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G.R. No.

113003 October 17, 1997 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
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, 
 plaintiffs may have suffered by reason of the explosion pursuant to Article 11744 of the Civil
vs.
 Code."
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN
TUMBOY, respondents. 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
ROMERO, J.: 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
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 On August 23, 1993, the Court of Appeals rendered the Decision7 reversing that of the lower
that exempts the carrier from liability for the death of a passenger. court. It held that:
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of
Jasmin, bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along the blow-out, if due to a factory defect, improper mounting, excessive tire pressure, is
Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus not an unavoidable event. On the other hand, there may have been adverse
fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in conditions on the road that were unforeseeable and/or inevitable, which could make
the death of 28-year-old Tito Tumboy and physical injuries to other passengers. 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
On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's negligence against the carrier and its obligation to exercise the utmost diligence of
fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and very cautious persons to carry the passenger safely as far as human care and
Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants foresight can provide, it is the burden of the defendants to prove that the cause of the
therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito. blow-out was a fortuitous event. It is not incumbent upon the plaintiff to prove that the
They also filed a third-party complaint against Philippine Phoenix Surety and Insurance, Inc. This cause of the blow-out is not caso-fortuito.
third-party defendant filed an answer with compulsory counterclaim. At the pre-trial conference,
the parties agreed to a stipulation of facts.1 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
Upon a finding that the third party defendant was not liable under the insurance contract, the choice nor control over the carrier in the selection and use of its equipment, and the
lower court dismissed the third party complaint. No amicable settlement having been arrived at good repute of the manufacturer will not necessarily relieve the carrier from liability.
by the parties, trial on the merits ensued.
Moreover, there is evidence that the bus was moving fast, and the road was wet and
The plaintiffs asserted that violation of the contract of carriage between them and the defendants rough. The driver could have explained that the blow-out that precipitated the accident
was brought about by the driver's failure to exercise the diligence required of the carrier in that caused the death of Toto Tumboy could not have been prevented even if he had
transporting passengers safely to their place of destination. According to Leny Tumboy, the bus exercised due care to avoid the same, but he was not presented as witness.
left Mangagoy at 3:00 o'clock 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 The Court of Appeals thus disposed of the appeal as follows:
passengers had cargoes on top. Since it was "running fast," she cautioned the driver to slow WHEREFORE, the judgment of the court a quo is set aside and another one entered
down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito
something explode and immediately, the bus fell into a ravine. Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial
For their part, the defendants tried to establish that the accident was due to a fortuitous event. expenses.
Abundio Salce, who was the bus conductor when the incident happened, testified that the 42- SO ORDERED.
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 The defendants filed a motion for reconsideration of said decision which was denied on
because of the zigzag road. He affirmed that the left front tire that exploded was a "brand new November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the position that
tire" that he mounted on the bus on April 21, 1988 or only five (5) days before the incident. The the tire blowout that caused the death of Tito Tumboy was a caso fortuito. Petitioners claim
Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts further that the Court of Appeals, in ruling contrary to that of the lower court, misapprehended
on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated facts and, therefore, its findings of fact cannot be considered final which shall bind this Court.
that all driver applicants in Yobido Liner underwent actual driving tests before they were Hence, they pray that this Court review the facts of the case.
employed. Defendant Cresencio Yobido underwent such test and submitted his professional
The Court did re-examine the facts and evidence in this case because of the inapplicability of the
driver's license and clearances from the barangay, the fiscal and the police.
established principle that the factual findings of the Court of Appeals are final and may not be
On August 29, 1991, the lower court rendered a decision2 dismissing the action for lack of merit. reviewed on appeal by this Court. This general principle is subject to exceptions such as the one
On the issue of whether or not the tire blowout was a caso fortuito, it found that "the falling of the present in this case, namely, that the lower court and the Court of Appeals arrived at diverse
bus to the cliff was a result of no other outside factor than the tire blow-out." It held that the ruling factual findings.8 However, upon such re-examination, we found no reason to overturn the
in the La Mallorca and Pampanga Bus Co. v. De Jesus3 that a tire blowout is "a mechanical findings and conclusions of the Court of Appeals.
defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode
been subjected to a more thorough or rigid check-up before it took to the road that morning" is
of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is
inapplicable to this case. It reasoned out that in said case, it was found that the blowout was
not bound absolutely and at all events to carry them safely and without injury.9 However, when a
caused by the established fact that the inner tube of the left front tire "was pressed between the
passenger is injured or dies while travelling, the law presumes that the common carrier is
inner circle of the left wheel and the rim which had slipped out of the wheel." In this case,
negligent. Thus, the Civil Code provides:
however, "the cause of the explosion remains a mystery until at present." As such, the court
Art. 1756. In case of death or injuries to passengers, common carriers are presumed periodical tests to determine the condition and strength of those vehicle portions the
to have been at fault or to have acted negligently, unless they prove that they failure of which may endanger the safety of the passengers.18
observed extraordinary diligence as prescribed in articles 1733 and 1755.
Having failed to discharge its duty to overthrow the presumption of negligence with clear and
Article 1755 provides that "(a) common carrier is bound to carry the passengers safely as far as convincing evidence, petitioners are hereby held liable for damages. Article 176419 in relation to
human care and foresight can provide, using the utmost diligence of very cautious persons, with Article 220620 of the Civil Code prescribes the amount of at least three thousand pesos as
a due regard for all the circumstances." Accordingly, in culpa contractual, once a passenger dies damages for the death of a passenger. Under prevailing jurisprudence, the award of damages
or is injured, the carrier is presumed to have been at fault or to have acted negligently. This under Article 2206 has been increased to fifty thousand pesos (P50,000.00).21
disputable presumption may only be overcome by evidence that the carrier had observed
Moral damages are generally not recoverable in culpa contractual except when bad faith had
extraordinary diligence as prescribed by Articles 1733,10 1755 and 1756 of the Civil Code or that
been proven. However, the same damages may be recovered when breach of contract of
the death or injury of the passenger was due to a fortuitous event.11 Consequently, the court
carriage results in the death of a passenger,22 as in this case. Exemplary damages, awarded by
need not make an express finding of fault or negligence on the part of the carrier to hold it
way of example or correction for the public good when moral damages are awarded,23 may
responsible for damages sought by the passenger.12
likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent,
In view of the foregoing, petitioners' contention that they should be exempt from liability because reckless, oppressive, or malevolent manner.24 Because petitioners failed to exercise the
the tire blowout was no more than a fortuitous event that could not have been foreseen, must extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy,
fail. A fortuitous event is possessed of the following characteristics: (a) the cause of the it is deemed to have acted recklessly.25 As such, private respondents shall be entitled to
unforeseen and unexpected occurrence, or the failure of the debtor to comply with his exemplary damages.
obligations, must be independent of human will; (b) it must be impossible to foresee the event
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the
which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the
modification that petitioners shall, in addition to the monetary awards therein, be liable for the
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
award of exemplary damages in the amount of P20,000.00. Costs against petitioners.
normal manner; and (d) the obliger 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 SO ORDERED.
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 G.R. NO. 146224 January 26, 2007
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 VIRGINIA REAL, Petitioner, 

on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand vs.

name noted for quality, resulting in the conclusion that it could not explode within five days' use. SISENANDO H. BELO, Respondent.
Be that as it may, it is settled that an accident caused either by defects in the automobile or DECISION
through the negligence of its driver is not a caso fortuito that would exempt the carrier from
liability for damages.15 AUSTRIA-MARTINEZ, J.:

Moreover, a common carrier may not be absolved from liability in case of force majeure or Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
fortuitous event alone. The common carrier must still prove that it was not negligent in causing assailing the Resolution1 dated June 16, 2000 of the Court of Appeals (CA) which dismissed
the death or injury resulting from an accident.16 This Court has had occasion to state: outright the petition for review of Virginia Real (petitioner) in CA-G.R. SP No. 58799, and the CA
Resolution2 dated November 27, 2000 which denied her Motion for Reconsideration.
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 The facts of the case:
fortuitous event. No evidence was presented to show that the accident was due to Petitioner owned and operated the Wasabe Fastfood stall located at the Food Center of the
adverse road conditions or that precautions were taken by the jeepney driver to Philippine Women's University (PWU) along Taft Avenue, Malate, Manila. Sisenando H. Belo
compensate for any conditions liable to cause accidents. The sudden blowing-up, (respondent) owned and operated the BS Masters fastfood stall, also located at the Food Center
therefore, could have been caused by too much air pressure injected into the tire of PWU.
coupled by the fact that the jeepney was overloaded and speeding at the time of the
accident.17 Around 7:00 o'clock in the morning of January 25, 1996, a fire broke out at petitioner's Wasabe
Fastfood stall. The fire spread and gutted other fastfood stalls in the area, including respondent's
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was stall. An investigation on the cause of the fire by Fire Investigator SFO1 Arnel C. Pinca (Pinca)
running at "60-50" kilometers per hour only or within the prescribed lawful speed limit. However, revealed that the fire broke out due to the leaking fumes coming from the Liquefied Petroleum
they failed to rebut the testimony of Leny Tumboy that the bus was running so fast that she Gas (LPG) stove and tank installed at petitioner's stall. For the loss of his fastfood stall due to
cautioned the driver to slow down. These contradictory facts must, therefore, be resolved in the fire, respondent demanded compensation from petitioner. However, petitioner refused to
favor of liability in view of the presumption of negligence of the carrier in the law. Coupled with accede to respondent's demand.
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 Hence, respondent filed a complaint for damages against petitioner before the Metropolitan Trial
partially dangerous condition of the road. As stated above, proof that the tire was new and of Court, Branch 24, Manila (MeTC), docketed as Civil Case No. 152822.3 Respondent alleged that
good quality is not sufficient proof that it was not negligent. Petitioners should have shown that it petitioner failed to exercise due diligence in the upkeep and maintenance of her cooking
undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary equipments, as well as the selection and supervision of her employees; that petitioner's
check-ups of the vehicle's parts. As the late Justice J.B.L. Reyes said: negligence was the proximate cause of the fire that gutted the fastfood stalls.4
It may be impracticable, as appellee argues, to require of carriers to test the strength In her Answer dated September 23, 1996, petitioner denied liability on the grounds that the fire
of each and every part of its vehicles before each trip; but we are of the opinion that a was a fortuitous event and that she exercised due diligence in the selection and supervision of
due regard for the carrier's obligations toward the traveling public demands adequate her employees.5
After trial, the MeTC rendered its Decision6 dated April 5, 1999 in favor of the respondent, the above decision of the Regional Trial Court and it is the latter decision that is the proper
dispositive portion of which reads: subject of the petition for review?
WHEREFORE, in light of the foregoing, judgment is hereby rendered in favor of the plaintiff and 3. Whether the submission of copies of the respective position papers of the
against the defendant ordering the latter: contending parties is still an indispensable requirement in filing a petition for review
before the Court of Appeals despite the fact that the contents thereof are already
1) To pay the plaintiff the sum of P50,000.00 representing temperate or moderate quoted in the body of the verified petition and in the subject judgment of the
damages; and Metropolitan Trial Court?
2) To pay the plaintiff the sum of P25,000.00 as and for attorney's fees and litigation 4. Whether the herein petitioner could be held liable for damages as a result of the fire
expenses. that razed not only her own food kiosk but also the adjacent foodstalls at the Food
The counterclaim filed by the defendant is hereby DENIED FOR LACK OF MERIT. Center premises of the Philippine Women's University, including that of the
respondent?
SO ORDERED.7
5. Whether the Regional Trial Court could increase the amount of damages awarded
The MeTC held that the investigation conducted by the appropriate authority revealed that the by the Metropolitan Trial Court in favor of the respondent who has not even filed an
fire broke out due to the leaking fumes coming from the LPG stove and tank installed at appeal therefrom?16
petitioner's fastfood stall; that factual circumstances did not show any sign of interference by any
force of nature to infer that the fire occurred due to fortuitous event; that the petitioner failed to Petitioner submits that rules of procedure should not be applied in a very harsh, inflexible and
exercise due diligence, precaution, and vigilance in the conduct of her business, particularly, in technically unreasonable sense.
maintaining the safety of her cooking equipment as well as in the selection and supervision of While admitting that the RTC Decision and Order were not certified by the Clerk of Court himself,
her employees; that even if petitioner passes the fault to her employees, Article 2180 of the Civil petitioner insists that they were certified as authentic copies by Administrative Officer IV Gregorio
Code finds application; that in the absence of supporting evidence, the amount of actual B. Paraon of the RTC.
damages and unrealized profits prayed for by respondent cannot be granted; that, nonetheless,
respondent is entitled to temperate damages since respondent sustained pecuniary loss, though As to the MeTC Decision, petitioner contends that the submission of a certified true copy thereof
its true value cannot, from the very nature of the case, be proved with certainty. is not an indispensable requirement because that judgment is not the subject of the petition for
review.
Dissatisfied, petitioner filed an appeal with the Regional Trial Court, Branch 43, Manila (RTC),
docketed as Civil Case No. 99-94606, insisting that the fire was a fortuitous event. On November In any case, petitioner submits that she had substantially complied with the requirements of the
26, 1999, the RTC affirmed the Decision of the MeTC but increased the amount of temperate rule when she attached with her Motion for Reconsideration the copies of the Decisions of the
damages awarded to the respondent from P50,000.00 to P80,000.00.8 RTC and MeTC as certified correct by the Clerk of Court.
Petitioner filed a Motion for Reconsideration contending that the increase in the award of Anent the non-submission of the position papers of the parties, petitioner maintains that the
temperate damages is unreasonable since she also incurred losses from the fire. contents of said position papers were lengthily quoted verbatim in the petition and in the
attached copy of the MeTC Decision.
In its Order dated April 12, 2000, the RTC denied petitioner's Motion for Reconsideration holding
that it cannot disregard evidence showing that the fire originated from petitioner's fastfood stall; On the submission of affidavits of witnesses, petitioner contends that it was not necessary
that the increased amount of temperate damages awarded to respondent is not a full because the case before the MeTC was not covered by summary proceedings.
compensation but only a fair approximate of what he lost due to the negligence of petitioner's
On the merits of her petition before the CA, petitioner avers that she should not be held liable for
workers.9
a fire which was a fortuitous event since the fire could not be foreseen and the spread of the fire
Petitioner then filed a Petition for Review with the CA, docketed as CA-G.R. SP No. 58799.10 On to the adjacent fastfood stalls was inevitable.
June 16, 2000, the CA issued a Resolution dismissing the petition for being "procedurally flawed/
Lastly, she argues that the RTC cannot increase the amount of temperate damages since the
deficient."11 The CA held that the attached RTC Decision was not certified as a true copy by the
respondent did not appeal from the judgment of the MeTC.
Clerk of Court; that a certified true copy of the MeTC Decision was not attached; that material
portions of the record, such as the position papers of the parties and affidavits of witnesses, as Respondent opted not to file a Comment, manifesting that the petition contains no new
would support the material allegations of the petition were also not attached.12 arguments which would require a comment since the arguments are but a rehash of those raised
and decided by the lower courts.17
On July 14, 2000, petitioner filed her Motion for Reconsideration,13 attaching photocopies of the
Decisions of the RTC and MeTC as certified correct by the Clerk of Court.14 The Court gave due course to the petition and required both parties to submit their respective
memoranda.18 In compliance therewith, petitioner submitted her Memorandum.19 On the other
On November 27, 2000, the CA issued its Resolution denying petitioner's Motion for
hand, respondent filed a Manifestation stating that since no new issues have been raised by the
Reconsideration.15
petitioner in her petition and in order not to be redundant, he adopts as his memorandum the
Hence, the present petition raising the following issues: memoranda he filed in the MeTC and the RTC.20
1. Whether the submitted certified true copy of the appealed decision of the Regional In his Memoranda before the MeTC and RTC, respondent emphasized the evidence he
Trial Court as authenticated by a court employee other than the Clerk of Court who presented to establish his cause of action against petitioner, principally the testimony of Fire
was not around at that time said copy was secured constitutes compliance with the Investigator SFO1 Arnel G. Pinca stating that the fire originated from the LPG stove and tank in
Rules? petitioner's fastfood stall.
2. Whether the submission of a certified true copy of the Metropolitan Trial Court's The requirements as to form and content of a petition for review of a decision of the RTC are laid
judgment is still an indispensable requirement in filing a petition for review before the down in Section 2 of Rule 42 of the Revised Rules of Court, thus:
Court of Appeals despite the fact that said judgment was already modified by the
Sec. 2. Form and contents. - The petition shall be filed in seven (7) legible copies, with the
original copy intended for the court being indicated as such by the petitioner, and shall (a) state
the full names of the parties to the case, without impleading the lower courts or judges thereof raised which can be resolved on the basis of the pleadings and documents filed, and the fact
either as petitioners or respondents; (b) indicate the specific material dates showing that it was that petitioner herself has asked the Court to decide her petition on the merits, the Court deems
filed on time; (c) set forth concisely a statement of the matters involved, the issues raised, the it more practical and in the greater interest of justice not to remand the case to the CA but,
specification of errors of fact or law, or both, allegedly committed by the Regional Trial Court, instead, to resolve the controversy once and for all.29
and the reasons or arguments relied upon for the allowance of the appeal; (d) be accompanied
The Court shall now address the issue of whether the fire was a fortuitous event.
by clearly legible duplicate originals or true copies of the judgments or final orders of both lower
courts, certified correct by the clerk of court of the Regional Trial Court, the requisite number of Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the
plain copies thereof and of the pleadings and other material portions of the record as would unforeseen and unexpected occurrence must be independent of human will; (b) it must be
support the allegations of the petition. (Emphasis supplied) 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
xxxx
debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any
Under Section 3 of the same Rule, failure to comply with the above requirements "shall be participation in the aggravation of the injury resulting to the creditor. 30
sufficient ground for the dismissal thereof."
Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event
However, Section 6, Rule 1 of the Revised Rules of Court also provides that rules shall be which could not be foreseen, or which, though foreseen, was inevitable. In other words, there
liberally construed in order to promote their objective of securing a just, speedy and inexpensive must be an entire exclusion of human agency from the cause of injury or loss.31
disposition of every action and proceeding. Indeed, rules of procedure should be used to
It is established by evidence that the fire originated from leaking fumes from the LPG stove and
promote, not frustrate justice.21
tank installed at petitioner's fastfood stall and her employees failed to prevent the fire from
In the present case, petitioner's submission of copies of the RTC Decision and Order certified as spreading and destroying the other fastfood stalls, including respondent's fastfood stall. Such
correct by the Administrative Officer IV of the RTC is insufficient compliance with the circumstances do not support petitioner's theory of fortuitous event.
requirements of the rule. Petitioner failed to show that the Clerk of Court was officially on leave
Petitioner's bare allegation is far from sufficient proof for the Court to rule in her favor. It is basic
and the Administrative Officer was officially designated as officer-in-charge. The rule is explicit in
in the rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent to
its mandate that the legible duplicate originals or true copies of the judgments or final orders of
proof.32 In short, mere allegations are not evidence.33
both lower courts must be certified correct by the Clerk of Court.
The Civil Code provides:
Nonetheless, a strict application of the rule in this case is not called for. This Court has ruled
against the dismissal of appeals based solely on technicalities in several cases, especially when Art. 2176. Whoever by act or omission causes damage to another, there being fault or
the appellant had substantially complied with the formal requirements.22 There is ample negligence, is obliged to pay for the damage done. x x x
jurisprudence holding that the subsequent and substantial compliance of a party may call for the
relaxation of the rules of procedure.23 When the CA dismisses a petition outright and the Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or
petitioner files a motion for the reconsideration of such dismissal, appending thereto the requisite omissions, but also for those of persons for whom one is responsible.
pleadings, documents or order/resolution, this would constitute substantial compliance with the xxxx
Revised Rules of Court.24
The owners and managers of an establishment or enterprise are likewise responsible for
Thus, in the present case, there was substantial compliance when petitioner attached in her damages caused by their employees in the service of the branches in which the latter are
Motion for Reconsideration a photocopy of the Decision of the RTC as certified correct by the employed or on the occasion of their functions.
Clerk of Court of the RTC. In like manner, there was substantial compliance when petitioner
attached, in her Motion for Reconsideration, a photocopy of the Decision of the MeTC as Employers shall be liable for the damages caused by their employees and household helpers
certified correct by the Clerk of Court of the RTC. acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
On the necessity of attaching position papers and affidavits of witnesses, Section 2 of Rule 42 of
the Revised Rules of Court requires attachments if these would support the allegations of the xxxx
petition.25 In the present case, there was no compelling need to attach the position papers of the The responsibility treated of in this article shall cease when the persons herein mentioned prove
parties since the Decisions of the MeTC and RTC already stated their respective arguments. As that they observed all the diligence of a good father of a family to prevent damage.
to the affidavits, the Court notes that they were presented by the respondent as part of the
testimony of his witness Fire Investigator Pinca and therefore would not support the allegations Whenever an employee's negligence causes damage or injury to another, there instantly arises
of the petitioner. a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.34 To avoid
Truly, in dismissing the petition for review, the CA had committed grave abuse of discretion liability for a quasi-delict committed by his employee, an employer must overcome the
amounting to lack of jurisdiction in putting a premium on technicalities at the expense of a just presumption by presenting convincing proof that he exercised the care and diligence of a good
resolution of the case. father of a family in the selection and supervision of his employee.35
The Court's pronouncement in Republic of the Philippines v. Court of Appeals26 is worth echoing: In this case, petitioner not only failed to show that she submitted proof that the LPG stove and
"cases should be determined on the merits, after full opportunity to all parties for ventilation of tank in her fastfood stall were maintained in good condition and periodically checked for defects
their causes and defenses, rather than on technicality or some procedural imperfections. In that but she also failed to submit proof that she exercised the diligence of a good father of a family in
way, the ends of justice would be better served."27 Thus, what should guide judicial action is that the selection and supervision of her employees. For failing to prove care and diligence in the
a party litigant is given the fullest opportunity to establish the merits of his action or defense maintenance of her cooking equipment and in the selection and supervision of her employees,
rather than for him to lose life, honor or property on mere technicalities.28 the necessary inference was that petitioner had been negligent.36
The next most logical step would then be for the Court to simply set aside the challenged As to the award of temperate damages, the increase in the amount thereof by the RTC is
resolutions, remand the case to the CA and direct the latter to resolve on the merits of the improper. The RTC could no longer examine the amounts awarded by the MeTC since
petition in CA-G.R. SP No. 58799. But, that would further delay the case. Considering the issues respondent did not appeal from the Decision of the MeTC.37 It is well-settled that a party who
does not appeal from the decision may not obtain any affirmative relief from the appellate court e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this
other than what he has obtained from the lower court, if any, whose decision is brought up on Office fifteen (15) days upon receipt of this decision, for violation of Section 20 in
appeal.38 While there are exceptions to this rule, such as if they involve (1) errors affecting the relation to Section 38 of PD 957.3
lower court's jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical
The Arbiter considered petitioners’ failure to develop the condominium project as a substantial
errors,39 none apply here.
breach of their obligation which entitles respondents to seek for rescission with payment of
WHEREFORE, the petition is GRANTED. The assailed Resolutions dated June 16, 2000 and damages. The Arbiter also stated that mere economic hardship is not an excuse for contractual
November 27, 2000 of the Court of Appeals are REVERSED and SET ASIDE. The Decision and legal delay.
dated November 26, 1999 of the Regional Trial Court, Branch 43, Manila
Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII of
is AFFIRMED with MODIFICATION that the temperate damages awarded is reduced
the 1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners of
from P80,000.00 to P50,000.00 as awarded by the Metropolitan Trial Court, Branch 24, Manila in
the HLURB denied4 the petition and affirmed the Arbiter’s Decision. The HLURB reiterated that
its Decision dated April 5, 1999. No costs.SO ORDERED.
the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which
G.R. No. 185798 January 13, 2014 will exempt petitioners from the performance of their contractual obligation.
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners, 
 Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter,
vs.
 petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007, petitioners’
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents. appeal was dismissed6 by the Office of the President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied7 on 26 July 2007.
DECISION
Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43
PEREZ, J.: containing the same arguments they raised before the HLURB and the Office of the President:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil I.
Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which
affirmed the Decision of the Office of the President in O.P. Case No. 06-F-216. THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE HONORABLE HOUSING AND LAND USE REGULATORY BOARD AND ORDERING
As culled from the records, the facts are as follow: PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM OF
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower ₱2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID,
while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST
Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter PETITIONERS-APPELLANTS.
condominium unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract II.
price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (₱5,174,000.00).
On 29 August 1997, respondents executed and signed a Reservation Application Agreement THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
wherein they deposited ₱200,000.00 as reservation fee. As agreed upon, respondents paid the THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-
full downpayment of ₱1,552,200.00 and had been paying the ₱63,363.33 monthly amortizations APPELLEES THE SUM OF ₱100,000.00 AS MORAL DAMAGES AND ₱50,000.00 AS
until September 1998. ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
THEREFOR.
Upon learning that construction works had stopped, respondents likewise stopped paying their
monthly amortization. Claiming to have paid a total of ₱2,198,949.96 to petitioners, respondents III.
through two (2) successive letters, demanded a full refund of their payment with interest. When
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
their demands went unheeded, respondents were constrained to file a Complaint for Refund and
THE HOUSING AND LAND USE REGULATORY BOARD ORDERING PETITIONERS-
Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed
APPELLANTS TO PAY ₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
for reimbursement/refund of ₱2,198,949.96 representing the total amortization payments,
FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8
₱200,000.00 as and by way of moral damages, attorney’s fees and other litigation expenses.
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The
On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file
appellate court echoed the HLURB Arbiter’s ruling that "a buyer for a condominium/subdivision
their Answer within the reglementary period despite service of summons.2
unit/lot unit which has not been developed in accordance with the approved condominium/
Petitioners filed a motion to lift order of default and attached their position paper attributing the subdivision plan within the time limit for complying with said developmental requirement may opt
delay in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or for reimbursement under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x
misrepresentation which could entitle respondents to an award of moral damages. x x."9 The appellate court supported the HLURB Arbiter’s conclusion, which was affirmed by the
HLURB Board of Commission and the Office of the President, that petitioners’ failure to develop
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment the condominium project is tantamount to a substantial breach which warrants a refund of the
ordering petitioners to jointly and severally pay respondents the following amount: total amount paid, including interest. The appellate court pointed out that petitioners failed to
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE prove that the Asian financial crisis constitutes a fortuitous event which could excuse them from
HUNDRED FORTY NINE PESOS & 96/100 (₱2,198,949.96) with interest thereon at the performance of their contractual and statutory obligations. The appellate court also affirmed
twelve percent (12%) per annum to be computed from the time of the complainants’ the award of moral damages in light of petitioners’ unjustified refusal to satisfy respondents’
demand for refund on October 08, 1998 until fully paid, claim and the legality of the administrative fine, as provided in Section 20 of Presidential Decree
No. 957.
b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,
Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008
c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees, by the Court of Appeals.
d) The costs of suit, and
Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for The injured party may choose between the fulfillment and the rescission of the obligation, with
review: payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
A.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE condominiums, which provides:
DECISION OF THE OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION AND
REFUND IN FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF ACTION. Section 23. Non-Forfeiture of Payments.1âwphi1 No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in
B. favor of the owner or developer when the buyer, after due notice to the owner or developer,
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER desists from further payment due to the failure of the owner or developer to develop the
THE PREMISES, THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE subdivision or condominium project according to the approved plans and within the time limit for
HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%). complying with the same. Such buyer may, at his option, be reimbursed the total amount paid
including amortization interests but excluding delinquency interests, with interest thereon at the
C. legal rate. (Emphasis supplied).
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO Conformably with these provisions of law, respondents are entitled to rescind the contract and
THE DECISION OF THE OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF demand reimbursement for the payments they had made to petitioners.
₱100,000.00 AS MORAL DAMAGES, ₱50,000.00 AS ATTORNEY’S FEES AND ₱10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties,
SUPPORT SUCH CONCLUSIONS.11 Inc. v. Spouses Go13promulgated on 17 August 2007, where the Court stated that the Asian
financial crisis is not an instance of caso fortuito. Bearing the same factual milieu as the instant
Petitioners insist that the complaint states no cause of action because they allegedly have not case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about a different
committed any act of misrepresentation amounting to bad faith which could entitle respondents condominium property. The company likewise reneged on its obligation to respondents therein
to a refund. Petitioners claim that there was a mere delay in the completion of the project and by failing to develop the condominium project despite substantial payment of the contract price.
that they only resorted to "suspension and reformatting as a testament to their commitment to Fil-Estate advanced the same argument that the 1997 Asian financial crisis is a fortuitous event
their buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real which justifies the delay of the construction project. First off, the Court classified the issue as a
estate industry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot question of fact which may not be raised in a petition for review considering that there was no
be held liable for a fortuitous event. variance in the factual findings of the HLURB, the Office of the President and the Court of
Petitioners contest the payment of a huge amount of interest on account of suspension of Appeals. Second, the Court cited the previous rulings of Asian Construction and Development
development on a project. They liken their situation to a bank which this Court, in Overseas Bank Corporation v. Philippine Commercial International Bank14 and Mondragon Leisure and Resorts
v. Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period that its Corporation v. Court of Appeals15 holding that the 1997 Asian financial crisis did not constitute a
operations are ordered suspended by the Monetary Board of the Central Bank. valid justification to renege on obligations. The Court expounded:

