
modification that petitioners shall, in addition to the monetary awards therein, be liable for the
award of exemplary damages in the amount of P20,000.00. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

G.R. No. 132864

October 24, 2005

PHILIPPINE FREE PRESS, INC., Petitioner,- versus COURT OF APPEALS (12th Division) and LIWAYWAY
PUBLISHING, INC.,Respondents.

DECISION
GARCIA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Philippine
Free Press, Inc. seeks the reversal of the Decision [1] dated February 25, 1998 of the Court of
Appeals (CA) in CA-GR CV No. 52660, affirming, with modification, an earlier decision of the
Regional Trial Court at Makati, Branch 146, in an action for annulment of deeds of sale thereat
instituted by petitioner against the Presidential Commission for Good
Government (PCGG) and the herein private respondent, Liwayway Publishing, Inc.
As found by the appellate court in the decision under review, the facts are:

xxx [Petitioner] . . . is a domestic corporation engaged in the publication of


Philippine Free Press Magazine, one of the . . . widely circulated political magazines
in the Philippines. Due to its wide circulation, the publication of the Free Press
magazine enabled [petitioner] to attain considerable prestige prior to the
declaration of Martial Law as well as to achieve a high profit margin. . . .

Sometime in . . . 1963, [petitioner] purchased a parcel of land situated at No. 2249,


Pasong Tamo Street, Makati which had an area of 5,000 square meters as evidenced
by . . . (TCT) No. 109767 issued by the Register of Deeds of Makati (Exh. Z). Upon
41

taking possession of the subject land, [petitioner] constructed an office building


thereon to house its various machineries, equipment, office furniture and fixture.
[Petitioner] thereafter made the subject building its main office . . . .

During the 1965 presidential elections, [petitioner] supported the late President
Diosdado Macapagal against then Senate President Ferdinand Marcos. Upon the
election of the late President Ferdinand Marcos in 1965 and prior to the imposition
of Martial law on September 21, 1972, [petitioner] printed numerous articles highly
critical of the Marcos administration, exposing the corruption and abuses of the
regime. The [petitioner] likewise ran a series of articles exposing the plan of the
Marcoses to impose a dictatorship in the guise of Martial Law . . . .

In the evening of September 20, 1972, soldiers surrounded the Free Press Building,
forced out its employees at gunpoint and padlocked the said establishment. The
soldier in charge of the military contingent then informed Teodoro Locsin, Jr., the son
of Teodoro Locsin, Sr., the President of [petitioner], that Martial Law had been
declared and that they were instructed by the late President Marcos to take over the
building and to close the printing press. xxx.

On September 21, 1972 . . ., Teodoro Locsin, Sr. was arrested [and] . . . . was
brought to Camp Crame and was subsequently transferred to the maximum security
bloc at Fort Bonifacio.

Sometime in December, 1972, Locsin, Sr. was informed . . . that no charges were to
be filed against him and that he was to be provisionally released subject to the
following conditions, to wit: (1) he remained (sic) under city arrest; xxx (5) he was
not to publish the Philippine Free Press nor was he to do, say or write anything
critical of the Marcos administration . . . .

Consequently, the publication of the Philippine Free Press ceased. The subject
building remained padlocked and under heavy military guard (TSB, 27 May 1993,
pp. 51-52; stipulated). The cessation of the publication of the ... magazine led to the
financial ruin of [petitioner] . . . . [Petitioners] situation was further aggravated when
its employees demanded the payment of separation pay as a result of the cessation
of its operations. [Petitioners] minority stockholders, furthermore, made demands
that Locsin, Sr. buy out their shares. xxx.

On separate occasions in 1973, Locsin, Sr. was approached by the late Atty. Crispin
Baizas with offers from then President Marcos for the acquisition of the [petitioner].
However, Locsin, Sr. refused the offer stating that [petitioner] was not for sale (TSN,
2 May 1988, pp. 8-9, 40; 27 May 1993, pp. 66-67).

42

A few months later, the late Secretary Guillermo De Vega approached Locsin, Sr.
reiterating Marcoss offer to purchase the name and the assets of the
[petitioner].xxx

Sometime during the middle of 1973, Locsin, Sr. was contacted by Brig. Gen. Hans
Menzi, the former aide-de-camp of then President Marcos concerning the sale of the
[petitioner]. Locsin, Sr. requested that the meeting be held inside the [petitioner]
Building and this was arranged by Menzi (TSN, 27 May 1993, pp. 69-70). During the
said meeting, Menzi once more reiterated Marcoss offer to purchase both the name
and the assets of [petitioner] adding that Marcos cannot be denied (TSN, 27 May
1993, p. 71). Locsin, Sr. refused but Menzi insisted that he had no choice but to sell.
Locsin, Sr. then made a counteroffer that he will sell the land, the building and all
the machineries and equipment therein but he will be allowed to keep the name of
the [petitioner]. Menzi promised to clear the matter with then President Marcos
(TSN, 27 May 1993, p. 72). Menzi thereafter contacted Locsin, Sr. and informed him
that President Marcos was amenable to his counteroffer and is offering the purchase
price of Five Million Seven Hundred Fifty Thousand (P5, 750,000.00) Pesos for the
land, the building, the machineries, the office furnishing and the fixtures of the
[petitioner] on a take-it-or-leave-it basis (TSN, 2 May 1988, pp.42-43; 27 May 1993,
p. 88).
On August 22, 1973, Menzi tendered to Locsin, Sr. a check for One Million (P1,
000,000.00) Pesos downpayment for the sale, . . . Locsin, Sr. accepted the check,
subject to the condition that he will refund the same in case the sale will not push
through. (Exh. 7).
On August 23, 1973, the Board of Directors of [petitioner] held a meeting and
reluctantly passed a resolution authorizing Locsin, Sr. to sell the assets of the
[petitioner] to Menzi minus the name Philippine Free Press (Exhs. A-1 and 1; TSN, 27
May 1993, pp. 73-76).
On October 23, 1973, the parties [petitioner, as vendor and private respondent,
represented by B/Gen. Menzi, as vendee] met . . . and executed two (2) notarized
Deeds of Sale covering the land, building and the machineries of the [petitioner].
Menzi paid the balance of the purchase price in the amount of . . . (P4,750,000.00)
Pesos (Exhs. A and (; B and 10;TSN, 27 May 1993, pp. 81-82; 3 June 1993, p. 89).
Locsin, Sr. thereafter used the proceeds of the sale to pay the separation pay of
[petitioners] employees, buy out the shares of the minority stockholders as well as
to settle all its obligations.
On February 26, 1987, [petitioner] filed a complaint for Annulment of Sale against
[respondent] Liwayway and the PCGG before the Regional Trail Court of Makati,
Branch 146 on the grounds of vitiated consent and gross inadequacy of purchase
price. On motion of defendant PCGG, the complaint against it was dismissed on
October 22, 1987. (Words in bracket and underscoring added)

In a decision dated October 31, 1995, [2] the trial court dismissed petitioners complaint and
granted private respondents counterclaim, to wit:

WHEREFORE, in view of all the foregoing premises, the herein complaint for
annulment of sales is hereby dismissed for lack of merit.
43

On [respondent] counterclaim, the court finds for [respondent] and against


[petitioner] for the recovery of attorneys fees already paid for at P1,945,395.98,
plus a further P316,405.00 remaining due and payable.

SO ORDERED. (Words in bracket added)

In time, petitioner appealed to the Court of Appeals (CA) whereat its appellate recourse
was docketed as CA-G.R. C.V. No. 52660.

As stated at the outset hereof, the appellate court, in a decision dated February 25, 1998,
affirmed with modification the appealed decision of the trial court, the modification consisting of
the deletion of the award of attorneys fees to private respondent, thus:

WHEREFORE, with the sole modification that the award of attorneys fees in favor of
[respondent] be deleted, the Decision appealed from is hereby AFFIRMED in all
respects. SO ORDERED.

Hence, petitioners present recourse, urging the setting aside of the decision under review
which, to petitioner, decided questions of substance in a way not in accord with law and
applicable jurisprudence considering that the appellate court gravely erred:
I
xxx IN ITS MISAPPLICATION OF THE DECISIONS OF THE HONORABLE COURT THAT
RESULTED IN ITS ERRONEOUS CONCLUSION THAT PETITIONER'S CAUSE OF ACTION
HAD ALREADY PRESCRIBED.
II
xxx IN CONCLUDING THAT THE UNDISPUTED FACTS AND CIRCUMSTANCES
PRECEDING THE EXECUTION OF THE CONTRACTS OF SALE FOR THE PETITIONER'S
PROPERTIES DID NOT ESTABLISH THE FORCE, INTIMIDATION, DURESS AND UNDUE
INFLUENCE WHICH VITIATED PETITIONER'S CONSENT.
A. xxx IN CONSIDERING AS HEARSAY THE TESTIMONIAL EVIDENCE WHICH
CLEARLY ESTABLISHED THE THREATS MADE UPON PETITIONER AND THAT
RESPONDENT LIWAYWAY WILL BE USED AS THE CORPORATE VEHICLE FOR
THE FORCED ACQUISITION OF PETITIONER'S PROPERTIES.

44

B. xxx IN CONCLUDING THAT THE ACTS OF THEN PRESIDENT MARCOS DURING


MARTIAL LAW DID NOT CONSTITUTE THE FORCE, INTIMIDATION, DURESS AND
UNDUE INFLUENCE WHICH VITIATED PETITIONER'S CONSENT.
C. xxx IN RESOLVING THE INSTANT CASE ON THE BASIS OF MERE SURMISES AND
SPECULATIONS INSTEAD OF THE UNDISPUTED EVIDENCE ON RECORD.
III
xxx IN CONCLUDING THAT THE GROSSLY INADEQUATE PURCHASE PRICE FOR
PETITIONER'S PROPERTIES DOES NOT INDICATE THE VITIATION OF PETITIONER'S
CONSENT TO THE CONTRACTS OF SALE.
IV
xxx IN CONCLUDING THAT PETITIONER'S USE OF THE PROCEEDS OF THE SALE FOR
ITS SURVIVAL CONSTITUTE AN IMPLIED RATIFICATION [OF] THE CONTRACTS OF
SALE.
V
xxx IN EXCLUDING PETITIONER'S EXHIBITS X-6 TO X-7 AND Y-3 (PROFFER) WHICH
ARE ADMISSIBLE EVIDENCE WHICH COMPETENTLY PROVE THAT THEN PRESIDENT
MARCOS OWNED PRIVATE RESPONDENT LIWAYWAY, WHICH WAS USED AS THE
CORPORATE VEHICLE FOR THE ACQUISITION OF PETITIONER'S PROPERTIES.

The petition lacks merit.

Petitioner starts off with its quest for the allowance of the instant recourse on the submission
that the martial law regime tolled the prescriptive period under Article 1391 of the Civil Code,
which pertinently reads:

Article 391. The action for annulment shall be brought within four years.
This period shall begin: In cases of intimidation, violence or undue influence, from
the time the defect of the consent ceases.
It may be recalled that the separate deeds of sale [3] sought to be annulled under
petitioners basic complaint were both executed on October 23, 1973. Per the appellate
court, citing Development Bank of the Philippines [DBP] vs. Pundogar [4], the 4-year
prescriptive period for the annulment of the aforesaid deeds ended in late 1977, doubtless
suggesting that petitioners right to seek such annulment accrued four (4) years earlier, a
starting time-point corresponding, more or less, to the date of the conveying deed, i.e.,
October 23, 1973. Petitioner contends, however, that the 4-year prescriptive period could
not have commenced to run on October 23, 1973, martial law being then in full swing.
Plodding on, petitioner avers that the continuing threats on the life of Mr. Teodoro Locsin,
Sr. and his family and other menacing effects of martial law which should be considered
as force majeure - ceased only after the February 25, 1986 People Power uprising.
Petitioner instituted its complaint for annulment of contracts on February 26, 1987. The
question that now comes to the fore is: Did the 4-year prescriptive period start to run in late
October 1973, as postulated in the decision subject of review, or on February 25, 1986, as
petitioner argues, on the theory that martial law has the effects of a force majeure[5], which, in
turn, works to suspend the running of the prescriptive period for the main case filed with the trial
court.