Lastly, petitioners aver that they should not be ordered to pay moral damages because they Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond
never intended to cause delay, and again blamed the Asian economic crisis as the direct, the control of a business corporation. It is unfortunate that petitioner apparently met with
proximate and only cause of their failure to complete the project. Petitioners submit that moral considerable difficulty e.g. increase cost of materials and labor, even before the scheduled
damages should not be awarded unless so stipulated except under the instances enumerated in commencement of its real estate project as early as 1995. However, a real estate enterprise
Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the administrative fine engaged in the pre-selling of condominium units is concededly a master in projections on
because the delay in the project was caused not by their own deceptive intent to defraud their commodities and currency movements and business risks. The fluctuating movement of the
buyers, but due to unforeseen circumstances beyond their control. Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in
currency exchange rates happen everyday, thus, not an instance of caso fortuito.16
Three issues are presented for our resolution: 1) whether or not the Asian financial crisis
constitute a fortuitous event which would justify delay by petitioners in the performance of their The aforementioned decision becomes a precedent to future cases in which the facts are
contractual obligation; 2) assuming that petitioners are liable, whether or not 12% interest was substantially the same, as in this case. The principle of stare decisis, which means adherence to
correctly imposed on the judgment award, and 3) whether the award of moral damages, judicial precedents, applies.
attorney’s fees and administrative fine was proper. In said case, the Court ordered the refund of the total amortizations paid by respondents plus
It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The 6% legal interest computed from the date of demand. The Court also awarded attorney’s fees.
rulings were consistent that first, the Asian financial crisis is not a fortuitous event that would We follow that ruling in the case before us.
excuse petitioners from performing their contractual obligation; second, as a result of the breach The resulting modification of the award of legal interest is, also, in line with our recent ruling in
committed by petitioners, respondents are entitled to rescind the contract and to be refunded the Nacar v. Gallery Frames,17 embodying the amendment introduced by the Bangko Sentral ng
amount of amortizations paid including interest and damages; and third, petitioners are likewise Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6%
obligated to pay attorney’s fees and the administrative fine. regardless of the source of obligation.
This petition did not present any justification for us to deviate from the rulings of the HLURB, the We likewise affirm the award of attorney’s fees because respondents were forced to litigate for
Office of the President and the Court of Appeals. 14 years and incur expenses to protect their rights and interest by reason of the unjustified act
Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under on the part of petitioners.18 The imposition of ₱10,000.00 administrative fine is correct pursuant
Article 1191 of the New Civil Code which states: to Section 38 of Presidential Decree No. 957 which reads:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding
obligors should not comply with what is incumbent upon him. ten thousand pesos for violations of the provisions of this Decree or of any rule or regulation
thereunder. Fines shall be payable to the Authority and enforceable through writs of execution in Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007 and
accordance with the provisions of the Rules of Court. the Resolution3dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896
which reversed and set aside the Decision4 dated January 17, 2006 of the Regional Trial Court
Finally, we sustain the award of moral damages. In order that moral damages may be awarded of Makati, Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering petitioners Metro
in breach of contract cases, the defendant must have acted in bad faith, must be found guilty of Concast Steel Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses
gross negligence amounting to bad faith, or must have acted in wanton disregard of contractual Guillermo and Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual
obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their petitioners) to solidarily pay respondent Allied Bank Corporation (Allied Bank) the aggregate
contract, when they failed to address respondents’ grievances and when they adamantly refused amount of ₱51,064,094.28, with applicable interests and penalty charges.
to refund respondents' payment.
The Facts
In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and
Resolution. On various dates and for different amounts, Metro Concast, a corporation duly organized and
existing under and by virtue of Philippine laws and engaged in the business of manufacturing
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with steel,5 through its officers, herein individual petitioners, obtained several loans from Allied Bank.
the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due These loan transactions were covered by a promissory note and separate letters of credit/trust
computed from the time of respondents' demand for refund on 8 October 1998. receipts, the details of which are as follows:
SO ORDERED.
Date Document Amount

December 13, 1996 Promissory Note No. 96-213016 ₱2,000,000.00

November 7, 1995 Trust Receipt No. 96-2023657 ₱608,603.04

May 13, 1996 Trust Receipt No. 96-9605228 ₱3,753,777.40

May 24, 1996 Trust Receipt No. 96-9605249 ₱4,602,648.08

March 21, 1997 Trust Receipt No. 97-20472410 ₱7,289,757.79

June 7, 1996 Trust Receipt No. 96-20328011 ₱17,340,360.73

July 26, 1995 Trust Receipt No. 95-20194312 ₱670,709.24

August 31, 1995 Trust Receipt No. 95-20205313 ₱313,797.41

November 16, 1995 Trust Receipt No. 96-20243914 ₱13,015,109.87

July 3, 1996 Trust Receipt No. 96-20355215 ₱401,608.89

June 20, 1995 Trust Receipt No. 95-20171016 ₱750,089.25

December 13, 1995 Trust Receipt No. 96-37908917 ₱92,919.00

December 13, 1995 Trust Receipt No. 96/20258118 ₱224,713.58

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.),
with penalty charge of 3% per month in case of default; while the twelve (12) trust receipts
uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By way of security,
the individual petitioners executed several Continuing Guaranty/Comprehensive Surety
Agreements19 in favor of Allied Bank. Petitioners failed to settle their obligations under the
aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent
them demand letters,20 all dated December 10, 1998, seeking payment of the total amount of
G.R. No. 177921 December 4, 2013 ₱51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint for collection
of sum of money21 (subject complaint) against petitioners before the RTC, docketed as Civil
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH Case No. 00-1563. In their second22 Amended Answer,23petitioners admitted their indebtedness
YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid
FILOMENA DYCHIAO, Petitioners, 
 the total sum of ₱65,073,055.73 by way of interest charges for the period covering 1992 to
vs.
 1997.24
ALLIED BANK CORPORATION, Respondent.
They also alleged that the economic reverses suffered by the Philippine economy in 1998 as
RESOLUTION well as the devaluation of the peso against the US dollar contributed greatly to the downfall of
PERLAS-BERNABE, J.: the steel industry, directly affecting the business of Metro Concast and eventually leading to its
cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of intervened or was a party thereto. It also pointed out the fact that the post-dated checks
Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank, pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the CA found no sufficient
which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and evidence on record showing that Atty. Saw was duly and legally authorized to act for and on
apply the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered behalf of Allied Bank, opining that the RTC was "indulging in hypothesis and speculation"34 when
the equipment for sale, but since there were no takers, the equipment was reduced into ferro it made a contrary pronouncement. While Atty. Saw received the earnest money from Peakstar,
scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation (Peakstar), represented the receipt was signed by him on behalf of Jose Dychiao.35
by one Crisanta Camiling (Camiling), expressed interest in buying the scrap metal. During the
It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by [Atty.]
negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of
Saw either as representative of [petitioners] or as partner of the latter’s legal counsel, and not in
Allied Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged
anyway as representative of [Allied Bank]."36
conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement25 dated November 8,
2002 (MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank
Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap metal their corresponding obligations under the aforementioned promissory note and trust receipts,
for a total consideration of ₱34,000,000.00, payable as follows: plus interests, penalty charges and attorney’s fees. Petitioners sought reconsideration37 which
was, however, denied in a Resolution38 dated May 10, 2007. Hence, this petition.
(a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be paid in cash and
the other ₱2,000,000.00 to be paid in two (2) post-dated checks of ₱1,000,000.00 The Issue Before the Court
each;26 and
At the core of the present controversy is the sole issue of whether or not the loan obligations
(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly installments of incurred by the petitioners under the subject promissory note and various trust receipts have
₱3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the already been extinguished.
form of separate post-dated checks.27
The Court’s Ruling
Unfortunately, Peakstar reneged on all its obligations under the MoA.1âwphi1 In this regard,
petitioners asseverated that: Article 1231 of the Civil Code states that obligations are extinguished either by payment or
performance, the loss of the thing due, the condonation or remission of the debt, the confusion
(a) their failure to pay their outstanding loan obligations to Allied Bank must be or merger of the rights of creditor and debtor, compensation or novation.
considered as force majeure ; and
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had
(b) since Allied Bank was the party that accepted the terms and conditions of payment already been extinguished due to Peakstar’s failure to perform its own obligations to Metro
proposed by Peakstar, petitioners must therefore be deemed to have settled their Concast pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force majeure
obligations to Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose in the sense that they have, beyond their control, lost the funds they expected to have received
Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA and from the Peakstar (due to the MoA) which they would, in turn, use to pay their own loan
subsequently received29 the ₱2,000,000.00 cash and the two (2) Bankwise post-dated obligations to Allied Bank. They further state that Allied Bank was equally bound by Metro
checks worth ₱1,000,000.00 each from Camiling. However, Atty. Saw turned over only Concast’s MoA with Peakstar since its agent, Atty. Saw, actively represented it during the
the two (2) checks and ₱1,500,000.00 in cash to the wife of Jose Dychiao.30 negotiations and execution of the said agreement. Petitioners’ arguments are untenable. At the
outset, the Court must dispel the notion that the MoA would have any relevance to the
Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the
performance of petitioners’ obligations to Allied Bank. The MoA is a sale of assets contract, while
award of moral damages in the amount of ₱20,000,000.00 in favor of Metro Concast and at least
petitioners’ obligations to Allied Bank arose from various loan transactions. Absent any showing
₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as exemplary damages,
that the terms and conditions of the latter transactions have been, in any way, modified or
₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other litigation expenses, including costs of
novated by the terms and conditions in the MoA, said contracts should be treated separately and
suit.
distinctly from each other, such that the existence, performance or breach of one would not
The RTC Ruling depend on the existence, performance or breach of the other. In the foregoing respect, the issue
on whether or not Allied Bank expressed its conformity to the assets sale transaction between
After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed the subject Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues
complaint, holding that the "causes of action sued upon had been paid or otherwise related to petitioners’ loan obligations to the bank. Besides, as the CA pointed out, the fact of
extinguished." It ruled that since Allied Bank was duly represented by its agent, Atty. Saw, in all Allied Bank’s representation has not been proven in this case and hence, cannot be deemed as
the negotiations and transactions with Peakstar – considering that Atty. Saw a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank. Now,
(a) drafted the MoA, anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its
obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event
(b) accepted the bank guarantee issued by Bankwise, and under jurisprudential formulation. As discussed in Sicam v. Jorge:39
(c) was apprised of developments regarding the sale and disposition of the scrap Fortuitous events by definition are extraordinary events not foreseeable or avoidable.1âwphi1 It
metal – then it stands to reason that the MoA between Metro Concast and Peakstar is therefore, not enough that the event should not have been foreseen or anticipated, as is
was binding upon said bank. commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to
The CA Ruling foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event,
the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed and or of the failure of the debtor to comply with obligations must be independent of human will;
set aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law to (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be
declare that when Bankwise reneged its guarantee under the [MoA], herein [petitioners] should foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it
be deemed to be discharged from their obligations lawfully incurred in favor of [Allied Bank]."33 impossible for the debtor to fulfill obligations in a normal manner; and (d) the obligor must
The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and be free from any participation in the aggravation of the injury or loss.40(Emphases supplied)
Peakstar, as the buyer thereof, and found that the same did not indicate that Allied Bank
While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the
same us clearly not "impossible"to foresee or even an event which is independent of human
will." Neither has it been shown that said occurrence rendered it impossible for petitioners to pay
their loan obligations to Allied Bank and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the performance or breach of the MoA bears no
relation to the performance or breach of the subject loan transactions, they being separate and
distinct sources of obligations. The fact of the matter is that petitioners’ loan obligations to Allied
Bank remain subsisting for the basic reason that the former has not been able to prove that the
same had already been paid41 or, in any way, extinguished. In this regard, petitioners’ liability, as
adjudged by the CA, must perforce stand. Considering, however, that Allied Bank’s extra-judicial
demand on petitioners appears to have been made only on December 10, 1998, the
computation of the applicable interests and penalty charges should be reckoned only from such
date.
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution
dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED
with MODIFICATION reckoning the applicable interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of the appellate court’s dispositions
stand.
SO ORDERED.
G.R. No. L-82619 September 15, 1993 only the private respondent who insisted on being given priority in the accommodation; that
pieces of checked-in baggage and had carried items of the Ozamiz City passengers were
PHILIPPINE AIRLINES, INC., petitioner, 
 removed from the aircraft; that the reason for their pilot's inability to land at Ozamis City airport
vs.
 was because the runway was wet due to rains thus posing a threat to the safety of both
COURT OF APPEALS and PEDRO ZAPATOS, respondents. passengers and aircraft; and, that such reason of force majeure was a valid justification for the
Leighton R. Liazon for petitioner. pilot to bypass Ozamiz City and proceed directly to Cotabato City.
Balmes L. Ocampo for private respondent. On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Philippine AirLines, Inc. ordering the latter to pay:
BELLOSILLO, J.:
(1) As actual damages, the sum of Two Hundred Pesos (P200.00)
This petition for review in certiorari seeks to annul and set aside the decision of the then representing plaintiff's expenses for transportation, food and
Intermediate Appellant Court,1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV accommodation during his stranded stay at Cotabato City; the sum of Forty-
No. 69327 ("Pedro Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court of Eight Pesos (P48.00) representing his flight fare from Cotabato City to Iligan
first Instance, now Regional Trial Court, declaring Philippine Airlines, Inc., liable in damages for city; the sum of Five Hundred Pesos (P500.00) representing plaintiff's
breach of contract. transportation expenses from Iligan City to Ozamiz City; and the sum of Five
On 25 November 1976, private respondent filed a complaint for damages for breach of contract Thousand Pesos (P5,000.00) as loss of business opportunities during his
of carriage2 against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now stranded stay in Cotabato City;
Regional Trial Court, of Misamis Occidental, at Ozamiz City. According to him, on 2 August 1976, (2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for
he was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound plaintiff's hurt feelings, serious anxiety, mental anguish and unkind and
for Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just discourteous treatment perpetrated by defendant's employees during his
about fifteen (15) minutes before landing at Ozamiz City, the pilot received a radio message that stay as stranded passenger in Cotabato City;
the airport was closed due to heavy rains and inclement weather and that he should proceed to
Cotabato City instead. (3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00)
to set a precedent to the defendant airline that it shall provide means to give
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to comfort and convenience to stranded passengers;
return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or
take the next flight to Cebu the following day, or remain at Cotabato and take the next available (4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;
flight to Ozamiz City on 5 August 1975.3 The Station Agent likewise informed them that Flight (5) To pay the costs of this suit.
560 bound for Manila would make a stop-over at Cebu to bring some of the diverted passengers;
that there were only six (6) seats available as there were already confirmed passengers for PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error,
Manila; and, that the basis for priority would be the check-in sequence at Cebu. affirmed the judgment of the court a quo. 11
Private respondent chose to return to Cebu but was not accommodated because he checked-in PAL then sought recourse to this Court by way of a petition for review on certiorari 12 upon the
as passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed following issues: (1) Can the Court of Appeals render a decision finding petitioner (then
passengers in the accommodation, but the Station Agent refused private respondent's demand defendant-appellant in the court below) negligent and, consequently, liable for damages on a
explaining that the latter's predicament was not due to PAL's own doing but to be a force question of substance which was neither raised on a question nor proved at the trial? (2) Can
majeure.4 the Court of Appeals award actual and moral damages contrary to the evidence and established
jurisprudence? 13
Private respondent tried to stop the departure of Flight 560 as his personal belongings, including
a package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe An assiduous examination of the records yields no valid reason for reversal of the judgment on
Obid of Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private appeal; only a modification of its disposition.
respondent a free ticket to Iligan city, which the latter received under protest.5 Private respondent
In its petition, PAL vigorously maintains that private respondent's principal cause of action was
was left at the airport and could not even hitch a ride in the Ford Fiera loaded with PAL
its alleged denial of private respondent's demand for priority over the confirmed passengers on
personnel.6 PAL neither provided private respondent with transportation from the airport to the
Flight 560. Likewise, PAL points out that the complaint did not impute to PAL neglect in failing to
city proper nor food and accommodation for his stay in Cotabato City.
attend to the needs of the diverted passengers; and, that the question of negligence was not and
The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL never put in issue by the pleadings or proved at the trial.
personnel that he would not use the free ticket because he was filing a case against PAL.7 In
Contrary to the above arguments, private respondent's amended complaint touched on PAL's
Iligan City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte,
indifference and inattention to his predicament. The pertinent portion of the amended
reaching Ozamiz City by crossing the bay in a launch.8 His personal effects including the
complaint 14 reads:
camera, which were valued at P2,000.00 were no longer recovered.
10. That by virtue of the refusal of the defendant through its agent in
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate
Cotabato to accommodate (sic) and allow the plaintiff to take and board the
private respondent.9It alleged that there was simply no more seat for private respondent on
plane back to Cebu, and by accomodating (sic) and allowing passengers
Flight 560 since there were only six (6) seats available and the priority of accommodation on
from Cotabato for Cebu in his stead and place, thus forcing the plaintiff
Flight 560 was based on the check-in sequence in Cebu; that the first six (6) priority passengers
against his will, to be left and stranded in Cotabato, exposed to the peril and
on Flight 477 chose to take Flight 560; that its Station Agent explained in a courteous and polite
danger of muslim rebels plundering at the time, the plaintiff, as a
manner to all passengers the reason for PAL's inability to transport all of them back to Cebu; that
consequence, (have) suffered mental anguish, mental torture, social
the stranded passengers agreed to avail of the options and had their respective tickets
exchanged for their onward trips; that it was 

humiliation, bismirched reputation and wounded feeling, all amounting to a Q Did you ask them to help you regarding any offer of
conservative amount of thirty thousand (P30,000.00) Pesos. transportation or of any other matter asked of them?
To substantiate this aspect of apathy, private respondent testified 15 A Yes, he (PAL PERSONNEL) said what is? It is not our
fault.
A I did not even notice that I was I think the last
passenger or the last person out of the PAL employees Q Are you not aware that one fellow passenger even
and army personnel that were left there. I did not notice claimed that he was given Hotel accommodation
that when I was already outside of the building after our because they have no money?
conversation.
xxx xxx xxx
Q What did you do next?
A No, sir, that was never offered to me. I said, I tried to
A I banished (sic) because it seems that there was a stop them but they were already riding that PAL pick-up
war not far from the airport. The sound of guns and the jeep, and I was not accommodated.
soldiers were plenty.
Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL
Q After that what did you do? cannot now turn around and feign surprise at the outcome of the case. When issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be treated in all
A I tried to look for a transportation that could bring me respects as if they had been raised in the pleadings. 19
down to the City of Cotabato.
With regard to the award of damages affirmed by the appellate court, PAL argues that the same
Q Were you able to go there? is unfounded. It asserts that it should not be charged with the task of looking after the
A I was at about 7:00 o'clock in the evening more or passengers' comfort and convenience because the diversion of the flight was due to a fortuitous
less and it was a private jeep that I boarded. I was even event, and that if made liable, an added burden is given to PAL which is over and beyond its
questioned why I and who am (sic) I then. Then I duties under the contract of carriage. It submits that granting arguendo that negligence exists,
explained my side that I am (sic) stranded passenger. PAL cannot be liable in damages in the absence of fraud or bad faith; that private respondent
Then they brought me downtown at Cotabato. failed to apprise PAL of the nature of his trip and possible business losses; and, that private
respondent himself is to be blamed for unreasonably refusing to use the free ticket which PAL
Q During your conversation with the Manager were you issued.
not offered any vehicle or transportation to Cotabato
airport downtown? The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires
common carriers to carry the passengers safely as far as human care and foresight can provide,
A In fact I told him (Manager) now I am by-passed using the utmost diligence of very cautious persons, with due regard for all the
passenger here which is not my destination what can circumstances. 20 In Air France v. Carrascoso, 21 we held that —
you offer me. Then they answered, "it is not my fault.
Let us forget that." A contract to transport passengers is quite different in kind and degree from
any other contractual relation. And this, because of the relation which an air
Q In other words when the Manager told you that offer carrier sustains with the public. Its business is mainly with the travelling
was there a vehicle ready? public. It invites people to avail of the comforts and advantages it offers. The
A Not yet. Not long after that the Ford Fiera loaded with contract of air carriage, therefore, generates a relation attended with a
PAL personnel was passing by going to the City of public duty . . . . ( emphasis supplied).
Cotabato and I stopped it to take me a ride because The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard
there was no more available transportation but I was required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a
not accommodated. fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its
Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged passengers. Being in the business of air carriage and the sole one to operate in the country, PAL
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the is deemed equipped to deal with situations as in the case at bar. What we said in one case once
protest or objection against the admission of evidence should be presented at the time the again must be stressed, i.e., the relation of carrier and passenger continues until the latter has
evidence is offered, and that the proper time to make protest or objection to the admissibility of been landed at the port of destination and has left the carrier's premises. 22 Hence, PAL
evidence is when the question is presented to the witness or at the time the answer thereto is necessarily would still have to exercise extraordinary diligence in safeguarding the comfort,
given. 16 There being no objection, such evidence becomes property of the case and all the convenience and safety of its stranded passengers until they have reached their final
parties are amenable to any favorable or unfavorable effects resulting from the evidence. 17 destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate was a stranger to the place. As the appellate court correctly ruled —
its counter allegation for want of concrete proof 18 —
While the failure of plaintiff in the first instance to reach his destination at
Atty. Rubin O. Rivera — PAL's counsel: Ozamis City in accordance with the contract of carriage was due to the
Q You said PAL refused to help you when you were in closure of the airport on account of rain and inclement weather which was
Cotabato, is that right? radioed to defendant 15 minutes before landing, it has not been disputed by
defendant airline that Ozamis City has no all-weather airport and has to
Private respondent: cancel its flight to Ozamis City or by-pass it in the event of inclement
weather. Knowing this fact, it becomes the duty of defendant to provide all
A Yes.
means of comfort and convenience to its passengers when they would have
to be left in a strange place in case of such by-passing. The steps taken by Q And you want us to believe that PAL did not explain
defendant airline company towards this end has not been put in evidence, (to) any of these passengers about the decision
especially for those 7 others who were not accommodated in the return trip regarding those who will board the aircraft back to
to Cebu, only 6 of the 21 having been so accommodated. It appears that Cebu?
plaintiff had to leave on the next flight 2 days later. If the cause of non-
A No, Sir.
fulfillment of the contract is due to a fortuitous event, it has to be the sole
and only cause (Art. 1755 CC., Art. 1733 C.C.) Since part of the failure to Q Despite these facts Mr. Zapatos did any of the other
comply with the obligation of common carrier to deliver its passengers safely passengers complained (sic) regarding that incident?
to their destination lay in the defendant's failure to provide comfort and
convenience to its stranded passengers using extra-ordinary diligence, the xxx xxx xxx
cause of non-fulfillment is not solely and exclusively due to fortuitous event, A There were plenty of argument and I was one of
but due to something which defendant airline could have prevented, those talking about my case.
defendant becomes liable to plaintiff. 23
Q Did you hear anybody complained (sic) that he has
While we find PAL remiss in its duty of extending utmost care to private respondent while being not been informed of the decision before the plane left
stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him for Cebu?
about his non-accommodation on Flight 560, or that it was inattentive to his queries relative
thereto. A No. 25

On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that — Admittedly, private respondent's insistence on being given priority in accommodation was
unreasonable considering the fortuitous event and that there was a sequence to be observed in
3. Of the fifteen stranded passengers two pax elected to take F478 on the booking, i.e., in the order the passengers checked-in at their port of origin. His intransigence
August 05, three pax opted to take F442 August 03. The remaining ten (10) in fact was the main cause for his having to stay at the airport longer than was necessary.
including subject requested that they be instead accommodated (sic) on
F446 CBO-IGN the following day where they intended to take the surface Atty. Rivera:
transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and Q And, you were saying that despite the fact that
boiceterous (sic) at the counter and we tactfully managed to steer him inside according to your testimony there were at least 16
the Station Agent's office. Mr. Pedro Zapatos then adamantly insisted that all passengers who were stranded there in Cotabato
the diverted passengers should have been given priority over the originating airport according to your testimony, and later you said
passengers of F560 whether confirmed or otherwise. We explained our that there were no other people left there at that time, is
policies and after awhile he seemed pacified and thereafter took his ticket that correct?
(in-lieued (sic) to CBO-IGN, COCON basis), at the counter in the presence
of five other passengers who were waiting for their tickets too. The rest of A Yes, I did not see anyone there around. I think I was
the diverted pax had left earlier after being assured their tickets will be ready the only civilian who was left there.
the following day. 24 Q Why is it that it took you long time to leave that
Aforesaid Report being an entry in the course of business is prima facie evidence of the facts place?
therein stated. Private respondent, apart from his testimony, did not offer any controverting A Because I was arguing with the PAL personnel. 26
evidence. If indeed PAL omitted to give information about the options available to its diverted
passengers, it would have been deluged with complaints. But, only private respondent Anent the plaint that PAL employees were disrespectful and inattentive toward private
complained — respondent, the records are bereft of evidence to support the same. Thus, the ruling of
respondent Court of Appeals in this regard is without basis. 27 On the contrary, private
Atty. Rivera (for PAL) respondent was attended to not only by the personnel of PAL but also by its Manager." 28
Q I understand from you Mr. Zapatos that at the time In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos
you were waiting at Cotabato Airport for the decision of (P50,000.00) unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos
PAL, you were not informed of the decision until after (P10,000.00). Conformably herewith, the award of exemplary damages is also reduced to five
the airplane left is that correct? Thousand Pesos (5,000.00). Moral damages are not intended to enrich the private respondent.
A Yes. They are awarded only to enable the injured party to obtain means, diversion or amusements
that will serve to alleviate the moral suffering he has undergone by reason of the defendant's
COURT: culpable action. 29
Q What do you mean by "yes"? You meant you were With regard to the award of actual damages in the amount of P5,000.00 representing private
not informed? respondent's alleged business losses occasioned by his stay at Cotabato City, we find the same
A Yes, I was not informed of their decision, that they will unwarranted. Private respondent's testimony that he had a scheduled business "transaction of
only accommodate few passengers. shark liver oil supposedly to have been consummated on August 3, 1975 in the morning" and
that "since (private respondent) was out for nearly two weeks I missed to buy about 10 barrels of
Q Aside from you there were many other stranded shark liver oil,"30 are purely speculative. Actual or compensatory damages cannot be presumed
passengers? but must be duly proved with reasonable degree of certainty. A court cannot rely on speculation,
A I believed, yes. conjecture or guesswork as to the fact and amount of damages, but must depend upon
competent proof that they have suffered and on evidence of the actual amount thereof. 31
WHEREFORE the decision appealed from is AFFIRMED with modification however that the the general formation of the buildings becomes a big funnel-like structure, the one situated along
award of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of
Pesos (P10,000.00) while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also the roofing, those located on both ends of the building, which remained intact after the storm.
reduced to Five Thousand Pesos (P5,000.00). The award of actual damages in the amount Five
6. Another factor and perhaps the most likely reason for the dislodging of the roofings structural
Thousand Pesos (P5,000.00) representing business losses occasioned by private respondent's
trusses is the improper anchorage of the said trusses to the roof beams. The 1/2 diameter steel
being stranded in Cotabato City is deleted.
bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor
SO ORDERED. nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses,
thus, those trusses are not anchored at all to the roof beams.

It then recommended that to avoid any further loss and damage to lives, limbs and property of
persons living in the vicinity, the fourth floor of subject school building be declared as astructural
hazard.

In their Complaint[6] before the Regional Trial Court of Pasay City, Branch 117, for
damages based on culpa aquiliana, private respondents alleged that the damage to their house
rendered the same uninhabitable, forcing them to stay temporarily in others houses. And so they
sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as moral
damages, P300,000.00, as exemplary damages and P100,000.00, for and as attorneys fees;
plus costs.

In its Answer, petitioner averred that subject school building had withstood several
devastating typhoons and other calamities in the past, without its roofing or any portion thereof
giving way; that it has not been remiss in its responsibility to see to it that said school building,
which houses school children, faculty members, and employees, is in tip-top condition; and
furthermore, typhoon Saling was an act of God and therefore beyond human control such that
petitioner cannot be answerable for the damages wrought thereby, absent any negligence on its
part.
[G.R. No. 126389. July 10, 1998]
The trial court, giving credence to the ocular inspection report to the effect that subject
school building had a defective roofing structure, found that, while typhoon Saling was
accompanied by strong winds, the damage to private respondents house could have been
avoided if the construction of the roof of [petitioners] building was not faulty. The dispositive
SOUTHEASTERN COLLEGE, INC., petitioner, vs. COURT OF APPEALS, JUANITA DE portion of the lower courts decision[7] reads thus:
JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO, WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff
CONSOLACION DIMAANO and MILAGROS DIMAANO, respondents. (sic) and against the defendants, (sic) ordering the latter to pay jointly and severally the former
as follows:
DECISION a) P117,116.00, as actual damages, plus litigation expenses;
PURISIMA, J.: b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorneys fees;
Petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision[1] promulgated on July 31, 1996, and Resolution[2] dated September 12, 1996 of the d) Costs of the instant suit.
Court of Appeals[3] in CA-G.R. No. 41422, entitled Juanita de Jesus vda. de Dimaano, et al. vs. The claim for exemplary damages is denied for the reason that the defendants (sic) did not act in
Southeastern College, Inc., which reduced the moral damages awarded below a wanton fraudulent, reckless, oppressive or malevolent manner.
from P1,000,000.00 to P200,000.00.[4] The Resolution under attack denied petitioners motion for
reconsideration. In its appeal to the Court of Appeals, petitioner assigned as errors,[8] that:

Private respondents are owners of a house at 326 College Road, Pasay City, while I
petitioner owns a four-storey school building along the same College Road. On October 11,
1989, at about 6:30 in the morning, a powerful typhoon Saling hit Metro Manila. Buffeted by very THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON SALING, AS AN
strong winds, the roof of petitioners building was partly ripped off and blown away, landing on ACT OF GOD, IS NOT THE SOLE AND ABSOLUTE REASON FOR THE RIPPING-
and destroying portions of the roofing of private respondents house. After the typhoon had OFF OF THE SMALL PORTION OF THE ROOF OF SOUTHEASTERNS FOUR (4)
passed, an ocular inspection of the destroyed buildings was conducted by a team of engineers STOREY SCHOOL BUILDING.
headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latters
Report[5] dated October 18, 1989 stated, as follows: II

5. One of the factors that may have led to this calamitous event is the formation of the buildings THE TRIAL COURT ERRED IN HOLDING THAT THE CONSTRUCTION OF
in the area and the general direction of the wind. Situated in the peripheral lot is an almost U- T H E R O O F O F D E F E N D A N T S S C H O O L B U I L D I N G WA S FA U LT Y
shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction, NOTWITHSTANDING THE ADMISSION THAT THERE WERE TYPHOONS
BEFORE BUT NOT AS GRAVE AS TYPHOON SALING WHICH IS THE DIRECT occasioned.[12] An act of God cannot be invoked for the protection of a person who has been
AND PROXIMATE CAUSE OF THE INCIDENT. guilty of gross negligence in not trying to forestall its possible adverse consequences.When a
persons negligence concurs with an act of God in producing damage or injury to another, such
III person is not exempt from liability by showing that the immediate or proximate causeof the
damage or injury was a fortuitous event. When the effect is found to be partly the result of the
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES participation of man whether it be from active intervention, or neglect, or failure to act the whole
AS WELL AS ATTORNEYS FEES AND LITIGATION EXPENSES AND COSTS OF occurrence is hereby humanized, and removed from the rules applicable to acts of God.[13]
SUIT TO DIMAANOS WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES
AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN In the case under consideration, the lower court accorded full credence to the finding of
INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC. the investigating team that subject school buildings roofing had no sufficient anchorage to hold it
in position especially when battered by strong winds. Based on such finding, the trial court
IV imputed negligence to petitioner and adjudged it liable for damages to private respondents.
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT After a thorough study and evaluation of the evidence on record, this Court believes
OF EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERNS APPEAL otherwise, notwithstanding the general rule that factual findings by the trial court, especially
WHEN THERE IS NO COMPELLING REASON FOR THE ISSUANCE THERETO. when affirmed by the appellate court, are binding and conclusive upon this Court.[14] After a
careful scrutiny of the records and the pleadings submitted by the parties, we find exception to
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial
this rule and hold that the lower courts misappreciated the evidence proffered.
courts disposition by reducing the award of moral damages from P1,000,000.00
to P200,000.00.Hence, petitioners resort to this Court, raising for resolution the issues of: There is no question that a typhoon or storm is a fortuitous event, a natural occurrence
1. Whether or not the award of actual damage [sic] to respondent Dimaanos on the basis of which may be foreseen but is unavoidable despite any amount of foresight, diligence or care.
[15]In order to be exempt from liability arising from any adverse consequence engendered
speculation or conjecture, without proof or receipts of actual damage, [sic] legally feasible or
justified. thereby, there should have been no human participation amounting to a negligent act.[16] In other
words, the person seeking exoneration from liability must not be guilty of
2. Whether or not the award of moral damages to respondent Dimaanos, without the latter negligence. Negligence, as commonly understood, is conduct which naturally or reasonably
having suffered, actual damage has legal basis. creates undue risk or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance which the circumstances justly demand,[17] or the omission to do
3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject
something which a prudent and reasonable man, guided by considerations which ordinarily
matter of the case, during its pendency, has the right to pursue their complaint against petitioner
regulate the conduct of human affairs, would do.[18] From these premises, we proceed to
when the case was already rendered moot and academic by the sale of the property to third
determine whether petitioner was negligent, such that if it were not, the damage caused to
party.
private respondents house could have been avoided?
4. Whether or not the award of attorneys fees when the case was already moot and
academic [sic] legally justified. At the outset, it bears emphasizing that a person claiming damages for the negligence of
another has the burden of proving the existence of fault or negligence causative of his injury or
5. Whether or not petitioner is liable for damage caused to others by typhoon Saling being an act loss. The facts constitutive of negligence must be affirmatively established by competent
of God. evidence,[19] not merely by presumptions and conclusions without basis in fact. Private
6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without respondents, in establishing the culpability of petitioner, merely relied on the aforementioned
hearing, has support in law. report submitted by a team which made an ocular inspection of petitioners school building after
the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or
The pivot of inquiry here, determinative of the other issues, is whether the damage on the viewing.[20] What is visual to the eye though, is not always reflective of the real cause behind. For
roof of the building of private respondents resulting from the impact of the falling portions of the instance, one who hears a gunshot and then sees a wounded person, cannot always definitely
school buildings roof ripped off by the strong winds of typhoon Saling, was, within legal conclude that a third person shot the victim. It could have been self-inflicted or caused
contemplation, due to fortuitous event? If so, petitioner cannot be held liable for the damages accidentally by a stray bullet. The relationship of cause and effect must be clearly shown.
suffered by the private respondents. This conclusion finds support in Article 1174 of the
Civil Code, which provides: In the present case, other than the said ocular inspection, no investigation was conducted
to determine the real cause of the partial unroofing of petitioners school building. Private
Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by respondents did not even show that the plans, specifications and design of said school building
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall were deficient and defective. Neither did they prove any substantial deviation from the approved
be responsible for those events which could not be foreseen, or which, though foreseen, were plans and specifications. Nor did they conclusively establish that the construction of such
inevitable. building was basically flawed.[21]