45

Petitioner presently faults the Court of Appeals for its misapplication of the doctrinal rule laid
down in DBP vs. Pundogar[6] where this Court, citing and quoting excerpts from the ruling in Tan
vs. Court of Appeals [7], as reiterated in National Development Company vs. Court of
Appeals, [8] wrote

We can not accept the petitioners contention that the period during which
authoritarian rule was in force had interrupted prescription and that the same began
to run only on February 25, 1986, when the Aquino government took power. It is
true that under Article 1154 [of the Civil Code] xxx fortuitous events have the effect
of tolling the period of prescription. However, we can not say, as a universal rule,
that the period from September 21, 1972 through February 25, 1986 involves a
force majeure. Plainly, we can not box in the "dictatorial" period within the term
without distinction, and without, by necessity, suspending all liabilities, however
demandable, incurred during that period, including perhaps those ordered by this
Court to be paid. While this Court is cognizant of acts of the last regime, especially
political acts, that might have indeed precluded the enforcement of liability against
that regime and/or its minions, the Court is not inclined to make quite a sweeping
pronouncement, . . . . It is our opinion that claims should be taken on a case-to-case
basis. This selective rule is compelled, among others, by the fact that not all
those imprisoned or detained by the past dictatorship were true political
oppositionists, or, for that matter, innocent of any crime or wrongdoing. Indeed, not
a few of them were manipulators and scoundrels. [Italization in the original;
Underscoring and words in bracket added]

According to petitioner, the appellate court misappreciated and thus misapplied the correct
thrust of the Tan case, as reiterated in DBP which, per petitioners own formulation, is the
following:[9]

The prevailing rule, therefore, is that on a case-to-case basis, the Martial Law
regime may be treated as force majeure that suspends the running of the applicable
prescriptive period provided that it is established that the party invoking the
imposition of Martial Law as a force majeure are true oppositionists during the
Martial Law regime and that said party was so circumstanced that is was
impossible for said party to commence, continue or to even resist an
action during the dictatorial regime. (Emphasis and underscoring in the
original)

We are not persuaded.

It strains credulity to believe that petitioner found it impossible to commence and succeed
in an annulment suit during the entire stretch of the dictatorial regime. The Court can grant that
Mr. Locsin, Sr. and petitioner were, in the context of DBP and Tan, true oppositionists during the
period of material law. Petitioner, however, has failed to convincingly prove that Mr. Locsin, Sr.,
as its then President, and/or its governing board, were so circumstanced that it was well-nigh
impossible for him/them to successfully institute an action during the martial law years.
Petitioner cannot plausibly feign ignorance of the fact that shortly after his arrest in the evening
46

of September 20, 1972, Mr. Locsin, Sr., together with several other journalists [10], dared to file
suits against powerful figures of the dictatorial regime and veritably challenged the legality of
the declaration of martial law. Docketed in this Court as GR No. L-35538, the case, after its
consolidation with eight (8) other petitions against the martial law regime, is now memorialized
in books of jurisprudence and cited in legal publications and case studies as Aquino vs. Enrile.[11]

Incidentally, Mr. Locsin Sr., as gathered from the ponencia of then Chief Justice Querube
Makalintal in Aquino, was released from detention notwithstanding his refusal to withdraw from
his petition in said case. Judging from the actuations of Mr. Locsin, Sr. during the onset of martial
law regime and immediately thereafter, any suggestion that intimidation or duress forcibly
stayed his hands during the dark days of martial law to seek judicial assistance must be rejected.
[12]

Given the foregoing perspective, the Court is not prepared to disturb the ensuing ruling of
the appellate court on the effects of martial law on petitioners right of action:

In their testimonies before the trial court, both Locsin, Sr. and Locsin, Jr. claimed that
they had not filed suit to recover the properties until 1987 as they could not expect
justice to be done because according to them, Marcos controlled every part of the
government, including the courts, (TSN, 2 May 1988, pp. 23-24; 27 May 1993, p.
121). While that situation may have obtained during the early years of the martial
law administration, We could not agree with the proposition that it remained
consistently unchanged until 1986, a span of fourteen (14) years. The unfolding of
subsequent events would show that while dissent was momentarily stifled, it was
not totally silenced. On the contrary, it steadily simmered and smoldered beneath
the political surface and culminated in that groundswell of popular protest which
swept the dictatorship from power. [13]
The judiciary too, as an institution, was no ivory tower so detached from the ever
changing political climate. While it was not totally impervious to the influence of the
dictatorships political power, it was not hamstrung as to render it inutile to perform
its functions normally. To say that the Judiciary was not able to render justice to the
persons who sought redress before it . . . during the Martial Law years is a sweeping
and unwarranted generalization as well as an unfounded indictment. The Judiciary, .
. . did not lack in gallant jurists and magistrates who refused to be cowed into
silence by the Marcos administration. Be that as it may, the Locsins mistrust of the
courts and of judicial processes is no excuse for their non-observance of the
prescriptive period set down by law.