The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it On the other hand, petitioner elicited from one of the witnesses of private respondents, city
as an event which takes place by accident and could not have been foreseen.[9] Escriche building official Jesus Reyna, that the original plans and design of petitioners school building
elaborates it as an unexpected event or act of God which could neither be foreseen nor resisted. were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement
[10] Civilist Arturo M. Tolentino adds that [f]ortuitous events may be produced by two general before the construction of any building to obtain a permit from the city building official (city
causes: (1) by nature, such as earthquakes, storms, floods, epidemics, fires, etc. and (2) by the engineer, prior to the passage of the Building Act of 1977). In like manner, after construction of
act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, the building, a certification must be secured from the same official attesting to the readiness for
etc.[11] occupancy of the edifice. Having obtained both building permit and certificate of occupancy,
these are, at the very least, prima facie evidence of the regular and proper construction of
In order that a fortuitous event may exempt a person from liability, it is necessary that he subject school building.[22]
be free from any previous negligence or misconduct by reason of which the loss may have been
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon
Saling, the same city official gave the go-signal for such repairs without any deviation from the
original design and subsequently, authorized the use of the entire fourth floor of the same
building. These only prove that subject building suffers from no structural defect, contrary to the
report that its U-shaped form was structurally defective. Having given his unqualified imprimatur,
the city building official is presumed to have properly performed his duties[23] in connection
therewith.

In addition, petitioner presented its vice president for finance and administration who
testified that an annual maintenance inspection and repair of subject school building were
regularly undertaken. Petitioner was even willing to present its maintenance supervisor to attest
to the extent of such regular inspection but private respondents agreed to dispense with his
testimony and simply stipulated that it would be corroborative of the vice presidents narration.

Moreover, the city building official, who has been in the city government service since
1974, admitted in open court that no complaint regarding any defect on the same structure has
ever been lodged before his office prior to the institution of the case at bench. It is a matter of
judicial notice that typhoons are common occurrences in this country. If subject school buildings
roofing was not firmly anchored to its trusses, obviously, it could not have withstood long years
and several typhoons even stronger than Saling.

In light of the foregoing, we find no clear and convincing evidence to sustain the judgment
of the appellate court. We thus hold that petitioner has not been shown negligent or at fault
regarding the construction and maintenance of its school building in question and that typhoon
Saling was the proximate cause of the damage suffered by private respondents house.

With this disposition on the pivotal issue, private respondents claim for actual and moral
damages as well as attorneys fees must fail.[24] Petitioner cannot be made to answer for a purely
fortuitous event.[25] More so because no bad faith or willful act to cause damage was alleged and
proven to warrant moral damages.

Private respondents failed to adduce adequate and competent proof of the pecuniary loss
they actually incurred.[26] It is not enough that the damage be capable of proof but must be
actually proved with a reasonable degree of certainty, pointing out specific facts that afford a
basis for measuring whatever compensatory damages are borne.[27] Private respondents merely
submitted an estimated amount needed for the repair of the roof of their subject building. What is
more, whether the necessary repairs were caused ONLY by petitioners alleged negligence in the
maintenance of its school building, or included the ordinary wear and tear of the house itself, is
an essential question that remains indeterminable.

The Court deems unnecessary to resolve the other issues posed by petitioner.

As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the
trial court is hereby nullified and set aside. Private respondents are ordered to reimburse any
amount or return to petitioner any property which they may have received by virtue of the
enforcement of said writ.

WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The
complaint of private respondents in Civil Case No. 7314 before the trial court a quo is ordered
DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET
ASIDE. Accordingly, private respondents are ORDERED to return to petitioner any amount or
property received by them by virtue of said writ. Costs against the private respondents.

SO ORDERED.
Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base
in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which include those located at the US Naval Facility in
Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the
Senate and ratified by a majority of the votes cast by the people in a national referendum when
the Congress so requires, and such new treaty is recognized as such by the US Government.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of the same.

On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141,
[G.R. No. 147324. May 25, 2004] 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:

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner, vs. GLOBE FINDING that the Treaty constitutes a defective framework for the continuing relationship
TELECOM, INC. (formerly and Globe Mckay Cable and Radio between the two countries in the spirit of friendship, cooperation and sovereign equality: Now,
Corporation), respondents. 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]
[G.R. No. 147334. May 25, 2004]
On 31 December 1991, the Philippine Government sent a Note Verbale to the US
Government through the US Embassy, notifying it of the Philippines termination of the RP-US
Military Bases Agreement. The Note Verbale stated that since the RP-US Military Bases
Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all US military
GLOBE TELECOM, INC., petitioner, vs. PHILIPPINE COMMUNICATION SATELLITE forces from Subic Naval Base should be completed by said date.
CORPORATION, respondent.
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
DECISION
personnel from Subic Naval Base after the termination of the RP-US Military Bases
TINGA, J.: Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the
Agreement, which provides:

Before the Court are two Petitions for Review assailing the Decision of the Court of Neither party shall be held liable or deemed to be in default for any failure to perform its
Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.[1] 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
The facts of the case are undisputed. 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,
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe any law, order, regulation, direction or request of the Government of the Philippines, strikes or
Telecom, Inc. (Globe), had been engaged in the coordination of the provision of various other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire,
communication facilities for the military bases of the United States of America (US) in Clark Air floods, typhoons or other catastrophies or acts of God.
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 Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that we expect
Communications Agency (USDCA), and for security reasons, were operated only by its [Globe] to know its commitment to pay the stipulated rentals for the remaining terms of the
personnel or those of American companies contracted by it to operate said facilities. The USDCA Agreement even after [Globe] shall have discontinue[d] the use of the earth station after
contracted with said American companies, and the latter, in turn, contracted with Globe for the November 08, 1992.[7] Philcomsat referred to Section 7 of the Agreement, stating as follows:
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 7. DISCONTINUANCE OF SERVICE
provision of the communication facilities.
Should [Globe] decide to discontinue with the use of the earth station after it has been put into
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the
obligated itself to establish, operate and provide an IBS Standard B earth station (earth station) expected date of termination. Notwithstanding the non-use of the earth station, [Globe] shall
within Cubi Point for the exclusive use of the USDCA.[2] The term of the contract was for 60 continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no
months, or five (5) years.[3] In turn, Globe promised to pay Philcomsat monthly rentals for each case shall be less than the first two (2) T1 circuits, for the remaining life of the
leased circuit involved.[4] 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
At the time of the execution of the Agreement, both parties knew that the Military Bases shall be at such monthly rate as may be agreed upon by the parties.[8]
Agreement between the Republic of the Philippines and the US (RP-US Military Bases
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 formal order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from
November 1993 demanding payment of its outstanding obligations under the Agreement ATT and the complete withdrawal of all US military forces and personnel from Cubi Point, which
amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to prevented further use of the earth station under the Agreement.
heed Philcomsats demand.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting
a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under to US$92,238.00 plus interest, considering that the US military forces and personnel completely
the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit. The withdrew from Cubi Point only on 31 December 1992.[10]
case was raffled to Branch 59 of said court.
Both parties filed their respective Petitions for Review assailing the Decision of the Court
Globe filed an Answer to the Complaint, insisting that it was constrained to end the of Appeals.
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 In G.R. No. 147324,[11] petitioner Philcomsat raises the following assignments of error:
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. A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION
OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL DEFINITION
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO
reads: EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS
UNDER THE SUBJECT AGREEMENT.
WHEREFORE, premises considered, judgment is hereby rendered as follows:
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE
Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF
equivalent in Philippine Currency (computed at the exchange rate SECTION 7 OF THE AGREEMENT.
prevailing at the time of compliance or payment) representing rentals C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL
for the month of December 1992 with interest thereon at the legal rate COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
of twelve percent (12%) per annum starting December 1992 until the
amount is fully paid; D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.[12]
2. Ordering the defendant to pay the plaintiff the amount of Three Hundred
Thousand (P300,000.00) Pesos as and for attorneys fees; 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
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and 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
4. With costs against the defendant. 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,
SO ORDERED.[9] direction or request of the Government of the Philippines, strikes or other labor difficulties,
Both parties appealed the trial courts Decision to the Court of Appeals. 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
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the fortuitous events as events which could not be foreseen, or which, though foreseen, were
Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements inevitable.[13]
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 Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable
Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages. 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
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of inconsistent with the appellate courts pronouncement that Globe is liable to pay rentals for
rent of the earth station for December 1992 and of attorneys fees. It explained that it terminated December 1992 even though it terminated Philcomsats services effective 08 November 1992,
Philcomsats services on 08 November 1992; hence, it had no reason to pay for rentals beyond because the US military and personnel completely withdrew from Cubi Point only in December
that date. 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,
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing evince the intent of Globe to be bound to pay rentals for the entire five-year term.[15]
Philcomsats appeal for lack of merit and affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement occurred and justified the non- Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to
payment by Globe of rentals for the remainder of the term of the Agreement. attorneys fees and exemplary damages.[16]

The appellate court ruled that the non-ratification by the Senate of the Treaty of In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is
Friendship, Cooperation and Security, and its Supplementary Agreements, and the termination not contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a
by the Philippine Government of the RP-US Military Bases Agreement effective 31 December contract from providing for other instances when they would be exempt from fulfilling their
1991 as stated in the Philippine Governments Note Verbale to the US Government, are acts, contractual obligations. Globe also claims that the termination of the RP-US Military Bases
directions, or requests of the Government of the Philippines which constitute force majeure. In Agreement constitutes force majeure and exempts it from complying with its obligations under
addition, there were circumstances beyond the control of the parties, such as the issuance of a the Agreement.[17] On the issue of the propriety of awarding attorneys fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in 3. Insurrection;
refusing to pay rentals for the remainder of the term of the Agreement, Globe only acted in
4. Riots;
accordance with its rights.[18]
5. National emergencies;
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 6. War;
1992, since Philcomsats services were actually terminated on 08 November 1992.[20] 7. Acts of public enemies;
In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a 8. Fire, floods, typhoons or other catastrophies or acts of God;
factual issue which is not cognizable by the Court in a petition for review on certiorari.[21]
9. Other circumstances beyond the control of the parties.
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 Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of
memoranda.[22] the parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of
a fortuitous event under Article 1174.
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 Furthermore, under Article 1306[26] of the Civil Code, parties to a contract may establish
memoranda.[23] 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]
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions. 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.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP- [28]Courts cannot stipulate for the parties nor amend their agreement where the same does not

US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and contravene law, morals, good customs, public order or public policy, for to do so would be to alter
Security, and the consequent withdrawal of US military forces and personnel from Cubi Point the real intent of the parties, and would run contrary to the function of the courts to give force
constitute force majeure which would exempt Globe from complying with its obligation to pay and effect thereto.[29]
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 Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of
fees and exemplary damages. the Agreement which Philcomsat and Globe freely agreed upon has the force of law between
them.[30]
No reversible error was committed by the Court of Appeals in issuing the
assailed Decision; hence the petitions are denied. 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
There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be must be independent of the human will; (2) the occurrence must render it impossible for the
given effect because the enumeration of events constituting force majeure therein unduly debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation
expands the concept of a fortuitous event under Article 1174 of the Civil Code and is therefore in, or aggravation of, the injury to the creditor.[31]
invalid.
The Court agrees with the Court of Appeals and the trial court that the abovementioned
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an requisites are present in the instant case. Philcomsat and Globe had no control over the non-
event must be unforeseen in order to exempt a party to a contract from complying with its renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991,
obligations therein. It insists that since the expiration of the RP-US Military Bases Agreement, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate.
the non-ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of Neither did the parties have control over the subsequent withdrawal of the US military forces and
US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities personnel from Cubi Point in December 1992:
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. 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
However, Article 1174, which exempts an obligor from liability on account of fortuitous beyond the control of the parties. This resolution was followed by the sending on December 31,
events or force majeure, refers not only to events that are unforeseeable, but also to those 1991 o[f] a Note Verbale (Exhibit 3) by the Philippine Government to the US Government
which are foreseeable, but inevitable: 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
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe]
when the nature of the obligation requires the assumption of risk, no person shall be responsible received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and
for those events which, could not be foreseen, or which, though foreseen were inevitable. a notification from ATT dated July 29, 1992 to terminate the provision of T1s services (via an IBS
Standard B Earth Station) effective November 08, 1992. Plaintiff [Philcomsat] was furnished with
A fortuitous event under Article 1174 may either be an act of God, or natural occurrences copies of the said order and letter by the defendant on August 06, 1992.
such as floods or typhoons,[24] or an act of man, such as riots, strikes or wars.[25]
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall to the US Government are acts, direction or request of the Government of the Philippines and
be deemed events constituting force majeure: 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
1. Any law, order, regulation, direction or request of the Philippine Government; and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the
2. Strikes or other labor difficulties; control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances the present case, it was not shown that Globe acted wantonly or oppressively in not heeding
constitute force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement. 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
From the foregoing, the Court finds that the defendant is exempted from paying the rentals for obligations after 1992.
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 WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the
continued stay of all US Military forces and personnel from Subic Naval Base would no longer be Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
allowed, hence, plaintiff would no longer be in any position to render the service it was obligated SO ORDERED.
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 ROBERTO C. SICAM and AGENCIA G.R. NO. 159617
due to an act of the government which was clearly beyond GLOBEs control. The binding effect de R.C. SICAM, INC.,
of a contract on both parties is based on the principle that the obligations arising from contracts Petitioners,
have the force of law between the contracting parties, and there must be mutuality between Present:
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 YNARES-SANTIAGO, J.,
of Appeals, 284 SCRA 357).[33] Chairperson,
- versus - AUSTRIA-MARTINEZ,
With respect to the issue of whether Globe is liable for payment of rentals for the month of CHICO-NAZARIO, and
December 1992, the Court likewise affirms the appellate courts ruling that Globe should pay the NACHURA, JJ.
same.
LULU V. JORGE and CESAR
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08
JORGE, Promulgated:
November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date
Respondents. August 8, 2007
when they actually ceased using the earth station subject of the Agreement was not established
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
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,
DECISION
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
AUSTRIA-MARTINEZ, J.:
time. Hence, the Court of Appeals did not err when it affirmed the trial courts ruling that Globe is
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam)
liable for payment of rentals until December 1992.

Neither did the appellate court commit any error in holding that Philcomsat is not entitled to and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision[1] of the
attorneys fees and exemplary damages.
Court of Appeals dated March 31, 2003, and its Resolution[2] dated August 8, 2003, in CA G.R.
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 CV No. 56633.
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, It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent
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] Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if Ave., BF Homes Paraaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.[41] In
Respondents subsequently filed an Amended Complaint to include petitioner corporation.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and

jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that
the Southern Police District, Paraaque Police Station as follows:
he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion

in an Order dated November 8, 1989.[5]


Investigation shows that at above TDPO, while victims were inside the office,
two (2) male unidentified persons entered into the said office with guns After trial on the merits, the RTC rendered its Decision[6] dated January 12, 1993, dismissing
drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects respondents complaint as well as petitioners counterclaim. The RTC held that
(sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and
ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the petitioner Sicam could not be made personally liable for a claim arising out of a corporate
case and assorted pawned jewelries items mentioned above.
transaction; that in the Amended Complaint of respondents, they asserted that plaintiff pawned
Suspects after taking the money and jewelries fled on board a Marson Toyota
unidentified plate number.[3] assorted jewelries in defendants' pawnshop; and that as a consequence of the separate juridical

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder.

of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent

Lulu then wrote a letter[4] to petitioner Sicam expressing disbelief stating that when the robbery The RTC further ruled that petitioner corporation could not be held liable for the loss of the

happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it pawned jewelry since it had not been rebutted by respondents that the loss of the pledged

had been the practice that before they could withdraw, advance notice must be given to the pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that

pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case

petitioner Sicam to prepare the pawned jewelry for withdrawal on November of Austria v. Court of Appeals; [7] and that the parties transaction was that

6, 1987 but petitioner Sicam failed to return the jewelry. of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is

not responsible for those events which could not be foreseen.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003,

against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the the CA reversed the RTC, the dispositive portion of which reads as follows:

loss of pawned jewelry and payment of actual, moral and exemplary damages as well as
WHEREFORE, premises considered, the instant Appeal is GRANTED, and
attorney's fees. The case was docketed as Civil Case No. 88-2035. the Decision dated January 12, 1993,of the Regional Trial Court of Makati,
Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to
pay appellants the actual value of the lost jewelry amounting to P272,000.00,
and attorney' fees of P27,200.00.[8]
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the

pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that

petitioner corporation had exercised due care and diligence in the safekeeping of the articles In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine

pledged with it and could not be made liable for an event that is fortuitous. of piercing the veil of corporate entity reasoning that respondents were misled into thinking that
they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is

issued to them bear the words Agencia de R.C. Sicam; and that there was no indication on the personally liable for the loss of the pawned jewelries is a virtual and uncritical reproduction of the

pawnshop tickets that it was the petitioner corporation that owned the pawnshop which arguments set out on pp. 5-6 of the Appellants brief.[10]

explained why respondents had to amend their complaintimpleading petitioner corporation.

Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer

The CA further held that the corresponding diligence required of a pawnshop is that it should from infirmities, as follows:

take steps to secure and protect the pledged items and should take steps to insure itself against

the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop (1) Respondents conclusively asserted in paragraph 2
of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present
trade which petitioners failed to do; that Austria is not applicable to this case since the robbery owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot
rule against said conclusive assertion of respondents;
incident happened in 1961 when the criminality had not as yet reached the levels attained in the
(2) The issue resolved against petitioner Sicam was not among those raised
present day; that they are at least guilty of contributory negligence and should be held liable for and litigated in the trial court; and

the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those (3) By reason of the above infirmities, it was error for the CA to have pierced
the corporate veil since a corporation has a personality distinct and separate
engaged in the pawnshop business are expected to foresee. from its individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence is likewise an
The CA concluded that both petitioners should be jointly and severally held liable to respondents
unedited reproduction of respondents brief which had the following defects:
for the loss of the pawned jewelry.

(1) There were unrebutted evidence on record that petitioners had observed
Petitioners motion for reconsideration was denied in a Resolution dated August 8, the diligence required of them, i.e, they wanted to open a vault with a
nearby bank for purposes of safekeeping the pawned articles but was
2003. discouraged by the Central Bank (CB) since CB rules provide that they can
only store the pawned articles in a vault inside the pawnshop premises and
no other place;

Hence, the instant petition for review with the following assignment of errors: (2) Petitioners were adjudged negligent as they did not take insurance
against the loss of the pledged jelweries, but it is judicial notice that due to
high incidence of crimes, insurance companies refused to cover pawnshops
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF and banks because of high probability of losses due to robberies;
TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME (3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46),
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR the victim of robbery was exonerated from liability for the sum of money
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE. belonging to others and lost by him to robbers.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED


ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN Respondents filed their Comment and petitioners filed their Reply thereto. The parties
ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE
SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT subsequently submitted their respective Memoranda.
ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.[9]
We find no merit in the petition.
impression to respondents and the public as well, that the pawnshop was owned solely by

petitioner Sicam and not by a corporation.


To begin with, although it is true that indeed the CA findings were exact reproductions of the

arguments raised in respondents (appellants) brief filed with the CA, we find the same to be not
Even petitioners counsel, Atty. Marcial T. Balgos, in his letter[16] dated October 15,
fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly

the facts and the law on which it is based as required by Section 8, Article VIII of the 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of

Constitution. The discretion to decide a case one way or another is broad enough to justify the the pawnshop notwithstanding the alleged incorporation in April 1987.

adoption of the arguments put forth by one of the parties, as long as these are legally tenable
We also find no merit in petitioners' argument that since respondents had alleged in their
and supported by law and the facts on records.[11]
Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is

bound to decide the case on that basis.


Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law

committed by the appellate court. Generally, the findings of fact of the appellate court are
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by
deemed conclusive and we are not duty-bound to analyze and calibrate all over again the
a party in the course of the proceedings in the same case, does not require proof. The admission
evidence adduced by the parties in the court a quo.[12] This rule, however, is not without
may be contradicted only by showing that it was made through palpable mistake or that no such
exceptions, such as where the factual findings of the Court of Appeals and the trial court are
admission was made.
conflicting or contradictory[13] as is obtaining in the instant case.
Thus, the general rule that a judicial admission is conclusive upon the party making it and does

not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was
However, after a careful examination of the records, we find no justification to absolve
made through palpable mistake, and (2) when it is shown that no such admission was in fact
petitioner Sicam from liability.
made. The latter exception allows one to contradict an admission by denying that he

made such an admission.[17]


The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable
The Committee on the Revision of the Rules of Court explained the second exception in this
together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced
wise:
when made as a shield to perpetrate fraud and/or confuse legitimate issues. [14] The theory of

corporate entity was not meant to promote unfair objectives or otherwise to shield them.[15]
x x x if a party invokes an admission by an adverse party, but cites the
admission out of context, then the one making the admission may show that
he made no such admission, or that his admission was taken out of
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the context.
pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the x x x that the party can also show that he made no such
admission, i.e., not in the sense in which the admission is made to
pawnshop receipts issued to respondent Lulu in September 1987, all bear the appear.
words Agencia de R. C. Sicam, notwithstanding that the pawnshop was allegedly incorporated in That is the reason for the modifier such because if the rule simply states
that the admission may be contradicted by showing that no admission was
April 1987. The receipts issued after such alleged incorporation were still in the name made, the rule would not really be providing for a contradiction of the
admission but just a denial.[18] (Emphasis supplied).
of Agencia de R. C. Sicam, thus inevitably misleading, or at the very least, creating the wrong
incorporated and known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam,

While it is true that respondents alleged in their Amended Complaint that petitioner corporation is he submitted that as far as he was concerned, the basic issue was whether he is the real party

the present owner of the pawnshop, they did so only because petitioner Sicamalleged in his in interest against whom the complaint should be directed.[20] In fact, he subsequently moved for

Answer to the original complaint filed against him that he was not the real party-in-interest as the the dismissal of the complaint as to him but was not favorably acted upon by the trial court.

pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its

entirety shows that respondents referred to both petitioner Sicam and petitioner corporation Decision in this manner:

where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he
failure to observe due diligence commensurate with the business which resulted in the loss of is concerned for the reason that he cannot be made personally liable for a
claim arising from a corporate transaction.
their pawned jewelry.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr.
The amended complaint itself asserts that plaintiff pawned assorted
jewelries in defendant's pawnshop. It has been held that as a consequence
of the separate juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder, nor is the stockholder's
Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended Complaint, debt or credit that of a corporation.[21]

insofar as petitioner Sicam is concerned, averred as follows:


Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether

petitioner Sicam is personally liable is inextricably connected with the determination of the
Roberto C. Sicam was named the defendant in the original complaint
because the pawnshop tickets involved in this case did not show that the question whether the doctrine of piercing the corporate veil should or should not apply to the
R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the Complaint. He merely case.
added that defendant is not now the real party in interest in this case.
It was defendant Sicam's omission to correct the pawnshop tickets used in
the subject transactions in this case which was the cause of the instant
action. He cannot now ask for the dismissal of the The next question is whether petitioners are liable for the loss of the pawned articles in their
complaint against him simply on the mere allegation that his pawnshop
business is now incorporated. It is a matter of defense, the merit of which possession.
can only be reached after consideration of the evidence to be presented in
due course.[19]
Unmistakably, the alleged admission made in respondents' Amended Complaint was taken out
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not
of context by petitioner Sicam to suit his own purpose. Ineluctably, the fact that
negligent at all.
petitioner Sicam continued to issue pawnshop receipts under his name and not under the

corporation's name militates for the piercing of the corporate veil.


We are not persuaded.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of

corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the
Article 1174 of the Civil Code provides:
RTC.

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


Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party- otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
in-interest because since April 20, 1987, the pawnshop business initiated by him was events which could not be foreseen or which, though foreseen, were
inevitable.
the possibility of robbery was not only foreseeable, but actually foreseen and

anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense of fortuitous


Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is
event.
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
Moreover, petitioners failed to show that they were free from any negligence by which the loss of
foresee the happening is not impossibility to foresee the same. [22]
the pawned jewelry may have been occasioned.

To constitute a fortuitous event, the following elements must concur: (a) the cause of the
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility
unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations
of negligence on the part of herein petitioners. In Co v. Court of Appeals,[27]the Court held:
must be independent of human will; (b) it must be impossible to foresee the event that

constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the It is not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully placed in its
occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully
manner; and, (d) the obligor must be free from any participation in the aggravation of the injury and forcefully taken from another's rightful possession, as in cases
of carnapping, does not automatically give rise to a fortuitous event.
or loss. [23] To be considered as such, carnapping entails more than the mere
forceful taking of another's property. It must be proved and
The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. established that the event was an act of God or was done solely by
third parties and that neither the claimant nor the person alleged to
[24] And, in order for a fortuitous event to exempt one from liability, it is necessary that one has be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous
committed no negligence or misconduct that may have occasioned the loss. [25] event rests on him who invokes it which in this case is the private
r e s p o n d e n t . H o w e v e r, o t h e r t h a n t h e p o l i c e r e p o r t o f t h e
alleged carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault. A police
It has been held that an act of God cannot be invoked to protect a person who has failed to take report of an alleged crime, to which only private respondent is privy, does
not suffice to establish the carnapping. Neither does it prove that there was
steps to forestall the possible adverse consequences of such a loss. One's negligence may have no fault on the part of private respondent notwithstanding the parties'
agreement at the pre-trial that the car was carnapped. Carnapping does
concurred with an act of God in producing damage and injury to another; nonetheless, showing not foreclose the possibility of fault or negligence on the part of private
respondent.[28]
that the immediate or proximate cause of the damage or injury was a fortuitous event would not Just like in Co, petitioners merely presented the police report of the Paraaque Police

exempt one from liability. When the effect is found to be partly the result of a person's Station on the robbery committed based on the report of petitioners' employees which is not

participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is sufficient to establish robbery. Such report also does not prove that petitioners were not at fault.

humanized and removed from the rules applicable to acts of God. [26]

On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners

Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code,

robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of to wit:

opening a vault with the nearby bank for the purpose of safekeeping the valuables but was
Art. 1170. Those who in the performance of their obligations are guilty of
discouraged by the Central Bank since pawned articles should only be stored in a vault inside fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.[29]
the pawnshop. The very measures which petitioners had allegedly adopted show that to them
A. Yes, your honor.

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
which are engaged in making loans secured by pledges, the special laws and regulations A. Sir, if these robbers can rob a bank, how much more a pawnshop.

concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage Q. I am asking you how were the robbers able to enter despite the fact
that there was a security guard?
and antichresis. A. At the time of the incident which happened about 1:00 and
2:00 o'clock in the afternoon and it happened on a Saturday and
everything was quiet in the area BF Homes Paraaque they pretended to
pawn an article in the pawnshop, so one of my employees allowed him
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor to come in and it was only when it was announced that it was a hold up.

shall take care of the thing pledged with the diligence of a good father of a family. This means Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly
that petitioners must take care of the pawns the way a prudent person would as to his own open. The combination is off.

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


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

In this connection, Article 1173 of the Civil Code further provides: Q. It is clear now that at the time of the robbery the vault was open the reason
why the robbers were able to get all the items pawned to you inside the
vault.
A. Yes sir.[32]
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201, revealing that there were no security measures adopted by petitioners in the operation of the
paragraph 2 shall apply.
pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father of a protect the pawnshop from unlawful intrusion. There was no clear showing that there was any
family shall be required.
We expounded in Cruz v. Gangan[30] that negligence is the omission to do something security guard at all. Or if there was one, that he had sufficient training in securing a

which a reasonable man, guided by those considerations which ordinarily regulate the conduct pawnshop. Further, there is no showing that the alleged security guard exercised all that was

of human affairs, would do; or the doing of something which a prudent and reasonable man necessary to prevent any untoward incident or to ensure that no suspicious individuals were

would not do.[31] It is want of care required by the circumstances. allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it

is quite impossible that he would not have noticed that the robbers were armed with caliber .45

A review of the records clearly shows that petitioners failed to exercise reasonable care and pistols each, which were allegedly poked at the employees.[33] Significantly, the alleged security

caution that an ordinarily prudent person would have used in the same situation. Petitioners guard was not presented at all to corroborate petitioner Sicam's claim; not

were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, one of petitioners' employees who were present during the robbery incident testified in court.

thus:

Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is

clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the
Court:
circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open,
Q. Do you have security guards in your pawnshop?
the combination was already off. Considering petitioner Sicam's testimony that the robbery took
place on a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there Commission on Audit[36] and Cruz v. Gangan[37] cited by petitioners in their pleadings, where the

was more reason for petitioners to have exercised reasonable foresight and diligence in victims of robbery were exonerated from liability, find no application to the present case.

protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open

the vault, providing no difficulty for the robbers to cart away the pawned articles. In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on

commission basis, but which Abad failed to subsequently return because of a robbery committed

We, however, do not agree with the CA when it found petitioners negligent for not taking steps to upon her in 1961. The incident became the subject of a criminal case filed against several

insure themselves against loss of the pawned jewelries. persons. Austria filed an action against Abad and her husband (Abads) for recovery of the

pendant or its value, but the Abads set up the defense that the robbery extinguished their

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, obligation. The RTC ruled in favor of Austria, as the Abadsfailed to prove robbery; or, if

which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC

114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit: decision holding that the fact of robbery was duly established and declared the Abads not

responsible for the loss of the jewelry on account of a fortuitous event. We


Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and held that for the Abads to be relieved from the civil liability of returning the pendant under Art.
against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took

place without any concurrent fault on the debtors part, and this can be done by preponderance

However, this Section was subsequently amended by CB Circular No. 764 which took effect of evidence; that to be free from liability for reason of fortuitous event, the debtor must, in

on October 1, 1980, to wit: addition to the casus itself, be free of any concurrent or contributory fault or negligence.[38]

Sec. 17 Insurance of Office Building and Pawns The office building/ We found in Austria that under the circumstances prevailing at the time the Decision was
premises and pawns of a pawnshop must be insured against
fire. (emphasis supplied). promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank
persons and property that rendered travel after nightfall a matter to be sedulously avoided
considered it not feasible to require insurance of pawned articles against burglary.
without suitable precaution and protection; that the conduct of Maria Abad in returning alone to
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment,
her house in the evening carrying jewelry of considerable value would have been negligence per
there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it
se and would not exempt her from responsibility in the case of robbery. However we did not
was error for the CA to consider it as a factor in concluding that petitioners were negligent.
hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961,

when criminality had not reached the level of incidence obtaining in 1971.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and
diligence required of them under the Civil Code.
petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank
The diligence with which the law requires the individual at all times to govern his conduct varies
for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found
with the nature of the situation in which he is placed and the importance of the act which he is to
petitioners negligent in securing their pawnshop as earlier discussed.
perform.[34] Thus, the cases of Austria v. Court of Appeals,[35] Hernandez v. Chairman,
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate place in the pawnshop which is under the control of petitioners. Petitioners had the means to

Beach Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he screen the persons who were allowed entrance to the premises and to protect itself from

went to Manila to encash two checks covering the wages of the employees and the operating unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the

expenses of the project. However for some reason, the processing of the check was delayed robbers were prevented from entering the pawnshop and for keeping the vault open for the day,

and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the which paved the way for the robbers to easily cart away the pawned articles.

project employees would be waiting for their pay the following day; otherwise, the workers would

have to wait until July 5, the earliest time, when the main office would open. At that time, he had In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills

two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) D e v e l o p m e n t A u t h o r i t y ( T E S D A ) , b o a r d e d t h e L i g h t R a i l Tr a n s i t ( L RT )

take the money with him to his house in Marilao, Bulacan, spend the night there, and leave fromSen. Puyat Avenue to Monumento when her handbag was slashed and the contents were

for Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a stolen by an unidentified person. Among those stolen were her wallet and the government-

little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was issued cellular phone. She then reported the incident to the police authorities; however, the

on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was thief was not located, and the cellphone was not recovered. She also reported the loss to the

taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and Regional Director of TESDA, and she requested that she be freed from accountability for

caught up with one robber who was subsequently charged with robbery and pleaded guilty. The the cellphone. The Resident Auditor denied her request on the ground that she lacked the

other robber who held the stolen money escaped. The Commission on Audit found Hernandez diligence required in the custody of government property and was ordered to pay the purchase

negligent because he had not brought the cash proceeds of the checks to his office value in the total amount of P4,238.00. The COA found no sufficient justification to grant the

in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds. We request for relief from accountability. We reversed the ruling and found that riding the LRT

held that Hernandez was not negligent in deciding to encash the check and bringing it home cannot per se be denounced as a negligent act more so because Cruzs mode of transit was

to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following influenced by time and money considerations; that she boarded the LRT to be able to arrive

reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar

salaries the following day, a Saturday, a non-working, because to encashthe check on July 5, the circumstance can reasonably be expected to do the same; that possession of

next working day after July 1, would have caused discomfort to laborers who were dependent on a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that

their wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, whether she rode a jeep or bus, the risk of theft would have also been present; that because of

and in view of the comparative hazards in the trips to the two places, said decision seemed her relatively low position and pay, she was not expected to have her own vehicle or to ride a

logical at that time. We further held that the fact that two robbers attacked him in broad daylight taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag

in the jeep while it was on a busy highway and in the presence of other passengers could not be away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of

said to be a result of his imprudence and negligence. a cellphone while traveling on board the LRT; that the records did not show any specific act of

negligence on her part and negligence can never be presumed.


Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop G.R. No. 172682
SULPICIO LINES, INC., Petitioner 

and they were negligent in not exercising the precautions justly demanded of a pawnshop. vs.

NAPOLEON SESANTE, NOW SUBSTITUTED BY MARIBEL ATILANO, KRISTEN MARIE,
CHRISTIAN IONE, KENNETH KERRN AND KARISNA KATE, ALL SURNAMED SESANTE,
Respondents
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals DECISION
BERSAMIN, J.:
dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.
Moral damages are meant to enable the injured party to obtain the means, diversions or
amusements in order to alleviate the moral suffering. Exemplary damages are designed to
permit the courts to reshape behavior that is socially deleterious in its consequence by creating
negative incentives or deterrents against such behavior.
Costs against petitioners.
The Case
This appeal seeks to undo and reverse the adverse decision promulgated on June 27,
2005,1 whereby the Court of Appeals (CA) affirmed with modification the judgment of the
SO ORDERED. Regional Trial Court (RTC), Branch 91, in Quezon City holding the petitioner liable to pay
temperate and moral damages due to breach of contract of carriage.2
Antecedents
On September 18, 1998, at around 12:55 p.m., the M/V Princess of the Orient, a passenger
vessel owned and operated by the petitioner, sank near Fortune Island in Batangas. Of the 388
recorded passengers, 150 were lost.3Napoleon Sesante, then a member of the Philippine
National Police (PNP) and a lawyer, was one of the passengers who survived the sinking. He
sued the petitioner for breach of contract and damages.4
Sesante alleged in his complaint that the M/V Princess of the Orient left the Port of Manila while
Metro Manila was experiencing stormy weather; that at around 11:00 p.m., he had noticed the
vessel listing starboard, so he had gone to the uppermost deck where he witnessed the strong
winds and big waves pounding the vessel; that at the same time, he had seen how the
passengers had been panicking, crying for help and frantically scrambling for life jackets in the
absence of the vessel's officers and crew; that sensing danger, he had called a certain Veney
Ceballos through his cellphone to request him to inform the proper authorities of the situation;
that thereafter, big waves had rocked the vessel, tossing him to the floor where he was pinned
by a long steel bar; that he had freed himself only after another wave had hit the vessel;5 that he
had managed to stay afloat after the vessel had sunk, and had been carried by the waves to the
coastline of Cavite and Batangas until he had been rescued; that he had suffered tremendous
hunger, thirst, pain, fear, shock, serious anxiety and mental anguish; that he had sustained
injuries,6and had lost money, jewelry, important documents, police uniforms and the .45 caliber
pistol issued to him by the PNP; and that because it had committed bad faith in allowing the
vessel to sail despite the storm signal, the petitioner should pay him actual and moral damages
of ₱500,000.00 and ₱l,000,000.00, respectively.7
In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of the Orient due
to its having been cleared to sail from the Port of Manila by the proper authorities; that the
sinking had been due to force majeure; that it had not been negligent; and that its officers and
crew had also not been negligent because they had made preparations to abandon the "'vessel
because they had launched life rafts and had provided the passengers assistance in that regard.
8

Decision of the RTC


On October 12, 2001, the RTC rendered its judgment in favor of the respondent,9 holding as
follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Napoleon Sesante and against
defendant Sulpicio Lines, Inc., ordering said defendant to pay plaintiff:
1. Temperate damages in the amount of ₱400,000.00;
2. Moral damages in the amount of One Million Pesos (₱l ,000,000.00); THE ASSAILED DECISION ERRED IN APPLYING ARTICLE 1759 OF THE NEW CIVIL CODE
AGAINST SULPICIO SANS A CLEAR-CUT FINDING OF SULPICIO'S BAD FAITH IN THE
3. Costs of suit. INCIDENT16
SO ORDERED.10 In other words, to be resolved are the following, namely: (1) Is the complaint for breach of
The RTC observed that the petitioner, being negligent, was liable to Sesante pursuant to Articles contract and damages a personal action that does not survive the death of the plaintiff?; (2) Is
1739 and 1759 of the Civil Code; that the petitioner had not established its due diligence in the the petitioner liable for damages under Article 1759 of the Civil Code?; and (3) Is there sufficient
selection and supervision of the vessel crew; that the ship officers had failed to inspect the basis for awarding moral and temperate damages?
stowage of cargoes despite being aware of the storm signal; that the officers and crew of the Ruling of the Court
vessel had not immediately sent a distress signal to the Philippine Coast Guard; that the ship
captain had not called for then "abandon ship" protocol; and that based on the report of the The appeal lacks merit.
Board of Marine Inquiry (BMI), the erroneous maneuvering of the vessel by the captain during
I
the extreme weather condition had been the immediate and proximate cause of the sinking.
An action for breach of contract of carriage
The petitioner sought reconsideration, but the RTC only partly granted its motion by reducing the
temperate damages from ₱500,000.00 to ₱300,000.00.11 survives the death of the plaintiff
Dissatisfied, the petitioner appealed.12 It was pending the appeal in the CA when Sesante The petitioner urges that Sesante's complaint for damages was purely personal and cannot be
passed away. He was substituted by his heirs.13 transferred to his heirs upon his death. Hence, the complaint should be dismissed because the
death of the plaintiff abates a personal action.
Judgment of the CA
The petitioner's urging is unwarranted.
On June 27, 2005, the CA promulgated its assailed decision. It lowered the temperate damages
to ₱120,000.00, which approximated the cost of Sesante's lost personal belongings; and held Section 16, Rule 3 of the Rules of Court lays down the proper procedure in the event of the
that despite the seaworthiness of the vessel, the petitioner remained civilly liable because its death of a litigant, viz.:
officers and crew had been negligent in performing their duties.14
Section 16. Death of party; duty of counsel. - Whenever a party to a pending action dies, and
Sttill aggrieved, Sulpicio Lines moved for reconsideration, but the CA denied the motion.15 the claim is not thereby extinguished, it shall be the duty of his counsel to inform the court
within thirty (30) days after such death of the fact thereof, and to give the name and address of
Hence, this appeal.
his legal representative or representatives. Failure of counsel to comply with his duty shall be a
Issues ground for disciplinary action.
The petitioner attributes the following errors to the CA, to wit: The heirs of the deceased may be allowed to be substituted for the deceased, without
requiring the appointment of an executor or administrator and the court may appoint a guardian
I ad litem for the minor heirs.
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF MORAL DAMAGES, AS xxxx
THE INSTANT CASE IS FOR ALLEGED PERSONAL INJURIES PREDICATED ON BREACH
OF CONTRACT OF CARRIAGE, AND THERE BEING NO PROOF OF BAD FAITH ON THE Substitution by the heirs is not a matter of jurisdiction, but a requirement of due process.17 It
PART OF SULPICIO protects the right of due process belonging to any party, that in the event of death the deceased
litigant continues to be protected and properly represented in the suit through the duly appointed
II legal representative of his estate.18
THE ASSAILED DECISION ERRED IN SUSTAINING THE AMOUNT OF MORAL DAMAGES The application of the rule on substitution depends on whether or not the action survives the
AWARDED, THE SAME BEING UNREASONABLE, EXCESSIVE AND UNCONSCIONABLE, death of the litigant. Section 1, Rule 87 of the Rules of Court enumerates the following actions
AND TRANSLATES TO UNJUST ENRICHMENT AGAINST SULPICIO that survive the death of a party, namely: (1) recovery of real or personal property, or an interest
III from the estate; (2) enforcement of liens on the estate; and (3) recovery of damages for an injury
to person or property. On the one hand, Section 5, Rule 86 of the Rules of Court lists the actions
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF TEMPERATE abated by death as including: (1) claims for funeral expenses and those for the last sickness of
DAMAGES AS THE SAME CANNOT SUBSTITUTE FOR A FAILED CLAIM FOR ACTUAL the decedent; (2) judgments for money; and (3) all claims for money against the deceased,
DAMAGES, THERE BEING NO COMPETENT PROOF TO WARRANT SAID AWARD arising from contract, express or implied.
IV A contract of carriage generates a relation attended with public duty, neglect or malfeasance of
THE AWARD OF TEMPERATE DAMAGES IS UNTENABLE AS THE REQUISITE NOTICE the carrier's employees and gives ground for an action for damages.19 Sesante's claim against
UNDER THE LAW WAS NOT GIVEN TO SULPICIO IN ORDER TO HOLD IT LIABLE FOR THE the petitioner involved his personal injury caused by the breach of the contract of carriage.
ALLEGED LOSS OF SESANTE'S PERSONAL BELONGINGS Pursuant to the aforecited rules, the complaint survived his death, and could be continued by his
heirs following the rule on substitution.
V
II
THE ASSAILED DECISION ERRED IN SUBSTITUTING THE HEIRS OF RESPONDENT
SESANTE IN THE INST ANT CASE, THE SAME BEING A PERSONAL ACTION WHICH DOES The petitioner is liable for