Corollary to the presented issue of prescription of action for annulment of contract voidable on
account of defect of consent[14] is the question of whether or not duress, intimidation or undue
influence vitiated the petitioners consent to the subject contracts of sale. Petitioner delves at
length on the vitiation issue and, relative thereto, ascribes the following errors to the appellate
court: first, in considering as hearsay the testimonial evidence that may prove the element
of"threat" against petitioner or Mr. Locsin, Sr., and the dictatorial regime's use of private
respondent as a corporate vehicle for forcibly acquiring petitioners properties; second, in
concluding that the acts of then President Marcos during the martial law years did not have a
consent-vitiating effect on petitioner; and third, in resolving the case on the basis of mere
surmises and speculations.
47

The evidence referred to as hearsay pertains mainly to the testimonies of Messrs. Locsin, Sr. and
Teodoro Locsin, Jr. (the Locsins, collectively), which, in gist, established the following facts: 1) the
widely circulated Free Press magazine, which, prior to the declaration of Martial Law, took the
strongest critical stand against the Marcos administration, was closed down on the eve of such
declaration, which closure eventually drove petitioner to financial ruin; 2) upon Marcos orders,
Mr. Locsin, Sr. was arrested and detained for over 2 months without charges and, together with
his family, was threatened with execution; 3) Mr. Locsin, Sr. was provisionally released on the
condition that he refrains from reopening Free Press and writing anything critical of the Marcos
administration; and 4) Mr. Locsin, Sr. and his family remained fearful of reprisals from Marcos
until the 1986 EDSA Revolution.

Per the Locsins, it was amidst the foregoing circumstances that petitioners property in
question was sold to private respondent, represented by Gen. Menzi, who, before the sale,
allegedly applied the squeeze on Mr. Locsin, Sr. thru the medium of the Marcos cannot be
denied and [you] have no choice but to sell line.

The appellate court, in rejecting petitioners above posture of vitiation of consent,


observed:

It was under the above-enumerated circumstances that the late Hans Menzi,
allegedly acting on behalf of the late President Marcos, made his offer to purchase
the Free Press. It must be noted, however, that the testimonies of Locsin, Sr. and
Locsin, Jr. regarding Menzis alleged implied threat that Marcos cannot be denied and
that [respondent] was to be the corporate vehicle for Marcoss takeover of the Free
Press is hearsay as Menzi already passed away and is no longer in a position to
defend himself; the same can be said of the offers to purchase made by Atty. Crispin
Baizas and Secretary Guillermo de Vega who are also both dead. It is clear from the
provisions of Section 36, Rule 130 of the 1989 Revised Rules on Evidence that any
evidence, . . . is hearsay if its probative value is not based on the personal
knowledge of the witness but on the knowledge of some other person not on the
witness stand. Consequently, hearsay evidence, whether objected to or not, has no
probative value unless the proponent can show that the evidence falls within the
exceptions to the hearsay evidence rule (Citations omitted)

The appellate courts disposition on the vitiation-of-consent angle and the ratio therefor
commends itself for concurrence.
Jurisprudence instructs that evidence of statement made or a testimony is hearsay if
offered against a party who has no opportunity to cross-examine the witness. Hearsay evidence
is excluded precisely because the party against whom it is presented is deprived of or is bereft of
opportunity to cross-examine the persons to whom the statements or writings are attributed.
[15]
And there can be no quibbling that because death has supervened, the late Gen Menzi, like
the other purported Marcos subalterns, Messrs. Baizas and De Vega, cannot cross-examine the
Locsins for the threatening statements allegedly made by them for the late President.
Like the Court of Appeals, we are not unmindful of the exception to the hearsay rule provided in
Section 38, Rule 130 of the Rules of Court, which reads:
48

SEC. 38. Declaration against interest. The declaration made by a person deceased
or unable to testify, against the interest of the declarant, if the fact asserted in the
declaration was at the time it was made so far contrary to the declarant's own
interest, that a reasonable man in his position would not have made the declaration
unless he believed it to be true, may be received in evidence against himself or his
successors-in-interest and against third persons.

However, in assessing the probative value of Gen. Menzis supposed declaration against
interest, i.e., that he was acting for the late President Marcos when he purportedly coerced Mr.
Locsin, Sr. to sell the Free Press property, we are loathed to give it the evidentiary weight
petitioner endeavors to impress upon us. For, the Locsins can hardly be considered as
disinterested witnesses. They are likely to gain the most from the annulment of the subject
contracts. Moreover, allegations of duress or coercion should, like fraud, be viewed with utmost
caution. They should not be laid lightly at the door of men whose lips had been sealed by death.
[16]
Francisco explains why:
[I]t has been said that of all evidence, the narration of a witness of his conversation
with a dead person is esteemed in justice the weakest. One reason for its
unreliability is that the alleged declarant can not recall to the witness the
circumstances under which his statement were made. The temptation and
opportunity for fraud in such cases also operate against the testimony. Testimony to
statements of a deceased person, at least where proof of them will prejudice his
estate, is regarded as an unsafe foundation for judicial action except in so far as
such evidence is borne out by what is natural and probable under the circumstances
taken in connection with actual known facts. And a court should be very slow to act
upon the statement of one of the parties to a supposed agreement after the death
of the other party; such corroborative evidence should be adduced as to satisfy the
court of the truth of the story which is to benefit materially the person telling it. [17]

Excepting, petitioner insists that the testimonies of its witnesses the Locsins - are not hearsay
because:

In this regard, hearsay evidence has been defined as the evidence not of what the
witness knows himself but of what he has heard from others. xxx Thus, the mere
fact that the other parties to the conversations testified to by the witness are
already deceased does [not] render such testimony inadmissible for being
hearsay. [18]
xxx xxx xxx
The testimonies of Teodoro Locsin, Sr. and Teodoro Locsin, Jr. that the late Atty.
Baizas, Gen. Menzi and Secretary de Vega stated that they were representing
Marcos, that Marcos cannot be denied, and the fact that Gen. Menzi stated that
private respondent Liwayway was to be the corporate vehicle for the then President
Marcos' take-over of petitioner Free Press are not hearsay. Teodoro Locsin, Sr. and
Teodoro Locsin, Jr. were in fact testifying to matters of their own personal
knowledge because they were either parties to the said conversation or
were present at the time the said statements were made. [19]

Again, we disagree.
49

Even if petitioner succeeds in halving its testimonial evidence, one-half purporting to


quote the words of a live witness and the other half purporting to quote what the live witness
heard from one already dead, the other pertaining to the dead shall nevertheless remain hearsay
in character.