NOT SURVIVE breach of contract of carriage

VI The petitioner submits that an action for damages based on breach of contract of carriage under
Article 1759 of the Civil Code should be read in conjunction with Article 2201 of the same code;
that although Article 1759 only provides for a presumption of negligence, it does not envision
automatic liability; and that it was not guilty of bad faith considering that the sinking of M/V failure to act, the whole occurrence is then humanized and removed from the rules
Princess of the Orient had been due to a fortuitous event, an exempting circumstance under applicable to the acts of God.29 (bold underscoring supplied for emphasis)
Article 1174 of the Civil Code.
The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on
The submission has no substance. the seaworthiness of M/V Princess of the Orient.1âwphi1 Yet, the findings of the BMI directly
contradicted the petitioner's attribution, as follows:
Article 1759 of the Civil Code does not establish a presumption of negligence because it
explicitly makes the common carrier liable in the event of death or injury to passengers due to 7. The Immediate and the Proximate Cause of the Sinking
the negligence or fault of the common carrier's employees. It reads:
The Captain's erroneous maneuvers of the MIV Princess of the Orient minutes before she sunk
Article 1759. Common carriers are liable for the death or injuries to passengers through [sic] had caused the accident. It should be noted that during the first two hours when the ship left
the negligence or willful acts of the former's employees, although such employees may North Harbor, she was navigating smoothly towards Limbones Point. During the same period,
have acted beyond the scope of their authority or in violation of the orders of the common the ship was only subjected to the normal weather stress prevailing at the time. She was then
earners. inside Manila Bar. The waves were observed to be relatively small to endanger the safety of the
ship. It was only when the MV Princess of the Orient had cleared Limbones Pt. while navigating
This liability of the common carriers does not cease upon proof that they exercised all the towards the direction of the Fortune Island when this agonizing misfortune struck the ship.
diligence of a good father of a family in the selection and supervision of their employees.
Initially, a list of three degrees was observed. The listing of the ship to her portside had
The liability of common carriers under Article 1759 is demanded by the duty of extraordinary continuously increased. It was at this point that the captain had misjudged the situation. While
diligence required of common carriers in safely carrying their passengers.20 the ship continuously listed to her portside and was battered by big waves, strong southwesterly
On the other hand, Article 1756 of the Civil Code lays down the presumption of negligence winds, prudent judgement [sic] would dictate that the Captain should have considerably reduced
against the common carrier in the event of death or injury of its passenger, viz.: the ship's speed. He could have immediately ordered the Chief Engineer to slacken down the
speed. Meanwhile, the winds and waves continuously hit the ship on her starboard side. The
Article 1756. In case of death of or injuries to passengers, common carriers are presumed to waves were at least seven to eight meters in height and the wind velocity was a[t] 25 knots.
have been at fault or to have acted negligently, unless they prove that they observed The MV Princess of the Orient being a close-type ship (seven decks, wide and high
extraordinary diligence as prescribed in Articles 1733 and 1755. superstructure) was vulnerable and exposed to the howling winds and ravaging seas. Because
Clearly, the trial court is not required to make an express finding of the common carrier's fault or of the excessive movement, the solid and liquid cargo below the decks must have shifted its
negligence.21 Even the mere proof of injury relieves the passengers from establishing the fault or weight to port, which could have contributed to the tilted position of the ship.
negligence of the carrier or its employees.22 The presumption of negligence applies so long as Minutes later, the Captain finally ordered to reduce the speed of the ship to 14 knots. At the
there is evidence showing that: (a) a contract exists between the passenger and the common same time, he ordered to put ballast water to the starboard-heeling tank to arrest the continuous
carrier; and (b) the injury or death took place during the existence of such contract.23 In such listing of the ship. This was an exercise in futility because the ship was already listing between
event, the burden shifts to the common carrier to prove its observance of extraordinary diligence, 15 to 20 degrees to her portside. The ship had almost reached the maximum angle of her loll. At
and that an unforeseen event or force majeure had caused the injury.24 this stage, she was about to lose her stability.
Sesante sustained injuries due to the buffeting by the waves and consequent sinking of M/V Despite this critical situation, the Captain executed several starboard maneuvers. Steering the
Princess of the Orient where he was a passenger. To exculpate itself from liability, the common course of the Princess to starboard had greatly added to her tilting. In the open seas, with a fast
carrier vouched for the seaworthiness of M/V Princess of the Orient, and referred to the BMI speed of 14 knots, advance maneuvers such as this would tend to bring the body of the ship in
report to the effect that the severe weather condition - a force majeure – had brought about the the opposite side. In navigational terms, this movement is described as the centripetal force.
sinking of the vessel. This force is produced by the water acting on the side of the ship away from the center of the
The petitioner was directly liable to Sesante and his heirs. turn. The force is considered to act at the center of lateral resistance which, in this case, is the
centroid of the underwater area of the ship's side away from the center of the turn. In the case of
A common carrier may be relieved of any liability arising from a fortuitous event pursuant to the Princess, when the Captain maneuvered her to starboard, her body shifted its weight to port.
Article 117425 of the Civil Code. But while it may free a common carrier from liability, the Being already inclined to an angle of 15 degrees, coupled with the instantaneous movement of
provision still requires exclusion of human agency from the cause of injury or loss.26 Else stated, the ship, the cargoes below deck could have completely shifted its position and weight towards
for a common carrier to be absolved from liability in case of force majeure, it is not enough that portside. By this time, the ship being ravaged simultaneously by ravaging waves and howling
the accident was caused by a fortuitous event. The common carrier must still prove that it did not winds on her starboard side, finally lost her grip.30
contribute to the occurrence of the incident due to its own or its employees' negligence.27 We
explained in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,28 as follows: Even assuming the seaworthiness of the M/VPrincess of the Orient, the petitioner could not
escape liability considering that, as borne out by the aforequoted findings of the BMI, the
In order to be considered a fortuitous event, however, (1) the cause of the unforeseen and immediate and proximate cause of the sinking of the vessel had been the gross negligence of its
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be captain in maneuvering the vessel.
independent of human will; (2) it must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must The Court also notes that Metro Manila was experiencing Storm Signal No. 1 during the time of
be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4) the the sinking.31 The BMI observed that a vessel like the M/V Princess of the Orient, which had a
obligor must be free from any participation in the aggravation of the injury resulting to the volume of 13.734 gross tons, should have been capable of withstanding a Storm Signal No. I
creditor. considering that the responding fishing boats of less than 500 gross tons had been able to
weather through the same waves and winds to go to the succor of the sinking vessel and had
[T]he principle embodied in the act of God doctrine strictly requires that the act must be actually rescued several of the latter's distressed passengers.32
occasioned solely by the violence of nature. Human intervention is to be excluded from
creating or entering into the cause of the mischief. When the effect is found to be in part III
the result of the participation of man, whether due to his active intervention or neglect or The award of moral damages and

temperate damages is proper
The petitioner argues that moral damages could be meted against a common carrier only in the mind that moral damages are not intended to impose a penalty on the wrongdoer, or to enrich
following instances, to wit: (1) in the situations enumerated by Article 2201 of the Civil Code; (2) the plaintiff at the expense of the defendant.37 The amount of the moral damages must always
in cases of the death of a passenger; or (3)where there was bad faith on the part of the common reasonably approximate the extent of injury and be proportional to the wrong committed.38
carrier. It contends that none of these instances obtained herein; hence, the award should be
The Court recognizes the mental anguish, agony and pain suffered by Sesante who fought to
deleted.
survive in the midst of the raging waves of the sea while facing the immediate prospect of losing
We agree with the petitioner that moral damages may be recovered in an action upon breach of his life. His claim for moral and economic vindication is a bitter remnant of that most infamous
contract of carriage only when: (a) death of a passenger results, or (b) it is proved that the tragedy that left hundreds of families broken in its wake. The anguish and moral sufferings he
carrier was guilty of fraud and bad faith, even if death does not result.33 However, moral sustained after surviving the tragedy would always include the memory of facing the prospect of
damages may be awarded if the contractual breach is found to be wanton and deliberately his death from drowning, or dehydration, or being preyed upon by sharks. Based on the
injurious, or if the one responsible acted fraudulently or with malice or bad faith.34 established circumstances, his survival could only have been a miracle wrought by God's grace,
by which he was guided in his desperate swim for the safety of the shore. But even with the
The CA enumerated the negligent acts committed by the officers and crew of M/V Princess of glory of survival, he still had to grapple with not just the memory of having come face to face with
the Orient, viz.: almost certain death, but also with having to answer to the instinctive guilt for the rest of his days
x x x. [W]hile this Court yields to the findings of the said investigation report, yet it should be of being chosen to live among the many who perished in the tragedy.39
observed that what was complied with by Sulpicio Lines were only the basic and minimal safety While the anguish, anxiety, pain and stress experienced by Sesante during and after the sinking
standards which would qualify the vessel as seaworthy. In the same report however it also cannot be quantified, the moral damages to be awarded should at least approximate the
revealed that the immediate and proximate cause of the sinking of the M/V Princess of the reparation of all the consequences of the petitioner's negligence. With moral damages being
Orient was brought by the following: erroneous maneuvering command of Captain Esrum meant to enable the injured party to obtain the means, diversions or amusements in order to
Mahilum and due to the weather condition prevailing at the time of the tragedy. There is no doubt alleviate his moral and physical sufferings,40 the Court is called upon to ensure that proper
that under the circumstances the crew of the vessel were negligent in manning it. In fact this was recompense be allowed to him, through his heirs. For this purpose, the amount of ₱l,000,000.00,
clearly established by the investigation of the Board of Marine Inquiry where it was found that: as granted by the RTC and affirmed by the CA, is maintained.
The Chief Mate, when interviewed under oath, had attested that he was not able to make The petitioner contends that its liability for the loss of Sesante' s personal belongings should
stability calculation of the ship vis-à-vis her cargo. He did not even know the metacentric height conform with A1iicle 1754, in relation to Articles 1998, 2000 to 2003 of the Civil Code, which
(GM) of the ship whether it be positive or negative. provide:
As cargo officer of the ship, he failed to prepare a detailed report of the ship's cargo stowage Article 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage
plan. which is not in his personal custody or in that of his employees. As to other baggage, the rules in
He likewise failed to conduct the soundings (measurement) of the ballast tanks before the ship Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be
departed from port. He readily presumed that the ship was full of ballast since the ship was fully applicable.
ballasted when she left Cebu for Manila on 16 September 1998 and had never discharge[d] its xxxx
contents since that time.
Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as
Being the officer-in-charge for emergency situation (sic) like this, he failed to execute and necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided
supervise the actual abandonship (sic) procedure. There was no announcement at the public that notice was given to them, or to their employees, of the effects brought by the guests and
address system of abandonship (sic), no orderly distribution of life jackets and no orderly that, on the part of the latter, they take the precautions which said hotel-keepers or their
launching of life rafts. The witnesses have confirmed this finding on their sworn statements. substitutes advised relative to the care and vigilance of their effects.
There was miscalculation in judgment on the part of the Captain when he erroneously navigated xxxx
the ship at her last crucial moment.x x x
Article 2000. The responsibility referred to in the two preceding articles shall include the loss of,
To aggravate his case, the Captain, having full command and responsibility of the MV Princess or injury to the personal property of the guests caused by the servants or employees of the
of the Orient, had failed to ensure the proper execution of the actual abandoning of the ship. keepers of hotels or inns as well as by strangers; but not that which may proceed from any force
The deck and engine officers (Second Mate, Third Mate, Chief Engineers, Second Engineer, majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the
Third Engineer and Fourth Engineer), being in charge of their respective abandonship (sic) post, hotel or inn shall be considered in determining the degree of care required of him.
failed to supervise the crew and passengers in the proper execution of abandonship (sic) Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force
procedure. majeure, unless it is done with the use of arms or through an irresistible force.
The Radio Officer (spark) failed to send the SOS message in the internationally accepted Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the
communication network (VHF Channel 16). Instead, he used the Single Side Band (SSB) radio guest, his family, servants or visitors, or if the loss arises from the character of the things brought
in informing the company about the emergency situation. x x x x35 into the hotel.
The aforestated negligent acts of the officers and crew of M/V Princess of the Orient could not Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the
be ignored in view of the extraordinary duty of the common carrier to ensure the safety of the effect that he is not liable for the articles brought by the guest. Any stipulation to the contrary
passengers. The totality of the negligence by the officers and crew of M/V Princess of the Orient, between the hotel-keeper and the guest whereby the responsibility of the former as set forth in
coupled with the seeming indifference of the petitioner to render assistance to Sesante,
36 warranted the award of moral damages. Articles 1998 to 2001 is suppressed or diminished shall be void.
The petitioner denies liability because Sesante' s belongings had remained in his custody all
While there is no hard-and-fast rule in determining what is a fair and reasonable amount of moral throughout the voyage until the sinking, and he had not notified the petitioner or its employees
damages, the discretion to make the determination is lodged in the trial court with the limitation about such belongings. Hence, absent such notice, liability did not attach to the petitioner.
that the amount should not be palpably and scandalously excessive. The trial court then bears in
Is notification required before the common carrier becomes liable for lost belongings that x x x. It is argued that this Court is without jurisdiction to adjudicate this exemplary
remained in the custody of the passenger? damages since there was no allegation nor prayer, nor proof, nor counterclaim of error
for the same by the appellees. It is to be observed however, that in the complaint,
We answer in the negative. plaintiffs "prayed for such other and further relief as this Court may deem just and
The rule that the common carrier is always responsible for the passenger's baggage during the equitable." Now, since the body of the complaint sought to recover damages against the
voyage needs to be emphasized. Article 1754 of the Civil Code does not exempt the common defendant-carrier wherein plaintiffs prayed for indemnification for the damages they
carrier from liability in case of loss, but only highlights the degree of care required of it depending suffered as a result of the negligence of said Silverio Marchan who is appellant's
on who has the custody of the belongings. Hence, the law requires the common carrier to employee; and since exemplary damages is intimately connected with general damages,
observe the same diligence as the hotel keepers in case the baggage remains with the plaintiffs may not be expected to single out by express term the kind of damages they arc
passenger; otherwise, extraordinary diligence must be exercised.41 Furthermore, the liability of trying to recover against the defendant's carrier. Suffice it to state that when plaintiffs
the common carrier attaches even if the loss or damage to the belongings resulted from the acts prayed in their complaint for such other relief and remedies that may be availed of under
of the common carrier's employees, the only exception being where such loss or damages is the premises, in effect, therefore, the court is called upon to exercise and use its
due to force majeure.42 discretion whether the imposition of punitive or exemplary damages even though not
expressly prayed or pleaded in the plaintiffs' complaint."
In YHT Realty Corporation v. Court of Appeals,43we declared the actual delivery of the goods to
the innkeepers or their employees as unnecessary before liability could attach to the x x x It further appears that the amount of exemplary damages need not be proved,
hotelkeepers in the event of loss of personal belongings of their guests considering that the because its determination depends upon the amount of compensatory damages that may
personal effects were inside the hotel or inn because the hotelkeeper shall remain accountable. be awarded to the claimant. If the amount of exemplary damages need not be proved, it
44 Accordingly, actual notification was not necessary to render the petitioner as the common need not also be alleged, and the reason is obvious because it is merely incidental or
carrier liable for the lost personal belongings of Sesante. By allowing him to board the vessel dependent upon what the court may award as compensatory damages. Unless and until
with his belongings without any protest, the petitioner became sufficiently notified of such this premise is determined and established, what may be claimed as exemplary damages
belongings. So long as the belongings were brought inside the premises of the vessel, the would amount to a mere surmise or speculation. It follows as a necessary consequence
petitioner was thereby effectively notified and consequently duty-bound to observe the required that the amount of exemplary damages need not be pleaded in the complaint because the
diligence in ensuring the safety of the belongings during the voyage. Applying Article 2000 of same cannot be predetermined. One can merely ask that it be determined by the court if
the Civil Code, the petitioner assumed the liability for loss of the belongings caused by the in the use of its discretion the same is warranted by the evidence, and this is just what
negligence of its officers or crew. In view of our finding that the negligence of the officers and appellee has done. (Bold underscoring supplied for emphasis)
crew of the petitioner was the immediate and proximate cause of the sinking of the M/V Princess And, secondly, exemplary damages are designed by our civil law to "permit the courts to
of the Orient, its liability for Sesante' s lost personal belongings was beyond question. reshape behavior that is socially deleterious in its consequence by creating negative incentives
The petitioner claims that temperate damages were erroneously awarded because Sesante had or deterrents against such behavior. "51 The nature and purpose for this kind of damages have
not proved pecuniary loss; and that the CA merely relied on his self-serving testimony. been well-stated in People v. Dalisay,52to wit:
The award of temperate damages was proper. Also known as 'punitive' or 'vindictive' damages, exemplary or corrective damages are
intended to serve as a deterrent to serious wrong doings, and as a vindication of undue
Temperate damages may be recovered when some pecuniary loss has been suffered but the sufferings and wanton invasion of the rights of an injured or a punishment for those
amount cannot, from the nature of the case, be proven with certainty.45 Article 222446 of the Civil guilty of outrageous conduct. These terms are generally, but not always, used
Code expressly authorizes the courts to award temperate damages despite the lack of certain interchangeably. In common law, there is preference in the use of exemplary damages when the
proof of actual damages.47 award is to account for injury to feelings and for the sense of indignity and humiliation suffered
Indubitably, Sesante suffered some pecuniary loss from the sinking of the vessel, but the value by a person as a result of an injury that has been maliciously and wantonly inflicted, the theory
of the loss could not be established with certainty. The CA, which can try facts and appreciate being that there should be compensation for the hurt caused by the highly reprehensible conduct
evidence, pegged the value of the lost belongings as itemized in the police report at of the defendant - associated with such circumstances as willfulness, wantonness, malice, gross
P120,000.00. The valuation approximated the costs of the lost belongings. In that context, the negligence or recklessness, oppression, insult or fraud or gross fraud - that intensifies the injury.
valuation of ₱120,000.00 is correct, but to be regarded as temperate damages. The terms punitive or vindictive damages are often used to refer to those species of damages
that may be awarded against a person to punish him for his outrageous conduct. In either case,
In fine, the petitioner, as a common carrier, was required to observe extraordinary diligence in these damages arc intended in good measure to deter the wrongdoer and others like him
ensuring the safety of its passengers and their personal belongings. It being found herein short from similar conduct in the future. (Bold underscoring supplied for emphasis)
of the required diligence rendered it liable for the resulting injuries and damages sustained by
Sesante as one of its passengers. The BMI found that the "erroneous maneuvers" during the ill-fated voyage by the captain of the
petitioner's vessel had caused the sinking. After the vessel had cleared Limbones Point while
Should the petitioner be further held liable for exemplary damages? navigating towards the direction of Fortune Island, the captain already noticed the listing of the
In contracts and quasi-contracts, the Court has the discretion to award exemplary damages if vessel by three degrees to the portside of the vessel, but, according to the BMI, he did not
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. exercise prudence as required by the situation in which his vessel was suffering the battering on
48 Indeed, exemplary damages cannot be recovered as a matter of right, and it is left to the court the starboard side by big waves of seven to eight meters high and strong southwesterly winds of
to decide whether or not to award them.49 In consideration of these legal premises for the 25 knots. The BMI pointed out that he should have considerably reduced the speed of the vessel
exercise of the judicial discretion to grant or deny exemplary damages in contracts and quasi- based on his experience about the vessel - a close-type ship of seven decks, and of a wide and
contracts against a defendant who acted in a wanton, fraudulent, reckless, oppressive, or high superstructure - being vulnerable if exposed to strong winds and high waves. He ought to
malevolent manner, the Court hereby awards exemplary damages to Sesante. have also known that maintaining a high speed under such circumstances would have shifted
the solid and liquid cargo of the vessel to port, worsening the tilted position of the vessel. It was
First of all, exemplary damages did not have to be specifically pleaded or proved, because the only after a few minutes thereafter that he finally ordered the speed to go down to 14 knots, and
courts had the discretion to award them for as long as the evidence so warranted. In Marchan v. to put ballast water to the starboard-heeling tank to arrest the continuous listing at portside. By
Mendoza,50 the Court has relevantly discoursed: then, his moves became an exercise in futility because, according to the BMI, the vessel was
already listing to her portside between 15 to 20 degrees, which was almost the maximum angle
of the vessel's loll. It then became inevitable for the vessel to lose her stability.
The BMI concluded that the captain had executed several starboard maneuvers despite the
critical situation of the vessel, and that the maneuvers had greatly added to the tilting of the
vessel. It observed:
x x x In the open seas, with a fast speed of 14 knots, advance maneuvers such as this
would tend to bring the body of the ship in the opposite side. In navigational terms, this
movement is described as the centripetal force. This force is produced by the water
acting on the side of the ship away from the center of the turn. The force is considered to
act at the center of lateral resistance which, in this case, is the centroid of the underwater
area of the ship's side away from the center of the turn. In the case of the Princess, when
the Captain maneuvered her to starboard, her body shifted its weight to port. Being
already inclined to an angle of 15 degrees, coupled with the instantaneous movement of
the ship, the cargoes below deck could have completely shifted its position and weight
towards portside. By this time, the ship being ravaged simultaneously by ravaging waves
and howling winds on her starboard side, finally lost her grip.53
C l e a r l y, t h e p e t i t i o n e r a n d i t s a g e n t s o n t h e s c e n e a c t e d w a n t o n l y a n d
recklessly. Wanton and reckless are virtually synonymous in meaning as respects liability for
conduct towards others.54 Wanton means characterized by extreme recklessness and utter
disregard for the rights of others; or marked by or manifesting arrogant recklessness of justice or
of rights or feelings of others.55 Conduct is reckless when it is an extreme departure from
ordinary care, in a situation in which a high degree of danger is apparent. It must be more than
any mere mistake resulting from inexperience, excitement, or confusion, and more than mere
thoughtlessness or inadvertence, or simple inattention.56
The actuations of the petitioner and its agents during the incident attending the unfortunate
sinking of the M/V Princess of the Orient were far below the standard of care and circumspection
that the law on common carriers demanded. Accordingly, we hereby fix the sum of ₱l ,
000,000.00 in order to serve fully the objective of exemplarity among those engaged in the
business of transporting passengers and cargo by sea. The amount would not be excessive, but
proper. As the Court put it in Pereria v. Zarate:57
Anent the ₱1,000,000.00 allowed as exemplary damages, we should not reduce the amount if
only to render effective the desired example for the public good. As a common carrier, the
Pereñas needed to be vigorously reminded to observe their duty to exercise extraordinary
diligence to prevent a similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others similarly situated
like them the ever-present need for greater and constant vigilance in the conduct of a business
imbued with public interest.58 (Bold underscoring supplied for emphasis)
WHEREFORE, the Court AFFIRMS the decision promulgated on June 27, 2005 with
the MODIFICATIONS that: (a) the amount of moral damages is fixed at ₱l,000,000.00; (b) the
amount of ₱l,000,000.00 is granted as exemplary damages; and (c) the sum of ₱l20,000.00 is
allowed as temperate damages, all to be paid to the heirs of the late Napoleon Sesante. In
addition, all the amounts hereby awarded shall earn interest of 6% per annum from the finality of
this decision until fully paid. Costs of suit to be paid by the petitioner.
SO ORDERED.
G.R. No. 183794, June 13, 2016 agreement had become inoperative, because respondent's closure constituted force majeure.
The PDIC likewise invoked the principle of rebus sic stantibus under Article 1267 of Republic Act
SPOUSES JAIME AND MATILDE POON, Petitioners, v. PRIME SAVINGS BANK No. 386 (Civil Code) as alternative legal basis for demanding the refund.

REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS 

STATUTORY LIQUIDATOR, Respondent. Petitioners, however, refused the PDIC's demand.12 They maintained that they were entitled to
DECISION retain the remainder of the advance rentals following paragraph 24 of their Contract.


SERENO, C.J.: Consequently, respondent sued petitioners before the RTC of Naga City for a partial rescission
Before this Court is a Petition for Review on Certiorari1 assailing the Court of Appeals (CA) of contract and/or recovery of a sum of money.
Decision2which affirmed the Decision3 issued by Branch 21, Regional Trial Court (RTC) of Naga
City.
 The RTC Ruling

 

The RTC ordered the partial rescission of the penal clause in the lease contract over the After trial, the RTC ordered the partial rescission of the lease agreement, disposing as
commercial building of Spouses Jaime and Matilde Poon (petitioners). It directed petitioners to follows:ChanRoblesVirtualawlibrary
return to Prime Savings Bank (respondent) the sum of P1,740,000, representing one-half of the WHEREFORE, judgment is hereby entered ordering the partial rescission of the Contract of
unused portion of its advance rentals, in view of the closure of respondent's business upon order Lease dated November 3, 1996 particularly the second paragraph of Par. 24 thereof and
by the Bangko Sentral ng Pilipinas (BSP). directing the defendant-spouses Jaime and Matilde Poon to return or refund to the Plaintiff the
sum of One Million Seven Hundred Forty Thousand Pesos (P1,740,000) representing one-half of
Antecedent Facts the unused portion of the advance rentals.


 

The facts are undisputed.
 Parties' respective claims for damages and attorney's fees are dismissed.


 

Petitioners owned a commercial building in Naga City, which they used for their bakery business. No costs.13chanroblesvirtuallawlibrary
On 3 November 2006, Matilde Poon and respondent executed a 10-year Contract of The trial court ruled that the second clause in paragraph 24 of the Contract was penal in nature,
Lease4 (Contract) over the building for the latter's use as its branch office in Naga City. They and that the clause was a valid contractual agreement.14 Citing Provident Savings Bank v.
agreed to a fixed monthly rental of P60,000, with an advance payment of the rentals for the first CA15 as legal precedent, it ruled that the premature termination of the lease due to the BSP's
100 months in the amount of P6,000,000. As agreed, the advance payment was to be applied closure of respondent's business was actually involuntary. Consequently, it would be iniquitous
immediately, while the rentals for the remaining period of the Contract were to be paid on a for petitioners to forfeit the entire amount of P 3,480,000.16 Invoking its equity jurisdiction under
monthly basis.5chanrobleslaw
 Article 1229 of the Civil Code,17 the trial court limited the forfeiture to only one-half of that

 amount to answer for respondent's unpaid utility bills and E-VAT, as well as petitioner's lost
In addition, paragraph 24 of the Contract provides:ChanRoblesVirtualawlibrary business opportunity from its former bakery business.18chanrobleslaw
24. Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR
shall have the right to terminate the lease without the necessity of serving a court order and to
immediately repossess the leased premises. Thereafter the LESSOR shall open and enter the The CA Ruling
leased premises in the presence of a representative of the LESSEE (or of the proper authorities) 

for the purpose of taking a complete inventory of all furniture, fixtures, equipment and/or other On appeal, the CA affirmed the RTC Decision,19 but had a different rationale for applying Article
materials or property found within the leased premises.
 1229. The appellate court ruled that the closure of respondent's business was not a fortuitous

 event. Unlike Provident Savings Bank,20 the instant case was one in which respondent was
The LESSOR shall thereupon have the right to enter into a new contract with another party. All found to have committed fraudulent acts and transactions. Lacking, therefore, was the first
advanced rentals shall be forfeited in favor of the LESSOR.6chanroblesvirtuallawlibrary requisite of a fortuitous event, i.e, that the cause of the breach of obligation must be independent
of the will of the debtor.21chanrobleslaw

Barely three years later, however, the BSP placed respondent under the receivership of the 

Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary Board Resolution Still, the CA sustained the trial court's interpretation of the proviso on the forfeiture of advance
No. 22,7 which reads:ChanRoblesVirtualawlibrary rentals as a penal clause and the consequent application of Article 1229. The appellate court
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift Banks and Non-Bank found that the forfeiture clause in the Contract was intended to prevent respondent from
Financial Institutions (DTBNBF1), in his memorandum dated January 3, 2000, which report defaulting on the latter's obligation to finish the term of the lease. It further found that respondent
showed that the Prime Savings Bank, Inc. (a) is unable to pay its liabilities as they became due had partially performed that obligation and, therefore, the reduction of the penalty was only
in the ordinary course of business; (b) has insufficient realizable assets as determined by the proper. Similarly, it ruled that the RTC had properly denied petitioners' claims for actual and
Bangko Sentral ng Pilipinas to meet its liabilities; (c) cannot continue in business without moral damages for lack of basis.22chanrobleslaw

involving probable losses to its depositors and creditors; and (d) has wilfully violated cease 

and desist orders under Section 37 that has become final, involving acts or transactions On 10 July 2008,23 the CA denied petitioners' Motion for Reconsideration. Hence, this Petition.
which amount to fraud or a dissipation of the assets of the institution; x x x.8 (Emphasis
supplied) Issues
The BSP eventually ordered respondent's liquidation under Monetary Board Resolution No. 

664.9chanrobleslaw
 The issues to be resolved are whether (1) respondent may be released from its contractual

 obligations to petitioners on grounds of fortuitous event under Article 1174 of the Civil Code and
On 12 May 2000, respondent vacated the leased premises and surrendered them to petitioners. unforeseen event under Article 1267 of the Civil Code; (2) the proviso in the parties' Contract
10Subsequently, the PDIC issued petitioners a demand letter11 asking for the return of the allowing the forfeiture of advance rentals was a penal clause; and (3) the penalty agreed upon
unused advance rental amounting to P3,480,000 on the ground that paragraph 24 of the lease by the parties may be equitably reduced under Article 1229 of the Civil Code.
COURT RULING The theory of rebus sic stantibus in public international law is often cited as the basis of the

 above article. Under this theory, the parties stipulate in light of certain prevailing conditions, and
We DENY the Petition.
 the theory can be made to apply when these conditions cease to exist.35 The Court, however,

 has once cautioned that Article 1267 is not an absolute application of the principle of rebus sic
Preliminarily, we address petitioners' claim that respondent had no cause of action for rescission, stantibus, otherwise, it would endanger the security of contractual relations. After all, parties to a
because this case does not fall under any of the circumstances enumerated in Articles contract are presumed to have assumed the risks of unfavorable developments. It is only in
138124 and 138225cralawred of the Civil Code.
 absolutely exceptional changes of circumstance, therefore, that equity demands assistance for

 the debtor.36chanrobleslaw

The legal remedy of rescission, however, is by no means limited to the situations covered by the 

above provisions. The Civil Code uses rescission in two different contexts, namely: (1) rescission Tagaytay Realty Co., Inc. v. Gacutan37 lays down the requisites for the application of Article
on account of breach of contract under Article 1191; and (2) rescission by reason of lesion or 1267, as follows:

economic prejudice under Article 1381.26 While the term "rescission" is used in Article 1191, 

"resolution" was the original term used in the old Civil Code, on which the article was based. chanRoblesvirtualLawlibrary1. The event or change in circumstance could not have been
Resolution is a principal action based on a breach by a party, while rescission under Article 1383 foreseen at the time of the execution of the contract.

is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil 

Code.27chanrobleslaw
 2. It makes the performance of the contract extremely difficult but not impossible.


 

It is clear from the allegations in paragraphs 12 and 13 of the Complaint28 that respondent's right 3. It must not be due to the act of any of the parties.

of action rested on the alleged abuse by petitioners of their right under paragraph 24 of the 

Contract. Respondent's theory before the trial court was that the tenacious enforcement by 4. The contract is for a future prestation.38chanrobleslaw

petitioners of their right to forfeit the advance rentals was tainted with bad faith, because they 

knew that respondent was already insolvent. In other words, the action instituted by respondent The difficulty of performance should be such that the party seeking to be released from a
was for the rescission of reciprocal obligations under Article 1191. The lower courts, therefore, contractual obligation would be placed at a disadvantage by the unforeseen event. Mere
correctly ruled that Articles 1381 and 1382 were inapposite.
 inconvenience, unexpected impediments, increased expenses,39 or even pecuniary inability to

 fulfil an engagement,40 will not relieve the obligor from an undertaking that it has knowingly and
We now resolve the main issues.
 freely contracted.


 

The closure of respondent's business was neither a fortuitous nor an unforeseen event The law speaks of "service." This term should be understood as referring to the performance of
that rendered the lease agreement functus officio.
 an obligation or a prestation.41 A prestation is the object of the contract; i.e., it is the conduct (to

 give, to do or not to do) required of the parties.42 In a reciprocal contract such as the lease in this
Respondent posits that it should be released from its contract with petitioners, because the case, one obligation of respondent as the lessee was to pay the agreed rents for the whole
closure of its business upon the BSP's order constituted a fortuitous event as the Court held contract period.43 It would be hard-pressed to complete the lease term since it was already out of
in Provident Savings Bank.29chanrobleslaw
 business only three and a half years into the 10-year contract period. Without a doubt, the

 second and the fourth requisites mentioned above are present in this case.

The cited case, however, must always be read in the context of the earlier Decision in Central 

Bank v. Court of Appeals.30 The Court ruled in that case that the Monetary Board had acted The first and the third requisites, however, are lacking. It must be noted that the lease agreement
arbitrarily and in bad faith in ordering the closure of Provident Savings Bank. Accordingly, in the was for 10 years. As shown by the unrebutted testimony of Jaime Poon during trial, the parties
subsequent case of Provident Savings Bank it was held that fuerza mayor had interrupted the had actually considered the possibility of a deterioration or loss of respondent's business within
prescriptive period to file an action for the foreclosure of the subject mortgage.31chanrobleslaw
 that period:ChanRoblesVirtualawlibrary

ATTY. SALES
In contrast, there is no indication or allegation that the BSP's action in this case was tainted with
arbitrariness or bad faith. Instead, its decision to place respondent under receivership and Q. Now to the offer of that real estate broker for possible lease of your property at No. 38
liquidation proceedings was pursuant to Section 30 of Republic Act No. 7653.32 Moreover, General Luna Street, Naga City which was then the Madam Poon Bakery, what did you
respondent was partly accountable for the closure of its banking business. It cannot be said, tell your real estate broker?
then, that the closure of its business was independent of its will as in the case of Provident
Savings Bank. The legal effect is analogous to that created by contributory negligence in quasi-
delict actions.


 WITNESS (JAIME POON)
The period during which the bank cannot do business due to insolvency is not a fortuitous event,
33 unless it is shown that the government's action to place a bank under receivership or A. When Mrs. Lauang approached me, she told me that she has a client who wants to
liquidation proceedings is tainted with arbitrariness, or that the regulatory body has acted without lease a property in Naga City.
jurisdiction.34chanrobleslaw


As an alternative justification for its premature termination of the Contract, respondent lessee
invokes the doctrine of unforeseen event under Article 1267 of the Civil Code, which Q. Did she disclose to you the identity of her client?
provides:ChanRoblesVirtualawlibrary
A. Yes, Sir.
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
Q. What was the name of her client? Q. So what is your answer when you were asked for the amount of the advances?

A. That is the Prime Savings Bank. A. I told her I need 7 million pesos because I need to pay my debts.

Q. After you have known that it was the Prime Savings Bank that [wanted] to lease your xx
property located at No. 38 General Luna St., Naga City, what did you tell Mrs. xx
Lauang[?]

A. I told her that if the price is good, I am willing to give up the place where this bakery of
mine is situated. Q. Who was with her when she came over?

A. A certain guy name Ricci and said that he is the assistant manager of the Prime
Savings Bank.
Q. So, did Mrs. Lauang give you the quotation as to the price?

A. Yes, Sir.
Q. What did you and Mr. Ricci talk about?

A. I told him the same story as I talked with Mrs. Lauang.


Q. What was the amount?

A. She asked first if how much I demand for the price.


Q. Was the agreement finally reached between you and Mr. Ricci?

A. Not yet, Sir.


Q. What did you tell her?

A. I told her, if they can give me P100,000.00 for the rental, I will give up the place.
Q. What happened after that?

A. He said that he [will discuss] the matter with his higher officer, the branch manager in
Q. What do you mean P100,000.00 rental? the person of Henry Lee.

A. That is only for the establishment [concerned].

Q. Were you able to meet this Henry Lee?

Q. What was the period to be covered by the P100,000.00 rental? A. After a week later.

A. That is monthly basis.

Q. Who was with Henry Lee?

Q. So after telling Mrs. Lauang that you can be amenable to lease the place for A. Mrs. Lauang.
P100,000.00 monthly, what if any, did Mrs. Lauang tell you?

A. She told me it is very high. And then she asked me if it is still negotiable, I answered,
yes. Q. Was there a final agreement on the day when you and Henry Lee met?

A. Not yet, he offered to reduce the rental and also the advances. Finally I gave way after
2 or 3 negotiations.
Q. So, what happened after your clarified to her that [it is] still negotiable?

A. She asked me if there is other condition, and I answered her, yes, if your client can give
me advances I can lease my property. Q. What happened after 2 or 3 negotiations?

A. We arrived at P60,000.00 for monthly rentals and P6,000,000.00 advances for 100
months.
xxxx
Q. Was the agreement between you and the representative of the Prime Savings Bank Q. And that is what is found in paragraph 24 of the Contract of Lease which I asked
reduced into writing? you to read?

A. Yes Sir. A. That is true.44


Clearly, the closure of respondent's business was not an unforeseen event. As the lease was
long-term, it was not lost on the parties that such an eventuality might occur, as it was in fact
xx covered by the terms of their Contract. Besides, as We have previously discussed, the event
xx was not independent of respondent's will.


The forfeiture clause in the Contract is penal in nature.


Q. Now, Mr. Poon, I would like to direct your attention to paragraphs 4 and 5 of the Petitioners claim that paragraph 24 was not intended as a penal clause. They add that
contract of lease which I read: Inasmuch as the leased property is presently mortgaged respondent has not even presented any proof of that intent. It was, therefore, a reversible error
with the PCI Bank, the Lessor and the Lessee hereby agree that another property with on the part of the CA to construe its forfeiture provision of the Contract as penal in nature.

a clean title shall serve as security for herein Lessee; Provided that the mortgaged 

property with PCI Bank is cancelled, the Lessee agrees that the above-mentioned It is settled that a provision is a penal clause if it calls for the forfeiture of any remaining deposit
property shall be released to herein Lessor; paragraph 5 says: It is hereby stipulated still in the possession of the lessor, without prejudice to any other obligation still owing, in the
that should the leased property be foreclosed by the PCI Bank or any other banking or event of the termination or cancellation of the agreement by reason of the lessee's violation of
financial institution, all unused rentals shall be returned by the Lessor to the Lessee. any of the terms and conditions thereof. This kind of agreement may be validly entered into by
Now, my question is: Who asked or requested that paragraphs 4 and 5 be incorporated the parties. The clause is an accessory obligation meant to ensure the performance of the
in the contract of lease? principal obligation by imposing on the debtor a special prestation in case of nonperformance or
inadequate performance of the principal obligation.45chanrobleslaw

A. Mr. Lee himself. 

It is evident from the above-quoted testimony of Jaime Poon that the stipulation on the forfeiture
of advance rentals under paragraph 24 is a penal clause in the sense that it provides for
liquidated damages.