The all too familiar rule is that a witness can testify only to those facts which he knows of his
own knowledge. [20] There can be no quibbling that petitioners witnesses cannot testify respecting
what President Marcos said to Gen. Menzi about the acquisition of petitioners newspaper, if any
there be, precisely because none of said witnesses ever had an opportunity to hear what the two
talked about.

Neither may petitioner circumvent the hearsay rule by invoking the exception under the
declaration-against-interest rule. In context, the only declaration supposedly made by Gen. Menzi
which can conceivably be labeled as adverse to his interest could be that he was acting in behalf
of Marcos in offering to acquire the physical assets of petitioner. Far from making a statement
contrary to his own interest, a declaration conveying the notion that the declarant possessed the
authority to speak and to act for the President of the Republic can hardly be considered as a
declaration against interest.
Petitioner next assails the Court of Appeals on its conclusion that Martial Law is not per se a
consent-vitiating phenomenon. Wrote the appellate court: [21]

In other words, the act of the ruling power, in this case the martial law
administration, was not an act of mere trespass but a trespass in law - not
a perturbacion de mero hecho but a pertubacion de derecho - justified as it is by an
act of government in legitimate self-defense (IFC Leasing & Acceptance
Corporation v. Sarmiento Distributors Corporation, , citing Caltex (Phils.) v. Reyes,
84 Phil. 654 [1949]. Consequently, the act of the Philippine Government in declaring
martial law can not be considered as an act of intimidation of a third person who did
not take part in the contract (Article 1336, Civil Code). It is, therefore, incumbent on
[petitioner] to present clear and convincing evidence showing that the late
President Marcos, acting through the late Hans Menzi, abused his martial law
powers by forcing plaintiff-appellant to sell its assets. In view of the largely hearsay
nature of appellants evidence on this point, appellants cause must fall.

According to petitioner, the reasoning of the appellate court is "flawed" because:[22]

It is implicit from the foregoing reasoning of the Court of Appeals that it treated the
forced closure of the petitioner's printing press, the arrest and incarceration without
charges of Teodoro Locsin, Sr., the threats that he will be shot and the threats that
other members of his family will be arrested as legal acts done by a dictator under
the Martial Law regime. The same flawed reasoning led the Court of Appeals to the
50

erroneous conclusion that such acts do not constitute force, intimidation, duress and
undue influence that vitiated petitioner's consent to the Contracts of Sale.

The contention is a rehash of petitioners bid to impute on private respondent acts of force and
intimidation that were made to bear on petitioner or Mr. Locsin, Sr. during the early years of
martial law. It failed to take stock of a very plausible situation depicted in the appellate courts
decision which supports its case disposition on the issue respecting vitiation. Wrote that court:

Even assuming that the late president Marcos is indeed the owner of [respondent],
it does not necessarily follow that he, acting through the late Hans Menzi, abused
his power by resorting to intimidation and undue influence to coerce the Locsins
into selling the assets of Free Press to them (sic).
It is an equally plausible scenario that Menzi convinced the Locsins to sell the assets
of the Free Press without resorting to threats or moral coercion by simply pointing
out to them the hard fact that the Free Press was in dire financial straits after the
declaration of Martial Law and was being sued by its former employees, minority
stockholders and creditors. Given such a state of affairs, the Locsins had no choice
but to sell their assets.[23]

Petitioner laments that the scenario depicted in the immediately preceding quotation as a case
of a court resorting to mere surmises and speculations, [24]oblivious that petitioner itself can only
offer, as counterpoint, also mere surmises and speculations, such as its claim about
Eugenio Lopez Sr. and Imelda R. Marcos offering enticing amounts to buy Free Press.[25]

It bears stressing at this point that even after the imposition of martial law, petitioner,
represented by Mr. Locsin, Sr., appeared to have dared the ire of the powers-that-be. He did not
succumb to, but in fact spurned offers to buy, lock-stock-and-barrel, the Free Press magazine,
dispatching Marcos emissaries with what amounts to a curt Free Press is not for sale. This reality
argues against petitioners thesis about vitiation of its contracting mind, and, to be sure, belying
the notion that Martial Law worked as a Sword of Damocles that reduced petitioner or Mr. Locsin,
Sr. into being a mere automaton. The following excerpt from the Court of Appeals decision is selfexplanatory: [26]

Noteworthy is the fact that although the threat of arrest hung over his head like the
Sword of Damocles, Locsin Sr. was still able to reject the offers of Atty. Baizas and
Secretary De Vega, both of whom were supposedly acting on behalf of the late
President Marcos, without being subjected to reprisals. In fact, the Locsins testified
that the initial offer of Menzi was rejected even though it was supposedly
accompanied by the threat that Marcos cannot be denied. Locsin, Sr. was,
moreover, even able to secure a compromise that only the assets of the Free Press
will be sold. It is, therefore, quite possible that plaintiff-appellants financial
condition, albeit caused by the declaration of Martial Law, was a major factor in
influencing Locsin, Sr. to accept Menzis offer. It is not farfetched to consider that
Locsin, Sr. would have eventually proceeded with the sale even in the absence of
the alleged intimidation and undue influence because of the absence of other
buyers.
51

Petitioners third assigned error centers on the gross inadequacy of the purchase price, referring
to the amount of P5,775,000.00 private respondent paid for the property in question. To
petitioner, the amount thus paid does not even approximate the actual market value of the
assets and properties,[27] and is very much less than the P18 Million offered by Eugenio Lopez.
[28]
Accordingly, petitioner urges the striking down, as erroneous, the ruling of the Court of
Appeals on purchase price inadequacy, stating in this regard as follows: [29]

Furthermore, the Court of Appeals in determining the adequacy of the price for the
properties and assets of petitioner Free Press relied heavily on the claim that the
audited financial statements for the years 1971 and 1972 stated that the book
value of the land is set at Two Hundred Thirty-Seven Thousand Five Hundred Pesos
(P237,500.00). However, the Court of Appeals' reliance on the book value of said
assets is clearly misplaced. It should be noted that the book value of fixed assets
bears very little correlation with the actual market value of an asset. (Emphasis
and underscoring in the original).

With the view we take of the matter, the book or actual market value of the property at the time
of sale is presently of little moment. For, petitioner is effectively precluded, by force of the
principle of estoppel ,[30] from cavalierly disregarding with impunity its own books of account in
which the property in question is assigned a value less than what was paid therefor. And, in line
with the rule on the quantum of evidence required in civil cases, neither can we cavalierly brush
aside private respondents evidence, cited with approval by the appellate court, that tends to
prove that-[31]

xxx the net book value of the Properties was actually only P994,723.66 as
appearing in Free Press's Balance Sheet as of November 30, 1972 (marked as Exh.
13 and Exh. V), which was duly audited by SyCip, Gorres, and Velayo, thus clearly
showing that Free Press actually realized a hefty profit of P4,755,276.34 from the
sale to Liwayway.

Lest it be overlooked, gross inadequacy of the purchase price does not, as a matter of civil
law, per se affect a contract of sale. Article 1470 of the Civil Code says so. It reads:
Article 1470. Gross inadequacy of price does not affect a contract of sale, except as
it may indicate a defect in the consent, or that the parties really intended a
donation or some other act or contract.

Following the aforequoted codal provision, it behooves petitioner to first prove a defect in the
consent, failing which its case for annulment contract of sale on ground gross inadequacy of
price must fall. The categorical conclusion of the Court of Appeals, confirmatory of that of the
trial court, is that the price paid for the Free Press office building, and other physical assets is not
unreasonable to justify the nullification of the sale. This factual determination, predicated as it
were on offered evidence, notably petitioners Balance Sheet as of November 30, 1972 (Exh. 13),
must be accorded great weight if not finality. [32]
52

In the light of the foregoing disquisition, the question of whether or not petitioners undisputed
utilization of the proceeds of the sale constitutes, within the purview of Article 1393 of the Civil
Code,[33] implied ratification of the contracts of sale need not detain us long. Suffice it to state in
this regard that the ruling of the Court of Appeals on the matter is well-taken. Wrote the
appellate court: [34]

In the case at bench, Free Presss own witnesses admitted that the proceeds of the
1973 sale were used to settle the claims of its employees, redeem the shares of its
stockholders and finance the companys entry into money-market shareholdings and
fishpond business activities (TSN, 2 May 1988, pp. 16, 42-45). It need not be
overemphasized that by using the proceeds in this manner, Free Press only too
clearly confirmed the voluntaries of its consent and ratified the sale. Needless to
state, such ratification cleanses the assailed contract from any alleged defects from
the moment it was constituted (Art. 1396, Civil Code).

Petitioners posture that its use of the proceeds of the sale does not translate to tacit
ratification of what it viewed as voidable contracts of sale, such use being a matter of [its
financial] survival,[35] is untenable. As couched, Article 1393 of the Civil Code is concerned only
with the act which passes for ratification of contract, not the reason which actuated the ratifying
person to act the way he did. Ubi lex non distinguit nec nos distinguere debemus. When the law
does not distinguish, neither should we. [36]

Finally, petitioner would fault the Court of Appeals for excluding Exhibits X-6 to X-7 and Y-3
(proffer). These excluded documents which were apparently found in the presidential palace or
turned over by the US Government to the PCGG, consist of, among others, what appears to be
private respondents Certificate of Stock for 24,502 shares in the name of Gen. Menzi, but
endorsed in blank. The proffer was evidently intended to show that then President Marcos owned
private respondent, Liwayway Publishing Inc. Said exhibits are of little relevance to the resolution
of the main issue tendered in this case. Whether or not the contracts of sale in question are
voidable is the issue, not the ownership of Liwayway Publishing, Inc.

WHEREFORE, the petition is DENIED, and the challenged decision of the Court of
Appeals AFFIRMED.

Costs against petitioner.

53

54

G.R. No. 147324

May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,


vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals,
dated 27 February 2001, in CA-G.R. CV No. 63619. 1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom,
Inc. (Globe), had been engaged in the coordination of the provision of various communication
facilities for the military bases of the United States of America (US) in Clark Air Base, Angeles,
Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were
installed and configured for the exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its personnel or those of American
companies contracted by it to operate said facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with Globe for the use of the communication
facilities. Globe, on the other hand, contracted with local service providers such as the Philippine
Communications Satellite Corporation (Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated
itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi
Point for the exclusive use of the USDCA.2 The term of the contract was for 60 months, or five (5)
years.3 In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved.4
At the time of the execution of the Agreement, both parties knew that the Military Bases
Agreement between the Republic of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in
Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign
55

military bases, troops or facilities, which include those located at the US Naval Facility in Cubi
Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the
Senate and ratified by a majority of the votes cast by the people in a national referendum when
the Congress so requires, and such new treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing
its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements that was supposed to extend the term of the use by the US of
Subic Naval Base, among others.5 The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing relationship
between the two countries in the spirit of friendship, cooperation and sovereign equality:
Now, therefore, be it Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements, at the same time reaffirming its desire to
continue friendly relations with the government and people of the United States of
America.6
On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government
through the US Embassy, notifying it of the Philippines termination of the RP-US Military Bases
Agreement. The Note Verbalestated that since the RP-US Military Bases Agreement, as amended,
shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval
Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use
of the earth station effective 08 November 1992 in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement.
Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which
provides:
Neither party shall be held liable or deemed to be in default for any failure to perform its
obligation under this Agreement if such failure results directly or indirectly from force
majeure or fortuitous event. Either party is thus precluded from performing its obligation
until such force majeure or fortuitous event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances beyond the control of the party
involved including, but not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or
acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to
know its commitment to pay the stipulated rentals for the remaining terms of the Agreement
even after [Globe] shall have discontinue[d] the use of the earth station after November 08,
1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put
into operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days
prior to the expected date of termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of
T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the
remaining life of the agreement. However, should PHILCOMSAT make use or sell the earth
station subject to this agreement, the obligation of [Globe] to pay the rental for the
remaining life of the agreement shall be at such monthly rate as may be agreed upon by
the parties.8
56