Q. The representative of the plaintiff?

A. Yes, Sir. Notably, paragraph 5 of the Contract also provides:ChanRoblesVirtualawlibrary
5. It is hereby stipulated that should the leased property be foreclosed by PCI Bank or any other
banking or financial institution, all unused rentals shall be returned by the LESSOR to the
LESSEE; x x x.46chanroblesvirtuallawlibrary
Q. Q. For what purpose did Mr. Lee ask these matters to be incorporated?
In effect, the penalty for the premature termination of the Contract works both ways. As the CA
A. Because they are worried that my building might be foreclosed because it is correctly found, the penalty was to compel respondent to complete the 10-year term of the lease.
under [mortgage] with the PCI Bank, that is why I gave them protection of a clean Petitioners, too, were similarly obliged to ensure the peaceful use of their building by respondent
title. But I also asked them, what will happen to me, in case your bank will be for the entire duration of the lease under pain of losing the remaining advance rentals paid by
closed? the latter.


The forfeiture clauses of the Contract, therefore, served the two functions of a penal clause, i.e.,
(1) to provide for liquidated damages and (2) to strengthen the coercive force of the obligation by
Q. When you asked that question, what did Mr. Lee tell you? the threat of greater responsibility in case of breach.47 As the CA correctly found, the prestation
secured by those clauses was the parties' mutual obligation to observe the fixed term of the
A. He told me that I don't have to worry I will have P6,000,000 advances. lease. For this reason, We sustain the lower courts' finding that the forfeiture clause in paragraph
24 is a penal clause, even if it is not expressly labelled as such.


A reduction of the penalty agreed upon by the parties is warranted under Article 1129 of
Q. What was your protection as to the 6 million payment made by the plaintiff? the Civil Code.


A. That is the protection for me because during that time I have my bakery and I myself
We have no reason to doubt that the forfeiture provisions of the Contract were deliberately and
[spent] 2 million for the improvement of that bakery and I have sacrificed that for the
intelligently crafted. Under Article 1196 of the Civil Code,48 the period of the lease contract is
sake of the offer of lease.
deemed to have been set for the benefit of both parties. Its continuance, effectivity or fulfillment
cannot be made to depend exclusively upon the free and uncontrolled choice of just one party.
49 Petitioners and respondent freely and knowingly committed themselves to respecting the

Q. In what manner that you are being protected for that 6 million pesos? lease period, such that a breach by either party would result in the forfeiture of the remaining
advance rentals in favor of the aggrieved party.

A. They said that if in case the bank will be closed that advance of 6 million pesos 

will be forfeited in my favor. If this were an ordinary contest of rights of private contracting parties, respondent lessee would
be obligated to abide by its commitment to petitioners. The general rule is that courts have no
power to ease the burden of obligations voluntarily assumed by parties, just because things did
not turn out as expected at the inception of the contract.50chanrobleslaw
 G.R. No. 146942 April 22, 2003

CORAZON G. RUIZ, petitioner, 

It must be noted, however, that this case was initiated by the PDIC in furtherance of its statutory
vs.

role as the fiduciary of Prime Savings Bank.51 As the state-appointed receiver and liquidator, the
COURT OF APPEALS and CONSUELO TORRES, respondents.
PDIC is mandated to recover and conserve the assets of the foreclosed bank on behalf of the
latter's depositors and creditors.52 In other words, at stake in this case are not just the rights of PUNO, J.:
petitioners and the correlative liabilities of respondent lessee. Over and above those rights and
liabilities is the interest of innocent debtors and creditors of a delinquent bank establishment. On appeal is the decision1 of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August
These overriding considerations justify the 50% reduction of the penalty agreed upon by 2000, setting aside the decision2 of the trial court dated 19 May 1997 and lifting the permanent
petitioners and respondent lessee in keeping with Article 1229 of the Civil Code, which injunction on the foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its
provides:ChanRoblesVirtualawlibrary subsequent Resolution3 dated 26 January 2001, denying petitioner’s Motion for Reconsideration.
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been The facts of the case are as follows:
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable. Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4 She
obtained loans from private respondent Consuelo Torres on different occasions, in the following
The reasonableness of a penalty depends on the circumstances in each case, because what is amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5 Prior to their maturity, the
iniquitous and unconscionable in one may be totally just and equitable in another.53 In resolving loans were consolidated under one (1) promissory note dated March 22, 1995, which reads as
this issue, courts may consider factors including but not limited to the type, extent and purpose follows:6
of the penalty; the nature of the obligation; the mode of the breach and its consequences; the
supervening realities; and the standing and relationship of the parties.54chanrobleslaw
 "P750,000.00 Quezon City, March 22,

 1995
Under the circumstances, it is neither fair nor reasonable to deprive depositors and creditors of
what could be their last chance to recoup whatever bank assets or receivables the PDIC can still PROMISSORY NOTE
legally recover. Besides, nothing has prevented petitioners from putting their building to other
profitable uses, since respondent surrendered the premises immediately after the closure of its For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in
business. Strict adherence to the doctrine of freedom of contracts, at the expense of the rights of solidum, jointly and severally promise to pay to the order of CONSUELO P.
innocent creditors and investors, will only work injustice rather than promote justice in this case. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00)
55 Such adherence may even be misconstrued as condoning profligate bank operations. We Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for
cannot allow this to happen. We are a Court of both law and equity; We cannot sanction grossly thirteen months, payable every _____ of the month, and to start on April 1995 and to
unfair results without doing violence to Our solemn obligation to administer justice fairly and mature on April 1996, subject to renewal.
equally to all who might be affected by our decisions.56chanrobleslaw

If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the

principal loan, for every month default, shall be collected.
Neither do We find any error in the trial court's denial of the damages and attorney's fees
claimed by petitioners. No proof of the supposed expenses they have incurred for the Remaining balance as of the maturity date shall earn an interest at the rate of ten
improvement of the leased premises and the payment of respondent's unpaid utility bills can be percent a month, compounded monthly.
found in the records. Actual and compensatory damages must be duly proven with a reasonable
degree of certainty.57chanrobleslaw
 It is finally agreed that the principal and surety in solidum, shall pay attorney’s fees at

 the rate of twenty-five percent (25%) of the entire amount to be collected, in case this
To recover moral and exemplary damages where there is a breach of contract, the breach must note is not paid according to the terms and conditions set forth, and same is referred
be palpably wanton, reckless, malicious, in bad faith, oppressive, or abusive. Attorney's fees are to a lawyer for collection.
not awarded even if a claimant is compelled to litigate or to incur expenses where no sufficient In computing the interest and surcharge, a fraction of the month shall be considered
showing of bad faith exists.58 None of these circumstances have been shown in this case.
 one full month.

Finally, in line with prevailing jurisprudence,59 legal interest at the rate of 6% per annum is In the event of an amicable settlement, the principal and surety in solidum shall
imposed on the monetary award computed from the finality of this Decision until full payment.
 reimburse the expens

 (Sgd.) Corazon Ruiz
 __________________

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Court Principal Surety"
of Appeals Decision dated 29 November 2007 and its Resolution dated 10 July 2008 in CA-G.R.
CV No. 75349 are hereby MODIFIED in that legal interest at the rate of 6% per annum is es of the plaintiff.
imposed on the monetary award computed from the finality of this Decision until full payment.


No costs.
 The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square

 meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title
SO ORDERED. (TCT) No. RT-96686, and registered in the name of petitioner.7 The mortgage was signed by
Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20
March 1995, or two (2) days before the execution of the subject promissory note.8
Thereafter, petitioner obtained three (3) more loans from private respondent, under the following
promissory notes: (1) promissory note dated 21 April 1995, in the amount of P100,000.00;9 (2)
promissory note dated May 23, 1995, in the amount of P100,000.00;10 and (3) promissory note
dated December 21, 1995, in the amount of P100,000.00.11These combined loans of Publication Fees……………. 15,000.00
P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private
respondent.12 Attorney’s Fees …………… 15,000.00
From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the
P750,000.00 loan,13amounting to P270,000.00.14 After March 1996, petitioner was unable to TOTAL…………………… P1,307,000.00
make interest payments as she had difficulties collecting from her clients in her jewelry business.
15 with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00
has been made.27
Due to petitioner’s failure to pay the principal loan of P750,000.00, as well as the interest
payment for April 1996, private respondent demanded payment not only of the P750,000.00 Private respondent’s motion for reconsideration was denied in an Order dated July 21, 1997.
loan, but also of the P300,000.00 loan.16 When petitioner failed to pay, private respondent Private respondent appealed to the Court of Appeals. The appellate court set aside the decision
sought the extra-judicial foreclosure of the aforementioned real estate mortgage.17 of the trial court. It ruled that the real estate mortgage is valid despite the non-participation of
On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff petitioner’s husband in its execution because the land on which it was constituted is paraphernal
In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriff’s property of petitioner-wife. Consequently, she may encumber the lot without the consent of her
Sale of subject lot. The public auction was scheduled on October 8, 1996.18 husband.28 It allowed its foreclosure since the loan it secured was not paid.

On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint Nonetheless, the appellate court declared as invalid the 10% compounded monthly
with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the interest29 and the 10% surcharge per month stipulated in the promissory notes dated May 23,
issuance of a Temporary Restraining Order to enjoin the sheriff from proceeding with the 1995 and December 1, 1995,30 and so too the 1% compounded monthly interest stipulated in the
foreclosure sale and to fix her indebtedness to private respondent to P706,000.00. The promissory note dated 21 April 1995,31 for being excessive, iniquitous, unconscionable, and
computed amount of P706,000.00 was based on the aggregate loan of P750,000.00, covered by contrary to morals. It held that the legal rate of interest of 12% per annum shall apply after the
the March 22, 1995 promissory note, plus the other loans of P300,000.00, covered by separate maturity dates of the notes until full payment of the entire amount due, and that the only
promissory notes, plus interest, minus P571,000.00 representing the amount of jewelry pledged permissible rate of surcharge is 1% per month, without compounding.32 The appellate court also
in favor of private respondent.19 granted attorney’s fees in the amount of P50,000.00, and not the stipulated 25% of the amount
due, following the ruling in the case of Medel v. Court of Appeals.33
The trial court granted the prayer for the issuance of a Temporary Restraining Order,20 and on 29
October 1996, issued a writ of preliminary injunction.21 In its Decision dated May 19, 1997, it Now, before this Court, petitioner assigns the following errors:
ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject
property, and it made permanent the writ of preliminary injunction. It held that the real estate
mortgage is unenforceable because of the lack of the participation and signature of petitioner’s (1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING
husband. It noted that although the subject real estate mortgage stated that petitioner was THAT THE PROMISSORY NOTE OF P750,000.00 IS NOT A CONTRACT OF
"attorney-in-fact for herself and her husband," the Special Power of Attorney was never ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READY-MADE
presented in court during the trial.22 CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID
NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF
The trial court further held that the promissory note in question is a unilateral contract of RESPONDENT AND AGAINST PETITIONER.
adhesion drafted by private respondent. It struck down the contract as repugnant to public policy
because it was imposed by a dominant bargaining party (private respondent) on a weaker party (2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
(petitioner).23 Nevertheless, it held that petitioner still has an obligation to pay the private DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF
respondent. Private respondent was further barred from imposing on petitioner the obligation to MORTGAGE OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF THE
pay the surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER
percent (10%) a month, compounded monthly from September 1996 to January 1997. Petitioner OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED,
was thus ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month, NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT.
or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until the total (3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
amount of P885,000.00 is paid.24 DISREGARDING THE TRIAL COURT’S COMPUTATION OF THE ACTUAL
Aside from the foregoing, the trial court took into account petitioner’s proposal to pay her other OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN
obligations to private respondent in the amount of P392,000.00.25 THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT.

The trial court also recognized the expenses borne by private respondent with regard the The pertinent issues to be resolved are:
foreclosure sale and attorney’s fees. As the notice of the foreclosure sale has already been (1) Whether the promissory note of P750,000.00 is a contract of adhesion;
published, it ordered the petitioner to reimburse private respondent the amount of P15,000.00
plus attorney’s fees of the same amount.26 (2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is
paraphernal property of petitioner; and
Thus, the trial court computed petitioner’s obligation to private respondent, as follows:
(3) Whether the rates of interests and surcharges on the obligation of petitioner to private
Principal Loan ……………. P 750,000.00 respondent are valid.
I
Interest…………………….. 135,000.00
We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines,
Other Loans………………. 392,000.00 Inc. vs. Teves,34this Court discussed the nature of a contract of adhesion as follows:
". . . there are certain contracts almost all the provisions of which have been drafted acquisition during the marriage is a condition sine qua non for the operation of the presumption
only by one party, usually a corporation. Such contracts are called contracts of in favor of conjugal ownership.44 No such proof was offered nor presented in the case at bar.
adhesion, because the only participation of the other party is the signing of his Thus, on the basis alone of the certificate of title, it cannot be presumed that said property was
signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of acquired during the marriage and that it is conjugal property. Since there is no showing as to
sale of lots on the installment plan fall into this category.35 when the property in question was acquired, the fact that the title is in the name of the wife alone
is determinative of its nature as paraphernal, i.e., belonging exclusively to said spouse.45 The
" . . . it is drafted only by one party, usually the corporation, and is sought to be only import of the title is that Corazon is the owner of said property, the same having been
accepted or adhered to by the other party . . . who cannot change the same and who registered in her name alone, and that she is married to Rogelio Ruiz.46
are thus made to adhere hereto on the ‘take it or leave it’ basis . . . "36
III
In said case of Sweet Lines,37 the conditions of the contract on the 4 x 6 inches passenger ticket
are in fine print. Thus we held: We now resolve the issue of whether the rates of interests and surcharges on the obligation of
petitioner to private respondent are legal.
" . . . it is hardly just and proper to expect the passengers to examine their tickets
received from crowded/congested counters, more often than not during rush hours, for The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in
conditions that may be printed thereon, much less charge them with having consented the following amounts and maturity dates:
to the conditions, so printed, especially if there are a number of such conditions in fine
(1) P750,000.00, dated March 22, 1995 matured on April 21, 1996;
print, as in this case."38
(2) P100,000.00, dated April 21, 1995 matured on August 21, 1995;
We further stressed in the said case that the questioned ‘Condition No. 14’ was prepared solely
by one party which was the corporation, and the other party who was then a passenger had no (3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and
say in its preparation. The passengers have no opportunity to examine and consider the terms
and conditions of the contract prior to the purchase of their tickets.39 (4) P100,000.00, dated December 21, 1995 matured on March 1, 1996.

In the case at bar, the promissory note in question did not contain any fine print provision which The P750,000.00 promissory note dated March 22, 1995 has the following provisions:
could not have been examined by the petitioner. Petitioner had all the time to go over and study (1) 3% monthly interest, from the signing of the note until its maturity date;
the stipulations embodied in the promissory note. Aside from the March 22, 1995 promissory
note for P750,000.00, three other promissory notes of different dates and amounts were (2) 10% compounded monthly interest on the remaining balance at maturity date;
executed by petitioner in favor of private respondent. These promissory notes contain similar (3) 1% surcharge on the principal loan for every month of default; and
terms and conditions, with a little variance in the terms of interests and surcharges. The fact that
petitioner and private respondent had entered into not only one but several loan transactions (4) 25% attorney’s fees.
shows that petitioner was not in any way compelled to accept the terms allegedly imposed by The P100,000.00 promissory note dated April 21, 1995 has the following provisions:
private respondent. Moreover, petitioner, in her complaint40 dated October 7, 1996 filed with the
trial court, never claimed that she was forced to sign the subject note. Paragraph five of her (1) 3% monthly interest, from the signing of the note until its maturity date;
complaint states:
(2) 10% monthly interest on the remaining balance at maturity date;
"That on or about March 22, 1995 plaintiff was required by the defendant Torres to
(3) 1% compounded monthly surcharge on the principal loan for every month of
execute a promissory note consolidating her unpaid principal loan and interests which
default; and
said defendant computed to be in the sum of P750,000.00 . . ."
(4) 10% attorney’s fees.
To be required is certainly different from being compelled. She could have rejected the
conditions made by private respondent. As an experienced business- woman, she ought to The two (2) other P100,000.00 promissory notes dated May 23, 1995 and December 1, 1995
understand all the conditions set forth in the subject promissory note. As held by this Court in have the following provisions:
Lee, et al. vs. Court of Appeals, et al.,41 it is presumed that a person takes ordinary care of his
concerns.42 Hence, the natural presumption is that one does not sign a document without first (1) 3% monthly interest, from the signing of the note until its maturity date;
informing himself of its contents and consequences. This presumption acquires greater force in (2) 10% compounded monthly interest on the remaining balance at maturity date;
the case at bar where not only one but several documents were executed at different times by
petitioner in favor of private respondent. (3) 10% surcharge on the principal loan for every month of default; and

II (4) 10% attorney’s fees.

We also affirm the ruling of the appellate court that the real property covered by the subject deed We affirm the ruling of the appellate court, striking down as invalid the 10% compounded
of mortgage is paraphernal property. The property subject of the mortgage is registered in the monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23,
name of "Corazon G. Ruiz, of legal age, married to Rogelio Ruiz, Filipinos." Thus, title is 1995 and December 1, 1995, and the 1% compounded monthly interest stipulated in the
registered in the name of Corazon alone because the phrase "married to Rogelio Ruiz" is merely promissory note dated April 21, 1995. The legal rate of interest of 12% per annum shall apply
descriptive of the civil status of Corazon and should not be construed to mean that her husband after the maturity dates of the notes until full payment of the entire amount due. Also, the only
is also a registered owner. Furthermore, registration of the property in the name of "Corazon G. permissible rate of surcharge is 1% per month, without compounding. We also uphold the award
Ruiz, of legal age, married to Rogelio Ruiz" is not proof that such property was acquired during of the appellate court of attorney’s fees, the amount of which having been reasonably reduced
the marriage, and thus, is presumed to be conjugal. The property could have been acquired by from the stipulated 25% (in the March 22, 1995 promissory note) and 10% (in the other three
Corazon while she was still single, and registered only after her marriage to Rogelio Ruiz. promissory notes) of the entire amount due, to a fixed amount of P50,000.00. However, we
Acquisition of title and registration thereof are two different acts.43 The presumption under Article equitably reduce the 3% per month or 36% per annum interest present in all four (4) promissory
116 of the Family Code that properties acquired during the marriage are presumed to be notes to 1% per month or 12% per annum interest.
conjugal cannot apply in the instant case. Before such presumption can apply, it must first be
established that the property was in fact acquired during the marriage. In other words, proof of
The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals,
47 Garcia vs. Court of Appeals,48 Bautista vs. Pilar Development Corporation,49 and the recent 4. Principal of loan under promissory note dated December 1, P100,000.00
1995
case of Spouses Solangon vs. Salazar.50This Court invalidated a stipulated 5.5% per month or
66% per annum interest on a P500,000.00 loan in Medel51and a 6% per month or 72% per a. 1% interest per month on principal from December 1,
annum interest on a P60,000.00 loan in Solangon52 for being excessive, iniquitous, 1995 until fully paid
unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum.
We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. b. 1% surcharge per month on principal from April 1996 until
1982, effective on January 1, 1983, and parties to a loan agreement have been given wide fully paid
latitude to agree on any interest rate, still stipulated interest rates are illegal if they are
unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise 5. Attorney’s fees P 50,000.00
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.53 On the other hand, in Bautista vs. Pilar Development Corp.,54 this Court upheld the Hence, since the mortgage is valid and the loan it secures remains unpaid, the foreclosure
validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, proceedings may now proceed.
sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. It
is on the basis of these cases that we reduce the 36% per annum interest to 12%. An interest of IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subject to
12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per
higher interest rate of 66% per annum in Medel55 and 72% in Solangon56 it has sustained the annum.
validity of a much lower interest rate of 21% in Bautista57 and 24% in Garcia.58 We still find the SO ORDERED.
36% per annum interest rate in the case at bar to be substantially greater than those upheld by
this Court in the two (2) aforecited cases. a

The 1% surcharge on the principal loan for every month of default is valid. This surcharge or
penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated
damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest
payment.59 Also referred to as a penalty clause, it is expressly recognized by law. It is an
accessory undertaking to assume greater liability on the part of an obligor in case of breach of
an obligation.60 The obligor would then be bound to pay the stipulated amount of indemnity
without the necessity of proof on the existence and on the measure of damages caused by the
breach.61 Although the courts may not at liberty ignore the freedom of the parties to agree on
such terms and conditions as they see fit that contravene neither law nor morals, good customs,
public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced if it is
iniquitous or unconscionable.62 In the instant case, the 10% surcharge per month stipulated in
the promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by the
appellate court.
In sum, petitioner shall pay private respondent the following:

1. Principal of loan under promissory note dated March 22, 1995 P750,000.00

a. 1% interest per month on principal from March 22, 1995


until fully paid, less P270,000.00 paid by petitioner as
interest from April 1995 to March 1996

b. 1% surcharge per month on principal from May 1996 until


fully paid

2. Principal of loan under promissory note dated April 21, 1995 P100,000.00

a. 1% interest per month on principal from April 21, 1995


until fully paid

b. 1% surcharge per month on principal from September


1995 until fully paid

3. Principal of loan under promissory note dated May 23, 1995 P100,000.00

a. 1% interest per month on principal from May 23, 1995


until fully paid

b. 1% surcharge per month on principal from December


1995 until fully paid