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24
November 1993 demanding payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to
heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against
Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with
legal interest, exemplary damages, attorneys fees and costs of suit. The case was raffled to
Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement
due to the termination of the RP-US Military Bases Agreement and the non-ratification by the
Senate of the Treaty of Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of said events exempted it
from paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand
Two Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine
Currency (computed at the exchange rate prevailing at the time of compliance or
payment) representing rentals for the month of December 1992 with interest
thereon at the legal rate of twelve percent (12%) per annum starting December
1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three Hundred
Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate
of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements
constitutes force majeure which exempts Globe from complying with its obligations under the
Agreement; (2) Globe is not liable to pay the rentals for the remainder of the term of the
Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of
the earth station for December 1992 and of attorneys fees. It explained that it terminated
Philcomsats services on 08 November 1992; hence, it had no reason to pay for rentals beyond
that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats
appeal for lack of merit and affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement occurred and justified the nonpayment by Globe of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as
stated in the Philippine Governments Note Verbale to the US Government, are acts, directions,
or requests of the Government of the Philippines which constitute force majeure. In addition,
there were circumstances beyond the control of the parties, such as the issuance of a formal
57

order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from ATT and
the complete withdrawal of all US military forces and personnel from Cubi Point, which prevented
further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats
services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting
to US$92,238.00 plus interest, considering that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing the Decision of the Court of
Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE
MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE
CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT
LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT,
DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD
OF ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT
LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8 should be deemed ineffective
because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the
validity of the parties definition of force majeure in Section 8 of the Agreement as
"circumstances beyond the control of the party involved including, but not limited to, any law,
order, regulation, direction or request of the Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which
defines fortuitous events as events which could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay
for the rental of the earth station for the entire term of the Agreement because it runs counter to
what was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is
inconsistent with the appellate courts pronouncement that Globe is liable to pay rentals for
December 1992 even though it terminated Philcomsats services effective 08 November 1992,
because the US military and personnel completely withdrew from Cubi Point only in December
1992. Philcomsat points out that it was Globe which proposed the five-year term of the
Agreement, and that the other provisions of the Agreement, such as Section 4.1 14 thereof, evince
the intent of Globe to be bound to pay rentals for the entire five-year term. 15
Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to
attorneys fees and exemplary damages.16
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not
contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a
contract from providing for other instances when they would be exempt from fulfilling their
contractual obligations. Globe also claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from complying with its obligations under
the Agreement.17 On the issue of the propriety of awarding attorneys fees and exemplary
58

damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in
refusing to pay rentals for the remainder of the term of the Agreement, Globe only acted in
accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in
finding it liable for the amount of US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November 1992. 20
In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual
issue which is not cognizable by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsats Petition in G.R. No.
147324 and required the parties to submit their respective memoranda. 22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed
by Globe in G.R. No. 147334 and required both parties to submit their memoranda. 23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US
Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and
Security, and the consequent withdrawal of US military forces and personnel from Cubi Point
constitute force majeure which would exempt Globe from complying with its obligation to pay
rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the
assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given
effect because the enumeration of events constituting force majeure therein unduly expands the
concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event
must be unforeseen in order to exempt a party to a contract from complying with its obligations
therein. It insists that since the expiration of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US
military forces and personnel from Cubi Point were not unforeseeable, but were possibilities
known to it and Globe at the time they entered into the Agreement, such events cannot exempt
Globe from performing its obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events
or force majeure, refers not only to events that are unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which, could not be foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such
as floods or typhoons,24 or an "act of man," such as riots, strikes or wars. 25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be
deemed events constituting force majeure:
59

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


2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the
parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a
fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such
stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run
counter to the law, morals, good customs, public order or public policy. 27
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith." 28 Courts
cannot stipulate for the parties nor amend their agreement where the same does not contravene
law, morals, good customs, public order or public policy, for to do so would be to alter the real
intent of the parties, and would run contrary to the function of the courts to give force and effect
thereto.29
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed upon has the force of law between them. 30
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements must be established: (1) the event must be
independent of the human will; (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no control over the nonrenewal of the term of the RP-US Military Bases Agreement when the same expired in 1991,
because the prerogative to ratify the treaty extending the life thereof belonged to the Senate.
Neither did the parties have control over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and
its Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on September 16,
1991 is beyond the control of the parties. This resolution was followed by the sending on
December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to
the US Government notifying the latter of the formers termination of the RP-US Military
Bases Agreement (as amended) on 31 December 1992 and that accordingly, the
withdrawal of all U.S. military forces from Subic Naval Base should be completed by said
date. Subsequently, defendant [Globe] received a formal order from Cdr. Walter F. Corliss II
Commander USN dated July 31, 1992 and a notification from ATT dated July 29, 1992 to
terminate the provision of T1s services (via an IBS Standard B Earth Station) effective
60

November 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said order and
letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the defendant. The formal order from
Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal
of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts
and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute "force majeure or fortuitous event(s) as defined under paragraph
8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the
rentals for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as amended)
the continued stay of all US Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any position to render the service
it was obligated under the Agreement. To put it blantly (sic), since the US military forces
and personnel left or withdrew from Cubi Point in the year end December 1992, there was
no longer any necessity for the plaintiff to continue maintaining the IBS
facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until the end of
its five-year term without fault on the part of either party. The Court of Appeals was thus correct
in ruling that the happening of such fortuitous events rendered Globe exempt from payment of
rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat
cannot be compelled to perform its corresponding obligation under the Agreement. As noted by
the appellate court:
We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to
charge GLOBE rentals for the balance of the lease term without there being any
corresponding telecommunications service subject of the lease. It will be grossly unfair
and iniquitous to hold GLOBE liable for lease charges for a service that was not and could
not have been rendered due to an act of the government which was clearly beyond
GLOBEs control. The binding effect of a contract on both parties is based on the principle
that the obligations arising from contracts have the force of law between the contracting
parties, and there must be mutuality between them based essentially on their equality
under which it is repugnant to have one party bound by the contract while leaving the
other party free therefrom (Allied Banking Corporation v. Court of Appeals, 284
SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals for the month of
December 1992, the Court likewise affirms the appellate courts ruling that Globe should pay the
same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November
1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they
actually ceased using the earth station subject of the Agreement was not established during the
trial.34 However, the trial court found that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the USDCA had
control over the earth station and had the option of using the same. Furthermore, Philcomsat
could not have removed or rendered ineffective said communication facility until after 31
December 1992 because Cubi Point was accessible only to US naval personnel up to that time.
61

Hence, the Court of Appeals did not err when it affirmed the trial courts ruling that Globe is liable
for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled to
attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and must be supported by
factual, legal and equitable justifications.36 In previously decided cases, the Court awarded
attorneys fees where a party acted in gross and evident bad faith in refusing to satisfy the other
partys claims and compelled the former to litigate to protect his rights; 37 when the action filed is
clearly unfounded,38 or where moral or exemplary damages are awarded. 39 However, in cases
where both parties have legitimate claims against each other and no party actually prevailed,
such as in the present case where the claims of both parties were sustained in part, an award of
attorneys fees would not be warranted.40
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 41 In the present
case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsats
demands for payment of rentals. It was established during the trial of the case before the trial
court that Globe had valid grounds for refusing to comply with its contractual obligations after
1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

62

G.R. No. 147839

June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,


vs.p
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of
the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31,
1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld
the causes of action for damages of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.)
Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co..
IMC and LSPI separately obtained from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines." 2 The policies defined book debts as the
"unpaid account still appearing in the Book of Account of the Insured 45 days after the time of
the loss covered under this Policy."3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss
for a period in excess of six (6) months from the date of the covering invoice or actual
delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after
the close of every calendar month all amount shown in their books of accounts as unpaid
and thus become receivable item from their customers and dealers. x x x 4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials
sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that
IMC and LSPI filed with respondent their claims under their respective fire insurance policies with
book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the
sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it
63

was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against petitioner; that respondent made several
demands for payment upon petitioner but these went unheeded. 5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held
liable because the property covered by the insurance policies were destroyed due to fortuities
event or force majeure; that respondent's right of subrogation has no basis inasmuch as there
was no breach of contract committed by it since the loss was due to fire which it could not
prevent or foresee; that IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the insured. 6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on
the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held
that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of IMC
and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of
securing the payment of purchase price, the above-described merchandise remains the property
of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the
delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision
setting aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a
new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to
the insured Inter Capitol Marketing Corporation, plus legal interest from the time of
demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to
the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully
paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature,
quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner
since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the
Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by
the owner of the thing at the time the loss under the principle of res perit domino; that
petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its
unpaid account and as such the obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the insurer has the right to go against
petitioner; that, being a fire insurance with book debt endorsements, what was insured was the
vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated
April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of
Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS
ONE OVER CREDIT.
64

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE
INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT. 14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because of the
non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over
credit, there was no loss as the accounts were not yet due since no prior demands were made by
IMC and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC
and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had
transferred to petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from
fire.
For its part, respondent counters that while ownership over the ready- made clothing materials
was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods
as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner
is liable for loss of the ready-made clothing materials since it failed to overcome the presumption
of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's
negligence in failing to provide stringent measures of caution, care and maintenance on its
property because electric wires do not usually short circuit unless there are defects in their
installation or when there is lack of proper maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and
should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of suit. 17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it
from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them. 18 The Supreme Court is
not a trier of facts; it is not its function to analyze or weigh evidence all over again. 19 Accordingly,
findings of fact of the appellate court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the CA went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. 21 Exceptions (4), (5), (7), and (11) apply to the
present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the
CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts
65

of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold
and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no
room for construction.22 In this case, the questioned insurance policies provide coverage for
"book debts in connection with ready-made clothing materials which have been sold or delivered
to various customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined
book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy." 24 Nowhere is it provided in the questioned
insurance policies that the subject of the insurance is the goods sold and delivered to the
customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. 25 Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of
securing the payment of the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of
loss is borne by the buyer. 27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until
full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of title, but whether insured has
substantial economic interest in the property. 28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a
lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured
is so situated with reference to the property that he would be liable to loss should it be injured or
66

destroyed by the peril against which it is insured. 29 Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its destruction. 30Indeed, a
vendor or seller retains an insurable interest in the property sold so long as he has any interest
therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504
(1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability. 33 The rationale
for this is that the rule that an obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case of fortuitous event.
It does not apply when the obligation is pecuniary in nature. 34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely by its class or genus without
any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the obligation. 35This rule is based on
the principle that the genus of a thing can never perish. Genus nunquan perit. 36 An obligation to
pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this
case. What is relevant here is whether it has been established that petitioner has outstanding
accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C22"38 show that petitioner has an outstanding account with IMC in the amount of P2,119,205.00.
Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F" 40 is the subrogation
receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right
of subrogation accrues simply upon payment by the insurance company of the insurance
claim.41Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil
Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April 23, 1991 from
petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's
unpaid account with LSPI. It only confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
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Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated
to any right which LSPI may have against petitioner. Failure to substantiate the claim of
subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATIONthat the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:

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